Greetings, and welcome to the Dutch Bros Inc. First Quarter 2022 Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Paddy Warren, Dutch Bros’, Director of Investor Relations and Corporate Development. Thank you. You may begin.

Thank you. Good afternoon and welcome. I'm joined today by Joth Ricci, president and CEO; and Charley Jemley, CFO. We issued our earnings press releases for the quarter ended March 31, 2022, after the market closed today, and we will file our 10-Q in the upcoming days. The earnings press release along with a supplemental information deck have now been posted to our investor relations website at investors.dutchbros.com and we will post our 10-Q there as well when it is available. Please be aware that all statements in our prepared remarks and in responses to your questions other than those at historical facts, including statements regarding our future results of operations or financial conditions, strategies, plans, and objectives of management are forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995. All such forward-looking statements are inherently subject to risks, uncertainties, and assumptions, there are not guarantees of performance, and are expressly qualified in their entirety by cautionary statements. The forward-looking statements made are of as today's date, and we undertake no obligation to update them to reflect events or circumstances after today, or to reflect new information, actual results, revised expectations or the occurrence of unanticipated events, except for as required by law. We may not actually achieve these plans, intentions, or expectations disclosed in our forward-looking statements, and therefore you should not place undue reliance upon them. For more details, please refer to our earnings press release and to the risk factors in our other SEC filings, particularly the risk factors described in our quarterly report on Form 10-K for the quarter ended December 31, 2021 filed with the SEC on March 11, 2022 and our upcoming quarterly report on Form 10-Q for the period ended March 31, 2022 to be filed with the SEC. Finally, while we have prepared our consolidated financial statements in accordance with generally accepted accounting principles of the United States, we will also reference non-GAAP financial measures today, which can be useful in evaluating our core operating performance. However, these non-GAAP financial measures, which may be different than similarly titled measures used by other companies, and are not substitutes for measures that are prepared under generally accounted -- generally accepted accounting principles. Rather, they are presented to enhance investors' overall understanding of our financial performance and should not be considered a substitute for or superior to the financial information prepared and presented in accordance with GAAP. Investors should therefore review the reconciliation of these non-GAAP measures to the comparable GAAP results contained in our earnings press release and not rely on any single financial measure to evaluate our business. With that, I would like to turn the call over to Joth.

