Thank you for standing by, and welcome to the Dutch Bros Inc. first quarter 2023 earnings conference call and webcast. This conference call and webcast are being recorded today, Tuesday, May 9th, 2023 at 5:00 P.M. Eastern, and will be available for replay shortly after it has concluded. Following the company's presentation, we will open up the line for questions and instructions to queue up will be provided at that time. I will now turn the call over to Paddy Warren, Dutch Bros Director, Investor Relations, and Corporate Development. Please go ahead. Thank you. Good afternoon, and welcome. I'm joined today by Joth Ricci, CEO; Christine Barone, President; and Charley Jemley, CFO. We issued our earnings press release for the quarter ended March 31st, 2023 after the market closed today. The earnings press release, along with a supplemental investor deck, have now also been uploaded to our investors.dutchbros.com. Please be aware that all statements in our prepared remarks and in responses to your questions other than those of historical fact are forward-looking statements and are subject to risks, uncertainties, and assumptions that may cause actual results to differ materially. 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 our quarterly report on Form 10-Q. We assume no obligation to update any forward-looking statements. We will also reference non-GAAP financial measures on today's call. As a reminder, non-GAAP financial 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 Joth. Thank you, Paddy. Good afternoon, everyone. Q1 was a solid quarter for Dutch Bros as we continue to deliver on our vision for long-term sustainable growth. We opened a record 45 new system-wide shops in the quarter, of which 42 were company operated. We continued our expansion eastward, reaching Knoxville, Tennessee, and opened shops across nine states. We grew revenue by 29.6% and drove 590 basis points expansion in shop contribution margin year-over-year. We remain pleased with the underlying strength of the business. We responded decisively to the economic climate and focused on accelerating shop-level profitability, particularly in labor productivity, to deliver a strong company-operated shop margin. At the same time, we continued to invest in our shop footprint to grow business, delivering on yet another quarter of our new shop growth plan. Our people pipeline and systems are strong, demonstrated by our deep bench of qualified operator candidates and already low and further improving employee turnover. We saw meaningful four-wall margin expansion. We continue to see SG&A leverage as we build new shops and scale our platform. This continued underlying strength provides encouragement as we execute against our long-term goal of 4,000 shops in the next 10-15 years. For the quarter, system-wide same shop sales were - 2%. As a reminder, at this stage of our growth journey, just 70% of our shops sit within our comp base. Same shop sales decelerated into February before hitting an inflection point in March, exiting the quarter with momentum. Earlier in the quarter, we lapped difficult comparison, rolling over strong performance in 2022 as we remained open through the Omicron wave. Later in the quarter, we began investing in a number of traffic-driving initiatives that leveraged our unique assets as we began to see the improvement. To expand more on what we're doing, I'd like to introduce our new president, Christine Barone. Christine joined Dutch Bros in February and is already leading the development and execution of both short- and long-term strategies in this space. Thanks, Joth. It's been one of the great pleasures of my career to integrate into the Dutch Bros team and begin tackling our highest priorities. There is so much great opportunity ahead at Dutch Bros. We are focused for the remainder of the year on proactively responding to potential macroeconomic challenges and driving traffic. We're taking several steps to tackle our priorities. First, we're leaning into throwback promotions that have served to drive traffic and trial in the past. One example is our Fill a Tray promotion in March, where we offered four medium drinks for $15. This promotion, which lasted six hours on a single Wednesday afternoon, resulted in the largest sales day in the company's recorded history, driving same shop sales upwards of 40% higher than a typical Wednesday. Most importantly, a trip to Dutch Bros became a group event, which is what the brand is all about. Second, we're driving innovation to ensure we're meeting the needs of our customer base. For St. Patrick's Day, we released our first ever flavored Soft Tops. The Lucky Clover and Irish Cream flavors of our premium add-on allowed our customers to celebrate with a special drink, which was great for a couple of reasons. First, it increased overall check by 50 basis points, and second, it drove approximately 35% higher Soft Top adoption during the LTO period. Finally, we're doubling down on targeted promotions within the Dutch Bros app to not only drive traffic, but to also encourage customers to load funds on the Dutch Pass. The rewards refresh announced in Q1 provides us the flexibility to invest more surgically, a lever we intend to continue to use, and moves us away from a one size fits all approach. These results tell us our customers remain excited about the brand. The summer months are traditionally some of our best for sales, and we intend to build on the momentum we've seen. We plan to continue to drive innovation and launch targeted marketing campaigns into Q2. For example, in April, we introduced our Mangonada Rebel and Double Point Tuesdays, and we have been pleased with our customers' responses to these efforts. I look forward to continuing to work with the team to capitalize on these opportunities while also identifying operational efficiencies. Thanks, Christine. The work Christine and team are doing supports our key business pillars, people, shop development, operating leverage, brand awareness, and technology. People remain our focus. On January 1, we made the proactive investment in our people and increased base wages in federal minimum wage markets. Our broistas responded well. Shop level turnover in those markets improved by about 6%. System-wide, shop level turnover fell 3% to about 70%. Our people pipeline now includes more than 275 qualified operator candidates to support new shop growth. AUVs for mature company operated shops opened since 2019 were $2 million. Approximately 20% higher than company operated shops opened prior to 2019. While 2022 new shop AUVs are down slightly from Q4 trends, it is still early in the maturity of many of these shops. Estimated sales transfer