Summary

  • Dutch Bros Inc. is an American beverage company that operates coffee-shop chains on its own and through franchisor drive-thru shops. The company was established 1992.
  • As of March 31, 2023, the company operated 716 stores in total, of which 438 are company operated and 278 are franchisee-operated.
  • The company has a subsidiary named Dutch Bros OpCo. of which it owns 100% voting rights.
  • During the first three months of the year 2023, Dutch Bros reported a total revenue of $173.16 million, which was $130.19 million during the corresponding period a year earlier. Net loss attributable to Dutch Bros during this quarter is $3.84, which was a net loss of $4.95 million a year earlier.
  • During the year 2022, Dutch Bros has reported $739.01 million revenue which was $497.88 million a year earlier. Cost of operation of the company is high, therefore, loss from operation of the company is $2.61 million during 2022 which was $111.23 million a year earlier. Net loss attributable to Dutch Bros Inc. is $4.75 million this year, and $12.68 million a year earlier.

Brief Company Overview

dutch bros logoDutch Bros Inc. (NYSE:BROS) is an American beverage company that operates coffee-shop chains on its own and through franchisor drive-thru shops. The company was established in 1992 by brothers Dane and Travis Boersma. Dutch Bros is currently headquartered in Grants Pass, Oregon, United States. It belongs to the foodservice and restaurant industry and is one of the fastest-growing brands in the U.S. by location count.

As of December 31, 2022, Dutch Bros had 671 shops, of which 396 were company-operated and 275 were franchise, across 14 states in the U.S. The company has coffee, energy drink and other beverages in its menu. Of the total menu mix, 50% come from coffee-based beverages, 25% come from their proprietary Blue Rebel energy drink and the rest come from a wide variety of teas, lemonades, sodas, and smoothies. As of December 31, 2022, Dutch Bros and their franchise partners have approximately 22,000 employees. The company has two reportable operating segments: Company-operated shops, and Franchising and other.

Travis Boersma is current Executive Chairman and Jonathan J. Ricci is the CEO & Director of the company. As of June, 2023, the company share had a 52-week price range of $25.45 to $54.18. As on that date, forward price to earning ratio of the company is 136.99 times, price to sales ratio is 1.79 times, profit margin is negative 0.47%, operating margin is 1.83%, return on assets (ttm) is 0.84%, return on equity (ttm) is negative 5.35%, diluted earnings per share (EPS) is -$0.06. Total number of shares of Class A and Class D common stock outstanding as of March 31 is 56,664 thousand.

dutch bros cover photo

Organizational Structure

Dutch Bros Inc. is a holding company of Dutch Bros OpCo., through which the former conducts all its businesses.1 As of December 31, 2022, the Company held 100.0% of the voting interest and 35.4% of the economic interest of Dutch Bros OpCo. The Continuing Members held none of the voting interest and the remaining 64.6% of the economic interest of Dutch Bros OpCo.

On September 17, 2021,  completed its IPO of approximately 24.2 million shares of Class A common stock at a public offering price of $23.00 per share, which included
approximately 3.2 million shares issued pursuant to the exercise in full of the underwriters’ option to purchase additional shares. The Company received proceeds of approximately $520.8 million, net of offering costs. The proceeds were used to purchase approximately 10.9 million newly-issued Dutch Bros OpCo Class A common units from Dutch Bros OpCo for approximately $234.4 million. The proceeds were also used to purchase approximately 11.7 million Dutch Bros OpCo Class A common units from the Continuing Members for approximately $253.3 million, and approximately 1.6 million shares of Class D common stock from the Pre-IPO Blocker Holders for approximately $34.4 million.

Dutch Bros Inc. has four classes of common stock - Class A, Class B, Class C, and Class D, all of which have a par value of $0.00001 per share. Dutch Bros OpCo is divided into three classes of 'Common Units' - Class A, Class B and Class C, of which Class A is non-voting and other twos are voting units.