Thank you, Patty. Good afternoon and welcome, everyone. We certainly appreciate your continued interest in Dutch Bros. Let me begin by with some opening remarks on our business in Q1 performance. Charley will then review our financial results in greater detail, as well as update our full year outlook, before I leave you with some concluding thoughts. Finally, we'll turn the call over for Q&A. As we get started, I want to remind you, who we are as a people and company. Our NorthStar’s long-term sustainable growth predicated on our people. When we started this public company journey, we shared these focus points and promises. One is that we would continue to find and develop our people who are our growth capital. Two, to open new shops wherever people want great beverages with an eye on 4,000 plus shops in the next 10 to 15 years. Three is to increase brand awareness and encourage a deeper customer engagement. Four, to invest in and use digital technology to improve the customer experience. And five, expand margins through operating leverage. We believe our investment thesis holds and we are living up to these promises. That's in large part due to our team, our releases, our leaders and our franchisees. I want to thank everyone for their hard work in the last quarter. At Dutch Bros, we view our culture and our commitment to creating a better future for our employees, customers and communities as the key is to our success. And work our team did in the first quarter helped us live up to our mission and make a massive difference one cap at a time. In the first quarter, we opened 34 new shops, 26% more total shops than a year ago and we entered 11 new markets. We grew total revenue of 54% year-over-year through new shop development and same shop sales of 6%. We generated adjusted EBITDA of $9.7 million. We celebrated our 30th anniversary in a very Dutch Bros way by getting over 400 of our people together in person for the first-time in more than two years to enjoy each other and reinforce the strength of our culture. And with our franchise partners, we raised a record amount to buy food and security through our Dutch LUV get back day in which customers and local shops support food banks and agencies in their communities. The first quarter represented another building block in our long-term growth and value creation story. We remain focused on our disciplined growth strategy, utilizing strategic sales transfer to create great customer and release the experiences. Our reception in new markets continues to be outstanding and the strength of the brand across geographies endures. While we are pleased that the strength of our revenue and shop development in the first quarter, margin pressure in our company shops led to a lower adjusted EBITDA result than we expected. Net margin pressure was primarily a result of these factors. Our decision to be disciplined on the price we took, which we believe is less than half as much as many of our peers, faster inflation and cost of goods, especially in dairy, the pull-forward of deferred expenses related to the maintenance of shops and normal new store inefficiency amplified by the volume of new and ramping units in quarter one. It is important to always recognize that Dutch Bros story is all about long-term sustainable growth. Everything we do inside the company is focused on making the business better and stronger three, five and 10 years from today. Unfortunately, in this past quarter, a confluence of cost pressures overwhelmed our decisions around price and resulted in near term margin compression. We anticipated higher expenditures. However, we did not perceive the speed and magnitude of cost escalation within the quarter. Dairy, for example, which makes up 28% of our commodity basket, rose almost 25% in Q1. While cost rose throughout the quarter, we experienced a change in sales trajectory from mid-March onward as macroeconomic headwinds accelerated and comps turned negative. We are monitoring these factors and have chosen to take a more conservative stance on our 2022 outlook given macroeconomic uncertainty. But importantly as time passes, we have a greater and greater confidence in the growth potential based on the performance of our new units in both established and new markets. Our labor margin remained elevated in Q1 relative to Q4, but down slightly from the first quarter of last year. Importantly, as we mentioned in Q4, our operations are not being impacted by staffing shortages, hiring has been brisk and turnover remains low. This is a key part of our story as we will always strive to provide great work quality, compensation and advancement opportunities for our Bros'. We believe this allows us to attract and retain the very best people that are committed to great customer experience. Within our company shop, we choose to pull forward -- we chose to pull forward certain deferred maintenance investments that we were unable to complete last year due to COVID. Our full year expectations on these costs remain unchanged. We opened 54 company shops in a condensed timeframe from December through March. Therefore, we experienced margin pressure from an accelerating pace of new unit openings, both in terms of elevated pre-opening spend and normal new shop and efficiency. Given the pace of openings and the speed by which the business is transforming a degree of variability within our results may often be the case over time. Our focus is long-term growth and these new market labor expenses support both our culture and investment thesis. If we need to make a significant investment in a market or in the development of our people, prior to opening, we'll do that without hesitation. There is a short-term cost for a long-term growth and gain. Based upon our revised cost forecast we are taking a more conservative stance in our 2022 annual outlook and for adjusted EBITDA. The bottom line is, despite the macroeconomic uncertainty we remain highly confident in our ability to navigate through these short term challenges and in our overall value creation model. During the first quarter, new shop development was the second highest on record for Dutch Bros. These 34 company operated shop openings compared favorably to our guidance of at least 30 total shop openings. We are encouraged by the performance of our real estate, training and operations teams, as we expand our shop footprint. Our pipeline remains strong well into 2023 and