Dutch Bros Stock

Thank you for standing by, and welcome to the Dutch Bros, Inc. Second Quarter 2026 Earnings Conference Call and Webcast. This conference call and webcast is being recorded today, August 6, 2026, at 5:00 p.m. Eastern Time and will be available for replay shortly after it has concluded. [Operator Instructions] I would now like to turn the call over to Neil Patel, Dutch Bro's Director, Investor Relations. Please go ahead. .

Good afternoon. I'm joined by Christine Barone, CEO and President; and Josh Guenser, CFO. We issued our earnings press release for the quarter ended June 30, 2026, after the market closed today. The earnings press release, along with a supplemental information deck have been posted to our Investor Relations website at investor.dutchbros.com.

Please be aware that all statements in our prepared remarks and in response to your questions, other than those of historical fact are forward-looking statements and are subject to risks, uncertainties and assumptions that may cause actual results to differ materially. They are qualified by the cautionary statements in our earnings press release and the risk factors in our latest SEC filings, including our most recent annual report on Form 10-K and quarterly report on Form 10-Q.

We assume no obligation to update any forward-looking statements. We will also reference non-GAAP financial measures on today's call. As a reminder, non-GAAP measures are neither substitute for nor superior to, measures that are prepared under GAAP. Please review the reconciliation of non-GAAP measures to compare GAAP results in our earnings press release.

During the question-and-answer portion of today's call, please limit yourself to one question and avoid multipart questions so that we can accommodate as many participants as possible. With that, I would like to turn the call over to Christine.

Thank you, Neil, and good afternoon, everyone. Dutch Bros continues to be powered by a differentiated people-led culture, expanding customer occasions and a real estate development engine that is unlocking new growth opportunities across the country. The success of our strategy was evident in Q2 as we delivered our eighth consecutive quarter of transaction growth and again delivered strong comp sales that have compounded year-over-year, durable growth built on an already strong base.

In fact, Q2 marked our 13th straight quarter of positive comp sales. This performance is the product of years of foundational investment, not 1 lever but a full playbook we built deliberately and are executing with intention. This gives us incredible confidence in our ability to continue growing this business for the long term. Based on our performance so far this year and the recent acquisition of one of our Phoenix franchisees, we are raising our full year guidance.

Turning to our Q2 results. Total revenues increased an outstanding 32% accompanied by strong profitability with adjusted EBITDA up 28%. Our distinctive value proposition continued to resonate in Q2, and we saw system-wide transaction growth, driven by the strength of our brand and our endlessly customizable offerings delivered with speed, quality and service.

Development momentum remained exceptionally strong during the quarter, with 48 system shop openings, reinforcing our confidence in our pipeline and the path ahead to reaching 2,029 shops in 2029. Our transaction-driving initiatives, including the rollout of food and category-leading innovation are working, serving as an important proof point in our ability to continue growing transactions while scaling nationally.

System-wide AUVs continued their record upward momentum in Q2, and new shop productivity was exceptional, an important validation of Dutch Bros' long-term growth opportunity and the continued expansion of the beverage category. Our Q2 results are a direct reflection of the investments we've made across the business over the past several years. Our foundation remains exceptionally strong, and we're building on that momentum. As we look ahead, the power of our brand, industry-leading innovation and our ability to grow customer occasions give us tremendous confidence in the long-term trajectory of Dutch Bros.

But none of it would be possible without our team who bring the Dutch Bros experience to life every day at Dutch Bros, everything starts with our people. Our people-led culture remains the foundation of our success and the driving force behind how we grow. Our Broistas, the heartbeat of our brand, pour into their communities, make customers feel seen and create meaningful moments that keep customers coming back.

These genuine customer connections remain the strongest differentiator of the Dutch Bros experience. Customers come to us for more than a drink. They come for the moment at the window that makes their day a little better. That connection has been the hallmark of our brand since our very first stand. And because we grow our leaders from behind the window, that special feeling of connection only gets stronger as we grow. It is the reason we continue to be at the top of the industry in customer ratings for pleasant and friendly service.

The exceptional people across our brand allow us to execute consistently, scale into new markets and deliver the unmatched Dutch Bros energy our customers know and love. Today, we have more than 525 operator candidates in our pipeline with an average tenure of nearly 8 years, a leadership bench that gives us tremendous confidence in our ability to continue growing in a unique way, only Dutch Bros can.

At the end of June, I spent time with more than 2,000 of our field leaders at A Better World, our immersive and engaging field event focused on developing the next generation of Dutch Bros leaders. Being surrounded by the people who bring our culture to life every day reinforce what makes Dutch Bros so special. Their passion for growing others, serving with kindness and living our mission gives me tremendous confidence that our people will continue to be our greatest differentiator as we grow.

The road to 2,029 shops in 2029 remains very clear, supported by our robust development pipeline. As we deepen our presence in existing markets and thoughtfully expand into new ones, each new shop opening reinforces the power of the Dutch Bros brand from coast to coast. Importantly, density continues to be a competitive advantage. We believe density matters and continue to view it as a strategic asset of both our expansion model and growing brand awareness. While we continue this densification strategy, we are also entering new markets as we expand our footprint across the country.

And new market performance continues to give us even more confidence in our growth path ahead. One of the best examples is in the Chicago market. Last quarter, we provided an update on our entry into the Greater Chicago area, highlighting that our first shop was pacing to a volume of approximately $4 million. During Q2, we expanded our footprint in the greater Chicagoland area with our Melrose Park shop which is pacing to a volume of approximately $7 million.

The response from the community has been incredible. Opening day demand exceeded our expectations and set a new company record, further underscoring the portability of the Dutch Bros brand. The early results affirm our belief that the greater Chicagoland area represents a meaningful long-term growth opportunity. Across several newer markets, we are also seeing incredible traction. From Atlanta to Charlotte to Tampa, we are seeing many new markets annualizing meaningfully above expectations, showcasing firsthand how well the Dutch Bros brand travels and resonates across diverse geographies.

We are also excited to have entered our 26th state Mississippi in July. We recently completed the Phoenix East Valley acquisition, following the retirement of our franchise partner who had been with Dutch Bros for nearly 20 years. Looking ahead, our development momentum remains very strong. We're opening shops ahead of schedule, our pipeline is rapidly growing, and we continue to see attractive conversion opportunities, both from emerging growth concepts and legacy beverage and drive-through players.

Whether we're entering new markets or building density in existing ones, the broad appeal of the Dutch Bros brand and the significant runway ahead become even more evident with each shop we open. Growth isn't just about expanding our footprint, it's also about creating more reasons for customers to choose Dutch Bros throughout the day.

In Q2, innovation across our menu and our relentless focus on the customer experience helps strengthen customer routines, drive frequency and deepen engagement with the brand. Let me start with food. Food continues to be one of our most important sales drivers and a key component of our morning daypart strategy. By the end of Q2, we completed the rollout of our new food program across approximately 750 system shops ahead of schedule.

Throughout the rollout, the response from customers and broistas has exceeded expectations. We're seeing customers incorporate Dutch Bros into more morning occasions creating additional opportunities to engage with the brand and strengthening our position within customers' daily routine. Beyond food, innovation across our beverage menu and merch drops kept customers engaged and excited to visit Dutch Bros in the quarter.

In May, we introduced Myst Energy refreshers, a new category of plant-powered energy drinks to complement our proprietary Rebel platform, further strengthening our leadership position in the energy space. Myst allows us to broaden our occasions and reach new customers while bringing meaningful innovation to the beverage industry. At launch, we drove trial of Myst through our fill-a-tray event, making it easy for customers to mix and match and discover this new platform.

Myst headlined our Q2 LTO lineup alongside the return of fan favorites strawberry Colada, [indiscernible] and drove outstanding year-over-year growth in LTO unit velocity. Since the launch of Myst, we've increased our overall energy mix and driven retention rates ahead of recent LTO benchmarks. Given the overwhelmingly positive customer response, we've made the decision to give Myst a permanent home on the menu alongside our Rebel program.

Together, Myst and Rebel reinforce our innovation edge and energy and create a sustainable growth engine for the business. Beyond beverages, our merch drops continue to generate excitement and engagement, giving customers another reason to make a special trip to Dutch Bros, while becoming truly signature events for the brand. We saw another quarter of meaningful sales lift with standout drops like the state sticker and frog charm delivering the strongest merchant sticker drops of the year.

Our digital ecosystem also continues to deepen customer engagement. We ended Q2 with over 73% of transactions flowing through Dutch Rewards, reflecting continued customer adoption and engagement. Rewards penetration has been on a consistent climb over the last 3 years, and we have grown our registered members per shop by over 50%. In Q2, Dutch Rewards also delivered its strongest contribution to comp since the start of our customer segmentation journey. Our ongoing investment in segmentation and personalization is enabling more relevant customer experiences and remains an important lever to drive long-term transaction growth.

We're also seeing continued adoption of Order Ahead, which reached approximately 16% of the total transaction mix, improving convenience and making it even easier for customers to engage with us. Our CPG business continues to expand the reach of our brand, introducing customers to Dutch Bros and keeping the brand top of mind between visits to our shops. In Q2, the Dutch Bros CPG portfolio continued to show strong customer demand, generating above category average velocity in all formats in which we compete.

As we scale the brand, maintaining strong operational discipline remains a key priority. In Q2, we launched our Vibe Check scorecard, giving leaders greater visibility into shop level performance and enabling our field teams to make more informed operational decisions. As we continue to grow, tools like these help our teams maintain consistency and operational discipline.

We successfully executed several high-demand events during the quarter, including major sticker, merch drop and fill-a-tray events. Through improved staffing and operational planning, our teams delivered a consistent customer experience even during these periods of elevated demand. Finally, we continue to see improvement in throughput with further progress already underway. We're focused on shop layout, equipment optimization and operational processes that help our Broistas serve customers with speed while maintaining the quality and service our customers expect.

In closing, our confidence the opportunity ahead has never been greater, and it's clear that our strategy is working. Our people-led culture continues to scale alongside the business and remains the defining differentiator of the Dutch Bros brand. Backed by our deep leadership pipeline and consistent execution, we believe what sets us apart today will continue to be a key reason why customers choose Dutch Bros and keep coming back.

Our strong performance in new markets and continued momentum across our development pipeline, reinforces our confidence in the path to 2029 shops in 2029. Our sales-driving initiatives are delivering exceptional results, exceeding our expectations and delighting customers. Beverage innovation, food, merch drops and digital advancements. This is our playbook in action all working together. And 8 consecutive quarters of transaction growth is the clearest proof it's paying off.

Looking ahead, we remain confident in our ability to execute against the significant opportunity ahead of us. We continue to see significant runway for growth, supported by the strength of our brand, the passion of our people, and our ability to continue creating more occasions for customers. Together, these advantages position Dutch Bros to continue taking share and further solidify our position in the beverage category.

With that, I'll pass it to Josh.

Thanks, Christine. I'll start with a recap of our second quarter performance and then share our outlook for the remainder of 2026. Our second quarter results were above our expectations, with upside driven by outstanding execution of our marketing initiatives and the continued traction in our idiosyncratic sales drivers.

The dedication of our people and the strong conviction we have in our brand, solidify my confidence in the balance of the year in our ability to drive long-term growth. For the second quarter, total revenues were $551 million, growing 32% over the second quarter of last year. Company-operated same-shop sales growth in Q2 was an impressive 8.3% with transaction growth of 3.4%. System same shop sales growth in Q2 was 5.8%, with transaction growth of 1.7%. The strength of our 2-year transaction stack highlights the effectiveness of the layers of sales-driving initiatives we have executed over recent years and their ability to generate strong customer demand even in an environment of lower consumer sentiment.

Performance during the quarter benefited from the continued rollout of our new food program, the continued maturation of newer shop vintages, strengthened brand marketing initiatives, and the momentum in customer segmentation with Index Rewards. And with our system same-shop sales performance in Q2 and performance quarter-to-date in Q3, we are updating our guidance for the full year to 5% to 6%.

Now let me be clear, given our performance to date and our expectations for the full year, we are trending towards the midpoint of that 5% to 6% range. This guidance reflects transaction comparisons continuing to step up through the remainder of the year, and the lap of the food rollout we began in Q3 of last year, which primarily impacts net ticket.

Our updated full year comp guidance contemplates system same-shop sales growth of approximately 4% to 5% in Q3, reflecting stronger transaction comparisons and the impact of effective pricing stepping down sequentially. As a reminder, we rolled off another point of price in early July. And with pricing taken during the year, our ticket will include less than 1 point of effective pricing in the back half of the year.

This reflects our disciplined approach to pricing while preserving our strong value proposition. I am very proud of the momentum we've generated across our business as the number of new shops we opened quarter after quarter continue to reach record volumes. The strength of our brand, the effectiveness of our sales drivers and the technical execution of our playbook, continue to drive systemwide AUVs higher.

New shop productivity remained strong in Q2, keeping pace with this continued upward trajectory in systemize AUVs. And we continue to build momentum across our real estate development pipeline. During the second quarter, we opened 48 new shops, continuing our strong pace of development growth. We now have approximately 90% of our pipeline needed to achieve 2029 shops in 2029. The depth of this pipeline, coupled with the outstanding execution of our development team reinforces our confidence in our ability to continue capturing the significant amount of white space ahead of us.

Last week, we completed the acquisition of the franchise rights and assets of 31 locations in the Phoenix market, including 1 location currently under development. Total purchase consideration was $63.5 million. For the remainder of 2026, we expect this to drive net incremental total revenue of approximately $25 million, inclusive of an approximately $5 million reduction in franchise and other revenue. We also expect incremental adjusted EBITDA of approximately $5 million for the balance of the year, which is net of transition-related costs.

Earlier this week, we entered into an agreement to acquire the real estate and related site assets of up to 65 Salad and Go locations in Arizona, Nevada, Oklahoma and Texas, an opportunity that we believe enhances our development pipeline and deepens our scale in these markets. We anticipate closing this acquisition this quarter, subject to applicable approvals and other customary closing conditions, with conversions expected in 2027.

We are excited to expand our company-operated presence in these important growth markets where we continue to see significant white space opportunity. Shifting to our company-operated jobs, performance in Q2 was exceptional with revenue totaling $510 million, an increase of 34% or $130 million compared to the second quarter of last year.

Company-operated shop contribution was $156 million, representing a year-over-year increase of 32%. Company-operated shop contribution margin was incredibly strong at approximately 31%. Beverage, food and packaging costs were 26.1% of company-operated shop revenue, which is 80 basis points higher year-over-year, primarily driven by higher coffee costs and costs associated with the continued rollout of our new food program.

We continue to expect an impact from higher coffee costs in the back half of the year. The updated full year 2026 guidance contemplates approximately 60 basis points of total COGS pressure, which includes the impact from costs associated with the new food program. Labor costs were 25.4% of company-operated shop revenue, which is 120 basis points favorable year-over-year primarily due to sales leverage.

Occupancy and other costs were 16.3% of company-operated shop revenue, which is 50 basis points higher year-over-year, primarily due to higher rent on new shops as we shift more of our portfolio to build-to-suit leases. We continue to expect the shift towards build-to-suit leases will drive higher occupancy costs as a percentage of revenue in 2026. We expect this impact to be approximately 50 basis points for 2026, consistent with what we saw in Q2.

Preopening expenses were 1.6% of company-operated shop revenue, which is 40 basis points higher year-over-year, primarily driven by increased number of shop openings. Moving down the P&L. Adjusted SG&A in Q2 was $72 million or 13.2% of total revenue. While continuing to make investments in our people and infrastructure, we were able to drive 90 basis points of leverage on adjusted SG&A. Our updated 2026 guidance now contemplates approximately 90 basis points of leverage on adjusted SG&A for the full year.

Our full year guidance contemplates Q3 adjusted SG&A of $73 million to $74 million. In the quarter, adjusted EBITDA was $114 million, an increase of 28% over Q2 of last year, and we delivered $0.33 of adjusted EPS, up from $0.26 in the second quarter of last year. Let me now provide an update on our liquidity and CapEx. As of June 30, we had approximately $699 million in total liquidity, including $269 million in cash and cash equivalents and the balance in our undrawn revolver.

In Q2, our average CapEx per shop was approximately $1.4 million, consistent with Q2 of last year. We remain on track toward our long-term goal of 60% build-to-suit lease mix, and we continue to increase the number of high-quality sites we are adding to our pipeline. As other concepts continue to rightsize their drive-through fleet, they're creating even more opportunities for us to expand into high-quality locations with exceptional long-term economics.

Turning to our guidance. We are approaching the back half of the year from a position of strength. We have a highly focused plan, long-term visibility into our key growth initiatives and a very clear objective to continue converting the significant white space ahead of us into durable growth. Given the performance we have seen thus far and the impact of the Phoenix franchise acquisition, we are raising our 2026 guidance in the following areas: Total revenues are now projected to be between $2.1 billion and $2.13 billion, representing 28% to 30% growth year-over-year.

System same-shop sales growth is now estimated to be in the range of 5% to 6%, with us trending towards the midpoint of that range. Adjusted EBITDA is now estimated to be in the range of $385 million to $390 million. The midpoint of this range contemplates approximately 20 basis points of year-over-year net adjusted EBITDA margin pressure, reflecting the impact of higher coffee costs and increased occupancy costs, partially offset by leverage on adjusted SG&A.

Capital expenditures are now expected to be in the range of $350 million to $370 million. We remain very confident in opening at least 185 system shops in 2026. I am very proud of the results our team delivered in Q2, strong operational execution, a continued focus on establishing the everyday routine for our customers and incredibly strong 4-wall economics give me even greater conviction that we are set up for long-term success.

Thank you, everyone. We'll now take your questions. Operator, please open the lines.

[Operator Instructions] And our first question will come from Dennis Geiger with UBS.

Josh, you gave some really helpful color on the rest of the year guidance and including as it relates to the same-store sales target. I wanted to know if you could get into that a little bit more as far as how you're thinking about the back half outlook? Any other puts and takes as it relates to some of the key initiatives that you've got in place and how you're thinking about contribution as we move through the back half of the year as well as just kind of anything on broader macro backdrop competition? Anything else that might impact the back half of the year comps?

Yes, Dennis, thanks for the question. So as we think about our guidance for the full year of the midpoint of the 5% to 6% range, that really does reflect the continued step-up in transaction comparison. So we see that step up in Q3 and Q4. We also are rolling off net pricing as we head into Q3. So we'll see that impact our ticket. And then we begin to roll over actually the start of the rollout of our food program that we started in Q3 of last year, more meaningfully in Q4. So all those factors lead us to that 5% to 6% range for the full year and 4 to 5 points comp for Q3.

Yes. And if we look at the broader macro environment, we're feeling really good about how we're positioned. We think that we are continuing to be positioned to really outcompete the rest of the industry and outperform with mobile order with Dutch rewards with the food program and all of the different initiatives that we've added together are just really performing. Our customers are loving them and our Broistas are serving them with exceptional service. .

And our next question will come from Andrew Charles with TD Cowen. .

Great. Just a little on the guidance for 3Q of 4% to 5%. It implies the deceleration from the strong 2Q results on both a 2-year basis as well as a seasonal basis. And I know you [ caught out ] rolling off some price. But are there other dynamics to think about considering perhaps the implied deceleration in particular, are you seeing any headwinds from the surge of gas prices. Obviously, Starbucks had a big launch this month with blended energy as well. Just some of the dynamics that we should be thinking about as well here.

Yes. So Andrew, thanks for the question. I'd really point you towards the primary driver being that, that transaction lap is starting to step up here and then what we're rolling off both in terms of pricing and the rollover of the start of our food program. So we do feel like -- feel very good about the position that we're in as we head into Q3 and for the balance of the year and how things are shaping up for us.

We'll go next to Jeff Farmer with Gordon Haskett.

Over the last couple of quarters, you guys pointed out some pretty big increases in your LTO unit velocity. Just looking for a little bit more color there. And then more importantly, what's the relationship between increased LTO velocity and your traffic and same-store sales numbers?

Yes. Thanks for the question. So we continue to be really pleased with how our LTOs performer -- are performing. When you look at Q2, I would highlight the launch of Myst. This is an incredibly important platform for us. We are the leader, the category creator in customized energy. And having that full platform, including this really just adds to what our customers can choose across that we actually saw an incremental increase in energy as a total percent of our sales as we looked over that quarter.

So really excited to see how that's performing. We did launch that as an LTO. And with that strong performance, have decided to keep that on the menu. As we've talked over the last couple of quarters and look at our innovation, we really look at innovation as platform innovation and then some of those LTOs and those new flavors that just drive excitement across our business. And this quarter, we were really focused on that platform innovation with launching Myst.

The other thing we saw too is as we look at our LTOs, we look each year at what's performing really well and so a continued really great performance out of strawberry Colada. So to see both myst performing and our strawberry Colada, along with very strong performance out of Dulce de Leche for that second year as well.

Moving on to Sara Senatore with Bank of America.

I wanted to ask about the franchisee comps perhaps. It looks like the gap is widening, although certainly, I think the 2-year gap maybe is more stable. I guess the reason I ask is twofold. One, trying to distinguish kind of how much of your strength in the company system was kind of the wind at your back from a strong segment versus, I think you tend to do more preopening, you tend to do like more local marketing.

So just as I think about your underlying drivers, it sort of feels like maybe franchise is a control group. And then the other piece is I know you bought in a franchise system. I guess, is there an opportunity to maybe increase or accelerate comps from that business as well?

