Q2 2024 Dutch Bros Inc Earnings Call

August 7, 2024

Operator: Greetings and welcome to the Dutch Bros second quarter 2024 conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Paddy Warren, Director of Investor Relations and Corporate Development. Please go ahead.

Greetings and welcome to the Dutch Bros. Second quarter 'twenty 'twenty four conference call. At this time, all participants are in a listen only mode.

Paddy Warren: And welcome. I'm joined by Christine Barone, CEO and President, and Josh Guenser, CFO. We issued our earnings press release for the quarter ended June 30th, 2024, after the market closed today. The earnings press release, along with the 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 risk, uncertainty, and assumptions that may cause actual results to differ materially.

Brief question and answer session will follow the formal presentation, if anyone should require operator assistance during the conference.

Please press Star zero on your telephone keypad as a reminder, this conference is being recorded its now my pleasure to introduce your host Patti Ward director of Investor Relations and corporate development. Please go ahead.

Speaker Change: Good afternoon, and welcome I'm joined by Christine brought a CEO and President and Josh Gunther CFO, We issued our earnings press release for the quarter ended June 30th 2024. After the market close today the earnings press release, along with the supplemental information deck had been posted to our Investor Relations website at investors that Detroit is dot com.

Paddy Warren: I'm joined by Christine Barone, CEO and President, and Josh Gunzer, CFO. We issued our earnings press release for the quarter ended June 30th, 2024, after the market closed today. The earnings press release, along with the 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 risk, uncertainty, and assumptions that may cause actual results to differ materially.

Please be aware that all statements that are prepared remarks and in response to your question 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.

They are qualified by the cautionary statements in our earnings press release, and the risk factors in our latest SEC filings, including our most recent annual report on Form 10-K, and 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 or superior to measures that are prepared under GAAP.

Christine: Please review the reconciliation of non-GAAP measures to comparable GAAP results in our earnings press release with that I'd now like to turn the call over to Christine. Thank you Patty good afternoon, everyone. Our results demonstrate the long runway of growth that lies ahead for Dutch bros. As we once again combined strong revenue growth with expanding profitability.

Paddy Warren: They are qualified by the cautionary statements in our earnings press release and the risk factors in our latest SEC filings, including our most recent annual report on Form 10-K and 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, I'd now like to turn the call over to

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

Christine Barone: Our results demonstrate the long runway of growth that lies ahead for Dutch Bros, as we once again combine strong revenue growth with expanding profitability. During Q2, we drove a 30% revenue increase and a 34% adjusted EBITDA increase compared to the same quarter last year, resulting in $325 million of revenue and $65 million of adjusted EBITDA. We are very pleased with how our customers are responding to our recent innovations, our expanding Dutch rewards program, and our brand awareness building efforts.

Christine: During Q2, we drove a 30% revenue increase and a 34% adjusted EBITDA increase compared to the same quarter last year, resulting in $325 million of revenue and $65 million of adjusted EBITDA.

Christine: We were very pleased with how our customers are responding to our recent innovations are expanding Dutch rewards program and our brand awareness building efforts.

Christine Barone: Given the intense external promotional backdrop and a tough Q2 lap, our focus on delivering innovative products and incredible service is paying off. Same shop sales rose 4.1%, and AUVs were $2 million, which is in line with the record we posted last quarter. In Q2, we opened 36 new shops, marking the 12th consecutive quarter of 30 or more new shop openings.

Given the intense external promotional backdrop and a tough Q2 lap our focus on delivering innovative products and incredible service is paying off.

Christine Barone: Same shop sales rose 4.1%, and AUVs were $2 million, which is in line with the record we posted last quarter. In Q2, we opened 36 new shops, marking the 12th consecutive quarter of 30 or more new shop openings. We also reached another milestone this quarter, having opened our 900th shop in Frisco, Texas. We begin any discussion of Dutch Bros with our fundamental differentiator, our people.

Christine: <unk> sales rose four 1%.

Christine: <unk> were $2 million, which is in line with the record we posted last quarter.

Christine: In Q2, we opened 36, new shops, working on the 12th consecutive quarter of 30 or more new shop openings.

Christine Barone: We also reached another milestone this quarter, having opened our 900th shop in Frisco, Texas. Despite an evolving and uncertain consumer environment, our exceptional first half results, including strong new shop performance, give us the confidence to raise both our revenue and adjusted EBITDA guidance for the year. Josh will share more context and detail on our financial results in a few minutes, 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.

Christine: We also reached another milestone this quarter, having opened our 900 shop in Frisco, Texas.

Christine: Despite an evolving and uncertain consumer environment, our exceptional first half results, including strong new shop performance give us the confidence to raise both our revenue and adjusted EBITDA guidance for the year.

Christine: Josh will share more context in detail on our financial results in a few minutes, but first I'd like to walk you through an update on our business.

Josh: We began any discussion of Dutch bros. With a fundamental differentiator our people are.

Christine Barone: Our exceptional culture, crews, and service resonate with customers of all ages and backgrounds. Our talented baristas and the service they provide drive our growth and set us apart from competitors. Our people pipeline includes over 400 operator candidates with an average tenure of more than seven years.

Josh: Our exceptional culture crews and service resonate with customers of all ages and backgrounds are talented bro east just in the service they provide drive our growth and set us apart from competitors.

Josh: Our people pipeline includes over 400, operator candidates with an average tenure of more than seven years.

Christine: Each person in the pipeline is ready to lead the market as an operator.

Christine Barone: Each person in the pipeline is ready to lead a market as an operator. When these new operators get the call, we invest in their success and the success of the market by sending our experienced opening team. These teams work alongside our new operators to lay a strong cultural foundation and ensure our new Bro Easters are empowered to be highly successful. This powerful combination of experience, energy, and teamwork helps us consistently deliver an exceptional customer experience focused on speed, quality, and service.

Christine Barone: Each person in the pipeline is ready to lead a market as an operator. When these new operators get the call, we invest in their success and the success of the market by sending our experienced opening team. These teams work alongside our new operators to lay a strong cultural foundation and ensure our new Brewistas are empowered to be highly successful. This powerful combination of experience, energy, and teamwork helps us consistently deliver an exceptional customer experience focused on speed, quality, and service. We continue to be pleased with our shop level turnover indicators, which are in line with our expectations. Our best people are staying and growing with us.

Christine: When these new operators get the call we invest in their success and the success of the market by sending our experienced opening cheap.

Christine: These teams work alongside our new operators to lay a strong cultural foundation and ensure our new burrow east are empowered to be highly successful.

Christine: This powerful combination of experience energy and teamwork helps us consistently deliver an exceptional customer experience focused on speed quality and service.

Christine Barone: We continue to be pleased with our shop level turnover indicators, which are in line with our expectations. Our best people are staying and growing with us. The expansion of our support center in Arizona, which we announced earlier this year, remains on track, and we continue to hire great people to support our growth. We are eagerly awaiting the move into a larger permanent location in the first half of 2025. Our leadership team transition has been seamless.

Christine: We continue to be pleased with our shop level turnover indicators, which are in line with our expectations. Our best people are staying and growing with us.

Christine Barone: The expansion of our support center in Arizona, which we announced earlier this year, remains on track, and we continue to hire great people to support our growth. We are eagerly awaiting the move into a larger, permanent location in the first half of 2025. Our leadership team transition has been seamless.

Christine: The expansion of our support center in Arizona, which we announced earlier this year remains on track and we continue to hire great people to support our growth. We are eagerly awaiting the move into a larger permanent location in the first half of 2025, our leadership team transition has been seamless just gunther officially assumed his role.

Christine Barone: Josh Guenser officially assumed his role as CFO earlier this quarter, while Charley Jemley remains a strategic advisor. Sumi Ghosh, our President of Operations, and Jess Elmquist, our Chief People Officer, have spent their first several months in the shops, learning our systems and processes. This experience is important as it gives our leaders a unique perspective on the business and helps inform our key initiatives. Sumi is taking his in-shop learnings and applying them to his initial focus areas of real estate and throughput. Jeff is focused on building on the strength of our people system.

Christine Barone: Josh Gunther officially assumed his role as CFO earlier this quarter, while Charley Jemley remains a strategic advisor. Sumi Ghosh, our president of operations, and Jess Elmquist, our chief people officer, have spent their first several months in the shops, learning our systems and processes. This experience is important as it gives our leaders a unique perspective on the business and helps inform our key initiatives. Sumi is taking his in-shop learnings and applying them to his initial focus areas of real estate and throughput.

Christine: As CFO earlier, this quarter, well, Charlie generally remains a strategic adviser to.

Speaker Change: Sumi gauche, our president of operations and just own quest, our Chief people officer have spent their first several months and the shops learning our systems and processes.

Christine: This experience is important as it gives our leaders a unique perspective on the business and helps inform our key initiatives.

Sumi: Sue me is taking his in shop learnings and applying them to his initial focus areas of real estate and throughput just as focused on building on the strength of our people systems.

Christine Barone: Jeff is focused on building on the strength of our people system. Our customers love these products, and we decided to add them to the permanent menu. Our strawberry boba performed so well that we experienced product outages through much of April and May.

Christine Barone: The remaining members of our senior leadership team have all spent time in the shops as well and are all certified Broistas, which we believe is critical in our ability to support the field as we grow. Last year, we outlined a multi-pronged plan to drive traffic, which includes an enhanced focus on innovation, increased paid advertising designed to build brand awareness, and more targeted rewards program efforts. Despite the macro environment noise and aggressive price promotion from many peers, we haven't felt the need to fundamentally adjust our strategy.

Speaker Change: The remaining members of our senior leadership team have all spent time in the shops as well and are all certified pro East US, which we believe is critical in our ability to support the field as we grow last year, we outlined a multi pronged plan to drive traffic, which includes an enhanced focus on innovation increased paid advertising designed to build brand awareness.

Sumi: And more targeted rewards program efforts, despite the macro environment noise and aggressive price promotion from many peers, we haven't felt the need to fundamentally adjust our strategy. We remain pleased with our progress and how our efforts are working together to drive momentum.

Christine Barone: We remain pleased with our progress and how our efforts are working together to drive momentum. Innovation is a key driver within the beverage market. We also believe innovation plays a foundational role in Dutch Bros' next stage of growth by building sales layers and deepening our competitive moat through category-defining products. Earlier this year, we demonstrated our evolving innovation capabilities through the launch of boba and protein milk, which were both extremely successful. Our customers love these products, and we decided to add them to the permanent menu. Our strawberry boba performed so well that we experienced product outages through much of April and May.

Christine: Innovation is a key driver within the beverage market.

Christine: We also believe innovation plays a foundational role in Dutch for its next stage of growth by building sales layers and deepening our competitive moat through category defining products.

Christine: Earlier this year, we demonstrated our advancing innovation capabilities through the launch of Boba and protein book, which were both extremely successful.

Christine: Our customers Love these products and we decided to add them to the permanent menu. Our strawberry buildup performed so well that we experienced product outages through much of April and May I'm happy to report that by June we restored supply across most of our system.

Christine Barone: I'm happy to report that by June, we restored supply across most of our system. With our deep pantry of flavors and toppings, we give our customers tens of thousands of ways to enjoy their favorite drink. That said, we believe many of our shops are capable of significantly higher throughput, given the volume of some of our most productive shops. These high-throughput shops have the same footprint as our standard prototype, which makes up much of our existing portfolio.

Christine Barone: I'm happy to report that by June, we restored supply across most of our system. In April, we brought back Mangonada Rebel and added two new drinks, Churro Freeze and Watermelon Fizz. With Mangonada and Churro Freeze, we maintain a dual focus on energy and coffee. With Watermelon Fizz, we highlight the breadth of our menu, which includes an array of refreshing soda, tea, and lemonade-based beverages.

Christine: In April we brought back mango not a rebel and added two new drinks true freeze and watermelon says with mango not at zero freeze, we maintain a dual focus on energy and coffee.

Christine: With watermelon fifth we highlight the breadth of our menu, which includes an array of refreshing soda tea and lemonade based beverages.

Christine Barone: With our deep pantry of flavors and toppings, we give our customers tens of thousands of ways to enjoy their favorite drink. Paid advertising. We're beginning to see the impact of increased investment in paid advertising, particularly in newer markets with lower brand awareness. We were encouraged by the initial results, which were higher than our expectations. In these DMAs, where we have incrementally upsized paid advertising, sequential traffic growth is outpacing the system.

Christine: With our deep pantry of flavors and toppings, we give our customers tens of thousands of ways to enjoy their favorite drink.

Speaker Change: Paid advertising, we are beginning to see the impact of increased investment in paid advertising, particularly in newer markets with lower brand awareness. We were encouraged by the initial results, which were higher than our expectations and these D. Amaze, where we have incrementally upsides paid advertising sequential traffic growth has outpaced.

Christine: The system base.

Christine Barone: Based on these results, we have decided to make further investments. Dutch Rewards is a cornerstone in our traffic driving strategy and allows us to interact directly with our customers. Through this communication channel, we introduce customers to new, innovative products, communicate special promotions like surprise sticker days and merchandise drops, and incentivize visits across key customer segments, geographies, and day parts. In Q2, approximately 67% of our transactions were attributable to Dutch Rewards members, which we believe is truly incredible given the growth in our business and our status as a relative newcomer in many of our markets. We focused our promotional efforts on the Dutch Rewards Channel and elected not to repeat several of our broader-based promotions.