we are highly confident in our new shop guidance for 2022, which we are in fact raising modestly today. Our development strategy is centered on rapidly achieving density in our new markets. When we enter a new market, we start with one shop, but quickly build several more to capture market share and satisfy consumer demand. If the strategy works as expected, density and scale will thereby create a positive flywheel effect increasing brand awareness and providing more capacity. Our class of 2020 and 2021 shops produced average unit volumes of $2.1 million, which is approximately 10% higher than our system average. Additionally, our new shops have demonstrated a predictable and consistent volume and margin progression, typically reaching margin maturity within three to four quarters of opening. Of the 34 shops opened in Q1, a 11 were in new markets and return to over to newly promoted regional operators. On January 14, we opened our first shop east of the Mississippi River in Nashville, Tennessee, which we quickly followed with two additional shop openings in the surrounding area. Thus far, the performance of these shops have exceeded our expectations and serves to validate our optimism for further development as we move from West to East. Beyond Tennessee, we look forward to increasing our shop density and other newly entered states. 17 of our 34 Q1 openings were in Texas and Oklahoma. In Q1, we also began to ramp up development in Southern California with five total openings, initial results are positive with these new shops outperforming our system average. The entry into these markets is significant for us and we're excited about meaningful growth opportunities for this region in 2022 and beyond. The remaining nine shops were infill locations and markets such as Salt Lake City, Colorado Springs, Denver, Tucson, Sacramento and Las Vegas. Although, like everyone, we've experienced a slight labor scheduling disruption during the first three weeks of January due to the Omicron variant. We remained fully staffed and effectively experienced zero disruption to our shops in February and March. For the quarter, COVID-related staffing constraints only affected 0.75% of company-operated shop days. Trailing 12 months shop level turnover for Q1 was 66% which is up from the 12-months period ending Q4 2021. Still our shop level turnover remains far below the industry average and new hiring has been brisk. Shop level manager turnover was in the low double-digits, while regional operator turnover was virtually non-existent. We attribute our comparatively low turnover metrics through our unique people first culture significant career development opportunities and the benefits and incentives, we provide to our employees. As we increased shop development, we open up even more leadership and growth opportunities for our people. In Q1, for example, 12 regional operator candidates were promoted as operators. As of March 31, we have 109 regional operators running our 310 company-operated shops. Currently, 2.8 shops per operator. As our system matures, we expect to spend to continue to grow, to between 4 and 7. One of our primary tools and growing market share understanding our customers and driving ticket increases is our Dutch Rewards program. As of March 31, we had 3.7 million registered users with nearly two-thirds of those active over the last 90 days. In the first quarter alone, we added more than a quarter million new 90 day of active members. This is about 4,000 active members per shop and is driving the 61% Dutch reward transaction penetration. We are excited about the adoption of this program and the opportunity provides us to recognize, reward and engage many of our amazing customers. In established markets, our digital penetration was about 15 points higher than in our expanding newer markets, providing potential upside for our program, as our newer markets mature. The consistent growth of our rewards program and our 90-day active members provides evidence of both customer acceptance and adoption. Over the last quarter, the average ticket for Dutch Rewards members was approximately 6.5% higher than from non-rewards members. We are pleased with our customers adoption and use of Dutch Rewards, especially as users begin to utilize the platform stored value features. As more customers load funds to their accounts, it should reduce transaction time, speed up lines and free up time to create meaningful lasting connections. We also benefit from the additional average ticket increase of nearly 10%, when our members use the stored value or as we call it Dutch Pass feature. While we are in the early innings, we have begun to operationalizing this data at a small scale. We've had initial success with specifically targeting customer behavior, upselling and product trial. We look forward to expanding on these and other programs to generate consumer insights, develop customized offers and personalize our members Dutch Bros experience. Great customer experience helped drive our Q1 results. With first quarter revenue up 54%, compared to same period last year to $152.2 million. System same shop sales grew 6% in the first quarter and 11.1% compared to 2019. While company-operated same shop sales grew 5.1% in the first quarter and 9.9% compared to 2019. Same-shop sales growth was a function of higher traffic and check that was partially offset by sales transfer. Notably trends were stronger in the first half of the quarter before tempering in mid-March, which we believe were primarily driven by macroeconomic headwinds related to decrease in consumer discretionary income such as rapidly rising gas prices and the discontinuation of federal COVID stimulus checks and also greater sales transfer as more new shops in existing markets opened. As I mentioned before, quarterly adjusted EBITDA was $9.7 million impacted largely by our decisions on pricing, dairy costs, labor costs, our decision to invest in preventative maintenance and the impact of accelerated new shop development. To conclude, we believe we have something secure that is unique, a growing profitable business, a strong balance sheet and a phenomenal culture and loyal customer base. These factors give us a strong foundation necessary to support enduring growth. Our culture remains as strong today as it did the last five years and 25 years before that. Now, I'd like to turn the call over to Charley to review our financials.

