Dutch Bros Inc. (BROS) FY 2023 MD&A

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with our audited consolidated financial statements and the related notes included elsewhere in this Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this document includes forward looking statements that involve risks, uncertainties, and assumptions. You should carefully read the “Forward-Looking Statements” and “Risk Factors” sections of this Form 10-K for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to us as of the date of this Form 10-K. While we believe that information provides a reasonable basis for these statements, that information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely on these statements. Further, the section of this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” generally discusses 2023 and 2022 items and year-to-year comparisons between 2023 and 2022. Discussions of 2021 items and year-to-year comparisons between 2022 and 2021 are not included in this Annual Report on Form 10-K and can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on February 27, 2023.

Overview and Highlights

Dutch Bros is a high growth operator and franchisor of drive-thru shops that focus on serving high QUALITY, hand-crafted beverages with unparalleled SPEED and superior SERVICE. Founded in 1992 by brothers Dane and Travis Boersma, Dutch Bros began with a double-head espresso machine and a pushcart in Grants Pass, Oregon. Today, we believe that Dutch Bros is one of the fastest-growing brands in the quick service beverage industry in the United States by location count.

As of December 31, 2023, we had 831 company-operated and franchised shops in 16 states, an increase of approximately 23.8% from the same period in the prior year. For the year ended December 31, 2023, we generated $965.8 million of revenue, $10.0 million net income, and $0.03 income per diluted share. We have two reportable operating segments: Company-operated shops and Franchising and other.

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1    Reconciliation of GAAP to non-GAAP results is provided in the section “Non-GAAP Financial Measures” in Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

Key Highlights

•In February 2023, welcomed new Dutch Bros President, Christine Barone, who, in January 2024, assumed the role of CEO, in addition to President.

•Opened 146 company-operated shops across multiple new operating areas in the year ended December 31, 2023, bringing total company-operated shops to 65% of our total shops, an increase of approximately 37% over 2022.

•In September 2023, completed the first follow-on offering since our IPO, resulting in net proceeds of approximately $331 million.

Impact of Global Events

Inflation and Minimum Wage Increases

Similar to many of our peers in our industry, we continued to experience the effects of elevated commodity costs due to inflation, including in dairy, coffee, fuel, packaging, and continuing legislated minimum wage increases that took effect this year in certain states. We expect these inflationary pressures to continue to affect our operating results in the foreseeable future. For example, California’s minimum wage will increase to $20 per hour beginning in April 2024 for covered employees in our industry. While these pressures have impacted our operating results, we have taken measures over the past year to gradually increase our menu prices, adjust our Dutch Rewards loyalty program, and make operating adjustments that increase productivity to help offset them. Menu price increases may lead to decreases in consumer demand. We will continue to evaluate further pricing actions to protect our operating results, however, if there is a time lag between increasing commodity prices and our ability to increase menu prices or take other action in response, or if we choose not to pass on the cost increases by increasing menu prices, our operating results could be negatively affected.

General Macroeconomic Uncertainties

As a retailer that is dependent upon consumer discretionary spending, our results of operations are sensitive to changes in macroeconomic conditions. A continued economic downturn may have a material adverse effect on our business, financial condition or results of operations. Our customers may have or in the future have less money available for discretionary purchases and may stop or reduce their purchases of our products.

On a macro level, conditions (including bank failures and other events affecting financial institutions, rising interest rates, and the impacts of the Russia-Ukraine and Israel-Hamas wars) have created significant uncertainty in the global economy. While we are not able to fully predict the potential impacts of these conditions, we do not currently believe any potential impacts of these macroeconomic conditions would be material to our business.

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Results of Operations

The following tables provide our operating results and explanation of changes for the periods presented.

Consolidated Statements of Operations

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Segment Financials

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1 Included in selling, general and administrative expenses and not part of segment contribution calculation.

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Key Performance Indicators

The key performance indicators (KPIs) that we use to effectively manage and evaluate our business are as follows:

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1    Represents the re-opening of a shop that was temporarily closed in 2021.

2    AUVs are determined based on the net sales for any trailing twelve-month period for systemwide and company-operated shops that have been open a minimum of 15 months. AUVs are calculated by dividing the systemwide and company-operated shop net sales by the total number of systemwide and company-operated shops, respectively. Management uses this metric as an indicator of shop growth and future expectations of mature locations.