Yes. So, I'll just talk about the broader spread to start with. As we showed in the past, one of the biggest drivers of the spread between company and franchise is really that we see strong comp tailwinds coming from the newer vintages of shops. And our growth is more heavily weighted towards the company-operated side. So that just disproportionately benefits our company-operated system more.

I'd say, adding to that, as we've rolled out food, we completed the roll out of food into our company-operated system during the quarter. We'll start rolling that out in the franchise system starting next quarter. So certainly, that helped create some more of the spread, especially on the ticket side as we look at Q2.

And then just as a reminder, about 300 of our shops won't be able to have the hot food program. And that really is disproportionately in the franchise shops. The franchise shops that we have been testing with and started to roll out food and those that have all of the new bakery are seeing great results with it. .

We'll go next to Drew North with Baird.

Great. I had a follow-up on the food platform. So you teed it up well. I was hoping you could expand a bit on your opportunity to raise awareness of the offering. I think, as you mentioned, I mean, food has rolled out to the majority of the company-operated locations now to date. I was wondering, if you're seeing sales mix continue to build as awareness has naturally grown. And maybe how you're thinking about putting marketing dollars if that's a consideration behind food to drive year 2 of growth in that platform.

Yes. So if we look at the food platform, our teams are really excited about the platform. So we actually see really from the very beginning of launch of food that we see that pop up in food attach very, very quickly within our shops. And as we look at what we're trying to do with food, really the first thing that we're trying to do is we heard from our customers loud and clear that hey, I love Dutch Bros the most.

But some days, I go to another place because I want a breakfast sandwich or something like that in the morning. And so it's really important for us to add this for our customers. And we are seeing that attach right away as we roll out the program. So we're very focused right now on executing the program really well. We're really pleased with the lift that we're seeing. As we look at the long-term opportunity, I think not only do we have an opportunity to grow awareness of the program, but we also now have a very important food capability as part of our tool kit.

And so as we look ahead, I think there are other platforms we can look at that might still be missing within our offering. We only have 9 SKUs right now within our shops. I think food can also play a nice role in seasonal offerings to help drive that awareness and that traffic. And as we roll out into new markets, I think another thing that's neat to see is customers really expect us to have that broader food offering. And so I think are very pleased when they come to our shops as some of those new shops that we spoke about are seeing really great success with food as well.

Our next question will come from Rahul Kro with JPMorgan.

Can you help us understand how the new store productivity has been steadily taking higher. I mean, look, what has been done differently, especially as many stores are not necessarily been opening in the newer markets? And I have a follow-up. .

Yes. So if we look at our new shop performance, we continue to be incredibly pleased. As you know, we've been on a journey and really developing our real estate capabilities. So starting with market planning, understanding how each store that we open is going to perform not only when it opens but also as we fill out that whole market. Then looking at our -- how we do our marketing sequence within a new market, how we think about what really works, what helps drive -- what helps to drive customers in.

We've been on a march to build brand awareness as we go into new markets. And I think as you look across all of those things, it's clearly working, and we are opening great new shops as we continue to roll out in the country. I think one of the big highlights that we had in this quarter was opening in Chicago, our second shop there. And I think to set an opening day record when we're at 1,200-plus shops in a new market just really speaks to the incredible strength of the brand and all of the awesome work that our teams are doing.

We'll next to nick Setyan with Mizuho Securities.

Just in terms of the guidance for second half, any way you kind of break out company-owned versus franchise given the expanding gap here? That would be very helpful. And then the aside from the food rollout being delayed at the franchise stores. Are any of the other initiatives that are taking place in the company owned stores not taking place within the [ franchisor ]?

Yes. Nick, so we don't provide guidance on the components of the company versus franchise. Certainly, as we think about some of the drivers for that spread there, you'd expect to remain a spread as we continue to our shop growth cadence on the company side is certainly outpacing the franchise side.

But that's about as much detail as we'd give on guidance as it relates to the spread between the 2.

And then our food rollout really is ahead of schedule. I think as we've continued to see how our teams have embraced the food rollout, we always expected to actually roll out the company-operated shops first. And for our franchisees to get to see that great performance and then adopt that program.

We'll go next to Sharon Zackfia with William Blair.

Can you talk about what you're seeing with Myst in terms of the demographic and the dayparts that might differ from what you see with Rebel?

Yes. So if we look at Myst, we really are seeing that afternoon daypart strength continue, but we also do see Myst occasions in the morning as well. And I do think that it is a lighter, customizable caffeine that is in the Myst product. It's plant-powered and it provides that really refreshing platform that our customers love.

As far as demographics go, again, it looks fairly similar, I think, to what we're seeing from Rebel as well. But it is incredibly early days still for Myst. We think this platform just has a long way to go. And I think that as the energy market continues to evolve, we would expect that you would actually continue to see more of those occasions come into the morning as well. And I think that it's becoming something that our customers are really drinking throughout the day.

Moving on to Gregory Francfort with Guggenheim Partners.

I just wanted to ask about thought behind the Salad and Go lease acquisition. I mean I think these are 1,000 square feet, so it's pretty comparable to the size of a Dutch Bros. But I think Arizona and Nevada might be 2 of your 3 or 4 most penetrated states and you kind of growing mid-single-digit unit growth in those markets. Just like is this to kind of turbocharge, is there a lot of overlap with your stores? Just anything on the thought process there?

Yes, Greg. So we really look at this as we shared in the past, even with something [ that clutch ], we look at this as a great opportunity for us to get a hold of some fantastic real estate in markets where we see a lot of potential to continue growing. So while we have several shops here in Arizona and Nevada, we still see a significant amount of white space ahead and availability for us to be able to go after creating more of that daily routine and a daily occasion with customers. So we see this as a nice addition to the overall portfolio. To your point, the sites themselves are right around our size shops should lead to easier conversion to a Dutch Bros.

Moving next to Jon Tower with Citigroup.

Great. Maybe a quick clarification on the question. On the clarification front. Just want to make sure that the bump in CapEx that you guys had for the year guidance, that includes the acquisition of the franchise market in Arizona one. And then the question is on the rewards program. I think, Christine, you had mentioned that, it delivered its strongest contribution to comps since the start of the customer segmentation journey.

So can you just speak to what exactly contributed to that? Is it something that you're doing explicitly in the program that drew customers back? Was it products in the period? Was it exclusive merch that maybe they had access to? Just curious what moved the needle there.

Yes, I'll start with the CapEx question quickly. That does -- the increase does reflect the franchisee acquisition does not include the announcement around Salad and Go.

Yes. And then on the rewards program, we've really been on a journey and so a lot of this is actually us taking our data and being able to segment it in new ways and then be able to provide very unique offers to different customer segments that really match with what we're seeing from their behavior patterns. So when we see a behavior pattern trying to get someone into that next layer of frequency, trying to get them into that next drink, trying to make them aware of other products that we have things like that.

So it actually really is an increase in our sophistication in data and the way that we're using it within our rewards program. So it's a new capability that we've developed over time. We are also adding different ways that we can encourage our customers to try new things. So things like streaks in the program. So we are actually building out new technological capabilities as well, along with all of that data segmentation that we're working through.

And moving next to Jacob Aiken-Phillips with Melius Research.

So between the 185 planned openings this year, acquired franchise shops, the Salad and Go conversions, I was just curious how you're pointing on sequencing these projects to ensure that the operator and MOB pipeline is not stretched. Is people capacity permitting or construction now, the primary constraint?

Yes. So as we look at our openings, so on the franchise shops, we actually continuously operate at those. So that acquisition is complete. They closed one night as a franchisee shop open the next morning. And our teams did just such an incredible job with that seamless operation. I think given the proximity to our headquarters, we've had the teams in here getting them ready for that, and they've done just a fantastic job with that.

On things like Salad and Go and like Clutch, that really is just adding real estate to our pipeline. So that's part of our normal process that we go through. It's really just building on that pipeline as we are on that March to 2,029 shops in 2029. We have an incredible pipeline of leaders. So as I mentioned on the call, we have 525 operator candidates in our pipeline. Our operators sit just above shops, so they manage multiple shops. And so we have a very, very strong group of leaders.

And as we look, in particular, adding shops in our pipeline in some of our markets that have been with us for the longest like our Arizona market, we have an incredible bench of really, really strong leaders in the Arizona market in the Vegas market. And so as we look to add more sites, we've got great people ready to operate those shops.

Moving on to Jim Salera with Stephens.

I was wondering if you could provide us any detail on geographic distribution in terms of same-restaurant sales drivers. I know in 1Q, you guys highlighted very strong results out of Texas, and that helped support the kind of system-wide results. I'm wondering if there's any other callouts this quarter? And if you see any particular strength across any geographies? .

Yes. So we don't typically share strength across geographies. We had shared that last quarter really just to highlight one of our most competitive markets and to show how well Dutch Bros is showing up and competing in those markets. But as we look across our comp and our very strong comp, both from a system perspective and then from a company-operated perspective, we are seeing strength across all dayparts with positive comp on all day parts.

We are seeing particular strength in the morning. And that is something, as we roll out these different initiatives, we've been very focused on growing that morning daypart. So what we have been expecting to see is really showing up in the numbers. And just super pleased by how that's going.

Our next question comes from Margaret-May Binshtok with Wolfe Research.

I just wanted to ask on the Vibe Check scorecard that you guys just launched. I guess, can you talk a little bit about what it actually measures, like what the intent? Is it behind like catching issues early? Or just identifying best practices so you can replicate them to other shops?

Great. So as we look at the Vibe Check scorecard, it's really measuring those things that are important to our business. So like everything at Dutch Bros, it starts with our people. So really understanding turnover. We're working on a metric to really understand how are our crews doing and to make sure that our teams have great visibility across the board to the shops. We also have customer metrics. So what do our customers think of how we're doing? What do they think of our speed, quality and service?

And what differences do we see across shops. And then finally, business metrics. So how are we staffing our shops? Are we staffing against the demand really well. And then how are we growing our customers. We're inviting more customers into Dutch Bros. So it's really all of those things that are a good important check.

And as we roll this out, think the most important thing at the beginning of the rollout is really the learning that our teams can see from each other. So we might have a shop that's doing particularly well in motivating their teams, and they have really great turnover metrics. And then the whole rest of that region will get to learn from that great operator and understand what they're doing. And so we will use it to understand where things are, where we can improve.

But I think the greatest use of a tool like this is really the learning that our operators can provide for each other.

We'll hear next from Chris Carril with KeyBanc Capital Markets.

Can you expand on throughput opportunities that you're seeing today? Maybe how much potential upside you see from increasing throughput over the near to medium term. And if you could maybe speak to this in the context of your highest volume stores, maybe touch upon some of the learnings from the Melrose Park shop. That would be helpful.

Yes. So we think we have a great path ahead of us to expand our throughput. And as we look at what is driving the most right now, it really is on labor deployment. And so what we are looking at is giving our shop very detailed and great information around how are they staffing versus the demand by day and by daypart. And if you look at that, it really helps match the demand and then we can go through those very long lines that we have in some of our shops much quicker.

And as I look at that and learnings from some of those very high-volume shops, I think we're doing a really great job of that and our highest volume shops. But really, labor deployment helps across our entire system. And so getting that correct. The other thing we're working on is longer-term opportunities and really looking at the shop layout. So as we look at the demand, how much of the demand is coming out the drive-through window, how much of the demand is coming out of our walk-up window, especially now with mobile order at [ 16% ] sales. How do we balance that demand and make sure that the stations are in the right place and work is happening in the right place at the shop. So very early days on that, but excited by the work that the teams are starting to do on that.

And we'll go next to Matt Curtis with D.A. Davidson.

I've got another question on Myst with it being added to the permanent menu. What metrics gave you confidence in making that decision to make it permanent so quickly? Is there any additional color you can provide on repeat rates, perhaps how they're tracking relative to Rebel or prior successful product introductions?

Yes. So as we look at adding Myst to the permanent menu, we've actually been working on Myst for quite some time. And so kind of starting from the beginning and how we develop a product. First, we do concept testing to understand, hey, how does the -- as we describe this product to customers, how do we think they're going to react to it.

We're actually asking them. How does this product sound? What about these benefits, things like that, then we take it through some taste testing to see is this really the best product on the market? And how do customers react to the taste of the product. Then we go and we actually do a market test. So we're looking for a smaller market test at first to really test operations. And so can we make this? Does it fit within the cadence of what we're trying to do.

And then we go to a broader market test where we're actually looking at volumes, we're looking at repeat rates, things like that. So even before the launch of Myst, we had a lot of great data indicating that we were likely going to leave this on as a permanent menu item given what we had seen and really given the reaction as we had to temporarily take it off the menu for a little bit and that customer is really begging for it to come back.

And then as we roll out, we look very carefully at what customers are new? Where is it at on occasions, what other platforms do we see the product drawing from? And what's interesting here is. With Myst, not only do we see new occasions. We do see some of it drawing from Rebel, but we also see it drawing from things like Lemonade.

And so I think there is this real need in the market for that type of energy that a product like Myst provides. And then as we look at it, we look at repeat rates and what happens as we launch a normal LTO and then what happens to that curve afterwards. And so we saw really great trial and then really strong repeat rates as this continued throughout the quarter.

And this now concludes our question-and-answer session. I would like to turn the floor back over to Christine Barone for closing comments.

Thank you for your questions. Before we wrap up, I'd like to recognize an achievement that reflects the very best of Dutch Bros. In Q2, Drink One for Dane Day raised more than $1.7 million for the Muscular Dystrophy Association. The event also marked an incredible milestone, helping us surpass $20 million in lifetime donations to the MDA supporting critical ALS research care and services for families affected by the disease.

Our partnership with the MDA continues to honor the legacy of our Co-founder, Dan Boersma, and reflects our deep commitment to giving back to the communities we serve. As Dutch growth continues to grow, so does the impact we're able to make together. Thank you to our Broistas, our customers and our community partners for helping us honor Dan's legacy and make a massive difference one cup at a time.

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, and have a wonderful day.

I'm Sharon Zackfia with William Blair. Thanks for joining us today. Really excited to have with us from Dutch Bros, Christine Barone, President and CEO; and Josh Guenser, who is the CFO.

For those of you who don't know Dutch, you can now go and see them in the suburbs of Chicago. It's hard to explain Dutch if you haven't been there. We're going to try. But they're very well known for just the kind of the experience and the extremely kind and friendly customer service that they have. And I would encourage all of you to try to make it out to one of the Chicago suburbs or elsewhere to see Dutch.

But certainly, one of the most exciting things is the rate of expansion of the brand. So they have less than 1,200 today. We have been promised 2,029 by 2029?

In 2029.

In 2029. And then on their way to -- I think it's 7,000 is the TAM right now, which may be understated because I think that was based on brand awareness about a year ago, and that continues to rise. So a very exciting story. Christine is going to go over a few slides, and then we're going to do some Q&A.

Great. Thanks so much, Sharon. I'll just intro a few things about the brand, so you can learn more. And you can advance the slide.

This is a complete list of research disclosures and potential conflicts of interest, yes.

Perfect. Okay. So we are one of the fastest-growing brands out there, as Sharon shared. We have about 1,200 shops right now. We did just open in Melrose Park. So that's the closest to where we are today. And there's still very long lines there. So if you do go out and venture out there to see it, I would add a little time for -- to wait in our fun and friendly line.

We continue to grow into more states as well. So we are now in 25 states, so continue our march across the country. We are incredibly intentional about how we grow. So we really plan to flag and then plan to densify into those neighborhoods that we go into so that we can really become that everyday occasion. And that is how we are growing.

We have incredible innovation, too, as we grow. So we are really leading the beverage market in innovation. We were the first to launch protein coffee back in 2024. I'm sure we will get into it later, but we launched -- just launched Myst, which is a great add to our energy platform. So as customers are coming into the beverage market, they're drinking a lot of customized energy, and we have an incredibly complete offering across that.

So then our strategy. So as we're growing, we're really focused on a number of different things. So the first thing is we always start with our people. We are growing from within. So as we open all of these new shops, we've shared that we'll open about 185 shops this year, we are growing with our own people.

So we have about 500 operators, that is our first level right above our shops who are ready to go and open those new shops. They have about 7 years of average tenure with the brand. So they know our brand, they love our brand, and they oftentimes will have a tattoo of our brand as well as they grow with us across the country. And it's a very lucky and enviable place to be in to really be able to grow your brand with people that know and love your brand, have invested in the culture and are invested in bringing on Broistas that can really represent that culture.

The second piece, we're growing our shop base. So as Sharon shared, we are planning to open 2,029 shops by 2029 or in 2029. And as we look at that growth, we're growing from people, but we have an incredible pipeline now of shops to go and open across the country, super intentional about how we're growing. So we really have the country mapped out. So before we go into a market like Chicago, we'll actually know where we want to go. So we'll be very thoughtful about putting those seeds, what we call them, our shops as we go into these markets and make sure that we are maximizing that opportunity we have. Beverage is very driven by convenience and location. So as you think about your daily routine, you want a coffee shop to be close to you as you grow those occasions.

Then we're growing our transactions. So we're doing that in a number of different ways. So as I shared, we are an innovation leader in beverage, continue to both offer great LTOs, where we have new and exciting flavors to offer our customers. We just brought back our Mangonada flavor yesterday, which is one of our Rebel beverages, and we brought back coconut latte as well.

We also are growing our Dutch Rewards program. So that helps us grow transactions. 74% of our transactions come through that program. So we have a really great way to talk to our customers, interact with them, tell them about all the new news that's coming.

We also have additional drivers, things like we are rolling out a food program right now. So we started with a bakery platform, had 4 SKUs. We now -- as we roll out a hot food program, we'll have 9 SKUs in our shops. So we are very much a beverage company, but do want to have that add-on of food for our customers as we grow.

We also launched mobile order a couple of years ago and continue to invest in that experience, really making it great for our customers. That continues to grow, it's -- about 15% of our sales now are coming through mobile orders. So it's a really convenience play for our customers.

And then finally, we grow our margins. So we have a long-term goal to have about 30% margins in our shop. We're close to that goal, but coffee, the agricultural crop, has had a lot of fluctuations lately. So we've got a little room there right now, but we plan to continue to expand our margins, really keeping that shop margin, continuing to invest in our people and our labor line as we grow, but we can leverage G&A.

And so that's a little bit of the introduction of Dutch Bros, and now we'll dive in with you, Sharon. Thank you.

So I think we will start out with competition because that has been the topic of 2026 within this market space. So can we maybe talk, and Christine, you've been in this business a long time, Josh, you've been in the beverage business as well. Can you talk about how the competitive landscape has evolved and where you think Dutch's biggest differentiation is? And maybe delve into what you're seeing, particularly on the QSR side and whether you think that has impacted your business either now or when it was in test?

Yes. So a couple of things there. So just kind of starting big picture. We've been around since 1992. And we grew up in the Pacific Northwest. So we are no stranger to competition and have not been really for our entire life as a company. And as we look at competition, I think the beverage market is something that lots of customers are coming in. It's continuing to be a bright spot in the consumer space that we are still seeing growth within the beverage market.

We are certainly outpacing that growth. We -- Q1, we grew our revenue at 30%. So very, very high growth overall. But as we look at the overall competition, the trends are changing in the beverage market. So what we continue to see is a need for customization, a need for cold, a real growth in the energy space and then all with great service. So as we look across those things, we think we are incredibly well positioned.

Our biggest differentiator is our people. We are oftentimes ranked, really, as the leader across the broader food and beverage industry on the service dimension. And we want our Broistas to make everyone's day brighter as they come through that line to delight them both with the high-quality beverages we have, the speed that we serve it with and that smile that you get from coming through our line.

And then looking at the different parts of competition, we do have competition from traditional QSRs who are maybe more food-focused but do come into beverage. There's also lots of large beverage players out there. And I think given the growth and the direction in the market, we continue to see smaller players as well.

One of the things that we look at it, actually, competition overall probably hasn't changed that much, certainly in the last 3 or 5 years. As some players get bigger, maybe it feels like it's changed or some players come more directly into the energy space. But it's actually always been quite competitive. And I think you really need to operate and deliver your best service as you look at this market.

Can you talk -- I mean, it tends to be a view that this is a stable pie, right? If some company is growing, another company has to be shrinking. We know that's not the case because beverage is growing quite quickly. But where is your incremental customer coming from? And where do you see the most white space for the brand?

Yes. So as we continue to grow, as you know, the market itself is growing and energy and iced are particular areas that are really growing in beverage. We're also taking share. So the market is growing. It's not growing at 30%. And so we are taking share. And I think as you look at what customers want, we're just incredibly well positioned to take that share, not only in energy but also on the coffee side of the business as well.

If I think back to 2022, so it was shortly after the company went public, it was before either of you joined, but there was a clear impact from gas prices on the business in March of '22 when Russia invaded Ukraine. You haven't seen that this year. What has changed in the business? Like why are you more economically resilient in 2026 than 4 years ago?

Yes. So we've really built out a lot of capabilities over the last 4 years in the business. And so some of the big places that we've been investing in is, one, in the Dutch Rewards program. So we launched that program as a digital program back in '21. By '22, we really just had the ability to -- you had the ability to collect points within the program.

What we have built now is that back and forth, we've got the app that you can download in mobile order now. We really have segmenting capabilities so we can watch what is happening with our customers' patterns and understand, hey, when might they need an extra offer or when would it be cool to introduce a new beverage to them that they haven't tried before. So we've built a lot of capabilities out in, really, to talk to our customers.

