S-1 1 dutchbross-1.htm S-1 Document

As filed with the Securities and Exchange Commission on August 20, 2021.

Registration No. 333-               
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Dutch Bros Inc.
(Exact name of Registrant as specified in its charter)
Delaware581087-1041305
(State or other jurisdiction of
incorporation or organization)
(Primary Standard Industrial
Classification Code Number)
(I.R.S. Employer
Identification Number)
110 SW 4th Street
Grants Pass, Oregon 97526
(541) 955-4700
(Address, including zip code, and telephone number, including
area code, of Registrant’s principal executive offices)
Joth Ricci
President and Chief Executive Officer
Dutch Bros Inc.
110 SW 4th Street
Grants Pass, Oregon 97526
(541) 955-4700
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
Copies to:
Eric Jensen
Alan Hambelton
David Peinsipp
Cooley LLP
3175 Hanover Street
Palo Alto, California 94304
(650) 843-5000
Charles L. Jemley
Chief Financial Officer
Dutch Bros Inc.
110 SW 4th Street
Grants Pass, Oregon 97526
(541) 955-4700
Marc D. Jaffe
Ian D. Schuman
Stelios G. Saffos
Latham & Watkins LLP
1271 Avenue of Americas
New York, New York 10020
(212) 906-1200
Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement is declared effective.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.
CALCULATION OF REGISTRATION FEE
Title of each Class of
Securities to be Registered
Proposed Maximum
Aggregate Offering
Price(1)(2)
Amount of
Registration Fee
Class A common stock, par value $0.00001 per share.$100,000,000$10,910
(1)Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(o) of the Securities Act of 1933, as amended.
(2)Includes the aggregate offering price of additional shares that the underwriters have the option to purchase, if any.
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant will file a further amendment which specifically states that this Registration Statement will thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement will become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.



The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
Subject to Completion
Preliminary Prospectus, dated August 20, 2021
PROSPECTUS
            Shares
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Class A Common Stock
This is the initial public offering of shares of Class A common stock of Dutch Bros Inc. We are selling               shares of our Class A common stock. Prior to this offering, there has been no public market for our Class A common stock. It is currently estimated that the initial public offering price for our Class A common stock will be between $               and $               per share. We intend to apply to list our Class A common stock on the New York Stock Exchange under the symbol “BROS.”
Following this offering, we will have four classes of common stock: Class A common stock, Class B common stock, Class C common stock and Class D common stock (each as defined herein). Each share of Class A common stock is entitled to one vote per share. Each share of Class B common stock is entitled to ten votes per share. Each share of Class C common stock is entitled to three votes per share. Each share of Class D common stock is entitled to three votes per share. Dutch Bros Inc. will be a holding company whose sole material asset will be its interest in Dutch Bros OpCo (as defined herein). The number of outstanding Class A common units (as defined herein) of Dutch Bros OpCo will equal the aggregate number of outstanding shares of Class A common stock, Class B common stock, Class C common stock and Class D common stock. Upon the redemption or exchange of Class A common units for shares of Class A common stock or cash, the corresponding shares of Class B common stock or Class C common stock will be surrendered and immediately canceled. See “Description of Capital Stock” and “Organizational Structure.”
After the completion of this offering and application of the net proceeds therefrom, Travis Boersma, our Co-Founder and Executive Chairman, through certain affiliates, will beneficially own approximately               % of the combined voting power of our Class A common stock, Class B common stock, Class C common stock and Class D common stock (or                % if the underwriters exercise in full their option to purchase additional shares of Class A common stock). After the completion of this offering and application of the net proceeds therefrom, TSG Consumer Partners, LP, our Sponsor, directly and through affiliated investment funds, will beneficially own approximately               % of the combined voting power of our Class A common stock, Class B common stock, Class C common stock and Class D common stock (or               % if the underwriters exercise in full their option to purchase additional shares of Class A common stock). As a result, we will be a “controlled company” within the meaning of the New York Stock Exchange corporate governance standards. See “Management—Controlled Company Exception” and “Principal Stockholders.”
We are an “emerging growth company” as defined under the federal securities laws and, as such, we have elected to comply with certain reduced reporting requirements for this prospectus and may elect to do so in future filings.
Investing in our Class A common stock involves risks. See “Risk Factors” beginning on page 33 to read about factors you should consider before buying our Class A common stock.
Per ShareTotal
Initial public offering price$$
Underwriting discounts and commissions(1)
$$
Proceeds, before expenses, to Dutch Bros Inc.$$
__________________
(1)See “Underwriting (Conflicts of Interest)” for additional information regarding compensation payable to the underwriters.
We have granted the underwriters an option for a period of 30 days to purchase up to an additional               shares of Class A common stock from us, at the initial public offering price less the underwriting discounts and commissions.
Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.
The shares will be ready for delivery on or about               , 2021.
BofA SecuritiesJ.P. MorganJefferies
BarclaysPiper Sandler
BairdWilliam Blair
Co-Managers
CowenStifelAmeriVet Securities
Penserra Securities LLCR. Seelaus & Co., LLCTribal Capital Markets
The date of this prospectus is               , 2021.



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TABLE OF CONTENTS
Page
Through and including                , 2021 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.
Neither we nor any of the underwriters have authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses we have prepared. Neither we nor any of the underwriters take responsibility for, or can provide any assurance as to the reliability of, any other information that others may give you. We and the underwriters are offering to sell, and seeking offers to buy, shares of our Class A common stock only under circumstances and in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of our Class A common stock. Our business, financial condition, results of operations and prospects may have changed since that date.
For investors outside the United States: neither we nor any of the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that



purpose is required, other than in the United States. Persons outside of the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the shares of our Class A common stock and the distribution of this prospectus outside of the United States.
Dutch Bros, our Windmill logo (toc1aa.jpg), Dutch Bros. Blue Rebel and our other registered and common law trade names, trademarks and service marks are the property of Dutch Bros OpCo. All other trademarks, trade names and service marks appearing in this prospectus are the property of their respective owners. Solely for convenience, the trademarks and trade names in this prospectus may be referred to without the ® and ™ symbols, but such references should not be construed as any indicator that their respective owners will not assert their rights thereto.



About this Prospectus
Financial Statement Presentation
This prospectus includes certain historical combined and consolidated financial and other data for Dutch Bros OpCo (as defined herein). Immediately following this offering, Dutch Bros Inc. will be a holding company whose sole material asset will be its interest in Dutch Bros OpCo. Dutch Bros Inc. will operate and control all the business and affairs of Dutch Bros OpCo and, through Dutch Bros OpCo and its subsidiaries, conduct our business. Following this offering, Dutch Bros OpCo will be the predecessor of Dutch Bros Inc. for financial reporting purposes. As a result, the consolidated financial statements of Dutch Bros Inc. will recognize the assets and liabilities received in the reorganization at their historical carrying amounts, as reflected in the historical financial statements of Dutch Bros OpCo. Dutch Bros Inc. will consolidate Dutch Bros OpCo on its consolidated financial statements and record a non-controlling interest related to the OpCo Units held by our Continuing Members (as defined below) on its consolidated balance sheet and statements of income.
Numerical figures included in this prospectus have been subject to rounding adjustments. Accordingly, numerical figures shown as totals in various tables may not be arithmetic aggregations of the figures that precede them.
Certain Definitions
As used in this prospectus, unless otherwise noted or the context requires otherwise:
“Blocker Companies”
means certain Pre-IPO OpCo Unitholders that are taxable as corporations for U.S. federal income tax purposes.
“Blocker Mergers”
has the meaning set forth in “Organizational Structure—Reorganization Transactions—Pre-IPO Exchanges.”
“Class A common stock”
means Class A Common Stock, par value $0.00001 per share, of Dutch Bros Inc.
“Class B common stock”
means Class B Common Stock, par value $0.00001 per share, of Dutch Bros Inc.
“Class C common stock”
means Class C Common Stock, par value $0.00001 per share, of Dutch Bros Inc.
“Class D common stock”
means Class D Common Stock, par value $0.00001 per share, of Dutch Bros Inc.
“Class A common units”
means non-voting Class A common units of Dutch Bros OpCo, as defined in the Third LLC Agreement.
“Class B voting units”
means Class B voting units of Dutch Bros OpCo, as defined in the Third LLC Agreement.
“Class C voting units”
means Class C voting units of Dutch Bros OpCo, as defined in the Third LLC Agreement.
“Co-Founder”
means Travis Boersma and affiliated entities over which he maintains voting control.
“Code”
means the Internal Revenue Code of 1986, as amended.
“Common Units”
means Common Units of Dutch Bros OpCo, as defined in the Second LLC Agreement, issued and outstanding immediately prior to the Recapitalization.
“Continuing Members”
means Pre-IPO OpCo Unitholders that hold OpCo Units following the Offering Transactions and their permitted transferees, and not including Dutch Bros Inc. Immediately following the Offering Transactions, the “Continuing Members” will be the Co-Founder and the Sponsor.
“Dutch Bros OpCo”
means Dutch Mafia, LLC, a Delaware limited liability company, and a direct subsidiary of Dutch Bros Inc. following the Reorganization Transactions.
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“Exchange Tax Receivable Agreement”
means the Tax Receivable Agreement (Exchanges) entered into by Dutch Bros Inc. with the Continuing Members.
“IPO Exchanges”
has the meaning set forth in “Organizational Structure—Reorganization Transactions—IPO Exchanges.”
“Offering Transactions”
has the meaning set forth in “Organizational Structure—Offering Transactions.”
“OpCo Units”
means Class A common units, Class B voting units and Class C voting units, collectively.
“Pre-IPO Blocker Holders”
means Pre-IPO owners that hold their interests in Dutch Bros OpCo through the Blocker Companies immediately prior to the Reorganization Transactions.
“Pre-IPO Exchanges”
has the meaning set forth in “Organizational Structure—Reorganization Transactions—Pre-IPO Exchanges.”
“Pre-IPO OpCo Unitholders”
means Pre-IPO owners that held Common Units and/or Profits Interest Units immediately prior to the Recapitalization.
“Profits Interest Units”
means PI Units of Dutch Bros OpCo, as defined in the Second LLC Agreement, issued and outstanding immediately prior to the Recapitalization.
“Recapitalization”
has the meaning set forth in “Organizational Structure—Reorganization Transactions—Recapitalization.”
“Registration Rights Agreement”
means the Registration Rights Agreement entered into by Dutch Bros and the Sponsor as described in “Certain Relationships and Related Person Transactions—Agreements to be entered into in connection with this offering—Registration Rights Agreement.”
“Reorganization Agreement”
means the Reorganization Agreement entered into by Dutch Bros and certain other persons as described in “Certain Relationships and Related Person Transactions—Agreements to be entered into in connection with this offering—Reorganization Agreement.”
“Reorganization Tax Receivable Agreement”
means the Tax Receivable Agreement (Reorganization) entered into by Dutch Bros with the Pre-IPO Blocker Holders.
“Reorganization Transactions”
has the meaning set forth in “Organizational Structure—Reorganization Transactions.”
“Second LLC Agreement”
means the Second Amended and Restated Limited Liability Company Agreement of Dutch Bros OpCo, dated as of September 27, 2018.
“Sponsor”
means TSG Consumer Partners, L.P. and certain of its affiliates.
“Stockholders Agreement”
means the Stockholders Agreement entered into by Dutch Bros and the Sponsor as described in “Certain Relationships and Related Person Transactions—Agreements to be entered into in connection with this offering—Stockholders Agreement.”
“Tax Receivable Agreements”
means the Exchange Tax Receivable Agreement and the Reorganization Tax Receivable Agreement.
“Third LLC Agreement”
means the Third Amended and Restated Limited Liability Company Agreement of Dutch Bros OpCo, in effect immediately prior to the Offering Transactions as described in “Certain Relationships and Related Person Transactions—Agreements to be entered into in prior to this offering—Dutch Bros OpCo Third Amended and Restated Limited Liability Company Agreement.”
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“we,” “us,” “Dutch Bros” and “our”
(1)Prior to the consummation of the Reorganization Transactions and the Offering Transactions, Dutch Bros OpCo and its consolidated subsidiaries; and
(2)After the consummation of the Reorganization Transactions and the Offering Transactions, Dutch Bros Inc. and its consolidated subsidiaries.
Unless indicated otherwise, the information included in this prospectus assumes the following:
no exercise by the underwriters of their option to purchase up to an additional                shares of Class A common stock from us solely to cover over-allotments.
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A LETTER FROM OUR CO-FOUNDER AND EXECUTIVE CHAIRMAN
Coffee is what we do, but it is not who we are.
My brother Dane and I founded Dutch Bros in 1992. We are third-generation dairy farmers, and changes to that industry were making our prospects pretty grim. So we used that reality as motivation to branch out and try something new. Dane and I shared a desire to do something extraordinary together. We bought a double-head espresso machine, cranked up the stereo, threw open the barn doors and started experimenting with coffee beans.
Pretty soon we were selling espresso from a pushcart in downtown Grants Pass, Oregon. That pushcart cost us everything we had at the time. But we got to be ourselves, rock music, make great coffee and hang out with people. It was a dream come true. Quickly we were making over $100 a day, but we were disciplined and took out just enough for our basic needs. We put the money back into the business and let it snowball.
One pushcart became five. We started to appreciate the social power of the musical element and the freedom to do business our own way. In 1994, we bought our first drive-thru. We didn’t know it at the time, but that was our niche and destiny. We had a patio, so people who wanted to hang out and listen to music could, and then we had our drive-thru, which was more convenient for people in a hurry. Around that time, one of our daily customers wanted to take what we were doing to a neighboring town and offered to pay us monthly for the use of the Dutch Bros name. We thought it sounded cool, so we wrote up an agreement and started training him. He opened a location and started performing just as well as we were with our primary spots.
The most important thing for us was building customer loyalty. If we could figure that out, we were winning. So when people would come back day after day, we rolled out the red carpet. Our broistas would have fun trying to make everyone smile and create a magnetic, contagious experience. That lives on in our company. It’s our culture, what we look for in our employees and our differentiator.
We had to learn how to scale the business while maintaining the level of customer experience and loyalty we knew was at the heart of what we do. We turned to franchise partners who were close to the mission and understood what Dutch Bros offers to its customers and communities. From the beginning, they helped us learn, grow, serve our customers and develop our broistas into amazing leaders. In 2008, I made a decision to stop selling franchises to anyone outside the existing Dutch Bros system and decided to grow from within using the leaders our franchise partners helped create. That shift was a game changer for us. In our 30th year in operation, Dutch Bros has expanded from that one pushcart to more than 470 drive-thru coffee locations in 11 states with over 16,500 people employed by us and our franchise partners.
Our vision for the company is simple: a bright future. That vision isn’t limited to Dutch Bros. It’s about the whole community and how we can be of value, not just to our customers’ communities but also to the communities of origin where we source our coffee. It’s about helping people develop and grow. We want to provide opportunities for driven culture cultivators who have the fire to become leaders and who then pass down our values to others.
In 2004, my brother Dane was diagnosed with ALS, a progressive disease that affects nerve cells in the brain and spinal cord. Five years later, ALS would take Dane’s life. But it did not diminish the incredible inspiration I draw from my brother, to carry on and fulfill the dream we had in 1992. I have a personal mission statement that I share with everybody: I, Travis Boersma, see, hear, know and feel that the purpose of my life is to enjoy the journey, to maximize the moment, to be a loving, passionate, inspirational leader that defies the odds, to be a force for God and a force for good, and I hope to meet the man that I am someday when I die, not the man I could have been.
I am inspired by our people, our mission and all the work we’re doing in communities—I hope you are too. Welcome aboard, fasten your seatbelt—we’re on a rocket ship and I wouldn’t have it any other way. I hope you enjoy this experience as much as I do.
Travis Boersma
Co-Founder and Executive Chairman
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PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this prospectus. This summary does not contain all the information you should consider before investing in our Class A common stock. You should read this entire prospectus carefully, including “Risk Factors,” “Special Note Regarding Forward-Looking Statements” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our consolidated financial statements and the related notes included elsewhere in this prospectus, before making an investment decision. Unless otherwise indicated, references to our “common stock” include our Class A common stock, Class B common stock, Class C common stock and Class D common stock.
OUR COMPANY
“Dutch Bros is a fun loving, mind-blowing company making a massive difference, one cup at a time.”
Dutch Bros is a high growth operator and franchisor of drive-thru shops that focus on serving high QUALITY, hand-crafted beverages with unparalleled SPEED and superior SERVICE. Founded in 1992 by brothers Dane and Travis Boersma, Dutch Bros began with a double-head espresso machine and a pushcart in Grants Pass, Oregon. While espresso-based beverages are still at the core of what we do, Dutch Bros now offers a wide variety of unique, customizable cold and hot beverages that delight a broad array of customers. We believe Dutch Bros is more than just the products we serve—we are dedicated to making a massive difference in the lives of our employees, customers and communities. This combination of hand-crafted and high-quality beverages, our unique drive-thru experience and our community-driven, people-first culture has allowed us to successfully open new shops and continue to share the “Dutch Luv.”
Today, we believe that Dutch Bros is one of the fastest-growing brands in the foodservice and restaurant industry in the United States by location count. In the past five and a half years, we have increased our shop count from 254 shops in seven states at the end of 2015 to 471 shops in 11 states as of June 30, 2021. As of June 30, 2021, 264 of our shops were franchised and 207 were company-operated. Company-operated shops generated a shop-level contribution margin, a non-GAAP financial measure, of 29% in 2020, prior to expenses related to the COVID-19 pandemic, resulting in highly attractive returns on our invested capital. While our current franchise partners continue to open new shops in their existing markets, the highly attractive financial returns generated by our new shops, coupled with our desire to ensure our people development and culture, have caused us to focus primarily on company-operated shops as we accelerate our new shop development.
Despite the COVID-19 pandemic and September 2020’s west coast wildfires, systemwide average unit volume (“AUV”) grew approximately 3% during 2020 to approximately $1.7 million. With an average check of approximately $7.50, we are busy from early morning through the end of the day to generate these AUVs. 2020 also represented our fourteenth consecutive year of positive same shop sales growth. In 2020, we generated $327.4 million of revenue, $5.7 million of net income, and $69.8 million of Adjusted EBITDA, a non-GAAP financial measure, resulting in an Adjusted EBITDA margin, a non-GAAP financial measure, of 21.3%. In the twelve months ended June 30, 2021, we generated $404.5 million of revenue, $6.3 million of net income, and $80.1 million of Adjusted EBITDA, resulting in an Adjusted EBITDA margin of 19.8%. Our Adjusted EBITDA grew from $39.6 million in 2018 to $80.1 million in the twelve months ended June 30, 2021.
The Dutch Bros Experience
Dutch Bros is entirely focused on delivering on its core values of quality, speed and service in every interaction we have. Every visit to Dutch Bros should feel like a celebration. Broistas are genuinely excited to serve our customers and interested in how they can make their day better. Runners greet customers before they get to the drive-thru window to personalize every order and, when needed, explain our menu. They use tablets to take orders, allowing broistas to sequence the crafting of beverages and manage car throughput in the drive-thru lane, ensuring that quality, speed and service remain consistent throughout the day. Broistas serve our beverages with a smile, an encouraging word or a high-five.
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Our Broistas
We believe people are the key to our success, and broistas are the face of Dutch Bros. At Dutch Bros, we embrace a customer-first attitude and use every interaction during the drive-thru experience to connect with our customers. We are committed to attracting and retaining broistas who are passionate about delivering an awesome customer experience each and every day. That begins by hiring the right people. These people are then trained and provided support to enable them to remember our regular customers by name, recall their usual order, have treats ready for four-legged members of the family and know when to offer a complimentary drink to someone having a tough day. There is a hint of magic in the details of the Dutch Bros experience that has built our strong base of recurring, loyal customers and contributed to our sustained growth.
Our Menu
Dutch Bros honors and improves upon the “classics” while sitting on the cutting edge of flavor innovation. Our hand-crafted beverage-focused lineup features hot and cold espresso-based beverages, cold brew coffee products, our proprietary Dutch Bros. Blue Rebel energy drinks, tea, lemonade, smoothies and other beverages curated from the Dutch Bros “secret menu.” Dutch Bros. Blue Rebel can only be found at Dutch Bros shops. This popular afternoon pick-me-up serves as the base of many of our customized beverages and is the main driver of our afternoon daypart. The diversity of the menu is further expanded through customizations like adding “soft-top,” a sweet, creamy whipped topping, to almost any order. Our Private Reserve coffee is a 100% Arabica three bean blend sourced through our in-house coffee roasting facility and extracted using the finest La Marzocco machines to deliver shots of smooth, full-bodied espresso. You would be hard pressed to find the breadth of our unique and highly customized beverages at any other retailer, and we believe the variety, innovation and customization of our menu drives broad demographic appeal and balance throughout the day and across all geographies.
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Iced Tiger's Blood LemonadeBirthday Cake FrostBlended Aftershock RebelGolden Eagle Freeze
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Hot AnnihilatorIced CaramelizerIced Electric Berry Rebel
Our Shops
Our business model is built around highly efficient drive-thrus, which place a premium on customer convenience without sacrificing the personal experience. Our new shops are typically 865 to 950 square feet, and we target lots that are at least 25,000 square feet to handle substantial car volume throughout the day. All our shops
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deploy either a single or double drive-thru window with multiple feeder lanes for traffic flow. Most of shops also have walk-up ordering windows, party patios and escape lanes to prevent unnecessary congestion. Our shops generated best-in-class economics with 2020 systemwide AUVs of approximately $1.7 million and strong company-operated shop-level contribution margin of approximately 29%, prior to expenses related to the COVID-19 pandemic, creating impressive returns on invested capital. As of December 31, 2020, 99% of our mature company-operated shops generated positive shop-level contribution, and 91% of shops open more than 15 months generated shop-level contribution margin above 20%.
Our Long-Term Franchise Partners
Historically, Dutch Bros used a franchising strategy alongside company-operated shop development to drive growth in select markets. Over time, as we decided to grow more from within, we only offered franchise partnership opportunities to the highest-quality employees within our network. In 2008, we stopped selling franchises to people that did not come from within our system. In 2017, we decided to stop franchising altogether and moved to a company-operated strategy with all operators recruited from within our system. While we maintain great relationships with our existing franchise partners and they continue to open new shops as they look to infill their high-demand markets, the majority of our growth is expected to continue to come from company-operated shops.
Our Commitment to Our Communities
Since our inception, we have been dedicated to giving back to the communities in which we serve, and we consider our brand to be a powerful platform for social impact. Today, we host three company-wide givebacks each year (“Dutch Luv,” “Drink One for Dane” and “Buck for Kids”) and our operators and franchise partners are empowered to create their own local, shop-specific giveback programs to build relationships within their communities. In 2020, Dutch Bros donated approximately $5.2 million across multiple causes, including $2.0 million to benefit COVID-19 first responders. A culture of philanthropy and giving back to build better communities permeates the entire Dutch Bros organization, energizing both our broistas and customers alike.
Our Growth
Despite being an established, time-tested brand, Dutch Bros is still in the early stages of rapid growth as we strategically expand our footprint in existing markets and enter new markets. We plan all our new shop growth around existing, high-performing Dutch Bros broistas ready to assume leadership roles and eventually become shop managers and then operators. We believe this ensures a consistent experience and extends our culture in all our shops and markets. In the first half of 2021, we successfully entered Texas and Oklahoma by promoting leaders from within and achieved record-breaking sales in these new markets. While it is still early, these shops, nearly 2,000 miles from our company headquarters in Oregon, have thus far demonstrated average shop sales above our systemwide sales. The professional development of our broistas helps drive our success and our compelling retention rates—82% of our shop managers have been with us for more than a year.
Over the last several years, we executed critical, infrastructure-building corporate investments to position us for future growth, investing more than $29 million since 2015 in various initiatives, including: our loyalty app, ERP and HRIS tools, an enterprise-based point of sale tool for all shops in the system, expansion of capacity in our Grants Pass, Oregon roasting facility and the addition of industry experts to our leadership team. We made these foundational investments in our organizational infrastructure and employees to support future new shop growth.
Our brand experience and deliberate approach to advancement from within has enabled strong and consistent growth and financial performance:
Systemwide shops grew from 328 in seven states at the end of 2018 to 441 in nine states as of the end of 2020. This represents a 16% compound annual growth rate (“CAGR”);
Company-operated shops grew from 37 at the beginning of 2018 to 182 as of December 31, 2020;
Revenue grew from $186.0 million in 2018 to $327.4 million in 2020, representing a CAGR of 33%;
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Adjusted EBITDA grew from $39.6 million in 2018 to $69.8 million in 2020; and
Net income decreased from $21.2 million in 2018 to $5.7 million in 2020 as a result of the recognition of $35.1 million in non-cash equity-related expenses that were first expensed beginning in the fiscal year 2019. Going forward, we anticipate ongoing non-cash equity-related expenses from time-based vesting of Profits Interest Units outstanding prior to this offering. Previous expense recognition includes only this time-based vesting of Profits Interest Units. For the performance-based vesting condition of Profits Interest Units outstanding prior to this offering, when the achievement of the predetermined performance criteria becomes probable, expense for that vesting will be fully recognized. Substantially all of the Profits Interest Units that we have issued to date vest upon the satisfaction of time-based and performance-based vesting conditions. The time-based vesting condition is typically over a five-year service period. The performance-based vesting condition is satisfied on the earlier of: (1) a change in control or (2) the effective date of the registration statement for our initial public offering. Profits Interest Units vest on the first date upon which both the time-based and performance-based conditions are satisfied. Non-cash equity-based compensation expense is recognized only for those Profits Interest Units that are expected to meet the time-based and performance-based vesting conditions. As of June 30, 2021, achievement of the performance-based vesting condition was not probable because a change in control event and effective registration statement are not deemed probable until consummated. If this offering had occurred on June 30, 2021, we would have recognized $64.8 million of stock-based compensation expense for all Profits Interest Units that had fully satisfied the time-based vesting condition on that date, and would have approximately $84.2 million of unrecognized compensation cost that represents the Profits Interest Units that have not met the time-based vesting condition as of June 30, 2021, which would be expected to be recognized through the year ending December 31, 2026.
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COVID-19, WEST COAST WILDFIRES AND THE EXCEPTIONAL PERFORMANCE OF OUR PEOPLE IN 2020
The COVID-19 pandemic made 2020 a challenging year for businesses, particularly in the foodservice and restaurant industries. Dutch Bros leadership once again leaned into our mission to make a massive difference and took immediate action to protect the health and safety of our employees and customers. That action included implementing all operating protocols dictated by state and local guidelines and instituting strict health and safety practices. In keeping with our people-first culture, we supported our employees by offering an additional $3 per hour in the form of “Thank You pay,” as well as paid COVID-related leave. We also supported the communities we serve by donating $2 million to first responders working to keep everyone safe through the pandemic.
Dutch Bros faced additional challenges in 2020 when wildfires swept through Oregon and nearby states, burning communities, impacting air quality and forcing shops to reduce staff or, in some instances, temporarily close. While it was a challenging environment, our drive-thru operating model proved highly resilient by providing our customers with a safe and convenient way to visit, buy a beverage and make a personal, human connection in a time of crisis. Despite the turmoil in 2020, we were able to post strong revenue growth of 37% in 2020, reflecting both positive same shop sales of 2% and 113 net new shop openings over the past from the beginning of 2019 through 2020.
2020 Monthly Same Shop Sales
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(1)In February 2020, Dutch Bros experienced a favorable rollover event, driven by unseasonably mild winter weather rolling over severe winter storms in February 2019.
(2)Each month, we have a popular customer event called a “sticker day” where customers receive a Dutch Bros sticker when they order a beverage. During the month of December 2020, we had four sticker days, compared to one sticker day in December 2019.
The challenging events of 2020 also provided an opportunity to accelerate our evolving digital transformation and improve on our highly popular paper stamp card loyalty program. In early 2021, Dutch Rewards was introduced exclusively through our new mobile app and within the first two months of its launch attracted approximately 1.6 million member activations, making it one of the most downloaded free mobile applications on the Apple platform in the Food & Drink category, behind only DoorDash and McDonald's. Dutch Rewards member activations have continued to grow to approximately 2.3 million as of June 30, 2021. The digital initiatives that come with Dutch Rewards have created a more streamlined experience for our customers while dramatically enhancing our insights into customers’ recurring purchase behavior.
OUR OPPORTUNITIES TO TAKE MARKET SHARE
Through a broad and customizable product offering, Dutch Bros provides customers with a wide variety of hot and cold beverages throughout the day. As a result, we believe we can capture share of any experience where customers seek to consume great beverages on the go. We see a market share opportunity within the approximately $36 billion coffee category, the approximately $36 billion convenience store business and the broader approximately $239 billion quick service restaurant (“QSR”) category where beverages are sold. Customers are increasingly seeking new and differentiated beverages and the ability to customize these beverages with a multitude of flavor options. Customers look to Dutch Bros for the convenience of a drive-thru and the personal interaction they know
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they will get with a broista. We believe there are very few competitors of scale that sit at the intersection of quality and convenience and none that deliver the extraordinary Dutch Bros experience.
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OUR COMPETITIVE STRENGTHS
We believe the following competitive strengths have been the key drivers of the success we have achieved over the past few decades and place Dutch Bros in a position of strength to grow in the future:
A Powerful, Authentic Brand that Shares the “Luv”
Since its founding, Dutch Bros has served millions of customers whose circumstances are often different but who share a common desire to connect. Whether in the form of a hand-crafted beverage customized just for you, a conversation or a community giveback, the Dutch Bros brand delivers.
Fun-Loving. Culture is everything at Dutch Bros and every visit should be a celebration. Our broistas work hard and care deeply, creating a culture of fun and positivity for our customers and communities. We believe customers choose to make Dutch Bros part of their lives because of the hand-crafted drinks and the joy we bring to their everyday routines.
Mind Blowing. Dutch Bros makes every visit an extraordinary experience. Customers are drawn to our unique mission-driven brand, products, customer service and people-first culture. Every experience is tailored for the customer, resulting in enthusiastic brand ambassadors. Those ambassadors generate strong word-of-mouth and a dedicated following on social media that extend our brand awareness beyond our geographic footprint.
Making a Massive Difference. Dutch Bros was built on the dream of making a massive difference. We realize that dream through our philanthropy and commitment to our communities. Dutch Bros has created a powerful platform for social impact, hosting three annual company-wide anchor events, as well as local givebacks. Company leadership, franchise partners and local operators are dedicated to building deeper connections within the communities we serve.
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One Cup at a Time. Dutch Bros offers up a wide-ranging product portfolio, hand-crafted and customized for every customer. We serve espresso-based coffee, cold brew, our proprietary Dutch Bros. Blue Rebel energy drink, smoothies, teas and lemonades in a variety of flavors, temperatures and blends. Every drink is made with quality products and created with the customer in mind.
We have built a disciplined brand strategy centered on people. We strive to inspire our employees, amplify our social impact, deliver convenience and friendly service through our shops and stay connected through our digital initiatives.
Strong People Systems that Drive Company Culture and Fuel Our Shop Growth
At Dutch Bros, we sell hand-crafted beverages, but our success is driven by our understanding that this is a relationship business. One of the most important relationships we have is with our employees. The strength of this relationship is demonstrated by outstanding retention where, as of June 30, 2021, 40% of our company-operated shop employees have been with Dutch Bros for more than a year, and 100% of shop managers for the 179 new systemwide shops opened since January 1, 2018 were existing broistas promoted from within. Our unwavering commitment to employees is exhibited through a focus on hiring the right people, leadership training, ongoing mentorship and the opportunity for longer-term careers with real prospects for advancement. Our employees are proud to be part of the Dutch Bros community and look forward to coming to work every day. We plan for all shops in new communities to be led by existing employees stepping up into leadership roles, making them critical to our future success.
We promote from within through the Dutch Bros Leadership Pathway program, which provides a clear path from broista to manager to operator. Operators have consistently lived and demonstrated our core values for years while proving they have a heart for leadership and mentorship, making them best positioned to operate new shops. As of the fourth quarter of 2020, we had over 200 qualified operators in our people pipeline with an average tenure of 6.5 years. Our fluid promotion pipeline draws from both our company and franchise partners’ employees. We provide an opportunity for qualified candidates to succeed by allowing franchise employees to grow through new company-operated shops alongside our company employees. Approximately 65% of our qualified candidates for promotion came from our franchise partners as of the fourth quarter of 2020.
Our Highly Engaged Customer Following
We believe our vibrant culture, the personal connections created by our broistas and an extensive menu help make Dutch Bros a frequent experience for our customers, many of whom visit multiple times a day. We have proven our ability to succeed in a variety of markets and geographies, throughout the dayparts and to a wide demographic as shown in our diverse product and daypart mix below.
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(1)For the year ended December 31, 2020.
At Dutch Bros, we are always looking for ways to enhance engagement with our customers. In early 2021, we launched Dutch Rewards through our new mobile app. Unlike our legacy paper stamp card rewards program, Dutch Rewards provides customers the ability to earn points based on what they spend, rather than the number of visits. Dutch Rewards is designed to increase throughput while streamlining the process for customers and helping broistas focus more on creating connections. Our app lives up to our core value of speed—one scan of the app is all the customer needs to do to complete their transaction. Meanwhile, broistas have all the information they need to help blow the customer's mind. In the first five months of the app’s launch, approximately 2.3 million Dutch Rewards members activated accounts.
