Dutch Bros Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual filing; it does not provide a clear standalone Q4 income statement or cash-flow set. The 2021 results consolidate Dutch Bros Inc. and Dutch Bros OpCo; 2020 comparative results are those of OpCo and its subsidiaries, the accounting predecessor. Dutch Bros completed its IPO in September 2021.
Business context
Dutch Bros operates and franchises drive-thru beverage shops. At year-end, it had 538 shops across 12 states: 271 company-operated and 267 franchised. During 2021, it opened 82 company-operated shops and franchise partners opened 16. Management is shifting growth toward company-operated shops while existing franchise partners continue to develop their markets.
Financial highlights
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $497.9 million | $327.4 million |
| Operating income (loss) | $(113.3) million | $10.7 million |
| Net income (loss) | $(120.0) million | $5.7 million |
| Net loss attributable to Dutch Bros Inc. | $(12.9) million | Not applicable to the pre-IPO periods presented |
| Operating cash flow | $80.4 million | $53.5 million |
| Cash and cash equivalents at year-end | $18.5 million | $31.6 million |
| Adjusted EBITDA (non-GAAP) | $82.1 million | $69.8 million |
- Revenue rose 52.1%, driven primarily by growth in company-operated shops. Company-operated revenue increased 65.1% to $403.7 million; franchising and other revenue increased 13.5% to $94.1 million.
- Company-operated shop gross margin fell to 21.1% from 24.7%; shop contribution margin, a non-GAAP measure, fell to 25.1% from 28.7%. Management cited prior-year loyalty-program discount effects, higher ingredient costs and product mix, and costs of accelerated expansion.
- Same-shop sales growth was 8.4% systemwide and 9.0% for company-operated shops. Average unit volume was approximately $1.85 million systemwide and $1.75 million for company-operated shops.
- The $120.0 million GAAP net loss included $157.7 million of equity-based compensation, largely associated with IPO-related awards and the reorganization. Adjusted EBITDA excludes equity compensation and other specified items; it is not a GAAP measure.
- Investing cash outflow was $121.1 million, including $118.4 million of property and equipment purchases. Financing cash flow was $27.6 million, including IPO proceeds and debt activity.
- At December 31, 2021, the company reported $65.0 million outstanding on its revolving facility, with $85.0 million available; no term loans were outstanding under that facility. Capital lease obligations were $83.0 million on the balance sheet. The balance sheet also included a $109.7 million tax receivable agreement (TRA) liability.
Changes, outlook and notable items
- Revenue grew from $327.4 million in 2020, while net income of $5.7 million shifted to a $120.0 million net loss. The increase in equity-based compensation was a major factor in the reported loss; operating costs and expansion also increased.
- Operating cash flow improved, but year-end cash declined by $13.1 million, reflecting elevated investment and other cash uses. Management said available cash, operating cash flow and credit facilities were expected to cover debt service, leases and working capital for at least 12 months.
- Management estimated 2022 capital expenditures of approximately $175 million to $200 million, principally for new and existing shops, supply chain and corporate facilities. It identified a long-term potential of at least 4,000 U.S. locations and said the identified site pipeline exceeded planned company-operated openings for 2022 and 2023; these are plans and estimates, not guarantees.
- The company planned a second Midwest roasting facility, estimated to cost $15 million to $20 million and expected to be operational in 2023. It also reported supply-chain delays and noted exposure to coffee, dairy, labor, construction and other inflationary costs.
- After year-end, on February 28, 2022, Dutch Bros amended its credit facility to $500 million of capacity, with options for additional commitments. It drew $100 million of term loans and approximately $30 million of revolver borrowings. On March 1, 2022, it acquired five California franchise shops for approximately $6.3 million.
- Management identified risks from rapid expansion, staffing and labor costs, supply disruptions and commodity prices, COVID-19, geographic concentration (approximately 93% of shops were in the Western United States), franchise-partner performance, and competition. It also highlighted the potential cash burden and timing uncertainty of TRA payments.
- The company reported a material weakness in internal control over financial reporting related to limited accounting expertise for complex transactions and insufficient review controls over manual journal entries. It said remediation was underway but the weakness was not remediated at year-end; disclosure controls were therefore deemed ineffective. The independent auditor’s opinion on the financial statements was unqualified.
- Governance and capital-structure considerations include concentrated voting control, controlled-company exemptions, no expected near-term dividends, and continuing members’ ability to exchange OpCo units for Class A shares. The company reported no material legal proceedings at the filing date.
Important facts for investors to verify
- How much of the reported loss reflects nonrecurring IPO/reorganization-related equity compensation and other excluded items, and how the company’s non-GAAP adjustments reconcile to GAAP results.
- Whether shop-level margins recover as discounts normalize and new shops mature, given ingredient, labor, occupancy and opening-cost pressures.
- Whether planned openings and the $175 million–$200 million 2022 capital budget are achievable, and how they will be funded alongside leases, debt and TRA obligations.
- Progress in remediating the material weakness and whether controls operate effectively over a sufficient period.
- The terms, interest costs and covenant headroom under the post-year-end credit facility, and the effect of additional borrowing on liquidity.
- How much voting control remains with the founder, sponsor and other continuing holders, and the potential dilution from unit exchanges, equity awards and future share sales.