Q1 2024 Dutch Bros Inc Earnings Call

Operator: Thank you for standing by, and welcome to the Dutch Bros Inc. first quarter 2024 earnings conference call and webcast. This conference call and webcast are being recorded today, May 7, 2024, at 5 p.m. Eastern Time and will be available for replay shortly after it has concluded. Following the company's presentation, we will open up the lines for questions, and instructions to queue up will be provided at that time. I would now like to turn the conference over to Paddy Warren, National Senior Director, Investor Relations and Capital Markets.

Thank you for standing Bally and won't come to the Dutch Cross Inc. First quarter 2024 earnings conference call and webcast.

Paddy Warren: This conference call and webcast are being recorded today may.

Paddy Warren: Nice didn't change truthful at five P M Eastern time and will it be available for replay shortly after each of has completed.

Paddy Warren: Pardon me the company's presentation, we will open up the lines for Christian.

Paddy Warren: Instructions to queue up will be provided at that time.

Operator: Oh I can I'll like to turn the conference to the cheats Patti Barton <unk> Senior director Investor Relations and capital markets. Please go ahead.

Operator: Yeah.

Paddy Warren: Good afternoon and welcome. I'm joined by Christine Barone, CEO and President, and Charley Jemley, CFO. We issued our earnings press release for the quarter ended March 31st, 2024, after the market closed today. The earnings press release, along with a supplemental information deck, has been posted to our investor relations website at investors.dutchbros.com. Please be aware that all statements in our prepared remarks and in response to your questions, other than those of historical fact, are forward-looking statements and are subject to risks, uncertainties, and assumptions that may cause actual results to differ materially.

Paddy Warren: Good afternoon, and welcome I'm joined by Christine Barone, as CEO, and President and Charlie generally CFO, we issued our earnings press release for the quarter ended March 31, 2024 after the market closed today.

Paddy Warren: The earnings press release, along with the supplemental information deck has been posted to our Investor Relations website at investors that Dutch Bros. Dot com.

Paddy Warren: Please be aware that all statements in our prepared remarks and in response to your questions other than those of historical fact are forward looking statements.

Paddy Warren: Subject to risks uncertainties and assumptions that may cause actual results to differ materially. They are qualified by the cautionary statements in our earnings press release and risk factors in our latest SEC filings, including our most recent annual report on Form 10-K, and our quarterly report on Form 10-Q.

Paddy Warren: They are qualified by the cautionary statements in our earnings press release and risk factors in our latest SEC filings, including our most recent annual report on Form 10-K and our quarterly report on Form 10-Q. We assume no obligation to update any forward-looking statements. We will also reference non-GAAP financial measures on today's call. As a reminder, non-GAAP measures are neither substitutes for nor superior to measures that are prepared under GAAP. Please review the reconciliation of non-GAAP measures to comparable GAAP results in our earnings press release. With that said, I would now like to turn the call over to Christine.

Christine: We assume no obligation to update any forward looking statements.

Christine: We will also reference non-GAAP financial measures on today's call.

Paddy Warren: As a reminder, non-GAAP measures are neither substitutes for nor superior two measures that are prepared under GAAP. Please review the reconciliation of non-GAAP measures to comparable GAAP results in our earnings press release with that I would now like to turn the call over to Christine.

Christine Barone: Thank you, Paddy. Good afternoon, everyone.

Christine: Thank you Patty good afternoon, everyone.

Christine Barone: We delivered exceptional results in quarter, one as the momentum we saw leaving 20 twenty-three continued into the new year headlining. This performance was 10% same shack sales growth the strongest single quarter since Q4, 2021.

Christine Barone: We delivered exceptional results in quarter one as the momentum we saw leaving 2023 continued into the new year. Headlining this performance was 10% same-shop sales growth, the strongest single quarter since Q4 2021. We delivered $275 million in revenue, an increase of 39% year-over-year.

Christine Barone: We delivered 275 million in revenue an increase of 39% year over year. These outstanding top line results were coupled with excellent flow through as we delivered 53 million of adjusted EBITDA, an increase of 120% year over year.

Christine Barone: These outstanding top-line results were coupled with excellent flow-through, as we delivered $53 million of adjusted EBITDA, an increase of 120% year-over-year. Our innovation strategy is working. We released two highly successful new products in the quarter, Protein Coffee followed by Boba, driving strong results in both the morning and afternoon dayparts. Our Dutch rewards program is working, with a record 66% of all transactions coming through the program in the quarter, allowing us to efficiently and effectively provide relevant content and offers to our customers.

Christine Barone: Our innovation strategy is working we released two highly successful new products in the quarter with protein coffee followed by Boba driving strong results in both the morning and afternoon day parts.

Christine Barone: Our Dutch rewards program is working with a record 66% of all transactions coming through the program in the quarter, allowing us to efficiently and effectively provide relevant content and offers to our customers.

Christine Barone: Our investments in driving awareness in new markets are working, and we are accelerating spending to capitalize on this momentum. Q1 same-shop sales growth featured a combination of ticket and traffic expansion. Our traffic trajectory improved for a second consecutive quarter. During the quarter, we experienced some weather disruption in January, rebounding strongly in February and March.

Christine Barone: Our investments in driving awareness in new markets are working and we are accelerating spending to capitalize on this momentum.

Christine Barone: Quarter, one same shack sales growth featured a combination of ticket and traffic expansion.

Christine Barone: Our traffic trajectory improved for a second consecutive quarter, where.

Christine Barone: Within the quarter, we experienced some weather disruption in January rebounding strongly in February and March and April traffic and ticket growth tempered as we rolled over the refresh of our rewards program some product outages due to strong demand and the launch of mango not out at the beginning of April 2023.

Christine Barone: Bolstered by strong same shack sales growth system au vs expanded to $2 million once again, the highest on record in quarter. One we opened a record time 45, new shops, marking the 11th consecutive quarter of 30 or more new shop openings, demonstrating remarkable consistency as we X.

Christine Barone: In April, traffic and ticket growth tempered as we rolled over the refresh of our rewards program, some product outages due to strong demand, and the launch of Mango Nada at the beginning of April 2023. Bolstered by strong same-shop sales growth, system AUVs expanded to $2 million, once again, the highest on record. In Quarter 1, we opened a record-tying 45 new shops, marking the 11th consecutive quarter of 30 or more new shop openings, demonstrating remarkable consistency as we execute our growth plan.

Christine Barone: Our growth plans.

Christine Barone: Even when taking into consideration what remains an uncertain and evolving consumer backdrop, the strong start to 2024 gives us the confidence to raise our guidance for the year. Charlie will share more context and details in a few minutes.

Christine Barone: Even when taking into consideration what remains an uncertain and evolving consumer backdrop. The strong start to 'twenty 'twenty four gives us the confidence to raise our guidance for the year, Charlie will share more context and details in a few minutes, but first I'd like to walk you through an update on our business.

Christine Barone: But first, I'd like to walk you through an update on our business. We begin any discussion of Dutch Bros with our fundamental differentiator, our people. Recently, we were awarded a top 10 position in Forbes' first ever best customer service list, one of just two quick service brands in the top 10. Once again, the culture we infuse into each shop and the skills and abilities of our Broistas to make drinks and create relationships are evident.

Christine Barone: We began to any discussion of Dutch bros, with our fundamental differentiator our people.

Christine Barone: Recently, we were awarded a top 10 position in Forbes first ever best customer service list. One of just two quick service brands in the top 10.

Christine Barone: Once again, the culture, we infused into each shop, and the skills and abilities of our Bro asked us to make drinks and create relationships are evident and.

Christine Barone: In our view, these are the keys to building brand affinity and fueling growth. Our exceptional culture, exceptional people, and exceptional service speak to customers across demographics and generations. We continue to support growth with a robust people pipeline. Our pipeline has over 375 candidates with an average tenure of over seven years, ready to be tapped to lead markets as operators. As we expand across the country and enter new regions, our people are our superpower.

Christine Barone: In our view these are the keys to building brand affinity and fueling growth are exceptional culture exceptional people and exceptional service speak to customers across demographics and generations. We continue to support growth with a robust people pipeline our pipeline has over 375 candidates.

Christine Barone: And the average tenure of over seven years experience ready to be tapped to lead markets as operators as we expand across the country and enter into new regions. Our people are our superpower. They help us achieve our goal of consistently delivering an exceptional customer experience focused on speed quality and serve.

Christine Barone: They help us achieve our goal of consistently delivering an exceptional customer experience focused on speed, quality, and service. We continue to be pleased with our shop-level turnover, which is in line with our expectations. The expansion of our support center in Arizona, which we announced last quarter, remains on track, and we are excited to ramp up our hiring in that market. Phoenix is a terrific market for us, where we enjoy high brand recognition and affinity.

Christine Barone: Yes.

Christine Barone: We continue to be pleased with our shop level turnover, which is in line with our expectations.

Christine Barone: The expansion of our support center in Arizona, which we announced last quarter remains on track and we are excited to ramp up our hiring in that market Phoenix is a terrific market for us where we enjoy high brand recognition and affinity.

Christine Barone: We look forward to capitalizing on this excitement as we continue to build out capabilities in this support center. We anticipate moving into our permanent office location in early 2025. Our leadership team transition continues to go smoothly. Today, we announced Josh Gunzer will be officially assuming the CFO role on May 9th, and in April, we announced Sumi Ghosh officially assumed the role of president of operations.

Christine Barone: We look forward to capitalizing on this excitement as we continue to build out capabilities and this support center, we anticipate moving into our permanent office location in early 2025.

Christine Barone: Our leadership team transition continues to go smoothly today, we announced Josh cancer will be officially assuming the CFO role on May 9th and in April We announced Sumi gauche officially assumed the role of President of operations, both Josh and Sue me have spent significant time in our shops passing their flow checks.

Christine Barone: Both Josh and Sumi have spent significant time in our shops, passing their flow checks, becoming fully certified as baristas, and developing a strong understanding and respect for our operation. Our CMO, Tana Davila, has been in her position since June of 2023, and she and her team have been focused on delighting our customers and executing our traffic-driving initiatives. We are beginning to see the results of this focus. We have been executing on a multi-pronged plan to drive traffic, an enhanced focus on innovation, more targeted rewards program efforts, and increased paid advertising designed to build brand awareness.

Christine Barone: Becoming fully certified as Burley used us and developing a strong understanding and respect for our operations.

Christine Barone: Our CMO Tenner da Villa has been in her position since June of 'twenty, 'twenty, three and she and her team have been focused on delighting, our customers and executing our traffic driving initiatives. We are beginning to see the results of this focus we have been executing on a multi pronged plan to drive traffic and enhance focus on innovation.

Christine Barone: More targeted rewards program efforts and increased paid advertising designed to build brand awareness.

Christine Barone: We saw progress in each of these areas in the quarter, as evidenced by traffic growth across our dayparts and continued momentum as these efforts began to take hold. Here is an update on our key traffic driving initiatives. Innovation

Christine Barone: We saw progress in each of these areas in the quarter as evidenced by traffic growth across our day parts and continued momentum as these efforts began to take hold.

Christine Barone: Here is an update on our key traffic driving initiatives.