remains in line with our expectations, indicating limited, if any unintentional drag from shop growth. The shop classes of 2019, 2020 and 2021 have each achieved our 30% contribution margin target even as we've entered new trade zones across the country. Shops opened in 2022 are reaching a run rate 30% contribution margin in just three to four quarters. Like many others, we have seen pressure on build costs and are working actively to value engineer our shops in order to offset some portion of that escalation. We have a healthy list of actions that we can take and plan to incorporate into our pipeline. While we can't avoid all the escalation, we plan to make improvements going forward. Despite these market conditions, our shops continue to achieve strong cash-on-cash returns, which encourages us to keep investing in the long-term future. Continued expansion helps us to accrue the benefits of market scale over time as we introduce new customers to our brand. We are forming daily relationships. Developing these routines takes time, but often proves to be sticky. These considerations, combined with other traffic-driving and operational initiatives Christine mentioned earlier, support our continued steady pace of growth. We intend to drive margin expansion as we grow, both through continued SG&A leverage and through operational improvements at the shop level. In Q1, adjusted SG&A was 18.6% of total revenue, a 220 basis point improvement from Q1 last year. We expect further leverage as our revenue growth continues outpacing the SG&A investments we need to support rapid development. We also realized significant contribution margin improvement in our company operated shops, achieving 590 basis points of expansion year-over-year to 24.2% of company operated shop revenue. Improvements in our labor processes were a major driver, we recognized 400 basis points of margin leverage year-over-year in labor to 28% of company operated shop revenue. We believe this benefit was a product of steady improvements in scheduling standards and operating tactics that we began implementing in 2022. Included in this 400 basis points of improvement in Q1 is $3 million of the wage investments we discussed last quarter. Finally, we're in the process of ensuring we have the right technology in place to support our customers and shops. Used correctly, we believe technology can be a major traffic driver moving forward, helping us improve reliability, speed, and customer satisfaction. Currently, we're investing in our infrastructure and payment processing systems, as well as the Dutch Bros app. The Dutch Rewards program is a major part of our business and continues to grow with approximately 65% of our transactions coming from Dutch Rewards members. In March, we executed a change to our rewards program. The change right sized the discount following last year's movement on price. As part of the refresh, we built in opportunities to reinvest in the program and our members. We now have the ability to provide a more one-on-one experience based on a customer's wants, needs, and habits. We believe our customers can now see how we are reinvesting in the program, and to date, we have not experienced any meaningful pushback. We look ahead, we plan to continue our focus on execution, specifically driving traffic, optimizing operations, selecting strong sites, and building great shops. We believe we are beginning to see the benefits of these efforts in Q1 as we delivered $23.9 million in adjusted EBITDA, a nearly 150% increase year-over-year. I want to publicly thank our franchisees and operators who are executing every day. It is their operational focus that underpins this positive outcome, particularly as it relates to our strong labor and SG&A leverage and its corresponding impact on profitability. We aim to keep our eye on the ball as we navigate the larger business environment on our path to a long-term goal of 4,000 shops. I'd like to turn the call over to Charley to review our financials. Thanks, Joth. We just reported our seventh straight quarter of at least 30 shop openings. Our team's ability to embrace the challenges inherent with high growth and to operate an expanding portfolio of shops across multiple states with increasing profitability has been impressive. My comments around Q1 financial results center on our retail operations and how they drove excellent company shop profitability. Then by extension, our overall adjusted EBITDA was 150% higher than a year ago. In 2022, we absorbed significant margin impact from the effects of inflation. The teams were tasked with additional productivity objectives, were asked to do so in a thoughtful way as to not risk our long-term sustainable growth. Even with some belt-tightening, we continue to strategically invest in corporate capabilities to enable growth. As a reminder, we now have 438 company-operated shops after having operated only 37 company shops at the beginning of 2018. Some quick highlights from the quarter. Revenue of $197 million grew 30% compared to the same period in 2022. Adjusted EBITDA grew nearly 150% over Q1 last year to $23.9 million. Company shop sales grew 33% and company shop profit contribution grew 76%. Driving that profit lift was an increase in company-operated shop contribution margin to 24.2% or a 590 basis points improvement over the prior year. Recall that this contribution margin includes 190 basis points of pre-opening expenses. The key to this quarter and what bodes well as we move through our next phases of growth was our company-operated shop margin expansion. Rather than walk down the P&L, let's start with the biggest driver, labor performance. Labor is an investment that is critical to delivering our goals around speed, quality, and service. Labor costs were 28% of company-operated shop revenue, improving 400 basis points from the same period last year. As a backdrop for this performance, recall that last quarter we announced an $8 million wage investment in states where the federal minimum wage is the standard. We alerted you to an additional $11 million in incremental wage spending necessitated by legislative minimum wage increases. This aggregate $19 million in higher wages would be partially offset by the rollover from 2022's menu pricing actions. In Q1 2023, we enjoyed the full benefit of improved labor operating standards implemented in late 2022 when we began increasing productivity, optimizing schedules, and resetting standards. We believe this came together in Q1's P&L as retail operations delivered 400 basis points of labor improvement in spite of $3 million in incremental wage expense and what can be the negative effects of traffic deleverage. Cost of goods