Thanks, Joth. Before I begin, I want to highlight that with each earnings release we post a presentation that contain supplemental information and details on our Investor Relations website. I encourage you to reference it as I make my comments. I will begin with the profitability of our overall company-operated shop portfolio. For Q1, company operated shop contribution decreased from 26.8% of company-operated shop revenue to 18.3%. I'll walk you through the key drivers of that decline. It starts with our decision to be conservative on price, considers recent cost pressures and ends with the margin impact of executing our fast-paced company shop led growth strategy. As I discuss these drivers, please see Slide 11 of the investor deck. Beginning in November of 2021, we took our first price increase since the beginning of COVID, a modest 2.9%. This translated to approximately 220 basis points of margin relief. At that time, we believe this was appropriate, given the cost increases we were experiencing. As a company, we tried to avoid taking large price increases. And when we do take price, we try to do it and frequently. We think this is the right way to build lasting relationships with our customers and serves to encourage them to make Dutch Bros a key part of their daily beverage routine. However, as Q1 unfolded, we experienced three significant rapid cost escalations that, on an individual basis, would not have caused distress but when taken collectively did overwhelm our P&L. Faster input cost inflation, especially in dairy and also labor cost increases. The pull forward of expenses related to the ongoing caring condition of shops and new and normal new store inefficiency amplified by the sheer volume of new and ramping units in quarter one. In the first quarter, we encountered 480 basis points of cost pressure from those higher ingredient costs, relative to the prior year. As Joth noted, dairy increased by almost 25% towards the end of the first quarter to near historic highs and what is now 28% of our ingredients cost basket. We did not anticipate the sharp rise. While we do not believe dairy will stay this high and definitely we have to assume it will remain high for most of 2022. Additionally, we encountered 240 basis points of cost pressure on our labor line. This includes higher training costs, higher over time to keep stores open and higher legislated minimum wage advances in California, Arizona, and Washington State. We continue to see stability in our workforce, despite a slight uptick in turnover in the first quarter. The good news is that our stores are staffed and operating at full hours. The combination of margin pressure from ingredient cost and higher labor cost resulted in margin compression of 720 basis points. Prior to offsets, we achieved through menu price increases. Our modest price increases that began in November and a positive discount rollover offset 370 basis points of this pressure, netting to 350 basis points margin compression. Please note that in April, we placed a further 3% menu price increase in the motion that we expect to finish rolling out to the system by the end of May. Should these elevated costs remain, we will assess further pricing actions and productivity measures through the balance of this year to protect shop profitability long term. Finally, we encountered 150 basis points of cost pressures from elevated shop operating expenses, primarily from pull forward maintenance spending. This maintenance spend was restricted during COVID and much of the spend reflects clearing out of backlog. Our full year expectations remain unchanged. This expense category will come back to our original budgeted spend by year-end. Therefore, there is a timing impact in our Q1 financials that we don't expect will impact the full year. The second key driver of the year-over-year decline in company-operated shop contribution is 340 basis points related to executing our fast paced company shop led growth strategy. This effect is primarily timing and is an inherent part of our long-term growth strategy. In the first quarter of 2022, we opened 34 new company shops compared to just nine new company shops in the first quarter of 2021. We also had the first month of operations for the 20 company-operated shops we opened in December of 2021. Pre-opening costs were $6 million in the first quarter this year compared to just $1.7 million in the first quarter last year. On a percentage basis, pre-opening costs for 4.6% compared to 2.2% last year, an increase of 240 basis points. On a per share basis, this is higher than our norm as we had 11 shops, where first shops in their respective markets and speed to market also had some cost. First shops have higher pre-opening costs, as we spend more time with our opening crew, training our staff and creating a solid competent base for expansion. Additionally, we incurred approximately 100 basis points of impact from normal new shop inefficiencies that drop off as shops become more productive and ensuing quarters. Our growth objectives will remain in place despite the challenges we face in the newer P&L. Regarding new shop profitability, new shops take a few quarters to reach the margin productivity levels of our mature shops. In this regard, we remain on track. You can reference this margin maturity curve and our actual results in the investor presentation on our website. Another key objective of our growth strategy is that one shops mature, we aim to have each new shop delivery a shop level contribution margin of approximately 30% in year two. As a reminder, this margin excludes depreciation and we're not include preopening expenses, which are typically borne in the first year. As an example, I’ll direct you to Slide 10 of the supplemental investor deck. Our class of 2020 achieved a gross margin of 26% in the trailing 12 months, inclusive of depreciation expense. Depreciation for all company shops was about 4% this same period. We do not expect our long-term objectives for new shop profitability will be at risk from the current economic climate, rather we will map menu prices and cost to protect the strong economic model we have built. Further, we will continue to focus on operational innovation to enhance productivity while improving the employee and customer experience. Shifting now to G&A. We are beginning to realize G&A leverage. In the first quarter, our total G&A grew 26% relative to revenue growth of 54%. As a percentage of total revenue, G&A was 29.7% versus 36.4% in the first quarter last year. We expect our G&A will continue to leverage as we gain scale. Please note that our G&A was burdened by 120 basis points of public company costs, 160 basis points of one-time special events and 80 basis points of COVID related write-offs. Now a few comments on liquidity. Our balance sheet is strong and well capitalized. As of March 31, we had $27 million in cash and equivalents and $372 million in committed undrawn debt capacity, with an option to further increase our liquidity if needed. As of March 31, we had $28 million drawn on our revolving credit facility and $100 million in term debt, reflecting $101 million in net debt. On February 28, we refinanced our existing credit facility to provide greater liquidity and maintain a strong balance sheet, geared for new shop growth. Our new five-year facility provides us with $500 million in committed capital. Shifting now to guidance. Joth mentioned that late quarter sales trends were pressured. Since mid-March, the normal seasonal traffic bill that typically takes place as we move out winter and in the spring with a peak in May slowed measurably. We expect the sales pressure to continuing to short to mid-term with leading industry indicators suggesting decline in QSR traffic, increased incidence of trade down and outsized regional pressure in the Western United States, which we believe is due in part to higher relative energy costs. We are monitoring closely the potential impact of increases in energy prices on our customers' behaviors, which we believe may be negatively impacting consumer discretionary spending and affecting our traffic. Absent a change in the underlying macro environment, we are not projecting a meaningful tempering of these trends, hence our lowered full-year adjusted EBITDA guidance. Inflation in both ingredient and operating cost has risen rapidly catching us off guard from the speed and the sharpness of this rise. In the short term, it is unlikely that our new menu price actions will fully offset the extent of these input cost increases. We believe outsized menu price moves in the face of consumer discretionary spending headwinds would not be wise at this stage. For our high growth brands, the lifetime value of each customer is heightened. It is our desire to keep our menu prices approachable for customers across the income spectrum. Given the unexpected speed and magnitude of these cost and consumer demand events, we are taking a more conservative view of 2022 adjusted EBITDA and same shop sales. However, given the strength of our openings and their attractive returns we are modestly accelerating new shop development to that and for full year 2022. Total system shop openings are now expected to increase to at least 130, of which at least 110 shops will be company-operated. Total revenues are projected to remain in the range of $700 million to $715 million, reflecting our continued expansion in shop openings. Same shop sales growth is now estimated to be approximately flat. Adjusted EBITDA is now estimated to be at least $90 million, reflecting near term margin pressure in our company-operated shops and our decision to take modest price increases during the year. And capital expenditures are still estimated to be in the range of $175 million to $200 million, which includes approximately $15 million to $20 million for our new roasting facility that we project will open in 2023. For Q2, total shop openings are expected to be at least 30 of which nearly all shops will be company operated. Same shop sales are estimated to be flat to slightly negative as we face macroeconomic headwinds impacting consumer discretionary income. April same shop sales were negative 3.7% in 2022 compared to plus 22.6% in 2021, our largest rollover of the year. Before turning it back over to Joth, I'd like to take a moment to reflect on how far this business has come. From the year before COVID 2019 to the end of 2021, we finished 2021 operating 271 company shops. We had just 118 company shops at the end of 2019. At the end of 2021, there were 538 total shops in the Dutch Bros system, compared to just 370 at the end of 2019. AUVs were $1.9 million for 2021 compared to just $1.6 million in 2019. In 2021, we generated $498 million in revenue. We generated $238 million in 2019. At this pace and with this level of transformation, at times there will be variability in our results and our growth will not always be linear. And with that, I'll turn it back over to Joth for closing remarks.