We've also invested a lot in building brand awareness over this time. So a couple of key things we've done there is, one, built out our paid media capabilities. So we were largely doing retargeting before. Now we are actually focused on finding customers that have not been to a Dutch Bros before and then rapidly getting them into that Dutch Rewards program. We find that once you've tried Dutch Bros for the first time, you actually very often come back. And so really making those investments to be able to talk to you, get you in the program and find you in the first place.

We've also done things like launch CPG. So now in the markets where we have a physical Dutch Bros, we also have grocery stores and other large retailers that have Dutch Bros products. And so when you're walking down doing your grocery shopping, you see the Dutch Bros logo, and it really helps drive brand awareness. So we've done a lot of things to actually focus on building the resiliency within our base.

The other piece I would note is from a value proposition perspective, we've really invested in continuing to enhance our value proposition. We're really the leading player in the beverage industry from a value proposition. So we've taken very little price over the last couple of years. We continue to invest in things that really drive value for our customers, things like mobile order, investing in food as we continue to roll that out.

It's actually a good segue. Maybe, Josh, can you talk about the dynamics of really lagging the coffee market increase in price because you're clearly playing for the long game and not trying to, necessarily, optimize margins in 2026. And then help us understand how food plays into the margin structure as that fully rolls out this year?

Yes. Yes. So to your point, coffee has been elevated now for probably about 18 months, and that does take some time to flow its way through our P&L. We really saw that spike in our P&L here in Q1 of this year. and coffee has remained quite elevated.

Back to your point, though, on our overall pricing perspective, we do feel like we have a very strong value proposition. We do lots of surveys with our customers to understand our relative value proposition. We look at how we're priced relative to others, the size of our beverage and the relative price point, knowing that we have actually quite a bit of room and feel we have quite a bit of pricing power that we could take if we wanted to with our customer. But felt like just given the strength of the business, given the strength of our overall P&L, we had the opportunity and the ability to absorb what we thought would be a temporary price -- or cost increase in coffee costs.

Historically, if you were to look at the coffee market over a lot of years, you see spikes like this happen and it will typically normalize back down to your more average range. So we're still at an elevated coffee cost today. We anticipate, I think, with many others that at some point, it will normalize here. But given that, we felt like we're in a really, really strong position not to have to take price to be able to cover those coffee costs and feel like we're -- we've been able to navigate that very well. We had margins of north of 28% in Q1, which we feel really proud of despite having some pretty heavy coffee headwinds.

As it relates to food, food certainly is a lower gross margin product. So as you think about cost of goods, specifically for food, that generally is a bit higher than that of a beverage. But the nice thing is it's adding attachment to our business. It's adding some incremental transactions. So we'd expect to see that lift help drive leverage in other lines that will help mitigate some of those pressures.

And Christine, can you talk about -- so having lived through other beverage brands, really, the key with food is to make sure it's additive and not substitutive of the beverage, right? So can you talk about what you've worked on operationally to make sure that food in no way slows that line so that you lose that incremental beverage at the end of the line?

Yes, incredibly important. So a couple of things as we started to think through rolling out food. One is we're talking to our customers a lot and asking them what they want. Food was one of the largest requests that customers were sharing with us, "Hey, I love your beverage, but I sometimes have to go somewhere else when I want a breakfast sandwich in the morning and would love for you to have that option for me."

When we roll out any initiative, we look at a number of things. The first is our Broistas, who are making and serving and delivering all those great beverages, do they love this? Are they excited about it? Because if our Broistas are excited about what we're doing, it always ends up working. And so we -- as we've rolled out food and especially as we were testing it, really did a lot of surveying of our Broistas.

And then we do have long lines at many of our shops. And so it is one thing that we're incredibly focused on is making sure that the throughput really works, especially as we add food or any other new initiative, a new beverage to the venue is we're very focused on speed of service.

So as we've rolled out food and tested food, we've been consistently testing that and really understanding kind of how are our shops operating at a peak. Are they continuing to grow those peak times. And as we did testing of food, make sure that we are offering products that the cycle times fit within the beverage cycle time. So very, very thoughtful operationally to ensure that food fits in with what we're doing overall.

Josh, the -- you had a very strong first quarter with comps up 8%. Of course, everybody did the math and the implication is 3% to 5% for the rest of the year. So can you talk about that outlook? Why 8% goes from (sic) [ goes to ] 3% to 5%? And as you think about that 3% to 5%, what are the biggest wildcards there that you think of either positively or negatively?

Yes. I mean -- so certainly, we had a fantastic Q1, and I think that it even exceeded our expectations. The guidance we provided for Q1 was definitely below that. We really had a strong LTO offering in the back part of the quarter that exceeded our expectations and helped drive some of that outperformance in addition to some of the great merch offerings that we offered during the quarter, all of that really drove that outperformance.

So as we think forward, certainly, we don't plan on it exceeding our expectations by definition. We have a very thoughtful approach of how we plan for all the different offerings that we have for the balance of the year, feel great about those initiatives, but certainly expect those to perform along the lines of what we've seen in the past. So still fantastic performance, I'd say, but maybe not to the full elevated levels that we saw in Q1.

The other side of that is we are starting to lap some harder compares as we move throughout the year. We -- the transaction compare actually steps up 2.5 points heading into Q2 and then steps up sequentially even from Q3 to Q4. So just on basic math, even with a really strong underlying transaction trend, you see it just the compares get a bit harder. So I feel really good about the momentum of the business that we saw in Q1 and feel really good about the outlook for the balance of the year, considering all that.

We are rolling out food. So as we shared, we're also -- we'll complete the rollout in our company-operated shops by the end of Q3. So that will add to some of the comp lift throughout the year as well. But there's a variety of factors. Certainly, we have -- I think we do a really good job at estimating what our overall comp performance will look like based on all the initiatives we have. Obviously, in Q1, we significantly exceeded it, but there's always variability in how that can perform, which is why we provide the range that we do.

And what do you think -- I mean, there's always a lot of moving parts. What do you view as the long-term kind of durable comp for the business?

Yes. So our long-term growth algorithm has included low single-digit comp growth, and that's really -- we're very focused on continuing to go after the large white space market share that we can capture here really through unit growth, creating greater convenience for our customers and feel really good about the ability to continue driving transaction growth over the longer term and healthy comp growth as we build this business out for several years to come.

Christine, you have a new Chief Shops Officer, who's been there several months now?

Yes, almost 6 months now.

Almost 6 months. Lose track of time. Every year in the market, it feels like 7 years right now. I mean what -- when you were making that hire, what were the key priorities that you have for her as she kind of helps you get to this much more scaled business?

Yes. So as we look ahead, our biggest priority is growing shops. And so ensuring that we make that as easy as possible for our teams. And so that is really Jen's highest priority is thinking through what are the things we can put in place to really make it easy to continue to grow our shops. How do we support our travel team, which we call the Mob that goes out and trains all those shops, helps open those shops. How do we make sure that they're incredibly supported as we move across the country. How do we put in initiatives that continue to help us drive throughput.

So again, we always focus on speed, quality and service. Sometimes with the demand we have, we need to continue to focus on speed and drive throughput so that more customers can come through our lines and experience Dutch Bros. So she's very focused on that.

She's very focused on labor deployment. So ensuring that we always have the right number of Broistas at the right time. So we're getting better both on the demand side and understanding kind of exactly what is a day going to look like and how can we best staff to those demand patterns across the system. So really all of that blocking and tackling and ensuring that we can open our new shops in the best way possible.

It did look like new unit productivity ticked up last year, at least the math that all of us do on the outside. Can you talk about whether you're hitting your payback targets faster more recently and kind of what you would attribute that to? And how you're really seeding particularly new markets when you enter, like Chicago?

Yes. Yes. So certainly, it did elevate, as you pointed out. The -- really, a lot of that was a function of the culling of the pipeline that we did a couple of years ago, really going through as we -- for those who don't know the whole -- full history, we went quite deep and quite rapidly into some new markets, in particular, in Texas, where we saw some high rate of sales transfer and learnings from that was we still would open those shops and still would find them to be great sites, but we might sequence them a little bit differently.

So as we went through those learnings, we culled our pipeline of sites that were in our longer-term real estate pipeline and left in that pipeline some of the highest performing shops. We -- on top of that, during that time, also rolled out mobile order capability. We've been rolling out enhanced marketing initiatives that have really driven our AUVs up, that left us with really, really strong performance of those new shop openings. I think in hindsight, we may not have culled as many of those shops out of the pipeline given the overall performance. But feel really good about the return profile we've seen on those shops that we're opening. And as we continue to go into new markets, we see really strong performance, certainly, the lines here at Melrose would evidence that we have a very excited customer as we come into some of these new markets.

So we continue to see fantastic returns on the new shops. And we've outlined our longer-term growth algorithm that includes our longer-term TAM as we'd be targeting shops doing $1.8 million in year 2. We see fantastic returns even at that level. So with elevated AUVs, certainly, the returns are even higher. But our goal is over the long term to create that convenience to make sure that we're densifying a market so that we can become your every day. So our sole goal isn't just to drive elevated AUVs in those new shops. It's really to create that convenience and that longer-term durability of the brand. So I'd expect that to normalize over the long term as well.

You have -- from a daypart perspective, you have the inverse opportunity of a lot of other brands where typically, if I was sitting up here with another company, I might be talking about the afternoon as the opportunity for you, it's more the morning. So can you talk about the morning as a percent of your sales and how you're optimizing that with things like mobile order and pay and food and where eventually you think that could go? Because I think many investors are wondering how high is high, assuming that's additive to the ultimate AUVs.

Yes. So as we look at our business, about 1/3 of it is the morning, 1/3 midday and then 1/3 afternoon. The beverage market overall is a little bit more like 50% in that A.M. daypart as you share. And we believe we actually have opportunities really still throughout the day. But that morning daypart is definitely an opportunity for us. And as we look for our customers and ask them, hey, what is -- what would drive you to come more often in the morning? The #1 thing is convenience because none of us want to wake up early to drive an extra 10 minutes to a shop. So the closer a shop is, the more likely a customer is to come.

Food is also important as that attach to beverage in the morning. So having those protein options and really breakfast sandwich options are quite important, so rolling that out. And then mobile order is also more important in the morning than in other dayparts, again, because we're a little bit more time sensitive in our mornings than we are throughout the rest of the day.

So we've been very focused on that really enhance and grow that morning daypart. But we're also focused on the afternoon. We have a really large leadership position in the afternoon. And that is -- a lot of that is driven by our very strong energy business. So we continue to enhance that. We have a proprietary product called Rebel that you can customize, you can blend it, you can add toppings to it, all different types of things. And we've recently rolled out Myst, which is a plant-powered energy with antioxidants, electrolytes. It's truly refreshing. And it is a different need state really than our Rebel product. And so as -- we always look for ways to enhance those things that we're already the category leader in.

Can you talk about scaling culture as you grow because it's obviously a very important part of the business, and we've seen so many companies stumble at some point. I guess what systems you also have in place to try to detect any kind of red flags early to course correct?

Yes. So I think the most important thing we have is just such a strong base and foundation of people ready to grow with us. So I shared we have those 500 operators above shop. So they start in a market with one shop, but then they can grow to multiple shops. So that allows us to scale our culture because we're scaling with our people who have experience with our brand.

We also have very strong training programs. So we invest a lot, especially as you come on as a new Broista and learning all of the recipes and all of the new drink builds and learning our culture, learning about the history of the company. So we really invest a lot in that as well in growing our culture and growing our people.

And then we do a lot of things just making sure we're listening really well. So we have a great field support system. And Josh and I have a weekly meeting with all of our area vice presidents who run all of our shops across where we have a really open dialogue about things that are working well and then things we can do better. And our entire team is incredibly focused on serving our field exceptionally well that when something comes up from the field, we always know that, that is a high priority to get right. So I think the culture is something that is incredibly intentional. It's been built over time.

And then I think one of the most important things we do is we invest the right amount in labor in our shops. So we ensure that we have enough time for that training. We have enough time to really successfully serve our customers. And we've always shared that we -- as you see leverage in other parts of our business, the labor line is something that we will continue to invest in both from an hours perspective and from a dollars perspective as we continue to grow. And it's something incredibly important that our teams have an incredible environment to come to work and really choose to come and be with us.

I think it was interesting on your last call, I believe you put out some stats and some of us did the math, and it's a fun fact. So if you leave William Blair with anything today, it's harder to become a Broista at Dutch Bros than to get into Harvard. So just like take that with you.

I guess the last thing is just the throughput. So to me, from the outside, it feels like there's a delicate balance for you with throughput because you can become a transactional brand versus a relationship brand. And I tend to think that's why you don't throw out throughput numbers that often with Wall Street because you are walking that fine line. But as you look at the overall base, are you seeing a moving to the right of the curve on throughput? And what are your best tools in the toolbox to move that?

Yes. So as we look overall, I think you're exactly right. It's that delicate balance. And so our teams, we focus on speed, quality and service all at the same time, right? You want your drink right, you want it in the time you want it, and you want it delivered with a smile. And so how do we make sure that we balance all those? We do survey our customers quite often to make sure we are hitting that balance correctly in all of our shops.

And throughput is something where we want to make sure that we're not rushing the part of the experience that our customers love. So that connection with the Broista, making sure that we're not only looking you in the eye, but we're also looking your passenger in the eye and then maybe you have a dog with you, we're delivering them an awesome Pup Cup, and we're also looking them in the eye.

So making sure that we never shortchange the service part of what we're doing, but there are opportunities where we can get faster. So what are those things in the shop that just take extra steps? Where can we put the boba closer to where it's being made? How do we think about the things that don't work exactly perfectly within the system? And how do we make sure we invest in those? How do we invest in making sure that we have great training on at what car should you take the order depending on how many cars you have in line. Like when do you want to be a line buster versus when do you come back into the building to help and assist making drinks. So all of those things around the edges are things that we can continue to invest in service, but we can also drive that throughput faster.

So we're out of time, but we're having a breakout over the river and through the woods in the [indiscernible] room. Thank you.

Great. Thank you.

Thank you for standing by, and welcome to the Dutch Bros, Inc. First Quarter 2026 Earnings Conference Call and Webcast. This conference call and webcast is being recorded today, May 6, 2026, at 05:00 p.m. Eastern Time and will be available for replay shortly after it has concluded. [Operator Instructions]

I would now like to turn the call over to Neil Patel, Dutch Bros' Senior Manager of Investor Relations. Please go ahead.

Good afternoon, and welcome. I'm joined by Christine Barone, CEO and President; and Josh Guenser, CFO. We issued our earnings press release for the quarter ended March 31, 2026, after the market closed today. The earnings press release, along with the supplemental information deck have been posted to our Investor Relations website at investors.dutchbros.com.

Please be aware that all statements in our prepared remarks and in response to your questions, other than those of historical fact are forward-looking statements and are subject to risks, uncertainties and assumptions that may cause actual results to differ materially. They are qualified by the cautionary statements in our earnings press release and the risk factors in our latest SEC filings, including our most recent annual report on Form 10-K and quarterly report on Form 10-Q. We assume no obligation to update any forward-looking statements.

We will also reference non-GAAP financial measures on today's call. As a reminder, non-GAAP measures are neither substitute for nor superior to measures that are prepared under GAAP. Please review the reconciliation of non-GAAP measures to comparable GAAP results in our earnings press release. During the question-and-answer portion of today's call, please limit yourself to one question.

With that, I would like to turn the call over to Christine.

Thank you, Neil, and good afternoon, everyone. Dutch Bros continues to operate in a category of its own, anchored by a people-led culture that creates authentic customer connection. With disciplined growth and continued investment in our people, the long-term outlook remains incredibly bright.

Our first quarter results meaningfully exceeded expectations, driven by the passion of our Broistas, the strength of our all-day beverage platform, category-leading innovation and our idiosyncratic transaction drivers, including [ the rollout ] of food. Based on the strength of our performance throughout Q1 and our industry-leading value proposition and performance into Q2, we are raising our full year guidance.

Turning to our Q1 results. Total revenues increased an impressive 31%, accompanied by strong profitability in Q1 with adjusted EBITDA up 26%. Our transaction driving efforts maintained momentum from Q4, translating to 7 consecutive quarters of transaction growth. Our customers continue to choose us for our customization innovation and incredible customer service. Our Q1 2026 shop openings were ahead of schedule with 41 system shop openings in Q1. Our path to 2029 shops in 2029 remains very clear. This reflects the positive impact our disciplined real estate pipeline work. Moving forward, we remain confident we can continue to accelerate our long-term shop openings as our market planning and real estate investments pay off.

Our AUVs are at record levels and new shop productivity remains in line with system averages. As momentum behind our stepped up brand awareness remains strong, and our customers continue to respond to our focus on speed, quality and service. Our foundation is incredibly strong. Our focus on speed to market with best-in-class innovation, a hyper customizable menu, and unmatched customer service play a critical role in delighting customers and building an everyday routine. It's clear we are poised to continue shaping and commanding a leadership position in the large and grown beverage category.

In fact, we are consistently rated the top beverage chain for service. And at the center of that performance, and what truly sets Dutch Bros apart is our people. Our commitment to our people allows us to consistently invest in culture, development and leadership. And that's what enables us to build a strong team at scale. We're a great place to work and to grow. We create a fun, high-energy environment for our Broistas, while also providing clear and compelling futures through internal growth and leadership development. That investment drives strong engagement and retention, and it allows us to develop leaders who build connected, high-performing teams.

Our leadership turnover remains incredibly low with turnover at the operator level in the low single digits. And as we continue to grow, we are able to create new opportunities for the nearly 500 leaders [ we have ] in our operator pipeline. To bring this to life, I wanted to share an example of one of our coaches leading our openings in the Greater Chicago market.

[ Ali ] has been with Dutch Bros for over a decade, relocating across multiple markets with a team of operators who have continued to follow and grow alongside of her. This model allows us to bring a seasoned team of leaders to build and grow a new market quickly with operational consistency and our signature Dutch Luv. And our results demonstrate this. Our first shop in the Greater Chicago market is already pacing to a volume of approximately $4 million. That kind of performance is a direct reflection of the culture and leadership pipeline we've built.

This strength also shows up in our ability to attract and engage talent at scale. In 2025, we received over 780,000 applications for just about 19,000 shop rolls. And we rank in the top 15% of all companies in employee engagement today according to [ Gallup ]. And ultimately, all of this shows up in the customer experience. When our crews are engaged and connected customers feel it through the energy, the conversation and the genuine care in every interaction.

Our line of sight to 2029 shops in 2029 remains very clear, and we're energized by our progress so far. We continue to strengthen our development pipeline. Our market planning team has a robust plan to continue executing our strategy of densifying markets while we expand into [indiscernible]. The buzz and excitement around the Dutch Bros brand remains strong. We have no shortage of potential sites for new builds and have a healthy pipeline of attractive conversion opportunities. These include sites for limited service operators, smaller emerging growth concepts and legacy beverage brands.

Let me share an update on our Clutch Coffee Bar conversions. During Q1, we reopened 7 converted shops and the early response has been incredible. Lines are forming, communities are buzzing and our brand is showing up in a big way. These converted shops are already outperforming our system-wide AUVs and generating, on average, more than 3x their pre-conversion volumes. I want to sincerely thank our teams and the Clutch teams for making this transition [indiscernible]

Our real estate strategy is centered on building density thoughtfully. We believe that over the long term, density drives stronger brand outcomes, establishing customer routine, improving retention and creating frequency. We intend to continue executing this strategy, recognizing while initial openings and new markets may deliver elevated volumes, durability is driven by density and becoming the everyday routine. And this strategy is working. Our system-wide AUVs are at record levels and Texas, our largest comp state by shop count drove almost 20% same-shop sales growth in Q1.

Now let me share how we are continuing to widen our competitive moat through a focused set of transaction drivers we've introduced over the past several years. These drivers deliver long-term structural benefits as we scale not just the number of shops, but also the number of occasions at each shop.

Our [ new food ] rollout continues to perform exceptionally well. And as of Q1, we have completed the rollout across 485 system shops, including [indiscernible] franchise shops. The program continues to maintain a high level of operational efficiency, even as we launched a ninth SKU as part of the rollout in Q1. We continue to see elevated Broista dissatisfaction and positive customer feedback, particularly around likelihood to recommend food offerings. We are also seeing food attachment rates from the rollout tracking in the low teens, slightly ahead of what we expected from our early test results. And based on the strength of results to date, we now expect the new food program rollout to be largely complete across our company-operated fleet by the end of Q3.

Category-wide innovation across our menu continued in Q1. In March, we introduced a trio of nostalgic throwback drinks, which included a brown butter chocolate chip latte, fruit punch rebel with a sour candy straw, and [ Cool Blue Fizz ]. Innovation like this is a testament to our ability to spot and activate trends early, bringing unique yet accessible innovation to market in a way only Dutch Bros can.

The Q1 LTO window was one of our strongest on record and drove an approximately 30% increase in LTO unit velocity versus the prior year. In addition to our LTOs, we're continually listening to feedback from our customers and Broistas to deliver on-trend march drops that truly resonate. This quarter, many charm figurines and mystery bag charms drove high engagement and excitement across the brand and delivered a step change in effectiveness year-on-year. With approximately 50% higher sales [indiscernible] than the comparable drops from last year.