3    Same shop sales reflects the change in year-over-year sales, for the comparable shop base, which we define as shops open for 15 complete months or longer as of the first day of the reporting period. Management uses this metric as an indicator of shop growth and future expansion strategy. The number of shops included in the systemwide and company-operated comparable bases for the respective periods are presented in the following table.

4    Systemwide sales and systemwide same shop sales are operating measures that include sales at company-operated shops and sales at franchised shops during the comparable periods presented. Franchise sales represent sales at all franchise shops and are revenues to our franchise partners. We do not record franchise sales as revenues; however, our royalty revenues and advertising fund contributions are calculated based on a percentage of franchise sales. As these metrics include sales reported to us by our non-consolidated franchise partners, these metrics should be considered as a supplement to, not a substitute for, our results as reported under GAAP. Management uses these metrics as indicators of our system’s overall financial health, growth and future expansion prospects.

5    Company-operated and franchise shops operating weeks are calculated based on the number of operating days for the shop base and dividing by 7. Our shop base is defined as shops opened as of the period end date. The operating weeks calculations, reflect re-acquired franchises through 2022. Management uses these metrics as indicators of our system’s overall financial health, growth and future expansion prospects.

6    Dutch Rewards, a digitally-based rewards program available exclusively through the Dutch Rewards mobile app, was launched February 2021. Management uses this metric as an indicator of customer loyalty adoption of our Dutch Rewards mobile app and future promotional plans.

7    Reconciliation of GAAP to non-GAAP results is provided in the section “Non-GAAP Financial Measures” in Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Company-operated Shop Results

The results for our company-operated shops segment were as follows:

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1    Reconciliation of GAAP to non-GAAP results is provided in the section “Non-GAAP Financial Measures” in Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

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Company-operated Shops Segment Performance

Company-operated Shop Revenues

Year Ended December 31, 2023 v. 2022

The Company-operated shop revenue increase was primarily driven by the following:

+    $208.6 million from company-operated shops opened in the last 15 months.

+    $9.6 million from an increase in same shop sales in the comparable shop base.1

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1    For purposes of calculating company-operated same shop revenue, the revenue for 246 company-operated shops was included in the comparable shop base.

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1    The comparable shop bases were 120, 173, and 246 for the three years ended December 31, 2021, 2022, and 2023, respectively. The comparable shop base includes mature shops, which we define as open longer than 15 months.

Beverage, Food, and Packaging Costs

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Year Ended December 31, 2023 v. 2022

The beverage, food and packaging costs impacts for the year-over-year comparison, in dollars and basis points (as a percentage of current year company-operated shop revenues), were driven by the following:

Labor Costs

Year Ended December 31, 2023 v. 2022

The labor costs impacts for the year-over-year comparison, presented in dollars and basis points (as a percentage of current year company-operated shop revenues), were driven by the following:

Occupancy and Other Costs

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Year Ended December 31, 2023 v. 2022

The occupancy and other costs impacts for the year-over-year comparison, presented in dollars and basis points (as a percentage of current year company-operated shop revenues), were driven by the following:

Pre-opening Costs

Year Ended December 31, 2023 v. 2022

The decrease in pre-opening costs was primarily driven by opening a higher proportion of shops in existing markets, which do not require as much support, in the year ended December 31, 2023 as compared to 2022.

Depreciation and Amortization

Year Ended December 31, 2023 v. 2022

The increase in depreciation and amortization was primarily driven by the opening of 146 new company-operated shops during 2023.

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Company-operated Shop Gross Profit and Contribution1

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1    Reconciliation of GAAP to non-GAAP results is provided in the section “Non-GAAP Financial Measures” in Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Year Ended December 31, 2023 v. 2022

The Company-operated shop gross profit and contribution impacts for the year-over-year comparison, presented in basis points (as a percentage of current year company-operated shop revenues), were driven by the following:

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1    Reconciliation of GAAP to non-GAAP results is provided in the section “Non-GAAP Financial Measures” in Part I, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

2    Recognition of $4.9 million of breakage revenue from the loyalty points collected prior to January 1, 2022 that expired on December 31, 2022.

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Franchising and Other Segment Performance

Year Ended December 31, 2023 v. 2022

The Franchising and other gross profit impacts for the year-over-year comparison, presented in dollars, were driven by the following:

+    $6.0 million primarily from products sold to franchisees, net of costs and adjustments.

+    $3.1 million from shop weeks, driven by shop openings during the period.

+    $2.4 million from same shop sales.