Christine Barone: We believe innovation plays a foundational role in the next stage of our growth at Dutch Bros. Over the past year, our innovation strategy has evolved from one primarily focused on highlighting items from our extensive secret menu to one with a greater focus on category innovation. While we continue to believe there will be a place for quick, fun product drops to keep our menu fresh and exciting, we also recognize the opportunity we have to drive category innovation.

Christine Barone: Innovation, we believe innovation plays a foundational role in the next stage of our growth that Dutch Bros.

Christine Barone: Over the past year, our innovation strategy has evolved from one primarily focused on highlighting items from our extensive secret menu to one with a greater focus on category innovation.

Christine Barone: Well, we continue to believe there will be a place for quick fun product drops to keep our menu fresh and exciting. We also recognize the opportunity we have to drive category innovation.

Christine Barone: The launch of Protein Coffee & Boba exemplifies this new approach. Through our research, we determined there was an opportunity to address a customer need state with a high protein functional beverage. Our protein coffee beverage delivers at least 20 grams of milk protein in each medium-sized serving and quickly resonated with our customer base.

Christine Barone: The launch of protein coffee and boba exemplified this new approach through our research. We determined there was an opportunity to address the customer need state with a high protein functional beverage or protein coffee beverage delivers at least 20 grams of milk protein and each medium sized surfing and quickly resonated with our customer base. It was exciting to see.

Christine Barone: It was exciting to see how our customers recognized the value of this new occasion and made it a part of their routines, evidenced by higher repeat purchase behavior than our typical LTO. Encouraged by the high sustained customer demand, Protein Coffee is now part of our regular menu. We followed up the success of Protein Coffee with the launch of BOBA in March, and BOBA surpassed all of our expectations.

Christine Barone: How our customers recognize the value of this new occasion and made it a part of their routines evidenced by higher repeat purchase behavior that are typical L. T O.

Christine Barone: Encouraged by the high sustained customer demand protein coffee is now part of our regular menu.

Christine Barone: We followed up the success of protein coffee with the launch of Boba in March Boba surpassed all of our expectations. We recognize the recent category growth driven by Boba, how nicely. This overlaps with our large gen Z customer base and how seamlessly boba can be integrated into our existing offering.

Christine Barone: We recognize the recent category growth driven by BOBA, how nicely this overlaps with our large Gen Z customer base, and how seamlessly BOBA can be integrated into our existing offerings. Similar to protein coffee, we saw repeat purchase trends and positive customer response. Beyond driving traffic, BOBA boosted average ticket and drove what we believe was an increase in group buying behavior. Based on the strong customer and crew response, I am pleased to announce that we will continue to offer Strawberry Boba as a premium add-on to our regular menu going forward.

Christine Barone: Similar to protein coffee, we saw repeat purchase trends and positive customer response beyond driving traffic Buber boosted average ticket and drove what we believe was an increase in group buying behavior.

Christine Barone: Based on our strong customer and crew response I am pleased to announce that we will continue to offer strawberry boba as a premium add on to our regular menu going forward.

Christine Barone: We intend to continue developing category-defining products to help us build sales layers and deepen our competitive moat. As we do so, we plan to remain focused on throughput and customer experience, striking a good balance between innovation and the complexity that often comes with new product launches. Dutch Rewards.

Christine Barone: We intend to continue developing category defining products to help us build sales layers and deepen our competitive moat.

Christine Barone: As we do so we plan to remain focused on throughput and customer experience striking a good balance between innovation and the complexity that often comes with new product launches.

Christine Barone: Last year, we took some big steps with this program, moving toward more targeted offers and segmenting Dutch Rewards members for the first time. Last summer, we began designing offers to bolster performance in the afternoon day park. This work is off to a great start, and we are beginning to see how it is responding with customers and driving our business. The afternoon day part, where we have been channeling our focus, continues to see strength. When we turned those efforts toward our morning day part in Q1, we saw a great customer response there as well. We also reintroduced an offer of a free drink to new rewards customers in late 2023.

Christine Barone: That's rewards last year, we took some big steps with this program moving toward more targeted offers and segmenting Dutch rewards members for the first time.

Christine Barone: Last summer we began designing offers to bolster performance in the afternoon day part.

Christine Barone: This work is off to a great start and we are beginning to see how it is resonating with customers and driving our business.

Christine Barone: The afternoon day, part, where we have been channeling our focus continues to see strength.

Christine Barone: When we turned those efforts toward our morning day part in Q1, we saw great customer response, there as well.

Christine Barone: We also reintroduced an offer of a free drink to new rewards customers in late 2023.

Christine Barone: This has allowed us to continue to grow the program and deepen rewards penetration, even as we continue to enter new markets. Ultimately, we aspire to become even more sophisticated with our targeting efforts, aiming for more personalized marketing. This will take time and require continued investment and iteration, but we believe our program will continue to strengthen our relationship with our customers. Paid advertising

Christine Barone: This has allowed us to continue to grow the program and deepen rewards penetration, even as we continue to enter new markets.

Christine Barone: Ultimately, we aspire to become even more sophisticated with our targeting efforts.

Christine Barone: Aiming for more personalized marketing.

Christine Barone: This will take time and continued investment in iteration, but we believe our program will continue to strengthen our relationship with our customers.

Christine Barone: We continue to focus on utilizing paid media to raise awareness, particularly in new markets, because brand awareness is lower in new markets when compared to more mature markets. In some cases, this difference is substantial, with mature markets having twice the brand awareness. We began making investments in our new market awareness late last year and have been encouraged by our initial progress. We plan to accelerate these efforts in 2024, which represents an incremental investment, and we will focus these efforts in new markets, including Texas, Florida, and Tennessee. Earlier this year, we announced that we would begin testing order ahead capabilities within our mobile rewards app.

Christine Barone: Paid advertising, we continue to focus on utilizing paid media to raise awareness, particularly in new markets brand awareness is lower in new markets when compared to more mature markets. In some cases, there's difference is substantial with mature markets, having twice the brand awareness.

Christine Barone: We began making investments in our new market awareness late last year and have been encouraged by our initial progress we plan to accelerate these efforts in 'twenty 'twenty, four which represents an incremental investment and we will focus these efforts in new markets, including Texas, Florida and Tennessee.

Christine Barone: Earlier this year, we announced that we would begin testing order ahead capabilities within our mobile rewards app. The initial phase of the test is going well and we have expanded it to include several stores in the Arizona market.

Christine Barone: The initial phase of the test is going well, and we have expanded it to include several stores in the Arizona market. We have gathered a lot of employee and customer feedback as we work through our stage gate process. We are optimistic that we will have mobile order capabilities in a majority of our shops by the end of 2024. Getting this right before a broader launch is important for us. We have the opportunity to establish a new channel that increases customer convenience while maintaining the high levels of hospitality that have defined our brand for over 30 years. However, we do not intend to take labor out of our shops, despite likely saving considerable time from the order process.

Christine Barone: We have gathered a lot of employee and customer feedback as we worked through our stage gate process.

Christine Barone: We are optimistic that we will have mobile order capabilities and a majority of our shops by the end of 'twenty 'twenty four.

Christine Barone: Getting this right before a broader launch it is important for us we have the opportunity to establish a new channel that increases customer convenience, while maintaining the high levels of hospitality that have defined our brand for over 30 years.

Christine Barone: We do not intend to take labor out of our shops, despite likely saving considerable time from the order process. Instead, we intend to reinvest at this time and production in hospitality.

Christine Barone: Instead, we intend to reinvest this time in production and hospitality. We would hope to be a part of the consideration set of potential customers who may love Dutch Bros but may be apprehensive of our sometimes long lines. We launched a strategic partnership with OLO to provide the back-end technology integration to support this initiative. We are encouraged by the fact that 66% of transactions in Q1 were attributable to Dutch Rewards members.

Christine Barone: We would hope to more often be a part of the consideration set of potential customers, who they loved Dutch bros, but maybe apprehensive or sometimes a long lines.

Christine Barone: We launched a strategic partnership with <unk> to provide the back end technology integration to support. This initiative. We are encouraged by the fact that 66% of transactions in Q1 were attributable to Dutch rewards members.

Christine Barone: We continue to roll out mobile order functionality, having such a robust digital penetration will likely provide us a strong foundation upon which to scale.

Christine Barone: New shop development continues to be a bright spot.

Christine Barone: As a high growth company Dutch press has been able to achieve remarkable opening cadence consistency despite a challenging backdrop over the past few years.

Christine Barone: As we continue to roll out mobile order functionality, having such a robust digital penetration will likely provide us with a strong foundation upon which to scale. New shop development continues to be a bright spot. As a high growth company, Dutch Bros has been able to achieve remarkable opening cadence consistency despite a challenging backdrop over the past few years. Dutch Bros is now a coast-to-coast brand, as during the quarter, we opened two shops in our 17th state, Florida.

Christine Barone: Dutch Bros is now a coast to coast brand as during the quarter, we opened two shops in our 17th State Florida.

Christine Barone: In the Orlando suburbs, these early shops are exceeding our expectations. Our first Florida shops, which are 3,000 miles away from our original start in Grants Pass, Oregon, have been met with enthusiastic customer demand, a testament to the strength of our brand. Texas will continue to be an important growth market for us in 2024, as we expect approximately 30% of new shops will be in Texas, compared to approximately 45% in the past two years.

Christine Barone: And the Orlando suburbs. These early shops are exceeding our expectations, our first Florida shops, which are 3000 miles away from our original start in grants pass, Oregon have been met with enthusiastic customer demand a testament to the strength of our brand.

Christine Barone: Texas will continue to be an important growth market for us in 'twenty 'twenty four as we expect approximately 30% of new shops will be in Texas compared to approximately 45% in the past two years.

Christine Barone: We expect our overall rate of infill to remain elevated in 2024. We believe the refinements in our real estate strategy, which we anticipate to begin taking hold in 2025, along with increased investments in brand awareness and a continued focus on our overall traffic-driving initiatives will allow us to strike a good balance as we scale the brand. As we have shared before, we are shifting our real estate strategy to lessen the pace of future deep infill, instead focusing on casting a wider net in new markets and allowing more time to build awareness and for shops to season.

Christine Barone: We expect our overall rate of infill real will remain elevated in 2024.

Christine Barone: We believe the refinements in our real estate strategy, which we anticipate to begin taking hold in 2025, along with increased investments in brand awareness and a continued focus on our overall traffic driving initiatives will allow us to strike a good balance as we scale the brand.

Christine Barone: As we have shared before we are shifting our real estate strategy to lessen the pace of future deep infill instead, focusing on casting a wider net in new markets and allowing more time to build awareness and for shops to season.

Christine Barone: We believe the beverage occasion is reliable and habitual and then it takes time to form new habits are existing markets have demonstrated this time and time again.

Christine Barone: As our learnings evolve, we're placing a greater emphasis on market planning.

Christine Barone: We believe the beverage occasion is reliable and habitual and that it takes time to form new habits. Our existing markets have demonstrated this time and time again. As our learnings evolve, we are placing a greater emphasis on market planning, evaluating density and other relevant variables and potential new markets and sequencing of shop openings optimally within new markets to efficiently build excitement and facilitate awareness as we grow. It will take time for these refinements to make their way through the real estate pipeline, but we will likely begin seeing an impact in 2025.