At the beginning of May, we launched [ Mist Energy Refreshers ], a new plant-powered energy platform designed to expand our reach. These beverages are carbonated light and refreshing with antioxidants, electrolytes and fewer than 100 calories. During testing, Mist saw strong customer demand and notably similar customer retention to our first-to-market protein coffee offering, suggesting potential for this to be part of our longer-term energy platform. We've seen incredibly strong customer feedback since launch, and we plan to continue driving trial of Mist, as the combination of Rebel and Mist enhances our leadership in the customized energy category.

Switching to Dutch Rewards, we ended Q1 at an all-time high of 74% of transactions flowing through the program. Our continued success in acquiring new customers into Dutch Rewards has been supported by order ahead adoption continuing to climb, which reached approximately 15% of the total transaction mix in Q1. We are continuing to grow our segmentation capabilities. And in Q1, we saw meaningful improvement in our in-app offer effectiveness and customer engagement as a result. And when we segment our rewards program, transaction growth in Q1 continued to have momentum among Gen Z and millennials.

Over the past 3 years, we've strategically increased our investment in paid working media with a clear objective, introduced more customers to the brand. Our unaided awareness has more than doubled in the past 1.5 years, a testament to the momentum that our investments in media, community-driven events and our best-in-class social media program provide. CPG is our list initiative to continue building brand awareness. We just completed the first quarter with our CPG products in select retail outlets and are pacing ahead of expectations. While it's still early for us, initial results have indicated exceptional velocity in terms of units per store per week. In fact, select segments of the CPG business have higher SKU level velocity than the category leader in our initial leave of retailers.

Our efforts to improve throughput continue to gain traction. We've enhanced our labor deployment model by increasing our visibility into hourly and daily staffing levels to match customer demand. We've also streamlined more efficient beverage production, all while continuing to drive transaction growth and protecting the Broista and customer experience. Notably, we continued to see improvements in orders per peak hour in Q1.

In closing, we are excited by what lies ahead. Dutch Bros remains a special brand, and our people continue to be at the heart of everything we do. We are growing our people and building compelling futures. Through investments in our teams and our tenured operator pipeline, our people remain at the forefront of how we grow. The genuine connections our Broistas create every day are not only central to the experience today, but a leading indicator of the long-term durability and differentiator of this brand.

We are growing our occasions, building everyday routine and naturally taking share. Transaction growth is consistently strong, and we are excited about our innovation road map. Trial continues to rise. Order Ahead is working. Our new food program is heating up, and we believe this is fueling continued engagement through Dutch Rewards. We are building our brand for the long term. The strength of Dutch Bros was evident throughout Q1 with total revenues growing 31%. Our best-in-class value proposition continues to resonate, reflected in 7 consecutive quarters of transaction growth.

We are growing our development pipeline with a clear path to further densify existing markets while expanding into white space markets on our way to 2029 shops in 2029. Our 2026 shop opening cadence is ahead of schedule and new shop productivity remains in line with system-wide AUVs, which are at record levels. Lastly, we believe our foundational approach is purpose-built to lead the expanding customized beverage category. Dutch Bros is designed for how customers want to experience beverages, a platform optimized for to-go occasions, cold beverages, customization and consistency. Our confidence to lead and command the category over the long term has never been stronger.

With that, I'll pass it to Josh.

Thanks, Christine. I'll start with a recap of our first quarter performance and then share our outlook for the remainder of 2026.

Our first quarter results exceeded expectations, driven by strong same-shop sales growth, supported by effective marketing initiatives and continued momentum from our new food rollout. These results reinforce our confidence in our long-term growth strategy and the incredible value proposition we offer.

For the first quarter, total revenues were $464 million, growing 31% over the first quarter of last year. Systems same-shop sales growth in the first quarter was an exceptional 8.3%, driven by transaction growth of 5.1%. Many of our markets delivered double-digit same-shop sales growth in Q1, including Texas, as Christine highlighted. This performance reinforces the benefits of market density, continued maturation of newer vintages and strong brand execution across our fleet. With our Q1 same-shop sales results and performance into Q2, we now expect full year same-shop sales growth of 4% to 6%. Our guidance reflects the performance we have seen thus far in Q2, while being mindful of the fact that our transaction comparisons continue to step up throughout the remainder of the year.

Full year guidance assumes Q2 system same-shop sales growth approaching 5%. Same shop sales growth drove AUVs to another record high in Q1, reaching $2.2 million, while new shop productivity remains in line with system-wide AUVs. In the first quarter, we opened 41 new shops including, 7 Clutch Coffee Bar conversions in North and South Carolina that opened late in the quarter. Based on current inspection and permitting time lines, we expect to have many Clutch conversions completed by the end of Q3. Conversion costs for the Clutch sites remain in line with our original expectations with average CapEx, including an allocation of the purchase price at approximately $1.4 million per shop. Considering how rapidly we have been able to reopen these sites under the Dutch Bros brand, this is proving to be a very efficient use of our capital.

While our development team continues to accelerate the number of leases we are adding to our new shop pipeline, these conversions highlight one of the various tools we have available to continue capturing our sizable white space ahead. [ Incredibly ] proud of our teams for executing this project with speed and precision. We remain highly confident in our path to 2029 shops in 2029 as we continue to see our efforts translate into tangible development momentum. Given the momentum we are building, we now expect to open at least 185 [ System ] shops in 2026.

Switching to company-operated shop performance in Q1. Revenue totaled [ $129 million ], an increase of 31%, or $103 million compared to the first quarter of last year. Company-operated same-shop sales growth was an outstanding 10.6%, primarily driven by transaction growth of 6.9%. Company-operated shop contribution was $121 million, representing a year-over-year increase of 26%. Company-operated shop contribution margin was 28.3%.

Beverage, food and packaging costs were 26.2% of company-operated shop revenue, which is 120 basis points higher year-over-year primarily driven by higher coffee costs and costs associated with the continued rollout of our new food program. COGS in Q1 were better than expected due to savings generated in other categories, primarily dairy. As a reminder, we continue to expect an impact higher [ coffee cost ] as the year progresses. The updated full year 2026 guidance now contemplates approximately 60 basis points of total COGS pressure. This also includes the impact from costs associated with the continued rollout of the [ new food ] program.

Labor costs were 26.2% of company-operated shop revenue, which is 120 basis points favorable year-over-year primarily due to sales leverage on better-than-expected same-shop sales. Occupancy and other costs were 17.8% of company-operated shop revenue which is 130 basis points higher year-over-year, primarily due to higher rent on new shops as we shift more of our portfolio to build-to-suit leases, and higher repairs and maintenance costs. We continue to expect the shift towards [ build suit ] leases will drive higher occupancy costs as a percentage of revenues in 2026.

Moving down the P&L. Q1 adjusted SG&A was $66 million, or 14.1% of total revenue. We were able to drive 100 basis points of leverage on adjusted SG&A, while continuing to make investments in our people and infrastructure. Our updated 2026 guidance now contemplates approximately 80 basis points of leverage on adjusted SG&A for the full year. In the quarter, adjusted EBITDA was $79 million, an increase of 26% over the first quarter of last year, and we delivered $0.16 of adjusted EPS, up from $0.14 in Q1 of last year.

Let me now provide an update on our [indiscernible] and cash flow. As of March 31, we had approximately $698 million in total liquidity, including $264 million in cash and cash equivalents and the balance in our undrawn revolver. During the quarter, our net cash position decreased by approximately $5 million in Q1, largely driven by timing. We continue to have strong cash flow from operations and remain confident in our self-funded outlook. In Q1, our average CapEx per shop was $1.3 million, largely consistent with Q4 and well below $1.7 million in Q1 of last year. We continue to have clear visibility to our long-term target of an approximate 60% build-to-suit lease mix. We also continue to see increasing number of sites available as demand for our brand grows across the country.

Shifting to our 2026 guidance. We have a long runway ahead and remain confident in producing exceptional results in this dynamic macro environment. Given the strong performance throughout Q1, and performance we have seen thus far in Q2, we are raising our full year guidance in the following areas. Total revenues are now projected to be between $2.05 billion and $2.08 billion, representing 25% to 27% growth year-over-year. Total system shop openings are now estimated to be at least 185 shops. System same-shop sales growth is now estimated to be in the range of 4% to 6%. Adjusted EBITDA is now estimated to be in the range of $370 million to $380 million. The midpoint of this range contemplates approximately 30 basis points of net adjusted EBITDA margin pressure. This reflects the impact of higher coffee costs and increased occupancy costs, partially offset by leverage on adjusted SG&A. There are no changes to our guidance for capital expenditures. It remains within the $270 million to $290 million range.

We are very proud of the results our team delivered in Q1. Our people, our resilient financial model, and our differentiated transaction-driving initiatives continue placing us in a category of our own. We remain very excited about our business momentum and have strong visibility into our multiyear growth runway.

Thank you, everyone. We'll now take your questions. Operator, please open the lines.

[Operator Instructions] And the first question comes from the line of Jeffrey Bernstein with Barclays.

My question is on the broader category, and I guess your core consumer kind of tied to it. From a category perspective, you mentioned your confidence in the brand is never stronger [indiscernible] first quarter results and the guidance [indiscernible] would demonstrate that. But within that confidence, can you just talk about any incremental learnings you have or comfort you have to withstand the intrusion from two of the largest restaurant chains that seem to want to get into your categories of energy and refreshers and protein and all others? It does seem like it's a major hurdle, or potential competitive [indiscernible].

And then just as you think about that, just your very strong results that you saw in the first quarter and [indiscernible] into April. Any change in trend due to the spike in gas prices? It would seem like a discretionary beverage concept might be more vulnerable than the average? Any color there would be great.

Jeff, thanks so much for your questions. So starting with competition and what we're seeing in that overall energy market. I think that our success in innovation has really led others to recognize that and take a look at us. We've never been stronger in the energy category. And if you look at what we're doing, it's actually quite different than what else is out there. So we are the category [indiscernible] customized energy. We strengthened that category leadership with the launch of Mist, which we just launched over this past weekend.

Mist is another type of energy drink that's really complementary to our [indiscernible] energy drink. It had antioxidants, electrolytes. It's under 100 calories. And what we already is customers actually coming in for both of those beverages and using them in different ways. And so super pleased to see that in what we thought we would see based on testing, is that we launched a Rebel drink that had a great weekend and on top of that, a Mist drink that had a great weekend.

So again, really building on our category leadership within energy. And what we are doing is quite different, having it blended, having it iced, the number of different flavor combinations. And we actually see particularly within energy customers are actually building their own beverages. And so that importance of customization in being able to customize with speed is incredibly important in that market. So we feel really, really great about where we're sitting on the energy market.

And I think if anything, others recognizing how large this market is and coming in with large marketing dollars really could lead to customers wanting to come and try all of that customization. And all of those different ways that you can have energy at Dutch Bros.

And then looking at how we've been performing in this environment. So we obviously had a exceptional Q1 with 8.3% system same-shop sales. We felt really good as we went into April, we saw exactly what we thought we would see from an expectation standpoint. And feel like we're incredibly well set up. I think as you look across at all of the things that we have put in place over the last couple of years from a marketing standpoint, our ability to really continue to grow within lots of different market conditions. It feels like we're incredibly well positioned.

The next question comes from the line of Sharon Zackfia with William Blair.

I think I heard you correctly that Texas had a 20% comp in the quarter. Maybe I misheard that. It sounded like a really big number. Christine, can you give us some more thoughts on what's going on in Texas that you're finding to be particularly impactful? And if there's a playbook there that you think is of use in other markets going forward?

Yes. Sharon, we did share that figure that we saw an almost 20% comp in the state of Texas for Q1. And we shared that number because Texas has become really meaningful in our comp base now. It is our largest comp state by number of shops. And as we look at that performance, I think it's very indicative of, kind of, as we grow what things could look like.

So one, we've really spent time building brand awareness Texas. It's one of the places where we've been really focused on building that brand awareness, enhancing that paid media as we grow. We also continue to densify our markets within Texas. It's one of those markets where actually we see all different flavors of competition. So I know we get a lot of questions about that. I think Texas is a great example to see how we do within all of those different circumstances. And I think that what we're seeing in Texas a combination of all of those marketing levers working together, along with what happens when you really densify and build a brand within a market.

So we're super excited by what we're seeing. It gives us great confidence in our long pipeline to get to that 2029 shops in 2029 [indiscernible] beyond and what our real estate strategy will do for us.

The next question comes from the line of Brian Harbor with Morgan Stanley.

I was curious about that new energy drink, too. What was, sort of, the catalyst for this? And did you think there was sort of like a different customer need state. And, I guess like, you kind of mentioned just more broadly, you kind of mentioned taking share, right? is energy a big piece of that? Like do you feel like you're kind of taking share from other beverage occasions? Like what -- it does seem like energy is kind of growing faster than the overall beverage category right now. And I was wondering if -- do you see that? Or what kind of continues that?

Yes. So I think Mist -- thanks, Brian. I think it's a great question. When you look at Mist, we actually -- it's a great way that we look at this from an art and from a science perspective. We were really looking at what's going on in that CPG market as energy continues to grow and expand. You see a whole group of new age energy players that are really focused on some of those functional benefits. And so as we looked at the energy market, as we surveyed our customers, we actually did pretty extensive testing of Mist as well before we launched it. Looking at those combination, we believe it's really a different occasion that our customers have. And that actually a lot of customers are going to both have a Rebel occasion and a Mist occasion. So Rebel, I am getting ready for an exam. I want to get hyped up. I need to stay up to that. That's a great occasion for Rebel. And Mist is something I just need a little pick me up in the afternoon. I want those electrolytes. It's a beverage with lower calories as we look to really play across different markets.

And what we're seeing in this initial launch is really playing out that those different need states and occasions are very important in energy. And then from a taking share perspective, we believe we're taking share both in the coffee market and the energy market, and doing both of those at the same time. So as we look at that routinized coffee behavior, especially in that morning day-part, the roll out of food, the rollout of mobile order really important to that, and we're seeing really great growth in that day-part. And then when we look at the energy market, we believe that that's a very high-growth spot in the market clearly the category leader in the customized energy market and missed is just a great addition to allow us to extend that category leadership.

And the next question comes from the line of Dennis Geiger with UBS.

Kudos on the strong results, guys. A quick clarification on the question, if I may. Just on the clarification, Josh, I think you mentioned 5% same-store sales for the 2Q. You guys have obviously significantly exceeded same-store sales guidance in recent quarters. So just curious if the trends that you guys alluded to that you're seeing into 2Q so far, if you're sort of trending towards that guide for 2Q? Or if there's some conservatism perhaps just based on the uncertain macro backdrop?

And then the real question is Christine, you spoke to some interesting numbers, strong numbers, 30% increase. I think, in LTO unit velocity versus last year. And I think on the merchandise, the 50% sales lift versus last year. So curious if this is more -- just a function of simply the products and the [indiscernible] that you're rolling out being stronger than last year? Or if it's something a bit more systematic maybe related to marketing media support overall, brand strength building, et cetera. If any comments there?

Yes. So I'll take the LTO and [indiscernible] drop velocity question first. Thanks, Dennis. When we look at that, I think this is really just our teams looking at what is working, what is working well and then building on top of that. I also think what you're seeing is that continued strength of our brand. All of the investments we've made in growing brand awareness, the popularity of these [ merch ] drops and really, there's a resale market for them afterwards. But I think what it is, is us learning, continuing to get better. And what you're seeing show up is just the strength of the brand.

Yes. And Dennis, if you think then about what we've seen so far in Q2, what I'd highlight actually in Q1, as Christine highlighted, just given the strength of the LTO performance that we had. That's a large contributor to our outperformance. We set up Q1 with a pretty high bar, pretty strong expectations for comp performance. We significantly exceeded that. A big part of that being the LTO performance [indiscernible] at the end of February. So really saw that carry through Q1 and performed really well, exceeded -- obviously exceeded our expectations.

When you cut beneath that, we did see very strong performance excluding that LTO throughout the quarter. And that performance, we have seen strong performance coming into Q2. So I think -- as we think about the Q2 performance and the guidance we provided for 2Q, that is reflective of what we've seen to date, us approaching that 5% comp level and is really reflective of the underlying strength of the brand and the strength of the transactions.

The next question comes from the line of Andrew Charles with TD Cowen.

Christine, given the strength that you've added so far with traffic, new store productivity, free cash flow generation as well as the people pipeline, what's the argument for not stepping on the gas with development as it seems that the [ System ] is ready for it, especially with commentary that more sites are becoming available given your scale?

Yes, Andrew, thank you so much for the question. So as we look at development going forward, we shared last quarter that we continue to build that development pipeline. We are adding sites into our development pipeline at a much more rapid rate than we were the year prior. We continue to add sites into our development pipeline at a rapid rate. So we are very excited by what we're seeing. We're seeing great growth in the existing base. We're seeing great growth open the shop and really strong AUVs, really strong customer reception. We have the operator pipeline. We have an operator pipeline of almost 500 people ready to go open these shops. So we're ready to continue to grow and to expand. And now we just need to continue to get the [indiscernible] open. So feel really good about where we are.

And the next question comes from the line of Andy Barish with Jefferies.

Wondering if you can give us a little, kind of, operational shakedown or implementation on food, anything that surprised you? And is the comp lift still sort of fracking in that 4% range or so as you brought in the rollout?

Yes. Thanks, Andy. So as we look at the operational rollout, it's going very smoothly. We learned a lot from how we rolled out mobile order, took some of those learnings as we continue to roll out food. And we've done this in stages. So we have basically a lead part of the market that goes first, the shops within that market learn from those shops and see how it's going. And then we continue to roll it out within markets. We're doing a ton of customer testing and Broista testing just to measure sentiment as we continue to grow and make sure that all of the tools that we're providing the shops are going well. So we continue to see a step-up in that likelihood to recommend and just how smoothly the food offering is going. So I feel really confident about that. We now believe that we will have our company-owned shops really the rollout complete by the end of Q3, with how well it's going.

Yes. Andy, to the second part of your question. We are still tracking on a systemwide basis to the 4% comp lift -- for [indiscernible] that [indiscernible]. [ A reminder ] that there's about 300 shops in our system that won't be able to accommodate the new food program, but we are still tracking to that 4% level. We did see it a bit elevated, as Christine highlighted on the prepared remarks, so that elevated in the shops we've rolled out to date throughout Q1. But as we continue to roll this through the system, we are still tracking as we expected to about that 4% comp lift.

Christine your line is live.

Yes. I think we're ready for the next question, operator.

And the next question will come from the line of Chris O'Cull with Stifel.

Congratulations on a great start to the year. Christine, the company's development strategy has some clear advantages. But how do you ensure the faster-growing direct competitors don't beat you to some attractive markets, or achieve scale before you can get there? And I'm just wondering if you guys have evaluated how new units perform in markets where direct competitors do have a significant head start on you?

Yes. So as we look at our market growth, we're really thoughtful about how we plan and grow into a market. We believe it's very important to go into a market and then densify within that market so that we can become that everyday routine. We are able to look very closely at how we perform when we go in first to our market or when someone goes in first behind us, or gets there before we do. And we are quite confident that the brand strength is allowing us to go in very strongly.

I think a couple of things that really help solidify that for us. When you look at that Clutch performance, right? So we got to see how another coffee or a beverage player that looked a lot like us was performing before we went in and then we opened the same [indiscernible] shops and are doing almost [ 3x ] the volume of what they were doing before. And I think that really just demonstrates the strength of this brand. We also shared that statistic on [indiscernible] which I think demonstrates a market that's quite competitive and our ability to continue to grow and take share in a market like that.

And the next question comes from the line of Drew North with Baird.

I wanted to come back to the topic of competition. And maybe just ask directly, if you think that the recent launch of energy drinks by Starbucks has had any influence on your trends over the last month or so? And maybe just if you could provide some color on what you're seeing at the ground level by category or in that category on the heels of these launches, that would be helpful.

We don't believe we've seen any impact from that launch. And as we look at the strength of our energy platform and how differentiated it is, we really are the category leader here. We continue to see great trends in our energy business and really solicit that even more as we launched Mist.

And the next question comes from the line of Jacob Aiken-Phillips with Melius Research.

So we see improvement in orders per peak hour. I'm just curious how much of the transaction growth is coming from demand generation versus better capacity capture at [indiscernible] peak periods?

Yes. So Jacob, I'll start this and I'll let Christine chime in. But thanks for the question. We -- what I'd say is the throughput initiatives that we put in place, our ability to drive increased transactions per peak hour has really enabled the [indiscernible], the transaction growth that we saw in Q1. So we don't breakdown and attribute comp growth to the different elements that are driving it. But we do see that as we improve our throughput and enable iur Broistas to better serve our customers, it's what allows us to drive the fantastic transaction growth that we saw during Q1.

And the next question comes from the line of Sara Senatore with Bank of America.

Two, I guess, maybe clarifications or follow-ups. First, Christine, I was interested that you said Mist and Rebel are two different use cases. And I think the example you gave suggested they're still speaking to your core customer, who I consider, or typically think of it as perhaps younger. But I was thinking that perhaps maybe the Mist beverage, just give us the plant-based energy and the lower calories might be bringing in maybe a different customer, I'll say older, perhaps. So I was just curious if you're seeing any evidence that maybe you're expanding your market that way?

And then I wanted to dig in a little bit. You answered a little bit my question about Clutch, but it's pretty strong referendum on your brand if you can triple volumes. I guess can you parse out what -- was it the -- is it brand awareness? Did you have a better product, or a broader menu, better throughput? I guess, anything where you could kind of speak to what exactly it was that translated into such high volumes?