sold were 28.3% of company-operated shop revenue in Q1, up 90 basis points from the same period last year. While inflation has slowed measurably, shop delivered costs remain elevated year-over-year. Pre-opening costs were 1.9% of company-operated shop revenue in Q1, down 270 basis points from the same period last year. Pre-opening costs are a function of the sequence of shops opening within a trade zone. First shop within a trade zone requires our highest level of support. As a result, we open second and subsequent shops with lower levels of support. In Q1, we had a higher proportion of infill shops which do not require as much support, driving down our pre-opening expense timing for the quarter. As the mix of first in versus subsequent shops ebbs and flows each quarter, you will see this expense be a function of that sequence. We managed to a full year number as we had to let the pipeline take on its natural sequence. In our franchising and other segment, gross profit improved to $16.9 million, compared to $14.4 million in the same period last year. We executed a price increase on products sold to our franchisees in Q3 of 2022. This action was designed to shore up profitability in the segment, helping offset input cost inflation in the goods we sell onward to our franchisees, including the high-quality coffee we proudly roast in our plant in Grants Pass, Oregon. Shifting now to SG&A. For the quarter, SG&A was $46 million. This includes $9.2 million in stock-based compensation. Adjusted SG&A was $36.7 million and continues to decline as a percent of revenue to 18.6% for Q1 compared to 20.8% in Q1 last year. We are pleased with adjusted SG&A leverage in Q1. We expect continued leverage going forward as an ongoing component of our investment thesis. Please make reference to the supplemental slides for a reconciliation between SG&A and adjusted SG&A. Now on to a few comments on the health of our balance sheet and liquidity. We finished Q1 with $235.9 million of net debt. That represents an increase of $45.2 million from Q4 directly tied to those record openings we reported. We have $247 million of undrawn liquidity on the present $500 million credit facility. We are committed to maintaining a well-capitalized balance sheet, remaining flexible, and being ready to take full advantage of the long growth runway ahead. We are affirming our full year 2020 guidance. Total system shop openings are expected to be at least 150, of which at least 130 shops will be company operated. Total revenue in the range of $950 million-$1 billion. Same-shop sales growth is estimated to be in the low single digits. We are maintaining our adjusted EBITDA guidance of at least $125 million. Being just 90 days into our fiscal year, we believe it is too early to translate Q1's results towards any change in our view of the full year adjusted EBITDA. For example, despite the underlying improvements in company-operated shop margins, in the remainder of the year, we may see a moderation in the pre-opening variability we experienced in Q1. Furthermore, as noted, we will continue investing throughout the remainder of the year in initiatives designed to drive traffic. We will look forward to updating you on our progress in early August when we share Q2 results. Capital expenditures are estimated to be in the range of $225 million-$250 million, which includes approximately $15 million-$20 million in spending in 2023 for a second roasting facility, which we project will open in 2024. Thank you. Now we will take your questions. Operator, please open the lines. Thank you. We will now conduct a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two 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 keys. Once again, that's star one at this time. One moment while we pull for our first question. Our first question comes from Andy Barish with Jefferies. Please proceed. Hey, guys. Christine, welcome aboard, and figured I'd ask the first question of you just in your impressions in the first few months, back up in the Pacific Northwest. You know, kind of what you see as the opportunities and, you know, the key areas, some of which you touched on today that you're focusing on, for the rest of 2023 and beyond. Absolutely. Thanks, Andy. Nice to hear your voice. excited to be here today and to be part of this team. I think, you know, going in, I'd heard a lot about the culture and that special sauce that we have here at Dutch Bros. you know, I would say kind of walking into the company, it's even better than I thought it would be. you know, spending a lot of time in our shops, meeting some of our broistas, going to some of our new shop openings, it's really just been awesome to see the energy that comes to life in our shops and how much fun people are having as we're making drinks for our customers. The same energy really translates into the headquarters. You know, excited to be here with the team. You know, as I look forward for the year, the priority is certainly in driving traffic and, you know, continuing some of the momentum that I spoke about earlier in driving transactions. You know, one of the things I wanted to highlight is, you know, the move that we made on the rewards program, which really took some of that discount out of the base discount, is going to allow us to really use that rewards program in a different way and to focus on areas where we can drive transactions as we see things soften here and there. So excited about that move, and that'll be a big area of concentration. We also, you know, are very pleased with the margins that we're seeing, so we'll be continuing to focus on our operational efficiencies and delivering those to shops. Thanks, Andy. Thanks, Christine. Hey, Charlie, one quick question diving into the COGS line a little bit. I think it's the first time at least that I can remember where COGS as a percentage of sales was higher than labor. You know, even with, you know, dairy costs down significantly and, you know, rolling over your changes on the freeze product. You talked about a little bit of pressure on delivered costs. Is that some lag going on? How should we kind of think about that, you know, in the current commodity environment going forward? Andy, thanks for that question. A couple of things there on the cost side in COGS. Dairy is still up year-over-year. As we mentioned, there's a lag from when the price comes down in that commodity when it flows through our system. For us, coffee costs are up year-over-year, low to mid single digits. You know, the C price was elevated many months ago, and that flows into our system. That rebalancing of COGS being higher to labor is more the product of the labor leverage and efficiency we