Customizable and Uniquely Curated Beverages With a Singular Focus on Drive-Thru Convenience
With nearly three decades focusing solely on beverages and drive-thrus, we believe Dutch Bros is the experiential leader in drive-thrus. We are capable of handling tremendous sales volumes throughout the day by getting customers through the line quickly and efficiently while maintaining a personal connection. Since our founding, we have focused on delivering three things:
Quality in Everything We Do
Our menu is focused on quality and variety. We serve espresso-based coffee, cold brew, our proprietary Dutch Bros. Blue Rebel energy drinks, smoothies, teas and lemonades. We then offer customizable flavors, temperatures and blends that can be combined in a seemingly infinite number of ways. You tell us how you want your drink, not the other way around. We also offer a “secret menu” of unique beverages that give customers the chance to try something new. We ensure the quality of our coffee by roasting our private reserve coffee blend in-house at our own roasting facility.
Speed is Critical
Convenience is key to making our brand highly accessible and we have always believed in the unique customer value proposition of our drive-thrus. This highly efficient, beverage-focused operating model provides a consistently rapid, on-the-go experience with enhanced personalization. We also invest in our digital capabilities to consistently offer best in class speed and customer convenience. Our reliability allows customers to make Dutch Bros a part of their everyday routines and drives brand loyalty.
Service that is Genuinely Dutch Bros
Our broistas make each trip to Dutch Bros an incredible experience and add a personal touch to every visit. Whether they're taking orders in the line or handing drinks out the window, broistas are focused on two things—connecting with each customer and serving up a perfectly hand-crafted drink. Our drive-thru focus and line-busting models support that and are unique differentiators in the industry.
Highly Consistent and Highly Attractive Unit Economics
Our drive-thru model, dedicated to beverages, generates substantial throughput evidenced by outstanding sales volumes, consistent and strong shop-level contribution margin and high return on investment. In 2020, despite the challenges of COVID-19 and wildfires, our AUVs were approximately $1.7 million, which we believe is one of the highest for a beverage-focused concept, with an average check of approximately $7.50. The optimized new shop prototype we have built over the past several years is specifically designed to capture demand during peak hours, generating approximately 40% higher sales volumes than many of our older legacy locations. Our efficient shop prototype is approximately 865 to 950 square feet and we target at least 25,000 square foot lots to accommodate our robust drive-thru operations. The small building footprint provides increased flexibility in lot selection as we continue to seek the best locations in existing and new markets.
This flexible and capital-efficient real estate model targets total project costs per shop of approximately $1.35 million. Our focus is always on securing the best site, and depending on the lease type available, our typical
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cash investment ranges from a $0.5 million contribution in build-to-suit arrangements to a commitment of the entire project costs in the case of a ground lease. As illustrated in the table below, we target AUVs of $1.7 million and year-2 shop-level contribution margin of approximately 30%, which realize a year-2 cash-on-cash return of 35% to 75% depending on the lease arrangement noted above. The strength of these returns is one aspect of our strategic decision to focus more on company-operated shop growth going forward.
Ground Lease Built-to-Suit
($ in thousands)
Year 2 Net Sales AUV$1,700
Shop-level Contribution Margin(1)
32%28%
Shop-Level Contribution$545$475
Investment $1,350$500
Pre-Opening $135
Total Cash Outlay $1,485$635
Year 2 Cash on Cash Return 35%75%
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(1)Reflects cash basis rent, and excludes any capital lease accounting adjustments.
Portable Model That Has Succeeded Across Geographies
While Dutch Bros may have started in a small town in Oregon, the brand and business model have demonstrated national portability, generating strong and consistent performance in a wide variety of markets. Dutch Bros has proven successful across 11 states as of June 30, 2021, with diverse demographics and geographies including Oregon, Washington, Idaho, California, Arizona, Nevada, Utah, Colorado, New Mexico, Texas and Oklahoma. We have continued to enhance and refine our drive-thru model and market development strategies, and the volumes we are achieving in our newest markets are at or above the volumes of our legacy markets. While it is still early, our first shops opened in Texas and Oklahoma in the first half of 2021, nearly 2,000 miles from our company headquarters in Oregon, have thus far demonstrated average sales above those systemwide.
2020 SYSTEMWIDE AUVs BY STATENEW COMPANY SHOP UPDATE, 2021 TRENDS
($ in millions)($ in millions)
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(1)Shops in Oregon are approximately 500 square feet, compared to a system average (excluding Oregon) of 650 square feet. Dutch Bros has also created and optimized a larger footprint store (865-950 square feet) to support higher throughput.
(2)Represents company-operated shops opened in 2020 and 2021. Calculation annualizes 2021 average weekly sales through June 30 and excludes each shop’s first four weeks. Assumes a uniform 10% discount rate to calculate net sales.
Engaged Co-Founder and Experienced Leadership Team
Our relentless commitment to excellence and family-oriented culture are driven by our passionate management team under the leadership of Co-Founder and Executive Chairman Travis “Trav” Boersma. Trav and his brother co-founded Dutch Bros with the goal of making a massive difference in the lives of employees and
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customers, alongside an uncompromising focus on quality and transcendent service, all while having fun. Trav is focused on ensuring the culture of Dutch Bros is maintained and enhanced as we grow, and he has surrounded himself with leaders with direct experience in beverage and retail. Joth Ricci, our President and Chief Executive Officer, has been with Dutch Bros for more than two years and has 21 years of coffee retail and beverage industry experience and 30 years of consumer products industry experience. Charles Jemley, our Chief Financial Officer, has been with Dutch Bros since January 2020 and has almost three decades of prior industry experience at Starbucks and Yum! Brands. Other members of our executive leadership team have been with Dutch Bros for over 12 years on average, bringing high growth, franchise and sector expertise.
The strength of our management team and the corporate culture they foster can be seen through our accolades: we have been ranked the #1 employer in The Oregonian’s top workplaces three years in a row. We believe our leadership team’s dynamic energy and family spirit has created a unique and supportive culture through which we can fulfill our mission to make a massive difference one cup at a time. The strength of our team extends well beyond our executives. We strive to ensure continuity in the execution of our strategy by training a pipeline of future leaders who are familiar with our mission and community focused culture and values.
OUR GROWTH STRATEGIES TO SHARE THE “DUTCH LUV”
Dutch Bros is in the very early stages of its growth story with tremendous potential. We intend to expand our business and positive community impact by executing the following growth strategies:
Continue to Attract and Develop Great People, Who Are Our Growth Capital
Dutch Bros has an uncompromising and consistent focus on building our brand, which we believe starts with our employees. We continuously invest in our team, by identifying quality members of the Dutch Bros family who exemplify the Dutch Bros personality at every level, from broistas to operators to executive management. We have invested in an online learning management software, Dutch Bros University, to preserve our core values and create and share best practices as we scale. We believe our training comes to life when our employees are empowered to demonstrate and cultivate our culture and live our mission, every day. We aim to develop our employees with robust internal training and career advancement programs that supply Dutch Bros with a deep bench of talented operator candidates, striving for larger roles and embracing and maintaining our distinct culture as we grow.
In both new and existing markets, we reinforce our culture by promoting only veteran Dutch Bros broistas to lead every new shop. They are passionate about the culture, know how to successfully deliver the Dutch Bros experience and have real pride in their own career development. Our people systems are designed to maintain the Dutch Bros culture as we scale, enabling us to continue making a positive impact in new communities and continue providing career development opportunities for employees. We believe our talented employees are the “pace car” for our new shop growth and sustained success, and as such, we are committed to finding, training and retaining the best people. If we maintain and grow our pipeline of motivated broistas, finding the real estate will be the easy part of our growth.
This strategy’s success is exemplified by our successful shop opening in Lubbock, Texas. The Lubbock shop opened its doors in April 2021 and is managed by a broista-turned-operator who has been a part of the Dutch Bros family for almost eight years. Each successful opening is supported by broistas from existing locations who join together to reinforce Dutch Bros culture, train new employees and teach customers about the Dutch Bros menu. In 2021, we have hired approximately 50 new broistas for each new shop through in-person introductions and “Hiring Parties,” where the pool of candidates has exceeded 200 people on average. New hires participate in a 12-day training program and shadow our experienced broistas before permanently taking over the new shop as the traveling team members return to their home markets.
Open New Shops Wherever People Want Great Beverages
As of June 30, 2021, we had 471 shops across 11 states, 207 of which were company-operated and 264 of which were operated by our franchise partners. Based on our internal analysis and third-party research conducted by Quantitative Analysis, we believe there is long-term potential for at least 4,000 Dutch Bros locations in the United
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States. We currently have a strong new shop pipeline with approximately 250 new sites identified which is well in excess of our planned new company-operated stores to be opened in 2022 and 2023. These new openings are expected to be in both existing markets where there is unfulfilled consumer demand and new markets waiting to experience Dutch Bros. In considering new shop locations, we focus on detailed analytics that indicate that the revenue potential of the trade area meets our criteria for unit-level returns.
Our Real Estate Development team then prospects potential sites within the target trade zone to identify the best locations. We target lot sizes that allow for adequate traffic and customer flow and facilitate details like a double drive-thru with an escape lane on the site with proper curb appeal. Given our flexible footprint and the draw of the Dutch Bros brand, there are often many site locations within each market that we believe can deliver our desired target economics, allowing us to be both selective and adaptable to local real estate market conditions. Once a new site is developed, the shop opening process kicks off preparation for a friends and family night and grand opening day. These openings are special celebrations that mark the graduation of our career Dutch Bros broistas to operators, giving them the opportunity to introduce Dutch Bros to new communities.
Build Scale within Our Existing Footprint
The lines at our existing shops, fourteen consecutive years of positive same shop sales growth and recent customer research all validate the significant demand for Dutch Bros growth in our existing markets. In the past three years, 75% of the shops that we have opened were in existing markets. Over the same period, we maintained positive same shop sales growth in these existing markets even as our number of shops in these markets increased almost 50%. To ensure the best and most consistent customer experience throughout the day, we proactively open strategic in-fill shops to both reach new customers and alleviate capacity constraints at nearby existing shops. While company-operated shop growth is expected to significantly outpace franchise shop growth in the future, we anticipate that our existing franchises will continue to grow by strategically in-filling locations within their markets. Many of our franchise partners have long runways for growth in their markets.
Enter and Scale New Markets
We have demonstrated the relevance and portability of the Dutch Bros brand as evidenced by success in 11 U.S. states as of June 30, 2021, and we believe the whitespace for the Dutch Bros experience extends nationwide. Our brand strength, well-developed people pipeline, corporate infrastructure, existing shop performance and attractive unit economic model underpin our significant opportunity to execute our new market shop growth strategy. Prior to entering new markets, we develop a comprehensive market plan that plots a clear path for future development. As we develop the first sites, we are actively contemplating the next several sites. Each new Dutch
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Bros shop opening propels our brand awareness well beyond our existing shop footprint. Our recent new market shop openings in Texas and Oklahoma have performed at or above the volumes of our legacy markets.
Systemwide Shop Count as of June 30, 2021
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Increase Brand Awareness and Encourage Deeper Customer Engagement
One of the strongest drivers of Dutch Bros brand awareness is word-of-mouth advocacy from our customers. Our commitment to our people encourages them to become enthusiastic brand ambassadors and we believe that their visible love for the brand is infectious. In a 2020 internal quantitative research study survey, 77% of respondents in our existing markets were aware of Dutch Bros and our advertising costs represented only 4% of total revenue in 2020. We believe this shows the opportunity to drive growth as customers in our existing and new markets continue to discover our brand.
We intend to enhance our digital and social media footprint to allow our passionate customers and crews to engage with Dutch Bros across multiple channels by sharing experiences with friends and family. To further support our customer engagement, we plan to continue building deep connections within the communities we serve. As part of that effort, we will always prioritize our social impact, bringing us closer to the people we serve.
The launch of our Dutch Bros Reward app in 2021 contributed to increased Dutch Bros brand awareness. Within the first two months of its launch the Dutch Bros Reward app attracted approximately 1.6 million member activations, making it one of the most downloaded free mobile applications on the Apple platform in the Food & Drink category, behind only DoorDash and McDonald's. Dutch Rewards member activations have continued to grow to approximately 2.3 million as of June 30, 2021. Our digital presence enables us to serve customers unique beverage-focused content, information related to our social impact initiatives and new ways to engage with Dutch Bros. As a people-focused company, we believe the Dutch Rewards program provides an opportunity to connect with customers, learn more about them and enhance our relationships with them. The Dutch Bros app also allows us to learn from our interactions by gathering and collecting actionable business intelligence.
Invest in and Use Digital Technology to Improve the Customer Experience
At our core, we are in the people business and believe the purpose of technology should be to remove friction in our customer interactions, thereby providing opportunities to create deeper connections and a better
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service experience. We will continue to invest in digital and technology capabilities to improve the customer experience and better understand our customers’ needs through the following initiatives:
Improve Speed and Efficiency
Service at Dutch Bros does not just happen at the window. We are in the early stages of integrating technology throughout our business to optimize speed and efficiency while maintaining the unique Dutch Bros experience. We will continue to invest in the right technologies to evolve our model to best serve our growing number of customers. Delivering beverages efficiently and building customer relationships is our priority.
Menu Innovation Based on Customer Insights
Traditionally, our menu innovation has been driven by our product development team and our broistas, who are empowered to identify evolving customer preferences. We intend to build and leverage our customer data and insights to track and analyze transactions, including customized beverages, to refine our menu and “secret menu” offerings. Our evolving premium and customizable beverages increase guest spend, drive new business and encourage frequent visits among new and legacy customers.
Expand Margins Through Operating Leverage
Over the last several years, Dutch Bros has invested in corporate infrastructure to stay one step ahead of the growth trajectory we expect in shops and sales. We have flexibility around many of our input costs and we have developed a procurement system that allows for adaptability and scalability. The combination of our unique state-of-the-art coffee roasting facility in Grants Pass, Oregon and our strong relationships with several co-manufacturers provides us with the flexibility to increase our production capacity in a way that is both scalable and highly cost-effective. We expect to add additional capacity to support our expansion and supply chain long-term by investing in a second centrally located roasting facility in the Midwest region of the United States. We anticipate leveraging our corporate costs over time to enhance our margins, as we expect selling, general and administrative expenses to grow at a slower rate than our shop base and revenue. By optimizing our infrastructure and leveraging our scale efficiencies, we can further enhance our profitability as we grow our shop base.
Summary Risk Factors
Investing in our Class A common stock involves a high degree of risk because our business is subject to numerous risks and uncertainties, as further described below. The occurrence of any such risks could adversely affect our business, financial condition, results of operations and prospects. The principal factors and uncertainties that make investing in our Class A common stock speculative or risky include, among others:
Evolving consumer preferences and tastes may adversely affect our business.
Our financial condition and quarterly results of operations are subject to, and may be adversely affected by, a number of factors, many of which are also largely outside our control and as such our results may fluctuate significantly and may not fully reflect the underlying performance of our business.
We may not be able to compete successfully with other coffee shops, QSRs and convenience shops, including the growing number of coffee delivery options. Intense competition in the foodservice and restaurant industry could make it more difficult to expand our business and could also have a negative impact on our operating results if customers favor our competitors or we are forced to change our pricing and other marketing strategies.
Our failure to manage our growth effectively could harm our business and operating results.
Our inability to identify, recruit and retain qualified individuals for our shops could slow our growth and adversely impact our ability to operate.
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Our shops are geographically concentrated in the Western United States, and we could be negatively affected by conditions specific to that region.
Interruption of our supply chain of coffee, flavored syrups or other ingredients and packaging could affect our ability to produce or deliver our products and could negatively impact our business and profitability.
Increases in the cost of high-quality arabica coffee beans or other commodities or decreases in the availability of high-quality arabica coffee beans or other commodities could have an adverse impact on our business and financial results.
We are increasingly dependent on information technology and our ability to process data in order to operate and sell our goods and services, and if we (or our vendors) are unable to protect against software and hardware vulnerabilities, service interruptions, data corruption, cyber-based attacks, ransomware or security breaches, or if we fail to comply with our commitments and assurances regarding the privacy and security of such data, our operations could be disrupted, our ability to provide our goods and services could be interrupted, our reputation may be harmed and we may be exposed to liability and loss of customers and business.
Pandemics or disease outbreaks such as COVID-19 have had, and may continue to have, an effect on our business and results of operations.
Our success depends substantially on the value of our brands and failure to preserve their value could have a negative impact on our financial results.
Food safety and quality concerns may negatively impact our brand, business and profitability, our internal operational controls and standards may not always be met and our employees may not always act professionally, responsibly and in our and our customers’ best interests. Any possible instances or reports, whether true or not, of food and/or beverage-borne illness could reduce our sales.
Changes in the availability of and the cost of labor could harm our business.
Our culture has contributed to our success, and if we cannot maintain this culture as we grow, we could lose the high employee engagement fostered by our culture, which could harm our business.
Our Co-Founder and Sponsor will continue to have significant influence over us after this offering, which could limit your ability to influence the outcome of matters submitted to stockholders for a vote.
Upon the listing of our Class A common stock on the New York Stock Exchange, we will be a “controlled company” within the meaning of the New York Stock Exchange rules and, as a result, will qualify for, and intend to rely on, exemptions and relief from certain corporate governance requirements. You will not have the same protections afforded to stockholders of companies that are subject to such requirements.
Our growth strategy depends in part on opening new shops in existing and new markets. We may be unsuccessful in opening new shops or establishing new markets, which could adversely affect our growth.
Our operating results and growth strategies are closely tied to the success of our franchise partners and we have limited control with respect to their operations. Additionally, our franchise partners’ interests may conflict or diverge with our interests in the future, which could have a negative impact on our business.
We have identified a material weakness in our internal control over financial reporting. If we are unable to remedy our material weakness, or if we fail to establish and maintain effective internal controls, we may be unable to produce timely and accurate financial statements, and we may conclude
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that our internal control over financial reporting is not effective, which could adversely impact our investors’ confidence and our Class A common stock price.
Organizational Structure
In connection with the consummation of this offering, we will effect certain reorganizational transactions subsequent to which we will conduct our business through what is commonly referred to as an “UP-C” structure, which is often used by partnerships and limited liability companies when they decide to undertake an initial public offering.
Following the consummation of the Reorganization Transactions and the Offering Transactions (as more fully described under “Organizational Structure”), we will be a holding company. Our sole material asset will be our equity interest in Dutch Bros OpCo which, through its direct and indirect subsidiaries, conducts all of our operations. Because Dutch Bros Inc. will be the sole managing member of Dutch Bros OpCo, we will indirectly operate and control all of the business and affairs (and will consolidate the financial results) of Dutch Bros OpCo and its subsidiaries.
Prior to the consummation of the Reorganization Transactions, the capital structure of Dutch Bros OpCo consists of two classes of membership interests: Common Units and Profits Interest Units.
In connection with the completion of this offering, we will complete a series of reorganization transactions, including: (i) the amendment and restatement of the Second LLC Agreement, to, among other things, effect a recapitalization in which (x) the outstanding Common Units are converted into Class A common units paired with an equal number of either Class B voting units or Class C voting units, and (y) the outstanding Profits Interest Units are converted into Class A common units; (ii) the amendment and restatement of the Dutch Bros Inc. certificate of incorporation to, among other things, authorize four classes of common stock; (iii) Dutch Bros Inc.’s acquisition of Class A common units and Class C voting units held by the Blocker Companies pursuant to the Blocker Mergers; (iv) the Pre-IPO OpCo Unitholders’ contribution of Class A common units, Class B voting units and Class C voting units to Dutch Bros Inc. in exchange for Class A common stock, Class B common stock and Class C common stock; and (v) Dutch Bros Inc.’s designation as managing member of Dutch Bros OpCo. See the sections titled “Organizational Structure—Reorganization Transactions” and “Certain Relationships and Related Person Transactions” for additional information.
Prior to the completion of the Offering Transactions, Dutch Bros Inc. will enter into two Tax Receivable Agreements: (i) the Exchange Tax Receivable Agreement with the Continuing Members and (ii) the Reorganization Tax Receivable Agreement with the Pre-IPO Blocker Holders. These Tax Receivable Agreements will provide for the payment by Dutch Bros Inc. to such Continuing Members and Pre-IPO Blocker Holders of 85% of the benefits, if any, that Dutch Bros Inc. is deemed to realize (calculated using certain assumptions) as a result of certain tax attributes and benefits covered by the Tax Receivable Agreements. See the sections titled “Risk Factors—Risks Related to Our Organizational Structure,” “Certain Relationships and Related Person Transactions—Agreements to be entered into in connection with this offering—Tax Receivable Agreements” for additional information regarding the Tax Receivable Agreements.
We intend to use a portion of the net proceeds we receive from this offering to purchase newly issued Class A common units from Dutch Bros OpCo (including any proceeds from any exercise of the underwriters’ option to purchase additional shares of Class A common stock). We intend to use an aggregate of $ of the net proceeds to purchase Class A common units from the Continuing Members and shares of Class D common stock from the Pre-IPO Blocker Holders, at a price per unit and price per share equal to the public offering price per share of Class A common stock in this offering, less the underwriting discount. See “Organizational Structure—Offering Transactions,” “Use of Proceeds” and “Certain Relationships and Related Person Transactions—Other Related Person Transactions—Purchase of Class A Common Units and Class D Common Stock.”
Subject to the terms and conditions of the Third LLC Agreement, the Continuing Members will have the right, from time to time following a lock-up period, to have Dutch Bros OpCo redeem their Class A common units for shares of Class A common stock on a one-for-one basis or, in certain circumstances, a corresponding amount of cash, in either case, contributed to Dutch Bros OpCo by Dutch Bros Inc., unless Dutch Bros Inc. elects, in its sole
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discretion, to effect such transaction as a direct exchange with the relevant Continuing Member. Upon any such redemption or exchange of Class A common units, the corresponding shares of Class B common stock or Class C common stock held by such Continuing Member will be surrendered and immediately canceled. See “Certain Relationships and Related Person Transactions—Agreements to be entered into prior to this offering—Dutch Bros OpCo Third Amended and Restated Limited Liability Company Agreement” for additional information regarding such redemption and exchange rights.
Our Sponsor
Our Sponsor is a leading private equity firm focused exclusively on the branded consumer sector. Since its founding in 1987, our Sponsor has been an active investor in the food, beverage, restaurant, fitness, beauty, personal care, household, apparel & accessories and e-commerce sectors. Representative past and present partner companies include Planet Fitness, IT Cosmetics, REVOLVE, Duckhorn, BrewDog, Canyon Bicycles, Pabst, Backcountry, Power Stop, vitaminwater, thinkThin, popchips, Stumptown, Smashbox Cosmetics and e.l.f. Cosmetics.
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After the completion of this offering and application of the net proceeds therefrom, our Co-Founder, through its holdings of Class B common stock, will beneficially own approximately               % of the combined voting power of our Class A common stock, Class B common stock, Class C common stock and Class D common stock (or               % if the underwriters exercise in full their option to purchase additional shares of Class A common stock) and our Sponsor through its holdings of Class C common stock and Class D common stock, directly and indirectly through affiliated investment funds, will beneficially own approximately               % of the combined voting power of our Class A common stock, Class B common stock, Class C common stock and Class D common stock (or               % if the underwriters exercise in full their option to purchase additional shares of Class A common stock). Each share of Class A common stock entitling the holder to one vote, each share of Class B common stock entitling the holder to ten votes (for so long as the aggregate number of outstanding shares of our Class B common stock represents at least 5% of the aggregate number of our outstanding shares of common stock, and thereafter, one vote per share, provided that the number of votes per share may be adjusted from time to time in accordance with our amended and restated certificate of incorporation, as required to prevent the holders of Class B common stock from holding, in the aggregate, 80% or more of our aggregate voting power at any time) on all matters on which stockholders are entitled to vote generally, each share of Class C common stock entitling the holder to three votes (for so long as the aggregate number of outstanding shares of our Class C common stock and Class D common stock collectively represent at least 5% of the aggregate number of our outstanding shares of common stock, and thereafter, one vote per share) on all matters on which stockholders are entitled to vote generally and each share of Class D common stock entitling the holder to three votes (for so long as the aggregate number of outstanding shares of our Class C common stock and Class D common stock collectively represent at least 5% of the aggregate number of our outstanding shares of common stock, and thereafter, one vote per share upon the automatic conversion of our Class D common stock into shares of Class A common stock) on all matters on which stockholders are entitled to vote generally. As a result, we will be a “controlled company” within the meaning of the New York Stock Exchange corporate governance standards. Under these corporate governance standards, a company of which more than 50% of the voting power is beneficially owned by an individual, group or other company is a “controlled company” and may elect not to comply with certain corporate governance standards, including the requirements (1) that a majority of its board of directors consist of independent directors, (2) that its board of directors have a compensation committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities and (3) that its board of directors have a nominating and corporate governance committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities. Accordingly, you will not have the same protections afforded to stockholders of companies that are subject to all these corporate governance requirements. In the event that we cease to be a “controlled company” and our Class A common stock continues to be listed on the New York Stock Exchange, we will be required to comply with these provisions within the applicable transition periods.
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Corporate Information
Our principal executive offices are located at 110 SW 4th Street, Grants Pass, Oregon 97526. Our telephone number is (541) 955-4700. Our website address is http://www.dutchbros.com. Information contained on, or that can be accessed through, our website is not incorporated by reference into this prospectus, and you should not consider information on our website to be part of this prospectus.
Implications of Being an Emerging Growth Company
We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). We may take advantage of certain exemptions from various public company reporting requirements, including not being required to have our internal control over financial reporting audited by our independent registered public accounting firm under Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and any golden parachute payments. We may take advantage of these exemptions for up to five years or until we are no longer an emerging growth company, whichever is earlier. We will cease to be an emerging growth company prior to the end of such five-year period if certain earlier events occur, including if we become a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the “Exchange Act,”), our annual gross revenues exceed $1.07 billion or we issue more than $1.0 billion of non-convertible debt in any three-year period. In particular, in this prospectus, we have provided only two years of audited financial statements and have not included all of the executive compensation related information that would be required if we were not an emerging growth company. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold stock. In addition, the JOBS Act provides that an “emerging growth company” can delay adopting new or revised accounting standards until those standards apply to private companies. We have elected to use the extended transition period under the JOBS Act. Accordingly, our financial statements may not be comparable to the financial statements of public companies that comply with such new or revised accounting standards.
See “Risk Factors—Risks Related to this Offering and Ownership of Our Class A Common Stock—We are an “emerging growth company,” and we intend to comply only with reduced disclosure requirements applicable to emerging growth companies. As a result, our Class A common stock could be less attractive to investors.”
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The Offering
IssuerDutch Bros Inc.
Class A common stock offered by Dutch Bros Inc.                shares (plus up to an additional               shares if the underwriters exercise their option to purchase additional shares of Class A common stock).
Option to purchase additional shares of Class A common stockWe have granted the underwriters a 30-day option from the date of this prospectus to purchase up to                additional shares of our Class A common stock at the initial public offering price, less estimated underwriting discounts and commissions.
Class A common stock outstanding after giving effect to this offering               shares (or                shares if the underwriters exercise in full their option to purchase additional shares of Class A common stock).
Class A common stock outstanding after this offering assuming redemption of all Class A common units held by the Continuing Members and conversion of all shares of Class D common stock held by the Pre-IPO Blocker Holders, in each case, for Class A common stock              shares.
Voting power held by our Co-Founder and the Continuing Members in this offering after giving effect to this offering and application of the net proceeds therefrom               % (or                % if the underwriters exercise in full their option to purchase additional shares of Class A common stock).
Use of proceedsWe estimate that the net proceeds to Dutch Bros Inc. from this offering, after deducting estimated underwriting discounts and commissions, will be approximately $               million (or $               million if the underwriters exercise in full their option to purchase additional shares of Class A common stock). Dutch Bros OpCo will reimburse Dutch Bros Inc. for or bear all the expenses payable by it in this offering. We estimate these offering expenses (excluding the estimated underwriting discounts and commissions) will be approximately $               million.
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Dutch Bros Inc. intends to use the net proceeds from this offering (including from any exercise by the underwriters of their option to purchase additional shares of Class A common stock) as follows:
to purchase               newly issued Class A common units from Dutch Bros OpCo (or Class A common units if the underwriters exercise in full their option to purchase additional shares of Class A common stock) for approximately $               million (or $ million if the underwriters exercise in full their option to purchase additional shares of Class A common stock);
to purchase               Class A common units (which will remain unchanged if the underwriters exercise in full their option to purchase additional shares of Class A common stock) from the Continuing Members for approximately $               million; and
to purchase               shares of Class D common stock (which will remain unchanged if the underwriters exercise in full their option to purchase additional shares of Class A common stock) from the Pre-IPO Blocker Holders for approximately $               million.
Dutch Bros OpCo expects to use the proceeds it receives from Dutch Bros Inc. from this offering:
to repay          million of outstanding borrowings under our credit facility; and
to the extent there are remaining proceeds, for general corporate purposes.

Se See “Use of Proceeds.”
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Voting rights
Each share of our Class A common stock entitles its holder to one vote on all matters to be voted on by stockholders generally.
Immediately following the consummation of this offering and application of the net proceeds therefrom:
the Co-Founder will hold all the outstanding shares of our Class B common stock. The shares of Class B common stock will have no economic rights, but each share will entitle the holder to ten votes (for so long as the aggregate number of outstanding shares of our Class B common stock represents at least 5% of the aggregate number of our outstanding shares of common stock, and thereafter, one vote per share (provided that the number of votes per share may be adjusted from time to time in accordance with our amended and restated certificate of incorporation, as required to prevent the holders of Class B common stock from holding, in the aggregate, 80% or more of our aggregate voting power at any time) on all matters on which stockholders are entitled to vote generally;
our Sponsor will hold all the issued and outstanding shares of our Class C common stock. The shares of Class C common stock will have no economic rights, but each share will entitle the holder to three votes (for so long as the aggregate number of outstanding shares of our Class C common stock and Class D common stock collectively represent at least 5% of the aggregate number of our outstanding shares of common stock, and thereafter, one vote per share) on all matters on which stockholders are entitled to vote generally; and
 the Pre-IPO Blocker Holders will hold all the issued and outstanding shares of our Class D common stock. The shares of Class D common stock will have the same economic rights as shares of Class A common stock, but each share will entitle the holder to three votes (for so long as the aggregate number of outstanding shares of our Class C and Class D common stock collectively represent at least 5% of the aggregate number of our outstanding shares of common stock, and thereafter, one vote per share upon the automatic conversion of our Class D common stock into shares of Class A common stock) on all matters on which stockholders are entitled to vote generally.
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Holders of outstanding shares of our Class A common stock, Class B common stock, Class C common stock and Class D common stock will vote as a single class on all matters on which stockholders are entitled to vote generally, except as otherwise required by law. See “Description of Capital Stock—Common Stock.”
Pursuant to the terms of the Stockholders Agreement, our Sponsor, by virtue of its ownership of Class C common stock and pursuant to the terms of our amended and restated certificate of incorporation, will have the right to designate and elect up to two members of the board of directors for so long as a specified percentage of shares of Class C common stock and Class D common stock remain outstanding as set forth in our amended and restated certificate of incorporation See “Certain Relationships and Related Person Transactions—Stockholders Agreement” and “Description of Capital Stock—Anti-Takeover Provisions.”
Dividend policyWe have no current plans to pay dividends on our Class A common stock or Class D common stock and our ability to pay dividends on our common stock is limited by the covenants of the credit agreements governing our Senior Secured Credit Facility. See “Dividend Policy.” The declaration, amount and payment of any future dividends will be at the sole discretion of our board of directors. Our board of directors may take into account general economic and business conditions, our financial condition and operating results, our available cash and current and anticipated cash needs, capital requirements, contractual, legal, tax, and regulatory restrictions, and implications on the payment of dividends by us to our stockholders or by our subsidiaries (including Dutch Bros OpCo) to us, and such other factors as our board of directors may deem relevant. Holders of our Class B common stock and Class C common stock do not have any right to receive dividends, or to receive a distribution upon a liquidation, dissolution, or winding up of Dutch Bros Inc., with respect to their Class B common stock or Class C common stock.
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Dutch Bros Inc. is a holding company and has no material assets other than a controlling equity interest in Dutch Bros OpCo. The limited liability company agreement of Dutch Bros OpCo that will be in effect at the time of this offering provides that certain distributions to cover the taxes of the holders of Class A common units will be made based upon assumed tax rates and other assumptions provided in such limited liability company agreement. Additionally, in the event Dutch Bros Inc. declares any cash dividend, we intend to cause Dutch Bros OpCo to make distributions to Dutch Bros Inc., in an amount sufficient to cover such cash dividends declared by us. If Dutch Bros OpCo makes such distributions to Dutch Bros Inc., the Continuing Members will also be entitled to receive the respective equivalent pro rata distributions in accordance with their respective ownership of Class A common units. Prior to this offering, Dutch Bros OpCo distributed $200 million cash to the Pre-IPO OpCo Unitholders. See “Certain Relationships and Related Person Transactions.”