Christine: Based on these results, we have decided to make further investments.

Speaker Change: That's rewards as a cornerstone in our traffic driving strategy and allows us to interact directly with our customers through this communication channel, we introduce customers to new innovative products communicate special promotions like surprise sticker days, and birch drops and incentivize visits across key customer segments geographies and deeper.

Christine: Arts.

Christine: In Q2, approximately 67% of our transactions are attributable to Dutch rewards members, which we believe is truly incredible given the growth in our business and our status as a relative newcomer and many of our markets.

Christine: We focused our promotional efforts in the Dutch rewards channel and elected to not repeat several of our broader based promotions we.

Christine Barone: We have found that our increasing sophistication in our Dutch Rewards Program enables us to efficiently and effectively target our large existing customer base. That said, we believe broad-based promotions are particularly effective at introducing new customers to Dutch Bros, especially in new markets. We continue to make progress with our Order Ahead capabilities, and we remain on track with this initiative. We expanded the scope of the test to about 40 shops in Arizona, California, and Texas as of June 30th, and we have rolled out the capability to approximately 200 shops as of the end of July.

Christine: We have found that our increasing sophistication in our Dutch rewards program enables us to efficiently and effectively target our large existing customer base that said, we believe broad based promotions are particularly effective at introducing new customers to Dutch bros, especially in new markets.

Christine: We continue to make progress with our order ahead capabilities and we remain on track with this initiative, we expanded the scope of the test to about 40 shops in Arizona, California, and Texas as of June 30th.

Christine: And have rolled out the capability to approximately 200 shops as of the end of July.

Christine Barone: We are increasingly optimistic that mobile order capabilities will be available in a majority of our shops by the end of 2024. We are encouraged by some of the structural advantages we believe we enjoy with this channel, including our approximately 67% Dutch rewards penetration starting point. Additionally, many of our shops have double drive-through setups that include an escape lane, which could be utilized for mobile order. After checking in, our mobile order customers can be directed to the right-hand lane, where a runner can bring their drink if it is ready before the customer reaches the window.

Christine: We are increasingly optimistic that mobile order capabilities will be available in a majority of our shops by the end of 2024.

Christine: We are encouraged by some of the structural advantages we believe we enjoy with this channel.

Christine: Including our approximately 67% that's rewards penetration starting point.

Christine: Additionally, many of our shops have double drive through setups that include an escape plane, which could be utilized for mobile order <unk>.

Christine: After checking in our mobile order customers can be directed to the right hand Lane, where a runner can bring their drink if it is ready before the customer reaches the window.

Christine Barone: The customer can then escape using that open lane to their right, eliminating a potential bottleneck at the window. We already use this operational tactic in many of our locations. We also see an opportunity for mobile order to improve the utilization of our walk-up window, which currently makes up about 10% of our business. Early mobile order data suggests a majority of mobile order customers choose to use our walk-up window. Our existing kitchen display units are compatible with this system, leading to streamlined integration.

Christine: The customer can then escape using that open lane to their right eliminating a potential bottleneck at the window, we already use this operational tactics and many of our locations.

Christine: We also see an opportunity for mobile order to improve the utilization of our walk up window, which currently makes up about 10% of our business.

Christine: Mobile order data suggest a majority of mobile order customers choose to use our walk up window.

Christine: Our existing kitchen display units are compatible with our system leading to streamline integration.

Christine Barone: Based on learnings from competitors, we recognize the importance of capacity planning and setting customer expectations. We intend to throttle orders where necessary to maintain high levels of customer service across our channels. That said, we believe many of our shops are capable of significantly higher throughput, given the volume of some of our most productive shops. These high-throughput shops have the same footprint as our standard prototype, which makes up much of our existing portfolio.

Christine: Based on learnings from competitors, we recognize the importance of capacity planning.

Christine: In setting customer expectations, we intend to throttle orders were necessary to maintain high levels of customer service across our channels that said, we believe many of our shops are capable of significantly higher throughput given the volume of some of our most productive shops. These high throughput shops have the same footprint as our standard prototype, which.

Christine: It makes up much of our existing portfolio.

Christine Barone: We are excited to continue learning from this rollout, and we look forward to sharing feedback on adoption and potential incrementality as we observe customer behavior over a longer period of time. Since our IPO in September 2021, new shop development has been a consistent bright spot for our business, having almost doubled our shop base from 503 to 912 as of the end of Q2 2024. We currently have nearly 200 shops in Texas, which is remarkable given the market opened a little over three years ago.

Christine: We are excited to continue learning from this rollout and we look forward to sharing feedback on adoption and potential increments as we observe customer behavior over a longer period of time.

Christine: Since our IPO in September 2021, New shop development has been a consistent bright spot for our business, having almost doubled our shop base from 503 to 912 as of the end of Q2 2024 weeks.

Christine: We currently have nearly 200 shops in Texas, which is remarkable given the market opened a little over three years ago.

Christine: We have learned a lot from our entrance into Texas.

Christine Barone: As a reminder, we have updated and recalibrated our models over the past 18 months. As part of this work, we have removed sites from our pipeline that, under our recalibrated modeling, would not meet our investment objectives. We began these refinements in mid-2023 and have continued to reassess site quality in our pipeline regularly since then. Rapidly bringing forward learnings into the pipeline process has had two main impacts.

Christine Barone: As a reminder, we have updated and recalibrated our models over the past 18 months, helping refine our approach to real estate. We are using these insights, combined with an enhanced market planning effort, to drive better revenue performance in new shops. As part of this work, we have removed sites from our pipeline that, under our recalibrated modeling, would not meet our investment objectives. We began these refinements in mid-2023 and have continued to reassess the site quality of our pipeline regularly since then. Rapidly bringing forward learnings into the pipeline process has had two main impacts.

Christine: As a reminder, we have updated and recalibrate our models over the past 18 months, helping refine our approach to real estate. We are using these insights combined with an enhanced market planning effort to drive better revenue performance and new shops.

Christine: As part of this work we have removed sites for our pipeline under our Recalibrated modeling would not meet our investment objectives. We began these refinements in mid 2023 and have continued to reassess site quality of our pipeline regularly since then.

Christine: [noise] rapidly, bringing forward learnings into the pipeline process has had two main impacts first we have begun to see stronger revenue performance in our portfolio of new shops, which is giving us the confidence to raise our total revenue guidance for the full year of 2024.

Christine Barone: First, we have begun to see stronger revenue performance in our portfolio of new shops, which is giving us the confidence to raise our total revenue guidance for the full year 2024. Second, as we have focused on higher AUB potential sites, it is now more likely that we will land towards the lower end of our development range of 150 to 165 new shops in 2024. As a reminder, we have already opened 81 shops in the first half of this year.

Christine Barone: Second, as we have focused on higher AUB potential sites, it is now more likely that we will land towards the lower end of our development range of 150 to 165 new shops in 2024. As a reminder, we have already opened 81 shops through the first half of this year. That said, we are encouraged by the improvements and new shop productivity, which are beginning to be felt now. Let me conclude with two items that relate to our corporate structuring.

Christine: Second as we have focused on higher <unk> potential sites. It is now more likely that we will land towards the lower end of our development range of 150 to 165, new shops in 2024.

Christine: As a reminder, we have opened 81 shops already through the first half of this year.

Christine: Additionally, we are attempting to rebalance our pipeline back towards more capital efficient lease arrangements. 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: Additionally, we are attempting to rebalance our pipeline back towards more capital efficient lease arrangements. It will take time for these refinements to make their way through the real estate pipeline, and we will likely begin seeing an impact in 2025.

Christine Barone: That said, we are encouraged by the improvements and new shop productivity, which are beginning to be felt now. Let me conclude with two items that relate to our corporate structuring. This quarter, affiliates of TSG Consumer Partners fell below the thresholds required to nominate a director to our Board of Directors, maintain elevated voting rights, and, after the SEC waiting period, call for a registered offering under our registration rights agreement.

Christine: That said, we are encouraged by the improvements and new shop productivity, which are beginning to be felt now.

Christine: Let me conclude with two items that relate to our corporate structuring this quarter affiliates of T. S. She consumer partners fell below the thresholds required to nominate a director to our board of directors maintain elevated voting rights and after the SEC waiting period that called for a registered offering under our registration rights agreement.

Christine Barone: This quarter, affiliates of TSG Consumer Partners fell below the thresholds required to nominate a director to our Board of Directors, maintain elevated voting rights, and, after the SEC waiting period, call for a registered offering under our registration rights agreement.

Speaker Change: T. S. G played a foundational role in preparing Dutch grows to be a fast growing high performing public company on.

Christine Barone: TSG played a foundational role in preparing Dutch Bros. to be a fast-growing, high-performance public company. In Q2, we added two independent directors to our board of directors, G.J. Hart and Todd Pentagore.

Christine Barone: TSG played a foundational role in preparing Dutch Bros. to be a fast-growing, high-performance public company. On behalf of the entire Dutch Bros. family, we would like to formally thank TSG for its support over these past six years. In Q2, we added two independent directors to our board of directors, G.J. Hart and Todd Pentagore.

Speaker Change: On behalf of the entire Dutch Bros. Family, we would like to formally thank T. S. G for it support over these past six years.

Christine: In Q2, we added two independent directors to our board of Directors G J Hart and Todd Pentagon.

Christine Barone: G.J. has extensive industry expertise and is presently the CEO of Red Robin and the former CEO of Texas Roadhouse, California Pizza Kitchen, and Torchy's Tacos.

Speaker Change: D. J has extensive industry expertise and is presently the CEO of Red Robin and the former CEO of Texas, Roadhouse, California, Pizza kitchen and toward cheese Tacos G. J chairs, our compensation Committee, which is now independent.

Christine Barone: chairs our compensation committee, which is now independent. Todd also has extensive industry experience and was just appointed President and CEO of Papa John's and a member of Papa John's Board of Directors earlier this month. Previously, Todd served as the CEO of the Wendy's Company. He joined Wendy's in 2013 as Senior Vice President and Chief Financial Officer. Prior to his tenure at Wendy's, Todd served in various roles at Kellinova and Ford Motor Company.

Speaker Change: Todd also has extensive industry experience and was just appointed president and CEO of Papa John's and a member of Papa Johns Board of directors earlier this month.

Christine Barone: chairs our compensation committee, which is now independent. Previously, Todd served as the CEO of the Wendy's company. He joined Wendy's in 2013 as senior vice president and chief financial officer.

Speaker Change: Previously Todd served as CEO, the Wendy's company. He joined Wendy's in 2013, as senior Vice President and Chief Financial Officer.

Todd: Prior to his tenure at Wendy's Todd served in various roles at <unk> and Ford Motor Company.

Christine Barone: We look forward to G.J. and Todd's contributions in our boardroom as we navigate the next phase of our growth story. We are pleased with an 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 30% year-over-year revenue growth in Q2 and yet another quarter of at least 30-plus new shop openings.

Speaker Change: We look forward to G. Jan Todd's contributions in our boardroom as we navigate the next phase of our growth story.

Christine Barone: We are pleased with an 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 30% year-over-year revenue growth in Q2 and yet another quarter of at least 30-plus new shop openings. We have excellent shop margins, delivering this top-tier growth at a profitable rate.

Speaker Change: We are pleased with an 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.

Speaker Change: We have top tier growth, we delivered 30% year over year revenue growth in Q2, and yet another quarter of at least 30, plus new shop openings.

Speaker Change: We have excellent shop margins delivering this top tier growth profitably.

Christine Barone: 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 baristas and a strong pipeline of operators ready to grow with us. With that, I'll turn it over to Josh to review our financials and give more details on our guidance. Thanks, Christine.

Christine Barone: We have excellent shop margins, delivering this top-tier growth profitable. 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 baristas and a strong pipeline of operators ready to grow with us. With that, I'll turn it over to Josh to review our financials and give more details on our guidance. Thanks, Christine.

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

Speaker Change: Most importantly, we have great people anchored by outstanding engaged pro used us and a strong pipeline of operators ready to grow with us.

Speaker Change: With that I'll turn it over to Josh to review, our financials and give more details on our guidance.

Josh Gunzer: Thanks Christine. We delivered outstanding financial results in Q2, and I thank our entire team for their great effort. Once again, our performance was headlined by a combination of strong revenue growth, which was driven by positive same shop sales growth and increasing new shop productivity alongside strong margin flow through. Here's a brief recap: system same shop sales growth was 4.1%, company net sales grew 34% with 36% growth in company-operated shops. Four wall productivity remains strong with company operated shop contribution margin reaching 30.8%, a 50 basis points increase year over year.

Joshua Guenser: Thanks Christine. We delivered outstanding financial results in Q2 and thank our entire team for their great effort. Once again, our performance was headlined by a combination of strong revenue growth, which was driven by positive same shop sales growth and increasing new shop productivity alongside strong margin flow through. Here's a brief recap.

Josh: Thanks, Christine we delivered outstanding financial results in Q2, and thank our entire team for their great efforts.

Josh: Once again, our performance was headlined by a combination of strong revenue growth, which was driven by positive same shack sales growth and increasing new shop productivity alongside strong margin flow through.

Josh: Here's a brief recap.

Speaker Change: Revenue growth was 30%.