got and less about the escalation in the cost of goods percentage. Okay. Thank you very much. You're welcome. The next question comes from Chris O'Cull with Stifel. Please proceed. Yeah. Good afternoon, guys. Joth, you mentioned you exited the quarter with some comp sales momentum. I'm just curious, it looks like transactions may have been down kind of in that high single- digit range in the first quarter, but what level of sequential improvement in transactions have you seen so far in the current quarter? Well, when we talk about momentum coming out of March, the Fill a Tray promotion happened on March 29th. We had, you know, we had, you know, days of sequential improvement coming out of that. We are not, we're not talking about April today. We're not gonna get into Q2 just kinda, you know, focus on Q1. We feel like, you know, Listen, we were lapping a tough Q1 of Omicron from 2022. I think what Christine did when she first came in was really look at traffic-driving opportunities through the balance of the quarter, we really weren't able to execute those until, you know, kind of mid to late March, really start to put good plans in place as we go forward. You know, we're about flat on underlying traffic for Q1 versus Q4. There was a steady rate there. You know, we'll kind of see how the balance of the year plays itself out here as we're building our new programs and using some of that investment that Christine discussed, coming out of the rewards program and our ability to really dissect and go after market opportunities. That's helpful. I mean, you know, it doesn't sound like you're planning to take any additional pricing this year. I guess as pricing starts to roll off, presumably you're gonna need to rely on that better traffic performance to hit that comp guidance. Are you seeing success with these programs that gives you confidence that you can see that type of improvement in the comp over the course of the rest of the year, especially in the back half? You know, I think everything, Chris, right now is in evaluation mode. You know, we're testing some new programs. We've run some new programs related to our rewards program. You know, we've evaluated some we've ran some local area marketing programs. You know, we're continuing to evaluate kind of what we see the back half of the year look like. The, you know, the pricing discussion is continuing to be something that we're talking about. Overall, we're pleased with the momentum coming out of Q1 and, you know, all of these plans that Christine and team have started to really kind of put in place. You know, we, you know, we think those will be very positive for the business, but time will tell. Sounds good. Thanks. The next question comes from John Ivankoe with J.P. Morgan. Please proceed. Hi. The question is on new unit volumes. I think I've, you know, picked up in your remarks, you know, Joth, that maybe, you know, some of the units started slower as they kind of ramp on their maturity curve. Certainly, you know, we picked up that in our numbers that the new unit volumes, at least on a system-wide basis, year-over-year, not a perfect calculation by any means, you know, but looked a little bit lower. You know, can you, I guess, expand on that topic? I mean, what you're seeing, different types of markets. I mean, if you see anything that's really below your expectations or it's just like a series of units that are just gonna take a couple of months or a couple quarters, you know, to get up, you know, to their averages, given you opened so many in the quarter. Yeah. John, I think the last part of that comment is super insightful. You know, listen, we've had some amazing openings as well. I mean, if you go to, you know, some of the things that we've done in Southern California and some of the volumes we've seen there, you know, some of the larger openings in the history have happened in those markets. As we've, you know, we've opened 112 new locations in Texas in basically 27 months. You know, I think in some of those cases, as we talked about last quarter, those are opportunistic real estate. You know, 16 locations in a little over a year in San Antonio. You know, some of the shops we've opened in Houston and Dallas, there's a lot of infill happening, that does take time to build and curate a market. You know, I think the benefit of Dutch Bros is we've been doing this for 30 years, and we have seen in markets like Las Vegas and Tucson and Colorado Springs and some other studies where we've had other, you know, markets open, you know, lower than average, and it takes time to build those up and go. The great part-- I think one of the things that we feel real confident in is that when you have great margins in a business, it allows you to invest over time and build something for the long term. We're trying not to buy customers. We're trying to curate customers, bring them into our service model, and give them the great experience that Dutch Bros has and move those along. You know, every market's gonna be a little bit different and we're very pleased with the reception that we've had in all markets. I mean, even, you know, we talked about opening Knoxville, Tennessee, and being all the way, you know, that far east now. The customer reception we've had everywhere has been fantastic, and we look forward to continuing to build that. Okay. Thank you for that. Secondly, if I may, operationally, I have in our notes, you were expected to, you know, move to a tap system at around 10 shops a month from March and every new store from July 1st. You know, correct me, you know, if those numbers aren't correct. What are you seeing in terms of the taps? Are you getting operational efficiencies? You say you talk about the crew customer margin, you know, responses. You know, that system is still very, very new in your system. It's still very new. We launched the five taps in Texas since we had our last call, which was our March program, was to get those five tap systems in place. Our plan remains intact to launch. You know, by the end of the second quarter, we'll have 30 locations executed, and then we'll start to implement in new shops, starting in the back, in really in July. It's too early for us to be counting on or touting any specific operational efficiencies, but we like the way the tests are going, obviously. We like the plan that we have to execute the build-out. You know, I think, you know, hopefully, on the next call, we'll be in a position to really give some early indicators as far as what that looks like. Okay. Look forward to that. Thank you. The next question comes from Andrew Charles with TD Cowen. Please proceed. Great. Thanks. Charley, I have two questions and just to