Selling, General, and Administrative

Year Ended December 31, 2023 v. 2022

The selling, general, and administrative impacts for the year-over-year comparison, presented in dollars and basis points (as a percentage of current year total revenues), were driven by the following:

+    $20.6 million from investments in human capital, processes, and systems to support our revenue growth.

+    $2.2 million or 20 bps in consulting fees related to our long-term growth strategy and associated changes to our organizational structure to support growth.

+    $2.0 million or 20 bps in estimated expense for certain legal disputes.

-    $2.4 million or 30 bps from prior year company-wide event costs celebrating 30 years serving high QUALITY, hand-crafted beverages with unparalleled SPEED and superior SERVICE to our customers.

-    $2.4 million or 30 bps from lower equity-based compensation charges.

-    $1.2 million or 10 bps from prior year write-off of prepaid expense for our virtual corporate engagement platform built in response to COVID-19 pandemic as a substitute for in person

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engagement practices pre-pandemic. The platform was determined ineffective, particularly as we shifted back to in person engagement and easing of restrictions related to the COVID-19 pandemic.

The summation of the impact of the specific items above would have decreased selling, general and administrative expenses from prior year by 30 bps to be 24.5% of revenue. However, leverage from revenue growth reduces that percentage by 330 bps to be 21.2% of revenue.

Other Expense

Year Ended December 31, 2023 v. 2022

The increase in interest expense, net was primarily driven by increased borrowings and higher interest rates associated with our credit facility, and additional finance leases for new shop builds.

The decrease in other income (expense), net was primarily driven by a decrease in remeasurement gains in the current period related to the TRAs liability.

Income Tax Expense (Benefit)

Year Ended December 31, 2023 v. 2022

The increase in tax expense was primarily driven by increased current year pre-tax income and changes in the state earnings mix, partially offset by increased credits.

Liquidity and Capital Resources

Cash Overview

We had cash and cash equivalents of $133.5 million and $20.2 million as of December 31, 2023 and December 31, 2022, respectively.

For the year ended December 31, 2023, our principal sources of liquidity were cash flows from our Follow-On Offering in September 2023, our revolving credit facility, and operations. Our principal uses of liquidity for the year ended December 31, 2023 were the payoff of our revolving credit facility, and to fund our new shop builds and other working capital needs.

For additional information related to the Follow-On Offering, see below.

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Cash Flows

The following table summarizes our cash flows for the periods presented:

Operating Activities

The increase in operating activities cash flows was primarily driven by:

+    Working capital management and efficiencies with new shop openings.

Investing Activities

The increase in investing activities cash outflows was primarily driven by:

+    Investment in capital expenditures as a result of new company-operated shop openings.

-    Shop acquisitions in the prior year compared to no acquisitions in the current year.

Financing Activities

The increase in financing activities cash flows was primarily driven by:

+    Proceeds from our Follow-On Offering in September 2023.

-    Payoff of our revolving credit facility.

Cash Requirements

We believe that proceeds from our Follow-On Offering, 2022 Credit Facility, and cash provided by operating activities are adequate to fund our debt service requirements, lease obligations, and working capital obligations for at least the next 12 months.

Our future capital requirements may vary materially from period to period and will depend on many factors, primarily our expansion and growth by opening additional company-operated shops and/or reacquiring existing franchised shops. We currently expect to fund our current and long-term material capital requirements with operating cash flows and, as needed, additional proceeds from our 2022 Credit Facility, but we may also seek additional debt or equity financing.

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From time to time, we may explore additional financing sources which could include equity, equity‑linked, and debt financing arrangements. Further, the payments that we may be required to make under the TRAs may be significant, and we are currently unable to estimate the timing of the payments that may be due thereunder.

Other than operating expenses, including approximately $24 million to $31 million in costs related to our organizational realignment and restructuring initiative, our cash requirements for 2024 are expected to consist primarily of capital expenditures for investments in our new and existing shops, our supply chain, and our corporate facilities, including a new roasting facility that is estimated to be approximately $10 million in incremental spend. The total capital expenditures for 2024 are estimated to be approximately $280 million to $320 million, including approximately $6 million to $10 million related to our organizational realignment and restructuring initiative.

Our current and long-term material cash requirements as of December 31, 2023, primarily include the following:

•Debt Obligations: Refer to NOTE 9 — Debt, of the notes to the consolidated financial statements, included elsewhere in this Form 10-K, for further information of our obligations and the timing of expected payments.

•Operating and Finance Leases: Refer to NOTE 8 — Leases, of the notes to the consolidated financial statements, included elsewhere in this Form 10-K, for further information of our obligations and the timing of expected payments.