Joshua Guenser: Revenue growth was 30%. System AUVs were $2 million in line with last quarter's records, and system, same shop sales growth was 4.1%. Company net sales grew 34% with 36% growth in company-operated shops. Four wall productivity remains strong with company-operated shop contribution margin reaching 30.8% at 50 basis points increase year over year.

Speaker Change: System, a these were $2 million in line with last quarter's record.

Speaker Change: System same shop sales growth was four 1%.

Speaker Change: Company net sales grew 34% with 36% growth in company operated shop contribution.

Speaker Change: Four wall productivity remains strong with company operated shop contribution margin, reaching 38%.

Speaker Change: 50 basis points increase year over year.

Josh Gunzer: Adjusted SG&A was 14.6%, 100 basis points lower than Q2 of 2023. Adjusted EBITDA increased to $65 million, growing 34% year over year. We continue to keep a close watch on key commodity costs, including the elevated coffee commodity price, which may become a factor in 2025, falling to 14.6% of revenue compared to 15.6% in Q2 last year. Regarding our balance sheet and liquidity, as of June 30th, we had approximately $660 million in total liquidity compared to approximately $662 million at the end of Q1. There are no changes to our original guidance as it relates to same-shop sales growth. In summary, we continue to be pleased by the results of our performance in 2024. Operator, please open the line.

Joshua Guenser: Adjusted SG&A was 14.6%, 100 basis points lower than Q2 of 2023. Adjusted EBITDA increased to $65 million, growing 34% year over year. Adjusted EBITDA margin of 20.1% is up 70 basis points over Q2 of last year, and we continue to close the gap between cash flow from operations and investments in new shops as we work towards achieving and sustaining self-funded growth. The 50 basis points of margin expansion in our company-operated shops was primarily driven by sales leverage, partially offset by increased labor costs.

Speaker Change: Adjusted SG&A was 14, 6% 100 basis points lower than Q2 of 2023.

Speaker Change: Adjusted EBITDA increased to $65 million growing 34% year over year.

Speaker Change: Adjusted EBITDA margin of 21% is up 70 basis points over Q2 last year.

Speaker Change: And we continue to close the gap between cash flow from operations and investments in new shops, as we work towards achieving and sustaining self funded growth.

Speaker Change: The 50 basis points of margin expansion in our company operated shops was primarily driven by sales leverage partially offset by increased labor costs.

Speaker Change: Cost of goods sold decreased 130 basis points year over year, driven by strong ticket growth.

Joshua Guenser: Cost of goods sold decreased 130 basis points year over year, driven by strong ticket growth. We continue to keep a close watch on key commodity costs, including the elevated coffee commodity price, which may become a factor in 2025. Labor costs increased 60 basis points year over year, driven primarily by wage growth. On April 1st, our starting wage in California increased about 25% year over year.

Speaker Change: We continue to keep a close watch on key commodity costs, including the elevated coffee commodity price, which may become a factor in 2025.

Speaker Change: Labor costs increased 60 basis points year over year, driven primarily by wage growth.

Speaker Change: On April 1st our starting wage in California increased about 25% year over year.

Speaker Change: Occupancy and other costs increased 20 basis points year over year.

Joshua Guenser: Occupancy and other costs increased 20 basis points year over year, while pre-opening costs as a percentage of company-operated shop revenue were approximately flat. For the quarter, SG&A was approximately $58 million, which included about $7 million in organizational realignment and restructuring costs and $3 million in stock-based compensation. With the exclusion of these items and other non-recurring expenses, adjusted SG&A was approximately $48 million, falling to 14.6% of revenue compared to 15.6% in Q2 last year.

Speaker Change: Preopening costs as a percentage of company operated shop revenue were approximately flat.

Speaker Change: For the quarter SG&A was approximately $58 million, which includes about $7 million and organizational realignment and restructuring costs and $3 million and stock based compensation.

Speaker Change: With the exclusion of these items and other nonrecurring expenses adjusted SG&A was approximately $48 million falling to 14, 6% of revenue compared to 15, 6% in Q2 last year.

Speaker Change: We're pleased with the leverage we saw in adjusted SG&A in the quarter, which partially benefited from timing of hiring for support roles as we transition people through our Arizona office.

Joshua Guenser: We're pleased with the leverage we saw in Adjusted SG&A in the quarter, which partially benefited from the timing of hiring for support roles as we transition people to our Arizona office. Regarding our balance sheet and liquidity, as of June 30th, we had approximately $660 million in total liquidity compared to approximately $662 million at the end of Q1, and we believe that we have sufficient liquidity at our disposal to support our current growth plan.

Speaker Change: Regarding our balance sheet and liquidity as of June 30, we had approximately $660 million and total liquidity compared to approximately $662 million at the end of Q1.

Speaker Change: And we believe that we have sufficient liquidity at our disposal to support our current growth plans.

Joshua Guenser: As of June 30th, that liquidity was comprised of the following elements: $261 million in cash and cash equivalents; $349,000,000 in undrawn revolvers; and $50 million in undrawn, delayed draw terminals. In the quarter, interest expense net declined $2 million from one year ago to $7 million.

Speaker Change: As of June 30th that liquidity was comprised of the following elements.

Speaker Change: $261 million in cash and cash equivalents three.

Speaker Change: $349 million and Undrawn revolver.

Speaker Change: And $50 million and Undrawn delayed draw term loans.

Speaker Change: In the quarter interest expense declined $2 million from one year ago to $7 million.

Joshua Guenser: The decline is primarily driven by income received on our investments in marketable securities and Reductions in Interest Paid on outstanding balances in our Credit Facility, which together amount to a $3.4 million reduction in interest expense net. This was partially offset by an increase in interest expense related to finance leases of $1.4 million, which rose from $4.1 million in Q2 2023 to $5.5 million in Q2 2020. As of June 30th, we had $382 million in finance lease liabilities and $285 million in operating lease liabilities.

Speaker Change: The decline is primarily driven by income received on our investments in marketable securities and reductions in interest paid on outstanding balances in our credit facility.

Speaker Change: Which together amount to a $3 $4 million reduction in interest expense net.

Speaker Change: This was partially offset by an increase in interest expense related to finance leases of $1 $4 million.

Speaker Change: Which rose from $4 $1 million in Q2, 2023 to $5 5 million in Q2 2024.

Speaker Change: As of June 30th we had $382 million in finance lease liabilities and $285 million in operating lease liabilities.

Joshua Guenser: During the quarter, we added $3.5 million in finance lease liabilities to our balance sheet and $49 million in operating lease liabilities, which included $18 million for our new support center office. Regarding cash flow and capital expenditures, we continue to move towards having a self-funding business, which we believe will provide us with maximum optionality in our long-term capitalization. We expect the combination of an expanding base of profitable shops, a Rebalance Towards More Capital Efficient Lease Arrangements, and Control over Adjusted SG&A will move the business towards this goal.

Speaker Change: In the quarter, we added $3 $5 million in finance lease liabilities to our balance sheet and $49 million and operating lease liabilities, which included $18 million for our new support Center office.

Speaker Change: Regarding cash flow and capital expenditures, we continued to move towards having a self funding business, which we believe will provide us maximum optionality in our long term capitalization.

Speaker Change: We expect the combination of an expanding base of profitable shops, a rebalanced towards more capital efficient lease arrangements.

Speaker Change: Control over adjusted SG&A will move the business towards this goal.

Speaker Change: The growth of our company operated shop base continues to expand our cash flow from operations.

Joshua Guenser: The growth of our company-operated shop base continues to expand our cash flow from operations. In Q2, we generated $60 million, up $17 million from Q2 last year. This compares to $64 million in purchases of property, plant, and equipment this quarter, which was $5 million more than Q2 of last year. As noted, we look to reduce the business's capital intensity through blending down new shop development costs on a per unit basis. This process will take time, and there's more work to be done.

Speaker Change: In Q2, we generated $60 million up $17 million from Q2 of last year.

Speaker Change: This compares to $64 million in purchases of property plant and equipment this quarter, which was $5 million more than Q2 of last year.

Speaker Change: As noted we look to reduce the business is capital intensity through blending down new shop development costs on a per unit basis.

Speaker Change: This process will take time, and there's more work to be done.

Joshua Guenser: That said, we believe that in 2024, per unit new shop CapEx may represent a high watermark. Given the continued strength of our business performance, we are updating guidance for the balance. Total revenues are now projected to be between $1.215 billion and $1.23 billion, or an increase of $15 million from our updated guidance from last quarter. Adjusted EBITDA is now estimated to be between $200 million and $210 million, or an increase of $5 million from our updated guidance from last quarter.

Speaker Change: That said, we believe that in 2024 per unit new shop, Capex may represent a high watermark.

Speaker Change: Given the continued strength of our business performance, we are updating guidance for the balance of the year.

Speaker Change: Total revenues are now projected to be between one point to one 5 billion and $1, two 3 billion or an increase of $15 million from our updated guidance from last quarter.

Speaker Change: Adjusted EBITDA is now estimated to be between $200 million and $210 million.

Speaker Change: Or an increase of $5 million from our updated guidance from last quarter. We now expect adjusted SG&A to be between $190 million and $200 million.

Speaker Change: From the prior range of $183 million to $189 million as we invest in driving the business forward with Upsized paid media to build brand awareness in new markets and hiring to support our expansion in Arizona as well as increased performance related compensation.

Speaker Change: Total system shop openings are projected to be near the bottom of our previously provided range of 150 to 165.

Joshua Guenser: As a result, capital expenditures are now estimated to be in the range of $270 million to $290 million. There are no changes to our original guidance as it relates to same-shop sales growth. Steamshop sales growth expectations for the year remain in the low single digits. As a reminder, we're rolling off approximately 450 basis points of pricing action from last summer. And while we remain confident in our traffic driving initiatives, we will be navigating through an uncertain consumer environment in the near future. In summary, we continue to be pleased by the results of our performance in 2024. Thank you, and now we will take your questions. Operator, please open the line.

Speaker Change: As a result capital expenditures are now estimated to be in the range of $270 million to $290 million.

Speaker Change: There are no changes to our original guidance as it relates to same shack sales growth.

Speaker Change: Same shack sales growth expectations for the year remain in the low single digits.

Speaker Change: As a reminder, we're rolling off approximately 450 basis points of pricing action from last summer.

Speaker Change: And while we remain confident in our traffic driving initiatives, we will be navigating through an uncertain consumer environment and the near term.

Speaker Change: In summary, we continue to be pleased by the results of our performance in 2024.

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

Operator: Thank you. 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 your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. Your first question comes from Sharon Zackfia, with William Blair. Please go ahead.

Speaker Change: Thank you we will now because I think a question and answer session. If you would like to ask a question. Please press are one on your telephone keypad a confirmation tone will indicate your line is in the question queue you.

Speaker Change: You May press star two if he would like.

Speaker Change: We'll get questions on the queue.

Speaker Change: Participants using speaker equipment, it may be necessary to pick up your handset before pressing the sarky yeah.

Speaker Change: Your first question comes from Sharon Zackfia with William Blair. Please go ahead.

Sharon Zackfia: Hi, good afternoon. Thanks for taking the time to ask the question. I guess, you know, the first question is just a clarification. I think there's some concern that the comp guidance might imply negative comps in the back half of the year. So maybe if you could address that. And then separately on mobile ordering, you know, I think one of the ideas of mobile ordering is potentially redeploying some labor. And I'm curious if that is happening at the locations where you have mobile ordering. And if so, are you seeing improved customer satisfaction and or throughput? Thank you.

Sharon Zackfia: Hi, good afternoon, and thanks for taking the question I guess you know.

Speaker Change: First question is just a clarification I think there is.

Sharon Zackfia: Some concern that the comp guidance might imply and negative comps in the back half of the year. So maybe if you can address that and then separately on mobile ordering you know I think.

Speaker Change: One of the ideas of mobile order and was potentially redeploying some labor and I'm curious if that is happening at the locations, where you have mobile ordering and if so are you seeing improved customer satisfaction and ore throughput. Thank you.

Speaker Change: Yeah, absolutely so I'll start with mobile order and then and then Josh and I will tackle the same shop sales question. So thanks, Sharon on mobile order. It's really early days. So it's really and just about 40 shops for a longer period of time and from a redeployment of labor what we're incredibly.

Christine Barone: Yeah, absolutely. So I'll start with the mobile order, and then Josh and I will tackle the same shop sales question. So thanks, Sharon.

Christine Barone: On mobile order, it's in the really early days. So you know, it's really in just about 40 shops for a longer period of time. And from a redeployment of labor standpoint, what we're incredibly focused on is customer service. It's really our differentiation. And so it's ensuring that as we roll out mobile ordering, that our teams are really focused on still providing that incredible connection that we have with our customers. So, we make sure we have time both at the window and in the drive-thru for those mobile order customers.

Speaker Change: We've focused on is customer service is really our differentiation and so it's ensuring that as we roll out mobile order that our teams are really focused on is still providing that incredible connection that we have with our customers. So making sure. We have the time, both at the window and in the drive through for those mobile order customers.

Speaker Change: So in thinking about kind of what labor the what happens with the transaction. It's really what's happening is that taking the order itself, which is actually the least interactive part of our interaction with our customers that goes away and moved to your phone and so what happens is we can redeploy that labor to have a conversation.