reiterate, listen, what it did same-store sales guidance. Can you walk us through your thoughts on how this will progress through 2023, just given the different dynamics of lapsing amount of price with a rebound amount of traffic and how you expect that to broadly manifest, you know, within kind of the same-store sales cadence? Just separately, just given that 1Q was a bit below, you know, our expectations, you know, thinking that you guys were gonna be positive for the quarter, you know, where can we expect the shortfall to be made up for from 1Q? In terms of the progress through the quarter, first, start with the pricing rollover. In round terms, Q1 is 8%, Q2 is 6%, Q3 is 3%, Q4 is flat for a full year of 4%. The traffic rollover gets a little bit easier as we move through the year. That's how we would expect things to progress through the balance of the year. In terms of your question about Q1 being below on a comparable sales basis, that's for the most part anchored in the afternoon day part. It's not a product or a geography per se. It is that afternoon day part, which does have a tendency to be a bit more discretionary. Okay. I remember, at the time of the IPO, you guys were talking about investing costs per store, your construction costs around $1.5 million. They were up double-digit, you know, in 2022 to about $1.65-ish or so, $1.7-ish. In 2023, could you tell me what's embedded in your CapEx in terms of, cost per new store? Yeah. We do have the elevated cost embedded in our CapEx guidance in the upper ones. Those numbers you quote, around $1.5 million with pre-opening, those have escalated to around $1.8 million-$1.9 million, depending on where the site is for an all-in project cost. We feel like our guidance covers that additional CapEx, and we should be well funded for this year in terms of what we guided on the capital side. Just lastly, Charley, you know, you referred on the call to, you know, funding that you're open-minded, to new sources. You know, just with interest rates ticking up, you know, what would lead you to be a bit more proactive, you know, with looking into more longer-term liquidity sources versus the current use of the revolver? Well, I think given we have our CapEx plan for this year has elevated bill cost built into it, and we saw AUVs between Q4 and Q1 moderating in terms of those, the revenue that's coming in and margins being higher. There's nothing present that would cause us to change our tact, but we're always evaluating that. I think as we get through the high season of Q2 into Q3, we'll look at our liquidity needs, look at the performance of our shops, and always reassess. That's very helpful. Thank you. Thank you. Next question comes from Sharon Zackfia with William Blair. Please proceed. Hi. Good afternoon. Sorry about my voice. Hopefully, I'll make it through the question. I had two questions. I appreciate the commentary on March and the momentum and coming into April. I'm also curious because I seem to recall in the year-ago period, you had a little bit of a slowdown related to gas prices. When you're thinking about momentum in the business, are you looking at that on a multi-year basis as opposed to just kind of the natural lift you might get from lapping those gas-impacted comparisons? I have a follow-up. Absolutely. When we look at momentum, I think we are looking at, you know, the stack of comp over several different years. We're looking, you know, week by week what's happening, and then we're looking at the impact of the different promotions we have during the time periods that we're offering those promotions. As we look at that positive momentum, we do think it's what we were seeing at the end of March, is more than just lapping something positive. Okay. Or sorry, not-. That's it. Yeah. That's really helpful. Thank you. I just wanted to kind of inquire on how your average customer frequency has been trending. You obviously have a lot of data now, I'm curious how that's kind of evolved since the time of the IPO. You know, as we look at our frequency, you know, as we kind of break down our cohorts, you know, and kind of with what's going on in the consumer environment and also with what's happened in the market as far as, you know, for the first time now, we actually have everybody open. You know, everybody is back doing business. Lifestyles seem to be kind of getting back into a regular routine. What's interesting is that our top cohort, you know, that top 20% group, actually, we haven't seen much change from that group at all. It's actually held. The frequency has held. Really through the first quarter, it actually held up, you know, very well. We're seeing more softness in kind of that lower lower quartile of cohorts. Like that bottom, kind of bottom third, group seems to be where the softness has come in frequency. You know, we're constantly looking at that, and we actually have about 10 different tiers of cohorts that we, that we look at and manage. Then also have to look at how the infill and some of the sales transfer is playing out, related to the impact on that as well. The good news is that our loyals are loyal, and maintain at a very strong rate. Then a reminder that, you know, 65% of the transactions, you know, are coming through the app. You know, that's a really another strong indicator of our customers' interactions with us and how they're using, you know, the app to really, you know, be part of the Dutch Bros family. Thank you. The next question comes from Jeffrey Bernstein with Barclays. Please proceed. Thank you. Two questions. The first one, just as we think about the macro outlook, I think you mentioned maybe you're more discretionary or more vulnerable in the afternoon day parts. clearly, as a beverage-focused brand, it just seems like more broadly, you're more vulnerable than most. just wondering how you think about your brand positioning and maybe what tools do you have to mitigate if you were to see accelerating sales pressures. then I had one follow-up. Yeah, I mean, it's a long answer to that question, I think, Jeffrey. I think that, you know, some of the ways that we've responded, I mean, I think that by running that Fill a Tray program from 12:00 P.M. to 6:00 P.M. on a Wednesday, that was absolutely targeted towards a very specific customer base. It was targeted towards a specific part of the day where we were seeing softness. What was great about that day is it actually was the single largest day in the company's recorded history for sales. Grew sales by 40%, and had, you know, spillover double-digit transaction growth. We know that we can drive traffic, we know that we can attack, you know, different needs of the business based on the