•Purchase Obligations: include all legally binding contracts, including firm minimum commitments for inventory purchases, commitments for the purchase, construction or remodeling of real estate facilities, equipment purchases, marketing-related contracts, software acquisition/license commitments and service contracts. As of December 31, 2023, purchase obligations were approximately $180 million, of which substantially all are expected to be paid within one to two years.

•TRAs Obligations: Refer to NOTE 11 — Tax Receivable Agreements and NOTE 17 — Commitments and Contingencies, of the notes to the consolidated financial statements, included elsewhere in this Form 10-K, for further information of our obligations.

Follow-On Offering

On September 12, 2023, Dutch Bros Inc. completed a follow-on offering of approximately 13.3 million shares of Class A common stock at a public offering price of $26.00 per share, which included approximately 1.7 million shares issued pursuant to the exercise in full of the underwriters’ option to purchase additional shares. This resulted in proceeds of approximately $331.2 million, net of underwriting discounts and commissions. The proceeds were used to purchase an equal number of Class A common units of Dutch Bros OpCo. Dutch Bros OpCo used the proceeds for working capital and general corporate purposes, including principal repayment of $202.7 million of our revolving credit facility, and for payment of offering costs of approximately $1.1 million. The offering costs were charged to additional paid-in capital on our consolidated balance sheet.

Credit Facility

JP Morgan Credit Facility

On August 4, 2023, the Company amended its senior secured credit facility, dated February 28, 2022 with JP Morgan Chase Bank, N.A. (as amended, the 2022 Credit Facility) to increase borrowing capacity by $150 million to a total of $650 million. The 2022 Credit Facility consists of a $350 million revolving credit facility, a term loan facility of up to $100 million, and a delayed draw term loan facility of up to $200 million. The 2022 Credit Facility also includes sublimits for letters of credit and swingline loans of up to $50 million and $15 million, respectively. The 2022 Credit Facility expires on February 28, 2027 (the Maturity Date).

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Interest on borrowings under the 2022 Credit Facility is based on (a) the Alternate Base Rate plus an applicable margin, or (b) the Adjusted Term SOFR plus an applicable margin, and is payable in accordance with the selected interest rate period (at least quarterly) and upon maturity. Principal payments for the term loans are required on a quarterly basis in accordance with an amortization schedule up through and including the Maturity Date.

Obligations under the 2022 Credit Facility are guaranteed by each of Dutch Bros Inc.’s subsidiaries, and secured by a first priority perfected security interest in substantially all of the assets of the guarantors.

Approximately $202.7 million of proceeds from our September 2023 Follow-On Offering were used to pay off the balance of the revolving credit facility as of the repayment date.

Interest Rate Swap Contract

The Company has an interest rate swap with JPMorgan Chase Bank, N.A. The interest rate swap has a notional amount of $70 million and hedges interest rate risk on the term loan under the 2022 Credit Facility. The purpose of the floating-to-fixed interest rate swap is to fix the interest base rate charged on the term loan at 2.67% for the $70 million notional amount. The interest rate swap matures on February 28, 2027. There were no changes to the interest rate swap contract resulting from the amendment to our credit facility.

See NOTE 9 — Debt and NOTE 10 — Derivative Financial Instruments for additional details related to our 2022 Credit Facility and interest rate swap contract.

Critical Accounting Estimates

The methods, assumptions, and estimates that we use in applying our accounting policies may require us to apply judgments regarding matters that are inherently uncertain. We consider an accounting policy to be a critical estimate if: (1) we must make assumptions that were uncertain when the judgment was made, and (2) changes in the estimate assumptions, or selection of a different estimate methodology, could have a significant impact on our financial position and the results that we report in our consolidated financial statements. While we believe that our estimates, assumptions, and judgments are reasonable, they are based on information available when the estimate was made.

Refer to NOTE 2 — Basis of Presentation and Summary of Significant Accounting Policies within the consolidated financial statements, included elsewhere in this Form 10-K, for further information on our critical accounting estimates and policies, which are as follows:

Leases

At the commencement of each lease, we evaluate the lease agreement to determine whether it is an operating or finance lease. The evaluation requires significant judgments in determining the fair value of the lease right-of-use asset and the lease liability and appropriate lease terms.

Our lease agreements generally do not provide an implicit interest rate; as such, the discount rate used to measure the initial lease liability is equal to the rate the Company would pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms. Management uses a specialist to determine the discount rate, which is subject to fluctuation based on market interest rates and our credit risk profile.