Christine Barone: And so in thinking about kind of what labor, what happens with the transaction, it's really what's happening is that taking the order itself, which is actually the least interactive part of our interaction with our customers, that goes away and moves to your phone. And so what happens is we can redeploy that labor to have a conversation to make someone sure someone's day is going great. And so all of those things, we believe are starting to happen.

Speaker Change: Suddenly sure someone's day is going great and so all of those things. We believe are starting to happen and you know I think our Bro East is our really excited just by how how seamless the initial operational experience fields.

Christine Barone: And, you know, I think our Broistas are really excited just by how seamless the initial operational experience feels with mobile order. And then moving on to the same shop sales question, you know, just to address the quarter first. So, you know, we're really pleased with the first half of the year and this quarter and what we're seeing from our customers in general. We were comparing a number of large-scale promotions that we decided not to repeat this quarter just based on things we were seeing, and the strength that we're seeing in our rewards program, the strength that we're seeing in the innovation that we see, and the strength that we're seeing in paid advertising. Yeah, sure. And so maybe just to decompose.

Speaker Change: With mobile order and then moving on to that the same shop sales question, Yeah, just to address the quarter first so you know we're really pleased with your first the first half of the year and this quarter and what we're seeing from our from our customers in general we were comping over a number of large scale.

Speaker Change: Emotions that we decided not to repeat this.

Josh: This quarter just based on things, we're seeing and the strength that we're seeing in our rewards program. The strength that we're seeing in the innovation that we see and the strength that we're seeing in the paid advertising I'll hand, it over to Josh to kind of deconstruct that second half of the year for you Yeah. Sharon So maybe just to decompose Q2 for a moment before roughly.

Josh Gunzer: Yeah, Sharon, so maybe just to decompose Q2 for a moment, the four, roughly four points of comp included about seven points of price that was partially offset by about a point of mix.

Joshua Guenser: Yeah, Sharon, so maybe just to decompose Q2 for a moment, the four, roughly four points of comp included about seven points of price that was partially offset by about a point of mix. And then we saw sales transfer come in at the lower end of our range of two to three points. So as we think about that carrying forward, we are rolling off, as mentioned, about four and a half points of price going into Q3.

Josh: The four points of comp included about seven points of price.

Josh: It was partially offset by about a point of mix and then we saw cell stress will come in the lower end of our range of two to three points. So as we think about that carrying forward.

Josh: We are rolling off as mentioned rolling off about four five points of price going into Q3, we.

Josh: We replaced that with a little bit more than a point of price in Q3 as well.

Joshua Guenser: We replaced that with a little bit more than a point of price in Q3 as well. But we would expect, as we're heading into the balance year, we're going to increase some investments in promotional activities, which ended up showing up in discounts here, but would put a little bit more pressure on that side of the house. So if you just were to kind of build build back down the rest of the year based on Q2's performance, that's how we're thinking that the rest of the year will shape up.

Josh: We would expect as we're heading into the balance of year, we're going to increase some investments in promotional activities, which ended up showing up in discounts here, but would would put a little bit more pressure on that side of the house.

Josh: So if you just were to kind of build back down the rest of the year based on on Q2's performance. That's that's how we're thinking about the recipe that will shape up.

Speaker Change: Thank you.

Speaker Change: Next question, Andrew Charles with Cowen. Please go ahead.

Operator: Next question: Andrew Charles with TD Cowen. Please go ahead.

Andrew Charles: Great, thanks. I wanted to ask about the guidance for same-store sales as well. Does that contemplate the potential lift for mobile orders? You know, I know that, obviously, the end of the quarter was around 40 stores, but now that you're at 200, you're nearly 25% of the store base here. And so does the guidance reflect potential benefit, you know, from mobile orders? And just a related question there: I mean, how quickly are you seeing this?

Andrew Charles: Great. Thanks wanted to ask about the guidance as well for same store sales does that contemplate the potential lift from mobile water I know that obviously the end of the quarter around 40 stores, but now that you're at 200 to nearly 25% of the store base here and so does the guidance reflect a potential benefit from both the water and just a related question.

Speaker Change: And there I mean, how quickly are you seeing this I know you're not giving numbers at this point, which is fine, but just from a qualitative perspective how quickly.

Andrew Charles: You're not giving numbers at this point, which is fine, but just from a qualitative perspective, how quickly do you see mobile orders typically kick in terms of the lift to sales incrementality when you introduce them to new stores? Yeah, absolutely.

Speaker Change: Do you see mobile order typically kick in in terms of the lift to sales of increments Audi when you introduce it to new stores.

Christine Barone: Yeah, absolutely. So, as you know, with mobile ordering, we're still in the very early innings of what's happening there. You know, from an operational perspective, which is where we're most focused right now, it's really the best for our stores that it happens gradually. So as we roll out these capabilities in new shops, we are doing very limited sharing that it's actually available. So you can certainly see that it's available on the app.

Speaker Change: Yeah, absolutely. So as you know with mobile order, we're still in the very early innings of what's happening there from an operational perspective, which is where we're most focused right now is.

Speaker Change: Is it it's really actually the best for our stores that it happens gradually so as we roll out these capabilities and new shops. We are doing very limited sharing are that it's that it's actually available. So you can certainly see that its available on the app, but we're being very thoughtful to make sure that our that our shops actually have.

Christine Barone: But we're being very thoughtful, you know, to make sure that our shops actually have time to kind of get used to this new functionality; they get to see how it flows through their orders and all of those things. And then as far as going forward, you know, we continue to believe that this is going to be a larger driver in 2025, given the thoughtfulness that we are rolling this initiative out with.

Speaker Change: Time to kind of get used to this new functionality they get to see how it flows through their orders and all of those things and then as far as as going forward.

Speaker Change: We continue to believe that this is going to be a larger driver and in 2025, given the thoughtfulness that we're rolling this initiative out.

Speaker Change: Thank you.

Operator: Next question: John Ivankoe with J.P. Morgan, please go ahead.

Speaker Change: Next question, Johnny Vasco with Jpmorgan. Please go ahead.

John Ivankoe: Hi, thank you. You know, the question is about unit development. And there's, you know, a couple of different places I want to go with this. First of all, the lower end of your guidance for the year. We get that. I mean, it does, you know, imply, you know, slow down in the second half to do what we were previously thinking. So of course, you know, I have to ask what this means for 25.

Johnny Vasco: Hi, Thank you Yeah. The question is on unit development and there's a couple of different places I want to go with us.

Johnny Vasco: Firstly, you know lower end of your guidance for the year, we get that I mean, it does imply.

Speaker Change: Slowdown in the second half relative to what we were previously thinking so of course I have to ask what this means for 'twenty five.

John Ivankoe: You know, do the brakes go on further? Or will 24 be a trough here and 25, you know, to pick up? That's the first part of the question. You know, secondly, you mentioned he is focused on real estate and throughput. Might he be working on or looking at kind of a Dutch Bros of the future, if you will, no location, maybe design that can just allow the box to be even more productive, you know, than it previously was? Thank you.

Speaker Change: Did the breaks go on further or will 24 be a trough year 25, you know to pick up and that's the first part of the question. You know secondly, you did mention you know Sue me his focus on real estate and throughput.

Sue me: He'd be working on or looking at kind of a Dutch bros of the future. If you will no location, maybe design that kind of just allow the box.

Speaker Change: To be even more productive than it previously was thank you.

Christine Barone: Yeah, absolutely. So first, I'll talk about unit development. So really, I think there are two primary dynamics to pay attention to here. One, we are seeing higher new retail AUVs this year. And that is one of the main reasons we felt very comfortable raising that revenue guidance. And, you know, as we look at the long term, we believe, you know, again, we're in the very early innings of building this brand and building our long-term potential.

Speaker Change: Yeah, absolutely. So first I'll talk about unit development. So really I think there there's two primary dynamics to pay attention to here. One we are seeing higher new shop. A these this year and that is one of the main reasons, we felt very comfortable raising.

Johnny Vasco: Raising that that revenue guidance and you know as we look at the long term here. We believe you know again, we're in the very early innings of building this brand and building our long term potential and so having that long runway in front of US we're super focused on the returns on our new shops, the productivity of our new <unk>.

Christine Barone: And so having that long runway in front of us, we're super focused on the returns on our new shops, the productivity of our new shops, and the AUVs of our new shops. So we're super encouraged that some of the market planning activities that we've been working on really over the last 12 months or so are really beginning to bear fruit. So as you look at that, I think that the primary piece is that, as I look at kind of the productivity and what we're seeing from new shop AUVs, we're really encouraged with what we're seeing from development and a number of units as we work through that market planning work. As we've shared before, we're really doing two shifts.

Johnny Vasco: <unk> and <unk> of our new shops. So we're super encouraged that some of the market planning activities that we've been working through really over the last 12 months or so are really beginning to bear fruit. So as you look at that I think that that's the primary piece is that as I look at kind of the productivity and what we're seeing from new shop.

Johnny Vasco: These.

Johnny Vasco: We're really encouraged with what we're seeing from a development and a number of units as we work through that market planning work and as we've shared before we're really doing two shifts. So one we're recalibrating our models and ensuring that we have the most recent data as far as what our predictability of what our <unk> will look like when they open and that's a can.

Christine Barone: So one, we're recalibrating our models and ensuring that we have the most recent data as far as our predictability of what our AUVs will look like when they open. And that's a continuous exercise that will be ongoing. And again, very pleased with the early results. The second piece that we're looking at is trying to bring down the overall per unit shop capex as we go forward. And it's really the combination of shifting those two things, where if we look ahead at the potential that we have, there are a lot of great shops we have in front of us.

Johnny Vasco: Tenuous exercise that will be ongoing and again very pleased with early results. The second piece that we're looking at is trying to bring down the overall per unit shop Capex as we go for it and it's really the combination of shifting those two things where if we look ahead.

Johnny Vasco: At the potential that we have there's a lot of great shops, we have in front of us and so we're kind of in a temporary time period here, where we're adjusting our strategy, where we decided it made sense given how many great hire UV shops, we have in front of us to potentially take down a couple of shops this year to make more room for those.

Christine Barone: And so we're kind of in a temporary time period here where we're adjusting a strategy where we decided it made sense, given how many great high AUV shops we have in front of us, to potentially take down a couple of shops this year to make more room for those.

Speaker Change: And if I'm still on that as it relates to 'twenty five specifically and you know I understand that you're trying to get some cost out of the box, but is there potential some redesign of the box as well to increase its throughput and then secondly.

Unknown Attendee: And if I'm still on, as it relates to 25 specifically, and I understand that you're trying to get some costs out of the box, but is there potential for some redesign of the box as well to increase its throughput? And then, secondly, you made, I think, two separate times comments about your desire to be a self-funding business. What year do you expect Dutch Bros. to be a self-funding corporation?

Christine Barone: And if I'm still on, as it relates to 25 specifically, and I understand that you're trying to get some costs out of the box, but is there potential for some redesign of the box as well to increase its throughput? And then, secondly, you made, I think, two separate times comments about your desire to be a self-funding business. What year do you expect Dutch Bros. to be a self-funding corporation?

Speaker Change: You made I think two separate times comments about your desire to be a self funding business what year do you expect Dutch bros to be a self funding corporation. Thank you.

Speaker Change: Great and then you know on the redesign and Anna Sui is focus on throughput I think we're still in the very early days I assume he spent much of his first couple of months in shops, and and are working on the bar and so you know I do believe that we have we do have opportunities since we put but I wouldnt share that.

Christine Barone: Great. And then, you know, on the redesign and Sumi's focus on throughput. I think we're still in the very early days. Sumi spent much of his first couple of months in shops and working on the bar.

Christine Barone: Great. And then on the redesign and Sumi's focus on throughput, I think we're still in the very early days. Sumi spent much of his first couple of months in shops and working on the bar.

Christine Barone: And so, you know, I do believe that we have opportunities for growth throughput, but I wouldn't share that we have something that we would, you know, would share at this point as far as what Dutch Bros of the future might look like.

Christine Barone: And so I do believe that we do have opportunities in throughput, but I wouldn't say that we have something that we would share at this point as far as what Dutch Bros of the future might look like. (inaudible)

Speaker Change: We have something that we would you know would share at this point as far as what Dutch Bros of the future might look like.

Joshua Guenser: Yeah, John, and then on your question on self-funding, I think there's two points I'd want to make, as we comment on driving down the capital we're contributing to new shops is really a function of how we negotiate the lease and structure those leases. So we're driving down the amount of capital that Dutch is contributing to the cost of a bill that's less about the rateful redesign of a shop. Now, as we think about this going forward, and the factors that are going to lead to eventually getting into cash flow breakeven are going to be continuing to drive margin growth and strong EBITDA performance.

Josh Gunzer: Yeah, John, and then on your question on self funding, I think there's two points I'd want to make. You know, as we comment on driving down the capital we're contributing to new shops, it's really a function of how we negotiate the lease and structure those leases. So we're driving down the amount of capital that Dutch is contributing to the cost of a build. It's less about the full redesign of a shop. It, you know, as we think about this going forward, and you know, the factors that are going to lead to eventually getting into cash flow break even are going to be continuing to drive.

Johnny Vasco: Jonathan on your on your question on funding I think there's two points I'd I'd want to make it you know as we comment on driving down.