market. Again, I mean, when you're running a 30-year business, there are some markets for us that are going to be stable and execute very well, and there's other markets where we're still teaching the customer about Dutch Bros, how to interact with Dutch Bros, and how to make Dutch Bros part of your daily routine. You know, that's not a new thing for us. It's something that we've been through. I think, you know, for us, when you add, you know, 100 and some locations over the course of 12 months, you know, we still have a lot of work to do as we're kind of building brand. I think as Christine talked about, you know, freeing up the rewards program that allows us to invest more in the business and go after very specific needs of the business. That's the beauty of the app. We've been testing it, we've been running it and driving new programs. Christine mentioned the Mangonada program. That was actually a program that we tested in a few markets last year before we took it system-wide, which we launched in early April. We're excited to share with you more about, you know, kind of what's happened with that business and how we're taking trends that are more on brand. Mangonada is anchored by Tajín, which is such a hot addition to beverage flavor right now, that it's a, it's a great way for Dutch Bros to flex in something that's on trend and important to the consumer. Understood. Just to follow up, I know you mentioned, you know, in the economic climate that the teams responded quickly and decisively. I'm just wondering, what in particular about the climate changed in your view, or are you just referring to maybe headlines? Because it does seem like some of the more traditional quick service food and beverage peers, they haven't really noted a, you know, a change in climate, or some of them talk about how they could be a beneficiary of maybe a little bit of a trade-down. Just wondering what in particular did the team respond to? Perhaps you're talking more about margins than on sales, but just trying to get some color as to what in particular you're referring to in terms of their response. Thank you. Yeah, I think in response. It's probably more the headlines than it is anything specific. I think that the, you know, the challenges in the market and some of the challenges in labor and in driving labor improvement, I think that, you know, and honestly, I think, you know, whether it's macroeconomic trends or challenges, every great business should be looking at how they improve across all facets of their income statement. You know, I think last year when we saw labor creeping up and getting into a spot where it was becoming too large of a percentage of our business, I think the team attacked that and it's running much more efficiently today and doing a better job across the board. I think the second area where we listened to our employees was around the minimum wage investment. You know, not just in the mandated markets, but also in what we took on for the federal minimum wage states. By seeing a turnover in those states come down 6% and seeing total company-wide turnover now at 70%, which is down another 3%, I think those are all strong indicators about how we're attacking not just the customer trend, but also how we're continue to make Dutch Bros a great place to work. Thank you. The next question comes from Sara Senatore with Bank of America. Please proceed. Thank you. Two clarifications, please. The first is just on the, you know, commodities costs, and I know, Charley, you mentioned coffee and dairy were still up. If I look ahead at, you know, at least futures markets, it looks like those should be tailwinds. Is that the right way to think about that margin going forward? Are there other offsets that we should be thinking about? I know, you know, sugar, for example, is one that's actually been inflationary this year. Any kind of direction you can give when thinking about inflation and how that flows through, given, you know, that you do contract or buy forward. That was the first question, and then I'll the second. Thank you. On the input cost of sugar and coffee, there's about a 15-month lag from the time that price moves to the time it flows into our system. Even though you're seeing C price moderate, you wouldn't see much or any of that in the current financial year. When it comes to dairy, while we're thankful that dairy has moderated, we're just mindful that production is best in the spring, and it's more volatile in the summer, depending on, you know, hot summer or not in the production area. We're cautious just looking at that, and we just have to wait and see whether that plays out or not. Got it. You had a follow-up. Yeah. Thank you. This one is actually on the new unit volumes being slightly lower. I know you said you've, you know, entered other markets where they've ramped, but I guess, you know, new unit volumes being lower in some of the newer markets like Texas and still very high in California always, I think, bears watching. I was just wondering, you know, what you would be looking for. Would you contemplate slowing the pace of growth and perhaps being less opportunistic in some of those newer markets just until you sort of have a sense of exactly what that ramp looks like? Just any kind of sort of flags that you pay attention to. Hey, Sara, this is Joth. I'll start with that answer. One is that we do not have any intention of slowing down here in the as we kinda look ahead. We're actually very pleased with the way that our new units have been executed. We're pleased with the way the response that we've had in every community in Texas. It's actually been fantastic. Given the unit economics of our shops and the way we can operate, you know, we can flex related to how these businesses open, and we can continue to invest to build a strong customer base. You know, when you have great margins and you've got great, you know, four-wall numbers the way that we do, it gives us some great flexibility to be able to go in. You know, whether you're in Lubbock or Houston or Dallas or Waco or Fort Worth or everywhere in between, you know, we're very pleased with what's come out of the gate there. I was just down in that market about three weeks ago and really enjoyed touring the shops and seeing the customer responses, and it feels like Dutch Bros. We'll take a long approach to that, and we'll build an amazing business the same way we did in California, the same way we've done in Colorado and the same way we've done in Arizona. We're very pleased with that. Got it. Just to add, Sara, if you look at 2021 and you move into 2022 new units, you know, there was significantly less infill in those years. It was a lot of launching in the