Afternoon, everyone. Welcome to the session for Dutch Bros. I'm David Tarantino, the restaurant and coffee analyst at Baird. Dutch Bros is an operator and franchisor of just over 1,000 beverage-focused shops. The brand is very unique, mostly drive-through operation, and delivers that with exceptional hospitality. That has led to really good returns on capital for their locations and a lot of room for growth, in our view. We have two members of the management team with us today: President and CEO, Christine Barone and CFO,Josh Guenser. Glad you're here. David, thank you so much for having us. Yeah, great to see you. I thought maybe a good place to start, there's a lot of generalist investors in the audience. Maybe you can just frame up the Dutch Bros story and what makes the brand special, if you will, please. Awesome. I have a couple of slides I can go through to help us answer that as well. We do have our usual disclaimers. If you can read really fast, I will not read that out loud. A little bit of just who we are. As David shared, we have just over 1,000 shops. We are a drive-through-only beverage concept. We were founded over 30 years ago in 1992 in Grants Pass, Oregon. We have a lot of customization. We are really known for our service and how we provide that to our customers. If you look at why and what builds our service, it is actually our culture. Our culture is really key to the success that we have had. One of the things we talk a lot about is our core values and who we are. Radiate kindness. We hire for that. We bring people on board and have that expectation of all of us to radiate kindness. Get up early, stay up late. That means that we do what it takes to get the things done that we want to get done and serve our customers in the most awesome way possible. We have a lot of philanthropic giving that we do as a company. We have three national give-backs that we do every single year. Most of our shops do three local give-backs as well to really become part of our community. It's one of the things our broistas, who are making and serving our drinks, most love about the brand is that philanthropic giving and their ability to participate in it and to give back to causes that they care about. When you look at our overall strategy and how we're growing, it always starts with our people. We grow from within. When we open a new market and a new shop, we're doing so with an operator, which is our level that sits just above shop, who's been with the brand, knows and loves the brand. We have a pipeline of over 400 operators who have been with the brand, an average tenure of seven years. That really drives our success. All of our operations, leadership, all of those operators started as broistas. We're also growing our shop base rapidly. We shared during our investor day that we would love to grow to 2,029 shops in 2029 as our shorter-term goal. Overall, we believe we have a TAM of 7,000 shops in the U.S. that are drive-through-focused. We're also looking at growing our transactions. I'm sure David will have a question or two for me about food and mobile order and some of the marketing initiatives we have. I'll hold those for you. We're also growing our margins. We expect to be able to leverage our G&A as we continue to grow. Finally, and again, I'm sure that this is something we'll talk more about through this half hour, we believe that we have multi-year layers of sales growth and initiatives that can help drive that. Kind of starting with those base marketing initiatives, we very recently launched mobile order and pay. We're also focused on driving throughput, helping our customers get through the lines more quickly. Finally, we're at the very early stages of testing a broader food program within our shops. With that, I'll turn it over to you. Great. Thanks for the overview. Josh, I think you shared some of this recently at the investor day. For those that might have missed it, could you just maybe talk about how some of this translates to annual financial targets? Revenue growth, profit growth, that kind of thing. Yeah, so we outlined it in our investor day. As you pointed out, our long-term growth algorithm being 20% plus revenue growth. We are targeting shop-level margins at the 30% range. We're right around that now. Feel like it's a very healthy place for us to be. 30% shop-level margin. We're targeting comp growth. Go back to the revenue pieces of that comp growth in the low single digits, unit growth in the mid-teens. A big part of our growth, as Christine pointed out, will be continuing to grow our shop base towards the 7,000 shop TAM. EBITDA growth at north of 20%. Growing EBITDA at a rate faster than our revenue growth. Great. Thank you for that. Maybe before I ask about some of the specific growth drivers, I wanted to ask if you can talk about how the business has been faring more recently. You had a good Q1 performance. I guess, how are you viewing the current trajectory of the business? Also maybe if you can comment on how you're viewing the current consumer environment, given there's been mixed messages from a lot of companies, even at this conference. Yeah. What we're sharing today is really what we shared in our Q1 earnings call. We had a really spectacular Q1 driven by that transaction growth. We were the second quarter into launching mobile order and felt that was helpful in driving, as well as just, I think, the general brand and how all of our marketing initiatives are working. We also shared that that strength continued into April. We were really happy with what we were seeing. I think in this environment, we're in a unique position in a number of different