Johnny Vasco: This capital were contributing to new shops is really a function of how we negotiate the leasing structure those leases. So we're driving down the amount of capital that that's what's contributing to the cost of the build is it's less about the reach full redesign of a of a shop.

Johnny Vasco: Yeah, as we think about this going forward and the factors that are going to lead to eventually getting to cash flow breakeven are going to be continuing to drive margin.

Joshua Guenser: And then it's going to be a function of the rate at which we can start shifting the reduction in our overall capital as we're contributing to these sites and the pace at which we're opening new shops. So for now, we're not commenting on when that is, as I spend some more time getting into the business and developing our long-term models. It's certainly something I'd like to be able to update you on with you guys here.

Speaker Change: Margin growth and strong EBITDA performance and then it's going to be a function of the rate at which we can start shifting the reduction in our overall capital.

Johnny Vasco: That were contributing to the sites and the pace at which we're opening new shops, so for four.

Speaker Change: For now we're not commenting on when that is as I spend more time getting into the business and developing along with your models that certainly is something I'd like to be able to update with you with you guys here in the future.

John Ivankoe: And it sounds like since I asked twice, you know, 25 developments we're not going to discuss on this call. I'm kind of making fun of myself a little bit now.

Speaker Change: And it sounds like since I asked twice you know 25 development, we're not going to discuss on this call is that.

Christine Barone: Is that what you want to communicate? Not on this call. Not on this call!

Johnny Vasco: Making fun of myself a little bit now is that just is that what you want when they call.

Johnny Vasco: On this call.

Johnny Vasco: Thank you.

Johnny Vasco: Next question, David Tarantino with Baird. Please go ahead.

Operator: Next question is David Tarantino with Barrett. Please go ahead.

Josh Gunzer: Hi.

David Tarantino: Hi, good afternoon. First, I just wanted to clarify, Josh, the second half commentary on the guidance for comps. So were you, I guess, all the moving pieces there, were you indicating expectations for average check growth to kind of settle into the flattish range and that maybe you would, you know, extend the traffic, you know, ex the cannibalization, you know, that you saw in the second quarter, which I think, I think was flat, correct me if that's wrong. So then, you know, the net of that would be that comps Is that the right way to think about it?

David Tarantino: Good afternoon.

Speaker Change: First I just wanted to clarify Josh that the second half commentary on the AR on the guidance for comp so.

David Tarantino: I guess with all the moving pieces there were you indicating expectation for.

Speaker Change: Average check growth there kind of subtle in the flattish range in that maybe you would extend the traffic you know ex the cannibalization.

Speaker Change: You saw in the in the second quarter, which I think I think was flat you know correct me if that's wrong.

David Tarantino: Then.

Speaker Change: That would be the comps would be flattish in that scenario is that is that the right way to think about it.

Josh Gunzer: I think you're getting the math about right. The way I would describe it is we'll have about four points of price that would be offset by some mix and increased promotional, like promotional investments that would increase discounts, and then we'd have the underlying sales transfer that we referenced that would drive it down with, you know, not any meaningful changes on the underlying track.

Joshua Guenser: I think you're getting the math about right. The way I would describe it is we'll have about four points of price that would be offset by some mix and increased promotional, like promotional investments that would increase discounts, and then we'd have the underlying sales transfer that we referenced that would drive it down with, you know, not any meaningful changes on the underlying track.

Speaker Change: Yeah, I think you're getting you're getting the math about right. The way I. The way I would describe it is we'll have about four points of around four points of price that would be offset by.

Speaker Change: Some mix and increased promotional promotional investments so that increased discounts and then we'd have the underlying sales transfer that we referenced that would.

Speaker Change: They'll drive it down with.

David Tarantino: Not any meaningful changes in the underlying traffic.

David Tarantino: Got it. Okay.

Johnny Vasco: Got it Okay, and then I guess one.

Speaker Change: Follow up to that is that is that sort of what you're already seeing or is that.

Speaker Change: What you expect to see as you move forward I guess, what I'm trying to get at is you know as authority the run rate that you're seeing in July or the third quarter, and and and that's informing or your guidance are you maybe factoring in some uncertainty in the outlook.

Josh Gunzer: From here.

Joshua Guenser: And I guess, you know, one follow-up to that, is that sort of what you're already seeing? Or is that what you expect to see? As you move forward, I guess what I'm trying to get at is, you know, is this already the run rate that you're seeing in July or the third quarter? And, and, and that's informing your guidance? Or are you factoring in some uncertainty in the outlook? You know, from here?

Speaker Change: What it says we've suddenly we're aware of what's going on in July is factored into the guidance that we're providing so not commenting specifically on the performance of our of what it says there's nothing jumping off the page for July that would that would cause us to think differently about the guidance we're providing.

David Tarantino: Yeah, what it says, we've, you know, certainly we're aware of what's going on in July and that's factored into the guidance that we're providing. So not commenting specifically on the performance or what it says, there's nothing jumping off the page for July that would cause us to think differently about the guidance we're providing.

Johnny Vasco: Great.

Operator: Thank you very much for that.

Johnny Vasco: Thank you very much for that.

Johnny Vasco: Next question, Andy Barish with Jefferies. Please go ahead.

Andy Barish: Next question: Andy Barish with Jeffrey. Please go ahead.

Andy Barish: Yeah, Hey, guys.

Christine Barone: Yeah. Hey, guys. I guess, just one more thing on the consumer and the environment. You noted a volatile consumer backdrop. How is, I guess, is that being witnessed in your business, which, you know, on the surface appears really, really solid?

Unknown Attendee: Yeah. Hey, guys. I guess, just one more thing on the consumer and the environment. You noted a volatile consumer backdrop. How is, I guess, is that being witnessed in your business, which, you know, on the surface appears really, really solid?

Speaker Change: I guess, just one more thing on that on the consumer and the environment you'd noted that a volatile consumer back back that Pat how is I guess, how is that being witnessed in your business, which on the surface appears really really solid.

Speaker Change: Yeah, absolutely and so you know I do think we feel really good about our performance in Q2, and if you think about just that meaningful.

Christine Barone: Yeah, absolutely, Andy. So you know, I do think we feel really good about our performance in Q2. And if you think about just that meaningful, you know, step up in year over year comp between Q1 and Q2 of 2023, you know, we feel really good about where Q2 came in. We also, you know, I think as we went through the quarter felt comfortable just with the playbook that we've got in place; we are continuing to see great returns from innovation. As you know, we kept strawberry boba, and protein on the menu; those continued to do well throughout the quarter, especially when we had boba actually back in stock.

Speaker Change: SAP up and in a year over year comp between Q1 and Q2 of 2023.

Speaker Change: You know, we feel really good about about where Q2 our.

Johnny Vasco: Q2 came in.

Speaker Change: We also you know I think as we went through the quarter felt comfortable just with the playbook that we've got in place. We are continuing to see great returns from innovation as you know we kept strawberry boba, we kept protein on the menu those continued to do well throughout the quarter, especially when we when we had a build actually back in stock.

Christine Barone: We're also continuing to see really nice performance and building brand awareness in our newer markets with that paid advertising. So we'll look to make, you know, additional investments as we go through the year. The neat thing about that is we can watch those returns pretty quickly as far as what it's driving.

Johnny Vasco: We're also continuing to see really nice performance in building brand awareness and our newer markets with that paid advertising. So we'll look to make additional investments as we go through the year. The neat thing about that is is we can watch those returns pretty quickly as far as what it's driving and so you know make decisions on what we're seeing from a REIT.

Christine Barone: And so, you know, make decisions on what we're seeing from a return basis on that advertising, you know, as we go through the year. And so, you know, as far as the customer is concerned, what we're feeling right now is that, you know, seeing broadly that there is, you know, what's going on with our customers, we have always been a very generous brand. I think that that generosity is important right now.

Speaker Change: Turn basis on that advertising.

Johnny Vasco: As we go through the year and so you know as far as the customer what we're what we're feeling right now is that.

Speaker Change: You're saying broadly that there's you know what's going on with our customer we have always been a very generous brand I think that that generosity is is important right now or medium size is 24 ounce drink. We're doing a lot of ice business right now over 90% of the business in the quarter is is in the eye.

Christine Barone: You know, our medium size is 24 ounces of drink. We're doing a lot of ice business right now. Over 90% of the business in the quarter is in the ice space. We give out a lot of pup cups and even try to make the dogs happy. But I think, you know, I think that the way that we're really, you know, responding right now is, as we always do, we are super empathetic to where our customer is and what they're thinking about.

Speaker Change: Ice space, we give out a lot of tough cups, and and even even try to make the dog's happy but I think you know I think that was the way that we're really you know responding right. Now is is as we always do we are super empathetic with where our customer is and what they're thinking about and I think our goal is to stay ahead of what's happening right now and.

Christine Barone: And I think our goal is to stay ahead of what's happening right now and continue with that generosity that we've got in our rewards program and continue with the generosity that our breweries just deliver to our customers every day.

Speaker Change: With that generosity that we've got in our rewards program and continue with the generosity that are broadly used to deliver to our customers every day.

Unknown Attendee: Yes, It makes sense and then Josh on.

Joshua Guenser: Yeah, makes sense. And then just Josh on,,,,,,,,,,,, Yeah, I'd say our way we're thinking full year, we'd expect it to be still fairly, fairly.

Speaker Change: Discussion on the heat price on coffee, maybe looking out to 'twenty five anything in the ballpark yes.

Speaker Change: And discussion around dairy and cocoa and sugar.

Josh: Anything you're seeing that.

Speaker Change: It would be material in terms of the.

Speaker Change: Cost of goods line or you feel pretty comfortable with that.

Josh Gunzer: Yeah, I'd say the way we're thinking full year, we expect it to still be fairly, fairly flat for us. We did see through the quarter a little bit of an increase in dairy costs, but nothing significant that we're expecting for the full year for the balance of the year.

Speaker Change: Yeah, I'd say the way, we're thinking full year, we'd expect it to be still fairly.

Joshua Guenser: Unknown Attendee, flat for us. We did see through the quarter a little bit of an increase in dairy costs, but nothing significant that we're expecting for the full year for the balance of the year.

Josh Gunzer: Really.

Josh Gunzer: Not for US we did see through the quarter, a little a little bit of increase in dairy costs, but nothing significant that we're expecting for the full year for the balance of there.

Speaker Change: Okay. Thank you.

Josh Gunzer: Next question, Sarah Senatore with Bank of America. Please go ahead.

Operator: Next question is from Sara Senatore with Bank of America. Please go ahead.

Josh Gunzer: Okay.

Sara Senatore: Thank you. I just had a quick clarification in terms of, you know, you mentioned refinements in your process. I guess, are you talking about, you know, applying that to Texas, or is it new markets? I'm just trying to understand kind of how broad this approach is. And I assume, as you said, it doesn't change how you think about the ultimate TAM. It's more about this year, kind of a one-time adjustment. I want to make sure that I'm understanding that correctly, a one-time change in your process.

Speaker Change: Thank you I just had a quick clarification in terms of you know you mentioned the refinements in your process I guess.

Speaker Change: You're talking about applying that to Texas or is it new markets I'm, just trying to understand kind of how broad this approach is and and I assume as you said it doesn't change how you think about the ultimate Tam it's more about them. This year kind of a one time adjustment I guess.

Speaker Change: Is just I want to make sure that I'm understanding that correctly, a one time change in your process and then I do have a question about your underlying business.

Sara Senatore: And then I do have a question about your underlying business. I know, I understand all the desire to be generous with customers, but it looks like, actually, it was pretty stable sequentially if I try to control for all the different comparisons and that kind of thing. So I'm curious. Given all the drivers that you have, why wouldn't you expect if the price rolls off and you're more promotional that you would get an offsetting benefit and traffic? Thanks.

Speaker Change: No I understand all that the desire to be generous with customers, but it looks like actually it was pretty stable sequentially and if I try to control for all the different compares in that kind of thing so.

Speaker Change: I'm I'm curious.

Unknown Attendee: You know, given all the drivers that you have, why wouldn't you expect if the price rolls off and you're more promotional that you would get an offsetting benefit in traffic? Thanks.

Speaker Change: You know given all the drivers that you have why you Wouldnt expect if price rolls off and you're more promotional that you would get an offsetting benefit in traffic. Thanks.

Speaker Change: Yeah, So I'll start with the real estate process. There. So yeah I do think that there are some change.

Josh Gunzer: Yeah, so I'll start with the real estate process there. So, you know, I do think that there are some changes in our real estate process that we've noted previously, which I'll go through, that are more of a one-time shift. And then there's other things that are going to be continuous and ongoing, you know, those learnings from what we learn as we enter new markets and, and from all of our shops. So I think that more of what is happening this year and more of the one-time things or some of those shifts from why we mentioned going wider versus deeper.

Christine Barone: Yeah, so I'll start with the real estate process there. So, you know, I do think that there are some changes in our real estate process that we've noted previously, which I'll go through, that are more of a one-time shift. And then there are other things that are going to be continuous and ongoing, you know, those learnings from what we learn as we enter new markets and from all of our shops.

Josh Gunzer: Changes in our real estate process that we've noted previously which I'll go through that are more of like a one time shift and then there's other things that are going to be continuous and ongoing learnings from what we learn as we enter new markets and and from all of our shops. So I think that more of what is happening this year.