new markets, particularly the launch in Texas. If you look at Q4 openings, which got to nearly 30% infill, Q1, which got to nearly 60% infill, that's part of the moderation, the ebb and flow we'll see as we go out. We got into Knoxville, we'll go backfill things, we'll take another try to go out again into new markets and backfill. The AUVs will ebb and flow as we move through our pipeline over time. Got it. Okay. Thank you very much. Thank you both. That's very helpful. The next question comes from David Tarantino with Robert W. Baird. Please proceed. Hi. Good afternoon. My question's about the margin performance that you had in Q1 and really what you're assuming for the rest of the year. I guess, Charley, can you remind us what some of those changes were that drove the productivity improvements at the unit level? You know, I guess, I think you might have mentioned this, but I wanted to confirm. You said that you're seeing the full extent of those now, and those start in the second half of the year. What exactly was changed? I guess, you know, how would you describe it? Is it just simply less hours or something else? Couple things there. First of all, last year, we had a reasonable degree of overtime. We've removed a lot of that out of the system with better scheduling, a better way to look at our scheduling. Yes, on a relative basis, less hours are being deployed versus what we would have deployed last year at this time. That's just straight productivity. We started mobilizing against that in the latter part of last year. Saw some of that benefit in Q4. Didn't see enough of it to bank on it, and we saw a fair degree of that in Q1. That's going to, we think, play itself out as we move through the rest of the year from a margin perspective. Then commodities have moderated. I spoke to that earlier as far as what our view of dairy and coffee is. Commodities have slowed down in terms of the escalation. All that bodes well for our company shop margins to stabilize now and be very good going forward. Great. On the reduced hours, is that really tied to reduced traffic levels? I guess, how are you accomplishing this while still providing the same level of hospitality and customer experience that, you know, I guess, your guests have been accustomed to? Beyond reducing hours when you have less drinks to be made, we actually are specifically going in and scheduling labor more appropriately to the forecast, then working and matching that schedule. It is direct productivity versus a product of lower traffic. We've looked at how we measure that, track it. We're looking at it specifically on a weekly basis at a micro level, which we didn't have the ability to do necessarily last year. I would add as well that we were scheduling based on sales dollars. As we took price increases last year, that sometimes can take a little bit of time to come out of that. Really you want the teams to come along with you on that. As the teams adjusted to those pricing moves. That we were able to leverage that labor investment as well. Great. That's very helpful. Thank you. The last question on this front, Charley, it doesn't seem like you're assuming this sort of margin performance continues. If I look at your full year guidance, you know, literally take the midpoints of your ranges on revenue and EBITDA, it's assuming maybe 50 basis points or so of margin improvement on the adjusted EBITDA line, and you delivered nearly 600 basis points in the first quarter. I guess, what is it about the balance of the year that's gonna be less good on a year-over-year basis, you know, I guess, you know, related to this dynamic? The wage investments that we talked about making, you know, $19 million for the full year, that's going to ramp as we go through the year. It gets bigger. The legislative wage increases add on top of themselves, we are building in more federal minimum wage markets on a relative basis. That piece will get larger as we go through the year. The productivity benefits that we have today, that'll take a little bit of an edge off of that going forward. In the guidance, we're not assuming any margin accretion relative to last year. Also remember that we're climbing over in the fourth quarter, the [2021] points breakage that was $5 million. We have to lap that from a margin perspective. Got it. Thank you very much. The next question comes from Nick Setyan with Wedbush. Please proceed. Thank you. you know, just in the context of the iterated full year, you know, revenue and, low single-digit comp guidance, and then obviously the Q1, you know, comp performance, you know, what gives you the confidence to reiterate, the full year targets in terms of top line sales? Is it the, you know, quarter-to- date performance? Is it something else that you have planned? Well, I think there's several things, but I'll highlight a few. One is that, you know, the seasonality of this business, you know, Q2 and Q3 index at a much higher rate than Q1 and Q4. We have, you know, plans in place to continue to be the things that Christine talked about to be able to drive more traffic and build more of that business. We think it's still too early to be predicting anything related to the balance of the whole year. We feel like investments in traffic-driving initiatives, the work that we've done to be able to, you know, build margin to allow us to do that, the programming that our teams are working on to identify soft markets and build in day parts or drink mix is another one. You know, we think it's early. We love our team, and we love kind of the opportunities that we think we have in front of us. Thank you. Just again on this food and beverage, you know, 28.3% in Q1. You know, sequentially, there was a big uptick there. I guess the question we're all trying to figure out now is, you know, what drove that uptick if inflation is moderating? Is it beverage mix? Was it some of the promotions that you were running? Then second, going forward, you know, Q2, Q3, Q4, is this 28% level what we should think about, or are there some other drivers, particularly, you know, to get that lower, particularly as pricing is, you know, the year-over-year pricing benefit declines? Well, first remember, we had very sharp inflation in the early part of last year, and we are anchored so heavily in dairy costs, that moved up 20%-25% last year. When you look at margins year-over-year, even though people have the feeling inflation has slowed down from a rollover perspective, we've had that impact in our COGS. And coffee is up, as I mentioned earlier. So both coffee and then the full year annualization of the dairy cost increase. That's what you're seeing in the COGS. In terms of the way forward, we're