Christine Barone: Evaluating density and other relevant variables and potential new markets and sequencing of shop openings optimally within new markets to efficiently build excitement and facilitate awareness as we grow.

Christine Barone: It will take time for these refinements to make their way through the real estate pipeline and we will likely begin to see an impact in 2025.

Christine Barone: Concurrently, we have been increasing our advertising investments in these newer markets in an effort to increase awareness. So far, we are pleased by the initial results. Finally, last quarter, we mentioned the intention to begin shifting to a greater mix of build-to-suit leases in 2025 relative to 2024. We would expect this approach to provide a more capital efficient development strategy.

Christine Barone: Concurrently we have been increasing our advertising investments in these newer markets in an effort to increase awareness. So far we are pleased by the initial results.

Christine Barone: Finally last quarter, we mentioned the intention to begin shifting to a greater mix of build to suit leases and 2025 relative to 'twenty 'twenty. Four we would expect this approach provides a more capital efficient development strategy.

Christine Barone: That said, we believe we are uniquely positioned given strong cash-on-cash returns that work in both ground lease and build-to-suit lease arrangements. We are pleased with the excellent start to 2024, and we continue to build a strong foundation for growth. We have terrific customer engagement through our rewards program and are excited about opportunities in front of us to further accelerate this platform. We have top-tier growth. We delivered 39% year-over-year revenue growth in Q1 and yet another quarter of at least 30-plus new shop openings, demonstrating remarkable consistency.

Christine Barone: That said, we believe we are uniquely positioned given strong cash on cash returns that work in both ground lease and build to suit lease arrangements.

Christine Barone: We are pleased with the excellent start to 'twenty 'twenty four and we continue to build a strong foundation for growth we have terrific customer engagement through our rewards program and are excited about opportunities in front of us to further accelerate this platform.

Christine Barone: We have top tier growth.

Christine Barone: We delivered 39% year over year revenue growth in Q1, and yet another quarter of at least 30, plus new shop openings demonstrating remarkable consistency.

Christine Barone: We have excellent shop margins and have demonstrated that we can drive exceptional growth profitably. We are well capitalized. We believe we have plenty of flexibility upon which to execute our growth plan and capture a considerable white space. Most importantly, we have great people anchored by outstanding, engaged brokers and a strong pipeline of operators ready to open new markets and continue to expand in existing markets. With that, I'll turn it over one last time to Charley to review our financials and give more details on our guidance.

Christine Barone: We have excellent shop margins and have demonstrated that we can drive exceptional growth profitably.

Charley: We are well capitalized we believe we have plenty of flexibility upon which to execute our growth plan and capture a considerable white space.

Charley: Most importantly, we have great people anchored.

Charley: Anchored by outstanding engaged Bro East us and a strong pipeline of operators ready to open new markets and continue to expand in existing markets.

Charley: With that I'll turn it over one last time to Charlie to review, our financials and give more details on our guidance.

Christine Barone: I want to take a moment to acknowledge Charley and all he's done for Dutch Bros. Charley has worked tirelessly to help this company make a massive difference, one cup at a time, and has spent the last few months ensuring our new leadership team understands not only the financial aspects of Dutch Bros but the field focus culture as well. I have had the great pleasure of knowing Charlie for almost 15 years, and having his guidance, mentorship, and friendship has been a highlight of my career. I want to personally thank him for all he has shared and everything he has done for this company.

Charley: I want to take a moment to acknowledge Charlie and all he's done for Dutch Bros. Charlie has worked tirelessly to help this company make a massive difference one cup at a time and has spent the last few months, ensuring our new leadership team understands not only the financial aspects of Dutch bros, but the field focused culture as well.

Christine Barone: I have had the great pleasure of knowing Charlie for almost 15 years and having his guidance and Mentorship and friendship has been a highlight of my career.

Christine Barone: I want to personally thank him for all his shared and everything he has done for this company.

Charley L. Jemley: Thank you, Christine and the Dutch Bros team for those kind words. I would like to add my welcome to Josh as our new CFO. One word for Q1's financial results: outstanding. Here's a brief recap of the financial results Christine just shared with us. Revenue growth accelerated to 39%. System AUVs reached $2 million, a record.

Charley: Thank you Christine and the Dutch Bros. Team for those kind words, I would like to add my welcome to Josh as our new CFO.

Charley L. Jemley: One word for Q1 financial results outstanding.

Charley L. Jemley: Here's a brief recap of the financial results Christine just shared with you.

Charley L. Jemley: Revenue growth accelerated to 39% system Suvs reached $2 million a record same shop sales were 10%, which did include roughly a 1% benefit from February 29.

Charley L. Jemley: Same shop sales were 10%, which did include roughly a 1% benefit from February 29. Company net sales grew 43% with very good leverage driving 77% growth and company-operated shop contribution. Four wall productivity remains strong, with company-operated shop contribution margin reaching 29.8%, expanding 560 basis points year over year. However, adjusted SG&A fell below 15% for the first time since our IPO to 14.7%, 370 basis points lower than Q1 of 2023. Adjusted EBITDA increased to $53 million, growing 120% year over year.

Charley L. Jemley: Company net sales grew 43% with very good leverage driving 77% growth in company operated shop contribution.

Charley L. Jemley: Four wall productivity remained strong with company operated shop contribution margin, reaching 29, 8% expanding 560 basis points year over year adjusted.

Charley L. Jemley: Adjusted SG&A fell below 15% for the first time since our IPO to 14, 7% 370 basis points lower than Q1 of 2023.

Charley L. Jemley: Adjusted EBITDA increased to $53 million growing 120% year over year adjusted.

Charley L. Jemley: Adjusted EBITDA margin of 19.1% is up 700 basis points over quarter one last year. Company-operated shops saw strong leverage up and down the P&L, driven primarily by strong comparable sales results and continued strong margins from newer shops.

Charley L. Jemley: Adjusted EBITDA margin of 19, 1% is up 700 basis points over quarter, one last year.

Charley L. Jemley: Company operated shops saw strong leverage up and down the P&L driven primarily by strong comparable sales results and continued strong margins from newer shops.

Charley L. Jemley: Cost of goods sold improved 260 basis points year-over-year driven by strong ticket growth as well as year-over-year moderation in underlying costs. We continue to keep a close watch on key commodity costs as we did see some increases in ingredient costs as the quarter progressed. In particular, we are watching sugar and cocoa prices in the near to medium term. We make note of the elevated coffee seed price, which could become a factor down the road, given the lag time from being Moving forward, the California minimum wage action that took place on April 1 may weigh on our ability to deliver similar leverage in the future.

Charley L. Jemley: Cost of goods sold improved 260 basis points of year over year.

Charley L. Jemley: Driven by strong ticket growth as well as year over year moderation in underlying costs.

Charley L. Jemley: We continue to keep a close watch on key commodity costs as we did see some increases in ingredient costs as the quarter progressed in particular, we're watching sugar and Coco prices in the near to medium term.

Charley L. Jemley: We make note of the elevated coffee see price, which could become a factor down the road given the lag time from being to come.

Charley L. Jemley: Labor costs improved 160 basis points year over year.

Charley L. Jemley: The impact of strong comparable sales outweighed the considerable wage investments we have made in the past 12 months.

Charley L. Jemley: Moving forward, the California minimum wage action that took place April one may weigh on our ability to deliver similar leverage in the future.

Charley L. Jemley: Occupancy and other costs improved by 90 basis points year over year driven by sales leverage. Pre-opening costs remain moderate as we take advantage of the efficiency in these costs that come from MFA. For the quarter, SG&A was approximately $46 million, which included about $2 million in stock-based compensation. With the exclusion of stock-based compensation and other non-recurring expenses, adjusted SG&A was approximately $40 million, or just 14.7% of revenue compared to 18.4% in Q1 last year.

Charley L. Jemley: Occupancy and other costs improved 90 basis points year over year, driven by sales leverage as well preopening costs remained moderate as we take advantage of the efficiency in these costs that come from infill.

Charley L. Jemley: For the quarter SG&A was approximately $46 million, which includes about $2 million in stock based compensation.

Charley L. Jemley: With the exclusion of stock based compensation and other nonrecurring expenses adjusted SG&A was approximately $40 million or just 14, 7% of revenue compared to 18, 4% in Q1 last year.

Charley L. Jemley: We continue to support a high-growth business with the proper level of investment and resources while achieving leverage and support costs as we scale. Regarding our balance sheet and liquidity, as of March 31, we had approximately $662 million in total liquidity compared to approximately $683 million at the end of 2023, and we believe that we have sufficient liquidity at our disposal to support our currently contemplated growth plan. As of March 31, this liquidity was comprised of the following elements.

Charley L. Jemley: We continue to support our high growth business with the proper level of investment and resources, while achieving leverage in support costs as we scale.

Charley L. Jemley: Regarding our balance sheet and liquidity.

Charley L. Jemley: As of March 31, we had approximately $662 million in total liquidity compared to approximately $683 million at the end of 2023.

Charley L. Jemley: And we believe that we have sufficient liquidity at our disposal to support our currently contemplated growth plans.

Charley L. Jemley: $263,000,000 in cash and equivalents. $349,000,000 in undrawn revolver, and $50 million in undrawn delayed draw term loans. In the quarter, interest expense net declined $1.5 million from one year ago to $6.4 million. This decline is driven by a $3.5 million reduction in interest paid for outstanding balances in our credit facility, less the interest income we received on our investments in marketable security.

Charley L. Jemley: As of March 31 that liquidity was comprised of the following elements $263 million in cash and equivalents $349 million an undrawn revolver.

Charley L. Jemley: $50 million in Undrawn delayed draw term loans.

Charley L. Jemley: In the quarter interest expense net declined $1.5 million from one year ago to $6 $4 million.

Charley L. Jemley: This decline is driven by a $3 $5 million reduction in interest paid for outstanding balances in our credit facility less the interest income we received on our investments in marketable securities.

Charley L. Jemley: That decline is driven by an improved net cash position and is a product of the September 2023 follow-on off. Partially offsetting the decline in interest expense net is an increase in interest expense related to finance leases of $2 million, which rose from $3.5 million in Q1 2023 to $5.5 million in Q1 2024. That increase is the result of new company-operated shop openings and the portion of those openings where leases have been classified as finance leases for accounting purposes.

Charley L. Jemley: That decline is driven by an improved net cash position and is a product of the September 2023 follow on offering.

Charley L. Jemley: Partially offsetting the decline in interest expense and that is an increase in interest expense related to finance leases of $2 million, which rose from $3 $5 million in Q1, 2023 to $5 $5 million in Q1 2020 for that increase is a product of new company operated.

Charley L. Jemley: Job openings and the portion of those openings were leases have been classified as finance leases for accounting purposes.

Charley L. Jemley: Not discounting the continuing potential of uncertainty in the consumer landscape going forward, we are updating guidance for the balance of the year on the strength of our Q1 performance. As we look forward, it will always be our desire to remain nimble.