Thank you, Charley and appreciate that perspective. We have all the building blocks for Dutch Bros to remain a successful and enduring company. Powerful authentic brand that shares the love. Strong people systems that drive company culture and fuel our shop growth. A highly engaged customer following, customizable and uniquely curated beverages. Highly consistent and highly attractive unit level economics. A portable model that is successful across geographies, a strong and well capitalized balance sheet and an engaged Co-Founder and experienced leadership team. Nearly nine months after our initial public offering, we are staying true to our core thesis. We've hired more people and facilitated tremendous growth opportunities for our employees. We treated our customers well and we're doing our part to be good partners in our communities. We believe that we are on a 10 to 15 year pass to 4,000 shops. With 30 years Dutch Bros has been in the business of relationships. We've been there for our people and our customers every day. The current environment is without precedent, that know that we will navigate this uncertainty with the same long-term outlook resourcefulness and collective wisdom of our releases, leaders and franchisees that has made this company, what it is today. We want to thank you again for your interest in Dutch Bros. And now we'd be happy to take your questions. Operator, please open up the lines.

Thank you. Ladies and gentlemen, at this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Nicole Miller with Piper Sandler. Please proceed with your question.

Thank you. Good afternoon and appreciate the update. I thought I'd ask about the team first, if I heard properly, there was a comment in there about turnover being a little higher. And I was curious what that rate of turnover is? And just thinking about peak periods of stress and having moved past those, why would you be experiencing higher turnover now?

Well, I think that we've kind of looked at what was going on last year, what was going on this year in the market. I think that there -- there was an accelerated return, I would say applicants that we reviewed. I think we reviewed 39,000 applicants year-to-date, if I'm not mistaken. And it's probably just people getting back to work and that Nicole, I don't know exactly the answer to that question. I can give you a lot of theory to that, but I think there's probably just an element of back-to-work like people coming back off COVID, more opportunities presenting themselves in the job market with such low inflation, people might be jumping for more money and so there's a lot of just job related, market related factors that's going on out there.

Yeah.

That’s why our numbers are still really low. So I'm -- so we're still pleased with where we're at.

So it would be fair to conclude up, but you're not talking about a material number at this point. I mean years has been so low. I didn't know how much to read into that comment, frankly. And it kind of sounds like, I mean that's what I would have guessed and don't want to guess. So how have you been able to -- you don't present the same sticker, right wage, but once someone gets in the system with the tips, they understand the process and the benefits. Are you still able to tell that story?

Absolutely. Yeah, I don't think that story has changed at all. And I think our trailing 12-month number at the end of March was like at 66%.

Okay.

So we are still from a relative standpoint. I'd say it's still relatively low kind of low as it was. But I think it's still very manageable. And I think our story and how we're treating our employees is as strong as ever.

And then just a numbers question and realizing we're all doing the same thing real time in terms of modeling, but with the $90 million adjusted EBITDA kind of bogey, it would imply I guess store level margin. And I have to admit, I'm taking preopening out of mine. So if this number, does it make sense to you get it, but just know this isn't without preopening. So like store level margin in 1Q was around 23%. It has to average for the rest of the year, something around 30%. So it seems like the cadence could be lower in 2Q, but then sterile of margin has to pop back up in the back half, and if that is the right assessment of these early read on numbers like how is that going to happen because margin was under pressure with a 6% comp isn't going to be even more under pressure with a flat comp. How can we think about that?

Well, I'd refer you to the investor presentation, understand the seasonality, right. So quarter one and quarter four are lowest average daily unit volumes. Quarter two and quarter three are the higher ones. So part of what's taken place just from a sequence standpoint, as we move through the year, we get more leverage so margin start to rise. And that's very normal, right. So margins have reset because of the higher cost pressure and gone lower, but they still will rise in the summer as we get the higher volumes.

Okay. Thanks a lot. Appreciate it.

Thank you.

Our next question comes from the line of Sara Senatore with Bank of America. Please proceed with your question.

Thanks. A question on the demand side and the top line first and then quick follow-up on the margins. If I look at like kind of the three-year trend versus 2019. So I think you mentioned volumes were up by 10% versus 2019 on the first quarter. I got to move slightly different, but I know people calculate tax differently, but if I assume kind of flattish comps in the second quarter, it looks like a pretty similar tax versus 2019. So I wanted to sort of understand how much of that slowdown may just be speed up really difficult stack comparisons versus the macro situation, particularly as you point out, given how hard the April flat was? And then have you seen any variation, you mentioned in the Western, in particular, but have you seen any other variation in terms of demand, because it does feel like we're hearing a very wide disparity of -- in terms of what different restaurant companies are seeing?

So let me take the Sac question and I'll, again, I think our document on the web or help you see the data on Slide 8, but the rollover we had in Q -- Q1 of ‘21 was -- Q1 of 2021 was a 9.5 comp, Q2 was a 9.9 comp. So to your point, there is not a lot of difference in the rollover from the year-over-year basis. And then the lap gets a little bit easier back part of the year. So what we're really saying is, as I mentioned in my part of the script, sales usually start to build in the spring and hit a peak towards the end of May on an average daily volume basis. And we just are not seeing that growth. We're not declining. We're not seeing that growth that expansion that happens seasonally. And then I'll start on your regional questions, the biggest differential we've seen is where the gas prices, fuel prices, energy prices are elevated. We've seen more of this lack of sales growth coming in those areas, which amongst many other factors points to the discretionary income piece, at the low end of the consumer. And then secondly, we are seeing that afternoon more discretionary day get restricted, which is where you would expect when people are starting to choose between what they've got left over in their wallet at the end of the month and choices around spending.

Sorry, but just to clarify, you said the one-year compares and I understand is the same, but if I look at your two year stack it gets about 400 basis points to 500 basis points tougher. And I guess that's what I'm asking about, which is given that, a lot of us are benchmarking versus 2019 to kind of control for the variability. It does look like that alone would explain a sequential deceleration. And I guess that's, what I'm trying to understand.

Mathematically, yes, but back to what I said earlier, which is I think the stacking thing can be difficult and challenging, you're looking at multiple years. We know our business seasonality and the growth in our business seasonally really stopped in the middle of March. We left February when we had the last earnings call with a really solid comp number through February and then it just decelerated very quickly from that point. So I know you can look at this two-year stack, but the way we analytically look at it is sequentially whether we're getting seasonal sales growth or not.