Yes, Sara, thanks for the question. So the example I did give was customers using both Mist and Rebel, but we do also believe that this expands the -- category expands the customers who can come in the category. And if you look at the CPG example of that and how all of the energy brands play together, that is certainly what's happening is that category is expanding, driven by that [indiscernible] energy drink.

And then looking at Clutch, those volumes really popped off right away. And so as we look at that really, to us, speaks to the strength of our brand. So customers excited waiting for us to come into the market. We saw lines as we first opened the doors. And then we were able to serve our customers with speed, quality and service. So doing a really great job, and then they're coming back. And so I do think it's a great example just speaking to the strength of our brand.

And the next question comes from the line of Jeff Farmer with Gordon Haskett.

Just wanted to follow up on Texas. I'm curious what percent of the comparable shop base the state represents? And do you see Texas continuing to deliver pretty meaningful same-store sales momentum?

Yes. So Texas is our largest comp base that the number of stores within that base. And as we look at how it continues to deliver, we're very pleased with our results in Texas. And again, just I think it highlights our ability to compete across a lot of different areas.

In fact, one of the things we actually see, not only in Texas but really across the board, is that our highest AUV shops consistently operate in close proximity to legacy competitors, often within a half mile radius. So we actually see higher AUVs, the closer we get to some of those large legacy competitors.

The next question comes from the line of John Ivankoe with JPMorgan.

I know you mentioned in your prepared remarks, you were looking, I guess, as the conversion of opportunity, or maybe sites that are just being left by limited service operators, small emerging growth concepts, legacy beverage brands. Obviously, Clutch is one great example. But it really got me to think of the classic Dutch Bros 900 square foot site that we know, if that is really the optimal square footage box going forward? In other words, your average [indiscernible] has gotten high. You now have food you probably will have more of a morning business in Mobile Order & Pay than you would have had certainly 5 years ago, 10 years ago, contemplated in that site design.

So as we really think about maximizing the overall return on investment, and maybe driving average unit volumes even higher? Do some of these conversion boxes that you've been doing maybe give you opportunity to maybe rethink the Dutch Bros square footage of 900 square feet is exactly the right number? Or if you could get more by being a little bit bigger, for example, by square footage?

Yes, John, thanks for the question. So as we look at that 900 square feet, I think it's really important to remember that it's all [ back of health ]. And so we are able to have multiple beverage stations within that. We have very well fit at food, the whole food platform, and all of the corresponding equipment within that 900 square feet. We oftentimes only have a few deliveries each week. So we also are able to fit lots of extra product into that site. So the 900 square feet actually works well with how we're operating today and in the future.

And as a reminder, we do have shops like that walk-up shop in California that are quite small and doing 3x the [ System ] volume. So we feel very good that we can operate quite well within that 900 square feet. That being said, these conversion opportunities often already have that drive out -- drive-through space, ready to go, we can quickly open those shops and feel very good about where that is.

The next question comes from the line of Jon Tower with Citi.

Maybe two, if I can slip them in. First, I was just going to ask about the walk-up shop in California. Any updates you can provide on your thinking around perhaps further expansion into other markets over time. But Maybe, Josh, for you, on the model, I'm curious, the occupancy and the other line was up pretty high this quarter, and you talked about higher [indiscernible] and the pivot to build-to-suit.

Can you help us think through the two pressures there? Like how much of the year-over-year pressure was driven by the build-to-suit versus higher R&M, and if the R&M is going to persist?

Yes, Jon. So the Downtown LA shop continues to operate quite well and to perform very well. And so we are looking for additional walk-up sites to test.

Yes. And on your second question there. So to your point, [indiscernible] had two impacts during the quarter. We had the higher occupancy costs as a result of our shift to build-to-suit leases that put about 50 basis points of margin pressure in that line. And that's right around what we'd expect it to do for the year. The rest of that was really related to R&M and some other investments we made during the quarter, not necessarily a run rate thing, but if you look at our history, we will from time to time make investments in that space, and we did that during this quarter.

And the next question comes from the line of Chris Carril with KeyBanc Capital Markets.

Can you maybe expand a bit more on order ahead? I think you mentioned it reached 15% in the 1Q. And how are you thinking about the channel here going forward? And do you see more opportunities to ramp up marketing around it this year?

Yes. So we're really pleased with how Order Ahead continues to go. We have been very focused on how do our customers want to use Dutch Bros. And with that, most important metric we're actually tracking for Order Ahead is was your order ready on arrival. And so again, with that very high mix of Dutch Rewards customers, we're able to survey lots of customers every week to understand that. We continue to see really positive momentum on that metric.

And what happens is we see positive momentum on that metric and customers are very pleased with that experience they just had. They come back and they order more and they use that channel more. Again, we're very thoughtful in making sure we are tracking the metrics we want to be tracking to make sure that, that customer experience remains at the center of everything we do.

And the next question comes from the line of Nick Setyan with Mizuho Securities.

I was just hoping you guys would be able to help us think through the CPG contribution. My math, in Q1, I think the franchise and other line was above by about $4 million or so. And it would just be great to understand whether most of that was a CPG-led growth and what the flow-through in terms of EBITDA contribution is? And how we should think about that for the rest of the year even into 2027?

Yes, Nick, thanks for the question. So the franchise growth actually is predominantly related to product orders to our franchisees. So not driven by the CPG growth. So I'm not sure the math you did there was quite accurate. The -- what I would say though is this is early on in the CPG days, we were not even in all the store fronts that we would expect to be in yet. So still rolling this out, and still see this expecting to grow into Q2 and throughout this year. So certainly, as it becomes more significant, it's something we will talk about. It is included in the mine as you pointed out, but much smaller order magnitude than what you highlighted there.

And I would just add, we're very pleased with what we're seeing initially. So getting great customer feedback on taste and on the products. We're seeing really great velocity across the products. And so very pleased, and we'll continue to roll this out across many retailers.

And the next question comes from the line of Logan Reich with RBC Capital Markets.

Just two, if I may. Within the check, can you break out the price versus mix within that for the quarter? And then I want to ask on the regional performance. I appreciate the disclosure. On Texas, obviously comping well above the consolidated number. Just curious for markets that are sort of below that consolidated number. Just curious if there's anything in common between those markets and anything you guys can do to bring those up a little bit higher [indiscernible] performing?

Yes. Logan, thanks for the question. So first, we have about 1.5 points of price in Q1. That will continue into Q2 before we roll off about a point of price at the start of Q3. On the broader question on comp performance. So certainly, we see a range across all different markets. What I'd highlight is what we see, generally speaking, the spread is, as we look at our newer markets, they tend to contribute the highest proportion to our comp growth versus the legacy markets. That's a trend that we've seen.

Now what's great is that all vintages continue to contribute positively to comp, but it's those newer vintages that are contributing a disproportionate amount of it. We did -- we do have a lot of new shops in Texas. So it certainly is a big part of [indiscernible] is outperforming there. We do feel good about the contribution that we're getting across all the vintages and certainly, all the different initiatives that we're working to drive will drive transaction growth and is targeted on driving transaction growth across the fleet.

Yes, and the other piece is we are continuing to roll out food. And so food is performing quite well. And so we see differences in the markets that have our new food program rolled out.

The next question comes from the line of Gregory Francfort with Guggenheim Partners.

Maybe I'm being a dead horse on Texas here. But I think you and maybe your 3 other smaller footprint competitors opened up like 500 stores, or something in that ballpark in 5 years in Texas. And I think the AUVs were lower than your system. I guess with the 20% comp, are you at or above or below the rest of the system today? And are you seeing, maybe, some of those competitors close stores? Are you just maybe picking off the sales as maybe they slow? I'm just curious what else is [indiscernible] more context on that.

So Greg, we continue to be really, really pleased with what we're seeing in Texas. And as we've shared really for the last couple of years, it's been a market that we've been focused on in building brand awareness. So we've seen that investment that we've made in paid media. We continue to drive customers then into our Dutch rewards. So we're seeing very high Dutch [ Rewards ] penetration within Texas as we grow. And I think what we are also seeing is we have over 200 shops now in Texas, you drive past that windmill that really concentration that density of shops within Texas is allowing us really to be that beverage player of choice in the state.

The next question comes from the line of Brian Mullan with Piper Sandler.

Just wanted to ask about the long-term contribution margin goal of 30%. Just to confirm, is that still the goal even taking into account launch of food and the ongoing mix shift towards the higher rent build-to-suit locations? And if so, would you expect to get back there within the time period that covers the 2029 development plans or maybe it's more over the long term? Just any thoughts on that would be great.

Yes, Brian, thanks for the question. We do feel very good about our trajectory towards that longer-term margin target of about 30%. The biggest headwind we're facing right now towards that having posted north of [indiscernible] in the quarter really strong margins as we sit today. The [indiscernible] we're facing right now is the high coffee cost. Coffee remains in that kind of $2.80 to $3 range. It has over the last 3 months since even our last call. So it has remained elevated.

Assuming that normalizes to its historical averages, certainly you see that move us quite a ways back close to that 30% target. We haven't given a specific time horizon on that, but certainly, that target incorporates [indiscernible] build-to-suit leases and everything else we're seeing in our business.

The next question comes from the line of Matt Curtis with D.A. Davidson.

I just wanted to ask about your addition of the ninth SKU to the food platform in the first quarter. I was just wondering if you suggest you already might be thinking about expanding the food menu more meaningfully, at least once you've completed the [indiscernible] rollout. [indiscernible] what this might look like?

Yes. If we look at food, what we've really built is a platform. And as we -- we added that ninth SKU. We're very thoughtful about what SKUs might actually drive a beverage occasion. And we did add a [ cake pop ]. We thought we had an opportunity in the afternoon to help drive in that afternoon business. And so as we look at that, we're going to be very thoughtful. We're really pleased with how successful our teams are with this very limited offering. And as we've shared from the very beginning with food, our goal is to have the lowest SKU count, the lowest complexity possible to really drive our goals and drive those transactions.

The next question comes from the line of Margaret-May Binshtok with Wolfe Research.

I just wanted to ask, given you've had food in some stores for quite some time now, do you have any detail on how food mix has trended as a percentage of sales of those stores? Or does it plateau? And then anything on what you see in terms of day-part mix? Is it driving that morning occasion, that would be helpful.

Yes. Thanks for the question, Margaret. So we do -- we are very pleased with how food continues to perform as we see it for longer periods of time and shops. [indiscernible] really across the system, it's still quite new in most of the shops. The early testing was in like 6 or 7 shops in Arizona. So not even a year into the food rollout yet. But we do continue to build that morning occasion. We are seeing what we thought we would see from a morning occasion perspective, and that food is one of those very important pieces in driving that beverage occasion in the morning.

The next question comes from the line of Brian Bittner with Oppenheimer & Company.

Congratulations on great results. As it relates to shop margins, it does seem as though your labor leverage over the last couple of quarters have really showed solid improvements versus the quarters prior. And I know you referenced sales leverage in your prepared remarks, but maybe you can dive into what else you're doing to unlock these improvements.

Are you improving your labor productivity tools? Are newer stores showing better? Discipline on labor perhaps? Just anything additional to unpack as it relates to later margins? And how are you thinking about the opportunity there moving forward?

Yes. Yes, Brian, great question. Thanks for that. Actually, the performance that we've seen, and in particular in Q1, any time we have quarters where we significantly exceed our expectations on a same-shop sales basis. We just aren't able to get the labor to match this. So we didn't anticipate it coming. So we were able to drive fairly meaningful leverage on that line.

As we've shared over the longer term, it's not actually an area that we look to drive a meaningful amount of leverage in. It's actually an area that we will continue to look for opportunities to reinvest and to take care of our people. Certainly, there's leverage throughout the rest of the P&L that we can look to drive over the longer term. But in the labor line, in particular, the moments of time where we've driven outsized labor leverage has really been a function of that outsized same-shop sales performance.

I would add that I think our teams are doing an excellent job in really matching customer demand to labor deployment and continue to get better at that.

And the next question comes from the line of Christine Cho with Goldman Sachs.

Congrats on another great quarter. You mentioned Dutch Rewards comprising about 75% of the transactions now. But would you be able to share some incremental color on how it's impacting guest frequency, ticket and LTO conversion specifically? And additionally, do you have any plans to evolve the program, for instance, would you ever consider the possibility of introducing status tiers or premium benefits, et cetera?

Yes, Christine, thanks for the question. So Dutch Rewards is now 74% of our transactions. And as we look at the program, we really feel we're still in the early innings of being able to do more personalized segmentation. We started out the program by doing broad offers. We then started doing win-back campaigns. We're now doing frequency level campaigns and have just launched the ability to do streaks which we're really pleased with the early results.

As we continue to add data into that and can watch customers as they evolve as Dutch Bros customers, we think that there's real opportunities also to introduce a product layer to that. And so very pleased with what we're seeing and excited about the future of that program.

This concludes the question-and-answer session, and I'd like to turn the call back over to the Dutch Bros management team for closing remarks.

Thank you for your questions. Our first quarter results were exceptional, and I continue to be energized by the progress we are making. What I'm most proud of is our community-driven approach and the love our teams have for giving back. We have built Dutch Bros around community since the beginning, and our giveback days are one of the most meaningful ways we live our mission of making a massive difference one cup at a time.

During our annual Dutch Luv day of giving in February, we supported more than 240 organizations nationwide, contributing to the local communities we serve. In addition, more than 120 shops hosted local giveback days in Q1, creating lasting impact where our Broistas live and work. Our annual drink [indiscernible] Day is next Friday, May 15. We hope you'll join us as we come together with the Muscular Dystrophy Association in the fight again ALS. Thanks again to our teams for bringing joy to our customers each and every day.

Thank you. This concludes today's conference. You may disconnect your lines at this time. And we thank you for your participation.

Thank you for standing by, and welcome to the Dutch Bros, Inc. Fourth Quarter 2025 Earnings Conference Call and Webcast. This conference call and webcast is being recorded today, February 12, 2026, at 5:00 p.m. Eastern Time and will be available for replay shortly after it's concluded. [Operator Instructions]

I would now like to turn the call over to Neil Patel, Dutch Bros Senior Manager, Investor Relations. Please go ahead.

Good afternoon, and welcome. I'm joined by Christine Barone, CEO and President; and Josh Guenser, CFO. We issued our earnings press release for the quarter and year ended December 31, 2025, after the market closed today. The earnings press release, along with a supplemental information deck have been posted to our Investor Relations website at investors.dutchbros.com.

Please be aware that all statements in our prepared remarks and in response to your questions other than those of historical fact are forward-looking statements and are subject to risks, uncertainties and assumptions that may cause actual results to differ materially. They are qualified by the cautionary statements in our earnings press release and the risk factors in our latest SEC filings, including our most recent annual report on Form 10-K and quarterly report on Form 10-Q. We assume no obligation to update any forward-looking statements.

We will also reference non-GAAP financial measures on today's call. As a reminder, non-GAAP measures are neither substitutes for nor superior to measures that are prepared under GAAP. Please review the reconciliation of non-GAAP measures to comparable GAAP results in our earnings press release. During the question-and-answer portion of today's call, please limit yourself to one question.

With that, I would like to turn the call over to Christine.

Thank you, Neil, and good afternoon, everyone. Dutch Bros remains a powerful growth engine. And as we enter our fifth full year as a public company, our growth story is exceptional, both in terms of the results we are delivering and the expansive future potential that lies ahead. Our fourth quarter and full year 2025 results demonstrate the strong momentum we have in delivering our long-term strategy and were primarily driven by standout transaction growth of 5.4% in Q4. 2025 revenues grew an outstanding 28%, reaching $1.64 billion and have more than doubled since the end of 2022.

Our stellar 2025 performance was driven by 16% new shop growth from 154 new shop openings, along with system same-shop sales growth of 5.6% for the year. 2025 new shop productivity remains elevated as the refinements we undertook in our development process over the course of the past couple of years are clearly evident in our results. Throughout the year, new shop openings were consistently strong in both existing and in newer markets, showing our ability to successfully densify and become the routine while still fostering the brand love to welcome long lines of customers.

2025 adjusted EBITDA grew 31%, reaching $303 million and outpaced revenue growth, fueled by exceptional transaction growth and new shop performance, compelling 4-wall economics with company-operated contribution margin at 28.9%, representing over 400 basis points of margin expansion since 2022. And over the same time period, adjusted EBITDA has grown more than threefold to over $300 million, marking a significant milestone over my 3 years at Dutch Bros. This meaningful achievement underscores the strength of our durable model, reinforcing the confidence I have in the long-term opportunity ahead.

Focusing on Q4, our results maintained the strength of the prior 3 quarters with broad-based outperformance across the business, across geographies and across dayparts with our brand continuing to resonate with customers. Q4 total revenues grew 29%, driven by healthy new shop performance, system same-shop sales growth of 7.7% and company-operated same-shop sales growth of 9.7%, with both of these metrics led by strong transaction growth. System-wide AUVs reached a record $2.1 million, reflecting the strength of our people pipeline, the love for our brand and the superior development execution engine we've refined and built over the past few years.

Against this backdrop of impressive growth, we are transitioning smoothly into the next chapter of the brand's journey with a clear rallying goal to reach 2,029 shops in 2029. The progress the team made throughout 2025, including the acceleration of our shop pipeline and investments in our capabilities, leaves me with tremendous confidence in this brand and this team's ability to drive share-taking growth for many years to come. As we leave a very successful 2025 behind and enter 2026 at full speed, I wanted to recognize and sincerely thank our teams for making this past year a resounding success.

Our people, the heart of our brand, remain the foundation of our differentiated shop experience. They've been our shining strength for more than 30 years, and our people will continue to drive us forward for years to come. Our Broista's ability to deliver a unique experience has been central to our growth and mission of being a fun-loving, mind-blowing company that makes a massive difference one cup at a time. That commitment continues to be a defining driver of our success.

In 2025, we began the year with approximately 400 regional operator candidates in our pipeline and ended with approximately 475, a figure that has nearly doubled since the end of 2022. During that period, we have nearly doubled our system shop count and more than doubled our company-operated shop count, which now represents over 70% of our system shop base. We believe this pace of expansion and our goal of reaching 2,029 shops in 2029 is only possible with the depth and readiness of our people who continue to scale our shop footprint with love, energy and kindness.

Turning to shop growth. 2025 was a landmark year, setting the foundation for what's ahead. We expanded into 7 contiguous states, including our entry into North Carolina in Q4, bringing our system shop footprint to 25 states and 1,136 system-wide shops. In 2025, we accelerated the growth of our shop pipeline while significantly lowering our average CapEx per shop, providing improved visibility and confidence for shop openings in future years. During the year, the number of shops in our pipeline accelerated substantially with shop approvals more than doubling versus 2024. Given this improved visibility, the road to 2,029 shops in 2029 remains very clear.

In Q4, we opened a walk-up shop in Downtown Los Angeles. This shop provides a valuable platform for insights into urban dense corridors where drive-thrus are harder to build. Since opening in late November, this non-drive-thru location has been our top-performing shop and has an order ahead mix at over 3x the system average. While still early, these insights position us to be confident on the types of locations where we can be successful.

Looking to 2026, momentum is expected to continue. We now expect to open at least 181 new system shops, which includes the recently completed acquisition of 20 Clutch Coffee Bar locations across North and South Carolina. This conversion opportunity accelerates our presence in the Carolinas and allows us to introduce Dutch Love to these communities beginning later this year.

Now let me share how we are strengthening our competitive advantage through a focused set of foundational transaction-driving initiatives, along with our strategic growth drivers to broaden access to a wider set of customers and occasions. In 2023, we made a deliberate shift to build a foundational top-of-the-funnel paid advertising engine. The results have been clear. Aided and unaided awareness have meaningfully expanded while still leaving substantial headroom for growth. And now in its third year, our brand awareness strategy is being deliberately amplified through the rollout of the Dutch Bros CPG platform. Creamers, coffee pods, ground coffee and ready-to-drink offerings are now available in many retail outlets.

We are very pleased with the initial customer reception and see meaningful potential to continue building this over time. Paired together, paid media and CPG form a scalable high ROI awareness engine, extending the brand beyond our shops, reinforcing daily relevance while converting awareness into incremental shop visits. We continue to believe brand awareness remains a significant opportunity, making CPG one of our most efficient levers to continue driving durable long-term growth.

Our innovations empower our Broista's, unlocking near infinite beverage customizations and deepening the emotional connection we have with our customers. This innovation momentum clearly showed up in Q4 with a highly successful holiday LTO launch, which demonstrated our ability to drive strong customer engagement in the quarter. In November and December, we reinforced our strategy of driving innovation beyond beverages through impactful merch drops, including the Passenger Princess Car Magnet and the Lil' Bros mini figurines, which cleared out within hours of launch.

And alongside innovation, our loyalty program continues to scale. Dutch Rewards turns 5 years old this month, having just surpassed 15 million members at the end of 2025. In 2025, approximately 72% of system transactions were attributed to Dutch Rewards, representing 4 points of improvement versus 2024. Looking ahead to 2026, we expect to continue expanding our customer targeting capabilities, reaching the right customer at the right moment, improving lifetime value and driving high ROI transaction growth.

Together, these foundational initiatives form a long-term engine of innovation, personalization and loyalty that expands our competitive moat. Beginning in late 2024 and into 2025, we built on our foundational drivers by layering in additional multiyear capabilities, order ahead, improvements in throughput and our new food program. Together, these initiatives are designed to meaningfully reduce friction, unlock our shop capabilities and expand our customer base and visit frequency over time.