Charley L. Jemley: Not discounting the continuing potential of uncertainty in the consumer landscape going forward, we are updating guidance for the balance of the year on the strength of our Q1 performance.

Charley L. Jemley: As we look forward there will always be our desire to remain nimble in that respect we are seeing attractive returns on both our people and marketing investments and we believe the strength of our four wall model enables us to make and accelerate investments that bolster our brand.

Charley L. Jemley: In that respect, we are seeing attractive returns on both our people and marketing investments, and we believe the strength of our four walls model enables us to make and accelerate investments that bolster our brand. With this in mind, we are issuing the following update to our original 2024 guidance. Total revenues are now projected to be between $1.2 billion and $1.215 billion, or an increase of $10 million from our original guidance. Adjusted EBITDA is now estimated to be between $195,000,000 and $205,000,000, or an increase of $10 million from our original guidance.

Charley L. Jemley: With this backdrop, we are issuing the following update to our original 2020 for guidance.

Charley L. Jemley: Total revenues are now projected to be between $1 2 billion and one point to one 5 billion or an increase of $10 million from our original guidance adjust.

Charley L. Jemley: Adjusted EBITDA is now estimated to be between $195 million and $205 million or an increase of $10 million from our original guidance.

Charley L. Jemley: When we look at the remainder of the year, we expect quarterly adjusted EBITDA results to be more close to one another than we have seen in prior years. We would expect Q2 and Q3 to remain slightly stronger quarters seasonally than Q4, however, less pronounced. There are no changes to our original guidance as it relates to the following aspects. Total system shop openings remain in the range of 150 to 165, and same shop sales growth remains in low single digits. Capital expenditures are estimated to remain in the range of $280 million to $320 million.

Charley L. Jemley: When we look at the remainder of the year, we expect to see quarterly adjusted EBITDA results.

Charley L. Jemley: We're close to one another than we've seen in prior years, we would expect Q2, and Q3 will remain slightly stronger quarter seasonally than Q4, however, less pronounced.

Charley L. Jemley: There are no changes to our original guidance as it relates to the following aspects.

Charley L. Jemley: Total system shop openings remain in the range of 150 to 165.

Charley L. Jemley: Same shop sales growth remains in the low single digits.

Charley L. Jemley: Capital expenditures are estimated to remain in the range of 280 million to $320 million.

Operator: In summary, it was an outstanding first quarter and start to 2024. These results demonstrate that improvements made last year are beginning to take hold and help position us to navigate the dynamic consumer environment. We look forward to a review of our second quarter results in early August. Thank you, and now we will take your questions. Operator, please open the lines.

Charley L. Jemley: In summary, it was an outstanding first quarter and start to 2020 for.

Operator: These results demonstrate that improvements made last year are beginning to take hold and help position us to navigate the dynamic consumer environment.

Operator: We look forward to a review of our quarter two results in early August.

Speaker Change: Thank you and now we will take your questions operator, please open the lines.

Speaker Change: Thank you Sir.

Operator: Ladies and gentlemen, we will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star 2 to leave the question queue. For participants making use of speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question comes from John Ivankoe of JP Morgan. Please go ahead.

Speaker Change: Ladies and gentlemen, he will not be conducting a question and answer session.

John William Ivankoe: production process? In other words, are we just shifting the bottleneck from one thing to another? Or can both aspects of the Dutch Bros production system speed up at the same time? Obviously, I'm asking in a long winded way how much this could, at least in theory, help throughput at peak hours, given many of your stores currently being at capacity. Thank you.

John William Ivankoe: Lighthouse Christian please.

John William Ivankoe: One on the telephone keypad.

John William Ivankoe: A confirmation tone will indicate that your long easing the question queue.

John William Ivankoe: You May press star two to leave the question queue.

John William Ivankoe: All participants making use of speaker equipment.

John William Ivankoe: It may be necessary to pick up your handset before pressing the star caves.

Christine Barone: Thanks, John. We were just getting started on testing mobile orders, so we're in several shops now in Arizona. And, you know, as we look at kind of where we can speed up both production and the lines, a couple of things to note. One, we do have variability across our system in our AUVs. And so we do have a number of shops that are operating at very, very high AUVs where we have different deployment standards in those shops because of those very high AUVs.

Speaker Change: Our first question comes from Sean <unk> of J P. Morgan. Please go ahead hi. Thank you very much you know the question is on mobile order and pay and as you see it you know you mentioned you know it would significantly speed up the ordering.

Christine Barone: Process, but you don't expect to actually reduce.

Speaker Change: The amount of hours that you have your per store level employees. So are you expecting to reallocate some of the outside employees to perhaps inside and you know as you speed up the ordering process. Do you also have similar plans to speed up the production process. In other words are we just shifting the bottleneck from one thing to another or it can be.

Speaker Change: Both aspects of the Dutch Bros. A production system speed up at the same time, obviously I'm asking in a long winded way you know how much this actually could at least in theory help throughput at peak hours given many of your stores currently being at capacity. Thank you.

Christine Barone: Yes.

Speaker Change: Thanks, John.

Christine Barone: We are we're just getting started on testing mobile order. So we're in several shops now in Arizona and you know as we look at kind of where where are we can speed up both production and the lines are a couple of things to note is one we do have variability across our system in our <unk>.

Christine Barone: And so we do have a number of shops that are operating at very very high a disease, where we have different deployment standards in those shops because of those very high aedes. So as we take that as a learning as we go into something like mobile order them, we have a very thoughtful way of at different ball.

Christine Barone: So as we take that as a lesson, as we go into something like mobile order, we have a very thoughtful way of at different volumes, how we can best deploy our teams and best get through our lines. And so you're exactly right that as we look at mobile order and pay, we think it's incredibly important that we really keep our brand differentiator, and that brand differentiator is our service. And so we will deploy more folks to make sure that we have great conversations with our customers, including both at the window and in the line.

Christine Barone: We use how we can best deploy our teams and best get through our lives and so you're exactly right that as we look at mobile order and pay we think it's incredibly important that we really keep our brand differentiator and that brand differentiator is our service and so that we will deploy more folks too.

Christine Barone: Making sure that we have great conversations with our customers.

Christine Barone: Including both out the window and in the lines of your drive through the line you're going to have an awesome conversation as you come through have somebody reach you and say Oh, you got a mobile order. Let me help you with that if you come up to the window you are going to come and have that same conversation and so its very intentional that we want to reinvest this labor back into both production.

Christine Barone: So if you drive through the line, you're going to have an awesome conversation as you come through, have someone greet you and say, oh, you got a mobile order; let me help you with that. If you come up to the window, you're going to have that same conversation. And so it's very intentional that we want to reinvest this labor back into both production and into ensuring that we can have great conversations with our customers.

Christine Barone: And into ensuring that we can have great conversations with our customers and and if I can so the new stores that you will be building that will be launched with mobile order and pay you know do you expect those stores to actually have some different design or functionality that maybe some of your legacy system that was originally opened without the system.

John William Ivankoe: And if I can, some of the new stores that you will be building that will be launched with mobile order and pay, do you expect those stores to actually have some different design or functionality than maybe some of your legacy systems that were originally open without them?

Christine Barone: Yeah, so a couple things on that. I think one thing for the last several years, we have opened shops with a number of escape lanes in them, which will allow us to run drinks out to our customers and then have them leave that line before they reach the window. As we're drawing shops today, we're certainly highly cognizant that we will have mobile order capabilities in those shops in the future. And so as we think about that, we're thinking about all different types of things like parking, we're thinking about the lines, we're thinking about the escape lanes, but as you know, it does take a while for drawings to work their way through the pipeline and system.

Speaker Change: Yeah. So a couple of things on that I think one for the last several years, we have open shops with a number of escape lanes in them, which will allow us to run drinks out to our customers and then have them lean leave that line before they before they reach the window as we're drawing shops today.

Christine Barone: We're certainly highly cognizant that we will have mobile order capabilities in those shops in the future and so as we think about that we're thinking about all different types of things like parking we're thinking about the lines, we're thinking about the escape lanes.

Christine Barone: But as you as you know it does take a while for drawings to work their way through the.

Christine Barone: The pipeline in system, you know that being said I do think we have an ideal set up and many of our locations for mobile order by having both a walk up window and the drive through lane and having that walk up window. I think is going to be a very natural behavior for our customers who can come in parking lots and then just walk up and.

Christine Barone: You know, that being said, I do think we have an ideal setup at many of our locations for mobile orders by having both a walk-up window and a drive-through lane. And having that walk-up window, I think it's going to be a very natural behavior for our customers who can come in, park in our lots, and then just walk up and have a great conversation with our brewers and grab their drink, look forward to it, and Charley

Christine Barone: Have a great conversation with our borough eastern and grab their drink look forward to it and Charlie have a great time congratulations.

John William Ivankoe: I look forward to it, and Charley, have a great time. Congratulations.

Charley: Thanks, John.

Andrew Marc Barish: Our next question comes from Andy Barish of Jeffreys. Please go ahead.

John William Ivankoe: Our next question comes from Andy Barish of Jefferies. Please go ahead.

Andrew Marc Barish: Hey, guys. Yeah, great. Great working with you, Charlie. Just wondering, kind of, on your comments on April and the consumer environment. I mean, after an incredible start, your guide for the rest of the year implies, you know, pretty modest things for sales growth. So just, just kind of wondering, what's in there be the, you know, besides a fair amount of conservatism, I would imagine.

Andrew Marc Barish: Hey, guys great.

Andrew Marc Barish: Great Great working with you Charlie.

Andrew Marc Barish: Just wondering kind of.

Andrew Marc Barish: On your comments on April and the consumer environment.

Andrew Marc Barish: After an incredible start.

Andrew Marc Barish: Guide for the rest of the year implies pretty.

Andrew Marc Barish: Pretty modest same store sales growth.

Andrew Marc Barish: Just kind of wondering you know what are what's in there.

Andrew Marc Barish: Besides a fair amount of conservatism I would imagine.

Christine Barone: Thanks for your question, Andy. So as we look at the rest of the year, one thing we're being very thoughtful about is what the rollover looks like from last year. So we did see an acceleration between Q1 and Q2 last year in our same-shop sales and in our traffic between those two quarters and really throughout the rest of the year. As we look at our guidance, we're also taking into consideration numerous price moves.

Charlie: Thanks for your question Andy So as we look at the rest of the year. One thing we're being very thoughtful about is what the rollover looks like from last year. So we did see an acceleration between Q1 and Q Q2 last year in in our same shop sales and in our traffic in.

Christine Barone: Between those two quarters and really throughout the rest of the rest of the year as we look at our guidance. We're also taking into consideration numerous price moves.

Christine Barone: And you know as I shared when we look at April one of the unique things about Q1 is that we had won promo in 2023 and we lap that this year with two promos, so having protein coffee and boba lapping over a white chocolate lavender launch from last year, but that's just something that.

Christine Barone: And, you know, as I shared, when we look at April, one of the unique things about Q1 is that we had one promo in 2023, and we topped that this year with two promos. So having protein coffee and boba, lapping over our white chocolate lavender launch from last year. So that's just something that's a little bit different between the two years in terms of the timing of those promos that we wanted to make sure that we noted.