Josh Gunzer: Year and more of the one time or some of those shifts from we mentioned why going wider versus deeper and so one of the things that we are we are as we incorporate more data you know in particular, because we just opened so many shops in Texas a lot of that data is coming from Texas is that we just have more refined data on what we look like how we ramp in a new market.

Christine Barone: So I think that more of what is happening this year and more of the one time or some of those shifts from, we mentioned why going wider versus deeper. And so one of the things that we are, as we incorporate more data, you know, in particular because we just opened so many shops in Texas, a lot of that data is coming from Texas, is that we just have more refined data on what we look like, how we ramp up in a new market, we have more refined data now on sales transfer, and what that looks like under various different types of scenarios.

Josh Gunzer: And so one of the things that we are as we incorporate more data, you know, in particular because we just opened so many shops in Texas, a lot of that data is coming from Texas, is that we just have more refined data on what we look like, how we ramp up in a new market, we have more refined data now on sales transfer, and what that looks like under various different types of scenarios. And as we enter big new markets like Florida, we are using all of that data to really refine our approach so that we can bring up the average AUV of a unit. That's, that's the goal of that process.

Josh Gunzer: We have more refined data now on sales transfer and what that looks like under various different types of scenarios and as we enter big new markets like Florida. We are using all of that data to really refine our approach. So that we can bring up the average a V or a unit. That's that's the goal of that.

Christine Barone: And as we enter big new markets like Florida, we are using all of that data to really refine our approach so that we can bring up the average AUV of a unit. That's, that's the goal of that process.

Speaker Change: <unk> and what it has led to is we have you know very refined.

Josh Gunzer: And what it has led to is, we have a very refined, very refined real estate process now where we're looking site by site at each site, what all of those impacts look like, and feel like we have a higher level of confidence in what our AUVs will look like as we open a new market. And so what that leads to is us feeling that going forward, we're excited about the pipeline that we're building right now because of that increased confidence in the estimates that we have.

Josh Gunzer: A very refined real estate process now where were looking site by site at each site, what all of those impacts look like and feel like we have a higher level of confidence and what are these will look like as we open in new markets and so what that leads to is us feeling that going forward.

Christine Barone: And what it has led to is, we have, you know, a very refined real estate process now where we're looking site by site at each site, what all of those impacts look like, and feel like we have a higher level of confidence in what our AUVs will look like as we open in new markets. And so what that leads to is us feeling that going forward, we're excited about the pipeline that we're building right now because of that increased confidence in the estimates that we have.

Josh Gunzer: We're excited about the pipeline that we're building right now because of that increased confidence in the estimates that we have as we go forward.

Josh Gunzer: The second part of the refinements that we're making is really moving the amount of money that we spend as Dutch Bros on a site. And so, you know, I think we've talked previously about ground leases and build-to-suits. A lot of what we're seeing right now in the market is a hybrid mix between those two. And so, as we've shared, we believe 2024 could be that high watermark for ground leases, which is the most expensive way for us to spend money to get a shop out of the ground.

Josh Gunzer: The second part of the refinements that we're making is is really moving.

Josh Gunzer: And we are refining that back towards build-to-suit, and what we're finding in the market is that a number of developers are looking for some level of contribution. So, you know, ending up in some of that hybrid space. So that's the other piece that we are working on as well. I think the other dynamic that we're starting to see in the market, I think, as you know, as there might be others out there that maybe aren't pursuing sites as aggressively as they were, or might be looking to, you know, find someone else to take a site is that, you know, we believe that there's a new kind of scene in the market where And so again, all of these things, the refinements in our real estate process, we're feeling really good about the direction that we're going in.

Christine Barone: The second part of the refinements that we're making is really moving the amount of money that we spend as Dutch Bros on a site. And so, you know, I think we've talked previously about ground leases and build-to-suits. A lot of what we're seeing right now in the market is a hybrid mix between those two. And so, as we've shared, we believe 2024 could be that high watermark for ground leases, which is the most expensive way for us to spend money to get a shop out of the ground.

Josh Gunzer: The amount of money that we spend is Dutch bros. On a site and so you know I think we've talked previously about ground leases and build to suits a lot of what we're seeing right now in the market is is a hybrid mix between those two and so as we've shared we believe 2024 it could be that high watermark for the ground leases which are.

Speaker Change: The most expensive way for us to.

Josh Gunzer: Two to spend money to get a shop out of the ground and we are refining that back towards build to suit and what we're finding in the market that a number of developers are looking for some level of contribution. So you know ending up in some of that hybrid space. So that's the other piece that that we are working on as well I think the other dynamic that we're starting to see in the market.

Christine Barone: And we are refining that back towards build-to-suit, and what we're finding in the market is that a number of developers are looking for some level of contribution. So, you know, ending up in some of that hybrid space. So that's the other piece that we are working on as well. I think the other dynamic that we're starting to see in the market, I think, as there might be others out there that maybe aren't pursuing sites as aggressively as they were, or might be looking to, you know, find someone else to take a site is that, you know, we believe that there is a new kind of scene in the market where we might actually have some more attractive sites available.

Josh Gunzer: Thank you.

Josh Gunzer: As there might be others out there that maybe aren't pursuing sites as aggressively as they were or might be looking to find find someone else to sit take a site is that we believe that there is that we could be entering them.

Josh Gunzer: A a new kind of seen in the market, where we're we might actually have some more attractive sites available and so again all of these things the refinements to our real estate process, we're feeling really good about the direction that we're going there.

Christine Barone: And so again, all of these things, the refinements in our real estate process, we're feeling really good about the direction that we're going there. And then as far as, you know, your comment about how stable it is, like I would, you know, I would echo that comment that when you move from Q1 to Q2, with all of the underlying drivers, what we are seeing is a pretty stable environment.

Speaker Change: And then as far as your comment around pretty stable like I would you know I would echo that comment that when when you move from Q1 to Q2 with all of the underlying drivers. What we are seeing is a pretty stable environment.

Unknown Attendee: Unknown Attendee.

Christine Barone: All right. Dan, sorry, maybe just to answer your question earlier about the TAM, we certainly don't see any shift in that as well. I think you highlighted that, but just wanted to confirm that we still feel very confident about the long-term potential of this business.

Josh Gunzer: Right.

Speaker Change: Yes, so maybe just to answer your question.

Speaker Change: On the Tam, we certainly don't see any shift in that as well, but I think you highlighted that but just wanted to confirm that we still feel very confident about the long term potential of this business.

Christine Barone: Right, okay, and then just on the environment, I guess the question was, why wouldn't you get better transaction growth if your ticket is coming down because of less price and promotions? Why wouldn't you assume there'd be some payoff in higher transactions?

Speaker Change: Right. Okay, and then just on the environment I guess the question was why wouldn't you get then better transaction growth. If your ticket is coming down because of glass pricing from promotions why wouldn't you assume.

Speaker Change: There'll be some pay offs and higher transactions.

Unknown Attendee: I think we certainly wanted to be mindful of the environment that we're operating in I think what we're seeing around us there's an increase in.

Christine Barone: I think we certainly want to just be mindful of the environment that we're operating in. I think we're seeing around us, there's an increase in concern in the consumer space; we want to make sure we're very thoughtful about how we're positioning ourselves going forward.

Speaker Change: Concern in the consumer space I want to make sure we're very thoughtful about how we're how we're positioning ourselves going forward.

Sara Senatore: Got it. Thank you so much.

Speaker Change: Got it thank you so much.

Unknown Attendee: Next question Crystal Cole with Cole. Please go ahead.

Operator: Next question: Chris O'Cole with Cecil. Please go ahead.

Unknown Attendee: Yeah, thanks. I just had a follow-up and clarification regarding that question. You mentioned plans to increase that promotional activity in the third quarter, which is going to impact MIX. Is that related to the competitive environment, or is it related to the rollout of mobile order and pay, or what's the impetus behind increasing that promotional activity?

Chris O'Cole: Yeah, thanks. I just had a follow-up and clarification regarding that question. You mentioned plans to increase that promotional activity in the third quarter, which is going to impact MIX. Is that related to the competitive environment, or is it related to the rollout of mobile order and pay, or what's the impetus behind increasing that promotional activity?

Speaker Change: Yes. Thanks, I just had a follow up on a clarification regarding that question you mentioned.

Unknown Attendee: <unk> plans to increase that promotional activity in the third quarter, which is going to impact mix is that related to the competitive environment or is it related to the rollout of mobile order and pay or what's the what's the impetus behind increasing that promotional activity.

Speaker Change: Yeah, So really it's more of a comment on year over year. So as we as we change the rewards program in Q1 of 2023.

Christine Barone: Yeah, so really, it's more of a comment on year over year. So as we changed the rewards program in Q1 of 2023, as we were kind of ramping up on our ability to segment the offers based on our ability to know which offers were most effective, we had a little bit of a lighter kind of environment in the rewards program in Q3 of 2023. And so looking ahead to this year, I think, again, staying ahead of our customers, really staying on the same pace that we've been on, is really important to, you know, continuing to have the great reaction that we're seeing right now from our customers.

Speaker Change: As we were kind of ramping up our ability to segment. The offers on our ability to know which offers for most effective we had a little bit of a lighter.

Speaker Change: It kind of environment in the rewards program in Q3 of 2023, and so looking in this year I think again staying ahead of our customer reach.

Speaker Change: Really staying on the same pace that we've been on we believe is really important to you know continuing to.

Speaker Change: Two to have the great reaction that we're seeing right now from our customers.

Christine Barone: Okay. And then, Christine, you mentioned plans to make additional investments in paid advertising. Can you quantify that investment? And then, how are you thinking about budgeting advertising going forward? I'm just wondering if you'll be able to keep it as a percentage of sales so that it'll grow with unit growth and comps as you look out in the next few years.

Christine Barone: Okay, and then Christine you mentioned plans to make additional investments in paid advertising can you quantify that investment and then how are you thinking about budgeting advertising going forward I'm just wondering if if you'll be able to try to keep it as a percentage of sales so that it'll grow with unit growth in comps as you look out in the next few years.

Speaker Change: Yeah. So so what I can share is that is that those increased advertising increased advertising spend is included in our guidance.

Unknown Attendee: Unknown Attendee: Yeah, so

Christine Barone: Yeah, so what I can share is that there's increased advertising; the increased advertising spend is included in our guidance. And, you know, as we go forward, I think we are still in that learning phase of where can we maximize building brand awareness and helping to drive new customers into the brand. And so I think we are still learning where the right amount of advertising spend is ultimately going to land.

Speaker Change: And as.

Speaker Change: As we go forward I think we are still in that learning phase of where where can we maximize building brand awareness and helping to drive new customers into the brand and so I think we are still learning wherever that right amount of advertising spend is ultimately going to land I think the good news right now is with the returns.

Speaker Change: That we're seeing where we're not quite there yet with with where are we where we believe we can really continue to drive the business in a profitable way with paid advertising.

Christine Barone: I think the good news right now is with the returns that we're seeing, we're not quite there yet with where we believe we can really continue to drive the business in a profitable way with paid advertising.

Unknown Attendee: Yeah.

Speaker Change: Okay. Thanks.

Unknown Attendee: Next question Dennis Geiger with UBS. Please go ahead.

Dennis Geiger: Next question, Dennis Geiger with UBS. Please go ahead. Great, thank you. I want to ask one more question on promotions and really just follow up on your comments about the increasingly

Operator: Next question, Dennis Geiger with UBS. Please go ahead. Great, thank you. I want to ask one more question about promotion.

Unknown Attendee: Great, thank you. I want to ask one more question on promotions and really just follow up on your comments about the increasingly

Speaker Change: Great. Thank you I wonder if one more on promotions and it really just following up on your comments about the increasingly I believe it was increasingly intense promotional environment anything to add there on sort of.

Speaker Change: Where that increased intensity, maybe it was coming from how it's impacting your business. If that's been a change relative to.

Speaker Change: Prior quarters.

Speaker Change: Yeah, I mean, it's as far as where it's coming from I you know I do think that just in general in the market. There's a lot more promotional activity than than there has been historically.

Christine Barone: Yeah, I mean, as far as where it's coming from, I do think that just in general, in the market, there's a lot more promotional activity than there has been historically. And so, you know, certainly kind of watching that across the beverage space and even broader than the beverage space.

Speaker Change: And so certainly kind of watching that really across the beverage space and even broader than the beverage space and then you know from from what we're seeing we again believe our best strategy is to really understand our brand and our customers really well and what's going to work within our shops.

Christine Barone: And then, you know, from what we're seeing, we again believe our best strategy is to really understand our brand and our customers really well and what's going to work within our shops. And so in Q2, what we really found most effective was to continue with the strategy that we've been deploying for the last several quarters, which is that focus on innovation, really, after our core customer, things that are fun, oftentimes new to market, ensuring that we have that dual focus now on coffee and on energy, given how important the energy business is to our growth. I think we've talked a lot about paid advertising and what we're seeing there.

Speaker Change: And so in Q2, what we really found most effective was to continue with the strategy that.

Speaker Change: We've been deploying for the last several quarters, which is that focus on innovation.

Speaker Change: Really after our core customer things that are fun oftentimes need a market ensuring that we have that dual focus now on coffee and on energy given how important the energy business is to our growth I think we've talked a lot about paid advertising and what we're seeing there and then again, we are compared to others I think in the.