I see. Okay. And then just on the margins, the actual -- the restaurant level margins were actually pretty consistent. I think with sort of where we thought they might be. And in particular, the COGS headwind. We saw a big one in the fourth quarter. Labor was up in the fourth quarter. So a lot of that actually to me wasn't quite that surprising. I guess, I'm just trying to understand, maybe where the difference was, maybe this is easier said, can you just tell me how to think about G&A for this year because I'm wondering if needed that's where we went wrong or if it's just our expectations versus your own as we think about guidance, because like I said, the restaurant-level margin is all that -- the comparison isn't all that different from what we saw last quarter?

Yeah, I mean I. I don't know what you had down per G&A. G&A for us is pretty uniform by quarter, it grows very steadily because it’s head count driven and its regional operator-driven. There's not a lot of -- there's not a lot of moving parts in that number. The biggest change for us is this ingredient logistics supply chain cost increase that we're feeling and that's why we're pulling our guidance down because relative to our models, we've got that 300 basis points to 400 basis points margin contraction going forward. And I think, we can do a click down with you to understand the G&A piece better that you're looking at.

Okay. Thank you. I’ll pass it on.

Our next question comes from the line of John Ivankoe with JPMorgan. Please proceed with your question.

Hi. Thank you. You do have obviously interesting demographic 55% I think under 25 years of age and also, you said 17% of customers visit before 9:00 AM, which really does leave you quite different than some other beverage focus or coffee focus peers. I mean can you elaborate in terms of like, I think you said that you were seeing weakness in the afternoon daypart 31% of business that this or part of the IPO stuff after 4 o'clock, you were talking about, I guess the challenges and the opportunities that you may have of having a really young afternoon skewed customer. I mean, is there anything that you can or should or would do on the promotion side to kind of bring people you bring these folks back in or is there something that you can do in the morning to better utilize that daypart relative to the afternoon?

Yeah. Hi, John. This is Joth. We have seen morning daypart growth. Actually to your point, we'd have actually seen an uptick in that kind of pre-10:00 AM business and which I think is an indication of back to work and kind of some behavior-based. I think where we've seen our decline, is that 10:00 AM to really actually probably 6:00 PM business has been the largest decline and that we're really kind of chalking it up to a younger demographic with some discretionary income challenges related to what's going on in the marketplace and really how you attack that, as I think a couple of things, one is the I think energy drink and how we utilize the rewards program will be key. I think we will do more promotion with energy use. We continue to connect drive that in that daypart. I continue to think that it's our biggest opportunity as a segment. And I think in a market like this, you work on market share and I think there is a way for us to make that happen in improving the business in that mid-day daypart. So I think that's the key to that daypart and that will be different by region and the beauty of our app is we'll be able to execute at a market level program if we need to dependent on kind of what's happening with traffic balance.

And you guys presumably, you have -- none of this is self-inflicted at all, like you haven't seen your throughput actually slow in terms of how many customers you can get through that line and given our, was there any change in, I know it's probably tough to actually see in terms of what, okay. So it was, it really was demand driven, you were constrained?

Yeah. If anything with the sales transfer we actually help to improve flow and improve the things that we're doing and again, we believe the app has a significant improvement to how we take people through. So we're not seeing anything related to consumer sentiment here. Our consumer sentiment remains very strong. This is purely, I think this is a consumer behavior issue that we're all dealing with related to traffic.

Understood. It's a separate question that my second one that this one was 1B, if you will, you've took up CapEx last quarter pulled down EBITDA this quarter, you are in a slight net debt position. It's not classic that one would finance long-term asset like store growth with a revolver, for example, or I guess maybe $100 million. I know you have on the term loan, which has been drawn, but could you just -- philosophically could talk about your balance sheet, your debt, your capital needs in the context of store growth? In other words, to what extent does the balance sheet in and of itself, you may be give reason for some moderation as we work on our ‘23 and ‘24 forecast?

Yeah. Hey, John. It’s Charley. So yes, I agree if you were taking a long-term asset, you might want to match your financing to the long-term value of that asset. In our case, as we model out the business and worked on our credit facility, we see our needs peaking modestly in ’24, ‘25 and therefore -- and after that we start to generate free cash flow. And so we felt like, let's just shorten this instrument, take a short instrument, keep it flexible, keep the cost of it low and then get to that 23, 24, 25 time frame and reassess where we're at in terms of whether we need to take on any kind of longer term structured debt, I'll call it.

Okay. All right. That's helpful. Thank you.

Our next question comes from the line of Andy Barish with Jefferies. Please proceed with your question.

Hey, guys. Good afternoon. Just a couple of things. First, Charley, on a numbers. I may have missed it, but the sales transfer impact in the quarter and kind of what you're looking for going forward, it sounds like it's a little bit more elevated than it has been?

Little bit. It was about 230 basis points of transfer. We’d typically in prior quarters, we've been seeing about 150 or so that's mostly the timing of accelerating the growth and hitting some pretty high volume stores with sales transfer. I think between 150 basis points and 200 basis points of sales transfer is a good way to look at it going forward in the way we've modeled it out. So slightly elevated, but not out of the range of what we'd expect.