Christine Barone: It's a little bit different between the two years of the timing of those promos that we wanted to make sure that we noted.

Charley L. Jemley: And Andy, as we mentioned last quarter, we expect some additional costs to start flowing into the P&L from quarter two onward. Those still hold: that would be the California wage, and that would be the tech investments that we're making to get ready for mobile order and pay. So not only is the rollover challenge more significant as you go from Q2 forward, but our cost change shift is also going to slow things down.

Christine Barone: And Andy some as we mentioned in the last quarter, we expect some additional costs to start flowing into the P&L from quarter two onward.

Charley L. Jemley: Still holds that would be the California wage that would be the tech investments that we're making to get ready for mobile order and pay so not only the rollover challenge gets more significant as you go from Q2 forward, but our cost change a shift is also going to slow things down a little bit.

Andy: Got it.

Andrew Marc Barish: Got it. And if I could follow,

Christine Barone: Okay. Yeah, Andy, I was just gonna note the final piece was around the rewards program. So, if you recall, we made the change to the rewards program at the end of March of 2023. And so for the rest of the year, we will be lapping over, you know, taking a little bit of that discount out of the system for the rest of the year. You know, all that said, we're super happy with how Q1 went and, you know, excited for the rest.

Charley L. Jemley: Paul.

Speaker Change: Yeah, Yeah, Andy I was just going to know what the final piece was around the rewards programs. So if you recall, we made the change to the rewards program at the end of March of 2023, and so for the rest of the year, we will be lapping over you know taking that a little bit of that discount out of the system for the rest of the year.

Christine Barone: Yeah, all of that said, we're super happy with how Q1 went and are excited for the rest of the year.

Speaker Change: Oh I'm sorry.

Christine Barone: Product innovation commentary I mean it.

Andrew Marc Barish: [inaudible] I guess the simple question is, why is it working so well for you and not so well for others? Yeah, so I think if we look at our product.

Speaker Change: I guess the simple question is this.

Andrew Marc Barish: Why isn't working so well for you and not so well for others.

Christine Barone: Yeah, so when we look at our product innovation, I think one of the things is that we're in a really unique time in our growth cycle where we're big enough to really innovate with our partners and bring unique products to market. But we can also do that really quickly, because of our size and scale and our team's ability to adjust and bring new products. And, you know, I think if you look at how we did product innovation and how we looked at it, we were looking kind of externally at what were other things that were happening outside of us.

Andy: Yeah. So I think if we look at our product innovation I think one of the things is is we're in a really unique time I think in our growth cycle, where we're big enough to really innovate with our partners and bring unique products to market, but we can also also do that really quickly because of our size and scale in <unk>.

Christine Barone: Our team's ability to adjust and bring new products and I think if you look at how we did product innovation and how we looked at it is we were looking kind of externally what are other things that are happening outside of us what are things that our customers in particular are talking about and thinking about and I think that pro.

Christine Barone: What are things that our customers, in particular, are talking about and thinking about? And I think that the protein coffee occasion you're really seeing kind of that growth in the protein market, you know, as a functional beverage, and how people are using it sometimes as a meal replacement, sometimes like in combination with their fitness routine. And then, you know, boba is just something really fun, I think, straight down the middle for us in our young customer base.

Christine Barone: <unk> coffee, Acacia and you're really seeing kind of that growth and that protein market you know as a functional beverage and how people are using it sometimes as a meal replacement sometimes like in combination with their fitness routine and then you know bulbous just something really fun I think straight down the middle for us in our in our young customer base.

Christine Barone: And both of these, you know, things just felt like they really, really worked with our target customer and who we're going after. And I think that when we look at this, we're super excited that we're going to have both of these for the rest of the year, as we, you know, continue to drive that excitement with our customers.

Christine Barone: And and both of these things just felt like they really really work with our target customer and who we're going after and I think that when.

Christine Barone: When we look at this we're super excited that we're gonna have both of these for the rest of the year as we you know continue to drive that excitement with our customers.

Speaker Change: Thank you very much.

Speaker Change: Thank you.

Christine Barone: Yeah.

Sharon Zackfia: Our next question comes from Sharon Zackfia of William Blair. Please go ahead.

Christine Barone: Our next question comes from Sharon Zackfia William Blair. Please go ahead.

Sharon Zackfia: I guess just a really basic numbers question. Charley, could you break down the comp for us in terms of traffic versus ticket? Sure.

Sharon Zackfia: I guess I'm, just a really basic numbers question Charlie could you break down the contrast in terms of traffic versus ticket.

Charley L. Jemley: Yes. Hi Sharon.

Sharon Zackfia: Yes.

Charley: Hi, Sharon so.

Sharon Zackfia: Out of that 10% comp February 29th contributed approximately a point of that.

Charley L. Jemley: So out of that 10% comp, February 29th contributed approximately a point of that. Menu pricing contributed approximately six points of that. Discount and mixed shifts generated about three points of that. The balance is then traffic, and note that sales transfer is in there. And that was at the lower end of our expected range of 200 to 300 basis points. And that's how you get them.

Charley L. Jemley: Menu pricing contributed approximately six points of that discount and mixed shifts generated about three points of that.

Charley L. Jemley: The balances than traffic and note that sales transfers in there and that was at the lower end of our expected range of 200 to 300 basis points and that's how you get them.

Charley L. Jemley: Okay.

Sharon Zackfia: And then, you know, I'm just trying to think through kind of the really significant profit upside that we saw in the first quarter, at least relative to the street. I know you don't give quarterly guidance, and then the raise for the year, which was, you know, kind of more modest on the upside, and thinking through your conversation or comments that you made about the rest of the year looking more similar than normal, obviously implies some unit level margin degradation for the rest of the year on a year-over-year basis.

Speaker Change: Thank you.

Charley L. Jemley: And then you know I'm just trying to.

Sharon Zackfia: Thanks through kind of they're really significant profit upside that we saw in the first quarter at least relative to the street I know you don't give quarterly guidance and then the range for the year, which was you know kind of more modest on the upside in <unk>.

Sharon Zackfia: And thinking through your conversation that or comments that you made about the.

Sharon Zackfia: The rest of the yoga and more similar than normal.

Sharon Zackfia: Obviously implies unit level margin degradation, the rest of the year on a year over year basis.

Sharon Zackfia: Can you help us think about kind of what youre going to see from a labor perspective in California, like what you're eating there because I think you did not take price and correct me if I'm wrong and then secondarily are you baking in more inflationary commodity is that what you saw in the first quarter.

Sharon Zackfia: Can you help us think about kind of what you're going to see from a labor perspective in California, like what you're eating there? Because I think you did not take price into account, and correct me if I'm wrong, and then, secondarily, are you baking in more inflationary commodities than what you saw in the first quarter?

Charley L. Jemley: Yeah, so let me start by saying we're obviously super pleased with our performance in Q1 with 120% year over year EBITDA growth. But when we look at that, there are a couple of things to note. One is that we did have a, you know, pretty rapid acceleration in February and March of our same-shop sales. And oftentimes, when you have that type of acceleration in your sales, it's actually hard to staff against that type of growth. And so that is something that, as we move into the year, we really want our stores, our shops, to be staffed in the best way possible.

Speaker Change: Yeah. So let me start with we're obviously super pleased with our performance in Q1 with 120% year over year EBITDA growth when.

Charley L. Jemley: When we look at that a couple of things to note. One is that we did have a you know pretty rapid acceleration in February and March of our same shop sales and oftentimes when you have that type of acceleration in your sales, it's actually hard to staff against that type of growth and so that is something that as we move in.

Charley L. Jemley: Into the year, we really want our store our shops to be staffed in the best way possible and so we're just going to be very thoughtful about that and know that we had a unique acceleration throughout the quarter and the second piece is exactly what you noted is that the April a California wage increase happened on April 1st and so it is not in those Q1.

Charley L. Jemley: And so we're just going to be very thoughtful about that and know that we had a unique acceleration throughout the quarter. The second piece is exactly what you noted, that the April California wage increase happened on April 1. And so it's not in those Q1 numbers. I'll turn it over to Charley to give a few more specifics on that. But those are two of the big themes there. Yeah, and I think you asked about commodities.

Charley: Numbers I'll turn it over to Charlie to give a few more specifics on that but those are two of the big themes. There yeah and I think you asked about commodities and there's really no big movement. There. We noted in the first quarter. It was.

Charley L. Jemley: Yeah, and I think you asked about commodities, and there's really no big movement there. We noted in the first quarter that it was pretty neutral, a little bit of help.

Charley: Pretty neutral a little bit of help we don't expect a lot of change their balance of year. The the other things just to remind that we have these costs and investments coming into our P&L as we go through the balance of the year. We mentioned the California wage. We also have the tech investments related to mobile order and pay in the house will start moving into our P&L.

Charley L. Jemley: We don't expect a lot of change there in the balance of the year. The other thing is just to remind you that we have these costs and investments coming into our P&L as we go through the balance of the year. We mentioned the California wage.

Charley L. Jemley: We also have the tech investments related to mobile order and pay, and those will start moving into our P&L more fully. And then I talked about the shape of earnings and how we went into the year very confident in the first quarter. We delivered a great number.

Charley L. Jemley: More fully and then.

Charley L. Jemley: About the shape of earnings and how.

Charley L. Jemley: We went into the year very confident in the first quarter, we delivered a great number.

Charley L. Jemley: And so as we move through the year, we would expect a more normal sequence from quarter one to two and three than you've seen in the past. So we expect a tighter absolute range of profitability. As you start looking at two and three, and then less fall off in four than we normally would have experienced in the past. So I think looking at the trajectory of the absolute profit dollars in the quarter, just be mindful of that.

Charley L. Jemley: And so as we move through the year, we would expect that a more normal sequence from quarter, one to two and three than you've seen in the past. So we expect a tighter absolute range of profitability.

Charley L. Jemley: As you start looking at two and three and then less falloff in four than we normally than we would have experienced in the past. So I think looking at the trajectory of the absolute profit dollars in the quarter just be mindful of that.

Sharon Zackfia: Thank you and, Charley, best of luck.

Charley L. Jemley: And Charlie Best of luck.

Charley: Thank you.

Chris O'Call: The next question comes from Chris O'Call of Stifle. Please go ahead.

Sharon Zackfia: The next question comes from Christopher <unk> of Stifel. Please go ahead.

Unknown Attendee: Great, thanks. Hey, guys, this is Patrick on for Chris. Charlie, it's obviously been a pleasure. So Christine, I did want to start with, you know, the paid advertising. And I'm curious if you feel like you have found an effective marketing mix that you believe will increase brand awareness, specifically in markets like Texas, that maybe can not only help comps but also start to address some of that new unit volume pressure you've been seeing.

Chris O'Call: Great. Thanks, Hey, guys. This is Patrick on for Chris.

Speaker Change: Charlie obviously been a pleasure.

Patrick: So Christine.

Unknown Attendee: I did want to start with you know the paid advertising and I'm curious if you feel like you've found an effective marketing mix that you believe will increase brand awareness specifically in markets like Texas that maybe you can not only help comps, but also start to address some of that new unit volume pressure you've been seeing.