Dennis Geiger: And then again, you know, we are compared to others, I think, in the early stages of what we can do with the rewards program. And so each quarter, it's a little bit of a march ahead, and figuring out how to segment which offers our customers are most responding to, you know, what are other things we can do extra sticker drops, other merch drops, things like that that really make sense and resonate with our customers.

Speaker Change: Early stages of what we can do with the rewards program and so each quarter, it's a little bit of a March ahead, and figuring out how to segment, which offers our customers are most responding to them. What are other things. We can do extra sticker drops other other merch drops things like that that really makes sense and resonate with.

Speaker Change: Our customers. So I think that we are being thoughtful about the environment that we're working within and what we're seeing at the same time is that a focus on our strengths within our brand and with our service are really what's paying off for us.

Dennis Geiger: So I think that we are being thoughtful about the environment that we're working within, and what we're seeing at the same time is that focusing on our strengths within our brand and with our service is really what's paying off for us. Very helpful, Christine. Thank you.

Speaker Change: That's very helpful. Thank you just one more as it relates to Florida and sort of any incremental thoughts to share there based on sort of early days observation. Thank you.

Christine Barone: Just one more as it relates to Florida and sort of incremental thoughts to share based on sort of early days observations. Yeah, we're really pleased with how the Florida rollouts are going so far. You know, I think it just reflects the strength of our brand that our customers will drive so far to come to our shops to, you know, potentially wait in some lines that we have in Florida. And, again, we're very thoughtful about not projecting what Florida is going to look like from just a couple of shops. But certainly, the initial shops are performing really well.

Unknown Attendee: Yeah.

Speaker Change: Yeah, we're really pleased with how the how the Florida Rollouts going so far you know I think it just reflects the strength of our brand.

Speaker Change: That our customers will drive so far to come to our shops to you know potentially waiting some lines that we have in Florida and again, we you know I think we're very thoughtful about not projecting what Florida is going to look like from from just a couple of shops, but certainly the initial shops are performing really well.

Unknown Attendee: Okay.

Speaker Change: Thank you.

Unknown Attendee: Next question, Brian Lawlor with Piper Sandler. Please go ahead.

Operator: Next question is Brian Mullan with Piper Sandler. Please go ahead.

Speaker Change: Thank you just wanted to ask a question on California could you just talk about the dynamics in that market since April 1st remind us how much maybe incremental price you took there and what are you seeing from a consumer response perspective.

Brian Mullan: Thank you. I just want to ask a question about California. Can you just talk about the dynamics in that market since April 1st? Remind us how much, maybe, incremental price you took there? And what are you seeing from a consumer response perspective in regards to traffic in California?

Speaker Change: In regards to traffic in California, if anything.

Unknown Attendee: Yeah.

Speaker Change: Yeah. So in California, we had about a 25% wage increase California Holistically is about 20% of our shop base. So we've been watching really carefully as far as pricing. We took about what would what ended up being about a one 5%.

Christine Barone: Yeah, so in California, we had about a 25% wage increase. California holistically is about 20% of our shop base. So we've been watching really carefully.

Speaker Change: Weighted on the system.

Speaker Change: In California, and you know as far as what we're seeing you know we're watching kind of that overall P&L, we're watching some of the new shop openings in California.

Christine Barone: You know, as far as pricing is concerned, we took about what would end up being about a one and a half percent weighted on the system in California. And, you know, as far as what we're seeing, we're watching kind of that overall P&L; we're watching some of the new shop openings in California, of which we actually had two of our very top first week performers in California in the first half of this year. And I think, you know, we continue to be very bullish on our prospects in California and, you know, continue to look for sites, and we'll continue opening shops there.

Speaker Change: Of which we actually had two of our very top first weak performers in California in the first half of this year and I think we continue to be very bullish on our prospects in California, and you know continue to look for sites and we'll continue opening shops and in California.

Speaker Change: Okay. Thank you and then just a follow up on the mobile order and pay testing you referenced some excitement around better utilizing the walk up window, which was interesting.

Brian Mullan: Okay, thank you. And then just a follow-up on the mobile order of pay testing, you referenced some excitement around better utilizing the walk-up window, which was interesting. You know, are you doing anything in these tests to proactively direct the consumers to the walk-up window, or is that occurring naturally? And do you have an actual preference about what they do? Just curious to get your take on that part.

Speaker Change: Are you doing anything in these tests to proactively direct to consumers to the walk up window or is that occurring naturally and do you have an actual preference what they do just curious to get your take on that part.

Speaker Change: Yeah. So given it's still early days of the testing, we really want to understand what our customer preferences are and how they work there are unique situations in our shops, where it's better for us to direct to one place or another just because of either parking or because of how the line works all of those things.

Unknown Attendee: Unknown Attendee Yeah, so

Unknown Attendee: Unknown Attendee: "Yes, so

Christine Barone: Yeah, so given it's still early days in the testing, we really want to understand what our customer preferences are and how they work. There are unique situations in our shops where it's better for us to direct customers to one place or another just because of either parking or because of how the line works, all of those things. But what we are seeing kind of early on is customers choosing more to come to the walk-up window.

Speaker Change: But what we are seeing kind of early on.

Speaker Change: Is is customers choosing more to come to the walk up window, I think that might be more typically of how theyre picking up their mobile orders at other places and so I'm kind of repeating that behavior with with US one of the things for US. That's nice about that is is we have two bars wanted at the drive through window and wanted to walk up window and then a high.

Christine Barone: I think that might be more typically how they're picking up their mobile orders at other places and so kind of repeating that behavior with us. One of the things for us that's nice about that is we have two bars, one at the drive-thru window and one at the walk-up window. And then, in high-volume shops, we put in additional bars. And so the neat thing, I think, with mobile ordering and that preference for the walk-up window, is that it really is balancing out some of that volume.

Speaker Change: Volume shops, we put in additional bars.

Speaker Change: So the neat thing I think with mobile order and that preference for the walk up window is it really is a balance.

Christine Barone: So typically, if you've got much more of that volume coming out of the drive-thru window, what we're doing is we are actually walking drinks from the walk-up window side over to the drive-thru window side. And so that ability to actually make the drinks where they're being handed out is a nice thing that we're seeing, again, very early on in the mobile order testing.

Speaker Change: Balancing out some of that volume. So typically if you've got much more of that volume coming out of the drive through window. What we're doing is we're actually walking drinks from the walk up window side over to the drive up drive through windows side, and so that ability to actually make the drinks where they're being handed out.

Speaker Change: It is a nice thing that we're seeing again very early on in the mobile order testing.

Unknown Attendee: Thank you.

Unknown Attendee: Next question, Jeff Farmer with Gordon Haskett. Please go ahead.

Operator: Next question, Jeff Farmer with Gordon Haskett, please go ahead. David Tarantino, John Ivankoe,

Unknown Attendee: Thank you. I apologize for continuing to harp on the 2024 Sameshore Sales Guide, but I guess, in an effort to get everyone on the same page, is the implied Sameshore Sales Guidance for the back half of the year flattish? Is it slightly negative or somewhere in between? Do you guys have anything you can offer on that?

Jeff Farmer: Thank you. I apologize for continuing to harp on the 2024 Sameshare Sales Guide, but I guess, in an effort to get everyone on the same page, is the implied Sameshare Sales Guidance for the back half of the year flattish? Is it slightly negative or somewhere in between? Do you guys have anything you can offer on that?

Speaker Change: Thank you apologize for continuing to harp on the 'twenty 'twenty four same store sales guide, but I guess in an effort to get everyone. On the same page is the implied same store sales guidance for the back half of the year could reconsidered flattish is it slightly negative or somewhere in between you guys have anything you can offer on that.

Speaker Change: Yeah, I mean, I guess, all I would offer is similar to what I provided the best we're not giving specific guidance on the back half or quarterly guidance, but as you think about the rollover from Q, what the best way to think about would be the relative from Q2 into Q3.

Joshua Guenser: Yeah, I mean, I guess all I would offer is similar to what I've provided in the past. We're not giving specific guidance on the back half for quarterly guidance. But it's as you think about the rollover from Q, the best way to think about it be the rollover from Q2 into Q3, where if we had a four comps for for Q2, we'll be rolling off about four and a half points in price.

Speaker Change: There were three out of four comps for for Q2 will be rolling off about four and a half points price.

Unknown Attendee: We replaced about a little more than a point of that back in price, and we'd expect slightly higher commercial activities to drive some discounts and mix.

Joshua Guenser: We replaced about a little more than a point of that back in price, and we'd expect slightly higher commercial activities driving some discounts and mix. So I think you guys can do the math to get to what that would imply then for Q3 and Q4, but I'll put that into the full year guide as well. Okay.

Speaker Change: We replaced about a little more than a point of that back in price and we would expect.

Speaker Change: Slightly higher promotional activities driving some discount.

Unknown Attendee: Yes.

Speaker Change: So I think you guys you guys can do the math to get to the what that would imply that for Q3, and Q4, but and put that into the full year guide as well.

Jeff Farmer: Okay, I'll leave that alone and then just give the follow-up. So just drilling down on your own customers, you guys have talked about it on this call, but in terms of just the competitive intensity picking up, consumer headwinds picking up, how does that manifest itself in terms of your customers' behavior? And I guess what I mean by that, do you see sort of reduced frequencies or check management? What happens when these headwinds arise? That's the first question. And secondly, do you think we're sort of absorbing the peak of these headwinds, or is this something that's continuing to intensify as we get through 2024?

Speaker Change: I'll leave that alone and then just the follow up.

Speaker Change: Just drilling down in your own customers and you guys have talked about it on this call but in terms of.

Speaker Change: Or just the competitive intensity picking up consumer headwinds picking up.

Speaker Change: How does that manifest itself in terms of your customers' behavior and I guess, what do you mean by that did you see sort of reduce frequency user check management well what happens when when these headwinds are right. So that's the first question and secondly, do you think we're sort of.

Speaker Change: Absorbing the peak of these headwinds or is this something that's continuing to intensify as we get through 2020 for the headwind perspective.

Speaker Change: Yeah. So there's a number of different things that we are looking for is as we look for potential things that we could be seeing we do track you know a constant cohort of rewards members.

Christine Barone: Yeah, so there's a number of different things that we are looking for, you know, as we look for potential things that we could be seeing, we do track, you know, a constant cohort of rewards members. I would call that behavior we're seeing there stable. And so, you know, nothing really there. We also look at, you know, add-ons, modifier usage, things like that. Again, we're not really seeing anything in the data that would indicate anything there.

Speaker Change: Recall that behavior, we're seeing there is as stable.

Speaker Change: And so nothing really there.

Speaker Change: We also look at you know add ons modifier usage things like that again, we're not really seeing anything in the data that would indicate anything there and I do think it's part of what we're what we're looking at is it just hey, if the overall environment.

Christine Barone: And I do think, you know, it's part of what we're looking at is just, hey, the overall environment, that clearly, everyone's customers are feeling something. And so how do we stay ahead of that? And I think that that's what we've done a really good job of thinking through in this type of environment what our customers want, and most want, and how do we continue to deliver that, so that we don't end up seeing some of those things that might, you know, might start to show some cracks. And so right now, we're really, you know, very pleased with what we're seeing and how our customer is holding up.

Speaker Change: Clearly the art everyone's customers is feeling something and so how do we stay ahead of that and I think that that's what we've done a really good job of is is thinking through in this type of environment, what do our customers want most want and how do we continue to deliver that so that we don't end up seeing some of those things that that might.

Speaker Change: You know might start to show them some show some cracks and so right now we're really.

Speaker Change: Very pleased with what we're seeing in it in how our customer is holding up.

Jeff Farmer: I appreciate it. Thank you.

Speaker Change: I appreciate it thank you.

Nick Setyan: Next question is from Nick Setyan with Bush Securities. Please go ahead.

Operator: Next question is from Nick Setyan with Slide Bush Securities. Please go ahead.

Speaker Change: Next question, Yeah with Wedbush Securities. Please go ahead.

Speaker Change: Hi, Thanks for the question the increased SG&A guide.

Josh Gunzer: Hi, thanks for the question. Yeah, the increased SG&A guide. Can we just kind of parse out all the different drivers of that uptick?

Nick Setyan: Hi, thanks for the question. Yeah, the increased SG&A guide. Can we just kind of parse out all the different drivers of that uptick?

Speaker Change: Can we just kind of.

Josh Gunzer: Parse out.

Speaker Change: All the different drivers of that uptick.

Speaker Change: Yeah, Yes, I'd be happy to walk through without giving a specific dollar amount. So what we're what we've got in there is increased investments both in paid media as well as in our support center roles. As we've made the transition suddenly there was a bit of a slowing in the first half as we are transitioning folks to this office, we were ramping up those efforts here in the back.

Josh Gunzer: Yeah, yes, happy, happy to walk through without giving a specific dollar amount. So what we've got in there is increased investments, both in paid media, as well as in our support center roles, as we've made the transition. Certainly, there was a bit of a slowing in the first half, as we transitioned folks to this office, but we were ramping those efforts here in the back part of the year.

Joshua Guenser: Yeah, yes, happy to walk through without giving a specific dollar amount. So what we've got in there is increased investments, both in paid media, as well as in our support center roles, as we've made the transition. Certainly, there was a bit of a slowdown in the first half, as we transitioned folks to this office, but we were ramping up those efforts here in the back part of the year, that's gonna be a good size of that increase. And then, the balance being, as we've had a very strong year, increased performance-related compensation. So those are the three biggest issues that I'd highlight for the balance of the year.