Okay. Understood. And then just I guess philosophically and size wise two things, I mean as you get bigger, is there an opportunity kind of closer at hand on purchasing and supply chain to sort of eliminate. I know the commodity markets are experiencing unprecedented volatility, but is there anything near term that could help on that front? And then secondly, anything on sort of new unit glide path. I mean they do ramp pretty quickly, but anything that you're looking at there. You talked about or mentioned some productivity initiatives once or twice, without specifics. Sorry that's a lot there.

It’s okay, Andy. You are testing my retention here. So I think on the commodity costs in the place that we're at right now to see short-term effective improvement is limited and how we buy and kind of where we're at. We're out long on coffee, dairy, obviously you don't have a lot of control over, and then really we're kind of beholden to some freight impact and some other small basket of goods, because we just don't have that much in our basket. It just so happens with the dairy makes up such a large percentage of that basket. Previously, we have been talking coffee a lot and had said, it makes us just a small percentage we’re okay on coffee, which continues to be the case, but dairy certainly caught us off guard. I do think we have some opportunity to improve internally on our purchasing, in our purchasing capabilities and how we look at that long term, and as we grow that is an area of emphasis for Charley and myself as we kind of, I'd say build that muscle here at Dutch Bros. Two is related to how we manage shops and I will tell you that our retail ops team is looking hard right now at labor. I think we all need to be looking at labor and we all need to be thinking about how we manage labor, especially related to over time and things of that nature. And maybe related to some daypart flexibility just because of the nature of the business is changing a little bit in each of the market is changing a little bit. We need to be flexible on how we do that. So and that would also include new shops, but I'll tell you that the importance of the new shops and why we mentioned it in the script, the way we did is that it is so important for us to get a new shop off the ground, out of the ground in a positive way. And we will leave people in a marketplace until we feel like it can be transitioned over to the operating team. They can be there on a day-to-day basis. So if we have the opportunity to take a team out sooner we will, but we won't skimp on that because the importance of that investment for the long term.

Thank you. Got them all. Thank you very much.

All right. Thanks, Andy.

Our next question comes from the line of Jeffrey Bernstein with Barclays. Please proceed with your question.

Great. Thank you very much. Couple of questions. First one, just on the broader restaurant margin, which seems to be a focus here. I mean, how just you believe the structural headwinds, obviously, you have that slide that walks through kind of all the different factors there, but is there any concern that some of this might limit your long-term restaurant margin recovery opportunity maybe the accelerating new unit growth pressuring restaurant margins long-term or some of these incremental cost pressures that might not a abate? How do you think about what's kind of short-term versus long term in terms of that restaurant margin based on the current headwinds?

Yeah. It's Charley. Thank you for that. I don't think there's anything about the way we go about doing business structurally that would cause us to pause. These are just unprecedented increases in our most -- our highest cost item, dairy amongst other things. At some point, you have to feel like that can normalize and get to some reasonable place. It's typically very cyclical. If it does structurally stay elevated as we mentioned, we will look at our pricing -- menu pricing structure to try to deal with that. And then in terms of long-term returns, as we mentioned our year two cash margin, we look at achieving a 30%. Right now, we're looking at 300 basis points to 400 basis points of margin contraction from these cost pressures. Let's say that that 30% is reduced by 10%. That doesn't really change our 10%, meaning 30 goes to 27. That does not really change our investment thesis because we're doing higher volume in our new units than our original investment thesis, if we do a little less margin near term that’s not really going to change the answer. So we're very comfortable raising our guidance on new units because we know it's a great investment, and we have plenty of room between what we achieve in our cost of funds.

Understood. And then you mentioned earlier that your pricing is clearly below some of your competitive set. I think you said you took less than 3 points in November, and you're taking another 3 points took at last month. How do you test that? I know you have a younger customer, and it's clearly more discretionary in nature, like how do you measure the elasticity that may be, it may not be -- shouldn't be taking it, but the risk that it might accelerate the issue going into a macro slowdown? What kind of testing you do for that?

We do test markets, but the good news about our business is, we have such a fast purchase cycle that we get a quick read and any test market when we do something. Yes, we are concerned, that's why we're very prudent about not raising our prices fast. We're going to make this next step and watch it and read it, but again we'll get a pretty quick read because we have a fast purchase cycle. And then we'll judge how that's landing and we'll assess what to do next.

Understood. And then just lastly because you commented on G&A and you said you leverage it in the first quarter, which is the tested for high growth mode here. I'm just wondering, I think you said steady through the year, but is there thoughts on a 2022 range, maybe growth relative to revenue on the G&A front somewhere any kind of color you can provide on that.

Not off the top of my head, but since our revenue growth rate is going to be pretty consistent quarter-to-quarter. We're expecting to get very similar G&A leverage as we're achieving -- as we achieved in the first quarter, right. We had over 50% revenue growth, even at that temper slightly. G&A is not going to accelerate from a growth perspective, it's pretty steady. So yeah, I think as we speak more we can kind of help with how to model that out.

Our next question comes from the line of David Tarantino with Robert W. Baird. Please proceed with your question.

Yeah. Sales trajectory here, I guess the first question I have is related to that sort of lack of seasonal build, you talked about Charley. And I was wondering, if you're seeing that across the, --- across most of the base including some of the new location. So I guess, is this a macro situation that's affecting all stores maybe not to the same degree. But you're seeing it across the system.

Generally speaking, yes. It is across the system.

Got it. Thank you for that. And then on the clarification on the guidance. I guess what is the assumption for the rest of the year. I guess ignoring the comparisons, if you think about modeling out the seasonally adjusted sales trends or the average daily sales trends as you call that now, are you assuming any improvement or any deceleration or I guess how are you approaching that specifically?