Christine Barone: Thanks, Patrick. Yeah, that is an area that we absolutely saw success in in Q1. And so we really started kind of experimenting in earnest in Q4 of last year with different channels, different messaging, and you know, how best to reach new customers, particularly in new markets. And we're incredibly encouraged by the results that we're seeing from that work. And I think that with the very strong rewards penetration that we have at that 66% of transactions, we have an awesome channel to talk to existing customers, especially in our mature markets where that penetration rate is even higher. And we really are using our paid spend and our paid advertising to go after introducing new customers to our brand.

Unknown Attendee: Thanks, Patrick Yeah that is an area that we absolutely saw success with in Q1, and so we really started kind of experimenting in earnest in Q4 of last year with different channels different messaging and how best to reach new customers.

Christine Barone: <unk> in new markets and we're incredibly encouraged by the results that we're seeing of that work and I think that with the very strong rewards penetration that we have at that 66% of transactions. We have an awesome channel to talk to existing customers, especially in our mature markets where that penetration rate.

Christine Barone: It's even higher than you really are using our paid spend in our paid advertising.

Christine Barone: To go after them, introducing new customers to our brand.

Unknown Attendee: Great, that's very helpful. And then I did want to follow up on your comments around, you know, category-defining innovation. And I realize you're not going to share identified opportunities or upcoming products by any means, but can you help us understand the strength of the pipeline of ideas that you currently have that you feel could be category-defining or innovative? And then how should we be thinking about the pace of product launches in the similar vein of what you did in the first quarter as we think about the rest of the year, even into 2025, and whether or not there's a certain cadence that we should be sort of thinking about?

Speaker Change: Great. That's helpful. And then I did want to follow up on the your comments around you know.

Unknown Attendee: Category defining innovation and I realize you're not going to share identified opportunities or upcoming products by any means but can you help us understand the strength of the pipeline of ideas that you. Currently have that you feel could be category defining are innovative and then how should we be thinking about the pace of product launches in the similar vein of what.

Unknown Attendee: You did in the first quarter as we think about the rest of the year or even into 2025, and whether or not theres, a certain cadence that we should be sort of thinking about.

Christine Barone: Yeah, so I'll start with I think the protein coffee is just a really great example of this, where it really is a new use occasion for our customers in a way that they likely hadn't used us in the past. So it can create repeat purchase, and sometimes, I think, can even reach customers that may be our new customers to us.

Unknown Attendee: Yeah. So I'll start with I think the protein coffee is just a really great example of this where it really is a new use occasion for our customers in a way that they likely hadn't used us in the past. So it can create repeat purchase it's sometimes they think can even hit customers that may be.

Christine Barone: Or new customers to us and so the reason we would call something like that category defining is its really a whole new group of products for us that's different than the other things that we have and I think as we go through the rest of the year. You know one thing to note I think with the launch of both the keeping the.

Unknown Attendee: And so the reason we would call something like that category defining is that it's really a whole new group of products for us that are different than the other things that we have. And I think, you know, as we go through the rest of the year, one thing to note. I think with the launch of both keeping the strawberry boba on the menu and having the protein coffee on the menu, you could expect us to continue to innovate around these two pieces as we go through the year.

Unknown Attendee: Strawberry buildup on the menu and having the protein coffee on the menu I think you could expect us to continue to.

Unknown Attendee: To innovate around these two pieces as we go through the year. In addition to having a pipeline of other great products as we go through the year. We were very pleased with what we're what we're starting to see with this like two month promo cadence and so having something around that but again, it's a it's an area that we continue to look at to.

Unknown Attendee: In addition to having a pipeline of other great products as we go through the year, we were very pleased with what we're starting to see with this like two-month promotion cadence. And so having something around that, but again, it's an area that we continue to look at to understand what's working best with our customers and our breweries. Very helpful. Thanks, guys.

Unknown Attendee: Understand what's working best in with our customers and our Bro East us.

Unknown Attendee: Very helpful. Thanks, guys.

Speaker Change: Thank you.

Unknown Attendee: Okay.

Unknown Attendee: Okay.

Brian Hugh Mullan: Our next question comes from Brian Mullan of Piper Sandler. Please go ahead. Okay, thank you.

Brian Hugh Mullan: Our next question comes from Brian Mullan of Piper Sandler. Please go ahead. Okay, thank you. Just a question on the entrance into Florida, you know, Christine, you...

Unknown Attendee: Our next question comes from Brian Mullan of Piper Sandler Please.

Brian Hugh Mullan: Please go ahead.

Brian Hugh Mullan: Okay. Thank you just a question on the entrance into Florida, you know Christine you spoke to a good start in the prepared remarks, but maybe you can just elaborate talk about what youre doing on the brand awareness front and seeing with the consumer reception and then just related just to confirm is it fair to say.

Brian Hugh Mullan: Doors are hitting your underwriting expectations, thus far from from a margin perspective, if you could just comment on that too that'd be great.

Christine Barone: Yeah, I would share that it's definitely still early. I think what we were very pleased by was to go into a new market. We just saw lots of buzz around our openings. We were able to see that we had customers, you know, coming from lots of different places away to come and visit us in our new shops. We only have two shops open, but as I shared, these shops are exceeding what we had expected them to do. So, I am very excited to be in this new market and to be meeting lots of new customers in Florida.

Brian Hugh Mullan: Yeah, I would sure. It's it's definitely still early I think what we were very pleased by us to go and open into a new market. We just saw lots of buzz around our openings, we were able to see that we had customers coming from from lots of different places away to come and visit us in our new shops.

Christine Barone: We only have two shops open them, but as I shared the shops are exceeding what we what we had expected them to do so very excited to be in this new market and to be meeting lots of new customers in Florida.

Christine Barone: Okay.

Speaker Change: Okay. Thank you and Charlie Congrats and best of luck. Thank you.

Speaker Change: Thanks, Brian.

Sara Harkavy Senatore: Our next question comes from Sara Senatore of Bank of America. Please go ahead.

Christine Barone: Our next question comes from Sara Senatore of Bank of America. Please go ahead.

Christine Barone: Thank you. I wanted to ask you a couple of questions. One is if you could just talk a bit about the mobile order. I think it sounded like the expectation is that you will be part of the consideration set of customers. Does that mean bringing in new customers or greater frequency with existing customers? I think we've seen from other restaurants that sometimes the mobile app is a good customer acquisition tool, but I wanted to get your thoughts on that, and then I'll give you a follow-up.

Sara Harkavy Senatore: Oh, thank you.

Speaker Change: Wanted to ask I guess, a couple of questions. One is if you could just talk a bit about them. They are mobile order and I think it sounded like the expectation is that you.

Christine Barone: You will be part of the consider you shouldn't set of customers. So that does that mean, bringing in new customers or is it or greater frequency with existing customers. I think we've seen from other restaurants that sometimes the mobile app is a good customer acquisition tool, but I wanted to get your thoughts are on that and then an idea or a follow up.

Christine Barone: Yeah.

Sara Harkavy Senatore: Yeah, I think that it actually, you know, could be both of how we consider it. I do think, as you know, our expectation would be as we roll this out in the early days that we have such strong penetration already of our rewards app that this would likely start with our existing customers and potentially introduce a new occasion where they were in a time crunch or were a little bit worried about, you know, potentially waiting in a long line.

Speaker Change: Yeah, I think that it actually you know could it could be both of how we'd consider it I do think as you know our our expectation would be as we roll. This out in early days that we have such strong penetration already of or our rewards app that this would likely start with our existing customers and potentially.

Sara Harkavy Senatore: Introduce a new occasion, where they were at a time crunch or we're a little bit worried about you know potentially waiting until when it when you're in a long line and the other thing I think we've seen in some of the industry comments is that the for the a M day part that that mobile order might be particularly important just given I think.

Sara Harkavy Senatore: The other thing I think we've seen in some of the industry comments is that for the morning part, that mobile order might be particularly important, just given that people have a little bit more time crunch sometimes in the morning. And so our ability to potentially capture new occasions in the morning as we roll out mobile order and pay is something that we're definitely excited about.

Sara Harkavy Senatore: People have a little bit more a time crunch, sometimes in the morning, and so our ability to potentially capture a new occasions in the morning, as we roll out mobile order and pay is something that we're definitely excited about.

Speaker Change: Understood. Okay, and then the second thing the.

Speaker Change: The second question was just on advertising I'm, you know I think a lot of times it.

Sara Harkavy Senatore: You know, I think a lot of times that advertising spend actually kind of compounds over time. So as I think about that as a driver, I understand that your comparisons maybe get a little bit more difficult.

Sara Harkavy Senatore: Here's that advertising spend actually kind of compounds over time, and so as I think about that as a driver I understand that air comparison, maybe get a little bit more difficult, but I think you also have sort of this.

Christine Barone: But you, I think you also have sort of this, you know, I guess, virtuous cycle, perhaps a way to characterize it. So as you think about advertising, is it just, you know, in each quarter, advertising drives traffic and trial, and then you kind of start from zero again? Or, or is that something that you would expect to see where it builds on itself over time?

Speaker Change: Yeah I guess.

Christine Barone: Cycle, perhaps maybe what I characterize it as anything about advertising is it just you know in each quarter advertising drives traffic and trial and then you kind of start from zero again are or is that something that you would expect to see where it builds on itself over time.

Sara Harkavy Senatore: Yeah, I do think that it could be reasonable to think through that it would build over time. I think we are also getting smarter and learning more about what the most effective channels are for us, and what the most effective pacing and sequencing of that paid advertising is. And, you know, it really encourages us to make additional investments in paid advertising, given the very strong results we believe we're seeing right now. Okay, thank you.

Speaker Change: Yeah, I do think that it it could be reasonable to think through that it would build over time I think we are also getting smarter and learning more with what the most effective channels are for us what the most effective pacing and sequencing of that paid advertising is.

Sara Harkavy Senatore: And you know it really encourages us to make additional investments in paid advertising given the very strong results. We believe we're seeing right now.

Sara Harkavy Senatore: Okay, thank you, and congrats, Charlie. You will be missed.

Speaker Change: Got it okay. Thank you and congrats Charlie you'll be missed.

Speaker Change: Thank you.

David E. Tarantino: The next question comes from David Tarantino of Baird; please go ahead.

Sara Harkavy Senatore: The next question comes from David Tarantino of Baird. Please go ahead.

Christine Barone: Hi, good afternoon. My question is about advertising. Christine, you mentioned being pleased with the results you're seeing in some of the newer markets, and I was wondering what you're measuring or what results you're looking at when you make that statement. Is it the sales response, or is it, you know, some sort of awareness metric, or how are you measuring success?

David E. Tarantino: Hi.

David E. Tarantino: Good afternoon.

Christine Barone: My question is on on the advertising Kristina I think you mentioned being pleased with the results Youre seeing in some of the newer markets and I was wondering.

Christine Barone: If you could just elaborate on what you're measuring or what what results Youre looking at when you. When you make that statement is it is it the sales response or is it.

Christine Barone: Some sort of awareness metric or how are you measuring success at this point.