Our Order Ahead program ended 2025 with approximately 14% mix in Q4. The program has activated an underutilized channel, the walk-up window, which is approximately 18% of channel mix in Q4. Order Ahead has also proven to be a powerful catalyst for our loyalty program, driving Dutch Rewards penetration higher to 70% plus each full quarter since launch. Even with continued growth in Dutch Rewards membership, we continue to see registrations per shop and active users per shop trend higher, an indicator of sound shop loyalty and customer engagement.

2025 was also a pivotal year in establishing the foundation for sustainable throughput improvement. We implemented a new training model for our field teams and refined labor deployment by aligning labor to better match customer demand patterns. These efforts are delivering results, enabling us to support continued transaction growth while protecting the customer and Broista experience. To further build on our momentum, we welcomed Jen's Summers as Chief Shops Officer last month. She brings deep experience in scaling high-growth restaurant brands while elevating operational excellence and customer experience.

We are equally encouraged with the progress of our new food program, which continues to perform exceptionally well as we expand its rollout across the broader system. This represents another meaningful step toward lowering structural barriers to visiting Dutch Bros and expanding the set of beverage occasions. It's worth noting that 1 year ago, this program was limited to 4 shops in the Greater Phoenix market. And by the end of 2025, we had thoughtfully expanded this program to over 300 shops across 11 states with plans for the rollout to be complete by the end of 2026.

Collectively, these initiatives strengthen our scalable shop operating system, one designed to increase speed, provide greater convenience and drive share-taking growth. In closing, Dutch Bros remains exceptionally well positioned with a very clear strategy, strong fundamentals and a long runway ahead. We are intentionally building this business with a long-term mindset, focused on growing through our people and investing in our brand. We have the largest and most experienced pipeline of regional operators in our history, providing a clear line of sight to 2,029 shops in 2029. System-wide AUVs are at record levels, reinforcing strong shop-level economics and giving us confidence to pursue our long-term opportunity of 7,000 shops.

New shop productivity continues to exceed historical levels, reflecting disciplined market planning, targeted strategic investments in our real estate capabilities and increased paid marketing to build brand awareness. We continue to have top-tier growth. Over the last 3 years, we have more than doubled total revenues while also tripling adjusted EBITDA, demonstrating the strength and scalability of our model. We have ignited transaction growth in 2025 with a much larger comp base, delivering sequential year-over-year improvement in transaction growth, driven by impactful innovation, the expansion of Dutch Rewards and continued adoption of Order Ahead.

We have built a highly scalable and profitable model that quickly resonates with our customers and a value proposition that has been carefully unlocked over 30 years. And our fundamentals remain sound as we've delivered 19 consecutive years of positive same-shop sales growth. Our approach is designed for winning in the long run, operating with discipline, focusing on long-term execution and growing through our exceptional people.

With that, I'll pass it to Josh.

Thanks, Christine. I'll provide a recap of our fourth quarter and full year 2025 results, along with an outlook for 2026. Our fourth quarter performance reinforces the confidence we have in our underlying transaction strength and our strong 4-wall shop economics. For 2025, total revenues were $1.64 billion, representing an impressive growth of 28%. System-wide AUVs reached a record $2.1 million. Adjusted EBITDA climbed to $303 million, outpacing total revenue growth with an exceptional increase of 31%. System same-shop sales growth was 5.6% with impressive transaction growth of 3.2%.

And despite commodity cost headwinds, our 2025 company-operated contribution margin landed at approximately 29%, a testament to our persistence in balancing near-term pressures and strategic investments while continuing to build long-term customer value. Looking forward, as we expect coffee costs to normalize, we remain extremely confident in our ability to deliver our long-term contribution margin goal of approximately 30%. During the year, we opened 154 new shops, bringing our total system shop count to 1,136.

For the fourth quarter, total revenues were $444 million, an increase of 29% or $101 million over the fourth quarter of last year. System same-shop sales growth was 7.7%, driven by standout transaction growth of 5.4%. In Q4, we saw broad-based strength throughout the quarter, with momentum driven from exciting innovation and Dutch Rewards. Additionally, we're beginning to see the impact of our new food program on comp, including both ticket and transaction lift, which is consistent with our prior commentary on the program.

Looking ahead to 2026, we expect full year system same-shop sales growth of approximately 3% to 5%, which assumes taking around 1 point of incremental price during 2026 as we continue to strengthen our relative value proposition, the impact of cycling strong transaction growth that strengthened over the course of 2025, the annual lap of Order Ahead and continued excitement on the new food rollout with early shop results suggesting an approximate 4% comp lift in shops that have the program. We rolled off a point of pricing in January and expect to roll off another point in early July. As a result, we expect the benefit of effective pricing to step down slightly in the back half of the year, while transaction growth comparisons begin to step up.

We plan to continue to methodically roll-out food across our shops throughout 2026 with the comp lift impact phased in throughout the year. As a reminder, we expect that nearly 300 legacy shops may not be able to accommodate the new food program. Our 2026 system same-shop sales growth guidance contemplates approximately 4% to 6% in the first quarter, reflecting the strong results we saw in January and less than a point of price taken at the start of the year. In the fourth quarter, we opened 55 new shops with many opening later in the quarter and a few carrying over into 2026. Consistent with our prior commentary, these openings in 2026 represent incremental shops beyond our initial 2026 guidance and all of them opened in January. As a result of these carryover openings, we now expect to open at least 181 system shops in 2026, representing 16% shop growth. This figure includes 20 Clutch Coffee Bar conversions, which were contemplated in our original shop guidance provided last quarter. This conversion opportunity allows us to deploy capital in a highly efficient way with a purchase price of approximately $20 million.

For modeling purposes, we expect approximately 30 system shop openings in Q1 and a gradual step-up into the rest of the year. Switching to company-operated shop performance in Q4. Revenue was $410 million, an increase of 30% or $95 million over the fourth quarter of last year. Company-operated same-shop sales growth was an incredible 9.7% and was primarily driven by 7.6% transaction growth. Company-operated shop contribution was $113 million, an increase of 24% or $22 million year-over-year. Company-operated shop contribution margin was 27.6%. Beverage, food and packaging costs were 27% of company-operated shop revenue, which is 160 basis points unfavorable year-over-year, primarily driven by higher coffee costs and costs associated with the continued rollout of our new food program.

With coffee costs remaining elevated throughout 2025, the impact increased throughout the year and will have a continued impact into 2026. Given our inventory turns, any change in coffee prices, including the related P&L impact, typically lags by 2 to 3 quarters. The midpoint of our full year 2026 guidance contemplates approximately 80 basis points of total COGS pressure. Included in this is approximately 200 basis points of total COGS pressure in Q1 2026, with that pressure stepping down throughout the year. Labor costs were 26.2% of company-operated shop revenue, which is 90 basis points favorable year-over-year. Occupancy and other costs were 17.2% of company-operated shop revenue, which is 30 basis points favorable year-over-year.

As a reminder, in 2026, we expect occupancy and other costs as a percentage of revenue to increase by shifting more of our lease arrangements to build-to-suit leases. In 2025, approximately 45% of our leases were build-to-suit leases, and we expect continued progress in 2026 towards our long-term goal. Preopening expenses were 2% of company-operated shop revenue, which is 90 basis points unfavorable year-over-year, driven by increased strategic investments related to training and jump-starting shop openings.

Switching gears, Q4 adjusted SG&A was $65 million or 14.7% of total revenue. While we continue to make investments in our infrastructure and our people in 2025, we were also able to drive 140 basis points of leverage in adjusted SG&A. Our 2026 guidance contemplates a continuation of this momentum as we expect an additional 70 basis points of adjusted SG&A leverage. For modeling purposes, we expect a continued flattening of adjusted SG&A dollars throughout the year when compared to 2025. In the quarter, adjusted EBITDA was $73 million, an increase of 49% or $24 million over the fourth quarter of last year. Lastly, we delivered $0.17 of adjusted EPS, up from $0.07 in Q4 of last year.

Let me now provide an update on our liquidity and cash flow. As of December 31, we had approximately $705 million in total liquidity. This includes $269 million in cash and cash equivalents and approximately $435 million in our undrawn revolver. In Q4, our average CapEx per shop was $1.3 million compared to $1.8 million in Q4 of 2024. During the quarter, our net cash position increased by approximately $3 million from Q3, driven by strong cash flows from operations. We have now consistently added net cash to our balance sheet and in 2025, did so ahead of schedule, a testament to the strength of our execution and the long-term staying power of our brand. This marks a clear step change in the momentum we've built by generating free cash flow for a second consecutive year and reinforces my confidence that we are on the right track to further strengthen the durability of our business.

Now let me provide our 2026 guidance. Total revenues are projected to be between $2 billion and $2.03 billion, representing 22% to 24% growth year-over-year. Total system shop openings are now estimated to be at least 181 shops. system same-shop sales growth is estimated to be in the range of 3% to 5%. Adjusted EBITDA is estimated to be in the range of $355 million to $365 million. At the midpoint of this range, we expect approximately 60 basis points of net adjusted EBITDA margin pressure, largely driven by elevated coffee costs and the continued impact on occupancy that I spoke to earlier, but partially offset by leverage on adjusted SG&A. Capital expenditures are estimated to be in the range of $270 million to $290 million.

We remain optimistic about the future with a clear and compelling path forward. Our ability to innovate and execute has scaled AUVs to record highs across an even larger set of shops, supported by best-in-class 4-wall shop economics. Our people are delivering an exceptional customer experience, reinforcing the compelling value proposition we offer.

Thank you, everyone. We'll now take your questions. Operator, please open the lines.

[Operator Instructions] And our first question comes from Andrew Charles with TD Cowen.

Christine, investors are focused on your same-store sales resiliency this spring as larger limited service restaurants either launch energy and iced coffee beverages or revamp their platforms. And I'm guessing you're not providing specifics, but can you talk about the levers at your disposal to protect traffic during this time? For instance, is there an opportunity to accelerate the food rollout before '26 end given the success you're seeing there? Do you expect to raise marketing spend in '26 to promote more awareness of Dutch? Are you open-minded to increase points offers with Dutch Rewards members? Just some texture on how you're thinking about this and how you maintain your traffic strength.

Yes. Thanks for the question, Andrew. Our business is performing incredibly well. Look at the 7.7% same-shop sales in Q4, and this has been a competitive market since 1992. We have an incredible value proposition. I think the combination of our service, the quality of our beverages, everything that our Broistas provide. We're also right in the sweet spot of where the growth in this market is. It's about convenience. It's about energy. It's about iced, innovation, and we have the best teams and service in this industry. We started the year strong this year, and we're incredibly confident with where the business stands.

And our next question comes from Chris O'Cull with Stifel.

Congrats on another great quarter. Christine, AUVs have reached record levels, yet you've also noted that the company is still in the basic blocking and tackling phase of labor deployment. I'm just wondering, as Jen takes over shop operations, what's her mandate? And how much additional transaction capacity is she looking maybe to unlock during peak periods?

Yes. So Jen is new on board. She just completed her shop training and is getting to know all of our teams. And as we look at her priorities, it's really about how do we serve our Broistas better. So how do we prioritize the initiatives that are coming at our shops and how do we support them to continue to roll-out the food program to continue to roll-out mobile order and have enhancements in that program. So she'll be very focused on the same initiatives that we're focused on really across the system.

And moving next to Andy Barish with Jefferies.

I think you kind of tied a couple of things together that you may be doing a little bit differently on new store openings in addition to the kind of work that went on, on the pipeline and things like that. Can you unwrap that a little bit more in terms of trading and things like that?

Yes. So as far as our new shop openings go, we continue to focus on making sure that the shop opens with the right teams with the right support from our MOB team and that we're aware of where are their shops close by so we can train in those shops. So we're very thoughtful now that we have such a large network of shops and such a large network of Broistas who can support the opening of these shops that we can really support them in the best way.

I think the other example of that is as our real estate modeling has gotten tighter, we can really think through what those AUVs are going to be in those new markets. Is this a first-to-market shop? What will those AUVs look like so that we can really send that support to ensure that the shop really opens in the best way possible.

And our next question comes from Christine Cho with Goldman Sachs.

Congrats on a great quarter. You mentioned the 4% comp lift in your food private stores with kind of roughly 1/4 coming from transactions previously. As you scale the food program, are there any kind of metrics you could share to help us track the progress, attach rate or mix shift daypart growth? And additionally, while your hot food is positioned primarily as a lever to drive incremental beverage occasions, how are you thinking about potentially broadening the offering to capture additional dayparts and occasions now that all the equipment is already in place?

Yes. So as we look at the food program, we haven't shared additional statistics. But within the company, we're tracking lots of different things. So we're tracking our Broistas satisfaction. We're looking at how the customers are loving the food platform. We're looking at how each successive rollout, the training is going. We're looking at operational metrics within the shop of what our deliveries look like, what our waste percentages look like. So all of those things are being tracked. And we're incredibly pleased with everything that we're seeing as we continue to rollout this program. And then as far as the long term, we really are building a long-term food platform and capability here. And we'll continue to look for opportunities where we could grow attach or grow new occasions at different parts of the day.

Our next question comes from Dennis Geiger with UBS.

Congrats on the results. Just as it relates to '26 guidance, wondering if I could ask a bit more on 2 parts of the guide, Josh. One, including the revenue guide. And if anything more that you could add on sort of what you're embedding from a new store productivity standpoint, at least directionally, it sounds like still elevated. Just wanted to get a sense, is it similar to what you saw last year or anything different embedded there? And just on the EBITDA margin side of things, if anything else additional to unpack there, I know you gave the COGS piece. Could you break out the food menu launch impact specifically, if possible?

Yes. Thanks for the question. So as we think about the -- I guess, our overall shape -- our margin for the year, we are expecting continued coffee headwinds, as I mentioned in my prepared remarks, where coffee costs are really remaining elevated throughout 2025, mostly impacting in Q1 of year '26. So we're expecting about 200 basis points of margin headwind in Q1. That is primarily coffee, but also is driven partially by the impact of the food rollout. We did also highlight that we would continue to expect elevated occupancy and other costs. I haven't given the specifics on that, but you can imagine that, that will remain elevated as we continue our shift to build-to-suit leases.

Other important factor as you think about the year is that while we continue to drive leverage in adjusted SG&A, we are expecting a continued flattening of the SG&A dollars quarter-by-quarter relative to prior quarters. So all in, we're expecting full year about 60 basis points of EBITDA margin pressure from all those various pieces.

Then -- sorry, back to you -- in the first part of your question on new shop productivity. Certainly, we did see very strong performance coming from new shops really across the board, really exceeding our expectations throughout the year. We have a lot of that being the result of the market planning work and then certainly some geographic openings that just performed really strong. We are expecting that we will have some great openings going into next year, but remain very confident with that $1.8 million target that we are typically underwriting at and feel really good about the returns we see at those levels.

And moving on to David Tarantino with Baird.

Christine, I was wondering if maybe we could revisit the topic on competitive product launches. And I guess there's 2 parts to the question. If you could maybe comment again on how your stores in Colorado performed when McDonald's was running their big energy drink test, that might be helpful. And then I guess, bigger picture, I mean, you've been around the category for a really long time. And I was just wondering your thoughts on kind of what the broader push on advertising of the category might mean for the category growth and how Dutch Bros might be able to take advantage of that?

Yes. So on the first question on the energy test, as we shared last quarter, we really didn't see anything in our business. I think we are the category creator of customized energy. And I think anything that's being shared about the category that creates new customers and new customer interest, I would guess that we would likely benefit from that. And so we do feel really confident about what we're doing from an energy perspective. We've been in the energy business for a very long time and really know what customers want in this space.

I think big picture on this broader push on advertising and things like that, I think that this is a category that continues to grow. I think with our very strong growth rate, we're clearly taking share in the category. And I think that anything around the category maybe continues to benefit us. We're seeing incredibly strong results right now.

We'll go next to Sara Senatore with Bank of America.

I have a question about the Clutch acquisition and then just maybe a clarification on Josh's comments on the food impact on margin. Maybe I'll start with that straightforward. Just want to clarify, so food addition should be accretive to shop margins even if they're dilutive to food margins. Is that the right way to think about it? And then the question about the acquisition is, as you think about growth, would you anticipate doing more of these type -- real estate type acquisitions? Is the philosophy that being first mover really matters? Is it that the scale that you can achieve quickly is important? I'm just thinking $20 million to buy 20 shops seems roughly about what it would cost for you to build, I think, on a -- or a little bit maybe more on a build-to-suit basis. So I'm trying to understand maybe the economics or what the impetus was as you think about doing these kinds of things going forward.

Yes, Sara, thanks for the question. So on the food question, so we are expecting pressure on COGS and certainly expect it to be dollar accretive as we're adding overall new occasions to the business, but I would expect it to put a bit of pressure on margin overall. In terms of Clutch, the way we are looking at this, we certainly, to your point on the economics of this, view this as a very productive way of using our capital, deploying capital in acquiring those sites and then converting them being that their existing coffee stands, relatively low investment to be able to convert these to Dutch Bros.

As we've done and looked at our portfolio over time, we are always looking for either ground-up builds or conversion opportunities. Clutch provided us a great opportunity to grab a hold of 20 sites in a market that we were just moving into, to be able to enter that market relatively rapidly at a very capital-efficient way. So as we think forward, we'll always be looking for conversion opportunities. Certainly, like I said, a coffee sand is quite easy then to convert to a Dutch Bros, but we'll look for conversion opportunities of those ground-up builds as we continue to expand.

And Brian Harbour with Morgan Stanley has our next question.

With food, what have you seen? Do it open quite strong and perhaps settle out? Does it sort of build steadily? Do you find that some of the markets that have it in more shops have seen higher food mix as that happens? And then I guess, are you contemplating marketing this year? Or is it more of like a '27 onward thing?

Yes. So we continue to be very pleased with what we're seeing from the food rollout. And what we're seeing is very consistent with what we shared last quarter. I think we've gotten it to enough shops that we knew what we were going to see. And we do roll this out. And pretty quickly, our customers are finding it and ordering it and enjoying it. So we actually see that lift pretty quickly after rollout, which has given us that great confidence to continue rolling out this food program. We are seeing both a transaction and a ticket lift, so seeing attach, but we also believe that our existing customers are maybe coming in for that extra beverage occasion because we now have that great morning food for them. We also have great feedback from our Broistas.

So all that we're seeing is very strong. I would say on the marketing question that we are still building our brand overall, and we will be a beverage-first brand. We'll remain a beverage-first brand. So I would expect to just continue to see us focusing on beverage as we look at external marketing and that food is that attach when you come into the shop.

And moving on to Jeff Farmer with Gordon Haskett.

Just following up on Sara's question about collection. I'm curious if you guys are -- you alluded to it, but if you're actually sort of actively seeking sort of opportunities like that or just how you're sort of generally viewing the pursuit of small-scale acquisition to potentially accelerate unit growth?

Yes, this is something we've continued to do. So last year, we -- a number of the shops we opened were conversions of other different types of concepts. So this is something that's been in our portfolio for a while, being able to take attractive real estate and turn it into a Dutch Bros. So we'll just continue to look for the best real estate opportunities. What I would say was something like a Clutch, we want it from a CapEx perspective to really fall in line with what we're doing in opening the rest of our shops. So that's something important as we do look for these opportunities, but are certainly open to looking for more.

We'll go next to Jon Tower with Citi.

Maybe on the development side, a number of -- or at least one large coffee player is thinking about moving more aggressively into your markets. And I know there's a number of smaller growing chains that have also been expanding across a lot of your markets. And I'm just curious, I know your model is shifting from ground up to build-to-suit or more of them. But are you seeing any pressures on site availability in markets? Or are you seeing any cost pressures starting to build with respect to competition coming in and perhaps driving up the cost of new locations?

No, that's not what we're seeing. We're really seeing great real estate availability. And I think as our brand continues to grow, we're just an incredibly attractive tenant for folks out there. So we're actually seeing lots of different [Technical Difficulty].

As far as build costs go, we're seeing a steadiness there. But with our shift to build-to-suit, we have been able to lower our CapEx from $1.8 million in Q4 of '24 to $1.3 million in Q4 of '25. So our capital outlay by per shop has really reduced over the last year.

And Chris Carril with KeyBanc Capital Markets has our next question.

Congrats on the really strong results. And thanks for the update on order ahead and walk-up mix. I was wondering if you could maybe expand a little bit more on these channels or order methods, perhaps the incrementality that you're seeing from these channels? And then how are you thinking about the pace of growth of these channels for this year and how much upside you're seeing from them long term?

Yes. So on mobile order, it hit 14% of transactions in Q4. So we're very pleased with that level. Internally, we don't have something that we're telling the shops we need to get to a certain level because we're really driven by what does the customer want to do. And we want to have the channels that the customer wants to approach us with. And so I think that is the most important part. So we're very pleased. It's clearly something that's incredibly popular with our customers. And it is something that's allowed us to balance all of that demand across the shop. And so when we started with mobile order, the window that's not the drive-thru window, the one on the other side is actually right around 10%. And so that move up to 18% really allows us to balance that demand across the shop in a nicer way.

We'll go next to Jeffrey Bernstein with Barclays.