Redemption and exchange rights of holders of Class A common units
Prior to this offering, we will amend and restate the Second LLC Agreement so that the Continuing Members may, from time to time following a lock-up period (subject to the terms of the Third LLC Agreement), elect to have Dutch Bros OpCo redeem their Class A common units for shares of Class A common stock on a one-for-one basis or, in certain circumstances, a corresponding amount of cash, in either case, contributed to Dutch Bros OpCo by Dutch Bros Inc., unless Dutch Bros Inc. elects, in its sole discretion, to effect such transaction as a direct exchange with the relevant Continuing Member. Upon any such redemption or exchange of Class A common units, the corresponding shares of Class B common stock or Class C common stock will be surrendered and immediately canceled. See “Certain Relationships and Related Person Transactions—Agreements to be entered into prior to this offering—Dutch Bros OpCo Third Amended and Restated Limited Liability Company Agreement.”
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Conversion of Class D common stockPursuant to our amended and restated certificate of incorporation, at the option of the holder, a share of Class D common stock may be converted into one share of Class A common stock. In addition, each share of Class D common stock will convert automatically into one share of Class A common stock upon any transfer, whether or not for value, except for certain affiliate transfers described in our amended and restated certificate of incorporation among the Sponsor, the Co-Founder and their respective affiliates as of the date of the consummation of this offering. Each share of Class D common stock will also automatically convert into one share of Class A common stock if, on the record date for any meeting of the stockholders, the aggregate number of outstanding shares of our Class C common stock and Class D common stock collectively is less than % of our outstanding shares of common stock. Once converted into Class A common stock, Class D common stock will not be reissued. See “Description of Capital Stock—Common Stock—Class D Common Stock.”
Reserved Share Program
At our request, an affiliate of BofA Securities, Inc. has reserved for sale, at the initial public offering price, up to 5% of the shares offered by this prospectus for sale to certain employees, business associates and individuals identified by our officers and directors who have expressed an interest in purchasing common stock in this offering. If these persons purchase reserved shares it will reduce the number of shares available for sale to the general public. Any reserved shares that are not so purchased will be offered by the underwriters to the general public on the same terms as the other shares offered by this prospectus. See “Underwriting (Conflicts of Interest)—Reserved Share Program.”
Tax Receivable Agreements
As described below under “Certain Relationships and Related Person Transactions—Agreements to be entered into in connection with this offering—Tax Receivable Agreements,” we entered into two Tax Receivable Agreements. We entered into (i) the Exchange Tax Receivable Agreement with the Continuing Members and (ii) the Reorganization Tax Receivable Agreement with the Pre-IPO Blocker Holders. These Tax Receivable Agreements provide for the payment by Dutch Bros Inc. to the Continuing Members and Pre-IPO Blocker Holders of 85% of the benefits, if any, that Dutch Bros Inc. is deemed to realize (calculated using certain assumptions) as a result of certain tax attributes and benefits covered by the Tax Receivable Agreements. See the sections titled “Risk Factors—Risks Related to Our Organizational Structure” and “Certain Relationships and Related Person Transactions—Agreements to be entered into in connection with this offering—Tax Receivable Agreements” for additional information regarding the Tax Receivable Agreements.
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Risk factors
Investing in our Class A common stock involves a high degree of risk. See “Risk Factors” for a discussion of risks you should carefully consider before deciding to invest in our Class A common stock.
Material U.S. federal income tax consequences to non-U.S. holders of our Class A common stock               
For a discussion of material U.S. federal income tax consequences that may be relevant to non-U.S. stockholders, see “Material U.S. Federal Income Tax Consequences to Non-U.S. Holders of our Class A Common Stock.”
Proposed NYSE trading symbol“BROS”
In this prospectus, unless otherwise indicated, the number of shares of Class A common stock outstanding and the other information based thereon reflects                shares of Class A common stock outstanding immediately following this offering and does not reflect:
               shares of Class A common stock issuable upon exercise of the underwriters’ option to purchase additional shares of Class A common stock from us;
               shares of Class A common stock issuable upon redemption or exchange of               Class A common units that will be held by the Continuing Members immediately following this offering;
               shares of Class A common stock issuable upon conversion of               shares of Class D common stock that will be held by the Pre-IPO Blocker Holders immediately following this offering; and
               shares of Class A common stock that may be granted under our 2021 Equity Incentive Plan, which includes               restricted stock units (assuming an offering price of $               per share of Class A common stock, which is the midpoint of the price range set forth on the cover of this prospectus) to be awarded in connection with this offering.
If we issue and sell a number of shares of Class A common stock in excess of the number of shares set forth on the cover page of this prospectus, we expect to use the additional net proceeds to purchase additional Class A common units from Dutch Bros OpCo at a price per unit equal to the public offering price per share of Class A common stock in this offering, less the estimated underwriting discounts and commissions. Upon each future redemption or exchange of Class A common units, the corresponding shares of Class B common stock or Class C common stock, as applicable, will be surrendered and immediately canceled. As a result, the total numbers of outstanding shares of Class A common stock, Class A common units, as well as the relative percentages of equity ownership and voting power of the holders of Class A common stock, Class B common stock, Class C common stock and Class D common stock, will be adjusted accordingly from the information presented herein.
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Summary Historical and Pro Forma Consolidated Financial and Other Data
The following tables present the summary historical consolidated financial data for Dutch Bros OpCo and its subsidiaries and the summary pro forma combined and consolidated financial data for Dutch Bros Inc. for the periods and at the dates indicated. Immediately following this offering, Dutch Bros Inc. will be a holding company, and its sole material asset will be a controlling equity interest in Dutch Bros OpCo. Dutch Bros Inc. will operate and control all the business and affairs of Dutch Bros OpCo and, through Dutch Bros OpCo and its subsidiaries, conduct our business. Following this offering, Dutch Bros OpCo will be the predecessor of Dutch Bros Inc. for financial reporting purposes. As a result, the consolidated financial statements of Dutch Bros Inc. will recognize the assets and liabilities received in the Reorganization Transactions at their historical carrying amounts, as reflected in the historical consolidated financial statements of Dutch Bros OpCo. Dutch Bros Inc. will consolidate Dutch Bros OpCo in its consolidated financial statements and will report non-controlling interests related to the Class A common units held by the Continuing Members in its consolidated financial statements. The summary historical consolidated statements of income data and summary historical consolidated statements of cash flows data presented below for the years ended December 31, 2019 and 2020 and the summary historical consolidated balance sheet data presented below as of December 31, 2019 and 2020 have been derived from the historical consolidated financial statements of Dutch Bros OpCo included elsewhere in this prospectus. The summary historical consolidated financial information of Dutch Bros OpCo as of June 30, 2021 and for the six months ended June 30, 2020 and 2021 was derived from the unaudited historical consolidated financial statements of Dutch Bros OpCo included elsewhere in this prospectus. The unaudited historical consolidated financial statements of Dutch Bros OpCo have been prepared on the same basis as the audited historical consolidated financial statements and, in our opinion, have included all adjustments, which include normal recurring adjustments, necessary to present fairly in all material respects our financial position and results of operations data. The results for any interim period are not necessarily indicative of the results that may be expected for the full year.
The summary historical consolidated financial and other data of Dutch Bros Inc. has not been presented because Dutch Bros Inc. is a newly incorporated entity, has had no business transactions or activities to date, and had no assets or liabilities during the periods presented in this section.
Historical results are not necessarily indicative of the results expected for any future period. You should read the summary historical consolidated financial data below, together with our audited consolidated financial statements and related notes thereto, the audited consolidated financial statements of Dutch Bros Inc. and related notes thereto and our unaudited consolidated financial statements and related notes thereto, each included elsewhere in this prospectus, as well as “Organizational Structure,” “Unaudited Pro Forma Combined and Consolidated Financial Information,” “Selected Historical and Pro Forma Consolidated Financial and Other Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the other information appearing elsewhere in this prospectus.
The summary historical and pro forma consolidated financial and other data of Dutch Bros Inc. presented below have been derived from our unaudited pro forma combined and consolidated historical financial statements included elsewhere in this prospectus. The summary unaudited pro forma combined and consolidated statements of income data for the year ended December 31, 2020 give effect to (i) the Reorganization Transactions and (ii) the Offering Transactions, each as if they had occurred on January 1, 2020. The summary unaudited pro forma combined and historical consolidated statements of income data for the six months ended June 30, 2021 give effect to (i) the Reorganization Transactions and (ii) the Offering Transactions, each as if they had occurred on January 1, 2020. The summary unaudited pro forma consolidated balance sheet as of June 30, 2021 gives effect to (i) the Reorganization Transactions and (ii) the Offering Transactions, each as if they had occurred on June 30, 2021. The summary unaudited combined and consolidated pro forma financial statements are presented for illustrative purposes only and is not necessarily indicative of the operating results or financial position that would have occurred if the relevant transactions had been consummated on the dates indicated, nor is it indicative of future operating
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results or financial position. See “Unaudited Pro Forma Combined and Consolidated Financial Information” and “Organizational Structure.”
Dutch Bros OpCoDutch Bros OpCo
Dutch Bros Inc.
Pro Forma(1)
Year Ended December 31,Six Months Ended June 30,Year Ended December 31,Six Months Ended June 30,
Historical Consolidated Statements of Income Data: 201920202020202120202021
($ in thousands, except share and per share amounts)
Revenue
Company-operated shops$151,543 $244,514 $109,072 $180,887 $$
Franchising and other86,825 82,899 41,787 47,106 
Total revenue238,368 327,413 150,859 227,993 
Costs and expenses
Cost of sales142,307 211,659 94,929 148,809 
Selling, general and administrative65,764 105,087 48,300 69,868 
Total costs and expenses208,071 316,746 143,229 218,677 
Income from operations30,297 10,667 7,630 9,316 
Other income (expense)
Interest expense, net(2,346)(3,736)(1,700)(2,855)
Other income (expense)524 (363)(316)(58)
Total other income (expense)(1,822)(4,099)(2,016)(2,913)
Income before income taxes28,475 6,568 5,614 6,403 
Income tax expense89 843 338 564 
Net income$28,386 $5,725 $5,276 $5,839 $$
Net income attributable to non-controlling interests
Net income attributable to Dutch Bros Inc.
Basic and diluted net income per share
Shares used in basic and diluted per share calculations
__________________
(1)Pro forma figures give effect to the Offering Transactions and Reorganization Transactions, including this offering. See “Unaudited Pro Forma Combined and Consolidated Financial Information” for a detailed presentation of the unaudited pro forma information, including a description of the transactions and assumptions underlying the pro forma adjustments.
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Year Ended December 31,Six Months Ended June 30,
Other Financial and Operational Data:2019202020202021
($ in thousands)
Number of shops
Company-operated118 182 146 207 
Franchised252 259 255 264 
Total net-new shop openings42 71 31 30 
Average unit volume (AUV)(1)
$1,635 $1,679 $1,643 $1,766 
Company-operated shops$1,460 $1,524 $1,451 $1,654 
Same shop sales growth(2)
2.0 %2.0 %0.5 %8.2 %
Company-operated shops2.3 %0.8 %(1.5 %)9.6 %
Company-operated shop revenue(3)
$151,543 $244,514 $109,072 $180,887 
Company-operated shop contribution(4)(5)
$33,795 $70,104 $31,397 $52,974 
% of company-operated shop revenue22 %29 %29 %29 %
Adjusted EBITDA(5)
$48,715 $69,764 $35,525 $45,827 
% of revenue20 %21 %24 %20 %
Systemwide sales(6)
$566,642 $687,238 $329,732 $413,250 
__________________
(1)At Dutch Bros we track systemwide and company-operated shop AUVs. AUVs for any trailing twelve-month period consist of the net sales of systemwide and company-operated shops, respectively, for all shops that have been open for the entire 15-month measurement period. AUVs are calculated by dividing the total net sales by the total number of systemwide and company-operated shops, respectively, that were open for 15 months at the time of AUV calculation.
(2)Same shop sales growth reflects the change in year-over-year sales for the comparable shop base, which we define as shops open for 15 complete months or longer. For the years 2019 and 2020, we accounted for 77 and 89 shops in our company-operated comparable shop base, respectively, and 287 and 316 shops in our systemwide shop base, respectively. For the twelve months ended June 30, 2020, and June 30, 2021, there were 85 and 120 shops in our company-operated comparable shop base, respectively, and 316 and 355 shops in our systemwide shop base, respectively.
(3)Company-operated shop revenue represent the aggregate beverage sales in company-operated shops.
(4)Company-operated shop contribution, a non-GAAP financial measure, is defined as net sales less beverage, food and packaging costs, labor and other costs, including pre-opening costs.
(5)EBITDA, company-operated shop contribution and Adjusted EBITDA are included in this prospectus because they are key metrics used by management and our board of directors to assess our financial performance. EBITDA, company-operated shop contribution and Adjusted EBITDA are frequently used by analysts, investors and other interested parties to evaluate companies in our industry. EBITDA, company-operated shop contribution and Adjusted EBITDA are not GAAP measures of our financial performance and should not be considered as alternatives to net income as a measure of financial performance or any other performance measure derived in accordance with GAAP. Company-operated shop contribution and Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. These measures are also not intended to be measures of free cash flow for management’s discretionary use, as they do not reflect tax payments, debt service requirements and certain other cash costs that may recur in the future, including, among other things, cash requirements for working capital needs. Management compensates for these limitations by relying on our GAAP results in addition to using EBITDA, company-operated shop contribution and Adjusted EBITDA as supplemental measures. Our measures of EBITDA, company-operated shop contribution and Adjusted EBITDA are not necessarily comparable to similarly titled captions of other companies due to different methods of calculation. For a description of the items in Adjusted EBITDA and a reconciliation of Adjusted EBITDA to net income, see “Selected Historical and Pro Forma Consolidated Financial and Other Data—Adjusted EBITDA Reconciliation.”
(6)Systemwide sales and systemwide same shop sales include company-operated shop revenue and sales at franchised shops during the comparable periods noted. As these metrics include sales reported to us by our non-consolidated franchise partners, these metrics should be considered as a supplement to, not a substitute for, our results as reported under GAAP.
Consolidated Balance Sheet Data:Dutch Bros OpCo Actual
Dutch Bros Inc.
Pro Forma(1)
As of June 30, 2021
($ in thousands)
Cash and cash equivalents$19,577 
Total assets285,227 
Working capital(2)
(37,846)
Total liabilities412,506 
Total liabilities and members’ equity285,227 
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_________________
(1)Pro forma figures give effect to the Offering Transactions and Reorganization Transactions, including this offering. See “Unaudited Pro Forma Combined and Consolidated Financial Information” for a detailed presentation of the unaudited pro forma information, including a description of the transactions and assumptions underlying the pro forma adjustments.
(2)Working capital is defined as total current assets, including cash and cash equivalents, minus total current liabilities.
Year Ended December 31,Six Months Ended June 30,
Consolidated Statements of Cash Flows Data:2019202020202021
($ in thousands)
Net cash flows provided by operating activities$56,702 $53,549 $20,888 $56,199 
Net cash flows used in investing activities(39,948)(45,570)(14,430)(36,386)
Net cash provided by (used in) financing activities(12,680)8,077 10,006 (31,876)
Net increase (decrease) in cash4,074 16,056 16,464 (12,063)
Cash and cash equivalents at beginning of period11,510 15,584 15,584 31,640 
Cash and cash equivalents at end of period15,584 31,640 32,048 19,577 
Adjusted EBITDA Reconciliation:
Year Ended December 31,Six Months Ended June 30,
2019202020202021
($ in thousands)
Net income$28,386 $5,725 $5,276 $5,839 
Depreciation and amortization9,670 15,537 7,089 11,031 
Interest expense, net2,346 3,736 1,700 2,855 
Income tax expense89 843 338 564 
EBITDA$40,491 $25,841 $14,403 $20,289 
Equity-based compensation(1)
$6,758 $35,087 $13,557 $22,982 
COVID-19: “Thank you pay” and catastrophic leave(2)
— 4,942 3,024 2,556 
COVID-19: Royalty abatement(3)
— 1,400 1,400 — 
COVID-19: First responder donation(4)
— 2,000 2,000 — 
Dutch rewards transition(5)
1,466 (3,669)(42)— 
Dutchwear merchandising adjustment(6)
— 4,163 1,183 — 
Adjusted EBITDA$48,715 $69,764 $35,525 $45,827 
__________________
(1)In 2019, 2020 and the six months ended June 30, 2021, we recognized non-cash expenses related to the grant and vesting of Profits Interest Units in Dutch Bros OpCo to certain employees. These awards are accounted for in accordance with guidance prescribed for accounting for share based compensation. See Note 12 to the audited financial statements included elsewhere in this prospectus.
(2)During 2020 and the six months ended June 30, 2021, we incurred costs related to two separate programs established to support employees during the COVID-19 pandemic. We implemented a $3 per hour wage supplement program for shop employees who continued to come into work while their state or county was under a stay at home order or similar lockdown requirement. This program lasted in various markets until April 2021 and cost $3.9 million in 2020 and $2.0 million through June 30, 2021. We established a catastrophic leave policy that provided paid leave to employees who were required to quarantine due to in-shop exposures and could not work their regular hours, which cost $1.0 million in 2020 and $0.6 million through June 30, 2021. All COVID-19-related protocols, including catastrophic leave, will remain in effect until the end of the COVID-19 pandemic as determined by the appropriate government agency.
(3)In April 2020, we permitted franchise partners to skip one month of royalty payments to support their cash flow needs. We discontinued this support one month later in May 2020.
(4)During 2020, we made a specific, one-time donation to the First Responders First organization to support the acquisition and distribution of personal protective equipment for first responders.
(5)We recorded an expense related to our transition from our paper-based stamp card loyalty program to our current app-based loyalty program.
(6)During 2020, we incurred a series of one-time costs associated with the strategic decision to exit our internal merchandising business related to Dutch-branded goods such as mugs and cups. These costs include write-off and disposal of obsolete inventory and severance for staff dedicated to in-house support services related to our Dutchwear business.
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RISK FACTORS
Investing in our Class A common stock involves a high degree of risk. You should carefully consider the risks described below, as well as the other information in this prospectus, including our consolidated financial statements, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” before deciding whether to invest in our Class A common stock. The occurrence of any of the events or developments described below could materially and adversely affect our business, financial condition, results of operations, and growth prospects. In such an event, the market price of our Class A common stock could decline, and you may lose all or part of your investment. Unless otherwise indicated, references in these risk factors to our business being harmed will include harm to our business, reputation, brand, financial condition, results of operations, and prospects. Additional risks and uncertainties not presently known to us or that we currently believe are not material may also impair our business, financial condition, results of operations, and growth prospects.
Risks Related to Our Business
Evolving consumer preferences and tastes may adversely affect our business.
Dutch Bros’ continued success depends on our ability to attract and retain customers. Our financial results could be adversely affected by a shift in consumer spending away from Dutch Bros’ hand-crafted beverages, lack of customer acceptance of new products (including due to price increases necessary to cover the costs of new beverages or higher input costs), brand perception (such as the existence or expansion of our competitors), platforms (such as features of our mobile application and changes in our loyalty rewards programs and initiatives) and a reduction in individual car ownership, which in turn may reduce the usefulness and convenience of our drive-thru shops, or customers reducing their demand for our current offerings as new beverages are introduced. In addition, most of our beverages contain sugar, caffeine, dairy products, and other compounds, such as taurine and artificial coloring, the health effects of which are the subject of public and regulatory scrutiny, including the suggestion of linkages to a variety of adverse health effects. There is increasing consumer awareness of health risks that are attributed to ingredients we use, particularly in the United States, including obesity, increased blood pressure and heart rate, anxiety and insomnia, as well as increased consumer litigation based on alleged adverse health impacts of consumption of various food and beverage products. While we offer alternatives, including reduced sugar and sugar-free items, an unfavorable report on the health effects of sugar, caffeine or other ingredients in our products or changes in public perception of these ingredients could significantly reduce the demand for our beverages. A decrease in customer traffic as a result of these health concerns or negative publicity could significantly reduce the demand for Dutch Bros’ hand-crafted beverages and could harm our business.
Our financial condition and quarterly results of operations are subject to, and may be adversely affected by, a number of factors, many of which are also largely outside our control and as such our results may fluctuate significantly and may not fully reflect the underlying performance of our business.
Our quarterly results of operations and key metrics may vary significantly in the future as they have in the past, and period-to-period comparisons of our results of operations and key metrics may not be meaningful. Accordingly, the results of any one quarter should not be relied upon as an indication of future performance. Our quarterly results of operations and key metrics may fluctuate as a result of a variety of factors, many of which are outside of our control, and as a result, may not fully reflect the underlying performance of our business. Fluctuations in quarterly results may negatively impact the value of our securities. Factors that may cause fluctuations in our quarterly results of operations and key metrics include, without limitation, those listed elsewhere in this Risk Factors section and those listed below. Any one or more of the factors listed below or described elsewhere in this section could harm our business:
increases in real estate or labor costs in certain markets;
consumer preferences, including those described above;
severe weather or other natural or man-made disasters affecting a large market or several closely located markets that may temporarily but significantly affect our business in such markets;
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especially in our large markets, labor discord or disruption, geopolitical events, social unrest, war, terrorism, political instability, acts of public violence, boycotts, hostilities and social unrest and other health pandemics that lead to avoidance of public places or cause people to stay at home; and
adverse outcomes of litigation.
Our marketing programs may not be successful, and our new menu items and advertising campaigns may not generate increased sales or profits.
We incur costs and expend other resources in our marketing efforts on new menu items and advertising campaigns to raise brand awareness and attract and retain customers. These initiatives may not be successful, resulting in expenses incurred without the benefit of higher revenue. Additionally, some of our competitors have greater financial resources than we do, which enable them to spend significantly more on marketing and advertising and other initiatives than we can. Should our competitors increase spending on marketing and advertising and other initiatives or our marketing funds decrease for any reason, or should our advertising, promotions and new menu items be less effective than our competitors, there could be an adverse effect on our results of operations and financial condition.
We may not be able to compete successfully with other coffee shops, QSRs and convenience shops, including the growing number of coffee delivery options. Intense competition in the foodservice and restaurant industry could make it more difficult to expand our business and could also have a negative impact on our operating results if customers favor our competitors or we are forced to change our pricing and other marketing strategies.
The foodservice and restaurant industry is intensely competitive. We expect competition in this market to continue to be intense as we compete on a variety of fronts, including convenience, taste, price, quality, service and location. If our company-operated and franchised shops cannot compete successfully with other beverage and coffee shops, including Dunkin Donuts, Starbucks, other specialty coffee shops, drive-thru QSRs and the growing number of coffee delivery options in new and existing markets, we could lose customers and our revenue could decline. Our company-operated and franchised shops compete with national, regional and local coffee chains, QSRs, and convenience shops for customers, shop locations and qualified management and other staff. Compared to us, some of our competitors have substantially greater financial and other resources, have been in business longer, have greater brand recognition or are better established in the markets where our shops are located or are planned to be located. In some markets that we may grow into, there are already well-funded competitors in the drive-thru coffee or beverage business that may challenge our ability to grow into those regions. Any of these competitive factors may harm our business.
Additionally, if our competitors begin to evolve their business strategies and adopt aspects of the Dutch Bros business model, such as our drive-thru convenience and digital ordering, our customers may be drawn to those competitors for their beverage needs and our business could be harmed.
Our growth strategy depends in part on opening new shops in existing and new markets. We may be unsuccessful in opening new shops or establishing new markets, which could adversely affect our growth.
As of June 30, 2021, Dutch Bros had 471 shops across 11 states, of which 207 were company-operated and 264 were franchised. One of the key means to achieving our growth strategy will be through opening new shops and operating those shops on a profitable basis. We opened 59 new company-operated shops in 2020. In the first six months of 2021, we opened 22 new company-operated shops, and we plan to open an additional 56 new company-operated shops before the end of 2021. Our franchise partners opened 13 new franchise partner operated shops in 2020. In the first six months of 2021, our franchise partners opened eight new franchise partner operated shops and are projected to open an additional six new franchise partner operated shops before the end of 2021. Our ability to open new shops is dependent upon a number of factors, many of which are beyond our control, including our and our franchise partners’ ability to:
identify available and suitable sites, specifically for drive-thru locations;
compete for such sites;
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reach acceptable agreements regarding the lease of locations;
obtain or have available the financing required to acquire and operate a shop, including construction and opening costs, which includes access to build-to-suit leases and ground lease construction arrangements;
respond to unforeseen engineering or environmental problems with leased premises;
avoid the impact of inclement weather, natural disasters and other calamities;
hire, train and retain the skilled management and other employees necessary to meet staffing needs;
obtain, in a timely manner and for an acceptable cost, required licenses, permits and regulatory approvals and respond effectively to any changes in local, state or federal law and regulations that adversely affect our and our franchise partners’ costs or ability to open new shops; and
control construction and equipment cost increases for new shops and secure the services of qualified contractors and subcontractors in an increasingly competitive environment.
There is no guarantee that a sufficient number of suitable sites for shops will be available in desirable areas or on terms that are acceptable to us in order to achieve our growth plan. If we are unable to open new shops, or if existing franchise partners do not open new shops, or if shop openings are significantly delayed, our revenue or earnings growth could be adversely affected and our business may be harmed.
As part of our longer term growth strategy, we expect to enter into geographic markets in which we have little or no prior operating experience. The challenges of entering new markets include: adapting to local regulations or restrictions that may limit our ability to open new shops, restrict the use of certain branding or increase the cost of development; difficulties in hiring experienced personnel; unfamiliarity with local real estate markets and demographics; consumer unfamiliarity with our brand; and different competitive and economic conditions, consumer tastes and discretionary spending patterns that are more difficult to predict or satisfy than in our existing markets. Consumer recognition of our brand has been important in the success of our shops in our existing markets, and we will need to build this recognition in new markets. Shops we open in new markets may take longer to reach expected sales and profit levels on a consistent basis and may have higher construction, occupancy and operating costs than existing shops, thereby affecting our overall profitability. Any failure on our part to recognize or respond to these challenges may adversely affect the success of any new shops.
Due to brand recognition and logistical synergies, as part of our growth strategy, we also intend to open new shops in areas where we have existing shops. The operating results and comparable shop sales could be adversely affected due to close proximity with our other shops and market saturation.
New shops, once opened, may not be profitable or may close, and the increases in average per shop revenue and comparable sales that we have experienced in the past may not be indicative of future results.
Our results have been, and in the future may continue to be, significantly impacted by the timing of new shop openings, which is subject to a number of factors, many of which are outside of our control, including landlord delays, associated pre-opening costs and operating inefficiencies, as well as changes in our geographic concentration due to the opening of new shops. We have typically incurred the most significant portion of pre-opening expenses associated with a given shop within the three months preceding the opening of the shop. Our experience has been that labor and operating costs associated with a newly opened shop for the first several months of operation are materially greater than what can be expected after that time, both in aggregate dollars and as a percentage of sales. Our new shops commonly take three months or more to reach planned operating levels due to inefficiencies typically associated with new shops, including the training of new personnel, new market learning curves, inability to hire sufficient qualified staff, and other factors. We may incur additional costs in new markets, particularly for transportation and distribution, which may impact sales and the profitability of those shops. Accordingly, the volume and timing of new shop openings may have a material adverse impact on our profitability.
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Although we target specified operating and financial metrics, new shops may never meet these targets or may take longer than anticipated to do so. Any new shop we open may never become profitable or achieve operating results similar to those of our existing shops, which could adversely affect our business, financial condition or results of operations.
Some of Dutch Bros’ shops open with an initial start-up period of higher than normal sales volumes and related costs, which subsequently decrease to stabilized levels. In new markets, the length of time before average sales for new shops stabilize is less predictable and can be longer as a result of our limited knowledge of these markets and consumers’ limited awareness of our brand. In addition, our AUV and comparable sales may not increase at the rates achieved over the past several years. Our ability to operate new shops profitably and increase average shop revenue and comparable shop sales will depend on many factors, some of which are beyond our control, including:
consumer awareness and understanding of the Dutch Bros brand;
general economic conditions, which can affect shop traffic, local labor costs and prices we pay for the beverage and other supplies we use;
consumption patterns and beverage preferences that differ from region to region;
changes in consumer preferences and discretionary spending;
difficulties obtaining or maintaining adequate relationships with distributors or suppliers in new markets;
increases in prices for commodities, including coffee, milk and flavored syrups;
inefficiency in our labor costs as the staff gains experience;
competition, either from our competitors in the beverage industry or our own shops;
temporary and permanent site characteristics of new shops;
changes in government regulation; and
other unanticipated increases in costs, any of which could give rise to delays or cost overruns.
If our new shops do not perform as planned or close, our business and future prospects could be harmed. In addition, an inability to achieve our expected average shop revenue could harm our business.
Additionally, opening new shops in existing markets may negatively impact sales at our, and our franchise partners’, existing shops, even if it increases overall AUV in a region. The consumer target area of our shops varies by location, depending on a number of factors, including population density, other local retail and business attractions, area demographics and geography. As a result, the opening of a new shop in or near markets in which we or our franchise partners already have shops could adversely impact sales at these existing shops while growing the overall AUV in a region. Our core business strategy anticipates achieving an ideal AUV through multiple mid-volume shops in a single region to infill and reduce the number of high-volume shops in order to provide continued efficient service. However, existing shops could also make it more difficult to build our and our franchise partners’ consumer base for a new shop in the same market. Sales transfer between our shops may become significant in the future as we continue to expand our operations and could affect our sales growth, which could, in turn, harm our business.
As we expand, we may not be able to maintain our current average shop and our business may be harmed. Although we have specific target operating and financial metrics, new shops may not meet these targets or may take longer than anticipated to do so. Any new Dutch Bros shops we open may not be profitable or achieve operating results similar to those of our existing shops, which could adversely affect our business, financial condition or results of operations.
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Our failure to manage our growth effectively could harm our business and operating results.
We have experienced rapid growth and increased demand for our products. The growth and expansion of our business and products may place a significant strain on our management, operational and financial resources. As we expand our business, it is important that we continue to maintain a high level of customer service and satisfaction which may place a significant strain on our management, sales and marketing, administrative, financial, and other resources. We may not be able to respond in a timely basis to all the changing demands that our planned expansion will impose on management and on our existing infrastructure, or be able to hire or retain the necessary management and broistas, which could harm our business. Further, if we are not able to continue to provide high quality customer service as a result of these demands, our reputation, as well as our business, including a decline in financial performance, could be harmed. If we experience a decline in financial performance, we may decrease the number of or discontinue new Dutch Bros shop openings, or we may decide to close shops that we are unable to operate in a profitable manner.
We are required to manage multiple relationships with various strategic partners, our franchise partners, customers, and other third parties. In the event of further growth of our operations or in the number of our third-party relationships, our existing management systems, financial and management controls and information systems may not be adequate to support our planned expansion and we may face challenges of integrating, developing, training, and motivating a rapidly growing employee base in our various shops and maintaining our company culture across multiple offices and shops. Our ability to manage our growth effectively will require us to continue to enhance our systems, procedures and controls and to locate, hire, train and retain management and broistas, particularly in new markets which may require significant capital expenditures.
Damage to our brand or reputation and negative publicity could negatively impact our business, financial condition and results of operations.
Our reputation and the quality of our Dutch Bros brand are critical to our business and success in existing markets and will be critical to our success as we enter new markets. We believe that we have built our reputation on the high quality of our hand-crafted beverages and service, our commitment to our customers and our strong employee culture, and we must protect and grow the value of our brand in order for us to continue to be successful. Any incident that erodes consumer loyalty for our brand could significantly reduce its value and damage our business.
We may, from time to time, be faced with negative publicity, regardless of its accuracy, relating to beverage quality; the safety, sanitation and welfare of our shops; customer complaints or litigation alleging illness or injury; health inspection scores; integrity of our or our suppliers’ food processing, employment practices and other policies, practices and procedures; or employee relationships and welfare or other matters. Negative publicity may adversely affect us, regardless of whether the allegations are substantiated or whether we are held to be responsible. In addition, the negative impact of adverse publicity relating to one shop may extend far beyond the shop involved, to affect some or all of our other shops, including our franchise partner shops. The risk of negative publicity is particularly great with respect to our franchise partner shops because we are limited in the manner in which we can regulate them, especially on a real-time basis, and negative publicity from our franchise partners’ shops may also significantly impact company-operated shops. A similar risk exists with respect to beverage businesses unrelated to us if customers mistakenly associate such unrelated businesses with our operations. Employee claims against us based on, among other things, wage and hour violations, discrimination, harassment or wrongful termination may also create not only legal and financial liability but negative publicity that could adversely affect us and divert our financial and management resources that would otherwise be used to benefit the future performance of our operations. These types of employee claims could also be asserted against us, on a co-employer theory, by employees of our franchise partners. A significant increase in the number of these claims or an increase in the number of successful claims could harm our business.
Additionally, there has been a marked increase in the use of social media platforms and similar devices, including blogs, social media websites and other forms of internet-based communications that provide individuals with access to a broad audience of consumers and other interested persons. The availability of information on social media platforms is virtually immediate as is its impact. Many social media platforms immediately publish the
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content their subscribers and participants can post, often without filters or checks on accuracy of the content posted. The opportunity for dissemination of information, including inaccurate information, is seemingly limitless and readily available. Information concerning us may be posted on such platforms at any time. Information posted may be adverse to our interests or may be inaccurate, each of which may harm our performance, prospects or business. The harm may be immediate without affording us an opportunity for redress or correction.
Ultimately, the risks associated with any such negative publicity or incorrect information cannot be completely eliminated or mitigated and may harm our business.
Our inability to identify, recruit and retain qualified individuals for our shops could slow our growth and adversely impact our ability to operate.