ways. One, we have a very strong value proposition. That value proposition is driven by a number of things. One, I think we've been super thoughtful about taking price. Maybe just as importantly, I think that what we provide from a service perspective really is a lot of value. When you feel better once you've gone through our drive-through and received your drink than when you came in. That level of connection and service is something that's super special. This is a medium-sized drink for us. This cup, it's 24 ounces. I think the sizing of our drinks actually provides substantial value to our customers. Our rewards program, that within beverage, that rewards, and the day you get your free reward and go get your drink, it's something that is really, it's special to you as a customer. I think all of those things are providing kind of strength in the brand. You add to that, I think, these idiosyncratic growth drivers that we have to drive the business. Mobile order has been in the beverage industry for quite some time. We have just launched that nationwide in Q4 of last year. We are testing an expanded food program. Some of our marketing initiatives like Dutch Rewards, we are still in the early innings of that, where we are doing primarily mass offers now, but have an opportunity over time to better personalize that and even use that data to help us understand how to better drive transactions and frequency with our customers. I definitely want to come back to a couple of those topics. Before I do, I wanted to explore unit growth, which is the biggest driver of the business. Perhaps the first question is the 7,000 unit target and how you arrived at that target and your kind of degree of confidence in the analytics around that number. Yeah. Yeah. So we spent a lot of time actually evaluating a variety of C points. As we built out our TAM, we will take a variety of inputs based on how our shops have performed over recent openings and over the years. We will take a look at different trade areas, specific sites throughout the nation that would allow for drive-through, the drive-through concept. We will run that through a variety of different models to provide an output of where we think we can open sites that would meet our target thresholds. We target $1.8 million for year two AUVs, which we think is a very healthy level of volume given the returns we see at that level. When you kind of run it through those various models, it gives you the nice output. We will do some higher-level math as well. If we were just to look at the penetration of some of our most densely penetrated markets and extrapolate that across the country, you actually get quite a bit higher number than the 7,000 shop TAM. I feel really good about kind of that bottoms-up build that we did to arrive at the number we have. One question I get a lot is there's just a lot of competition trying to replicate what you're doing. There's 7 Brew, there's Scooter's, there's probably a lot more that I don't even have time to name here. I guess, how do you think about the competition relative to that TAM? Do you worry at all about the space getting too crowded? Yeah. I think if you look at competition over time, we've been around for a very long time. I've seen many different waves of beverage competition as we've grown. I think that beverage and coffee in particular has always been one of the most highly competitive spaces in the market. When you look at, I think, any great brand that's doing something interesting, you would guess that you would have some folks who are doing something that looks similar to you. I do think with what we're trying to do, we have a very strong point of view on the market. I think we have a very unique point of view on the market. We're growing from within with our people. I think when you take a step back, like food and beverage looks like it's easy to do from the outside. The great enduring concepts and the great enduring brands really bring a unique point of view. It is always about the people. I think the fact that all of our shops in new markets are opened by our people is just something that is incredibly differentiated versus where the rest of the market is. I think it is also within the age of social media and TikTok and all of those things, I think that Dutch Bros, when we go into a new market, we are often fairly well known. People will drive for miles and miles to come see and experience that new shop. I think we hear a lot from our customers, well, Dutch Bros is the OG. I think that is really important to the market. Yeah. Makes sense. You've made some refinements to your go-to-market approach in terms of how you're building the units and how you're entering the markets. Can you describe kind of what changes have been made and what you're seeing as a result of those? Yeah. So certainly over the last 18 months or so, really have taken a revised approach towards our market planning. As you think about how the brand has grown over the last 30 years, it was very slow, steady growth primarily on the West Coast and started expanding rapidly across the country over the last five or six years. With that rapid expansion, you start ingesting a lot more data and a lot more insights. We were able to capture a lot of insights from those more recent openings and feed that into our various tools that we use to evaluate site selection. What we learned from that is, one, it has helped inform our understanding of how a site will open when we open in new markets and new places. It also, we took some learnings back that while we have a lot of customer demand and people are really looking for convenience from us and