David E. Tarantino: The primary success metric that we're looking at right now is our same shop sales trends. We do also have detailed metrics on views and click-throughs and all of those types of things, but this is something that we're excited about when it shows up in our traffic and same shop sales trends.

Christine Barone: The primary success metrics that we're looking at right now is our same shack sales trends.

David E. Tarantino: We do also have detailed metrics on you know views and click throughs and all of those types of things, but you know this is something that we're excited when it shows up in our traffic and same shop sales trends.

Speaker Change: Got it okay. Thank you for that and then on the on the rewards program it seems like.

David E. Tarantino: That has been a.

David E. Tarantino: Pretty big driver.

David E. Tarantino: Year over year perspective, you know it doesn't seem like youre doing much faster now.

Christine Barone: You know, it didn't seem like you were doing much last year, but now you're doing a lot in that rewards program in terms of communication.

Christine Barone: We're doing a lot in that in that rewards program in terms of communication. So I wanted to get your thoughts you know youre going to be.

David E. Tarantino: So I wanted to get your thoughts. You know, you're going to be experiencing some of that initial surge coming up. I just wanted to get your thoughts on kind of what year two looks like and, you know, how you've refined that program in a way to keep this a sales driver as you think about year two and year three.

David E. Tarantino: Cycling some of that initial surge.

David E. Tarantino: Coming up but I just wanted to get your thoughts on kind of what year two looks like.

David E. Tarantino: You know how how you find the program in a way to keep this the sales drivers you think about year, two and year three.

Christine Barone: Yes, I would say as we did the reset at the end of March of 2023. And as we moved into April and had that extra discount that we really deployed against traffic driving, we started with testing more mass offers to really almost our entire audience. As we moved through the balance of 2023, we started to be able to segment a little bit, and we were obviously learning from what was successful and what drives results.

Speaker Change: Yeah. So I would say is we did the reset at the end of March of 2023, and as we moved into April and had that extra discount that we really deployed against traffic driving we started with testing more mass offers them too to really almost R. R.

Christine Barone: Our entire audience.

Christine Barone: As we moved through the.

Christine Barone: The balance of 2023, we started to be able to segment a little bit and we were obviously learning from what was successful what drives results.

Christine Barone: And we continue to roll that out over time. So I think when you think about a program like this, we are still, you know, in the relatively early innings of it, where we still have more segmentation to go, we still are building our database of what works and doesn't work, as we go through that over the first half of this year.

Christine Barone: And we continue to work to to use that over time. So I think when you think about a program like this we are still in the relatively early innings of it where we still have more segmentation to go we still are building our database of what works and doesn't work and obviously, we're always in an evolving.

Christine Barone: Consumer landscape and so understanding what others are doing and how that impacts the offers that we're doing and we're also building what I would say is our operational capabilities to deploy offers even more quickly. So we can almost slate a whole bunch of offers in a row and then.

Christine Barone: [noise] side, which ones to pull as we go through a quarter and so a lot of that is actually still new as we as we come through that over that you know the first half of this year.

David E. Tarantino: Great. Thank you very much and best of luck, Charlie.

Speaker Change: Great. Thank you very much and best of luck Charlie.

David: Thank you David.

David E. Tarantino: Okay.

Jeffrey Andrew Bernstein: Thank you. Ladies and gentlemen, in the interest of time, we ask that you please limit yourself to one question and one follow-up. Our next question comes from Jeffrey Bernstein of Barclays. Please go ahead.

Speaker Change: Thank you, ladies and gentlemen in the interest of time, we all study please limit yourself to one question and one follow up on.

Jeffrey Andrew Bernstein: Our next question comes from Jeffrey Bernstein of Barclays. Please go ahead.

Jeffrey Andrew Bernstein: Yeah.

Jeffrey Andrew Bernstein: Great. Thank you very much. And congrats, Charlie, clearly leaving on a high note. Best of luck. Thank you.

Jeffrey Andrew Bernstein: Great. Thank you very much and congrats Charlie clearly, leaving on a high note and best of luck.

Speaker Change: Thank you.

Jeffrey Andrew Bernstein: I had a question and then a follow-up. So my question is just, well, it's actually a follow-up as well. The magnitude of the traffic and ticket problem, I know you mentioned it was tempered in April, versus what would likely have been, I'm guessing, a teen exit rate in the first quarter, especially with January being pressured. I would assume, therefore, February and March were above that 10% for the full quarter. As you think about that tempering in April, any sign of a macro slowdown or pressure from a lower income consumer? Or do you see it all as really just comparisons and the outages and the lap of the rewards?

Jeffrey Andrew Bernstein: A question and then a follow up somebody.

Jeffrey Andrew Bernstein: I was just well, it's actually a follow up as well.

Jeffrey Andrew Bernstein: The magnitude of the traffic and ticket I know you mentioned it was tempered in April versus what would likely have been I'm guessing a teen exit rate in the first quarter, especially with January being pressured I would assume there for February and March were above that 10% for the full quarter.

Jeffrey Andrew Bernstein: Think about that tempering in April.

Jeffrey Andrew Bernstein: Sign of macro slowdown or pressure from the lower income consumer or do you see it all as really just compares and the outages in the lap of the rewards just trying to get a sense for the <unk>.

Christine Barone: Just trying to get a sense for the second quarter comp. Obviously, the quarter is almost halfway done, and just because it was such a strong first quarter comp, I just want to make sure we're all on the same page as to what we should be thinking for that second quarter comp with that low single-digit full year guide intact.

Jeffrey Andrew Bernstein: Second quarter comp, obviously quarters, almost halfway done and just because it was such a strong first quarter comp just want to make sure. We're all on the same page as to which we should be thinking for the second quarter comp with that low single digit full year guide intact, and then I had one follow up.

Jeffrey Andrew Bernstein: Yeah, I think at this point, from what we see, we believe a lot of it is these internal factors that we were outlining. So one, looking at kind of that core underlying traffic change between Q1 and Q2 of 2023. So what we're lapping over is the other piece, which is this piece where we had the extra promo in Q1. And then having the implications of that in Q2. We also had such incredibly strong demand for BOBA as we launched in March that despite ordering more product very quickly, we did have fairly significant outages in our shops at the end of April for BOBA, which we're starting to replenish now. And so all of those different factors are really internal factors that we believe that we're seeing in that start to Q2.

Speaker Change: Yeah, I think at this point from what we see we believe a lot of it is he's internals doctors that we were outlining them. So one I'm looking at kind of that core underlying traffic change between Q1 and Q2 of 2023, So what were lapping over.

Jeffrey Andrew Bernstein: The other pieces is this piece, where we had the extra promo in Q1.

Jeffrey Andrew Bernstein: And then having so having the implications of that in Q2. We also had such incredibly strong demand for bauxite as we launched in March AR that despite ordering more product very quickly. We did have fairly significant outages in our shops at the end of April of Boba, which we're starting.

Jeffrey Andrew Bernstein: To replenish now into our shops and so all of those different factors are really internal factors that we that we believe that where we're seeing in that start to Q2.

Christine Barone: And then my follow-up is just on the California performance. I know you mentioned that Well, that was a reference to price increases that you did or did not take in California. Just looking to clarify what exactly you guys did in California, and have you seen any change in trajectory of your performance or anything you'd note about the industry over the past five or six weeks, just because you have such a significant presence there and it is such an unusual event? Any thoughts would be great. Thank you. So a couple facts about January.

Speaker Change: Understood and then my follow up was just on the California performance I know you mentioned that.

Christine Barone: Well there was reference to price increases that you did or did not take in California, just looking to clarify what exactly you guys did in California.

Christine Barone: And have.

Christine Barone: Have you seen any change in trajectory of your performance or anything you'd note about the industry over the past five or six weeks, just because you have such a significant presence there and it is such a unusual event any thoughts would be great. Thank you.

Charley L. Jemley: So, a couple of facts there. In January, when the legislated minimum wage for all workers went up in California, we took a slight price advance. And then on April 1, when the FAST Act kicked in, we also took a price advance. That price advance was designed to keep us as close to penny profit whole as possible, not margin accretive. And then I think we are watching this very closely. It would be far too early to declare any knowledge of whether this is going to have any, you know, lasting effect on traffic at this point.

Christine Barone: So a couple of facts there in January when the legislated minimum wage for all workers went up in California, We took a slight price advance and then on April one when the fast Act kicked in we also took a price advance that price advance was designed to keep us as close to a penny prop.

Charley L. Jemley: That whole as possible not margin accretive and then I think we are watching this very closely.

Charley L. Jemley: Would be far too early to declare any knowledge of whether this is going to have any lasting effect on traffic at this point.

Charley L. Jemley: Yeah.

Speaker Change: Thank you.

Nick Setyan: Our next question comes from Nick Setyan of Redbush Securities. Please go ahead.

Charley L. Jemley: Our next question comes from Nick fit him off Wedbush Securities. Please go ahead.

Nick Setyan: Thanks, and I just want to echo my congratulations for Q1 and it's been great working with you, Charlie. I do think this, you know, Q2 kind of guidance commentary and the full year guidance is really important to touch back upon, just given the strength of Q1, we could potentially have a negative comp for the rest of the year and still have low single-digit comps. So, to the extent possible, it would just be really helpful if you could kind of gradually clarify what you're seeing in April and what you expect the comp to be in Q2, if possible.

Nick Setyan: Thanks.

Nick Setyan: I just want to Echo my congratulations for Q1, and it's been great working with you Charlie.

Nick Setyan: I do think this Q2 kind of guidance commentary on our full year guidance is.

Nick Setyan: It's really important to touch back upon.

Nick Setyan: Just given the strength of Q1.

Nick Setyan: I mean, we could potentially have a negative comp for the rest of the year and still have low single digit comp so.

Speaker Change: Correct them possible.

Speaker Change: Helpful. If you could.

Nick Setyan: Kind of maybe Inc.

Nick Setyan: Incrementally clarify what youre seeing in April and what you expect the comp to be in Q2 if possible.

Speaker Change: Well we.

Charley L. Jemley: We won't give you a Q2 comp, but I think it's important to get some context. So last year, we had a negative 2 comp in the first quarter. Last year, we had a positive four comp in the second quarter, so a four point swing. This year, we had a six, we mentioned a six-point price help in the quarter. That will moderate, particularly as we move to the bounce of the year.

Speaker Change: We won't give you a Q2 comp, but I think it's important to get some context, so last year.

Charley L. Jemley: Had a negative two comp in the first quarter.

Charley L. Jemley: Last year, we had a positive for comp in the second quarter. So as a four point swing. This year, we had a six well you mentioned a six point.

Charley L. Jemley: Rice helped in the quarter.

Charley L. Jemley: That will moderate, particularly as we move to the balance of year. So you. Both have you just have this pricing rollover is going is going down.

Charley L. Jemley: So you both have this pricing rollover is going down. And so we're just, we're moving through an average of about a four comp we have to lap in the back three quarters of this year versus lapping in negative two. So it isn't that we have a negative or not an optimistic view of the balance of the year; it is just a product of the match, when you look at it.

Charley L. Jemley: So so we're we're just we're moving through an average of about a four comp we have to lap in the back three quarters of this year versus lapping a negative two so it's it isn't that we have.