Our success also depends substantially on the contributions and abilities of our broistas on whom we rely to give customers a superior experience and elevate our brand. At Dutch Bros, it’s about having fun and giving customers our special brand of “luv,” growing our people, and forming genuine relationships with our customers. Accordingly, our success depends in part upon our ability to attract, motivate and retain a sufficient number of qualified operators, all of whom come from within our system, and broistas to meet the needs of our existing shops and to staff new shops. Some of our broistas advance to become operators and when they do, their prior positions need to be filled. We aim to hire warm, friendly, motivated, caring, self-aware and intellectually curious individuals, who are excited and committed to championship performance, remarkable and enriching hospitality, embodying our culture and actively growing themselves and our brand. A sufficient number of qualified individuals to fill these positions and qualifications may be in short supply in some communities. Competition in these communities for qualified staff could require us to pay higher wages and provide greater benefits, especially if there is significant improvement in regional or national economic conditions. We place a heavy emphasis on the qualification and training of our personnel and spend a significant amount of time and money on training our employees. Any inability to recruit and retain qualified individuals may result in higher turnover and increased labor costs, and could compromise the quality of our service, all of which could adversely affect our business. Any such inability could also delay the planned openings of new shops and could adversely impact our existing shops. Any such inability to retain or recruit qualified employees, increased costs of attracting qualified employees or delays in shop openings could harm our business.
Our expansion into new domestic markets may present increased risks, which could affect our profitability.
We plan to open additional company-operated Dutch Bros shops in domestic markets where we have little or no operating experience. The target consumer base of our shops varies by location, depending on a number of factors, including population density, other local coffee and convenience beverage distributors, area demographics and geography. Shops we open in new markets may take longer to reach expected sales and profit levels on a consistent basis. New markets may have competitive or regulatory conditions, consumer tastes and discretionary spending patterns that are more difficult to predict or satisfy than our existing markets. We may need to make greater investments than we originally planned in advertising and promotional activity in new markets to build brand awareness. We may find it more difficult in new markets to hire, motivate and keep qualified employees who share our values. We may also incur higher costs from entering new markets if, for example, we assign operators to manage comparatively fewer shops than we assign in more developed markets. Also, until we attain a critical mass in a market, the shops we do open will have reduced operating leverage. As a result, these new shops may be less successful or may achieve target operating profit margins at a slower rate than existing shops did, if ever. If we do not successfully execute our plans to enter new markets, our business could be harmed.
We are subject to the risks associated with leasing space subject to long-term non-cancelable lease and, with respect to the real property that we own, owning real estate.
Our leases generally have initial terms of 15 years with renewal options. Shop leases provide for a specified annual rent, typically at a fixed rate for the first five years with Consumer Price Index (“CPI”) increases and other escalators. Generally, our leases are “net” leases, which require us to pay all the cost of insurance, taxes, maintenance and utilities. We generally cannot terminate these leases without incurring substantial costs. Additional sites that we lease are likely to be subject to similar long-term non-cancelable leases. If an existing or future shop is
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not profitable, and we decide to close it, we may nonetheless be committed to perform our obligations under the applicable lease including, among other things, paying the base rent for the balance of the lease term. In addition, as each of our leases expires, we may fail to negotiate renewals, either on commercially acceptable terms or at all, which could cause us to close shops in desirable locations. Also, because we sometimes purchase real property for various shop locations, we're subject to all the risks generally associated with owning real estate, including changes in the investment climate for real estate, demographic trends and supply or demand for the use of the shops, which may result from competition from similar restaurants in the area as well as strict, joint and several liability for environmental contamination at or from the property, regardless of fault.
Our operating results and growth strategies are closely tied to the success of our franchise partners and we have limited control with respect to their operations. Additionally, our franchise partners’ interests may conflict or diverge with our interests in the future, which could have a negative impact on our business.
As of June 30, 2021, approximately 56% of our shops were operated by Dutch Bros’ franchise partners and, because of this, we depend on the financial success and cooperation of our franchise partners for our success. Our franchise partners are independent business operators and are not our employees, and as such we have limited control over how our franchise partners run their businesses, and their inability to operate successfully could adversely affect our operating results.
We receive royalties, franchise fees, contributions to our marketing development fund, and other fees from our franchise partners. Additionally, we sell proprietary products to our franchise partners at a markup over our cost to produce. We have established operational standards and guidelines for our franchise partners; however, we have limited control over how our franchise partners’ businesses are run, including day to day operations. Even with these operation standards and guidelines, the quality of franchised Dutch Bros shops may be diminished by any number of factors beyond our control. Consequently, our franchise partners may not successfully operate shops in a manner consistent with our standards and requirements, such as quality, service and cleanliness, or may not hire and train qualified shop managers, broistas and other shop personnel or may not implement marketing programs and major initiatives such as shop remodels or equipment or technology upgrades, which may require financial investment. Even if such unsuccessful operations do not rise to the level of breaching the related franchise documents, they may be attributed by customers to our Dutch Bros brand and could have a negative impact on our business.
Our franchise partners may not be able to secure adequate financing to open or continue operating their Dutch Bros shops. If they incur too much debt or if economic or sales trends deteriorate such that they are unable to repay existing debt, our franchise partners could experience financial distress or even bankruptcy. If a significant number of our franchise partners become financially distressed, it could harm our operating results through reduced royalty revenue, marketing fees, and proprietary product sales and the impact on our profitability could be greater than the percentage decrease in these revenue streams.
While we are responsible for ensuring the success of our entire system of shops and for taking a longer term view with respect to system improvements, our franchise partners have individual business strategies and objectives, which might conflict with our interests. Our franchise partners may from time to time disagree with us and our strategies and objectives regarding the business or our interpretation of our respective rights and obligations under the franchise agreement and the terms and conditions of the franchise partner relationship. This may lead to disputes with our franchise partners and we expect such disputes to occur from time to time in the future as we continue to have franchises. Such disputes may result in legal action against us. To the extent we have such disputes, the attention, time and financial resources of our management and our franchise partners will be diverted from our shops, which could harm our business even if we have a successful outcome in the dispute.
Actions or omissions by our franchise partners in violation of various laws may be attributed to us or result in negative publicity that affects our overall brand image, which may decrease consumer demand for our products. Franchise partners may engage in online activity via social media or activity in their personal lives that negatively impacts public perception of our franchise partners’ or our operations or our brand as a whole. This activity may negatively affect franchise partners’ sales and in turn impact our revenue.
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In addition, various state and federal laws govern our relationship with our franchise partners and our potential sale of a franchise. A franchise partner and/or a government agency may bring legal action against us based on the franchisee/franchisor relationships that could result in the award of damages to franchise partners and/or the imposition of fines or other penalties against us.
Our shops are geographically concentrated in the Western United States, and we could be negatively affected by conditions specific to that region.
As of June 30, 2021, our company-operated and franchised shops in the Western United States represent approximately 98% of our total shops, excluding our shops in Texas and Oklahoma. Adverse changes in demographic, unemployment, economic, regulatory or weather conditions in the Western United States have, and may continue, to harm our business. As a result of our concentration in this market, we have been, and in the future may be, disproportionately affected by these adverse conditions compared to other chain beverage shops with a national footprint. For example, in the second half of 2020, wildfires spread across most western states causing poor air quality which reduced consumers’ willingness to venture outside their homes and reduced our AUVs.
Interruption of our supply chain of coffee, flavored syrups or other ingredients and packaging could affect our ability to produce or deliver our products and could negatively impact our business and profitability.
Any material interruption in our supply chain, such as material interruption of the supply of coffee, flavored syrups, dairy or packaging for our proprietary products due to the casualty loss of any of our roasting plant, interruptions in service by our third-party logistic service providers or common carriers that ship goods within our distribution channels, trade restrictions, such as increased tariffs or quotas, embargoes or customs restrictions, pandemics, social or labor unrest, natural disasters or political disputes and military conflicts that cause a material disruption in our supply chain could have a negative material impact on our business and our profitability. For example, in 2005, our roasting facility burned and our costs increased as we replaced these operations by purchasing coffee from other roasters and paying for contract roasting to cover for the shortage in our own supply.
Additionally, most of our beverage and other products are sourced from a wide variety of domestic and international business partners and we rely on these suppliers to provide high quality products and to comply with applicable laws. For certain products, we may rely on one or very few suppliers, such as for our proprietary Dutch Bros. Blue Rebel energy drinks, where we rely on our relationship with Portland Bottling Co. to manufacture and bottle these drinks. Sales of Dutch Bros. Blue Rebel accounted for approximately 24% of our systemwide sales in 2020. Failures by Portland Bottling Co. or any of our other suppliers to meet our standards, provide products in a timely and efficient manner, or comply with applicable laws is beyond our control. Failures by a supplier could have a direct negative impact that would harm our business by reducing our and our franchise partners’ sales, which would reduce income from direct sales and royalties.
Increases in the cost of high-quality arabica coffee beans or other commodities or decreases in the availability of high-quality arabica coffee beans or other commodities could have an adverse impact on our business and financial results.
The availability and prices of coffee beans and other commodities are subject to significant volatility. We purchase, roast and sell high-quality whole bean arabica coffee beans and related coffee products. The high-quality arabica coffee of the quality we seek tends to trade on a negotiated basis at a premium above the “C” price. This premium depends upon the supply and demand at the time of purchase and the amount of the premium can vary significantly. Increases in the “C” coffee commodity price increase the price of high-quality arabica coffee and also impact our ability to enter into fixed-price purchase commitments. We frequently enter into supply contracts whereby the quality, quantity, delivery period and other negotiated terms are agreed upon, but the date, and therefore price, at which the base “C” coffee commodity price component will be fixed has not yet been established.
The supply and price of coffee we purchase can also be affected by multiple factors in the producing countries, such as weather (including the potential effects of climate change), natural disasters, crop disease, general increase in farm inputs and costs of production, inventory levels, political and economic conditions and the actions of certain organizations and associations that have historically attempted to influence prices of green coffee through agreements establishing export quotas or by restricting coffee supplies. Speculative trading in coffee commodities
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can also influence coffee prices. Because of the significance of coffee beans to our operations, combined with our ability to only partially mitigate future price risk through purchasing practices and hedging activities, increases in the cost of high-quality arabica coffee beans could have a material adverse impact on our profitability. In addition, if we are not able to purchase sufficient quantities of green coffee due to any of the above factors or to a worldwide or regional shortage, we may not be able to fulfill the demand for our coffee, which could have a material adverse impact on our profitability.
We also purchase significant amounts of dairy products, particularly milk, to support the needs of our shops. Additionally, and although less significant to our operations than coffee or dairy, other commodities, including but not limited to plant-based “milks,” tea, sugar, syrups, energy and packaging material, such as plastics, corrugate, and canning materials, are important to our operations. Increases in the cost of dairy products and other commodities, such as petroleum which in turn may increase the cost of our packing materials, or lack of availability, whether due to supply shortages, delays or interruptions in processing, or otherwise, especially in international markets, could harm our business.
If we fail to offer high-quality customer experience, our business and reputation will suffer.
Numerous factors may impact a customer’s experience which may in turn impact the likelihood of such customer returning. Those factors include service, convenience, taste, price, quality, location of our shops and brand image. In addition to providing high quality hand-crafted beverages, we empower our employees to provide an enhanced customer experience. Our broistas put customer needs first and we give them the flexibility required to build genuine, meaningful connections that keep our customers returning for more. From remembering our regulars by name and knowing their customary order, to having treats ready for the four-legged members of the family, or by offering a free drink to someone having a rough day—there is a hint of magic in the details of the Dutch Bros experience that leads to recurring, loyal customers. As we grow, it may be difficult for us to identify, recruit, train and manage enough people with enough skill and talent to provide this enhanced customer experience.
If we fail to maintain adequate operational and financial resources, particularly if we continue to grow rapidly, we may be unable to execute our business plan or maintain high levels of service and customer satisfaction.
Our continuous growth and expansion has placed, and may continue to place, significant demands on our management and our operational and financial resources and in connection therewith, our organizational structure is becoming more complex as we scale our operational, financial, and management controls, as well as our reporting systems and procedures. As we continue to grow, we face challenges of integrating, developing, training, and motivating a rapidly growing employee base in our various shops and maintaining our company culture across multiple offices and shops. Certain members of our management have not previously worked together for an extended period of time, and some do not have prior experience managing a public company, which may affect how they manage our growth. If we fail to manage our anticipated growth and change in a manner that preserves the key aspects of our corporate culture, the quality of our beverages and services may suffer, which could negatively affect our brand and reputation and harm our ability to attract users, employees, and organizations.
To manage growth in our operations and personnel, we will need to continue to grow and improve our operational, financial, and management controls and our reporting systems and procedures. We will require significant capital expenditures and the allocation of valuable management resources to grow and change in these areas. Our expansion has placed, and our expected future growth will continue to place, a significant strain on our management, customer experience, research and development, sales and marketing, administrative, financial, and other resources.
In addition, as we expand our business, it is important that we continue to maintain a high level of customer service and satisfaction. As our customer base continues to grow, we will need to expand our customer service and other personnel, which will require more complex management and systems. If we are not able to continue to provide high levels of customer service, our reputation, as well as our business could be harmed.
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We are increasingly dependent on information technology and our ability to process data in order to operate and sell our goods and services, and if we (or our vendors) are unable to protect against software and hardware vulnerabilities, service interruptions, data corruption, cyber-based attacks, ransomware or security breaches, or if we fail to comply with our commitments and assurances regarding the privacy and security of such data, our operations could be disrupted, our ability to provide our goods and services could be interrupted, our reputation may be harmed and we may be exposed to liability and loss of customers and business.
We rely on information technology networks and systems and data processing (some of which are managed by third-party service providers) to market, sell and deliver our products and services, to fulfill orders, to collect, receive, store, process, generate, use, transfer, disclose, make accessible, protect, secure, dispose of and share (“Process” or “Processing”) personal information, confidential or proprietary information, financial information and other information, to manage a variety of business processes and activities, for financial reporting purposes, to operate our business, to process orders, for legal and marketing purposes and to comply with regulatory, legal and tax requirements (“Business Functions”). These information technology networks and systems, and the Processing they perform, may be vulnerable to data security and privacy threats, cyber and otherwise. Moreover, the risk of unauthorized circumvention of our security measures or those of our third parties on whom we rely has been heightened by advances in computer and software capabilities and the increasing sophistication of hackers who employ complex techniques, including, without limitation, “phishing” or social engineering incidents, ransomware, extortion, account takeover attacks, denial or degradation of service attacks and malware. Further, breaches experienced by other companies may also be leveraged against us. For example, credential stuffing attacks are becoming increasingly common and sophisticated actors can mask their attacks, making them increasingly difficult to identify and prevent. We have technology security initiatives and disaster recovery plans in place to mitigate our risk to these vulnerabilities, but these measures may not be adequately designed or implemented to ensure that our operations are not disrupted or that data security breaches do not occur. If our information technology networks and systems or data processing suffers damage, security breaches, vulnerabilities, disruption or shutdown, and we do not effectively resolve the issues in a timely manner, they could cause a material adverse impact to, our Business Functions and our business, reputation and financial condition.
Hackers and data thieves are increasingly sophisticated and operate large-scale and complex automated attacks, which may remain undetected until after they occur. Despite our efforts to protect our information technology networks and systems, Processing and information, we may not be able to anticipate or to implement effective preventive and remedial measures against all data security and privacy threats. Our security measures may not be adequate to prevent or detect service interruption, system failure data loss or theft, or other material adverse consequences. No security solution, strategy or measures can address all possible security threats. Our applications, systems, networks, software and physical facilities could have material vulnerabilities, be breached or personal or confidential information could be otherwise compromised due to employee error or malfeasance, if, for example, third parties attempt to fraudulently induce our personnel or our customers to disclose information or user names and/or passwords, or otherwise compromise the security of our networks, systems and/or physical facilities. We cannot be certain that we will be able to address any such vulnerabilities, in whole or part, and there may be delays in developing and deploying patches and other remedial measures to adequately address vulnerabilities, and taking such remedial steps could adversely impact or disrupt our operations. We expect similar issues to arise in the future as our products and services are more widely adopted, and as we continue to expand the features and functionality of existing products and services and introduce new products and services.
An actual or perceived breach of our security systems or those of our third-party service providers may require notification under applicable data privacy regulations or for customer relations or publicity purposes, which could result in reputational harm, costly litigation (including class action litigation), material contract breaches, liability, settlement costs, loss of sales, regulatory scrutiny, actions or investigations, a loss of confidence in our business, systems and Processing, a diversion of management’s time and attention, and significant fines, penalties, assessments, fees and expenses.
The costs to respond to a security breach and/or to mitigate any security vulnerabilities that may be identified could be significant, our efforts to address these problems may not be successful. These costs include, but are not limited to, retaining the services of cybersecurity providers; compliance costs arising out of existing and future cybersecurity, data protection and privacy laws and regulations; and costs related to maintaining redundant
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networks, data backups and other damage-mitigation measures. We could be required to fundamentally change our business activities and practices in response to a security breach or related regulatory actions or litigation, which could have an adverse effect on our business. Additionally, most jurisdictions have enacted laws requiring companies to notify individuals, regulatory authorities, and others of security breaches involving certain types of data. Such mandatory disclosures are costly, could lead to negative publicity, may cause our customers to lose confidence in the effectiveness of our security measures and require us to expend significant capital and other resources to respond to and/or alleviate problems caused by the actual or perceived security breach.
We may not have adequate insurance coverage for handling security incidents or breaches, including fines, judgments, settlements, penalties, costs, attorney fees and other impacts that arise out of incidents or breaches. If the impacts of a security incident or breach, or the successful assertion of one or more large claims against us that exceeds our available insurance coverage, or results in changes to our insurance policies (including premium increases or the imposition of large deductible or co-insurance requirements), it could harm our business. In addition, we cannot be sure that our existing insurance coverage will continue to be available on acceptable terms or that our insurers will not deny coverage as to all or part of any future claim or loss. Moreover, our privacy risks are likely to increase as we continue to expand, grow our customer base, and process, store, and transmit increasingly large amounts of personal and/or sensitive data.
Pandemics or disease outbreaks such as the COVID-19 pandemic have had, and may continue to have, an effect on our business and results of operations.
Pandemics or disease outbreaks such as the COVID-19 pandemic have impacted and may continue to impact customer traffic at our Dutch Bros shops may make it more difficult to staff our shops and, in more severe cases, may cause a temporary inability to obtain supplies and increase commodity costs. COVID-19 was officially declared a global pandemic by the World Health Organization in March 2020, and the virus, including the continued spread of highly transmissible variants of the virus, has impacted all global economies, and in the United States has resulted in varying levels of restrictions and shutdowns implemented by national, state, and local authorities.
Such viruses may be transmitted through human contact and airborne delivery, and the risk of contracting viruses could continue to cause employees or customers to avoid gathering in public places, which has had, and could further have, adverse effects on our customer traffic or the ability to adequately staff shops. We have been adversely affected when government authorities have imposed and continue to impose restrictions on public gatherings, human interactions, operations of restaurants or mandatory closures, seek voluntary closures, restrict hours of operations or impose curfews, restrict the import or export of products or if suppliers issue mass recalls of products. Additional regulation or requirements with respect to the compensation of our employees could also have an adverse effect on our business. Even if such measures are not implemented and a virus or other disease does not spread significantly within a specific area, the perceived risk of infection or health risk in such area may adversely affect our business, liquidity, financial condition and results of operations. Additionally, different jurisdictions have seen varying levels of outbreaks or resurgences in outbreaks, and corresponding differences in government responses, which may make it difficult for us to plan or forecast an appropriate response.
Even though we were deemed an “essential business” during this COVID-19 pandemic and we were allowed to remain in operation, even while some of our competitors were not, there is no guarantee that in the event of a future pandemic or resurgence of the COVID-19 pandemic that we will receive the same designation. Regardless of our status as an essential business during the COVID-19 pandemic, our operations were still disrupted when employees or employees of our franchise partners were suspected of having COVID-19 or other illnesses since this required us or our franchise partners to quarantine some or all such employees and close and disinfect our impacted shops. If a significant percentage of our workforce or the workforce of our franchise partners are unable to work, including because of illness or travel or government restrictions, like quarantine requirements, in connection with pandemics or disease outbreaks, our operations may be negatively impacted, potentially materially adversely affecting our business, liquidity, financial condition or results of operations.
The COVID-19 pandemic and mitigation measures have also had an adverse impact on global economic conditions, which have had an adverse effect on our business and financial condition. Our sales and operating results may be affected by uncertain or changing economic and market conditions arising in connection with and in
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response to the COVID-19 pandemic, including prolonged periods of high unemployment, inflation, deflation, prolonged weak consumer demand, a decrease in consumer discretionary spending, political instability or other changes. The significance of the operational and financial impact to us will depend on how long and widespread the disruptions caused by the COVID-19 pandemic, and the corresponding response to contain the virus and treat those affected by it, prove to be.
Our success is heavily reliant on our franchise partners and the COVID-19 pandemic has caused and may continue to cause financial distress for certain franchise partners that have been or will be impacted. As a result of this distress, our franchise partners may not be able to meet their financial obligations as they come due, including the payment of royalties, rent or other amounts due to us. This has led to, and may continue to lead to, write-offs of amounts we have currently due from our franchise partners beyond amounts we have reserved, as well as decreased future collections from franchise partners. Additionally, in certain instances, we have offered grace periods for certain near-term payments due to us by our franchise partners who needed more access to capital and were in good standing with Dutch Bros. If we need to extend such grace periods again in the future, it will negatively impact our cash flows in the near-term and there is no guarantee that our franchise partners will ultimately pay amounts due. Additionally, our franchise partners may not be able to make payments to landlords, distributors and key suppliers, as well as payments to service any debt they may have outstanding. Franchise partners’ financial distress has also led to, and may continue to lead to, permanent shop closures and delayed or reduced new franchise partners development which would further harm our results and liquidity going forward. Further, in some cases, we are contingently liable for franchise partner lease or supplier obligations, and a failure by a franchise partner to perform its obligations under such lease could result in direct payment obligations for us.
We do not yet know the full extent of potential delays or impacts on our business, operations or the global economy as a whole. While there have recently been vaccines developed and administered, and the spread of COVID- 19 may eventually be contained or mitigated, we cannot predict the timing of the vaccine roll-out globally or the efficacy of such vaccines, and we do not yet know how customers or our franchise partners will operate in a post COVID-19 environment. In addition, new strains and variants of the virus have caused a resurgence and an increase in reported infection rates, which may impact the general economic recovery. There is no guarantee that a future outbreak of this or any other widespread epidemics will not occur, or that the global economy will recover, either of which could seriously harm our business fully recover. The ultimate impact of the COVID-19 pandemic or a similar health epidemic on our business, operations or the global economy as a whole remains highly uncertain.
While we have developed and continue to develop plans to help mitigate the potential negative impact of the COVID-19 pandemic, these efforts may not be effective, and any protracted economic downturn will likely limit the effectiveness of our efforts. Accordingly, it is not possible for us to predict the duration and extent to which this will affect our business at this time.
Risks Related to Our Brands
Our success depends substantially on the value of our brands and failure to preserve their value could have a negative impact on our financial results.
Our success depends in large part upon our ability and our franchise partners’ ability to maintain and enhance our corporate reputation and the value and perception of our brands. Brand value is based in part on consumer perceptions on a variety of subjective qualities. To be successful in the future, particularly outside of the Western United States where the Dutch Bros brand may be less well-known, we believe we must preserve, grow and leverage the value of our brand across interactions.
Business incidents, whether isolated or recurring and whether originating from us or our business partners, that erode consumer trust can significantly reduce brand value, potentially trigger boycotts of our shops or result in civil or criminal liability and can have a negative impact on our financial results. Such incidents include actual or perceived breaches of privacy, contaminated products, broistas infected with communicable diseases, such as COVID-19, or other potential incidents discussed in this risk factors section. The impact of such incidents may be exacerbated if they receive considerable publicity, including rapidly through social or digital media (including for malicious reasons) or result in litigation. Consumer demand for our products and our brand equity could diminish
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significantly if we, our employees, franchise partners or other business partners fail to preserve the quality of our products, act or are perceived to act in an unethical, illegal, racially-biased, unequal or socially irresponsible manner, including with respect to the sourcing, content or sale of our products, service and treatment of customers at Dutch Bros shops, or the use of customer data for general or direct marketing or other purposes. Additionally, if we fail to comply with laws and regulations, publicly take controversial positions or actions or fail to deliver a consistently positive consumer experience in each of our markets, including by failing to invest in the right balance of wages and benefits to attract and retain employees that represent the brand well or foster an inclusive and diverse environment, our brand value may be diminished.
Moreover, our success depends in large part upon our ability to maintain our corporate reputation. For example, the reputation of our Dutch Bros brand could be damaged by claims or perceptions about the quality or safety of our ingredients or beverages or the quality or reputation of our suppliers, distributors or franchise partners or by claims or perceptions that we, our franchise partners or other business partners have acted or are acting in an unethical, illegal, racially-biased or socially irresponsible manner or are not fostering an inclusive and diverse environment, regardless of whether such claims or perceptions are substantiated. Our corporate reputation could also suffer from negative publicity or consumer sentiment regarding Dutch Bros action or inaction or brand imagery, a real or perceived failure of corporate governance, or misconduct by any officer or any employee or representative of us or a franchise partner. Any such incidents (even if resulting from actions of a competitor or franchise partner) could cause a decline directly or indirectly in consumer confidence in, or the perception of, our Dutch Bros brand and/or our products and reduce consumer demand for our products, which would likely result in lower revenue and profits.
There has been an increased public focus, including from the United States federal and state governments, on environmental sustainability matters, including with respect to climate change, greenhouse gases, water resources, packaging and waste, animal health and welfare, deforestation and land use. We endeavor to conduct our business in a manner which reflects our priority of sustainable stewardship, including with respect to environmental sustainability matters, and we are working to manage the risks and costs to us, our franchise partners and our supply chain associated with these types of environmental sustainability matters. In addition, as the result of such heightened public focus on environmental sustainability matters, we may face increased pressure to provide expanded disclosure, make or expand commitments, set targets, or establish additional goals and take actions to meet such goals, in connection with such environmental sustainability matters. These matters and our efforts to address them could expose us to market, operational, reputational and execution costs or risks.
We may not be able to adequately protect our intellectual property, including trademarks, trade names, and service marks, which, in turn, could harm the value of our brand and adversely affect our business.
Our ability to implement our business plan successfully depends in part on our ability to further build brand recognition using our trademarks, service marks, proprietary products and other intellectual property, including our name and logos and the unique character and atmosphere of our Dutch Bros shops. We rely on U.S. trademark, copyright, and trade secret laws, as well as license agreements, nondisclosure agreements, and confidentiality and other contractual provisions to protect our intellectual property. Nevertheless, our competitors may develop similar menu items and concepts, and adequate remedies may not be available in the event of an unauthorized use or disclosure of our trade secrets and other intellectual property.
The success of our business depends on our continued ability to use our existing trademarks, trade names, and service marks to increase brand awareness and further develop our brand as we expand into new markets. We have registered and applied to register trademarks and service marks in the United States. We may not be able to adequately protect our trademarks and service marks, and our competitors and others may successfully challenge the validity and/or enforceability of our trademarks and service marks and other intellectual property. There can also be no assurance that pending or future U.S. trademark applications will be approved in a timely manner or at all, or that such registrations will effectively protect our brand names and trademarks.
Additionally, the steps we have taken to protect our intellectual property in the United States may not be adequate. If our efforts to maintain and protect our intellectual property are inadequate, or if any third party misappropriates, dilutes or infringes on our intellectual property, the value of our brand may be harmed, which could
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have a material adverse effect on our business and might prevent our brands from achieving or maintaining market acceptance. Even with our own franchise partners, whose activities are monitored and regulated through our franchise agreements, we face risk that they may refer to or make statements about our Dutch Bros brand that do not make proper use of our trademarks or required designations, that improperly alter trademarks or branding, or that are critical of our brand or place our brand in a context that may tarnish our reputation. This may result in dilution of, or harm to, our intellectual property or the value of our brand.
We may also from time to time be required to institute litigation to enforce our trademarks, service marks and other intellectual property. Such litigation could result in substantial costs and diversion of resources and could negatively affect our sales, profitability and prospects regardless of whether we can successfully enforce our rights.
Third parties may oppose our trademark and service mark applications, or otherwise challenge our use of the trademarks and service marks. In the event that these or other intellectual property rights are successfully challenged, we could be forced to rebrand our products, which would result in loss of brand recognition and would require us to devote resources to advertising and marketing new brands. Third parties may also assert that we infringe, misappropriate or otherwise violate their intellectual property and may sue us for intellectual property infringement. Even if we are successful in these proceedings, we may incur substantial costs, and the time and attention of our management and other personnel may be diverted in pursuing these proceedings. If a court finds that we infringe a third party's intellectual property, we may be required to pay damages and/or be subject to an injunction. With respect to any third party intellectual property that we use or wish to use in our business (whether or not asserted against us in litigation), we may not be able to enter into licensing or other arrangements with the owner of such intellectual property at a reasonable cost or on reasonable terms.
Food safety and quality concerns may negatively impact our brand, business and profitability, our internal operational controls and standards may not always be met and our employees may not always act professionally, responsibly and in our and our customers’ best interests. Any possible instances or reports, whether true or not, of food and/or beverage-borne illness could reduce our sales.
Incidents or reports, whether true or not, of food-borne or water-borne illness or other food safety issues, food contamination or tampering, employee hygiene and cleanliness failures or improper employee conduct at our shops could lead to product liability or other claims. Such incidents or reports could negatively affect our brand and reputation as well as our business, revenue and profits. Similar incidents or reports occurring at coffee and convenience shops unrelated to us could likewise create negative publicity, which could negatively impact consumer behavior towards us.
We cannot guarantee to customers that our internal controls and training will be fully effective in preventing all food-borne illnesses. New illnesses resistant to our current precautions may develop in the future, or diseases with long incubation periods could arise, that could give rise to claims or allegations on a retroactive basis. One or more instances of food-borne illness in one of our company-operated or franchised shops could negatively affect sales at all our shops if highly publicized. This risk exists even if it were later determined that the illness was wrongly attributed to one of our shops. Additionally, even if food-borne illnesses were not identified at our shops, our sales could be adversely affected if instances of food-borne illnesses at other coffee and beverage chains were highly publicized.
If we or our franchise partners are unable to protect our customers’ credit and debit card data or confidential information in connection with process the same or confidential employee information, we could be exposed to data loss, litigation, liability and reputational damage.
Our business requires the collection, transmission and retention of large volumes of customer and employee data, including credit and debit card numbers and other personally identifiable information, in various information technology systems that we maintain and in those maintained by third parties with whom we contract to provide services. The integrity and protection of that customer and employee data is critical to us. Further, our customers and employees have a high expectation that we and our service providers will adequately protect their personal information.
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We currently accept payments using credit cards and debit cards and, as such, are subject to payment card association operating rules and certification requirements, including the Payment Card Industry Data Security Standard (“PCI-DSS”), which is a security standard applicable to companies like ours that collect, store or transmit certain data regarding credit and debit cards, holders and transactions. We are also subject to rules governing electronic funds transfers. Such rules could change or be reinterpreted to make it difficult or impossible for us to comply. If we (or a third party processing payment card transactions on our behalf) suffer a security breach affecting payment card information, we may have to pay onerous and significant fines, penalties and assessments arising out of the major card brands’ rules and regulations, contractual indemnifications or liability contained in merchant agreements and similar contracts, and we may lose our ability to accept payment cards for payment for our goods and services, which could materially impact our operations and financial performance.
The information, security and privacy requirements imposed by governmental regulation are increasingly demanding. Our systems may not be able to satisfy these changing requirements and customer and employee expectations or may require significant additional investments or time in order to do so. Efforts to hack or breach security measures, failures of systems or software to operate as designed or intended, viruses, operator error or inadvertent releases of data all threaten our and our service providers' information systems and records. A breach in the security of our information technology systems or those of our service providers could lead to an interruption in the operation of our systems, resulting in operational inefficiencies and a loss of profits. For example, in 2014, our online store and our customers were the victims of a security breach and as a result a few thousand of our customer’s personal information records were exposed. Additionally, a significant theft, loss or misappropriation of, or access to, customers’ or other proprietary data or other breach of our information technology systems could result in fines, legal claims or proceedings, including regulatory investigations and actions, or liability for failure to comply with privacy and information security laws, which could disrupt our operations, damage our reputation and expose us to claims from customers and employees, any of which could harm our business.
Risks Related to People and Culture
Changes in the availability of and the cost of labor could harm our business.
Our business could be harmed by increases in labor costs, including those increases triggered by regulatory actions regarding wages, scheduling and benefits, increased health care and workers’ compensation insurance costs, which, in a retail business such as ours, are our most significant costs. In particular, our broistas are paid wage rates at or based on the applicable federal or state minimum wage, and increases in the applicable minimum wage will increase labor costs. From time to time, legislative proposals are made to increase the minimum wage at the federal or state level. As federal, state or other applicable minimum wage rates increase, we may be required to increase not only the wage rates of minimum wage broistas or other employees, but also the wages paid to other hourly employees. We may not choose to increase prices in order to pass future increased labor costs on to customers, in which case our margins would be negatively affected. If we do not increase prices to cover increased labor costs, the higher prices could result in lower revenue, which may also reduce margins.