being close to where they live and work, when you open a site right next to another one within a really close period of time, it does not allow enough time for the site to develop the brand awareness and customers to get excited based on the long lines that we often get at our shops. What we have adjusted as we have refined and taken in new data is that we will space them out initially within time a little bit more before we go in and put that site a little bit closer to the one we had opened in the past. It has allowed us to certainly improve our overall new shop productivity. We have seen that in more recent quarters. We did make some adjustments to the pipeline in and around that time as well. Some of the first steps we took in that market planning approach was to take a few of the sites out of the pipeline, do a little bit of the culling of the pipeline. We saw that play out here as we've got a slightly lower opening cadence in the first half of the year than we're expecting for the back half of the year as well. It takes some time for new sites to start working their way through the pipeline. We're starting to see that play out here as we get into Q3 and Q4. You referenced that was going to be my next question about the sales performance for new units was very strong the last couple of quarters. Is that, I guess, what do you attribute that to? Is that part of the strategy or is that something else? I think it's really a result of those market planning efforts. As I said, we took some sites out of the pipeline. We left the ones that were the strongest in the pipeline. I think at the time when we made those decisions, we weren't fully aware of the impact that all of the great initiatives we've been driving over the last 18 months would have on overall shop performance. That allowed for those sites to be incredibly strong performers. We did have some fantastic openings that opened well above even our expectations. I wouldn't at all suggest that what we saw in Q4 and Q1 is what we plan to do over the longer term. We still feel very good about the $1.8 million year two AUV over the longer term. We had some really strong, really exciting openings, just as Christine pointed out, in places where people were waiting for us to open, some really long lines. We'd be happily open another one right next to some of these shops that we just opened, just given the excitement and demand. Yeah, I would really attribute it mostly to the market planning efforts and the shift in the pipeline. Got it. I was going to ask, the guidance for this year does not assume that continues, it seems, based on maybe I'm bad at math, but I don't think you're assuming that. I guess, is that a conservative assumption or is that just what you think is more realistic? I think you have two things. I think certainly, obviously, the sites we've opened are doing well. We expect them to continue performing strong. I think the sites that we're opening Q1 and Q2, as I pointed out, are benefiting from us pulling out some of those lower expected performing sites in the past. We'll start introducing new sites into the pipeline coming into Q3 and Q4. I wouldn't expect Q1 and Q2 to continue into Q3 and Q4 for all new sites. Certainly, that's not the longer-term expectation as well. Got it. On the $1.8 million, that is below the average. Can you just explain why you think the future openings are going to be lower than what you currently have? Yeah. I mean, if you think about what our customers are looking for is increased convenience. A lot of that we can deliver through mobile order. We can deliver that through improving our throughput. We can also do that by opening sites closer to where they are so that they can more easily access us. As we think about creating that convenience across the country as we grow and expand, we want to make sure we're creating that opportunity. That is where that $1.8 million would be one where we feel really good about the returns we're generating with the capital we're deploying and creating the convenience for us to build that customer and that brand love. Got it. Maybe shifting to some of the sales drivers for the business overall. Mobile order and pay has been, as you said, just introduced in the fourth quarter. Just wondering, Christine, if you could just talk qualitatively about what that's done for the business and what the impact has been financially as well. Yeah. As we take a step back and look at our broader strategy, about a 1/3 of our transactions historically have been in the morning, a 1/3 midday, and a 1/3 in the afternoon. As we look at the broader beverage market, that is typically more like 50% in the morning. As we looked at areas where we could really expand and help drive our AUVs, understanding kind of what is most important and what fits best with our brand in that morning day part. A couple of things. One, it's the convenience to build more shops. Two, mobile order is more important in the morning. It's often a decision factor as to where you're going to go in the morning. Food is important in the morning as well. When we look at mobile order, in Q4, we ended the quarter with 8% of our transactions in mobile orders. Our very first quarter, we were already at 8%. We ended Q2 at 11% of our total or Q1 at 11% of our total transactions being through mobile order. Strategically, it is doing just what we thought it would do. There are heavier transactions in the morning. We also are set up where we have a drive-through window on one side and a walk-up window on the other side. We have two production zones sitting right next to those windows. When you choose mobile order, customers