We're not assuming any deceleration pretty much the trend line that we're on today we're extrapolating that forward. So we guided to about flat realized in the first quarter, we had positive comps. So that in itself and first slightly negative comps in the back three quarters of the year.

Got it. Okay. That's helpful.

Our next question comes from the line of Sharon Zackfia with William Blair. Please proceed with your question.

Hi. Good afternoon. I know it's always hard to figure out causality when you have a big shift in your sales, like you had, but I guess I'm wondering are you seeing signs of the consumer trying to manage their check, which would kind of back up the idea that it's may be related to higher gas prices, and I ask because obviously, you have a suburban footprint and I'm wondering if the elevated return to work might also be an impact on your business more broadly.

Yeah. Hey, Sharon without claiming to be a macroeconomist, I will tell you that in mid-March when gas prices jumped the way they did. We saw an immediate flip on our daily sales. It was almost to the day of the way that works. So I think you could infer and we believe that we've done some analysis on the gas prices and influence related to our daily sales and we believe it has influenced it and we believe that if gas prices stay inflated. It will continue to influence it. And I do believe there is some trends we're seeing, we're seeing morning daypart actually grow and I think that actually is going to people going back to work and getting back into their daily routines of either taking kids back to school, especially on the West Coast where we're really just came out of a COVID lockdown, we'll call it, in February. We saw trending move in those markets that were previously affected by school closures and things of that nature. So there is something there to that. And I think as long as gas prices stay high. I think we can continue to see consumer trends or consumer spending will suffer.

Can I ask a follow-up. Have you, I mean, Charley, you said you're kind of assuming similar comps for the rest of the year, and then the flat to slightly down or slightly down. Have you seen the trend stabilize?

Only mildly. It's not as -- we don't have a falling knife. We have a slightly negative sales trend that is just has continued since what Joth mentioned which is mid-March and it is just been trading low negatives.

Okay. Thank you.

Our next question comes from the line of Andrew Charles with Cowen and Company. Please proceed with your question.

Great. Thank you. Charley, can you talk about more about the margin impact reduce store efficiencies mean this is something obviously is a fast-growing system. Do you guys have seen before, but curious if it's a more pronounced impact on margins versus what you've seen in prior quarters. And as a follow-up to that, just how are you better managing that going forward as you guys will be accelerating unit growth as well?

Yeah. So a couple of things. From a quarter-to-quarter sequence, it's not dramatically different. Our comments are related to prior year and of course, we had a lot more openings this year than last year. So I would separate into two areas. One is just absolutely preopening expenses and you can see that in our P&L and you can add that back. And then a little bit of drag, a little bit more drag than normal on the labor side and the cost side because we compressed so many openings into a three or four months cycle, which normally might have gotten spread out over six months. So we don't see a structural problem or challenge in our new store margins, and you can see in the presentation we put up there that were -- those stores are still seasoning out very quickly, but it's just a compression of all those costs in a short timeframe.

That's helpful. And I’m not trying to sound the alarm with my next question, but because I appreciate that the pressure on comps is very recent and you guys are still seeing strong productivity at new stores prompt you to raise the 2022 development guidance, but I appreciate the guidance for same-store sales embeds this level of performance throughout the year, but I guess if we just got I think a little bit more, sincerely what would you have to see that would lead you to take your foot off the gas at 2023 development to help improve trends that are in place?

I think we would have to see that new store volumes are really have gone backwards and they haven’t and we're just not seeing that. Strong openings and as long as we see that, it gives us confidence to keep going.

Very helpful. Thanks, Charley.

Our next question comes from the line of Jeff Farmer with Gordon Haskett. Please proceed with your question.

Thank you. I have a follow-up and a quick question. On the follow-up, I'm just looking for a little bit more color on the magnitude of the gas price driven same-store sales headwind for the West Coast shops versus those in the rest of the country. Again, just trying to get an order of magnitude, given how much greater the gas price inflation has been on the West Coast versus the rest of the country?

Through the work that our analytics team has done. We think it's about 2% hit on same-store sales with gas pricing, and there is variability to that depending on what region of the -- of our markets you're in, but especially on the West Coast and we believe that that number across the system is somewhere around 2%.

Okay. That's helpful. And then again switching gears here a little bit to an entirely new topic. So as you report rewards customer sort of database for lack of a better word continues to grow. I'm just curious if there's been any sort of what do you consider larger or bigger surprises in terms of how your customers are interacting with the concept, anything that's cut you off guard relative to a few years ago when you didn't have all that data versus today when you do have the data?

Yeah. This is Charley. Hi. Candidly, not a lot of surprises and their behaviors seem to be very -- and ways we would expect to predict. So it's not surprising us what we're seeing in frequency or stored value loads, et cetera. It's very reliable outcome.

Okay, I appreciate that. Thank you.

Thanks.

There are no further questions in the queue. I'd like to hand the call back over to Joth Ricci for closing remarks.

Again, we want to thank everyone for your continued interest in Dutch Bros. We are optimistic about our future. We look forward to running this business for the long term. And really can't wait to work with our people, our teams, our leaders, our franchisees and creating the Dutch Bros for the future. So thank you for the time. We're all in this together and we look forward to the future of Dutch Bros. Operator, thank you.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.