Furthermore, the successful operation of our business depends upon our, and our franchise partners’, ability to attract, motivate and retain a sufficient number of qualified employees. From time to time, there may be a shortage of qualified employees in certain of the communities in which we operate or expand to. Shortages may make it increasingly difficult and expensive to attract, train and retain the services of a satisfactory number of qualified employees, which could delay the planned openings of new company-operated and franchised shops and adversely impact the operations and profitability of existing shops. Furthermore, competition for qualified employees, particularly in markets where such shortages exist, could require us to pay higher wages, which could result in higher labor costs. Accordingly, if we and our franchise partners are unable to recruit and retain sufficiently qualified individuals, our business could be harmed.
Additionally, the growth of our business can make it increasingly difficult to locate and hire sufficient numbers of key employees, to maintain an effective system of internal controls for a dispersed chain and to train employees to deliver consistently high-quality hand-crafted beverages and customer experiences, which could materially harm our business and results of operations. Furthermore, due to the COVID-19 pandemic, we could experience a shortage of labor for shop positions as concern over exposure to COVID-19 and other factors could
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decrease the pool of available qualified talent for key functions. In addition, our wages and benefits programs, combined with the challenging conditions due to the COVID-19 pandemic, may be insufficient to attract and retain the best talent.
We depend on our executive officers and other key employees, and the loss of one or more of these employees or an inability to attract and retain other highly skilled employees could harm our business.
Our success depends largely upon the continued services of our executive officers and other key employees. We rely on our leadership team in the areas of marketing, sales, customer experience, and selling, general and administrative. From time to time, there may be changes in our executive management team resulting from the hiring or departure of executives, which could disrupt our business. The loss of one or more of our executive officers or key employees could harm our business. Changes in our executive management team may also cause disruptions in, and harm to, our business.
Dutch Bros continues to be led by our Executive Chairman and Co-Founder, Travis Boersma, who plays an important role in driving our culture, determining the strategy, and executing against that strategy across the company. If Mr. Boersma’s services became unavailable to Dutch Bros for any reason, it may be difficult or impossible for us to find an adequate replacement, which could cause us to be less successful in maintaining our culture and developing and effectively executing on our company strategies.
Our culture has contributed to our success, and if we cannot maintain this culture as we grow, we could lose the high employee engagement fostered by our culture, which could harm our business.
At Dutch Bros, we believe our people-first culture is a critical component of our success and customer loyalty. The success of this differentiated people-first culture and serving hand-crafted, high-quality beverages through the convenience of a premium drive-thru experience has helped us enter new markets and rapidly open new shops. We have invested substantial time and resources in developing pathways for our employees to create their own compelling future, which we believe has fostered the positive, people-first culture that defines our organization and is enjoyed by our customers. We have built out our leadership team with an expectation of protecting this culture, an emphasis on shared values and a commitment to diversity and inclusion. As we continue to develop the infrastructure to support our growth, we will need to maintain our culture among a larger number of employees dispersed in various geographic regions. Any failure to preserve our culture could negatively affect our future success, including our ability to retain and recruit personnel, and loss of customer loyalty.
Unionization activities may disrupt our operations and affect our profitability.
Although none of our employees are currently covered under collective bargaining agreements, our employees may elect to be represented by labor unions in the future. If a significant number of our employees were to become unionized and collective bargaining agreement terms were significantly different from our current compensation arrangements, it could adversely affect our business, financial condition or results of operations. In addition, a labor dispute involving some or all of our employees may harm our reputation, disrupt our operations and reduce our revenue, and resolution of disputes may increase our costs. Further, if we enter into a new market with unionized construction companies, or the construction companies in our current markets become unionized, construction and build out costs for new shops in such markets could materially increase.
Risks Related to Regulation and Litigation
Changes in statutory, regulatory, accounting, and other legal requirements, including changes in accounting principles generally accepted in the United States, could potentially impact our operating and financial results.
We are subject to numerous statutory, regulatory and legal requirements. Our operating results could be negatively impacted by developments in these areas due to the costs of compliance in addition to possible government penalties and litigation in the event of deemed noncompliance. Changes in the regulatory environment in the area of food safety, privacy and information security, wage and hour laws, among others, could potentially impact our operations and financial results.
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Generally accepted accounting principles in the United States (“GAAP”) are subject to interpretation by the Financial Accounting Standards Board, the American Institute of Certified Public Accountants, the SEC, and various bodies formed to promulgate and interpret appropriate accounting principles. A change in these principles or interpretations could have a significant effect on our reported financial results, and could affect the reporting of transactions completed before the announcement of a change.
Moreover, while we believe that we maintain insurance customary for businesses of our size and type, there are types of losses we may incur that cannot be insured against or that we believe are not economically reasonable to insure. Such losses could harm our business.
Fluctuations in our tax obligations and effective tax rate and realization of our deferred tax assets may result in volatility of our operating results and adversely affect our financial condition.
We are subject to taxes by the U.S. federal, state, and local tax authorities, and our tax liabilities will be affected by the allocation of expenses to differing jurisdictions. We record tax expense based on our estimates of future payments, which may include reserves for uncertain tax positions in multiple tax jurisdictions, and valuation allowances related to certain net deferred tax assets. At any one time, many tax years may be subject to audit by various taxing jurisdictions. The results of these audits and negotiations with taxing authorities may affect the ultimate settlement of these issues. We expect that throughout the year there could be ongoing variability in our quarterly tax rates as events occur and exposures are evaluated. Our future effective tax rates could be subject to volatility or adversely affected by a number of factors, including:
changes in the valuation of our deferred tax assets and liabilities;
expected timing and amount of the release of any tax valuation allowance;
changes in tax laws, regulations or interpretations thereof; or
future earnings being lower than anticipated in jurisdictions where we have lower statutory tax rates and higher than anticipated earnings in jurisdictions where we have higher statutory tax rates.
In addition, our effective tax rate in a given financial statement period may be materially impacted by a variety of factors including but not limited to changes in the mix and level of earnings, varying tax rates in the different jurisdictions in which we operate, fluctuations in the valuation allowance or by changes to existing accounting rules or regulations. Further, tax legislation may be enacted in the future which could negatively impact our current or future tax structure and effective tax rates. We may be subject to audits of our income, sales and other transaction taxes by U.S. federal, state, and local taxing authorities. Outcomes from these audits could have an adverse effect on our operating results and financial condition.
We are subject to many federal, state and local laws with which compliance is both costly and complex.
The beverage industry is subject to extensive federal, state and local laws and regulations, including the recently enacted comprehensive health care reform legislation discussed above, those relating to building and zoning requirements and those relating to the preparation and sale of food and beverages or consumption. Such laws and regulations are subject to change from time to time. The failure to comply with these laws and regulations could adversely affect our operating results. Typically, licenses, permits and approvals under such laws and regulations must be renewed annually and may be revoked, suspended or denied renewal for cause at any time if governmental authorities determine that our conduct violates applicable regulations. Difficulties or failure to maintain or obtain the required licenses, permits and approvals could adversely affect our existing shops and delay or result in our decision to cancel the opening of new shops, which would adversely affect our business.
The development and operation of a shop depends, to a significant extent, on the selection of suitable sites for drive-thrus, which are subject to unique permitting, zoning, land use, environmental, traffic and other regulations and requirements. We are also subject to licensing and regulation by state and local authorities relating to health, sanitation, safety and fire standards.
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We are subject to the Fair Labor Standards Act and various other federal, state and local laws that regulate the wages and hours of employees. These laws commonly apply a strict liability standard so that even inadvertent noncompliance can lead to claims, government enforcement actions and litigation. These laws vary from state to state and are subject to frequent amendments and judicial interpretations that can require rapid adjustments to operations. Insurance coverage for violations of these laws is costly and sometimes is not available. Changes to these laws can adversely affect our business by increasing labor and compliance costs. The failure to comply with these laws could adversely affect our business as a result of costly litigation or government enforcement actions.
We are also subject to a variety of other employee relations laws including FMLA and state leave laws, employment discrimination laws, predictive scheduling laws, occupational health and safety laws and regulations and the NLRA, to name a few. Together, these many laws and regulations present a thicket of compliance obligations and liability risks. As we grow, we will need to continue to increase our compliance efforts in these areas, which may affect our results from operations. Changes to these laws and regulations may increase these costs beyond our expectations or predictions, which would adversely affect our business operations and financial results. Violations of these laws could lead to costly litigation or governmental investigation or proceedings.
We are subject to compliance obligations of the Food Safety Modernization Acts (“FSMA”). Under FSMA, we are required to develop and implement a Food Safety Plan for our roasting operations. While we are not currently required to implement a FSMA Food Safety Plan or a Hazard Analysis and Critical Points system (“HACCP”) in our shops, many states have required restaurants to develop and implement HACCP, and the United States government continues to expand the sectors of the food industry that must adopt and implement HACCP. Additionally, our suppliers may initiate or otherwise be subject to food recalls that may impact the availability of certain products, result in adverse publicity or require us to take actions that could be costly for us or otherwise impact our business.
We are subject to the Americans with Disabilities Act (the “ADA”), which, among other things, requires our shops to meet federally mandated requirements for the disabled. The ADA prohibits discrimination in employment and public accommodations on the basis of disability. Under the ADA, we could be required to expend funds to modify our shops to provide service to, or make reasonable accommodations for the employment of, disabled persons. In addition, our employment practices are subject to the requirements of the Immigration and Naturalization Service relating to citizenship and residency.
In addition, our franchise activities are subject to laws enacted by a number of states and rules and regulations promulgated by the Franchise Trade Commission (the “FTC”). Failure to comply with new or existing franchise laws, rules and regulations in any jurisdiction or to obtain required government approvals could negatively affect our licensing sales and our relationships with our licensees.
The impact of current laws and regulations, the effect of future changes in laws or regulations that impose additional requirements and the consequences of litigation relating to current or future laws and regulations, or our inability to respond effectively to significant regulatory or public policy issues, could increase our compliance and other costs of doing business and, therefore, have an adverse effect on our results of operations. Failure to comply with the laws and regulatory requirements of federal, state and local authorities could result in, among other things, revocation of required licenses, administrative enforcement actions, fines and civil and criminal liability. In addition, certain laws, including the ADA, could require us to expend significant funds to make modifications to our shops if we failed to comply with applicable standards. Compliance with all these laws and regulations can be costly and can increase our exposure to litigation or governmental investigations or proceedings.
We (and our vendors) are subject to stringent and changing laws, regulations, industry standards, related to data Processing, protection, privacy and security. The actual or perceived failure by us, our customers or vendors to comply with such laws, regulations, industry standards, may harm our business, financial condition, results of operations and prospects.
We Process personal information, confidential information and other information necessary to provide our products and service and ensure that they are delivered effectively, to operate our business, for legal and marketing purposes, and for other business-related purposes.
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Data privacy and regulation of privacy, information security and Processing has become a significant issue in the United States. The legal and regulatory framework for privacy and security issues is rapidly evolving and is expected to increase our compliance costs and exposure to liability. There are numerous federal, state, local laws, orders, codes, regulations and regulatory guidance regarding privacy, information security and Processing (“Data Protection Laws”), the number and scope of which is changing, subject to differing applications and interpretations, and which may be inconsistent among jurisdictions, or in conflict with other rules, laws or Data Protection Obligations (defined below). We expect that there will continue to be new Data Protection Laws and Data Protection Obligations, and we cannot yet determine the impact such future Data Protection Laws may have on our business. Any significant change to Data Protection Laws and Data Protection Obligations, including without limitation, regarding the manner in which the express or implied consent of customers for Processing is obtained, could increase our costs and require us to modify our operations, possibly in a material manner, which we may be unable to complete and may limit our ability to store and process customer data and operate our business.
Data Protection Laws are, and are likely to remain, uncertain for the foreseeable future, and our actual or perceived failure to address or comply with these laws could: increase our compliance and operational costs; limit our ability to market our products or services and attract new and retain current customers; limit or eliminate our ability to Process; expose us to regulatory scrutiny, actions, investigations, fines and penalties; result in reputational harm; lead to a loss of customers; reduce the use of our products or services; result in litigation and liability, including class action litigation; cause to incur significant costs, expenses and fees (including attorney fees); cause a material adverse impact to business operations or financial results, and; otherwise result in other material harm to our business (“Adverse Data Protection Impact”).
We are or may also be subject to the terms of our external and internal privacy and security policies, codes, representations, certifications, industry standards, publications and frameworks (“Privacy Policies”) and contractual obligations to third parties related to privacy, information security and Processing, including contractual obligations to indemnify and hold harmless third parties from the costs or consequences of non-compliance with Data Protection Laws or other obligations (“Data Protection Obligations”).
We strive to comply with applicable Data Protection Laws, Privacy Policies and Data Protection Obligations to the extent possible, but we may at times fail to do so, or may be perceived to have failed to do so. Moreover, despite our efforts, we may not be successful in achieving compliance if our employees, partners or vendors do not comply with applicable Data Protection Laws, Privacy Policies and Data Protection Obligations. We may be subject to, and suffer an Adverse Data Protection Impact if we fail (or are perceived to have failed) to comply with applicable Data Protection Laws, Privacy Policies and Data Protection Obligations, if our Privacy Policies are, in whole or part, found to be inaccurate, incomplete, deceptive, unfair or misrepresentative of our actual practices. In addition, any such failure or perceived failure could result in public statements against us by consumer advocacy groups, the media or others, which may cause us material reputational harm. Our actual or perceived failure to comply with Data Protection Laws, Privacy Policies and Data Protection Obligations could also subject us to litigation, claims, proceedings, actions or investigations by governmental entities, authorities or regulators, which could result in an Adverse Data Protection Impact, including required changes to our business practices, the diversion of resources and the attention of management from our business, regulatory oversights and audits, discontinuance of necessary Processing or other remedies that adversely affect our business.
In the United States, these include rules and regulations promulgated under the authority of the Federal Trade Commission, the Electronic Communications Privacy Act, the Computer Fraud and Abuse Act, the California Consumer Privacy Act, or CCPA, and other state and federal laws relating to privacy and data security. The California Consumer Privacy Act (the “CCPA”), which among other things, establishes a privacy framework for covered businesses, including an expansive definition of personal data and data privacy rights. The CCPA provides individual privacy rights for California residents and places increased privacy and security obligations on covered businesses processing personal data. The CCPA requires covered businesses to provide new disclosures to California residents and provide such individuals with ways to opt-out of certain sales of personal data. The CCPA also provides a private right of action and statutory damages for violations, including for data breaches. To the extent applicable to our business and operations, the CCPA may impact our business activities by increasing our compliance costs and potential liability with respect to personal information that we or third parties with whom we contract to provide services maintain about California residents. It is anticipated that the CCPA will be expanded on
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January 1, 2023, when the California Privacy Rights Act of 2020 (the “CPRA”) becomes operative. The CPRA will, among other things, give California residents the ability to limit use of certain sensitive personal data, further restrict the use of cross-contextual advertising, establish restrictions on the retention of personal data, expand the types of data breaches subject to the CCPA’s private right of action, provide for increased penalties for CPRA violations concerning California residents under the age of 16, and establish a new California Privacy Protection Agency to implement and enforce the law. These Data Protection Laws (such as the CCPA and CPRA) exemplify the vulnerability of our business to the evolving regulatory environment related to personal data.
Moreover, across the United States, laws and regulations governing data privacy and security continue to develop and evolve. For example, Virginia enacted the Consumer Data Protection Act (“CDPA”) that may impose obligations similar to or more stringent than those we may face under other Data Protection Laws. Compliance with the CPRA, the CCPA, the CDPA and any newly enacted privacy and data security laws or regulations may be challenging and cost- and time-intensive, and may require us to modify our data processing practices and policies and to incur substantial costs and potential liability in an effort to comply with such legislation. The Data Protection Laws, Privacy Policies and Data Protection Obligations to which we are subject may significantly affect our business activities and many of these obligations may contain ambiguous provisions creating uncertainty. Compliance with the requirements imposed by such Data Protection Laws and Data Protection Obligations may require us to revise our business practices, allocate more resources to privacy and security, and implement new technologies. Such efforts may result in significant costs to our business. Noncompliance could result in Adverse Data Protection Impact, including proceedings against us by governmental and regulatory entities, collaborators, individuals or others.
We rely on a variety of marketing techniques and practices, including email and social media marketing, online targeted advertising, and cookie-based Processing, to sell our products and services and to attract new customers, and we, and our vendors, are subject to various current and future Data Protection Laws and Data Protection Obligations that govern marketing and advertising practices. Governmental authorities continue to evaluate the privacy implications inherent in the use of third-party “cookies” and other methods of online tracking for behavioral advertising and other purposes, such as by regulating the level of consumer notice and consent required before a company can employ cookies or other electronic tracking tools or the use of data gathered with such tools. Additionally, some providers of consumer devices, web browsers and application shops have implemented, or announced plans to implement, means to make it easier for Internet users to prevent the placement of cookies or to block other tracking technologies, require additional consents or limit the ability to track user activity, which could if widely adopted result in the use of third-party cookies and other methods of online tracking becoming significantly less effective. Laws and regulations regarding the use of these cookies and other current online tracking and advertising practices or a loss in our ability to make effective use of services that employ such technologies could increase our costs of operations and limit our ability to acquire new customers on cost-effective terms, which, in turn, could have an adverse effect on our business, financial condition, results of operations and prospects.
We and our franchise partners are subject to extensive government regulations that could result in claims leading to increased costs and restrict our ability to operate franchises.
We and our franchise partners are subject to extensive government regulation at the federal, state and local government levels, including by the FTC. These include, but are not limited to, regulations relating to the preparation and sale of beverages, zoning and building codes, franchising, land use and employee, health, sanitation and safety matters. We and our franchise partners are required to obtain and maintain a wide variety of governmental licenses, permits and approvals. Local authorities may suspend or deny renewal of our governmental licenses if they determine that our operations do not meet the standards for initial grant or renewal. Difficulty or failure in obtaining them in the future could result in delaying or canceling the opening of new shops and thus could harm our business. Any such failure could also subject us to liability from our franchise partners.
Additionally, Congress has a legislation proposal in process that could shift more liability for franchise partner employment practices onto franchisors. The federal PROAct would codify the Browning-Ferris decision that redefined joint employment to include a broader category of conduct by the franchisor, thereby increasing the possibility of Dutch Bros being held liable for our franchise partners’ employment practices.
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Beverage and restaurant companies have been the target of class action lawsuits and other proceedings that are costly, divert management attention and, if successful, could result in our payment of substantial damages or settlement costs.
Our business is subject to the risk of litigation by employees, customers, competitors, landlords or neighboring businesses, suppliers, franchise partners, stockholders or others through private actions, class actions, administrative proceedings, regulatory actions or other litigation. The outcome of litigation, particularly class action and regulatory actions, is difficult to assess or quantify. In recent years, beverage and restaurant companies have been subject to lawsuits, including class action lawsuits, alleging violations of federal and state laws regarding workplace and employment matters, discrimination and similar matters. A number of these lawsuits have resulted in the payment of substantial damages by the defendants. Similar lawsuits have been instituted from time to time alleging violations of various federal and state wage and hour laws regarding, among other things, employee meal deductions, overtime eligibility of assistant managers and failure to pay for all hours worked. While we have not been a party to any of these types of lawsuits in the past, there can be no assurance that we will not be named in any such lawsuit in the future or that we would not be required to pay substantial expenses and/or damages.
Occasionally, our customers file complaints or lawsuits against us alleging that we are responsible for some illness or injury they suffered at or after a visit to one of our shops, including actions seeking damages resulting from food-borne illness or accidents in our shops. We also could be subject to a variety of other claims from third parties arising in the ordinary course of our business, including contract claims. The beverage and restaurant industry has also been subject to a growing number of claims that their menus and actions have led to the obesity of certain of their customers.
Occasionally, we and our franchise partners are involved in disputes with neighbors, government officials and landlords over the lines of cars attempting to visit our shops. These disputes have led to the loss or changing of locations, changes to hours and operations and costly litigation. If we are unable to reach agreement in future disputes or to alleviate pressure on certain shops by building additional shops or making operational changes, we may be required to close locations or alter operations at some locations. Lost sales and royalty payments caused by such closures or alterations, plus increased expenses from litigation, would harm our business.
Regardless of whether any claims against us are valid or whether we are liable, claims may be expensive to defend and may divert time and money away from our operations. In addition, they may generate negative publicity, which could reduce customer traffic and sales. Although we maintain what we believe to be adequate levels of insurance, insurance may not be available at all or in sufficient amounts to cover any liabilities with respect to these or other matters. A judgment or other liability in excess of our insurance coverage for any claims or any adverse publicity resulting from claims could harm our business.
Legislation and regulations requiring the display and provision of nutritional information for our menu offerings, and new information or attitudes regarding diet and health or adverse opinions about the health effects of consuming our menu offerings, could affect consumer preferences and negatively impact our business, financial condition and results of operations.
Government regulation and consumer eating habits may impact our business as a result of changes in attitudes regarding diet and health or new information regarding the health effects of consuming our menu offerings. These changes have resulted in, and may continue to result in, the enactment of laws and regulations that impact the ingredients and nutritional content of our menu offerings, or laws and regulations requiring us to disclose the nutritional content of our food offerings.
For example, a number of states, counties and cities have enacted menu labeling laws requiring multi-unit restaurant operators to disclose certain nutritional information to customers, or have enacted legislation restricting the use of certain types of ingredients in food sold at restaurants. Furthermore, the Patient Protection and Affordable Care Act of 2010 (the “PPACA”) establishes a uniform, federal requirement for certain restaurants to post certain nutritional information on their menus. Specifically, the PPACA amended the Federal Food, Drug and Cosmetic Act to require certain chain restaurants to publish the total number of calories of standard menu items on menus and menu boards, along with a statement that puts this calorie information in the context of a total daily calorie intake.
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The PPACA also requires covered restaurants to provide to consumers, upon request, a written summary of detailed nutritional information for each standard menu item, and to provide a statement on menus and menu boards about the availability of this information. The PPACA further permits the FDA to require covered restaurants to make additional nutrient disclosures, such as disclosure of trans-fat content. An unfavorable report on, or reaction to, our menu ingredients, the size of our portions or the nutritional content of our menu items could negatively influence the demand for our offerings.
We cannot make any assurances regarding our ability to effectively respond to changes in consumer health perceptions or our ability to successfully implement the nutrient content disclosure requirements and to adapt our menu offerings to trends in drinking and consumption habits. The imposition of menu-labeling laws could have an adverse effect on our results of operations and financial position, as well as the beverage industry in general.
Risks Related to Our Organizational Structure
Dutch Bros Inc. is a holding company, its only material asset following this offering will be its interest in Dutch Bros OpCo, and Dutch Bros Inc. is accordingly dependent upon distributions from Dutch Bros OpCo to pay taxes and expenses (including payments under the Tax Receivable Agreements) and pay dividends.
Dutch Bros Inc. will be a holding company, and following this offering will have no material assets other than its ownership of OpCo Units. Dutch Bros Inc. has no independent means of generating revenue or cash flow, and its ability to pay taxes, operating expenses and dividends in the future, if any, will be dependent upon the financial results and cash flows of Dutch Bros OpCo and its subsidiaries and distributions received from Dutch Bros OpCo. There can be no assurance that Dutch Bros OpCo and its subsidiaries will generate sufficient cash flow to make such distributions, or that applicable state law and contractual restrictions, including negative covenants in our debt instruments, will permit such distributions.
We anticipate that Dutch Bros OpCo will continue to be treated as a partnership for U.S. federal income tax purposes and, as such, generally will not be subject to any entity-level U.S. federal income tax. Instead, taxable income will be allocated to holders of Class A common units. Accordingly, Dutch Bros Inc. will incur income taxes on its allocable share of any net taxable income of Dutch Bros OpCo and will also incur expenses related to its operations, including payments under the Tax Receivable Agreements, which we expect could be significant. See “Certain Relationships and Related Person Transactions—Agreements to be entered into in connection with this offering—Tax Receivable Agreements.” Furthermore, Dutch Bros Inc.’s allocable share of Dutch Bros OpCo’s net taxable income will increase over time as the Continuing Members redeem or exchange their Class A common units for shares of Class A common stock or cash.
We intend, as its managing member, to cause Dutch Bros OpCo to make cash distributions to the holders of Class A common units, including us, in an amount sufficient to (i) fund their or our tax obligations in respect of allocations of taxable income from Dutch Bros OpCo and (ii) cover our operating expenses, including payments under the Tax Receivable Agreements. However, Dutch Bros OpCo’s ability to make such distributions may be subject to various limitations and restrictions, such as restrictions on distributions that would either violate any contract or agreement to which Dutch Bros OpCo is then a party, including debt agreements, or any applicable law, or that would have the effect of rendering Dutch Bros OpCo insolvent. In addition, for taxable years beginning after December 31, 2017, liability for adjustments to a partnership’s tax return can be imposed on the partnership itself in certain circumstances, absent an election to the contrary. Dutch Bros OpCo could be subject to material liabilities pursuant to adjustments to its partnership tax returns if, for example, its calculations or allocations of taxable income or loss are incorrect, which also could limit its ability to make distributions to us.
If Dutch Bros Inc. does not have sufficient funds to pay taxes or other liabilities or to fund our operations, we may have to borrow funds, which could materially adversely affect our liquidity and financial condition and subject us to various restrictions imposed by any such lenders. To the extent that Dutch Bros Inc. is unable to make payments under the Tax Receivable Agreements for any reason, such payments generally will be deferred and will accrue interest until paid; provided, however, that nonpayment for a specified period may constitute a material breach of a material obligation under the Tax Receivable Agreements and therefore accelerate payments due under the Tax Receivable Agreements. See “Certain Relationships and Related Person Transactions—Agreements to be
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entered into in connection with this offering—Tax Receivable Agreements.” In addition, if Dutch Bros OpCo does not have sufficient funds to make distributions, Dutch Bros Inc.’s ability to declare and pay cash dividends will also be restricted or impaired. See “Risk Factors—Risks Related to this Offering and Ownership of Our Class A Common Stock” and “Dividend Policy.”
Dutch Bros OpCo may make distributions of cash to us in excess of the amounts we use to make distributions to our stockholders and pay our expenses (including our taxes and payments under the Tax Receivable Agreements). To the extent we do not distribute such excess cash as dividends on our Class A and Class D common stock, the Continuing Members would benefit from any value attributable to such cash as a result of their ownership of Class A common stock upon a redemption or exchange of their Class A common units.
Distributions from Dutch Bros OpCo may in certain periods exceed our liabilities, including tax liabilities, obligations to make payments under the Tax Receivable Agreements, and other expenses. Our board of directors, in its sole discretion, will make any determination from time to time with respect to the use of any such excess cash so accumulated, which may include, among other uses, to pay dividends on its Class A common stock and Class D common stock. We will have no obligation to distribute such cash (or other available cash other than any declared dividend) to our stockholders. See “Certain Relationships and Related Person Transactions—Agreements to be entered into prior to this offering—Dutch Bros OpCo Third Amended and Restated Limited Liability Company Agreement.”
No adjustments to the exchange ratio of Class A common units for shares of our Class A common stock will be made as a result of either (i) any cash distribution by us or (ii) any cash that we retain and do not distribute to our stockholders. To the extent we do not distribute such cash as dividends on our Class A and Class D common stock and instead, for example, hold such cash balances, buy additional Class A common units or lend such cash to Dutch Bros OpCo, this may result in shares of our Class A common stock increasing in value relative to the Class A common units. The holders of Class A common units may benefit from any value attributable to such cash balances if they receive shares of Class A common stock on redemption or exchange of their Class A common units or if we acquire additional Class A common units (whether from Dutch Bros OpCo or from holders of Class A common units) at a price based on the market price of our Class A common stock at the time. See “Certain Relationships and Related Person Transactions—Agreements to be entered into prior to this offering—Dutch Bros OpCo Third Amended and Restated Limited Liability Company Agreement” and “Dividend Policy” for more information.
The Tax Receivable Agreements with the Continuing Members and Pre-IPO Blocker Holders require Dutch Bros Inc. to make cash payments to them in respect of certain tax benefits to which it may become entitled, and such payments may be substantial.
Prior to the completion of this offering, Dutch Bros Inc. will enter into two Tax Receivable Agreements. It will enter into (i) the Exchange Tax Receivable Agreement with the Continuing Members and (ii) the Reorganization Tax Receivable Agreement with the Pre-IPO Blocker Holders. These Tax Receivable Agreements will provide for the payment by Dutch Bros Inc. to such Continuing Members and Pre-IPO Blocker Holders of 85% of the benefits, if any, that Dutch Bros Inc. is deemed to realize (calculated using certain assumptions) as a result of certain tax attributes and benefits covered by the Tax Receivable Agreements. The Exchange Tax Receivable Agreement will provide for the payment by Dutch Bros Inc. to the Continuing Members of 85% of the benefits, if any, that Dutch Bros Inc. is deemed to realize (calculated using certain assumptions) as a result of (i) Dutch Bros Inc.’s allocable share of existing tax basis attributable to certain assets of Dutch Bros OpCo and its subsidiaries (including assets that will eventually be subject to depreciation or amortization once placed in service) at the time of any redemption or exchange of Class A common units (including in the Reorganization Transactions and Offering Transactions) which tax basis is allocated to such redeemed or exchanged Class A common units acquired by Dutch Bros Inc., (ii) adjustments that will increase the tax basis of the tangible and intangible assets of the Dutch Bros OpCo and its Subsidiaries as a result of Dutch Bros Inc.’s taxable acquisition of Class A common units from the Continuing Members in the Offering Transactions and in connection with future redemptions or exchanges of Class A common units for shares of Class A common stock (or a corresponding amount of cash), (iii) disproportionate allocations (if any) of tax benefits to Dutch Bros Inc. under Section 704(c) of the Code as a result of Dutch Bros Inc.’s acquisition of Class A common units from Dutch Bros OpCo in the Offering Transactions and from former PI Unit holders in the Pre-IPO Exchanges and (iv) certain other tax benefits, including tax benefits attributable to
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payments under the Exchange Tax Receivable Agreement. The Reorganization Tax Receivable Agreement will provide for the payment by Dutch Bros Inc. to Pre-IPO Blocker Holders of 85% of the benefits, if any, that Dutch Bros Inc. is deemed to realize (calculated using certain assumptions) as a result of (i) existing tax basis and certain adjustments to the tax basis of the certain assets of Dutch Bros OpCo and its subsidiaries, in each case, that are attributable to Class A common units acquired by Dutch Bros Inc. as a result of the Blocker Mergers, (ii) certain tax attributes of the Blocker Companies (including net operating losses, capital losses, research and development credits, work opportunity tax credits, excess Section 163(j) limitation carryforwards, charitable deductions, foreign Tax credits and any Tax attributes subject to carryforward under Section 381 of the Code), and (iii) certain other tax benefits, including tax benefits attributable to payments under the Reorganization Tax Receivable Agreement.
In each case, these increases in Dutch Bros Inc.’s allocable share of existing tax basis, the tax basis adjustments generated over time, and the application of Section 704(c) of the Code, may increase (for tax purposes) depreciation and amortization deductions allocated to Dutch Bros Inc. and, therefore, may reduce the amount of tax that Dutch Bros Inc. would otherwise be required to pay in the future. Actual tax benefits realized by Dutch Bros Inc. may differ from tax benefits calculated under the Tax Receivable Agreements as a result of the use of certain assumptions in the Tax Receivable Agreements, including the use of an assumed weighted-average state and local income tax rate to calculate tax benefits. The payment obligations under the Tax Receivable Agreements are an obligation of Dutch Bros Inc., but not of Dutch Bros OpCo. While the amount of existing tax basis, the anticipated tax basis adjustments, the application of Section 704(c) of the Code, and the actual amount and utilization of tax attributes, as well as the amount and timing of any payments under the Tax Receivable Agreements, will vary depending upon a number of factors, including the timing of redemptions and exchanges, the price of shares of our Class A common stock at the time of redemptions and exchanges, the extent to which such redemptions and exchanges are taxable, and the amount and timing of our income, we expect that as a result of the size of the transfers and increases in the tax basis of the tangible and intangible assets of Dutch Bros OpCo and our possible utilization of tax attributes, including existing tax basis attributable to Class A common units acquired at the time of this offering, the payments that Dutch Bros Inc. may make under the Tax Receivable Agreements may be substantial. The payments under the Tax Receivable Agreements are not conditioned upon continued ownership of Dutch Bros Inc. by the exchanging holders of Class A common units or the Pre-IPO Blocker Holders. See “Certain Relationships and Related Person Transactions—Agreements to be entered into in connection with this offering—Tax Receivable Agreements.”