are more often choosing to come to the walk-up window. That is helping us balance our demand across our production zones in a helpful way. Traditionally, 90% of our volume would go out of the drive-through window. With mobile order, more than half of the volume goes to the walk-up window. Are you able to determine what's incremental and what's not with mobile ordering? Any way to frame up what the benefit you've seen so far in the first quarter, for example? Yes, a couple of ways that we look. We do believe mobile order is incremental. The first thing is 72% of our transactions in Q1 of 2025 were through our Dutch Rewards program. We can watch what a customer was doing before they made their first mobile order, when they make their first mobile order, and then what does their frequency look like afterwards. We do see an increase in frequency in those same customers once they make that first mobile order. The other piece is the Dutch Rewards registrations itself. You have to sign up for Dutch Rewards in order to use mobile order. We have seen from Q1 of 2024 to Q1 of 2025, we saw a 500 basis point increase in the penetration of Dutch Rewards. Many of those new rewards members who were signing up, their very first transaction was a mobile order. That, again, is someone either deciding to very much deepen their relationship with us or that is a new customer coming in for the first time. I saw that acceleration both in Q4 and Q1. That is the incremental piece. I think the piece that we cannot measure but could also be out there is that when a customer is no longer sitting in the drive-through line, but now they are coming to the walk-up window, that line is now shorter for new customers to come into that line. That one is harder for us to measure. We do believe from what we have seen that those other two drivers really are part of the incrementality of mobile order. Have you tried to add all that up and say, this is lifting the business by X? We have, but we haven't shared that. We look at that closely. What I do think is there is a lot of interaction actually between the things we're doing. If mobile order is actually driving customers more quickly into Dutch Rewards, and at the same time, we're getting better at sending the right offers at the right time in Dutch Rewards, there's just a lot of overlap in how all of these different initiatives work together. Sure. So went from 8% to 11%. Where do you think it can go over time? Yeah. We haven't shared a number for that. Really, the way that we're thinking about it is what we're most interested in is the incrementality and where it drives and satisfying our customers. If they want to use that channel, we want to make it as easy as possible for them to use that channel. What we are doing is looking at where we think it's differentially helping to add extra demand, and then how we focus our efforts on those pieces of it. How are you, I guess, another brand you compete with and used to work there, had issues kind of balancing the mobile ordering and the hospitality and the in-restaurant or in-store experience. How do you plan to balance this and make sure it doesn't, I guess, affect what's special about the Dutch Bros experience? I think as we start looking at anything that could be in our future, the very most important question we ask is, how does this impact our work environment? How does this impact our broistas, and who are we at our essence? How do we make sure that we keep those things intact? With mobile order, we are known for service. We're known for that very quick connection and that smile or that special birthday cup that we give you on your birthday and things like that. How do we keep that intact? Every single time a customer comes for a mobile order, we're actually handing you your drink. Our broistas are just really great at figuring out, well, do you want that drink quickly or do you want to have a conversation? We still continue to have that very high level of service with mobile order because every beverage is being handed to a customer. Food is another way you could grow the morning day part or maybe all of your day parts. If you would, please give us an update on what you're seeing in the pilot and sort of how you think about the potential rollout of a broader food offering. Yeah. On our Q1 call, we shared that we had moved from an eight-store pilot to a 32-shop pilot. That really allows us to test a number of things that we're trying to look at. From a strategic standpoint, we're trying to do a couple of things. One, we do believe that there is a part of that morning day part that is really important to have food and specifically warmed food and eggs in that morning day part. The second thing we're testing is trying to make sure that we never want to slow down our throughput or our lines. Ensuring that the cycle time of the food actually fits below the cycle time of the beverage. As we're testing, we're also testing something that's quite simple. We have four food SKUs across our shops today. There are some franchisees who have some unique programs. For the most part, we have four SKUs, which are three muffin tops and a granola bar. The test that we're doing is moving that to eight SKUs, just going from four to eight. What we're adding is four hot food items: two sliders, a chorizo wrap, and a Dutch waffle. I guess any insights on the pilot in terms of your confidence in being able to roll this out as you get towards, I think the target was to roll it out maybe towards the end of this year and into next year. I guess any update on that? Yeah. We have not really shared where we are from a rollout schedule. I think