Dutch Bros Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Dutch Bros operates and franchises drive-thru coffee shops. At quarter-end, it had 716 shops in 14 states: 438 company-operated and 278 franchised.
Financial and operating performance
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Total revenue | $197.3 million | $152.2 million | +29.6% |
| Company-operated shop revenue | $173.2 million | $130.2 million | +33.0% |
| Franchising and other revenue | $24.1 million | $22.0 million | +9.7% |
| Net loss | $9.4 million | $16.3 million | Loss narrowed |
| Net loss attributable to Dutch Bros Inc. | $3.8 million | $4.9 million | Loss narrowed |
| Basic and diluted loss per share | $0.07 | $0.10 | Improved |
| Operating cash flow | $3.1 million | $(0.8) million | Turned positive |
| Capital expenditures | $43.3 million | $40.0 million | Increased |
| Adjusted EBITDA (non-GAAP) | $23.9 million | $9.7 million | Increased |
Company-operated shop gross profit was $28.9 million, or 16.7% of segment revenue, versus $16.6 million, or 12.8%, a year earlier. Company-operated shop contribution, a non-GAAP measure before depreciation and amortization, was $41.9 million (24.2% of segment revenue), up from $23.8 million (18.3%). Overall segment gross profit was $45.7 million, approximately 23.2% of revenue, compared with $31.0 million, approximately 20.4%.
Systemwide same-shop sales declined 2.0%; company-operated same-shop sales declined 3.5%. Systemwide AUV was $1.916 million versus $1.892 million. Dutch Bros opened 42 company-operated shops and three franchised shops during the quarter.
Liquidity, debt, and cash flow
- Cash and cash equivalents were $14.3 million at March 31, down from $20.2 million at year-end. Operating cash flow was $3.1 million; investing cash outflow was $43.0 million and financing cash inflow was $34.1 million.
- At quarter-end, principal outstanding was approximately $97.5 million on the term loan and $152.7 million on revolving borrowings; $97.3 million remained available on the revolver. The stated credit facility capacity is $500 million, subject to its terms.
- Term-loan and revolver interest rates were 7.31% and approximately 7.29%, respectively. A $70 million interest-rate swap hedges part of the term loan. Management estimated a 1% rate increase could raise annual interest expense by approximately $2.5 million, before swap effects.
- Total finance and operating lease liabilities were $459.6 million. Current assets of $81.3 million were below current liabilities of $252.8 million, including $151.0 million classified as the current line of credit.
- The company reported a $219.6 million liability under tax receivable agreements (TRAs), which generally require payments to certain holders equal to 85% of specified tax benefits actually or deemed realized.
Changes, outlook, and risks
- Revenue growth primarily reflected new shops: management attributed $45.5 million of the company-operated revenue increase to shops opened in 2023 and 2022, partly offset by a $3.8 million comparable-shop revenue decline.
- Management cited ongoing inflation in coffee, dairy, fuel, packaging, and construction, along with legislated minimum-wage increases. The company has raised menu prices, adjusted its Dutch Rewards program, and pursued productivity improvements; further price increases may reduce customer demand.
- Interest expense rose to $7.9 million from $2.5 million, primarily due to higher rates, increased borrowings, and additional finance leases. Management said cash, operating cash flow, and credit-facility proceeds should cover debt service, leases, and working capital for at least 12 months. It expects to fund long-term capital needs primarily with credit-facility proceeds, while noting it may seek additional debt or equity financing. No specific revenue or earnings guidance is provided in the filing text.
- Management noted seasonal patterns, with nominal system sales typically higher in the second and third quarters. The filing identifies expectations of positive cash flow in the foreseeable future as forward-looking, not a guarantee.
- Disclosure controls were deemed ineffective as of March 31, 2023 because previously identified material weaknesses in IT system-change controls and Dutch Rewards breakage accounting had not yet been remediated. Remediation work was underway, but management had not completed sufficient operating and testing periods.
- A securities class action filed March 1, 2023 alleges misleading statements about commodity inflation’s impact on Q1 2022 results. Dutch Bros disputes the claims; the company said it could not predict the outcome or estimate potential loss.
Important facts for investors to verify
- Whether declining same-shop sales persist and how new-shop openings affect comparable sales, AUV, and profitability.
- Whether menu pricing and operating efficiencies can offset commodity, wage, and construction-cost pressures without materially weakening demand.
- Cash needs for expansion, capital spending, lease commitments, debt service, and TRA payments, including remaining revolver availability and covenant compliance.
- Progress in remediating and testing the two material weaknesses in financial reporting controls.
- Developments in the securities lawsuit and any change in the company’s ability to estimate potential exposure.
- Non-GAAP measures, including Adjusted EBITDA and shop contribution, alongside GAAP results and the company’s stated reconciliations.