Payments under the Tax Receivable Agreements will be based on the tax reporting positions that we determine, and the Internal Revenue Service (“IRS”) or another tax authority may challenge all or part of the tax basis increases, as well as other related tax positions we take, and a court could sustain such challenge. The Continuing Members and Pre-IPO Blocker Holders will not reimburse us for any payments previously made under the Tax Receivable Agreements if such basis increases or other tax benefits are subsequently disallowed, except that any excess payments made by Dutch Bros Inc. to the Continuing Members and Pre-IPO Blocker Holders will be netted against future payments that it might otherwise be required to make to them under the applicable Tax Receivable Agreements. However, a challenge to any tax benefits initially claimed may not arise for a number of years following the initial time of such payment or, even if challenged early, such excess cash payment may be greater than the amount of future cash payments that Dutch Bros Inc. might otherwise be required to make under the terms of the Tax Receivable Agreements and, as a result, there might not be sufficient future cash payments against which the prior payments can be fully netted. The applicable U.S. federal income tax rules are complex and factual in nature, and there can be no assurance that the IRS or a court will not disagree with our tax reporting positions. As a result, in certain circumstances Dutch Bros Inc. may make payments to the Continuing Members and Pre-IPO Blocker Holders under the Tax Receivable Agreements in excess of its actual cash tax savings. Therefore, payments could be made under the Tax Receivable Agreements in excess of the tax savings that we realize in respect of the tax attributes with respect to the Continuing Members and Pre-IPO Blocker Holders that are the subject of the Tax Receivable Agreements. See “Certain Relationships and Related Person Transactions—Agreements to be entered into in connection with this offering—Tax Receivable Agreements.”
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In certain cases, payments under the Tax Receivable Agreements may be accelerated and/or significantly exceed the actual benefits Dutch Bros Inc. realizes in respect of the tax attributes subject to the Tax Receivable Agreements.
Dutch Bros Inc.’s payment obligations under the Tax Receivable Agreements may be accelerated in the event of certain changes of control or certain material breaches of material obligations and will be accelerated in the event it elects to terminate the Tax Receivable Agreements early. The accelerated payments will relate to all relevant tax attributes that may subsequently be available to Dutch Bros Inc. The accelerated payments required in such circumstances will be calculated by reference to the present value (at a discount rate equal to the lesser of (i) 6.5% per annum and (ii) one year LIBOR, or its successor rate, plus 100 “basis points”) of all future payments that holders of Class A common units or other recipients would have been entitled to receive under the Tax Receivable Agreements, and such accelerated payments and any other future payments under the Tax Receivable Agreements will utilize certain valuation assumptions, including that Dutch Bros Inc. will have sufficient taxable income to fully utilize the deductions arising from the increased tax deductions and tax basis and other benefits related to entering into the Tax Receivable Agreements and sufficient taxable income to fully utilize any remaining net operating losses subject to the Tax Receivable Agreements on a straight line basis over the shorter of the statutory expiration period for such net operating losses and the five-year period after the early termination or change of control.
Accordingly, it is possible that the actual cash tax benefits realized by Dutch Bros Inc. may be significantly less than the corresponding Tax Receivable Agreement payments or that payments under the Tax Receivable Agreements may be made years in advance of the actual realization, if any, of the anticipated future tax benefits. There may be a material negative effect on our liquidity if the payments under the Tax Receivable Agreements exceed the actual cash tax benefits that Dutch Bros Inc. realizes in respect of the tax attributes subject to the Tax Receivable Agreements and/or payments to us from Dutch Bros OpCo are not sufficient to permit Dutch Bros Inc. to make payments under the Tax Receivable Agreements after it has paid taxes and other expenses. Based upon certain assumptions described in greater detail below under “Certain Relationships and Related Person Transactions—Agreements to be entered into in connection with this offering—Tax Receivable Agreements,” we estimate that if Dutch Bros Inc. were to exercise its termination right immediately following this offering, the aggregate amount of these termination payments would be approximately $               million. The foregoing number is merely an estimate and the actual payments could differ materially. We may need to incur additional indebtedness to finance payments under the Tax Receivable Agreements to the extent our cash resources are insufficient to meet our obligations under the Tax Receivable Agreements as a result of timing discrepancies or otherwise, and these obligations could have the effect of delaying, deferring or preventing certain mergers, asset sales, other forms of business combinations or other changes of control.
The acceleration of payments under the Tax Receivable Agreements in the case of certain changes of control may impair our ability to consummate change of control transactions or negatively impact the value received by owners of our Class A common stock.
The Tax Receivable Agreements provide that upon certain mergers, asset sales or other forms of business combination or certain other changes of control, Dutch Bros Inc.’s (or its successor’s) obligations with respect to the Tax Receivable Agreements would be based on certain assumptions, including that we (or our successor) would have sufficient taxable income to fully utilize the benefits arising from the increased tax deductions and tax basis and other benefits covered by the Tax Receivable Agreements. Consequently, it is possible, in these circumstances, that the actual cash tax savings realized by us may be significantly less than the corresponding tax benefit payments under the Tax Receivable Agreements. Dutch Bros Inc.’s accelerated payment obligations and/or assumptions adopted under the Tax Receivable Agreements in the case of a change of control may impair our ability to consummate a change of control transactions or negatively impact the value received by owners of our Class A common stock in a change of control transaction.
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If we were deemed to be an investment company under the Investment Company Act of 1940, as amended (the “1940 Act”), as a result of our ownership of Dutch Bros OpCo, applicable restrictions could make it impractical for us to continue our business as contemplated and could have a material adverse effect on our business.
Under Sections 3(a)(1)(A) and (C) of the 1940 Act, a company generally will be deemed to be an “investment company” for purposes of the 1940 Act if (i) it is, or holds itself out as being, engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting or trading in securities or (ii) it engages, or proposes to engage, in the business of investing, reinvesting, owning, holding or trading in securities and it owns or proposes to acquire investment securities having a value exceeding 40% of the value of its total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis. We do not believe that we are an “investment company,” as such term is defined in either of those sections of the 1940 Act.
Upon completion of the Reorganization Transactions, we will have control over Dutch Bros OpCo. As the sole managing member of Dutch Bros OpCo, Dutch Bros Inc. will control and operate Dutch Bros OpCo. On that basis, we believe that our interest in Dutch Bros OpCo is not an “investment security” as that term is used in the 1940 Act. However, if we were to cease participation in the management of Dutch Bros OpCo or if Dutch Bros OpCo itself becomes an investment company, our interest in Dutch Bros OpCo, as applicable, could be deemed an “investment security” for purposes of the 1940 Act.
We and Dutch Bros OpCo intend to conduct our operations so that we will not be deemed an investment company. If it were established that we were an unregistered investment company, there would be a risk that we would be subject to monetary penalties and injunctive relief in an action brought by the SEC, that we would be unable to enforce contracts with third parties, and that third parties could seek to obtain rescission of transactions undertaken during the period it was established that we were an unregistered investment company. If we were required to register as an investment company, restrictions imposed by the 1940 Act, including limitations on our capital structure and our ability to transact with affiliates, could make it impractical for us to continue our business as contemplated and could have a material adverse effect on our business.
Risks Related to this Offering and Ownership of Our Class A Common Stock
An active trading market for our Class A common stock may never develop or be sustained.
Prior to this offering, there has been no public market for any of our classes common stock. We intend to list our Class A common stock on the New York Stock Exchange under the symbol “BROS.” We cannot predict the extent to which investor interest in us will lead to the development of an active trading market on that exchange or otherwise or how liquid that market might become. An active public market for our Class A common stock may not develop or be sustained after this offering. If an active public market does not develop or is not sustained, it may be difficult for you to sell your shares of Class A common stock at a price that is attractive to you or at all. The initial public offering price for our Class A common stock has been determined through negotiations among us, the selling stockholders and the representatives of the underwriters and may not be indicative of the market price of our Class A common stock after this offering or to any other established criteria of the value of our business. If you purchase shares of our Class A common stock, you may not be able to resell those shares at or above the initial public offering price.
You will experience immediate and substantial dilution in the net tangible book value of the shares of Class A common stock you purchase in this offering.
The initial public offering price of our Class A common stock is substantially higher than the pro forma net tangible book value per share of our Class A common stock immediately after this offering. If you purchase shares of our Class A common stock in this offering, you will suffer immediate dilution of $               per share, or $               per share if the underwriters exercise their option to purchase additional shares in full, representing the difference between our pro forma net tangible book value per share after giving effect to the sale of Class A common stock in this offering at the initial public offering price of $               per share. See “Dilution.”
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Additional stock issuances (including pursuant to the redemption of Class A common units from our Continuing Members) could result in significant dilution to our stockholders and cause the trading price of our Class A common stock to decline.
We may issue our capital stock or securities convertible into our capital stock from time to time in connection with a financing, acquisition, investments or otherwise (including pursuant to the redemption of Class A common units from our Continuing Members). Additional issuances of our stock will result in dilution to existing holders of our stock. Any such issuances could result in substantial dilution to our existing stockholders and cause the trading price of our Class A common stock to decline.
In particular, following the issuance of shares of Class A common stock in connection with the redemption of Class A common units from our Continuing Members and the related cancellation of shares of our Class B common stock or Class C common stock, such shares of Class A common stock will have the same economic rights as other shares of Class A common stock.
The trading price of our Class A common stock may be volatile, and you could lose all or part of your investment.
Prior to this offering, there was no public market for shares of our Class A common stock. The initial public offering price of our Class A common stock was determined through negotiation between us and the underwriters. This price does not necessarily reflect the price at which investors in the market will be willing to buy and sell shares of our Class A common stock following this offering. In addition, the trading price of our Class A common stock following this offering is likely to be volatile and could be subject to fluctuations in response to various factors, some of which are beyond our control. These fluctuations could cause you to lose all or part of your investment in our Class A common stock as you might be unable to sell your shares at or above the price you paid in this offering. Factors that could cause fluctuations in the trading price of our Class A common stock include the risk factors set forth in this section as well as the following:
price and volume fluctuations in the overall stock market from time to time;
volatility in the trading prices and trading volumes of technology stocks;
changes in operating performance and stock market valuations of other technology companies generally, or those in our industry in particular;
sales of shares of our Class A common stock by us or our stockholders;
failure of securities analysts to maintain coverage of us, changes in financial estimates by securities analysts who follow our company, or our failure to meet these estimates or the expectations of investors;
changes in our financial, operating or other metrics, regardless of whether we consider those metrics as reflective of the current state or long-term prospects of our business, and how those results compare to securities analyst expectations, including whether those results fail to meet, exceed or significantly exceed securities analyst expectations, particularly in light of the significant portion of our revenue derived from a limited number of customers;
announcements by us or our competitors of new products or services;
the public’s reaction to our press releases, other public announcements, and filings with the SEC;
rumors and market speculation involving us or other companies in our industry;
actual or anticipated changes in our results of operations or fluctuations in our results of operations;
actual or anticipated developments in our business, our competitors’ businesses or the competitive landscape generally;
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litigation involving us, our industry or both, or investigations by regulators into our operations or those of our competitors;
actual or perceived privacy or data security incidents;
developments or disputes concerning our intellectual property or other proprietary rights;
announced or completed acquisitions of businesses, applications, products, services or technologies by us or our competitors;
new laws or regulations or new interpretations of existing laws or regulations applicable to our business;
changes in accounting standards, policies, guidelines, interpretations or principles;
any significant change in our management; and
general political and economic conditions and slow or negative growth of our markets.
In addition, in the past, following periods of volatility in the overall market and in the market price of a particular company’s securities, securities class action litigation has often been instituted against these companies. This litigation, if instituted against us, could result in substantial costs and a diversion of our management’s attention and resources.
The multi-class structure of our common stock as contained in our amended and restated certificate of incorporation has the effect of concentrating voting control with Continuing Members, limiting your ability to influence corporate matters.
Each share of our Class A common stock will entitle its holder to one vote on all matters on which stockholders are entitled to vote generally. Our shares of Class B common stock will have no economic rights but each share will entitle its holder to ten votes (or such lower number as required to prevent the holders of Class B common stock from holding, in the aggregate, 80% or more of the aggregate voting power of Dutch Bros at any time) for so long as the aggregate number of outstanding shares of our Class B common stock represents at least 5% of the total outstanding shares of common stock, and thereafter, one vote per share on all matters on which stockholders are entitled to vote generally. Immediately following the consummation of this offering, all our Class B common stock will be held by certain Continuing Members affiliated with our Co-Founder. Our shares of Class C common stock and Class D common stock will entitle its holder to three votes for each share (for so long as the aggregate number of outstanding shares of our Class C common stock and Class D common stock represents at least 5% of the total outstanding shares of common stock, and thereafter, one vote per share) on all matters on which stockholders are entitled to vote generally. Our shares of Class C common stock will have no economic rights but Class D common stock will have the same economic rights as shares of Class A common stock. Immediately following the consummation of this offering, all our Class C common stock will be held by certain Continuing Members affiliated with our Sponsor and all our Class D common stock will be held by the Pre-IPO Blocker Holders.
The difference in voting rights could adversely affect the value of our Class A common stock by, for example, delaying or deferring a change of control or if investors view, or any potential future purchaser of our company views, the superior voting rights of the Class B common stock, Class C common stock and Class D common stock to have value. Because of the ten-to-one voting ratio between our Class B common stock and our Class A common stock, and the three-to-one voting ratio between our Class C common stock and Class D common stock, on the one hand, and our Class A common stock on the other hand, the holders of our Class B common stock, Class C common stock and Class D common stock collectively will continue to control a majority of the combined voting power of our common stock and therefore be able to control all matters submitted to our stockholders so long as they collectively represent at least a majority of the total voting power. This concentrated control will limit or preclude the ability of holders of Class A common stock to influence corporate matters for the foreseeable future. For a description of our multi-class structure, see “Description of Capital Stock.”
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FTSE Russell and Standard & Poor’s does not allow most newly public companies utilizing dual or multi-class capital structures to be included in their indices. Affected indices include the Russell 2000 and the S&P 500, S&P MidCap 400 and S&P SmallCap 600, which together make up the S&P Composite 1500. Also in 2017, MSCI, a leading stock index provider, opened public consultations on their treatment of no-vote and multi-class structures and temporarily barred new multi-class listings from certain of its indices; however, in October 2018, MSCI announced its decision to include equity securities “with unequal voting structures” in its indices and to launch a new index that specifically includes voting rights in its eligibility criteria. Under the announced policies, our multi-class capital structure would make us ineligible for inclusion in certain indices, and as a result, mutual funds, exchange-traded funds and other investment vehicles that attempt to passively track these indices will not be investing in our stock. In addition, we cannot assure you that other stock indices will not take similar actions. Given the sustained flow of investment funds into passive strategies that seek to track certain indices, exclusion from certain stock indices would likely preclude investment by many of these funds and would make our Class A common stock less attractive to other investors. As a result, the trading price and volume of our Class A common stock could be adversely affected.
Our Co-Founder and Sponsor will continue to have significant influence over us after this offering, which could limit your ability to influence the outcome of matters submitted to stockholders for a vote.
Immediately following this offering and application of the net proceeds therefrom, our Co-Founder will beneficially own approximately               % of the combined voting power of our Class A common stock, Class B common stock, Class C common stock and Class D common stock (or               % if the underwriters exercise in full their option to purchase additional shares of Class A common stock) and our Sponsor, directly and through affiliated investment funds, will beneficially own approximately               % of the combined voting power of our Class A common stock, Class B common stock, Class C common stock and Class D common stock (or               % if the underwriters exercise in full their option to purchase additional shares of Class A common stock). Each share of Class A common stock entitling the holder to one vote, each share of Class B common stock entitling the holder to ten votes (for so long as the aggregate number of outstanding shares of our Class B common stock represents at least 5% of the total outstanding common stock, and thereafter, one vote per share, provided that the number of votes per share may be adjusted from time to time in accordance with our amended and restated certificate of incorporation, as required to prevent the holders of Class B common stock from holding, in the aggregate, 80% or more of our aggregate voting power at any time) and each share of Class C common stock and Class D common stock entitling the holder to three votes (for so long as the aggregate number of outstanding shares of our Class C common stock and Class D common stock represents at least 5% of the total outstanding common stock, and thereafter, one vote per share) on all matters on which stockholders are entitled to vote generally. Thus our Co-Founder and our Sponsor will exercise control over all corporate actions requiring stockholder approval, irrespective of how our other stockholders may vote, including the election and removal of directors and the size of our board of directors, any amendment of our certificate of incorporation or bylaws or the approval of any merger or other significant corporate transaction, including a sale of substantially all our assets.
In addition, our amended and restated certificate of incorporation provides that the holders of Class C common stock, which our Sponsor and its affiliates will hold all of, are entitled to elect up to two members of our board of directors, voting as a separate class. The Stockholders Agreement similarly provides that we will agree to nominate to our board of directors individuals designated by our Sponsor, which will retain the right to designate up to two members of the board of directors for so long as the holders of shares of Class C common stock and Class D common stock are entitled to elect one or more members to the board of directors pursuant to our amended and restated certificate of incorporation. Our Sponsor may therefore have influence over management and substantial control over matters requiring stockholder approval, including the annual election of directors and significant corporate transactions, such as a merger or other sale of our company or its assets, following the closing of this offering and for the foreseeable future. It is possible that our Co-Founder’s and our Sponsor’s interests may not align with the interests of our other stockholders. See “Certain Relationships and Related Person Transactions—Agreements to be entered into in connection with this offering—Stockholders Agreement”
In addition, immediately following this offering and application of the net proceeds therefrom, our Co-Founder and Sponsor, as Continuing Members, will own               % of the Class A common units (or               % if the underwriters exercise in full their option to purchase additional shares of Class A common stock). Because they
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hold their ownership interest in our business directly in Dutch Bros OpCo, rather than through Dutch Bros Inc., the Continuing Members may have conflicting interests with holders of shares of our Class A common stock. For example, if Dutch Bros OpCo makes distributions to Dutch Bros Inc., the non-managing members of Dutch Bros OpCo will also be entitled to receive such distributions pro rata in accordance with their ownership of Class A common units and their preferences as to the timing and amount of any such distributions may differ from those of our public stockholders. The Continuing Members may also have different tax positions from us that could influence their decisions regarding whether and when to dispose of assets, especially in light of the existence of the Tax Receivable Agreements that we will enter in connection with this offering, whether and when to incur new or refinance existing indebtedness and whether and when Dutch Bros Inc. should terminate the Tax Receivable Agreements and accelerate its obligations thereunder. In addition, the structuring of future transactions may take into consideration our pre-IPO owners’ tax or other considerations even where no similar benefit would accrue to us. See “Certain Relationships and Related Person Transactions—Agreements to be entered into in connection with this offering—Tax Receivable Agreements.”
Upon the listing of our Class A common stock on the New York Stock Exchange, we will be a “controlled company” within the meaning of the New York Stock Exchange rules and, as a result, will qualify for, and intend to rely on, exemptions and relief from certain corporate governance requirements. You will not have the same protections afforded to stockholders of companies that are subject to such requirements.
Following this offering, certain affiliates of our Co-Founder will beneficially own approximately                % of the combined voting power of our Class A common stock, Class B common stock, Class C common stock and Class D common stock (or                % if the underwriters exercise in full their option to purchase additional shares of Class A common stock). As a result, we will be a “controlled company” within the meaning of the New York Stock Exchange corporate governance standards. Under these corporate governance standards, a company of which more than 50% of the voting power in the election of directors is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain corporate governance requirements. For example, controlled companies are not required to have:
a board that is composed of a majority of “independent directors,” as defined under the New York Stock Exchange rules;
a compensation committee that is composed entirely of independent directors; and
director nominations be made, or recommended to the full board of directors, by its independent directors, or by a nominations/governance committee that is composed entirely of independent directors.
Following this offering, we intend to utilize these exemptions. Accordingly, you will not have the same protections afforded to stockholders of companies that are subject to all the corporate governance requirements of the New York Stock Exchange.
Certain of our directors have relationships with our Sponsor, which may cause conflicts of interest with respect to our business.
Following this offering, two of our directors will be affiliated with our Sponsor. Our Sponsor-affiliated directors have fiduciary duties to us and, in addition, have duties to our Sponsor. As a result, these directors may face real or apparent conflicts of interest with respect to matters affecting both us and our Sponsor, whose interests may be adverse to ours in some circumstances.
Additionally, our amended and restated certificate of incorporation provides that we renounce any interest or expectancy in, or in being offered an opportunity to participate in, business opportunities that are from time to time available to Sponsor and of its officers, directors, agents, stockholders, members, partners, affiliates and subsidiaries and each such party shall not have any obligation to offer us those opportunities unless presented to one of our directors or officers in his or her capacity as a director or officer.
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We cannot predict the impact our multi-class structure may have on the market price of our Class A common stock.
We cannot predict whether our multi-class structure, combined with the concentrated control of our stockholders who held our capital stock prior to the completion of this offering, including our executive officers, employees, and directors and their affiliates, will result in a lower or more volatile market price of our Class A common stock or in adverse publicity or other adverse consequences. For example, as mentioned above certain index providers have announced restrictions on including companies with multiple class share structures in certain of their indices. Under the announced policies, our multi-class capital structure would make us ineligible for inclusion in many indices. Given the sustained flow of investment funds into passive strategies that seek to track certain indexes, exclusion from stock indexes would likely preclude investment by many of these funds and could make our Class A common stock less attractive to other investors. As a result, the market price of our Class A common stock could be adversely affected.
Future sales of shares of our Class A or Class D common stock cause the market price of our Class A common stock to decline.
Sales of a substantial number of shares of our Class A or Class D common stock (after converting to Class A common stock) in the public market following the completion of this offering, or the perception that these redemptions, exchanges or sales might occur, could depress the market price of our Class A common stock and could impair our ability to raise capital through the sale of additional equity securities. Many of our existing equity holders have substantial unrecognized gains on the value of the equity they hold based upon the price of this offering, and therefore they may take steps to sell their shares or otherwise secure the unrecognized gains on those shares.
Upon completion of this offering (subject to the terms of the Third LLC Agreement), an aggregate of                Class A common units may be redeemed in exchange for shares of our Class A common stock and an aggregate                shares of Class D common stock may be converted into shares of our Class A common stock. Any shares we issue upon redemption or exchange of Class A common units or upon the conversion of shares of Class D common stock, as applicable, will be “restricted securities” as defined in Rule 144 and may not be sold in the absence of registration under the Securities Act unless an exemption from registration is available, including the exemptions contained in Rule 144. We, our executive officers, our directors, the holders of all our Class D common stock, and the holders of substantially all our outstanding OpCo Units have agreed, subject to certain exceptions, not to dispose of or hedge any shares of our Class A common stock (including shares issued upon redemption or exchange of Class A common units or upon conversion of shares of Class D common stock, as applicable) or securities convertible into or exchangeable for shares of our Class A common stock, including our Class B, Class C and Class D common stock, for the lock-up period following the date of this prospectus, except with certain underwriters’ prior written consent. See “Underwriting (Conflicts of Interest).”
Upon the expiration of the lock-up agreements described above, all such shares will be eligible for resale in the public market, subject, in the case of shares held by our affiliates, to volume, manner of sale, and other limitations under Rule 144.
Our trading price and trading volume could decline if securities or industry analysts do not publish research about our business, or if they publish unfavorable research.
Equity research analysts do not currently provide coverage of our Class A common stock, and we cannot assure that any equity research analysts will adequately provide research coverage of our Class A common stock after the listing of our Class A common stock on the New York Stock Exchange. A lack of adequate research coverage may harm the liquidity and trading price of our Class A common stock. To the extent equity research analysts do provide research coverage of our Class A common stock, we will not have any control over the content and opinions included in their reports. The trading price of our Class A common stock could decline if one or more equity research analysts downgrade our stock or publish other unfavorable commentary or research. If one or more equity research analysts cease coverage of our company, or fail to regularly publish reports on us, the demand for our Class A common stock could decrease, which in turn could cause our trading price or trading volume to decline.
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We will incur costs and demands upon management as a result of complying with the laws and regulations affecting public companies in the United States, which may harm our business.
As a public company listed in the United States, we will incur significant additional legal, accounting, and other expenses. In addition, changing laws, regulations, and standards relating to corporate governance and public disclosure, including regulations implemented by the SEC and the New York Stock Exchange, may increase legal and financial compliance costs and make some activities more time consuming. These laws, regulations and standards are subject to varying interpretations, and as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. We intend to invest resources to comply with evolving laws, regulations, and standards, and this investment may result in increased selling, general and administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities. If, notwithstanding our efforts, we fail to comply with new laws, regulations, and standards, regulatory authorities may initiate legal proceedings against us and our business may be harmed.
These rules and regulations could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors or our board committees or as executive officers. Our management and other personnel will devote a substantial amount of time to these compliance initiatives. As a result, management’s attention may be diverted from other business concerns, which could harm our business and operating results. We will need to hire more employees in the future to comply with these requirements, which will increase our costs and expenses.
Our management team and other personnel devote a substantial amount of time to new compliance initiatives and we may not successfully or efficiently manage our transition to a public company. To comply with the requirements of being a public company, including the Sarbanes-Oxley Act, we will need to undertake various actions, such as implementing new internal controls and procedures and hiring accounting or internal audit staff, which would require us to incur additional expenses and harm our results of operations.
Failure to comply with these rules might also make it more difficult for us to obtain certain types of insurance, including director and officer liability insurance, and we might be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these events would also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, on committees of our board of directors or as members of senior management.
We are an “emerging growth company,” and we intend to comply only with reduced disclosure requirements applicable to emerging growth companies. As a result, our Class A common stock could be less attractive to investors.
We are an “emerging growth company,” as defined in the JOBS Act, and for as long as we continue to be an emerging growth company, we may choose to take advantage of exemptions from various reporting requirements applicable to other public companies but not to emerging growth companies, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of this offering, (b) in which we have total annual gross revenue of over $1.07 billion or (c) in which we are deemed to be a large accelerated filer, which means the market value of our Class A common stock held by non-affiliates exceeds $700 million as of the prior June 30 and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period. We cannot predict if investors will find our Class A common stock less attractive if we choose to rely on these exemptions. If some investors find our Class A common stock less attractive as a result of any choices to reduce future disclosure, there may be a less active trading market for our Class A common stock, and our stock price may be more volatile.
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General Risks
Our quarterly results may fluctuate significantly and may not meet our expectations or those of investors or securities analysts.
Our quarterly results of operations, including the levels of our revenue, deferred revenue, working capital, and cash flows, may vary significantly in the future, such that period-to-period comparisons of our results of operations may not be meaningful. Our quarterly financial results may fluctuate due to a variety of factors, many of which are outside of our control and may be difficult to predict, including, but not limited to:
the level of demand for our products;
our ability to grow or maintain our dollar-based net retention rate, expand usage within organizations, and sell subscriptions;
the timing and success of new features, integrations, capabilities, and enhancements by us to our products, or by our competitors to their products, or any other changes in the competitive landscape of our market;
our ability to achieve widespread acceptance and use of our products;
errors in our forecasting of the demand for our products, which would lead to lower revenue, increased costs, or both;
security breaches, technical difficulties, or interruptions to our systems;
pricing pressure as a result of competition or otherwise;
the continued ability to hire high quality and experienced talent in a fiercely competitive environment;
the timing of the grant or vesting of equity awards to employees, directors, or consultants;
declines in the values of foreign currencies relative to the U.S. dollar;
changes in, and continuing uncertainty in relation to, the legislative or regulatory environment;
legal and regulatory compliance costs in new and existing markets;
costs and timing of expenses related to the potential acquisition of businesses, talent, technologies, or intellectual property, including potentially significant amortization costs and possible write-downs;
environmental matters, such as wildfires, and health epidemics, such as the COVID-19 pandemic, influenza, and other highly communicable diseases or viruses;
adverse litigation judgments, other dispute-related settlement payments, or other litigation-related costs; and
general economic conditions in either domestic or international markets, including geopolitical uncertainty and instability and their effects on beverage purchases.
Any one or more of the factors above may result in significant fluctuations in our results of operations, which may negatively impact the trading price of our Class A common stock. You should not rely on our past results as an indicator of our future performance.
Our outstanding indebtedness could materially adversely affect our financial condition and our ability to operate our business, pursue our growth strategy, and react to changes in the economy or industry.
As of June 30, 2021, we had $198.8 million in principal amount of loans outstanding under our Senior Secured Facility and $25.0 million in revolving loans. Although we expect to use the proceeds from this offering to
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pay down part of our loans, we will continue to have a significant amount of indebtedness. See “Use of Proceeds.” In addition, subject to certain restrictions under our Senior Secured Credit Facility, we may incur additional debt.
Our substantial debt could have important consequences to you, including the following:
it may be difficult for us to satisfy our obligations, including debt service requirements under our outstanding debt, resulting in possible defaults on and acceleration of such indebtedness;
our ability to obtain additional financing for working capital, capital expenditures, debt service requirements or other general corporate purposes may be impaired;
a substantial portion of cash flow from operations may be dedicated to the payment of principal and interest on our debt, therefore reducing our ability to use our cash flow to fund our operations, capital expenditures, future business opportunities, acquisitions and other general corporate purposes;
we are more vulnerable to economic downturns and adverse industry conditions and our flexibility to plan for, or react to, changes in our business or industry is more limited;
our ability to capitalize on business opportunities and to react to competitive pressures, as compared to our competitors, may be compromised due to our level of debt; and
our ability to borrow additional funds or to refinance debt may be limited.
Furthermore, all of our debt under our Senior Secured Credit Facility bears interest at variable rates. If these rates were to increase significantly, whether because of an increase in market interest rates or a decrease in our creditworthiness, our ability to borrow additional funds may be reduced and the risks related to our substantial debt would intensify.
Restrictions imposed by our outstanding indebtedness and any future indebtedness may limit our ability to operate our business, execute our growth strategy, and to finance our future operations or capital needs or to engage in other business activities.
In May 2021, we entered into a Credit Agreement with JPMorgan Chase Bank, N.A. as administrative agent and other financial institutions as the lenders party thereto (referred to as the “Senior Secured Credit Facility” and further defined below), which restrict us from engaging in specified types of transactions. These covenants restrict our ability, among other things, to:
incur additional debt;
grant liens on assets;
sell or dispose of assets;
merge with or acquire other companies, or make other investments;
liquidate or dissolve ourselves; engage in businesses that are not in a related line of business; or
pay dividends or make other distribution
In addition, our Senior Secured Credit Facility contains financial covenants that require us not to exceed a maximum net lease-adjusted total leverage ratio and maintain a minimum fixed charge coverage ratio. Our ability to comply with these financial covenants can be affected by events beyond our control, and we may not be able to satisfy them. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Senior Secured Credit Facilities.”
A breach of any of the covenants in the Senior Secured Credit Facility could result in an event of default, which could trigger acceleration of our indebtedness and may result in the acceleration of or default under other debt we may incur in the future, which could have a material adverse effect on our business, results of operations and
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financial condition. In the event of such event of default under our Senior Secured Credit Facility, the applicable lenders could elect to terminate their commitments and declare all outstanding loans, together with accrued and unpaid interest and any fees and other obligations, to be due and payable, and/or exercise their rights and remedies under the loan documents governing our Senior Secured Credit Facility or any applicable law. Our obligations under the Senior Secured Credit Facility are guaranteed by our subsidiaries and secured by substantially all of our and such subsidiary guarantors’ assets.
If we were unable to repay or otherwise refinance these loans when due, the applicable lenders could proceed against the collateral granted to them to secure such indebtedness, which could force us into bankruptcy or liquidation. In the event the applicable lenders accelerate the repayment of our loans, we and our subsidiaries may not have sufficient assets to repay such indebtedness. Any acceleration of amounts due under our Senior Secured Credit Facility or the exercise by the applicable lenders of their rights and remedies would likely have a material adverse effect on our business.
As a result of these restrictions, we may be:
limited in how we conduct our business;
unable to raise additional debt or equity financing to operate during general economic or business downturns; or
unable to compete effectively or to take advantage of new business opportunities.
These restrictions may affect our ability to grow in accordance with our strategy.
Furthermore, the terms of any future indebtedness we may incur could have further additional restrictive covenants. We may not be able to maintain compliance with these covenants in the future, and in such event, we cannot assure you that we will be able to obtain waivers from the lenders or amend the covenants.
We have identified a material weakness in our internal control over financial reporting. If we are unable to remedy our material weakness, or if we fail to establish and maintain effective internal controls, we may be unable to produce timely and accurate financial statements, and we may conclude that our internal control over financial reporting is not effective, which could adversely impact our investors’ confidence and our Class A common stock price.
Prior to this offering, we were a private company and had limited accounting and financial reporting personnel and other resources with which to address our internal controls and related procedures. In connection with the audit of our consolidated financial statements for the year ended December 31, 2019 and 2020, our management and auditors determined that a material weakness existed in the internal control over financial reporting due to limited accounting department personnel capable of appropriately accounting for complex transactions we undertake. Additionally, there were insufficient controls over the review and approval of manual journal entries, including appropriate segregation of duties. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis. We are in the process of implementing measures designed to improve our internal control over financial reporting to remediate this material weakness. While we continue to take remediation steps, including hiring additional personnel subsequent to December 31, 2020, we continued to have a limited number of personnel with the level of GAAP accounting knowledge, specifically related to complex accounting transactions, commensurate with our financial reporting requirements. As such, we continued to have a material weakness in our control over financial reporting as of December 31, 2020.
We cannot assure you that the measures we have taken to date, and are continuing to implement, will be sufficient to remediate the material weakness we have identified or avoid potential future material weaknesses. If the steps we take do not correct the material weakness in a timely manner, we will be unable to conclude that we maintain effective internal control over financial reporting. Accordingly, there could continue to be a reasonable
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possibility that a material misstatement of our financial statements would not be prevented or detected on a timely basis.
If we fail to remediate our existing material weakness or identify new material weaknesses in our internal controls over financial reporting, if we are unable to comply with the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner, if we are unable to conclude that our internal controls over financial reporting are effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal controls over financial reporting when we are no longer an emerging growth company, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock could be negatively affected. As a result of such failures, we could also become subject to investigations by the New York Stock Exchange, the SEC or other regulatory authorities, and become subject to litigation from investors and stockholders, which could harm our reputation and financial condition or divert financial and management resources from our regular business activities.