very similar to mobile order. It is our goal first to learn, ensure that we could be really successful with this in our environment before we kind of land on what a rollout schedule might look like. We have not shared updates. I think we are obviously looking for some financial metrics as we roll this out. We will be bringing in equipment to the shops. We want to make sure that that works. Most importantly, looking for how our broistas feel about it. Great. Look forward to hearing more about that. On another topic you've talked about is throughput. Just wondering if you could give us an update on where you are in that journey. I think there were some metrics shared at the investor day about trying to get speed up to a certain level. Perhaps you can give us an update on that. Yeah. From a throughput perspective, I would say, like many other things, we're kind of at that blocking and tackling level. Making sure that our labor deployment is right on, that we are matching kind of demand where it is. We also have rolled out a speed dashboard. We're very focused on looking at our peak hour within every shop and giving visibility to what that peak hour looks like and then ways that we can help drive the speed during that peak hour. We're also still working on a pilot test where we're looking at different deployment pieces and where are typically the bottlenecks that happen and how can we better deploy our teams or when is the right time to send someone who's in production out to be a runner and how do we do all of those interactions. We have started a pilot test with that as well. Got it. Maybe I'll segue to a different topic on margins. I think the 2025 outlook has embedded quite a bit of coffee inflation in that. Yet you're still getting towards the margins that you expect longer term. I guess how do you think about sort of the margin structure when eventually coffee costs should come down? How do you manage that? Do you let it flow back into the P&L or are there offsets that you consider making as that tailwind emerges? Yeah. I mean, we are expecting, as we shared, we are expecting about 110 basis points of COGS margin pressure this year just given elevated coffee costs and now the impact of what we are expecting for tariffs on those coffee imports as well. Certainly that, and that is just for clarity too, as we clarified on Q1, is we have priced in the majority of our need for 2025. We have a pretty good line of sight to what that impact will be this year now. Certainly, if this is transitory and comes down, that would be something we would benefit from in future years. It is one that is still very volatile and moving around quite a bit. Certainly not one we are providing a specific pinpoint of what that could look like over the time. As we think about broader margin leverage, as we've shared in our long-term growth algorithm, we would be targeting that 30% level shop contribution margin, really driving any of leverage that we'd otherwise get on comp strength back into our people so that we're really creating those compelling features that Christine talked about for our broistas. That could be in the form of compensation. That could be in the form of hours and making sure we have a great work environment for our team. Great. At the enterprise level, you have a big opportunity to leverage your G&A. I guess do you have a sort of G&A ratio in mind as you get to scale in terms of where you think the business can eventually get to? Yeah. So we have not shared a specific G&A long-term target. What I would say is with that revenue growth, and I should make sure we are clear, 20% revenue growth, we would expect that we can drive leverage in G&A. We are anticipating about 90 basis points of leverage in G&A this year and would expect that we can continue driving leverage. We do have a lot of the foundational kind of elements set in our G&A structure. We will, of course, scale elements of our support structure as the business grows. Think marketing, think of our field leadership, certainly in construction and development as well as we continue to open more shops. We do see an opportunity to meaningfully continue leveraging G&A. Got it. I guess maybe one other way to ask this, and maybe you don't want to comment, but as you get to 7,000 units, a lot of scaled company-operated businesses have G&A ratios in the single digits. Is there any reason why Dutch Bros couldn't achieve that at 7,000+ locations? Yeah. I think certainly we look at a lot of other peers and how they operate and have targets that we'll be going after. Again, we haven't shared a specific number that we're going after for ourselves. All right. Fair enough. You're turning free cash flow positive, I think, next year. I guess can you just maybe talk about your capital allocation philosophy once you're at free cash flow positive? How do you plan to use the excess cash? Yeah. I mean, certainly we're using it for our continued shop growth. That's the primary use of our cash. We have shared in overall cash issues. We have tax obligations that will, in the shorter term, consume some of that free cash. We do have debt on the balance sheet that we'd consider paying back at some point as well. Lots of opportunity, lots of flexibility. I think our biggest focus right now is continuing to grow and open new shops and take advantage of that investment. Makes sense. With that, we're out of time. Please join me in thanking Christine and Josh for being here. Thank you. Thank you. The team will be available in a breakout session right down the hall here in the Aste room in a few minutes. Thanks, everybody. Thank you. Awesome. Thanks so much. Thank you.