Charley L. Jemley: A negative or not an optimistic view of the balance of year. It is just it is a product of the math.

Charley L. Jemley: When you look at it.

Nick Setyan: Fair enough. And this is a follow-up, maybe just on the pricing piece. So it was six points in Q1. What do we expect pricing to be in Q2?

Speaker Change: Fair enough and just as a follow up maybe just on the pricing piece there was six points and in Q1, what do we expect pricing to be in Q2.

Charley L. Jemley: So approximately six to seven percent of rollover help in Q2. And then that will moderate significantly as you go to three and four.

Speaker Change: So approximately 6% to 7%.

Charley L. Jemley: Rollover help in Q2.

Charley L. Jemley: And then that will moderate significantly as you go to three and four.

Nick Setyan: Okay, thank you very much.

Speaker Change: Okay. Thank you very much.

Andrew Michael Charles: Our next question comes from Andrew Charles of TD Cohen.

Nick Setyan: Our next question comes from Andrew Charles of TD Colin.

Andrew Michael Charles: Please go ahead.

Andrew Michael Charles: Great, thank you. I just want to start by wishing you congratulations on both Charlie and Josh. Christine, very exciting commentary about the new store performance you're seeing in Florida. Can you speak to what you're seeing, you know, relative to the overall base of new store productivity? You have cheered how this has been trending, recognizing that you had been guiding to a flat year for new store volumes for 2020 and 2024 relative to 2023. I'm wondering if that's still on track and that's still the way I think about this Reconomics for this year.

Andrew Michael Charles: Great. Thank you.

Andrew Michael Charles: And congratulations to both Charlie and Josh Christine.

Andrew Michael Charles: Christine very exciting commentary about the new store performance Youre seeing in the Florida Keys, you saw what you're seeing relative to the overall pleased with new store productivity. You're curious how this has been trending Black Knights Tonight, you had been guiding to a flat year for new store volumes for 2020.

Andrew Michael Charles: Poor relative to 233 I'm wondering if that's still on track and that's still the way to think about just your economics for this year.

Christine Barone: Yeah, so as we look at new shop productivity, again, we're just getting started in Florida. And with those two shops, although we're incredibly pleased with their performance, we do still plan to open 150 to 165 shops this year. So, you know, Florida, you know, it's not going to be the lion's share of the openings for this year. But we did see new shop productivity improve in Q1 of 2024. On the back of our strong new unit openings and sales growth, we're continuing to see some really big openings in some of our mature markets and are pleased with the results that we're seeing from kind of the building awareness efforts in that paid advertising.

Christine Barone: Yeah. So as we look at our new shop productivity again, we're just getting started in Florida and with those two shops, although we're incredibly pleased with their performance.

Andrew Michael Charles: [inaudible]

Andrew Michael Charles: We do still plan to open 150 to 265 shops this year so the.

Andrew Michael Charles: Florida, you know, what it's not going to be the lion's share of the openings for this year, we did see a new shop productivity improve in Q1 of 2024.

Andrew Michael Charles: On the back of our strong new unit openings and sales growth were continuing to see some really big openings in some of our mature markets and then are pleased with the world's adults that were seeing from kind of the building awareness efforts and that paid advertising.

Speaker Change: Great and just didn't really mean to the advertising can you help us quantify how much more investment you're putting into that relative to expectations would be if she had I know, it's an area of focus and they're stepping up slide 24.

Christine Barone: Yeah, so we haven't shared that number in particular. We do expect a small step up in our advertising spend. And we're continuing to evaluate that, though, as we go throughout the year. And one of the things is that we can measure that. And as we're looking more closely at what is happening to our traffic trends and our same shop sales trends from that, we are allowing ourselves kind of the ability to just spend more in those areas as we see results from it.

Speaker Change: Yeah. So we haven't shared that number in particular, we do expect a small step up in our in our advertising spend and we're continuing to evaluate that though as we go throughout the year and one of the things that we can measure that and as we're looking more closely at what has happened.

Christine Barone: Two our traffic trends in our same shop sales trends from that we are allowing ourselves kind of the ability to.

Christine Barone: To spend up in those areas as we see results from it.

Christine Barone: Yeah.

Andrew Michael Charles: Great, thank you so much and best wishes, Charley. Thank you. Thank you.

Speaker Change: That's great. Thank you so much and best wishes Charlie.

Speaker Change: Thank you.

Jeffrey Daniel Farmer: The next question comes from Jeffrey Farmer of Gordon, Haskett. Please go ahead. Thank you.

Andrew Michael Charles: The next question comes from Jeff Farmer of Gordon Haskett. Please go ahead.

Jeffrey Daniel Farmer: Thank you, and Charlie, enjoy everything that you pursue in the future. I have a quick question and a follow-up. On the question...

Jeffrey Daniel Farmer: Thank you and truly enjoy everything that you pursue in the future I have a quick question and a follow up on the question.

Jeffrey Daniel Farmer: Roughly, ballpark, how many Texas shops have actually made it into the Comparable Store base? I think it's roughly 15 months, and of those shops, those that are in the comp base, are they acting as a seamstress sales tailwind? How are they showing up in the call-in phase?

Jeffrey Daniel Farmer: Roughly ballpark, how many Texas shops have actually made it into the comparable store base I think it's roughly 15 months and end of those shops, Texas shops that are in the comp base are they acting as our same store sales tailwind how are they showing up in the comp base.

Jeffrey Daniel Farmer: Yeah.

Charley L. Jemley: We don't disclose individual state comps. But there were 77 shops, am I correct here, Paddy, in the comp base in the first quarter for Texas. 77 out of roughly 175 there now.

Speaker Change: We don't disclose individual state comps, but there were 77 shops my correct. Your patents in the comp base in the first quarter for Texas 77 out of roughly around 175, there now.

Jeffrey Daniel Farmer: Okay. And then just on the follow-up, how are you thinking about sales transfer in the coming quarters? You mentioned that it was I think 200 basis points ahead went a little bit better than you thought it was going to be. How should we be thinking about sales transfer moving forward?

Charley L. Jemley: Okay.

Speaker Change: And then just on the follow up or how are you thinking about sales transfer in coming quarters. You mentioned that it was I think 200 basis points of a headwind so a little bit better than you thought it was gonna be how should we be thinking about sales trends for moving forward.

Christine Barone: Yeah, so we have a range, an expected range of 200-300 basis points. You're correct that we said this quarter it was in the lower end of that range. And as we go through the year, as the comp base gets bigger, the impact of sales transfer starts to moderate. So we would expect to move towards the lower end of that range as we go throughout the year.

Speaker Change: Yeah. So we have a range of an expected range of 200 300 basis points. You. You. You are you are correct. There that we said this quarter. It was in the lower end of that range and as we go through the year as the comp base gets bigger the impact of sales transfer starts to moderate so we would expect to move towards the lower end of.

Christine Barone: That range as we go through that throughout the year.

Jeffrey Daniel Farmer: All right. Thank you. Best of luck, Charlie. Thank you. Our final question comes from Dennis Grager of UBS. Please go ahead. Thanks, guys.

Speaker Change: Oh, alright, Thank you best of luck Charlie.

Dennis Grager: Thank you.

Dennis Grager: Our final question comes from Dennis Grager of UBS. Please go ahead. Thanks, guys. Just wondering if you could speak to

Dennis Grager: Our final question comes from Dennis Geiger of UBS. Please go ahead.

Dennis Grager: Thanks, guys. Just wondering if you could speak to the competition is at all as others try to replicate your success.

Dennis Grager: And get them to energy or other categories that you've gotten into any update on your latest thoughts on that dynamic is is it something where it may be a benefit as marketing advertising draws attention to the category.

Dennis Grager: Latest thoughts on that.

Christine Barone: Yeah, I think that as we look across, you know, there, we've always been in a very competitive market. And, and so we will continue to be in a competitive market. So as I look at others trying to do some of the things that we're doing, I do think if big advertising budgets come in and share some of the things that are important to us, it could, very likely, be a benefit to us.

Dennis Grager: Yeah, I think that as we look across.

Christine Barone: You know that we've always been in a very competitive market and and so we'll continue to be in a competitive market. So as I look at like others trying to do some of the things that we're doing I do think it's big advertising budgets come in and share some of the things that are important to us is it very likely could be a benefit to us.

Christine Barone: I think most importantly for us it's really staying very very true to who we are understanding why our customers are coming back to us in continuing to to have beverages with us and enjoy our service is what's super important and I think that you know at a time like this where you do have customers who are really thinking through.

Christine Barone: I think most importantly, for us, it's really staying very, very true to who we are, understanding why our customers are coming back to us and continuing to have beverages with us and enjoy our service. It's super important. And I think that, you know, at a time like this, where you do have customers who are really thinking through how to spend their wallets, it's really important to stay true to what makes you incredibly successful. And for us, it is absolutely our baristas and the service they offer to our customers. It makes sense.

Christine Barone: You know how to spend our spend their wallets that it's really important to stay true to what makes you incredibly successful and for US. It absolutely has our borough East coast and the service they offer to our customers.

Christine Barone: Okay.

Dennis Grager: Thank you and congrats. Thank you. Thanks for your questions.

Speaker Change: Makes sense, thank you and congrats.

Speaker Change: Thank you.

Christine Barone: In closing, I'd also like to invite everyone to join us for our 18th annual Drink One for Dane Day. On May 17, our customers and crews will honor our co-founder Dane Boersma, who passed away in 2009 following a battle with ALS. Drink One for Dane is one of the most meaningful days of the year for Dutch Bros. Last year, our customers, franchisees, and vendors joined together to support our foundation in donating $2.5 million to the Muscular Dystrophy Association to help find a cause and cure for ALS.

Speaker Change: Thanks for your questions and in closing I'd also like to invite everyone to join us for 18th annual drink one for Dan day on May 17th our customers and crews will honor our cofounder Dane Boersma, who passed away in 2009, following a battle with a L. S drink one for Dean it's one of the most meaningful days of.

Christine Barone: A year for Dutch Bros. Last year, our customers franchisees and vendors joined together to support our foundation and donating to $5 million to the muscular dystrophy Association to help find a cause and cure for a L. S.

Christine Barone: We look forward to continuing to make an impact in 2024 and beyond. The impact Dutch Bros is making in our communities and the lives of our broistas continues to grow. We are pleased with our results in Q1 and believe our business is in a position of strength. I want to thank all of our teams that have created this exceptional performance by connecting with our customers and communities every single day. Thank you. Thank you. Ladies and gentlemen, that concludes today's event. Thank you for attending, and you may now disconnect.

Christine Barone: We look forward to continuing to make an impact in 2024 and beyond.

Christine Barone: The impact Dutch Bros is making in our communities and the lives of our breweries to continues to grow we are pleased with our results in Q1 and believe our business is in a position of strength I want to thank all of our teams that create this exceptional performance by connecting with our customers and communities every single day. Thank you.

Christine Barone: Yeah.

Speaker Change: Thank you ladies and gentlemen that concludes today's event. Thank you for attending and even now disconnect your lines.

Operator: Thank you. Ladies and gentlemen, that concludes today's event. Thank you for attending, and you may now disconnect your line.

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