Great. Christine, I was hoping to get more color on that, the walk-up store you mentioned that I think you opened in November in L.A.. Obviously, it's very early, but new -- seems like a potential new channel. So I'm wondering your learnings. It seems like it would give you a potential for more urban expansion. So how do you think about next steps or what that does for the TAM opportunity or what you need to do to change the box? Any kind of learnings or initial thoughts on how you could perhaps accelerate this opportunity?

Thanks, Jeff. Yes, we're really pleased by what we're seeing. Again, this is very early in looking at this type of model. But I do think the investments that we've made over time. So having that mobile order channel has allowed us to open this up. So the way that we open the shop is we still have a walk-up window and then we have a mobile order window. And so we still have 2 windows even though it is a non-drive-thru shop. And we've got a line buster outside taking your order when you come in and you're coming to that walk-up window. And so a lot of the things that work in our drive-thru shops are working really well in the shop in L.A. As a reminder, our TAM of 7,000 includes drive-thru locations like the locations we have. We still very much believe in that 7,000 unit TAM. And this is a potential additional channel that we're very pleased has just kicked off in a really strong way.

Next, we have Logan Reich with RBC Capital Markets.

Most of mine got asked already, so I'll ask a follow-up on the Clutch acquisition. I appreciate the clarity around the $20 million purchase price, about $1 million per location. I'm just wondering if you can give any additional color on what the additional investment is required to transition those locations over to Dutch Bros and time line for openings for those 20 stores?

Yes. Thanks for the question. So you could just think about these as an all-in cost, not too inconsistent from how we've been building costs overall or building shops overall. So these are existing coffee stands. Actually, where the founder of the company was a former Dutch employee. So look and feel a lot like a Dutch Bros as they are. So we have some equipment to do, obviously, signage and look and feel to make them look like a Dutch Bros, relatively light capital lift that would put us right in the range of our cost of building shops today. In terms of time line of opening, we're obviously working through the process of converting them, expect them to open during the year here in Q2 and Q3.

We'll go next to Nick Setyan with Mizuho.

Congrats on a great quarter. Obviously, the company-owned growth is, by far, the primary driver of fundamentals. So just so we can all kind of be on the same page, would it be possible to maybe tell us what the 3% to 5% comp for the year and the 4% to 6% system comp for Q1, what that bakes in for company-owned comp?

Yes, Nick, thanks for the question. We're not providing the decomposition of that on an outlook basis. So obviously, we feel very pleased with the performance we've seen out of both the company and the system during Q4. I feel like both will be contributing to our growth as we head into '26. So both will be contributing to the Q1 guide we gave as well as the full year of the 3% to 5%.

We'll take our next question from Gregory Francfort with Guggenheim Partners.

Just one clarification. Is the $20 million of Clutch acquisition, is that included in the CapEx guide? And then my question, I guess, is for Christine. This walk-up stores opportunity that you guys are unlocking right now, do you think this is going to be a meaningful part of development in either '26 -- I guess, not '26, but '27 or '28? I guess, do you think we could turn that on from a kind of growth channel perspective that quickly?

Yes, Greg, thanks for the question. I'll take the first one quickly here. That $20 million is included in our guide. So that's a part of the full CapEx guide we provided.

Yes. And then on the walk-up location, we'll continue to learn. So very early days, and we'll continue to learn before we understand how -- what this opportunity might look like for us.

Moving on to John Ivankoe with JPMorgan.

So the question is really on competition. And I do think that you've addressed competition for real estate very well. But I do want to ask, and this is really a hyper-local market question because certainly, it's not in the consolidated results around competition that might be happening in very specific trade areas where you've gone from you being in a market to maybe having 2 new entrants or 3 new entrants that have kind of come in around you, both from a customer perspective and also an employee perspective, just if there's anything because certainly, we kind of hear not any actual damage or concern, but people are worried that competition could begin to affect you locally before we would see something nationally.

So what I'm really looking for in this call is, if you've seen anything locally that has happened from competition, how deep that may have been or even -- or the duration of that time, if there's been any impact at all that you've noticed just looking on a more micro basis across your chain?

Thanks for the question, John. Yes, we're not really seeing anything on a local level. What we go into every market, there's lots of competition already. There's lots of local players. There's big national players. There's sometimes other growing -- fast-growing chains. So we see all types and lots of different markets and feel incredibly great about our value proposition and feel very good about our ability to compete among many different circumstances. I think the strength of the brand, the strength of our people just sets us up in an incredible way. And we're seeing great performance in our new shops, across geographies, across dayparts. The business is just in a really strong place.

This now concludes our question-and-answer session. I would like to turn the floor back over to Christine Barone for closing comments.

Thanks for your questions. 2025 was a monumental year that significantly built on the multiyear runway since our IPO. Since 1992, it's always been about our people, our culture and investing back into the communities we serve. We continue to give back in 2025, supporting nearly 700 local organizations across the country and hosting more than 1,600 local givebacks. Thank you again to our teams for making 2025 a resounding success. I am grateful for the opportunity to lead this team and look forward to 2026 and beyond.

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, and have a wonderful day.

Thank you for standing by, and welcome to the Dutch Bros Third Quarter 2025 Earnings Conference Call and Webcast. This conference call and webcast is being recorded today. November 5, 2025, at 5 p.m. Eastern Time and will be available for replay shortly after it has concluded. [Operator Instructions]

I would now like to turn the call over to Neil Patel, Dutch Bros Senior Manager, Investor Relations. Please go ahead.

Good afternoon, and welcome. I'm joined by Christine Barone, CEO and President; and Josh Guenser, CFO. We issued our earnings press release for the quarter ended September 30, 2025, after the market closed today. The earnings press release, along with a supplemental information deck have been posted to our Investor Relations website at investors.dutchbros.com.

Please be aware that all statements in our prepared remarks and in response to your questions, other than those of historical fact are forward-looking statements and are subject to risks, uncertainties and assumptions that may cause actual results to differ materially. They are qualified by the cautionary statements in our earnings press release and the risk factors in our latest SEC filings, including our most recent annual report on Form 10-K and quarterly report on Form 10-Q. We assume no obligation to update any forward-looking statements.

We will also reference non-GAAP financial measures on today's call. As a reminder, non-GAAP measures are neither substitutes for nor superior to measures that are prepared under GAAP. Please review the reconciliation of non-GAAP measures to comparable GAAP results in our earnings press release.

Before I pass it off, I'd like to take a moment to acknowledge Paddy Warren, our former Senior Director of Investor Relations and Capital Markets, who has made a significant impact on Dutch Bros since the IPO. We are grateful for his contributions and look forward to continuing the dialogue with many of you at upcoming investor-focused events.

With that, I would now like to turn the call over to Christine.

Thank you, Neil, and good afternoon, everyone. Dutch Bros continues to exceed expectations, driven by the passion our Broistas bring to our shops every day and a focused set of transaction-driving initiatives that provide multiyear growth visibility. Our differentiated culture, our long-term shop growth model and our superior 4-wall economics reinforce that Dutch Bros is in a category of its own. Our third quarter results reaffirm the strength of our differentiated strategy, one that continues to fuel our momentum and unlock meaningful long-term value creation. The road ahead is both exciting and full of opportunity, and we are just getting started.

In Q3, we delivered revenue growth of 25%, system same-shop sales growth of 5.7% and company-operated same-shop sales growth of 7.4%, reflecting the strength of our strategic focus and continued customer demand. Our transaction-driving initiatives continue to demonstrate outstanding results, with growth across all dayparts.

System transaction growth was 4.7% and company-operated transaction growth was 6.8% in the quarter. Q3 marked our fifth consecutive quarter of transaction growth, making us a clear outlier in the current environment and putting Dutch Bros in a category of its own. This performance underscores our ability to drive durable growth through a focused set of idiosyncratic transaction drivers.

New shop productivity remains elevated with system-wide AUVs at record highs. We continue to see consistently long lines and strong customer demand as we expand into the Midwest and Southeast. These results underscore the broad appeal and portability of our brand across diverse geographies. Our long-term system shop opening cadence remains firmly on track and we remain highly confident in our goal of 2,029 shops in 2029. We've successfully expanded into six continuous new states this year, including five in the third quarter, bringing our total presence to 24 states.

I'm very excited to share that our shop opening cadence is expected to accelerate heading into next year, with approximately 175 new system shops projected to open in 2026. We continue to step forward in our growth journey, reflecting the strength of our pipeline, our confidence in our 4-wall model, our continued performance of shops in new markets and an annual growth rate consistent with our mid-teens new shop target. We've also made continued investments in people, tools and processes and market planning over the last 24 months. These investments enhance our ability to execute with discipline and transition us to a place of accelerating our pipeline.

Our pipeline, which has now reached record levels, has approved shops at a pace of 30-plus potential sites per month over the last 6 months as the investments in our real estate team and strong AUVs continue to reinforce our confidence in reaching our goal of 2,029 shops in 2029. Momentum is continuing to build, and I've never been more confident in our ability to execute on our ambitious growth plans.

Our Q3 results set a strong tone for the year and the strength has continued through October. We are raising our full year guidance for total revenues and same-shop sales growth, reflecting the confidence in the long-term durability of our model and the effectiveness of our transaction-driving initiatives. Josh will share more details shortly.

Let's begin today's business update by talking about what differentiates our brand. Our culture and our baristas are the heartbeat of our brand. It's something that simply cannot be replicated. It is not just what we do, but how we do it that sets us apart. From the moment the customer pulls into our drive-thru, they experience energy, authenticity and a genuine sense of belonging. We are in the business of making people feel seen, heard and appreciated. Our baristas create a high-energy welcoming environment that turns a stop at a drive-thru into a memorable moment. Our service model is built around authentic interactions and fostering real relationships. This deep emotional connection keeps our customers coming back day after day.

We have a simple but very powerful mission. It is to be a fun loving, mind-blowing company that makes a massive difference one cup at a time. During every interaction, our baristas have an opportunity to brighten someone's day by living our core values of radiate kindness, get up early, stay up late and change the world. Our drive-thru model is purpose-built to deliver an exceptional experience that balances the interplay of speed, quality and service. This one-of-a-kind approach allows us to serve high quality, handcrafted, customized beverages with remarkable efficiency and consistency without compromising on our customer experience. Since 1992, we've been hand pulling espresso shots, crafting beverages and serving love with precision and care.

Our ability to offer extensive customization is unmatched, empowering customers to create drinks that are uniquely theirs, turning every drive-thru interaction into a moment of powerful emotional connection. This level of customization, paired with our high energy service model continues to resonate with our customers. It is about the connection, the excitement and the consistency of our experience that keeps the Dutch Bros customer emotional connection so powerful.

And our customization-forward approach is improving with our focus on throughput. The sequential transaction growth we saw in Q3 showed clear progress on this initiative as we begin translating our efforts into results. Our training programs for shop leadership are driving smarter labor deployment decisions across production zones and dayparts, improving quality and elevating the customer experience through consistency. We are beginning to see a shift in peak demand patterns, driven by our transaction-driving initiatives. With improved labor deployment, we are now better positioned to meet this evolving demand.

Enhanced shop dashboards are empowering shop leaders to make better deployment decisions during peak and off-peak hours. And as a result, we're gaining better traction across order taking, order making and order handoffs, all while delivering industry-leading customer service.

Let me take a moment to highlight how we ensure a consistent customer experience. Before Broistas ever make any beverage, they're immersed in our purpose. They learn what makes Dutch Bros so unique. It's the connection, service and energy. Only then do they begin our training, mastering not only the beverage-making process, but learning every role in the shop. We've built a shop environment that is electric, fun and unmistakably Dutch. It's this energetic environment that fuels a positive Broista experience which in turn drives a consistent differentiated experience for every customer.

Our company-operated model provides a clear path for growth, whether it's through the operator pathway or becoming a leader for our MOB training teams. Today, we have over 475 operators in the pipeline, with an average tenure of approximately 7.5 years. It's this clear pathway that allows us to build depth and experience and to scale our culture effectively, and it's working. In the 2025 InTouch Insight's QSR drive-thru report, we ranked #1 in order accuracy, satisfaction and beverage quality across beverage players. Dutch Bros also earned the top spot in Forbes 2026 Best Customer Service list in the beverage category within restaurants. That is the power of investing in our people, and the Dutch Bros' difference.

We're thoughtfully expanding our beverage-first concept through our food program, which has evolved from a pilot into a broader rollout as we close out 2025 and head into 2026. Our food program rollout is designed to strengthen our beverage offering by driving breakfast and morning daypart occasions, a time of the day where we have tremendous opportunity. As we expand the food program throughout 2026, we're aiming to be a one-stop shop during the morning daypart.

We continue to see both ticket and transaction lift from our food program, which expanded to approximately 160 shops by the end of Q3. We are regularly measuring customer feedback KPIs such as quality, likelihood to recommend and value and we are very pleased with the results, which have remained consistent or improved with each successive phase of the rollout. Looking forward, our 2026 rollout cadence will follow a strategic and methodical approach, with plans to complete the rollout by the end of the year.

Due to shop layout constraints, we expect that approximately 25% of our 2025 year-end shop count may not be able to accommodate hot food. However, that percentage will decline over time as our new shops are being built to accommodate hot food. Our strategic push into breakfast in the morning daypart through our focused food rollout only strengthens the Dutch Bros model, making it even more compelling. We have built a strong and differentiated digital presence, powered by our initiatives that are continuing to translate to transaction strength.

Our enhanced paid advertising strategy to build brand awareness continues to deliver impressive results across our shop base, especially in our newer markets and vintages. These efforts are fueling our transaction momentum, and we expect this trend to continue as we pursue our TAM in parallel with strategic paid media investments. We believe there is a sizable room for aided and unaided awareness to grow long term, and we are at the early innings of our momentum.

Order Ahead is continuing to gain traction and our investments are making accessing Dutch Bros seamless across multiple touch points. We're adding meaningful sophistication to our analytics engine, setting Dutch Bros apart even at this early stage. At the end of Q3, our Order Ahead mix reached 13% with some new markets mixing at nearly double the system average. This growth highlights the natural strength of our program and the enthusiasm our customers have for Dutch Bros. To build on this momentum, we recently enhanced the user experience by introducing a more precise order pickup time feature, which has already led to improvements in order readiness and an increase in scheduled orders.

The increasing Order Ahead mix has also created a powerful on-ramp for our Dutch Rewards program. This program continues to remain a key engine for driving transaction growth over the long term. In Q3, approximately 72% of system transactions were attributed to Dutch Rewards, marking a 5-point improvement year-over-year. With Order Ahead feeding into this ecosystem, we're now focused on unlocking the full potential of segmentation, deepening engagement and driving transaction growth by confidently reaching the right customer at the right time.

Notably, in Q3, Dutch Rewards contributed to transaction growth with us running almost exclusively segmented offers, further underscoring the organic strength behind our loyalty platform and the ability to manage discounts strategically year-over-year. Even more encouraging is the momentum we're seeing from younger cohorts within Dutch Rewards, highlighting the strength and long-term potential of our loyalty program. In addition to a strong digital presence, we have a differentiated innovation platform.

Since 1992, our commitment to beverage innovation has been a cornerstone of our success. We have seen success in leading the industry in beverage trends and delivering exceptional experiences across our coffee, energy and refreshment offerings. In July, we introduced three exciting new beverages, Blue Lagoon with Strawberry Fruit, Mudslide Mocha and Strawberry Colada, demonstrating the breadth and strength of our innovation across the entire menu.

We kept the buzz going throughout the quarter with engaging brand activations, including the launch of the FUNBOY drink floatie, National Dog Day Bandanna and Car Coasters, all designed to deepen customer connection and drive brand love. In August, we brought back fall LTO offerings like the Caramel Pumpkin Brûlée and Cookie Butter Latte, alongside the Candied Cherry Rebel, reinforcing our commitment to category-wide innovation and customer relevance. This LTO lineup was our most successful fall LTO launch to date.

At Dutch Bros, innovation goes far beyond beverages. Our value proposition is about the experience, the connection and the energy our customers feel every time they visit. We pioneered the drive-thru innovation platform, and these limited time offerings provide that unforgettable moment. In addition to our differentiated innovation engine and robust digital presence, we've reached an incredible and advantageous scale. Just 4 years ago, we celebrated our 500th shop opening in Texas during the year of our IPO. This year, we surpassed 1,000 shops and we're well on our way to doubling that as part of our multiyear journey to reach 2,029 shops in 2029.

Beyond shop growth, we've successfully scaled system-wide AUVs, which are at record levels and significantly improved adjusted EBITDA, clear indicators of the durability of the Dutch Bros brand. We've also assembled a management team with experience at scale, positioning us to execute on our rapid growth ambitions with confidence.

Our team brings depth, enabling us to successfully make agile strategic decisions that support our long-term vision. We are investing in advanced analytics, tools and processes to maintain differentiated momentum as we scale, laying the foundation for disciplined, self-funded growth.

In closing, the momentum in our business remains strong, and we are just getting started. We're in the early innings of a multiyear journey, and our focused strategy is clear and working. We are built around culture. It's the engine of our differentiated customer experience. Our Broistas bring this culture, energy and connection to life every single day, delivering magic at the window that continues to connect deeply with our customers. We are focused on delighting our customers and growing sales and it's paying off. Our multiyear transaction-driving initiatives continue to resonate, marking our fifth consecutive quarter of transaction growth.

We have a differentiated innovation engine and strong digital presence that isn't easily replicated. From high-velocity LTOs to the virality of our product in merch drops, we're delivering a best-in-class experience that is setting us apart and positioning us to naturally take share. We are on track to have 2,029 shops in 2029. Our AUVs are at record levels, highlighting the portability of our brand. Our long-term 4-pronged strategy is simple and powerful; grow our people, grow our shop base, grow our transactions and grow our margins. We are playing the long game, and we're executing. We are on the offensive and our efforts are positioning us to win.

With that, I will turn it to Josh, who will discuss our financial results.

Thanks, Christine. I'll provide a recap of our third quarter results, along with an updated outlook for 2025. Our third quarter performance built on the strong momentum from Q2 and reinforced that a differentiated model is resonating with customers. With our digital presence and our other transaction-driving initiatives still in the early stages, we remain confident in the long-term growth potential of our business.

Third quarter revenue was $424 million, an increase of 25% or $85 million over the third quarter of last year. System same-shop sales growth was 5.7%, driven by an exceptional 4.7% transaction growth. We saw strength across our transaction-driving initiatives throughout the quarter. particularly Order Ahead and Dutch Rewards, which contributed to the Q3 momentum. With Q4 off to a great start, we are raising our full year system same-shop sales growth guidance to approximately 5%. This implies approximately 3% to 4% system same-shop sales growth in the fourth quarter, which includes the continued momentum we have seen in October, the early positive impact we are seeing from shops that have the new hot food program, a full quarter lap of Order Ahead and the impact of cycling a strong Q4 from last year.

We remain excited about the opportunity with food. Early shop results suggest that we could expect an approximate 4% comp lift in shops that have food, with about 1/4 of that coming from transaction growth. We plan to continue rolling this out to shops that can support hot food throughout 2026. So we would expect that lift to be phased in throughout the year.

During the quarter, we opened 38 new shops, bringing our total system shop count to 1,081 shops. In Q3, a substantial portion of our openings occurred later in the quarter, and we anticipate a similar situation in Q4. Any new openings below 160 in 2025 are expected to be incremental to our 2026 target of approximately 175 system shops. As Christine mentioned, our development pipeline is at record levels. And the pace at which we are adding to our pipeline provides strong visibility on our path towards 2,029 shops in 2029.

In the quarter, adjusted EBITDA was $78 million, an increase of 22% or $14 million over the third quarter of last year.

Switching to our company-operated shops. Revenue in Q3 was $393 million, an increase of 27% or $85 million over the third quarter of last year. Company-operated same-shop sales growth was an outstanding 7.4% with 6.8% coming from transaction growth. Company-operated shop contribution was $109 million, an increase of 20% or $18 million year-over-year. Company-operated shop contribution margin was 27.8%.

Beverage, food and packaging costs were 25.9% of company-operated shop revenue, which is 60 basis points unfavorable year-over-year, driven primarily by higher coffee costs. We continue to expect the impact of coffee costs to accelerate into Q4 and as of now anticipate that coffee costs may remain elevated into 2026. We would also expect elevated costs associated with our broader hot food rollout to begin in Q4 of 2025.

Labor costs were 27.5% of company-operated shop revenue, which is 10 basis points favorable year-over-year, primarily driven by sales leverage and partially offset by the impact of labor investments made earlier in the year to support our long-term growth. Looking into Q4, we are anticipating the quarter to be impacted by approximately 50 basis points from regulatory changes, resulting in higher employer payroll taxes in the state of California.

Occupancy and other costs were 17% of company-operated shop revenue, which is 60 basis points unfavorable year-over-year, driven largely from the impact of occupancy rates from new shops as we have made great progress in shifting our portfolio to more capital-efficient, build-to-suit lease arrangements. We expect this impact to continue in Q4 and into 2026 as we maintain this momentum.

Preopening expenses were 1.8% of company-operated shop revenue, which is 60 basis points unfavorable year-over-year, driven by the proportion of shops in newer markets and the associated cost of sending our training teams to support these openings. Given our planned openings for Q4, we would expect preopening expenses on a per shop basis to remain relatively consistent with what we experienced in Q3.