Recent Developments

  • Dutch Bros opened 42 company-operated shops across multiple new operating areas in the three months ended March 31, 2023, an increase of 41.3% over the same period in 2022, bringing total company-operated shops to 61.2% of our total shops.
  • Dutch Bros has broken ground to build a second state-of-the-are coffee roasting facility in Texas. The facility is expected to come live by 2024.

Recent Financing Activities

  • On February 28, 2022, Dutch Bros has amended the Senior Secured Credit Facility with JPMorgan Chase, N.A. The 2022 Credit Facility has a total capacity of $500 million, consisting of a $250 million revolving credit facility, a term loan facility of up to $100 million, and a delayed draw term loan facility of up to $150 million.
  • On April 1, 2022, Dutch Bros PubCo entered into an interest rate swap transaction with JPMorgan Chase Bank, N.A. with respect to $70 million of the term loan under the 2022 Credit Facility. The purpose of the floating-to-fixed interest rate swap was to fix the interest base rate charged on the term loan at 2.67% for the $70 million notional amount. The interest rate swap matures on February 28, 2027.

Financial Performance Highlights

Q1 2023 Highlights

During the first three months of the year 2023, Dutch Bros reported a total revenue of $173.16 million, which was $130.19 million during the corresponding period a year earlier. The operation of the company shows signs of recovery from a loss situation. Loss from operation during this quarter is $0.23 million, as compared to $14.23 million a year earlier. Net loss attributable to Dutch Bros during this quarter is $3.84, which was a net loss of $4.95 million a year earlier. Diluted weighted-average share of Class A and Class D common stock outstanding is 56.66 million. Diluted earnings per share is -$0.07 in the first quarter of 2023, which was -$0.10 during the same quarter a year earlier.

Annual Performance Highlights

During the year 2022, Dutch Bros has reported $739.01 million revenue which was $497.88 million a year earlier. Cost of operation of the company is high, therefore, loss from operation of the company is $2.61 million during 2022 which was $111.23 million a year earlier. Net loss attributable to Dutch Bros Inc. is $4.75 million this year, and $12.68 million a year earlier. Diluted weighted-average share of Class A and Class D common stock outstanding is 51.87 million. Diluted earnings per share is -$0.09 in 2022, which was -$0.28 a year earlier.

Of total revenue, company-operated shops generated $639.71 million or approximately 87%, franchising and other generated $99.30 million or 13%. The company had cash and cash equivalents of $20.2 million and $18.5 million as of December 31, 2022 and December 31, 2021, respectively. For the year 2022, the principal source of cash for the company was the term loan facility and the revolving credit facility and principal use was paying of prior revolving credit facility, building new shops, and meeting working capital needs. Net cash flow provided by operating activities during 2022 is $59.88 million which was $80.38 million a year earlier. Net cash used by investing activities in 2022 is $192.57 million which was $121.09 million in 2021. Net cash provided by financing activities was $134.36 million and $27.58 million for the years, respectively.

Business Overview

Dutch Bros both operates and franchises drive-thru beverage shops. The company had 671 shops as of December 31, 2022, of which 396 were company-operated and 275 were franchise, across 14 states in the United States. The company sells a range of customizable hot, iced, and blended beverages that can be classified into three categories - coffee, energy, and other.

dutch bros delivery window

Coffee: Based on the number of drinks sold across the system of Dutch Bros in 2022, Coffee-based beverages make up ~50% of the menu mix. Coffee-based beverages include espresso-based custom drinks, cold brew, and the company's proprietary “Freeze” blended beverages. Private Reserve coffee of the company is a 100% Arabica three-bean blend, roasted in the Grant’s Pass facility of the company. In the shops, the company utilizes premium La Marzocco machines to extract the coffee and deliver shots of smooth, full-bodied espresso.

Energy: About ~25% of the menu mix is based upon Dutch Bros' proprietary Blue Rebel energy drink, which is highly customizable with flavors and modifiers and can be served blended or over ice.

Other: The remaining ~25% of the menu mix is a wide variety of teas, lemonades, sodas, and smoothies.