A failure to establish and maintain an effective system of disclosure controls and internal control over financial reporting, could adversely affect our ability to produce timely and accurate financial statements or comply with applicable regulations.
As a public company, we will be subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, and the rules and regulations of the applicable listing standards of the New York Stock Exchange. We expect that the requirements of these rules and regulations will continue to increase our legal, accounting, and financial compliance costs, make some activities more difficult, time consuming, and costly, and place significant strain on our personnel, systems, and resources.
The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. We are continuing to develop and refine our disclosure controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we will file with the SEC is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms and that information required to be disclosed in reports under the Exchange Act, is accumulated and communicated to our principal executive and financial officers. We are also continuing to improve our internal controls over financial reporting. For example, as we have prepared to become a public company, we have worked to improve the controls around our key accounting processes and our quarterly close process, and we have hired additional accounting and finance personnel to help us implement these processes and controls. In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting, we have expended, and anticipate that we will continue to expend, significant resources, including accounting-related costs and investments to strengthen our accounting systems.
Our current controls and any new controls that we develop may become inadequate because of changes in conditions in our business. In addition, changes in accounting principles or interpretations could also challenge our internal controls and require that we establish new business processes, systems, and controls to accommodate such changes. We have limited experience with implementing the systems and controls that will be necessary to operate as a public company, as well as adopting changes in accounting principles or interpretations mandated by the relevant regulatory bodies. Additionally, if these new systems, controls or standards and the associated process changes do not give rise to the benefits that we expect or do not operate as intended, it could adversely affect our financial reporting systems and processes, our ability to produce timely and accurate financial reports or the effectiveness of internal control over financial reporting. Moreover, our business may be harmed if we experience problems with any new systems and controls that result in delays in their implementation or increased costs to correct any post-implementation issues that may arise.
Further, weaknesses in our disclosure controls and internal control over financial reporting may be discovered in the future. Any failure to develop or maintain effective controls or any difficulties encountered in their implementation or improvement could harm our results of operations or cause us to fail to meet our reporting obligations and may result in a restatement of our consolidated financial statements for prior periods. Any failure to implement and maintain effective internal control over financial reporting also could adversely affect the results of periodic management evaluations and annual independent registered public accounting firm attestation reports
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regarding the effectiveness of our internal control over financial reporting that we will eventually be required to include in our periodic reports that will be filed with the SEC. Ineffective disclosure controls and procedures and internal control over financial reporting could also cause investors to lose confidence in our reported financial and other information, which would likely have a negative effect on the trading price of our Class A common stock. In addition, if we are unable to continue to meet these requirements, we may not be able to remain listed on the New York Stock Exchange. We are not currently required to comply with the SEC rules that implement Section 404 of the Sarbanes-Oxley Act and are therefore not required to make a formal assessment of the effectiveness of our internal control over financial reporting for that purpose. As a public company, we are required to provide an annual management report on the effectiveness of our internal control over financial reporting commencing with our second annual report on Form 10-K.
Our independent registered public accounting firm is not required to formally attest to the effectiveness of our internal control over financial reporting until after we are no longer an “emerging growth company” as defined in the JOBS Act. At such time, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our internal control over financial reporting is documented, designed or operating. Any failure to maintain effective disclosure controls and internal control over financial reporting could harm our business, results of operations, and financial condition and could cause a decline in the trading price of our common stock. Changes in tax laws or regulations could be enacted or existing tax laws or regulations could be applied to us or our customers in a manner that could increase the costs of our products and harm our business.
We will have broad discretion in the use of net proceeds from this offering and may invest or spend the proceeds in ways with which you do not agree and in ways that may not yield a return.
We cannot specify with any certainty the particular uses of the net proceeds that we will receive from this offering. Our management will have broad discretion over the use of net proceeds from this offering, including for any of the purposes described in “Use of Proceeds,” and you will not have the opportunity as part of your investment decision to assess whether the net proceeds are being used appropriately. Investors may not agree with our decisions, and our use of the proceeds may not yield any return on your investment. Because of the number and variability of factors that will determine our use of the net proceeds from this offering, their ultimate use may vary substantially from their currently intended use. Our failure to apply the net proceeds of this offering effectively could impair our ability to pursue our growth strategy or could require us to raise additional capital.
We may engage in merger and acquisition activities, which would require significant management attention, disrupt our business, dilute stockholder value, and adversely affect our business, results of operations, and financial condition.
As part of our business strategy to expand our product offerings and grow our business in response to changing technologies, customer demand, and competitive pressures, we have in the past and may in the future make investments or acquisitions in other companies, products or technologies. The identification of suitable acquisition candidates can be difficult, time-consuming, and costly, and we may not be able to complete acquisitions on favorable terms, if at all. These acquisitions may not ultimately strengthen our competitive position or achieve the goals of such acquisition, and any acquisitions we complete could be viewed negatively by customers or investors. We may encounter difficult or unforeseen expenditures in integrating an acquisition, particularly if we cannot retain the key personnel of the acquired company. In addition, if we fail to successfully integrate such acquisitions, or the assets, technologies or personnel associated with such acquisitions, into our company, the business and results of operations of the combined company would be adversely affected.
Acquisitions may disrupt our ongoing operations, divert management from their primary responsibilities, subject us to additional liabilities, increase our expenses, subject us to increased regulatory requirements, cause adverse tax consequences or unfavorable accounting treatment, expose us to claims and disputes by stockholders and third parties, and adversely impact our business, financial condition, and results of operations. We may not successfully evaluate or utilize the acquired technology and accurately forecast the financial impact of an acquisition transaction, including accounting charges. We may have to pay cash for any such acquisition which would limit other potential uses for our cash. If we incur debt to fund any such acquisition, such debt may subject us to material
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restrictions in our ability to conduct our business, result in increased fixed obligations, and subject us to covenants or other restrictions that would decrease our operational flexibility and impede our ability to manage our operations. If we issue a significant amount of equity securities in connection with future acquisitions, existing stockholders’ ownership would be diluted.
We may need additional capital, and we cannot be sure that additional financing will be available.
Historically, we have financed our operations and capital expenditures primarily through sales of Dutch Bros OpCo Units that are convertible into our capital stock. In the future, we may raise additional capital through additional equity or debt financings to support our business growth, to respond to business opportunities, challenges or unforeseen circumstances, or for other reasons. On an ongoing basis, we are evaluating sources of financing and may raise additional capital in the future. Our ability to obtain additional capital will depend on our development efforts, business plans, investor demand, operating performance, the condition of the capital markets, and other factors. We cannot assure you that additional financing will be available to us on favorable terms when required, or at all. If we raise additional funds through the issuance of equity, equity-linked or debt securities, those securities may have rights, preferences or privileges senior to the rights of existing stockholders, and existing stockholders may experience dilution. Further, if we are unable to obtain additional capital when required, or are unable to obtain additional capital on satisfactory terms, our ability to continue to support our business growth or to respond to business opportunities, challenges, or unforeseen circumstances would be adversely affected.
Our amended and restated certificate of incorporation that will be in effect at the closing of this offering will provide that the Court of Chancery of the State of Delaware and, to the extent enforceable, the federal district courts of the United States of America will be the exclusive forums for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.
Our amended and restated certificate of incorporation that will be in effect immediately prior to the closing of this offering will provide that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware is the exclusive forum for the following types of actions or proceedings under Delaware statutory or common law:
any derivative claim or cause of action brought on our behalf;
any claim or cause of action for a breach of fiduciary duty owed by any of our current or former directors, officers or other employees to us or our stockholders;
any claim or cause of action against us or any of our current or former directors, officers or other employees arising out of or pursuant to any provision of the Delaware General Corporation Law, our amended and restated certificate of incorporation or our bylaws (as each may be amended from time to time);
any claim or cause of action seeking to interpret, apply, enforce or determine the validity of our amended and restated certificate of incorporation or our amended and restated bylaws (as each may be amended from time to time, including any right, obligation or remedy thereunder);
any claim or cause of action as to which the Delaware General Corporation Law confers jurisdiction to the Court of Chancery of the State of Delaware; and
any claim or cause of action against us or any of our current or former directors, officers or other employees governed by the internal-affairs doctrine.
This provision would not apply to suits brought to enforce a duty or liability created by the Exchange Act or any other claim for which the U.S. federal courts have exclusive jurisdiction. In addition, our amended and restated certificate of incorporation to be effective immediately prior to the closing of this offering will provide that, unless we consent in writing to the selection of an alternative forum, to the fullest extent permitted by law, the federal district courts of the United States of America shall be the exclusive forum for the resolution of any
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complaint asserting a cause or causes of action arising under the Securities Act, including all causes of action asserted against any defendant to such complaint. For the avoidance of doubt, this provision is intended to benefit and may be enforced by us, our officers and directors, the underwriters to any offering giving rise to such complaint, and any other professional entity whose profession gives authority to a statement made by that person or entity and who has prepared or certified any part of the documents underlying the offering. If a court were to find either choice of forum provision contained in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions. For example, the Court of Chancery of the State of Delaware recently determined that the exclusive forum provisions of federal district courts of the United States of America for resolving any complaint asserting a cause of action arising under the Securities Act is not enforceable.
These choice of forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, or other employees. While the Delaware courts have determined that such choice of forum provisions are facially valid, a stockholder may nevertheless seek to bring a claim in a venue other than those designated in the exclusive forum provisions, and there can be no assurance that such provisions will be enforced by a court in those other jurisdictions. We note that investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder.
Additionally, our amended and restated certificate of incorporation to be effective immediately following to the closing of this offering will provide that any person or entity holding, owning or otherwise acquiring any interest in any of our securities shall be deemed to have notice of and consented to these provisions.
Provisions in our corporate charter documents and under Delaware law may prevent or frustrate attempts by our stockholders to change our management or hinder efforts to acquire a controlling interest in us, and the market price of our Class A common stock may be lower as a result.
There are provisions in our amended and restated certificate of incorporation and bylaws, as they will be in effect following this offering, that may make it difficult for a third party to acquire, or attempt to acquire, control of our company, even if a change in control was considered favorable by our stockholders.
Our charter documents will also contain other provisions that could have an anti-takeover effect, such as:
permitting the board of directors to establish the number of directors and fill any vacancies and newly created directorships;
providing that directors may only be removed pursuant to the provisions of Section 141(k) of the Delaware General Corporation Law;
prohibiting cumulative voting for directors;
the ability of the holders of our Class C common stock, voting as a separate class, to elect up to two directors, subject to the limitations set forth in our amended and restated certificate;
requiring super-majority voting to amend some provisions in our amended and restated bylaws;
authorizing the issuance of “blank check” preferred stock that our board of directors could use to implement a stockholder rights plan;
eliminating the ability of stockholders to call special meetings of stockholders; and
our multi-class common stock structure as described above.
Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which prohibit a person who owns 15% or more of our outstanding voting stock from merging or combining with us for a period of three years after the date of the transaction in which the person acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is approved in a prescribed manner. Any provision in our amended and restated certificate of incorporation or our bylaws or
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Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our Class A common stock and could also affect the price that some investors are willing to pay for our Class A common stock.
We do not intend to pay dividends for the foreseeable future.
We have never declared or paid any cash dividends on our capital stock, and we do not intend to pay any cash dividends in the foreseeable future. We expect to retain future earnings, if any, to fund the development and growth of our business. Any future determination to pay dividends on our capital stock will be at the discretion of our board of directors. In addition, our ability to pay dividends on our Class A common stock and our Class D common stock is currently limited by the covenants of our Senior Secured Credit Facility and may be further restricted by the terms of any future debt or preferred securities. Holders of our Class B common stock and Class C common stock do not have any right to receive dividends, or to receive a distribution upon a liquidation, dissolution or winding up of Dutch Bros Inc., with respect to their Class B common stock or Class C common stock. Accordingly, stockholders must rely on sales of their Class A common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investments.
Catastrophic events may disrupt our business.
Labor discord or disruption, geopolitical events, social unrest, war, terrorism, political instability, acts of public violence, boycotts, hostilities and social unrest and other health pandemics that lead to avoidance of public places or cause people to stay at home could harm our business. Additionally, natural disasters or other catastrophic events may cause damage or disruption to our operations, international commerce, and the global economy, and thus could harm our business. In particular, the west coast wildfires and the COVID-19 pandemic, including the reactions of governments, markets, and the general public, may result in a number of adverse consequences for our business, operations, and results of operations, many of which are beyond our control. In the event of a major earthquake, hurricane or catastrophic event such as fire, power loss, telecommunications failure, cyber-attack, war or terrorist attack, we may be unable to continue our operations and may endure system interruptions, reputational harm, breaches of data security, and loss of critical data, all of which would harm our business, results of operations, and financial condition. In addition, the insurance we maintain would likely not be adequate to cover our losses resulting from disasters or other business interruptions.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements about us and our industry that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this prospectus, including statements regarding our future results of operations or financial condition, business strategy and plans, and objectives of management for future operations are forward-looking statements. In some cases, you can identify forward-looking statements because they contain words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “toward,” “will,” or “would,” or the negative of these words or other similar terms or expressions. These forward-looking statements include, but are not limited to, statements concerning the following:
the COVID-19 pandemic and west coast wildfires and their impact on our business, operations, and the markets and communities in which we and our customers operate;
our inability to successfully identify and secure appropriate sites and timely develop and expand our operations;
our inability to protect our brand and reputation;
our dependence on a small number of suppliers and a single roasting facility;
our inability to protect against security breaches of confidential customer information;
our expectations regarding our future operating and financial performance;
the size of our addressable markets, market share, and market trends;
our ability to compete in our industry;
changes in consumer tastes and nutritional and dietary trends;
our ability to effectively manage the continued growth of our workforce and operations;
our inability to open profitable shops;
our failure to generate projected same shop sales growth;
the sufficiency of our cash, cash equivalents, and investments to meet our liquidity needs;
our dependence on long-term non-cancelable leases;
our relationship with our employees and the status of our workers;
our inability to maintain good relationships with our franchising partners;
the effects of seasonal trends on our results of operations;
our vulnerability to global financial market conditions, including the continuing effects from the recent recession;
our ability to attract, retain, and motivate skilled personnel, including key members of our senior management;
our vulnerability to adverse weather conditions in local or regional areas where our shops are located;
our realization of any benefit from the Tax Receivable Agreements and our organizational structure;
the increased expenses associated with being a public company;
our intended use of the net proceeds from this offering; and
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the other factors set forth under “Risk Factors” in this prospectus.
We caution you that the foregoing list may not contain all the forward-looking statements made in this prospectus.
You should not rely on forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this prospectus primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, and results of operations. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, and other factors described in the section titled “Risk Factors” and elsewhere in this prospectus. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this prospectus. The results, events, and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to us as of the date of this prospectus. While we believe such information provides a reasonable basis for these statements, such information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely on these statements.
The forward-looking statements made in this prospectus relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this prospectus to reflect events or circumstances after the date of this prospectus or to reflect new information, actual results, revised expectations or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments.
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MARKET AND INDUSTRY DATA
This prospectus contains estimates and information concerning our industry, including market position and the size and growth rates of the markets in which we participate, that are based on industry publications and reports and other information from our internal sources. This information involves a number of assumptions and limitations, and you are cautioned not to give undue weight to these estimates. We have not independently verified the accuracy or completeness of the data contained in these industry publications and reports. The industry in which we operate is subject to a high degree of uncertainty and risk due to a variety of factors, including those described in the section titled “Risk Factors.” These and other factors could cause results to differ materially from those expressed in these publications and reports.
Certain information in the text of this prospectus is contained in independent industry publications. The sources of these independent industry publications are provided below:
Quantitative Analysis (commissioned by us); and
Technomic Inc.’s 2021 Chain Restaurant Report.
Certain information included in this prospectus concerning our industry and the markets we serve, including our market share, is also based on our good-faith estimates derived from management's knowledge of the industry and other information currently available to us.
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ORGANIZATIONAL STRUCTURE
Organizational Structure Prior to this Offering and the Reorganization Transactions
The diagram below depicts our current organizational structure. This chart is provided for illustrative purposes only and does not purport to represent all legal entities within our organizational structure.
organizationalstructure1ca.jpg
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Organizational Structure Following this Offering and the Reorganization Transactions
The diagram below depicts our organizational structure immediately following the Reorganization Transactions and the Offering Transactions assuming exercise by the underwriters of their option to purchase additional shares of Class A common stock. This chart is provided for illustrative purposes only and does not purport to represent all legal entities within our organizational structure.
organizationalstructure2fa.jpg
Immediately following this offering, Dutch Bros Inc. will be a holding company, and its sole material asset will be a controlling equity interest in Dutch Bros OpCo. As the sole managing member of Dutch Bros OpCo, Dutch Bros Inc. will operate and control all the business and affairs of Dutch Bros OpCo and, through Dutch Bros OpCo and its subsidiaries, conduct our business. Following this offering, Dutch Bros OpCo will be the predecessor of Dutch Bros Inc. for financial reporting purposes. As a result, the consolidated financial statements of Dutch Bros Inc. will recognize the assets and liabilities received in the reorganization at their historical carrying amounts, as reflected in the historical consolidated financial statements of Dutch Bros OpCo. Dutch Bros Inc. will consolidate Dutch Bros OpCo in its consolidated financial statements and will report non-controlling interests related to the OpCo Units held by the Continuing Members on its consolidated financial statements.
Investors participating in this offering will hold equity in Dutch Bros Inc. in the form of shares of our Class A common stock. The Continuing Members will hold all the issued and outstanding shares of our Class B common stock and Class C common stock. The shares of Class B common stock will have no economic rights, but each share will entitle the holder to ten votes (or such lower number as required to prevent the holders of Class B common stock from holding, in the aggregate, 80% or more of the aggregate voting power of Dutch Bros Inc. at any time) for so long as the aggregate number of outstanding shares of our Class B common stock represents at least 5% of the total outstanding shares of common stock, and thereafter, one vote per share, on all matters on which the stockholders of Dutch Bros Inc. are entitled to vote generally. The shares of Class C common stock will have no economic rights, but each share will entitle the holder to three votes (for so long as the aggregate number of outstanding shares of our Class C common stock and Class D common stock collectively represent at least 5% of the
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total outstanding shares of common stock and thereafter one vote) on all matters on which the stockholders of Dutch Bros Inc. are entitled to vote generally. The Pre-IPO Blocker Holders will hold all the issued and outstanding shares of our Class D common stock. The shares of Class D common stock will have the same economic rights as shares of Class A common stock, but each share will entitle the holder to three votes (for so long as the aggregate number of outstanding shares of our Class C common stock and Class D common stock collectively represent at least 5% of the total outstanding shares of common stock and thereafter one vote) on all matters on which the stockholders of Dutch Bros Inc. are entitled to vote generally.
The voting power afforded to the Continuing Members by their shares of Class B common stock or Class C common stock, as applicable, will be automatically and correspondingly reduced as their shares of Class B common stock or Class C common stock are surrendered and immediately canceled in connection with the redemption or exchange of the corresponding Class A common units for shares of Class A common stock or cash, and the voting power afforded to Pre-IPO Blocker Holders will be automatically and correspondingly reduced as they transfer shares of Class D common stock, which, except in certain circumstances, will automatically convert into shares of Class A common stock. See “Certain Relationships and Related Person Transactions—Agreements to be entered into prior to this offering—Dutch Bros OpCo Third Amended and Restated Limited Liability Company Agreement” and “Description of Capital Stock.”
Our post-offering organizational structure is commonly referred to as an UP-C structure. This organizational structure will allow the Continuing Members to retain their equity ownership in Dutch Bros OpCo, an entity that is classified as a partnership for U.S. federal income tax purposes, in the form of Class A common units. Investors in this offering, Pre-IPO OpCo Unitholders exchanging their Class A common units for Class A common stock in the Pre-IPO Exchanges, and the Pre-IPO Blocker Holders will, by contrast, hold their equity ownership in Dutch Bros Inc., a Delaware corporation that is a domestic corporation for U.S. federal income tax purposes, in the form of shares of Class A common stock or Class D common stock, as applicable. We believe that the Continuing Members will generally find it advantageous to continue to hold their equity interests in an entity that is not taxable as a corporation for U.S. federal income tax purposes. One of these benefits is that future taxable income of Dutch Bros OpCo that is allocated to the Continuing Members will be taxed on a flow-through basis and therefore generally will not be subject to corporate income taxes at the entity level. Additionally, because the Continuing Members have the right to require Dutch Bros OpCo to redeem all or a portion of their Class A common units in exchange for shares of our Class A common stock or cash, our UP-C structure provides the Continuing Members with potential liquidity that holders of non-publicly traded limited liability companies are not typically afforded. Although no assurances can be given, we do not believe that our UP-C structure will give rise to any significant business or strategic benefit or detriment to us.
Incorporation of Dutch Bros Inc.
Dutch Bros Inc. was incorporated in Delaware in June 2021. Dutch Bros Inc. has not engaged in any business or other activities except in connection with its incorporation. Dutch Bros Inc.’s amended and restated certificate of incorporation authorizes four classes of common stock, Class A common stock, Class B common stock, Class C common stock and Class D common stock, each having the terms described in “Description of Capital Stock.” Holders of our Class A common stock, Class B common stock, Class C common stock and Class D common stock vote together as a single class on all matters presented to Dutch Bros Inc.’s stockholders for their vote or approval, other than amendments to Dutch Bros Inc.’s amended and restated certificate of incorporation to change the rights of the Class B common stock, Class C common stock or Class D common stock, which would require a vote of such class, except as otherwise required by law.
Reorganization Transactions
The Recapitalization, the Pre-IPO Exchanges, the designation of Dutch Bros Inc. as managing member of Dutch Bros OpCo, the IPO Exchanges, the entry into the Tax Receivable Agreements, and related transactions described below are collectively referred to as the “Reorganization Transactions.”
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Recapitalization
The capital structure of Dutch Bros OpCo currently consists of two different classes of membership interests: Common Units and Profits Interest Units, as set forth in the Second LLC Agreement. Prior to the completion of this offering, the Second LLC Agreement will be amended and restated as the Third LLC Agreement, which, among other things, converts the outstanding Profits Interest Units into Class A common units and converts the outstanding Common Units into Class A common units paired with an equal number of either Class B voting units or Class C voting units. We refer to this modification of Dutch Bros OpCo’s capital structure as the “Recapitalization.”
In connection with the Recapitalization, all outstanding, vested and unvested Profits Interest Units of Dutch Bros OpCo will be converted into Class A common units subject to the same vesting schedule. The number of Class A common units delivered in respect of each Profits Interest Unit will be determined based on the amount of proceeds that would be distributed in respect of such Profits Interest Unit if Dutch Bros OpCo were to be sold at a value derived from the initial public offering price and the proceeds distributed in accordance with the Second LLC Agreement. In connection with the Recapitalization, and concurrently with the conversion of Profits Interest Units, all outstanding Common Units of Dutch Bros OpCo will be converted into Class A common units, of which                will be paired with an equal number of Class B voting units and               will be paired with an equal number of Class C voting units. Immediately following the Recapitalization, but prior to the Offering Transactions described below, there will be               Class A common units,               Class B voting units and               Class C voting units of Dutch Bros OpCo issued and outstanding.
Pre-IPO Exchanges
Prior to the completion of this offering, Dutch Bros Inc. will form a new merger subsidiary with respect to each of the Blocker Companies, each of which will be entities treated as corporations for U.S. federal income tax purposes, through which certain of our Pre-IPO Blocker Holders hold their interests in Dutch Bros OpCo. Following the Recapitalization, each merger subsidiary will merge with and into the respective Blocker Company in a reverse subsidiary merger, and, as part of the same transaction, the surviving Blocker Company will merge with and into Dutch Bros Inc. We refer to these mergers as the “Blocker Mergers.” In each Blocker Merger, the Pre-IPO Blocker Holders, as the 100% owners of such Blocker Company will receive an aggregate number of shares of Class D common stock equal to the number of Class A common units held by such Blocker Company. Following the Blocker Mergers, Dutch Bros Inc. will hold      outstanding Class A common units and a corresponding number of Class C voting units.
Immediately following the Blocker Mergers, the Pre-IPO OpCo Unitholders who received Class A common units in exchange for Profits Interest Units in the Recapitalization will contribute such Class A common units to Dutch Bros Inc. in exchange for a corresponding number of shares of Class A common stock and the Pre-IPO OpCo Unitholders who received Class B voting units and Class C voting units in the Recapitalization will contribute such Class B and Class voting units to Dutch Bros Inc. in exchange for a corresponding number of shares of Class B common stock or Class C common stock. We refer to these contributions, together with the Blocker Mergers, as the “Pre-IPO Exchanges.”
Managing Member of Dutch Bros OpCo
The Third LLC Agreement will provide that the business and affairs of Dutch Bros OpCo will be solely managed by a “managing member” designated by holders of Class B voting units and Class C voting units, voting together as a single class. In any such vote, each Class B voting unit shall be entitled to ten votes and each Class C voting unit shall be entitled to three votes. Immediately following the Pre-IPO Exchanges, Dutch Bros Inc. will hold all Class B voting units and Class C voting units, and Dutch Bros Inc. will duly designate itself as the managing member of Dutch Bros OpCo.
IPO Exchanges
Immediately following the Pre-IPO Exchanges, certain of the Continuing Members will contribute a portion of their Class A common units, together with an equal number of shares of Class B common stock or Class
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C common stock, to Dutch Bros Inc. in exchange for the same number of shares of Class A common stock. We refer to these contributions as the “IPO Exchanges.” The shares of Class B common stock and Class C common stock received by Dutch Bros Inc. in the IPO Exchanges will be immediately canceled.
Tax Receivable Agreements
Prior to the completion of this offering, Dutch Bros Inc. will enter into two Tax Receivable Agreements. Dutch Bros Inc. will enter into (i) the Exchange Tax Receivable Agreement with the Continuing Members and (ii) the Reorganization Tax Receivable Agreement with the Pre-IPO Blocker Holders. These Tax Receivable Agreements will provide for the payment by Dutch Bros Inc. to the Continuing Members and Pre-IPO Blocker Holders of 85% of the benefits, if any, that Dutch Bros Inc. is deemed to realize (calculated using certain assumptions) as a result of existing and increased tax basis and certain other tax attributes and benefits covered by the Tax Receivable Agreements. These payment obligations are obligations of Dutch Bros Inc. and not of Dutch Bros OpCo. See “Certain Relationships and Related Person Transactions—Agreements to be entered into in connection with this offering—Tax Receivable Agreements” for additional information.
Offering Transactions
In connection with the completion of this offering, Dutch Bros Inc. intends to use a portion the proceeds it receives from this offering, net of estimated underwriting discounts and commissions, to purchase newly issued Class A common units from Dutch Bros OpCo at a purchase price per unit equal to the initial public offering price per share of Class A common stock in this offering net of estimated underwriting discounts and commissions. Assuming that the shares of Class A common stock to be sold in this offering are sold at $               per share, which is the midpoint of the price range set forth on the front cover of this prospectus, at the time of this offering, Dutch Bros Inc. will purchase from Dutch Bros OpCo               Class A common units for an aggregate of $               (or $ if the underwriters exercise in full their option to purchase additional shares of Class A common stock). The issuance and sale of such newly issued Class A common units by Dutch Bros OpCo to Dutch Bros Inc. will correspondingly dilute the ownership interests of the Pre-IPO OpCo Unitholders in Dutch Bros OpCo.
In addition, Dutch Bros Inc. intends to use an aggregate of $ of the net proceeds (which will remain unchanged if the underwriters exercise in full their option to purchase additional shares of Class A common stock) to purchase Class A common units from the Continuing Members and shares of Class D common stock from the Pre-IPO Blocker Holders, at a price per unit and price per share equal to the initial public offering price per share of Class A common stock in this offering net of estimated underwriting discounts and commissions. Assuming that the shares of Class A common stock to be sold in this offering are sold at $               per share, which is the midpoint of the price range set forth on the front cover of this prospectus, at the time of this offering, Dutch Bros Inc. will purchase (i)               Class A common units from the Continuing Members, for an aggregate of $               , and (ii)               shares of Class D common stock from the Pre-IPO Blocker Holders for an aggregate of $              .
If the net proceeds from this offering are greater than the estimated net proceeds set forth herein, we expect to use the additional proceeds to purchase additional Class A common units from Dutch Bros OpCo at a price per unit equal to the public offering price per share of Class A common stock in this offering, less the underwriting discount. If the net proceeds of this offering are less than the estimated net proceeds set forth herein, we expect to purchase fewer Class A common units Dutch Bros OpCo. See “Use of Proceeds” and “Certain Relationships and Related Person Transactions—Other Related Person Transactions—Purchase of Class A Common Units and Class D Common Stock.”
See “Principal Stockholders” for more information regarding the proceeds from this offering that will be paid to our directors and named executive officers.
Following this offering, Dutch Bros Inc. will hold a number of Class A common units of Dutch Bros OpCo that is equal to the aggregate number of shares of Class A common stock and Class D common stock that it has issued.
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Dutch Bros OpCo expects to use the proceeds it receives from Dutch Bros Inc. in exchange for the issuance and sale of newly authorized Class A common units to repay outstanding loans and, to the extent there are remaining proceeds, for general corporate purposes. See “Use of Proceeds.”
We refer to the foregoing transactions as the “Offering Transactions.”
Following This Offering
As the sole managing member of Dutch Bros OpCo, Dutch Bros Inc. will have the right to determine if and when distributions will be made to the unitholders of Dutch Bros OpCo and the amount of any such distributions (subject to the requirements with respect to tax distributions described below). If Dutch Bros Inc. authorizes a distribution, such distribution will be made to the holders of Class A common units, including Dutch Bros Inc., pro rata in accordance with their respective ownership of Class A common units.
Dutch Bros OpCo will continue to be treated as a partnership for U.S. federal income tax purposes and, as such, generally will not be subject to any entity-level U.S. federal income tax. Instead, taxable income will be allocated to holders of Class A common units, including Dutch Bros Inc. Accordingly, the holders of Class A common units will incur United States federal, state and local income taxes on their allocable share of any taxable income of Dutch Bros OpCo. Pursuant to the Third LLC Agreement, Dutch Bros OpCo generally will make cash distributions to the holders of Class A common units in an amount sufficient to fund their tax obligations in respect of the cumulative taxable income in excess of cumulative taxable losses of Dutch Bros OpCo that is allocated to them, to the extent previous tax distributions from Dutch Bros OpCo have been insufficient. These tax distributions will be computed based on an assumed U.S. federal, state and local tax rate, and will be distributed pro rata in accordance with the holders’ respective ownership of Class A common units. In addition to tax expenses, Dutch Bros Inc. also will incur expenses related to its operations, plus payments under the Tax Receivable Agreements, which Dutch Bros Inc. expects will be significant. Dutch Bros Inc. intends to cause Dutch Bros OpCo to make distributions or, in the case of certain expenses, payments in an amount sufficient to allow Dutch Bros Inc. to pay its taxes and operating expenses, including distributions to fund any ordinary course payments due under the Tax Receivable Agreements.
The Continuing Members will have the right, from time to time following a lock-up period, to have their Class A common units redeemed for shares of Class A common stock on a one-for-one basis or, in certain circumstances a corresponding amount of cash, at the election of Dutch Bros Inc. as managing member, subject to customary adjustments and the procedures set forth in the Third LLC Agreement. Such Class A common stock or cash will be contributed by Dutch Bros Inc. to Dutch Bros OpCo in exchange for Class A common units, unless, in its sole discretion, Dutch Bros Inc. elects to affect such exchange directly with the relevant Continuing Member. When a Class A common unit of Dutch Bros OpCo, is redeemed or exchanged for a share of Class A common stock of Dutch Bros Inc. or cash, a corresponding share of Class B common stock or Class C Common stock of Dutch Bros Inc., as applicable, will be surrendered and immediately canceled. The Third LLC Agreement will provide that as a general matter a Continuing Member will not have the right to redeem or exchange Class A common units if Dutch Bros Inc. determines that such redemption or exchange would be prohibited by law or regulation or would violate other agreements with us to which the Continuing Member is bound, including the Third LLC Agreement. Dutch Bros Inc. may impose additional restrictions on exchanges that it determines in good faith to be necessary or advisable so that Dutch Bros OpCo is not treated as a “publicly traded partnership” for U.S. federal income tax purposes. See “Certain Relationships and Related Person Transactions—Agreements to be entered into prior to this offering—Dutch Bros OpCo Third Amended and Restated Limited Liability Company Agreement.”
As a result of the transactions described above, upon completion of this offering and application of the net proceeds therefrom:
Our Class A common stock will be held as follows:
               shares (or               shares if the underwriters exercise in full their option to purchase additional shares of Class A common stock) held by investors in this offering; and
               shares held by Pre-IPO OpCo Unitholders.
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Our Class B common stock (together with the same amount of Class A common units of Dutch Bros OpCo) will be held as follows:
               shares held by Continuing Members.
Our Class C common stock (together with the same amount of Class A common units of Dutch Bros OpCo) will be held as follows:
               shares held by Continuing Members.
Our Class D common stock will be held as follows:
               shares held by Pre-IPO Blocker Holders.