Moving down the P&L. Adjusted SG&A was $58 million or 13.6% of total revenue. We continue to be thoughtful about investments we make in SG&A while driving consistent leverage as we grow the top line. Given the continued momentum here, we now expect approximately 110 basis points of leverage on adjusted SG&A for 2025. For the quarter, we delivered $0.19 of adjusted EPS, up from $0.16 or 19% from Q3 of last year.

Let me now provide an update on our balance sheet, cash flow and liquidity. As of September 30, we have approximately $706 million in total liquidity. This liquidity includes $267 million in cash and cash equivalents and approximately $440 million in our undrawn revolver. During the quarter, our net cash position sequentially increased by approximately $14 million from Q2, driven by strong cash flow from operations.

In Q3, our average CapEx per shop was $1.4 million, clearly demonstrating our ability to transition our portfolio to more capital-efficient, build-to-suit lease arrangements. This gives us strong visibility and confidence into positive cash flow generation, reinforcing the scale and strength of our long-term financial model.

Now let me provide an update on our 2025 guidance. In light of our strong performance throughout the third quarter and into October, we are raising our full year guidance for total revenues and system same-shop sales growth. Total revenues are now projected to be between $1.61 billion and $1.615 billion. System same-shop sales growth is now expected to be approximately 5%. Adjusted EBITDA remains in the range of $285 million to $290 million.

Total system shop openings in 2025 are targeted to be 160. Any new shop openings below 160 in 2025 are expected to be incremental to our 2026 target of approximately 175 shops, reflecting confidence in our shop growth trajectory.

Capital expenditures remain in the range of $240 million to $260 million. We are energized by the strength of our business. Our people, our resilient financial model and our differentiated transaction-driving initiatives place us in a category of our own. Our high-growth, multiyear trajectory is exceptionally well positioned to deliver consistent, dependable results supported by record high AUVs and a superior 4-wall model.

Thank you, everyone. We will now take your questions. Operator, please open the lines.

[Operator Instructions]

Your first question comes from Christine Cho with Goldman Sachs.

So I'd like to kind of understand a little bit better in terms of -- when comparing kind of innovation, paid advertising, Order Ahead, industry awards, all of these things that were catalyst to your traffic year-to-date which are some of the levers do you think have the highest remaining runway? And what 2026 product and platform innovations are most likely to continue as a Bros' multiyear growth algo?

Yes, Christine, thanks so much for your question. When I look across all of the different levers we have, I actually think we're in early innings in many of them. I look at innovation and how our teams are really looking at each promo period and understanding what worked exceptionally well, where the market is going and what they can tweak to add to that. We just had our strongest fall LTO launch and brought back a number of the drinks for last year and just executed them really well.

With paid advertising, I think we're continuing to do a lot of learning in which channels work best for us, where we spend versus the maturity of the market. And so again, early innings there as we continue to learn analytically just where to place those -- place our dollars in that paid advertising. And just as a reminder, we're really using paid advertising to grow brand awareness. It's that on-ramp for the brand that we then get customers into Dutch Rewards, where 72% of our transactions are Dutch Rewards transaction. So we really have this very efficient channel to speak with them.

On Dutch Rewards, we've really made the transition this year in moving from all broad-based offers to more segmented offers. We have a lot of runway still ahead to further segment that customer base, learning what drives different customers to increase their frequency. So a lot of runway still there as well.

Then looking at mobile order, again, we continue to see that nice steady march up in mobile order. And we are really learning like operationally as we hit some very high penetration levels, especially in newer markets. how to split our KDSes between different stations to deliver on those. And then we're at the very beginning of food, but incredibly encouraged by what we're seeing early on. The love from both our Broistas and our customers for that program. So when I look across the board, I actually think we still have a lot to go in each of our areas to drive transactions.

We've heard some of the peers highlight consumers under 35 as kind of particularly challenged cohort in the recent months, driven by unemployment and student loan repayment, et cetera. So given kind of your exposure to this age cohort, could you kind of talk to any changes in consumer spending behavior that you're seeing amongst the younger consumers, although your numbers really seems to suggest that, that's not the case for you?

Yes. So as you can see, we had an incredibly strong quarter with 5.7% system same-shop sales growth. When we look across our younger cohorts, again, with 75% of those transactions coming from Dutch Rewards, we can segment that by age cohort. And we're seeing really incredible performance out of those younger cohorts. I think that during times like this, customers are choosing the brands that they love the most and really deciding to spend their dollars there. And what we're seeing out of gen Z and that continued growth and that huge in that cohort is really encouraging.

[Operator Instructions]

Next question comes from Dennis Geiger with UBS.

Congrats on the strong results, guys. Very helpful data points on the food offering. I was wondering if you could speak a little bit more to what you're seeing from a customer feedback standpoint. Employees, how that's working. I'm curious, anything else on sort of attachment for mentality. I mean you gave us the important numbers, I know.

And just related to that, that 25% that won't get food, can you give us a breakdown of company versus license there and what that looks like? And I guess last, just on the food. If you could touch at all more on the food costs in the fourth quarter, the hot food costs that you spoke to.

Thanks so much, Dennis. I'll start with customer and Broista feedback. So that's something that we're carefully managing. We actually have trackers in place to manage that every single week. One of the things I'm really encouraged by is, as we are rolling this out in successive markets, we're actually seeing improvements in both Broista feedback and in customer feedback as we continue to roll this out. So I think we have just an incredible launch and start of the hot food program. I am incredibly impressed with how our Broistas are embracing the program and rolling this out to our customers. I'll give it to Josh for some of the margin questions.

Yes.Well, and the question on the kind of the breakout between company franchise, really, that limitation is related to space constraints and the size of the shop. So we haven't given the specific breakdown of what that looks like. But you can imagine in the older shops that where there are more franchise shops, that's where there would be challenges in being able to launch hot food.

On the margin specific, we're in 160 shops at the end of Q3. So you can imagine just on a relative percentage basis, it is a smaller impact, but as you might expect, COGS for food is relatively higher than beverage. So I would assume a slight amount of pressure coming into Q4 and then as we roll this out that adding to it in 2026 as well.

Next question, Andy Barish with Jefferies.

Could you give us a little more color just sort of on the ticket dynamic or check dynamics? Obviously, you're seeing a negative mix with pricing, I think, around 2% or so. What's going on there? And then as you look out to '26, I'm assuming food could be a part of getting that going back in the right direction.

Yes, Andy, thanks for the question. As you pointed out, yes, we're sitting on about 2 points of price, that's being offset by about 1 point of mix. That has been fairly persistent, consistent throughout the year. So we've seen a bit of offset coming from mix, largely driven by lower items per transaction, certainly contributing to that as we've launched Order Ahead, that is targeting more of an individual type occasion. So that would be an element of it as well.

Certainly, not providing guidance on 2026 comp yet, but what I would share is we're sitting on about 2 points of price. We roll off about half of that in January and the other half in July. Going to be very thoughtful about how we think about our overall value prop for the year, but feel really good about how we're positioning ourselves heading into next year.

And I would just add with that 4% comp lift that we're seeing in food, about 1/4 of that is coming from transaction growth, which we're really excited about. We thought we might be missing a beverage occasion there. So starting to see that and then 3/4 of that coming from ticket and attach.

Next question, Andrew Charles with TD Cowen.

Your successes in competition with the largest restaurant in the world, piloting a new line of energy and iced coffee and beverages in Colorado at the start of September. Can you help articulate what you observed in the last 2 months of sales in that market since that pilot launch?

Yes. Thanks so much for your question, Andrew. So as we actually look across all of our markets and have been paying particular attention to shops in that market, we have not seen any impact on our shops. We continue to have a great quarter and into a great October. And so really excited by what we're seeing overall, but did not see an impact from that test.

Next question, Sara Senatore with Bank of America.

Hopefully, I can get in a question. The half is just a clarification on, Christine, your comment about your consumers kind of choosing the brands that resonate with them. I guess do you have a sense of coffee, you're sort of really taking share in the coffee segment? Or if coffee broadly is doing better? I guess just trying to put that in the context of this perception that maybe coffee would be more cyclical or more easily kind of given up. But it sounds like actually, there's a lot of strength, and I wasn't sure if that was the segment or Bros particular or both.

And the question was about seeing improved transactions during peak hours. Are there any metrics you can share about throughput? I don't know if it's a number of transactions or number of beverages? Just sort of where you are now and what you think a target might be as I think about how throughput might contribute to transaction growth.

Yes. So on your first question on the strength of the market, so we do believe it is a strong market overall. We also believe we're performing exceptionally well within that market and able to compete in a way that is likely driving some share gains. I think that we are just super well positioned when you take beverage overall. Both coffee and energy are growing. Energy is -- seems to be growing faster. And we are -- the category creator really of customized energy. So very well positioned in that high-growth space. We're also seeing higher iced, higher customization customers that want that quick interaction, but for it to be quite memorable. So we just believe we're incredibly well positioned across the market.

And then from throughput metrics, we haven't shared those, but that is something that we track. So we are tracking transactions at peak. We're tracking things like window time, other things like that. And then we're also very closely looking at how our labor is deployed to really match those demand curves. And all of those things, our teams are just doing a great job to make sure that our customers are having an incredible experience.

Next question, David Tarantino with Baird.

Congrats on great results here. Josh, I was wondering if you could comment on why the EBITDA guidance range didn't increase in the sales guidance range. I'm just wondering what some of the cost offsets were that you didn't contemplate previously?

Yes. Great question, David. So we've been really thrilled with the overall performance of the business and the strength of our 4-wall model that supported us to the ability to make some investments. In particular, if you look at our preopening costs, we are continuing just to see incredible openings as we go into these new markets. We continue to be met with really long lines. So we're sending our training teams out to -- in support of those openings, just to really set our teams up for success.

So as we commented, we validated preopening costs in Q3, and we'd anticipate seeing on a per shop basis, preopening costs being consistent in Q4 with what we saw in Q3. Certainly, with a greater number of openings in Q4, that's higher absolute dollar basis as well.

The other side of that is we've continued to see accelerated coffee costs coming into the P&L. That will accelerate into Q4. Certainly previously contemplated, but it is one that will continue to accelerate into Q4. And then the third piece that is impacting is the higher taxes that I referenced in the State of California, putting about 50 basis points of margin pressure in the labor line. And that's really kind of a full year amount that we're expecting to impact the individual quarter.

Next question, Brian Harbour with Morgan Stanley.

When you talk about the left from food, is that basically -- is that like the original cohort of stores that had it measured after 6 or 12 months. Could you just talk about how you arrived at that? And then is -- do you think that you can sort of augment that over time? Like obviously, once you have it more broadly rolled out, maybe awareness goes up, you could advertise it? Like how do you think about continuing to drive food over time?

Yes. So as we look at the lift from food and how we're measuring that, we are measuring a kind of pre-post versus control. We're looking at absolute transaction growth. We're looking at overall same-shop sales growth in those markets and have had the food program in some shops for a longer period of time now. So giving us confidence to share the numbers at that point.

And then I think the way to think about food is it's really a program that we're just getting started with. We've had traditionally about 4 SKUs within our shops, the 3 Muffin tops and the granola bar. This initial food rollout is just moving us to 8 SKUs, so just adding 4 SKUs there. But what it is, if it's providing a capability where we now have ovens. We're putting in the inventory management required to have that food program. So I think of it as really serving as a base for what this could be over time and think that it has huge potential as we go forward.

Next question, Sharon Zackfia with William Blair.

I'm curious, as you've been expanding into the Southeast and now into the Midwest, by the way, welcome to Greater Chicago. Are you seeing kind of a similar customer demographic? And anything that surprises you in the way that customers are using Dutch or the dayparts or the product mix? Just wondering what you're learning as you're growing further nationally.

I think we're seeing some of the same things that we've seen in that we do have a higher coffee mix as we first go into newer markets. We are seeing that higher mobile order mix as well as we go into new markets. Those things have been pretty consistent.

I do think if we really reach this more national scale as we pass that 1,000 shop mark, the brand kind of proceeds itself. And so when we show up in these markets, we're just met with incredible excitement initial demand. They already know that our sticker days are coming and are lining up for the sticker day. So I do think as we reach higher scale, we are seeing the benefits from that as we go into new markets. I think we've also done a lot of learning in what is the best way to go into a new market, make sure the team is set up for success and what are our phases of marketing as we go through those new markets. And as we've shared, we're incredibly excited by that new shop productivity that we continue to see.

Next question, John Ivankoe with JPMorgan.

I was hoping to drill in a little bit in terms of what's going on in some specific markets. And obviously, you're located next or at least near some specialty coffee outlets that have been closing stores. And yet in other markets, there's a number of specialty coffee outlets that have been significantly opening stores. So I wanted to see if there is any interesting dynamics we can talk about on a market level basis that maybe you're influencing in positive or negatively, your access to real estate people and customers? Anything that we can maybe talk about that's a little bit below the surface.

Yes. So I think as we continue to open shops like the one dynamic that you'll see is more of our new shops and those newer vintages, are in the company-operated side in the business. So I think as you probably saw, we had a 7.4% same-shop sales within company-owned driven by very strong traffic at almost 7% there, 6.8%. And as we continue to look for new shops and new markets, I think the strength of the brand, the longevity that we have, we have been out there as a landlord. We have incredibly attractive cap rates now as we continue to grow across the country.

We're really not seeing any shortage in sites. And as I shared in my prepared remarks, we've actually added about 30 sites per month over the last 6 months into our pipeline. So seeing great availability of great sites. And I think it's also due to, as we're ingesting data more quickly into our models and seeing the performance that we're seeing now, we're really able to better pinpoint how we're going to do in a market. So we have both confidence in what that will look like when it opens, but also, we are finding great sites as we move across the country.

Next question, Gregory Francfort with Guggenheim Partners.

I just wanted to follow up on that, Christine. I mean 30 sites a month, I mean, that's a ton of stores. Is that normal that -- that would only translate if you open 300 sites approved or 350 sites approved, that would only translate into 150 or 200 openings? Or is this an indication that '27 and '28, you're going to really ramp the store growth? And can you maybe just talk about the availability of real estate and what you're seeing out there from a competitive perspective? Just a follow-up to John.

Yes. So thanks, Greg. As we look ahead, we're really confident in that 2,029 shops in 2029. And part of that is building that really strong pipeline right now. So as we look ahead, a lot of the shops that we're adding now are really going to open 2 years from now. And so that gives us just great visibility into getting to that ramped up period where we'll be opening those shops. Not all of them will translate, but the majority of them certainly do translate into actual sites as we've looked at history. So we are ramping up that pipeline to prepare for that higher growth as we move ahead.

Next question, Jeff Farmer with Gordon Haskett.

You did touch on it, but any color you can offer on the scale of your paid advertising efforts in the Q3, Q4, just the back half of this year relative to, let's say, a year ago? And then as we look forward, would you expect that scale to further build?

Yes. So as we look at paid advertising, we really look to continue to ramp that as we ramp our sales and for that to keep pace. We've been very happy with the results that we're seeing and really view that as paired along with our Dutch Rewards program. So 72% of our transactions are coming through Dutch Rewards at the shop level. And as we look at that, it's really important to use paid advertising to build the brand awareness and then to quickly get our customers into the Dutch Rewards program so that we can speak to them that way.

Next question, Jeffrey Bernstein with Barclays.

Great. Just a question on the mobile order and pay. I think you said it's now at a 13% mix, so creeping higher, but I don't believe that's with any material internal push on your part. And I think you mentioned some of those markets are actually double that, so maybe 1/4 of their sales or traffic from mobile order. So I'm just wondering -- there are clearly peers in the beverage segment well above that. I'm just wondering if you could talk about what you'd like to see with that in terms of the acceleration, maybe quantify any kind of benefits you see in terms of traffic or check or frequency? Anything incremental learnings as we think about the next couple of years and where that 13% goes?

Yes. So as we look at that 13% mix, we're very happy with where that is. I think we've shared in the past that this is something that's customer-driven and was the #1 thing that our customers were asking for from functionality from our app. And we want our customers to be able to order in the channel and in the way that they'd like to order. I think naturally, over time, given what we're seeing with new shops, if that percentage will increase as I think we're seeing very close to like market level volumes in mobile order in those new shops. And some -- I think customers actually really act in a way that makes a ton of sense. So in our smaller shops or our double -- original double drive-thrus, it just doesn't add as much speed to your day as it does in the new shops that we're rolling out.

So I would expect to have some bifurcation in the newer and legacy markets over time, but incredibly encouraged by what we're seeing. It continues to grow. We also like the interplay that we're seeing between mobile order and food and how easy it is to attach items once you're mobile ordering. So a lot of good things there.

Logan Reich with RBC Capital Markets.

Congrats on the solid results. My question is on the food rollout. More on the operational side. I'm trying to fit it into one question. But can you just give any additional color on what the changes in the operations are in the back of house for the stores that have proved? Like just curious if you need to add any additional labor to fulfill food or any differences you're noticing on throughput with the stores with food versus those without?

And then just separately on your last comment related to mobile order pay. Like do you view food as a driver of mobile order pay or vice versa? I'm just trying to get an understanding of the interplay between those two aspects of your business.

Yes. So from an operations standpoint with food, we are adding new equipment into the shop. We're adding new training, obviously, as we roll that out. And then some of the operational metrics we're looking at is, one, as we built out the food platform and the offering that we have, the oven cycle time for the food items is below the average drink make time. And so that was very intentional. We never want to slow down our line as we add in food. And as we roll this out to new shops, we're continuing to see throughput gains in those AM dayparts in the shops that we've rolled out food. So we really are seeing that work seamlessly.

And then from a labor perspective, we are investing in labor and food as those sales grow. So overall, I think that food has slightly higher COGS, but a lot of the other line items, really, as you scale, work quite well with food, and it can really leverage some of those other places. So as we are seeing those volume gains, we are investing against the volume gains themselves.

And then for mobile order and how that's interplaying, I just think that the app is such an easy way to discover new offerings that we have. And so I think part of that is interplaying with it. I also think that there is a high mix between a customer in the morning, who wants mobile order, who might also want a food item. And so I think we're seeing some of that natural mix together as well.

Nick Setyan with Mizuho.

Congrats on the qreat quarter. Just a clarification, a question. The clarification, the 50 bps labor headwind, that's just in Q4? Or is that something that's going to continue into 2026? And then the question is just an update on the CPG rollout in 2026. But how are we supposed to think about modeling it? Is it just pure licensing flow through? Any numbers around it or just bracket in terms of how we should think about the CPG overlap next year would be very helpful.

Nick, thanks for the question. Yes, the labor impact is a full year impact that we would anticipate in Q4 as a result of some regulatory changes. So that would come into effect in Q4. The ongoing run rate, obviously, would be something less than that. The amount is a full year amount in a quarter. Christine, would you talk through the CPG piece?

Yes. and then on the CPG rollout, so we are really in the midst of selling right now to retailers. We are also finalizing all the products and doing all the final testings as we get ready to launch this. We are really encouraged by the enthusiasm that we're seeing from retailers for the CPG lineup. That is something that we'll roll out throughout 2026. So as retailers do their resets throughout the year, you'll start to see the Dutch Bros product come in. We've also shared that we're really going to have the CPG offering follow our shops. And so it will be a regional rollout based on where we have shops so that customers can really experience Dutch Bros at the shop first and then go experience at home.

Chris O'Cull with Stifel.

Congrats on another great quarter. Christine, I appreciate the comments you made earlier about the people first culture and the Broista engagement as being the concept's primary competitive moat. But as you scale to, let's say, 2,000 or more shops, it would be harder to sustain this culture. And I'm just wondering, beyond promoting from within, what specific or measurable mechanisms do you have in place to ensure the quality and consistency of the Broista experience isn't diluted? For instance, how do you systematically identify and correct any kind of cultural drift as you expand?

Yes. Thanks so much for your question. So as we look ahead, I think we are in a really unique position with being able to open all of our new shops in all of our new markets with operators that have been with the brand for quite some time, on average 7.5 years. And I think at 1,000 shops, that's what's really served us incredibly well is having culture carriers who have been looking forward to that opportunity to go open a new market. We do have measurement mechanisms in place. We do surveys. We do things like that. I think that those are important metrics to have, but we also have great listening systems. And I think that's the most important piece is making sure that as we roll anything out, we are listening very deeply to how our teams are feeling about different things to make sure that we're enhancing the experience as we roll out food, for example, doing a food benefit for our Broista and so that they can taste and share in that great food as they come on to their shifts.

And so I think we're being incredibly thoughtful about ensuring that our shops are staffed well, that we're listening to what's driving satisfaction at the Broista level and just continuing to enhance that experience the same way we're looking at our customer experience.

I would like to turn the floor over to management for closing remarks.

Yes, thanks for your questions. In September, we proudly hosted our annual book for Kids Day with the Dutch Bros Foundation supporting over 245 local nonprofit organizations focused on programs serving youth in our communities. Giving back to the communities we serve is core to who we are. Our local operators and franchisees selected each of these nonprofit partners, ensuring the impact was felt directly in the neighborhoods we serve. Also in September [indiscernible] from all around the country to join us at our headquarters for a leadership development program. It was an incredible opportunity to share stories, learn from each other and continue building the strong foundation that fuels our growth.

Investing in our people and giving back to our communities is core to who we are and our mission remains unchanged. Whether we are swinging drinks or serving up love, Dutch Bros has always been and will always be about the people. It's this deep connection with our communities that continues to fuel our purpose and drive our growth. Thank you to all our team members for bringing our mission to life. You are the reason our customers continue to show up every single day. I am incredibly grateful for all of you. Thank you.

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