Over 90% of the business of Dutch Bros is conducted through drive-thru. The shops of the company typically have a size of 865 to 950 square feet - thus, it has a relatively smaller footprint than other drive-thru formats. Except for a few, almost all of the shops of Dutch Bros deploy either a single or double drive-thru window with multiple feeder lanes for traffic flow. Most of the shops also have walk-up ordering windows and “escape lanes” that enable customers to exit the line after a runner delivers their drink before reaching the window, helping increase throughput and reducing congestion.

shop models for dutch bros

To facilitate large scale expansion, the company has started giving out franchisee operated shops. In 2008, it has stopped selling franchises to the people outside their system. From that time, only the people who come from within their system are allowed to open a franchise shop. By 2017, the company has shifted to the strategy such that all operators are recruited from within their system. Now the company anticipates that approximately 90% of new shops that are opened each year will be company operated ones.

Dutch Bros continuously engages itself in sourcing, roasting, packaging and distributing coffee beans to all of its shops, own-operated or franchisee-operated. The company partners with third-party importers and exporters to purchase and import green coffee beans. Through this relationship, high-quality coffee beans are sourced from across Central and South America. Typically coffee contracts are purchased 18-24 months in advance of when the physical delivery of the beans is taken, allowing the company to lock in pricing and to manage the input costs. This practice also allows to be a good partner to the coffee producers, providing security of future business. Currently, all of the coffee beans are roasted in the roasting facility at Grants Pass, Oregon. The beans are roasted according to variety of specific profiles designed to highlight each of the coffee bean’s unique flavors and aromas. After the coffee beans are roasted, they are blended to create the signature Private Reserve espresso. Then the Private Reserve, Decaf and White Coffee espresso are shipped to 14 distribution centers that supply the beans to all shop locations. On average, the company typically has approximately four months of green coffee bean inventory stored at the two ports of entry in the United States or at the roasting facility in Grants Pass, Oregon.

The proprietary Dutch Bros Blue Rebel Energy Drink is manufactured through co-bottling and co-packaging relationship.

The company usually experiences higher nominal system sales in the summer months.

Company History

Dutch Bros started its journey in 1992 as a pushcart by the railroad tracks in downtown Grants Pass, Oregon. Dane and Travis Boersma left the dairy business to serve up espresso, rock their favorite music and make connections with their community. Initial investment in establishing the first pushcart was $12,000. By 1994, the entrepreneurs were able to establish their first drive-through location. In 1996, the company began roasting its own coffee, sourcing beans from El Salvador, Colombia, and Brazil.2

In 1994, Dane and Travis Boersma had struck a deal with Marty McKenna, a customer, which allowed him to open his own Dutch Bros in Medford, some 30 miles away from Grants Pass. McKenna's first stand performed so well that he soon opened up a second one across town. In 1997, the Boersmas brought McKenna on as partner, hoping he would continue to expand the Medford operations. Two years later, they bought out McKenna's stake in the company.

dutch bros shop

In the period of expansion, the first franchise store of Dutch Bros opened in 2000. By 2004, 50 drive-thru franchised locations of the company opened. By the end of that same year, the company was operating 61 coffee shops spanning from Northern California to Oregon's Willamette Valley. By 2009, Dutch Bros was running approximately 135 coffee stands in seven states and generating $50 million in gross annual revenue.

Dutch Bros filed for its IPO in August 2021. The company stated in its filing that it hoped to raise $100 million, which it would use toward paying down $192 million in long-term debt. Dutch Bros held its IPO and began trading on the New York Stock Exchange with the ticker symbol "BROS" on September 15, 2021. The IPO raised $484 million, selling about 21 million shares for $23 each.

References

  1. ^ https://www.sec.gov/Archives/edgar/data/1866581/000162828021017441/dutchbross-1.htm
  2. ^ https://www.forbes.com/sites/susanadams/2016/06/15/the-coffee-cult-how-dutch-bros-is-turning-its-bro-istas-into-wealthy-franchisees/?sh=c258b073694a
Tags: US:BROS USA
Created by Md. Touhidul Islam on 2023/05/30 01:59
     
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