The combined voting power in Dutch Bros Inc. will be as follows:
               % held by investors in this offering and the Pre-IPO OpCo Unitholders holding only Class A common stock following the Pre-IPO Exchanges (or               % if the underwriters exercise in full their option to purchase additional shares of Class A common stock);
               % held by the Continuing Members that are holders of all the outstanding shares of Class B common stock (or               % if the underwriters exercise in full their option to purchase additional shares of Class A common stock);
               % held by the Continuing Members that are holders of all the outstanding shares of Class C common stock (or               % if the underwriters exercise in full their option to purchase additional shares of Class A common stock); and
               % held by Pre-IPO Blocker Holders, as holders of all the outstanding shares of Class D common stock (or               % if the underwriters exercise in full their option to purchase additional shares of Class A common stock).
Dutch Bros OpCo’s Class A common units will be held as follows:
               held by Dutch Bros Inc. (or               if the underwriters exercise in full their option to purchase additional shares of Class A common stock); and
               held by the Continuing Members.
Dutch Bros OpCo’s Class B voting units will be held as follows:
               held by Dutch Bros Inc.
Dutch Bros OpCo’s Class C voting units will be held as follows:
               held by Dutch Bros Inc.
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USE OF PROCEEDS
We estimate that the net proceeds to Dutch Bros Inc. from this offering at an assumed initial public offering price of $               per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions, will be approximately $               million (or $               million if the underwriters exercise in full their option to purchase additional shares of Class A common stock). A $1.00 increase or decrease in the assumed initial public offering price of $               per share would increase or decrease, as applicable, the net proceeds to Dutch Bros Inc. from this offering by approximately $               million, assuming the number of shares offered by us remains the same as set forth on the cover page of this prospectus and after deducting estimated underwriting discounts and commissions. An increase or decrease of 1,000,000 shares in the expected number of shares to be sold in the offering, assuming no change in the assumed initial offering price per share, would increase or decrease, as applicable, the net proceeds to Dutch Bros Inc. from this offering by approximately $               million. Dutch Bros OpCo will bear or reimburse Dutch Bros Inc. for all the expenses payable by it in this offering. We estimate these offering expenses (excluding estimated underwriting discounts and commissions) will be approximately $               million.
Dutch Bros Inc. intends to use all the net proceeds from this offering (including from any exercise by the underwriters of their option to purchase additional shares of Class A common stock):
to purchase               newly issued Class A common units (or Class A common units if the underwriters exercise in full their option to purchase additional shares of Class A common stock) from Dutch Bros OpCo for approximately $               million (or $ if the underwriters exercise in full their option to purchase additional shares of Class A common stock);
to purchase               Class A common units (which will remain unchanged if the underwriters exercise in full their option to purchase additional shares of Class A common stock) from the Continuing Members for approximately $               million; and
to purchase               shares of Class D common stock (which will remain unchanged if the underwriters exercise in full their option to purchase additional shares of Class A common stock) from the Pre-IPO Blocker Holders for approximately $               million.
If the net proceeds from this offering are greater than the estimated net proceeds set forth herein, we expect to use the additional proceeds to purchase additional Class A common units from Dutch Bros OpCo at a price per unit equal to the public offering price per share of Class A common stock in this offering, less the underwriting discount. If the net proceeds of this offering are less than the estimated net proceeds set forth herein, we expect to purchase fewer Class A common units from Dutch Bros OpCo. See “Certain Relationships and Related Person Transactions—Other Related Person Transactions—Purchase of Class A Common Units and Class D Common Stock.”
Our purchases of Class A common units and Class D common stock will be made at a price per unit and price per share equal to the public offering price per share of Class A common stock in this offering, less estimated underwriting discounts and commissions. Upon each such purchase of Class A common units from the Continuing Members and Class D common stock from the Pre-IPO Blocker Holders, their corresponding shares of Class B common stock or Class C common stock will be surrendered and immediately canceled. The number of outstanding Class A common units of Dutch Bros OpCo will equal the aggregate number of our outstanding shares of Class A common stock, Class B common stock, Class C common stock and Class D common stock. See “Organizational Structure—Offering Transactions.”
The principal purposes of this offering are to increase our capitalization and financial flexibility, create a public market for our Class A common stock and facilitate our future access to the public capital markets.
We will only retain the net proceeds that are used to purchase newly issued Class A common units from Dutch Bros OpCo. We will not retain any of the net proceeds used to purchase Class A common units from the Continuing Members or shares of Class D common stock from the Pre-IPO Blocker Holders. See “Certain
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Relationships and Related Person Transactions—Other Related Person Transactions—Purchase of Class A Common Units and Class D Common Stock.”
Dutch Bros OpCo expects to use the proceeds it receives from Dutch Bros Inc. in exchange for the issuance and sale of newly issued Class A Common units to:
to repay $               million of outstanding borrowings under the Senior Secured Credit Facility; and
to the extent there are remaining proceeds, for general corporate purposes.
Certain of the underwriters and/or their affiliates are lenders under the Senior Secured Credit Facility and, as such, may receive a portion of the net proceeds from this offering. Loans under the Senior Secured Credit Facility were used to make distributions to holders of OpCo Units prior to this offering and will mature and all amounts outstanding will be due and payable on May 12, 2026. The principal balance of the term loans amortizes each quarter at a rate between 2.5% and 12.5% per annum. Loans under the Senior Secured Credit Facility bear interest at a rate equal to either (a) the adjusted LIBOR rate plus an applicable spread ranging from 1.25% to 2.50% per annum based on our net lease-adjusted total leverage ratio or (b) an alternate base rate, plus an applicable spread ranging from 0.25% to 1.50% per annum based on our net lease-adjusted total leverage ratio.
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DIVIDEND POLICY
We have no current plans to pay dividends on our Class A common stock or Class D common stock. Holders of our Class B common stock and Class C common stock do not have any right to receive dividends, or to receive a distribution upon a liquidation, dissolution or winding up of Dutch Bros Inc., with respect to their Class B common stock and Class C common stock. The declaration, amount, and payment of any future dividends on shares of Class A common stock or Class D common stock will be at the sole discretion of our board of directors, and we may reduce or discontinue entirely the payment of such dividends at any time. Our board of directors may take into account general and economic conditions, our financial condition and operating results, our available cash and current and anticipated cash needs, capital requirements, contractual, legal, tax, and regulatory restrictions and implications on the payment of dividends by us to our stockholders or by our subsidiaries to us, and such other factors as our board of directors may deem relevant. In addition, our ability to pay dividends on our Class A common stock or Class D common stock may be limited by restrictions under the covenants of the Senior Secured Credit Facility, and may be further restricted by the terms of any future debt or preferred securities. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Senior Secured Credit Facilities.”
Dutch Bros Inc. is a holding company and has no material assets other than its ownership of OpCo Units. The limited liability company agreement of Dutch Bros OpCo that will be in effect at the time of this offering provides that certain distributions to cover the taxes of the holders of Class A common units will be made based upon assumed tax rates and other assumptions provided in the limited liability company agreement. See “Certain Relationships and Related Person Transactions—Agreements to be entered into prior to this offering—Dutch Bros OpCo Third Amended and Restated Limited Liability Company Agreement.” Additionally, in the event Dutch Bros Inc. declares any cash dividend, we intend to cause Dutch Bros OpCo to make distributions to Dutch Bros Inc., in an amount sufficient to cover such cash dividends declared by us. If Dutch Bros OpCo makes such distributions to Dutch Bros Inc., the Continuing Members will also be entitled to receive the respective equivalent pro rata distributions in accordance with their respective ownership of Class A common units. Prior to this offering, Dutch Bros OpCo distributed $200 million cash to the Pre-IPO OpCo Unitholders. See “Certain Relationships and Related Person Transactions” for additional information.
The agreements governing our credit facility contain a number of covenants that restrict, subject to certain exceptions, certain of our subsidiaries’ ability to pay dividends to us. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Senior Secured Credit Facilities.”
Any financing arrangements that we enter into in the future may include restrictive covenants that limit our ability to pay dividends. In addition, Dutch Bros OpCo is generally prohibited under Delaware law from making a distribution to a member to the extent that, at the time of the distribution, after giving effect to the distribution, liabilities of Dutch Bros OpCo (with certain exceptions) exceed the fair value of its assets. Subsidiaries of Dutch Bros OpCo are generally subject to similar legal limitations on their ability to make distributions to Dutch Bros OpCo.
Since its formation in June 2021, Dutch Bros Inc. has not paid any dividends to holders of its outstanding common stock. In 2019 and 2020, Dutch Bros OpCo made cash distributions to equity holders in an aggregate amount of $6.6 million and $7.8 million, respectively.
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CAPITALIZATION
The following table sets forth our consolidated cash and cash equivalents and capitalization as of June 30, 2021:
on a historical basis; and
on a pro forma basis giving effect to the Reorganization Transaction, the Offering Transactions, including the sale and issuance of               shares of our Class A common stock by us in this offering, at the assumed public offering price of $                per share, representing the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, and the application of the proceeds therefrom as described in “Use of Proceeds.”
You should read this table together with the other information contained in this prospectus, including “Organizational Structure,” “Use of Proceeds,” “Unaudited Pro Forma Combined and Consolidated Financial Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our historical financial statements and related notes thereto included elsewhere in this prospectus.
As of June 30, 2021
($ in thousands, except share and per share amounts)Dutch Bros OpCo Actual
Dutch Bros Inc. Pro Forma(1)(2)
Cash and cash equivalents$19,577 $
Debt:
Credit facility(3)
$223,750 
Total debt$223,750 
Equity:
Members’ equity (deficit)
Class A common stock, $0.00001 par value per share,                shares authorized and no shares issued and outstanding, actual; and                shares authorized and                shares issued and outstanding on a pro forma basis
Class B common stock, $0.00001 par value per share,                shares authorized and no shares issued and outstanding, actual; and                shares authorized and                shares issued and outstanding on a pro forma basis(4)
Class C common stock, $0.00001 par value per share,                shares authorized and no shares issued and outstanding, actual; and                shares authorized and                shares issued and outstanding on a pro forma basis(5)
Class D common stock, $0.0001 par value per share                shares authorized and no shares issued and outstanding, actual; and shares                authorized and                shares issued and outstanding on a pro forma basis(6)
Additional paid-in capital
Retained earnings (accumulated deficit)
Accumulated other comprehensive income
Non-controlling interest
Total equity
Total capitalization$$
__________________
(1)To the extent we change the number of shares of Class A common stock sold by us in this offering from the shares we expect to sell or we change the initial public offering price from the $                per share assumed initial public offering price, representing the midpoint of the price range set forth on the cover page of this prospectus, or any combination of these events occurs, the net proceeds
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to us from this offering and each of pro forma total equity and total capitalization may increase or decrease. A $1.00 increase (decrease) in the assumed initial public offering price per share, assuming no change in the number of shares to be sold, would increase (decrease) the net proceeds that we receive in this offering and each of pro forma total stockholders’ equity and total capitalization by approximately $                million. An increase (decrease) of 1,000,000 shares in the expected number of shares to be sold in the offering, assuming no change in the assumed initial offering price per share, would increase (decrease) our net proceeds from this offering and our pro forma total equity and total capitalization by approximately $                million. If the underwriters exercise in full their option to purchase additional shares of Class A common stock, the pro forma amount of each of cash and cash equivalents, total debt, additional paid-in capital, retained earnings (accumulated deficit), accumulated other comprehensive income, non-controlling interest, total equity, and total capitalization would increase by approximately $                million, after deducting estimated underwriting discounts and commissions, and we would have                shares of our Class A common stock issued and outstanding, pro forma.
(2)The pro forma information in the balance sheet data above reflects the sale and issuance of                shares of our Class A common stock by us in the offering, at the assumed public offering price of $                per share, representing the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.
(3)On May 12, 2021, we entered into a credit agreement with JPMorgan Chase Bank, N.A. as administrative agent and other financial institutions as the lenders party thereto, consisting of a $200 million term loan credit facility, a $150 million revolving credit facility and an uncommitted incremental facility of up to $100 million. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Senior Secured Credit Facilities—JP Morgan Credit Facility” for additional information.
(4)The shares of Class B common stock will have no economic rights but each share will entitle the holder to ten votes (for so long as the aggregate number of outstanding shares of our Class B common stock represents at least 5% of the aggregate number of our outstanding shares of common stock, and thereafter, one vote per share, provided that the number of votes per share may be adjusted from time to time in accordance with our amended and restated certificate of incorporation, as required to prevent the holders of Class B common stock from holding, in the aggregate, 80% or more of our aggregate voting power at any time) on all matters on which stockholders are entitled to vote generally.
(5)The shares of Class C common stock will have no economic rights but each share will entitle the holder to three votes (for so long as the aggregate number of outstanding shares of our Class C common stock and Class D common stock collectively represent at least 5% of the aggregate number of our outstanding shares of common stock, and thereafter, one vote per share) on all matters on which stockholders are entitled to vote generally.
(6)The shares of Class D common stock will have the same economic rights as shares of Class A common stock, but each share will entitle the holder to three votes (for so long as the aggregate number of outstanding shares of our Class C common stock and Class D common stock collectively represent at least 5% of the aggregate number of our outstanding shares of common stock, and thereafter, one vote per share upon the automatic conversion of our Class D common stock into shares of Class A common stock) on all matters on which stockholders are entitled to vote generally.
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DILUTION
If you invest in shares of our Class A common stock in this offering, your investment will be immediately diluted to the extent of the difference between the initial public offering price per share of Class A common stock and the pro forma net tangible book value per share of Class A common stock after this offering. Dilution results from the fact that the per share offering price of the shares of Class A common stock is substantially in excess of the pro forma net tangible book value per share attributable to our pre-offering owners.
Our pro forma net tangible book deficit as of June 30, 2021 was approximately $                 million, or $               per share of Class A common stock. Pro forma net tangible book value represents the amount of total tangible assets less total liabilities. Pro forma net tangible book value per share of Class A common stock represents pro forma net tangible book value divided by the number of shares of Class A common stock outstanding, after giving effect to the Reorganization Transactions and assuming that all Continuing Members exchanged their Class A common units for newly issued shares of Class A common stock on a one-to-one basis, their corresponding shares of Class B common stock and Class C common stock were canceled, and all Pre-IPO Blocker Holders converted their shares of Class D common stock into an equal number of shares of Class A common stock.
After giving effect to the transactions described under “Unaudited Pro Forma Combined and Consolidated Financial Information,” including the application of the proceeds from this offering as described in “Use of Proceeds,” our pro forma net tangible book deficit as of June 30, 2021 would have been $                million, or $               per share of Class A common stock. This represents an immediate increase in net tangible book value (or a decrease in net tangible book deficit) of $               per share of Class A common stock to our pre-IPO owners and an immediate dilution in net tangible book value of $               per share of Class A common stock to investors in this offering.
The following table illustrates this dilution on a per share of Class A common stock basis assuming the underwriters do not exercise their option to purchase additional shares of Class A common stock:
Assumed initial public offering price per share of Class A common stock$
Pro forma net tangible book value (deficit) per share of Class A common stock as of June 30, 2021$
Increase in pro forma net tangible book value per share of Class A common stock attributable to investors in this offering$
Pro forma net tangible book value (deficit) per share of Class A common stock after the offering$
Dilution per share of Class A common stock to investors in this offering$
We have presented dilution in pro forma net tangible book value per share of Class A common stock to investors in this offering assuming that all Continuing Members exchanged a portion of their Class A common units for newly issued shares of Class A common stock on a one-to-one basis, their corresponding shares of Class B common stock and Class C common stock were surrendered and immediately canceled, and all Pre-IPO Blocker Holders converted a portion their shares of Class D common stock into an equal number of shares of Class A common stock in order to more meaningfully present the dilutive impact on the investors in this offering.
A $1.00 increase in the assumed initial public offering price of $               per share of our Class A common stock would increase our pro forma net tangible book value after giving effect to this offering by $               million, or by $               per share of our Class A common stock, assuming the number of shares offered by us remains the same and after deducting estimated underwriting discounts and commissions. A $1.00 decrease in the assumed initial public offering price per share would result in equal changes in the opposite direction.
The following table summarizes, on the same pro forma basis as of June 30, 2021, the total number of shares of Class A common stock purchased from us, the total cash consideration paid to us, and the average price per share of Class A common stock paid by our pre-IPO owners and by new investors purchasing shares of Class A common stock in this offering, assuming that all Continuing Members exchanged their Class A common units for newly issued shares of our Class A common stock on a one-to-one basis, their corresponding shares of Class B
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common stock and Class C common stock were surrendered and immediately canceled, and all Pre-IPO Blocker Holders converted their shares of Class D common stock into an equal number of shares of Class A common stock.
Shares of Class A
Common Stock
Purchased
Total
Consideration
Average
Price Per
Share of Class A
Common Stock
NumberPercentAmountPercent
(in millions)
Pre-IPO owners%$%$
Investors in this offering%%$
Total%$%
Each $1.00 increase in the assumed offering price of $               per share of our Class A common stock would increase total consideration paid by investors in this offering by $               million, assuming the number of shares offered by us remains the same. A $1.00 decrease in the assumed initial public offering price per share of our Class A common stock would result in equal changes in the opposite direction.
If the underwriters’ option to purchase additional shares is exercised in full, the number of shares held by new investors will be increased to               , or approximately               % of the total number of shares of Class A common stock.
The dilution information above is for illustrative purposes only. Our net tangible book value following the consummation of this offering is subject to adjustment based on the actual initial public offering price of our shares of Class A common stock and other terms of this offering determined at pricing. This table also does not reflect the               shares of Class A common stock that may be granted under our 2021 Equity Incentive Plan.
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UNAUDITED PRO FORMA COMBINED AND CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma combined and consolidated statements of income data for the year ended December 31, 2020 and for the six months ended June 30, 2021 give pro forma effect to the Offering Transactions and the Reorganization Transactions (collectively, the “Transactions”), as if the Transactions were completed on January 1, 2020. The unaudited pro forma combined and consolidated balance sheet as of June 30, 2021 gives effect to the Transactions as if the Transactions were completed on June 30, 2021.
The unaudited pro forma consolidated statements of income data as of and for the six months ended June 30, 2021 and the year ended December 31, 2020 and the unaudited pro forma combined and consolidated balance sheet as of June 30, 2021 present our consolidated financial position and results of operations to reflect (i) the Reorganization Transactions, (ii) the sale and issuance of Class A common stock pursuant to this offering, and (iii) the use of proceeds from this offering to repay $               million of the Senior Secured Credit Facility.
As described in greater detail under the sections titled “Organizational Structure” and “Certain Relationships and Related Person Transactions—Agreements to be entered into in connection with this offering—Tax Receivable Agreements,” in connection with this offering, we entered into two Tax Receivable Agreements. We entered into (i) the Exchange Tax Receivable Agreement with the Continuing Members and (ii) the Reorganization Tax Receivable Agreement with the Pre-IPO Blocker Holders. These Tax Receivable Agreements provide for the payment by Dutch Bros Inc. to the Continuing Members and Pre-IPO Blocker Holders 85% of the benefits, if any, that Dutch Bros Inc. is deemed to realize (calculated using certain assumptions) as a result of certain tax attributes and benefits covered by the Tax Receivable Agreements. Due to the uncertainty in the amount and timing of future exchanges of Class A common units by the Continuing Members and Pre-IPO Blocker Holders, the unaudited pro forma consolidated financial information assumes that no exchanges of Class A common units have occurred and therefore no increases in tax basis in Dutch Bros Inc.’s assets or other tax benefits that may be realized thereunder have been assumed in the unaudited pro forma consolidated financial information. However, if all of the Continuing Members and Pre-IPO Blocker Holders were to exchange their Class A common units, we would recognize a deferred tax asset of approximately               and a liability of approximately               , assuming (v) all exchanges occurred on the same day, (w) a price of               per Class A common share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, (x) a constant corporate tax rate of               , (y) we will have sufficient taxable income to fully utilize the tax benefits, and (z) no material changes in tax law. For each 5% increase (decrease) in the amount of Class A common units exchanged by the Continuing Members and Pre-IPO Blocker Holders, our deferred tax asset would increase (decrease) by approximately               and the related liability would increase (decrease) by approximately               , assuming that the price per share and corporate tax rate remain the same. These amounts are estimates and have been prepared for informational purposes only. The actual amount of deferred tax assets and related liabilities that we will recognize will differ based on, among other things, the timing of the exchanges, the price of shares of our Class A common stock at the time of the exchange, and the tax rates then in effect.
Dutch Bros OpCo’s historical consolidated financial information has been derived from its consolidated financial statements and accompanying notes included elsewhere in this prospectus. Because Dutch Bro Inc. was formed on June 4, 2021 and had no material assets or results of operations until the completion of the Offering Transactions, its historical financial information is not included in the unaudited pro forma combined and consolidated financial information.
The unaudited pro forma combined and consolidated financial information was prepared in accordance with Article 11 of Regulation S-X, using the assumptions set forth in the notes to the unaudited pro forma combined and consolidated financial information. The unaudited pro forma combined and consolidated financial information has been adjusted to give effect to events that are (i) directly attributable to the Transactions, (ii) factually supportable, and (iii) expected to have a continuing impact on the statements of income.
As a public company, we are implementing additional procedures and processes for the purpose of addressing the standards and requirements applicable to public companies. We expect to incur additional annual expenses related to these steps and, among other things, additional directors’ and officers’ liability insurance, director fees, reporting requirements of the SEC, transfer agent fees, hiring additional accounting, legal, and
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administrative personnel, increased auditing and legal expenses, and other related costs. Due to the scope and complexity of these activities, the amount of these costs could increase or decrease materially and would be based on subjective estimates and assumptions that could not be factually supported. We have not included any pro forma adjustments related to these costs.
The unaudited pro forma combined and consolidated financial information is provided for informational purposes only and is not necessarily indicative of the operating results that would have occurred if the Transactions had been completed as of the dates set forth above, nor is it indicative of our future results. The unaudited pro forma combined and consolidated financial information also does not give effect to the potential impact of any anticipated synergies, operating efficiencies, or cost savings that may result from the Transactions or any integration costs that do not have a continuing impact.
The unaudited pro forma combined and consolidated financial information should be read together with “Organizational Structure,” “Capitalization,” “Selected Historical and Pro Forma Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the historical financial statements of Dutch Bros OpCo and related notes thereto, each included elsewhere in this prospectus.
91


UNAUDITED PRO FORMA COMBINED AND CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 2021
Pro Forma Adjustments
Reorganization Transactions AdjustmentsOffering Transactions AdjustmentsPro Forma Combined
June 30,
2021
($ in thousands, except share and per share amounts)
ASSETS
Current assets:
Cash and cash equivalents$19,577 
Accounts receivable, net12,131 
Inventories13,262 
Prepaid expenses and other current assets4,324 
Total current assets49,294 
Property and equipment, net204,564 
Intangibles, net11,349 
Goodwill18,245 
Other long-term assets1,775 
Total assets$285,227 
LIABILITIES AND MEMBERS' DEFICIT
Current liabilities:
Accounts payable$18,648 
Accrued expenses16,532 
Other current liabilities4,408 
Deferred revenue14,517 
Line of credit24,001 
Current portion of capital lease obligations2,684 
Current portion of long-term debt6,350 
Total current liabilities87,140 
Deferred revenue, long term5,071 
Capital lease obligations, net of current portion60,202 
Long-term debt, net of current portion191,745 
Profits interest liability64,827 
Deferred rent2,945 
Other long-term liabilities576 
Total liabilities412,506 
Commitments and contingencies
Temporary equity:
Redeemable common units (4,990,000 common units issued and outstanding at December 31, 2020 and June 30, 2021)1,710,622 
Permanent equity:
Members' deficit (5,010,000 common units authorized, issued and outstanding at December 31, 2020 and June 30, 2021)(1,837,901)
Total liabilities, temporary equity, and members' deficit$285,227 
92


UNAUDITED PRO FORMA COMBINED AND CONSOLIDATED STATEMENT OF INCOME FOR THE SIX MONTHS ENDED JUNE 30, 2021
Six Months Ended
June 30, 2021
Pro Forma Adjustments
Dutch Bros OpCo(1)
Actual
Reorganization Transactions AdjustmentsOffering Transactions AdjustmentsPro Forma Combined
($ in thousands, except share and per share amounts)
Revenue
Company-operated shops$180,887 $$$
Franchising and other47,106 
Total revenue227,993 
Costs and expenses
Cost of sales148,809 
Selling, general and administrative69,868 
Total costs and expenses218,677 
Income from operations9,316 
Other income (expense)
Interest expense, net(2,855)
Other income (expense)(58)
Total other income (expense)(2,913)
Income before income taxes6,403 
Income tax expense(2)
564 
Net income$5,839 $$$
Net income attributable to non-controlling interests
(3)
Net income attributable to Dutch Bros Inc.
Basic and diluted net income per share
Shares used in basic and diluted per share calculations
__________________
(1)Dutch Bros Inc. was formed on June 4, 2021 and will have no results of operations until the completion of this offering. Therefore, its historical results of operations are not shown in a separate column in the unaudited pro forma combined and consolidated statements of operations or balance sheet.
(2)Dutch Bros OpCo is a limited liability company and is treated as a partnership for U.S. federal income tax purposes. As such, it is generally not subject to any entity-level U.S. federal income tax. Instead, income, expenses, gains and losses are reported on the returns of its members. Following the Reorganization Transactions, Dutch Bros Inc. will become subject to U.S. federal income taxes with respect to its allocable share of any U.S. taxable income of Dutch Bros OpCo. As a result, the unaudited pro forma consolidated statements of operations reflect adjustments to our income tax expense of $               for the six months ended June 30, 2021.
(3)Upon completion of the Reorganization Transactions, Dutch Bros Inc. will become the sole managing member of Dutch Bros OpCo. As a result, Dutch Bros Inc. will initially own approximately               % of the economic interest in Dutch Bros OpCo, but will have 100% of the voting power and operate and control all the business and affairs of Dutch Bros OpCo. Immediately following the Reorganization Transactions, the ownership percentage held by the non-controlling interests and the net income attributable to the non-controlling interests will represent approximately               % of net income before income tax expense.
93


UNAUDITED PRO FORMA COMBINED AND CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 2020
Historical Year Ended December 31, 2020Pro Forma Adjustments
Dutch Bros OpCo(1)
Actual
Reorganization Transactions AdjustmentsOffering Transactions AdjustmentsPro Forma Combined
($ in thousands, except share and per share amounts)
Revenue
Company-operated shops$244,514 $$$
Franchising and other82,899 
Total revenue327,413 
Costs and expenses
Cost of sales211,659 
Selling, general and administrative105,087 
Total costs and expenses316,746 
Income from operations10,667 
Other income (expense)
Interest expense, net(3,736)
Other income (expense)(363)
Total other income (expense)(4,099)
Income before income taxes6,568 
Income tax expense(2)
843 
Net income$5,725 $$$
Net income attributable to non-controlling interests
(3)
Net income attributable to Dutch Bros Inc.
Basic and diluted net income per share
Shares used in basic and diluted per share calculations
__________________
(1)Dutch Bros Inc. was formed on June 4, 2021 and will have no results of operations until the completion of this offering. Therefore, its historical results of operations are not shown in a separate column in the unaudited pro forma combined and consolidated statements of operations or balance sheet.
(2)Dutch Bros OpCo is a limited liability company and is treated as a partnership for U.S. federal income tax purposes. As such, it is generally not subject to any entity-level U.S. federal income tax. Instead, income, expenses, gains and losses are reported on the returns of its members. Following the Reorganization Transactions, Dutch Bros Inc. will become subject to U.S. federal income taxes with respect to its allocable share of any U.S. taxable income of Dutch Bros OpCo. As a result, the unaudited pro forma consolidated statements of operations reflect adjustments to our income tax expense of $               for the year ended December 31, 2020.
(3)Upon completion of the Reorganization Transactions, Dutch Bros Inc. will become the sole managing member of Dutch Bros OpCo. As a result, Dutch Bros Inc. will initially own approximately               % of the economic interest in Dutch Bros OpCo, but will have 100% of the voting power and operate and control all the business and affairs of Dutch Bros OpCo. Immediately following the Reorganization Transactions, the ownership percentage held by the non-controlling interests and the net income attributable to the non-controlling interests will represent approximately               % of net income before income tax expense.
94


SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL AND OTHER DATA
The following tables present the selected historical consolidated financial data for Dutch Bros OpCo and its subsidiaries and the selected pro forma combined and consolidated financial data for Dutch Bros Inc. for the periods and at the dates indicated. Immediately following this offering, Dutch Bros Inc. will be a holding company, and its sole material asset will be a controlling equity interest in Dutch Bros OpCo. Dutch Bros Inc. will operate and control all the business and affairs of Dutch Bros OpCo and, through Dutch Bros OpCo and its subsidiaries, conduct our business. Following this offering, Dutch Bros OpCo will be the predecessor of Dutch Bros Inc. for financial reporting purposes. As a result, the consolidated financial statements of Dutch Bros Inc. will recognize the assets and liabilities received in the reorganization at their historical carrying amounts, as reflected in the historical consolidated financial statements of Dutch Bros OpCo. Dutch Bros Inc. will consolidate Dutch Bros OpCo in its consolidated financial statements and will report non-controlling interests related to the Class A common units held by the Continuing Members on its consolidated financial statements.
The selected historical consolidated statements of income data and selected historical consolidated statements of cash flows data presented below for the years ended December 31, 2019 and 2020 and the selected historical consolidated balance sheet data presented below as of December 31, 2019 and 2020 have been derived from the historical consolidated financial statements of Dutch Bros OpCo included elsewhere in this prospectus. The selected historical consolidated financial information of Dutch Bros OpCo as of June 30, 2021 and for the six months ended June 30, 2020 and 2021 was derived from the unaudited historical consolidated financial statements of Dutch Bros OpCo included elsewhere in this prospectus. The unaudited historical consolidated financial statements of Dutch Bros OpCo have been prepared on the same basis as the audited historical consolidated financial statements and, in our opinion, have included all adjustments, which include normal recurring adjustments, necessary to present fairly in all material respects our financial position and results of operations. The results for any interim period are not necessarily indicative of the results that may be expected for the full year.
The selected historical consolidated financial and other data of Dutch Bros Inc. has not been presented because Dutch Bros Inc. is a newly incorporated entity, has had no business transactions or activities to date, and had no assets or liabilities during the periods presented in this section.
Historical results are not necessarily indicative of the results expected for any future period. You should read the selected historical consolidated financial data below, together with our audited consolidated financial statements and related notes thereto, the audited consolidated financial statements of Dutch Bros Inc. and related notes thereto and our unaudited consolidated financial statements and related notes thereto, each included elsewhere in this prospectus, as well as “Summary—Summary Historical and Pro Forma Consolidated Financial and Other Data,” “Organizational Structure,” “Unaudited Pro Forma Combined and Consolidated Financial Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the other information appearing elsewhere in this prospectus.
95


Historical Consolidated Statements of Income Data:
Dutch Bros OpCo
Dutch Bros Inc.
Pro Forma(1)
Year Ended December 31,Six Months Ended June 30,Year Ended December 31,Six Months Ended June 30,
201920202020202120202021
($ in thousands, except share and per share amounts)
Revenue
Company-operated shops$151,543 $244,514 $109,072 $180,887 $$
Franchising and other86,825 82,899 41,787 47,106 
Total revenue238,368 327,413 150,859 227,993 
Costs and expenses
Cost of sales142,307 211,659 94,929 148,809 
Selling, general and administrative65,764 105,087 48,300 69,868 
Total costs and expenses208,071 316,746 143,229 218,677 
Income from operations30,297 10,667 7,630 9,316 
Other income (expense)
Interest expense, net(2,346)(3,736)(1,700)(2,855)
Other income (expense)524 (363)(316)(58)
Total other income (expense)(1,822)(4,099)(2,016)(2,913)
Income before income taxes28,475 6,568 5,614 6,403 
Income tax expense89 843 338 564 
Net income$28,386 $5,725 $5,276 $5,839 $$
Net income attributable to non-controlling interests
Net income attributable to Dutch Bros Inc.
Basic and diluted net income per share
Shares used in basic and diluted per share calculations
__________________
(1)Pro forma figures give effect to the Offering Transactions and Reorganization Transactions, including this offering. See “Unaudited Pro Forma Combined and Consolidated Financial Information” for a detailed presentation of the unaudited pro forma information.
Consolidated Balance Sheet Data:
Dutch Bros OpCo
Dutch Bros Inc.
Pro Forma(1)
As of December 31,As of
June 30,
As of
June 30,
2019202020212021
($ in thousands)
Cash and cash equivalents$15,584 $31,640 $19,577 $
Total assets168,281 259,659 285,227 
Working capital(2)
3,949 3,204 (37,846)
Total liabilities90,266 183,669 412,506 
Total liabilities and members’ equity168,281 259,659 285,227 
96


__________________
(1)Pro forma figures give effect to the Offering Transactions and Reorganization Transactions, including this offering. See “Unaudited Pro Forma Combined and Consolidated Financial Information” for a detailed presentation of the unaudited pro forma information.
(2)Working capital is defined as total current assets, including cash and cash equivalents, minus total current liabilities.
Year Ended December 31,Six Months Ended June 30,
2019202020202021
($ in thousands)
Net cash flows provided by operating activities$56,702 $53,549 $20,888 $56,199 
Net cash flows used in investing activities(39,948)(45,570)(14,430)