Josh Gunzer: Back part of the year.

Josh Gunzer: That's going to be the.

Josh Gunzer: You know a good size of that increase and then the balance being as we've had a very strong year increased performance related compensation.

Josh Gunzer: That's gonna be the, you know, a good size of that increase. And then the balance, as we've had a very strong year increased performance-related compensation. So those are the three biggest issues that I will highlight for the balance of the year.

Josh Gunzer: The three biggest pieces that I'd highlight for for value.

Josh Gunzer: Okay. And just to clarify, you guys said you're not too worried about the dairy or coffee impact in the second half. Is that fair?

Josh Gunzer: Okay.

Nick Setyan: Okay. And just to clarify, you guys said you're not too worried about the dairy or coffee impact in the second half. Is that fair?

Speaker Change: And I think just to clarify you guys said youre not too worried about the dairy or coffee impact in the second half is that fair.

Josh Gunzer: That's right, yeah we don't we don't have anything significant in there, obviously, keeping an eye on it; we follow all that closely, but currently, we aren't anticipating any impact.

Joshua Guenser: That's right. Yeah, we don't we don't have anything significant in there. Obviously, we keep an eye on it. We follow all that closely, but currently, we aren't currently anticipating any impact.

Speaker Change: That's right Yeah, we don't we don't have anything significant in there obviously, keeping an eye on it we would follow that closely but currently aren't anticipating any any effect.

Josh Gunzer: Okay.

Nick Setyan: Okay, and then it's kind of fair to say that, you know, given sort of the increased ad spans, lower cannibalization because you're being more selective from Unknown Attendee You know, unit openings, you know, increased promotional activity, or basically, you know, putting all those headwinds into the comp, but you're not necessarily taking credit for any kind of incremental transaction growth that those things might result in.

Speaker Change: And then is it kind of fair to say that you know given sort of the increased AD spend lower cannibalization, because youre being more selective from.

Speaker Change: You know unit openings increased.

Speaker Change: Increased promotional activity or basically putting that all those headwinds into the comp, but youre not necessarily you know.

Josh Gunzer: Taking credit for any kind of incremental transaction growth that those things might result in.

Unknown Attendee: taking credit for any kind of incremental transaction growth that those things might result in.

Speaker Change: Yeah look I think that we're taking the things that we know today into our guide and that's how I would think about it.

Christine Barone: Yeah, look, I think that we are taking the things that we know today as our guide. And that's how we would think about it. You know, as far as the sales transfer comment, I do want to just comment specifically on that, that we are still, you know, quite, from a business perspective, from a strategic perspective, we do believe that there is a healthy level of sales transfer and feel very comfortable with that.

Speaker Change: As far as the sales transfer comment I do want to just comment specifically on that that we are still you know.

Unknown Attendee: Right.

Speaker Change: From a business perspective from a strategic perspective, we do believe that there is a healthy level of sales transfer and and feel very comfortable having that I mean, when we put a new shop in that is more convenient for someone who loves Dutch bros. When they decided to go to that more convenient shop, where really you know that that makes a lot of sense for us and so that.

Christine Barone: I mean, when we put in a new shop, that is more convenient for someone who loves Dutch Bros, and they decide to go to that more convenient shop. We're really, you know, that makes a lot of sense for us. And so that is not a number that we're really actively trying to guide down. We just want to make sure that we have a very thorough understanding of what it will be and what it will look like as we open new shops. And so I did want to comment specifically on that.

Speaker Change: That is not a number that we're really actively trying to guide down we just want to make sure that we have a very thorough understanding of what it will be and what it will look like as we open new shops, and so I did want to comment specifically on that.

Speaker Change: Okay. Thank you very much.

Nick Setyan: Okay, thank you very much.

Unknown Attendee: Okay, thank you very much.

Jeffrey Bernstein: Next question: Jeffrey Bernstein with Barclays. Please go ahead.

Operator: Next question: Jeffrey Bernstein with Barclays. Please go ahead.

Unknown Attendee: Next question Jeffrey Bernstein with Barclays. Please go ahead.

Jeffrey Bernstein: Great. Thank you very much.

Jeffrey Bernstein: Great, thank you very much. Just curious about the rewards program. I think you said it's now 67% of transactions. Just wondering, what are you seeing in terms of average check and frequency of those consumers? Apparently, I think they spend more and come more often, which would be both net positives. Any statistics you have around reward versus non reward members and how they use the brand?

Jeffrey Bernstein: Just curious on the rewards program I think you said its not six.

Jeffrey Bernstein: Seven transactions I'm, just wondering what are you seeing in terms of average check and frequency of those consumers seemingly.

Jeffrey Bernstein: It's been more income more often which can be both my positives. Let me statistics, you have around reward versus non reward members and how they use the brand.

Speaker Change: You know, we don't we don't break that out right now, but what I can share is one of the things. We've been really focused on is is given what we do see in the rewards program. We are excited to bring more customers into that rewards program I do think that it's something that you know if someone comes.

Christine Barone: You know, we don't we don't break that out right now. But what I can share is, you know, one of the things we've been really focused on is given what we do see in the rewards program, we are excited to bring more customers into that rewards program. You know, I do think that it's something that, you know, if someone comes to experience our brand, we have very high customer satisfaction ratings on that first visit.

Christine Barone: And so, you know, we truly believe that we have high conversion rates. And so I think one of the important things we did with the rewards program was to reinstate the free drink welcome reward. And that has really allowed us to kind of keep that penetration up, even as we're entering many new markets. But again, really, really pleased with what we're seeing.

Speaker Change: To experience our brand, we have very high customer satisfaction rates.

Speaker Change: Ratings at that first visit and so we truly believe that we have high conversion rates and so I think one of the important things we did with the rewards program was to reinstate the free drink welcome reward and and that has really allowed us to kind of keep that penetration up even as we're entering many new mark.

Speaker Change: But again, you know really really pleased with what we're seeing and then I also think given that 67% of our transactions.

Speaker Change: Going through our rewards program we.

Speaker Change: We do believe that that is going to be something that's going to be very helpful. As we roll out mobile order. So mobile order is really just an update to the app and that functionality becomes available on the app that you're already using to get your rewards.

Christine Barone: And then I also think given that 67% of our transactions go through our rewards program, we do believe that that is going to be something that's going to be very helpful as we roll out mobile order. So, you know, mobile order is really just an update to the app. And that functionality becomes available on the app that you're already using to get your reward.

Jeffrey Bernstein: Understood and then B the mobile just because you mentioned it I guess, the 40 units where you hold.

Jeffrey Bernstein: And then the mobile, just because you mentioned it, I guess the 40 units where you have several weeks' worth of data. I'm just curious, like, how would you define success? It sounds like you're happy with it in the early days. But is there any kind of metrics you're looking for, a sales lift or anything along those lines? As you know, pushing 200, and you're going to be across most of the system by the end of the year. So just trying to gauge what you're looking for to view as overall success. Well, we are looking

Jeffrey Bernstein: Several weeks worth of data I'm, just curious like how would you define success it sounds like you're happy with it in the early days.

Jeffrey Bernstein: But is there any kind of metrics you are looking for a sales lift or anything along those lines as you know.

Jeffrey Bernstein: Portion of 200, and youre going to be across most of the system by the end of the year. So I'm just trying to gauge what you're looking for it.

Speaker Change: To view as overall success.

Jeffrey Bernstein: Well, we are looking at a lot of metrics I would say that really the most important one right now are the operational pieces and how does this work for a broadly used us because I do think that.

Christine Barone: Well, we are looking at a lot of metrics, but I would say, you know, that really, the most important one right now are the operational pieces. And how does this work for our baristas? Because I do think that, you know, in the early stages of a rollout, our baristas are the ones who are having conversations with our customers. And if they really feel like mobile ordering is easy, they feel like it's helping their customers and providing them with something that really works, that's actually the most important thing that we're looking for right now.

Unknown Attendee: Well, we are looking for

Speaker Change: And in early stages of our rollout our borough East US are the ones, who are having our conversations with our customers and if they really feel like mobile order is easy they feel like it's helping their customers and providing them is something that really works, but that's actually the most important thing that we're looking for right now and you know kind of what we're seeing initially.

Christine Barone: And, you know, kind of what we're seeing initially is that we really believe we're on track there and feel good about what we're seeing initially on mobile order. Thank you. Next question, Gregory Francfort with Guggenheim Partners, please go ahead. Hey, one's just a technical question. Josh, when does that pricing roll off in the quarter? Was that at the beginning of the quarter? And then I have a question.

Speaker Change: We really believe are on track there and feeling good about about what we're seeing initially on mobile order.

Jeffrey Bernstein: Thank you.

Operator: Next question: Gregory Francfort with Guggenheim Partners. Please go ahead.

Speaker Change: Thank you your question Gregory Frankfurt with Guggenheim Partners. Please go ahead.

Unknown Attendee: Hey.

Jeffrey Bernstein: One just a technical Josh what when does that pricing roll off in the quarter was that was that at the beginning of the quarter and then I have a question.

Speaker Change: Yeah. It started the quarter great. Okay, and then just on the NSP improvements.

Jeffrey Bernstein: Are there any themes to that you do that is that rolling some of the Texas openings out of new stores into the comp base yet.

Jeffrey Bernstein: Getting advertising right in some or all of your new markets is there any region analogy you just just any other thoughts on it.

Speaker Change: It seems like it's been a big improvement.

Speaker Change: Yeah, absolutely. So you know I think is as we look at improvements here I think it's a number of different levers I do think the recalibration of our real estate process. The strength that we have in market planning.

Gregory Francfort: Yeah, absolutely. So you know, I think as we look at improvements there, I think there are a number of different levers. I do think the recalibration of our real estate process, the strength that we have in market planning, is likely the primary driver right now of that new shop performance and productivity. I do think we are also learning a lot from paid advertising; paid advertising is really concentrated on our new markets and in building brand awareness. But I think that what we are seeing is very intentional in the actions that we are taking from a real estate process and strategy perspective.

Speaker Change: It is likely the primary driver right now of that that new shop performance in productivity I do think we are also learning.

Speaker Change: A lot from the paid advertising that paid advertising is really concentrated on our new markets and in building brand awareness.

Speaker Change: But I think that what we're seeing is very intentional from the actions that we're taking from our real estate process and strategy perspective.

Unknown Attendee: Yeah, I mean, Greg, maybe the final piece I'd add to that is it's a big function of why we're taking our total sales.

Unknown Attendee: Yeah.

Joshua Guenser: Yeah, I mean, Greg, maybe the final piece I'd add to that is a big function of why we're taking our total sales guide up is that we're seeing really strong performance there. You know, it is a function of all the great things that Christine highlighted, and the comp face grew as well from a productivity perspective. So we're seeing really good strength processing.

Speaker Change: Maybe just the final piece I'd add to that is it's a big function of why we're taking our total sales guide up is that we're seeing really strong performance there.

Kristina: It is a function of all the great things that Kristina highlighted.

Unknown Attendee: Comp base grew as well from a.

Speaker Change: Productivity perspective, so we're seeing just really good strength across the board.

Unknown Attendee: I would like to turn the floor over to Christine for closing remark.

Christine Barone: I would like to turn the floor over to Christine for her closing remarks.

Speaker Change: Thanks for your questions on May 17th we held our annual drink one for Dean day, our customers and crews came together to honor our cofounder Dane Boersma, who passed away in 2009 following a battle with ALS. This is one of the most meaningful days of the year for Dutch Bros, and sensor IPO, we have donated.

Christine Barone: Thanks for your questions. On May 17, we held our annual Drink One for Dane.

Christine Barone: Thanks for your questions. On May 17, we held our annual Drink One for Dane Day. Our customers and crews came together to honor our co-founder Dane Boersma, who passed away in 2009 following a battle with ALS. This is one of the most meaningful days of the year for Dutch Bros. And since our IPO, we have donated more than $7 million to the Muscular Dystrophy Association to help find a cure for ALS. The impact Dutch Bros is making in our communities and the lives of our baristas continues to grow. We are pleased with our results in Q2 and believe our business is in a position of strength.

Christine Barone: More than $7 million to the muscular dystrophy Association to help find a cure for Alice the impact Dutch Bros is making in our communities and the lives of our breweries just continues to grow we are pleased with our results in Q2 and believe our business is in a position of strength I want to thank all of our teams that create this exceptional performance.

Speaker Change: <unk> by connecting with our customers and communities every single day. Thank you.

Christine Barone: This concludes today's teleconference. You may disconnect your lines at this time and thank you for your participation.

Christine Barone: Okay.

Christine Barone: [music].

Christine Barone:

Christine Barone: Okay.

Christine Barone: Yeah.

Christine Barone: Hmm.

Christine Barone: Yeah.

Joshua Guenser: We now expect adjusted S-GNA to be between $190 million and $200 million, up from the prior range of $183 million to $189 million. As we invest in driving the business forward with oversized paid media to build brand awareness in new markets and hiring to support our expansion in Arizona, as well as increased performance-related compensation. Total system shop openings are projected to be near the bottom of our previously provided range of 150 to 165.

Q2 2024 Dutch Bros Inc Earnings Call

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