not expecting a lot of change there, but we're not also expecting any real change or benefit in that. Just to clarify, this 28% sort of level is like a fair way to think about that COGS level going forward, the beverage and food cost level going forward for the rest of 2023? There's really nothing about product mix that changes from quarter to quarter. We promote different things, so the level of cost of goods, you know, we would see going forward. Q1 is a little bit higher than what we'd expect going forward, but it's not significantly higher. Got it. Thank you very much. The next question comes from Gregory Francfort with Guggenheim. Please proceed. Hey, guys. Thanks for the question. I think it was Charley you may have mentioned earlier that you guys have not seen a lot of regional disparity in the comps, and I guess I'm just a bit surprised by. Excuse me. Sorry. By that. I'm curious what your thoughts, like what you're seeing in Oregon, where maybe you're not opening stores anymore. Are you seeing similar levels of You know, down a couple points on comp and down high single digit traffic? I'm just curious if you've seen that different than maybe Texas or some of the other markets. Let us get to the Oregon data and, you know, actually Q1 Oregon, actually the comp group was up slightly. You know, Oregon was flat to actually up slightly. You have Washington actually, let's see, the tracking group was basically, you know, call it flat. They, you know, those basis of stores that are in that, you know, more of the 30-year history, I would say that's been flat traffic. The market without much development, if any, Oregon, we did not see it veer off or be positive relative to the rest, to Joth's point. There's no indication there that tells us anything. Oregon's kind of like everybody else. Got it. Understood. Then just, I wonder if you could expand on your strategy of entering Texas and how you're building brand awareness there and how you're entering different cities. Just who do you view as a competitive set you're, you can take share from? And as you've kind of grown and grown sales there, is that where your customers? Are they coming from C stores? Are they coming from quick service? Are they coming from at home? We're just curious what the evidence has suggested in terms of where the market share opportunity is. Thanks. Yeah. When we modeled Texas, you know, our original modeling really showed hundreds of locations that we could go into the marketplace. You know, we feel like we're actually still in the early innings of building out market share in that state. I think that as we look at a market, we're gonna go in and, you know, and as we build awareness, you know, some of it is actually just opening and word of mouth is a key driver for Dutch Bros business. We do a lot of work in a very local, kind of what we call a trade zone, to build community awareness, to build brand awareness in local give backs that we do through providing back to philanthropy. We do work in community, we do work in. We do a lot of friends and family, or not a lot. We do a friends and family opening where we, again, use word of mouth to open. We throw hiring parties where, you know, in many cases you might have, you know, you might have 10 times the amount of people applying for a job that actually get hired. There's several ways that we open. Really what we look for is word of mouth to help build the awareness and how do you interact with Dutch Bros from a shopping experience. Two is where are you getting share from? I think that what's interesting about the beverage business is that this is a daily routine, right? Really, you know, our competition is anywhere where you're going to have immediate consumption of a beverage. That could be a convenience store, it could be a grab-and-go section in a grocery store. It could be a Starbucks, it could be, you know, really anywhere that is promoting, you know, strong beverage. I think that's the beauty of the, of the, of the market set, is that the competitive set is so big, and the opportunities to go grab, you know, business in different day parts and in different product categories are outstanding. That's why you don't really ever stop. You actually continue to build it because you're building into people's routine, and the way that people consume beverages every day. Thanks for that. Maybe if I can sneak one last one in. You made some comment on the funding of funding your negative free cash flow. Can you just remind us when your expectation is of flipping to free cash flow positive? In terms of funding that, I think you're basically funding with 7%-8% debt right now. I guess, why that rather than maybe an equity raise or something like that? I'm just curious your thoughts. Appreciate it. As we said a couple times, it's a very good question. First of all, we may see some delay in our ability to get to free cash positive given the elevated build cost, but we're gonna work hard to try to knock some of that back and knock it down. We'll activate on that. In terms of the type of funding, I guess I would say we have a very good and sizable credit facility in place today. We're not forced or compelled to do anything different right now, but we're always open to exploring what makes the most sense. What we are doing with that very efficiently is not sitting with a lot of fallow cash on the balance sheet. We're drawing as we need versus what an equity raise may do initially. Again, we're open to what our options are going forward, and we will absolutely make sure this business is well funded to get to that 4,000 unit shop TAM. Awesome. Thank you. Those are the thoughts. Thank you. At this time, there are no further questions in queue. I would like to turn the call back over to management for closing comments. Thank you, Operator, and thank you everyone for your questions. As we close, I wanted to highlight an upcoming cornerstone event for Dutch Bros. In about two weeks, we look forward to hosting our annual Drink One for Dane event in honor of our Co-founder, Dane Boersma, in his battle with ALS. Although Dane is no longer with us, we memorialize his legacy by hosting an annual company-wide give back day to support the Muscular Dystrophy Association and its efforts to find a cause and cure for the disease. Typically, this is our largest and most exciting give back day of the year. For those of you that are in our market areas, we invite you to participate by visiting us on May 19th. For our investors, thank you for your time and, as always, the continued support of Dutch Bros. Thank you. Thank you. This concludes today's teleconference and webcast. 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