We also estimate the lease term at commencement. The lease term commences on the date when we take possession of the leased property. To determine the length of the lease term at inception, we consider both termination and renewal option periods available. Reasonably certain renewal periods are included in the lease term at commencement.

Variations in judgment applied to these estimates could result in material differences such as the following:

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• Lease expenses, including rent, depreciation and amortization

• Present value of lease right-of-use assets and lease liabilities

• Reasonably certain lease term

See NOTE 8 — Leases for further details.

Income Taxes

In determining the provision for income taxes, we make estimates and judgments which affect our evaluation of the carrying value of our deferred tax assets as well as our calculation of certain tax liabilities. We evaluate the carrying value of our deferred tax assets on a quarterly basis. In completing this evaluation, we consider all available positive and negative evidence. Such evidence includes historical operating results, the existence of cumulative earnings and losses in the most recent fiscal years, taxable income in prior carryback year(s) if permitted under the tax law, expectations for future pre-tax operating income, the time period over which our temporary differences will reverse, and the implementation of feasible and prudent tax planning strategies. Estimating future taxable income is inherently uncertain and requires judgment.

Our expense/(benefit) for income taxes, deferred tax assets and liabilities including valuation allowance requires the use of estimates based on our management’s interpretation and application of complex tax laws and accounting guidance.

Deferred taxes are recorded using the asset and liability method, whereby tax assets and liabilities are determined based on the differences between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. We regularly evaluate the valuation allowances established for deferred tax assets for which future realization is uncertain. In assessing the realizability of deferred tax assets, we consider both positive and negative evidence, including scheduled reversals of deferred tax assets and liabilities, projected future taxable income, tax planning strategies and results of recent operations. If, based on the weight of available evidence, it is more likely than not that the deferred tax assets will not be realized, a valuation allowance is recorded. See NOTE 12 — Income Taxes for further details.

Tax Receivable Agreements

In connection with our IPO, we entered into two TRAs with the Continuing Members and Pre-IPO Blocker Holders. The TRAs generally provide for us to pay the Continuing Members and Pre-IPO Blocker Holders 85% of the net cash savings, if any, in U.S. federal, state and local income tax or franchise tax that we actually realize or are deemed to realize in certain circumstances. We will retain the benefit of the remaining 15% of these net cash savings. As of December 31, 2023, we recognized $290.9 million of liabilities relating to our obligations under the TRAs.

Changes in the projected TRAs liability resulting from these tax benefit arrangements may occur based on changes in anticipated future taxable income, changes in applicable tax rates or other changes in tax attributes that may occur and impact the expected future tax benefits to be received by the Company. Estimating future taxable income is a key input in calculating the TRAs liability, and is inherently uncertain and requires judgment. In projecting future taxable income, we consider our historical results and incorporate certain assumptions. See NOTE 11 — Tax Receivable Agreements for further details.

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Non-GAAP Financial Measures

In addition to disclosing financial results in accordance with GAAP, this document contains references to the non-GAAP financial measures below. We believe these non-GAAP financial measures provide investors with useful supplemental information about our operating performance, enable comparison of financial trends and results between periods where certain items may vary independent of business performance, and allow for greater transparency with respect to key metrics used by management in operating our business and measuring our performance.

Our non-GAAP financial measures reflect adjustments based on one or more of the following items, as well as the related income tax effects where applicable. Income tax effects have been calculated based on the combined total non-GAAP adjustments using our total effective tax rate. These non-GAAP financial measures should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP, and the financial results calculated in accordance with GAAP and reconciliations from these results should be carefully evaluated.

Company-operated shop contribution (in dollars and as a percentage of revenue)

Definition and/or calculation

Company-operated segment gross profit, before company-operated shop depreciation and amortization. Company-operated shop contribution in dollars (as defined), taken as a percentage of company-operated shop revenue.

Usefulness to management and investors

This non-GAAP measure is used by our management in making performance decisions without the impact of non-cash depreciation and amortization charges. This is a standard metric used across our industry by investors.

EBITDA, Adjusted EBITDA (in dollars and as a percentage of revenue)

EBITDA — definition and/or calculation

Net income (loss) before interest expense (net of interest income), income tax expense (benefit), and depreciation and amortization expense.

Adjusted EBITDA — definition and/or calculation

Defined as EBITDA (as defined above), excluding equity-based compensation, expenses and donations associated with equity offerings, COVID-19: “Thank You” pay and catastrophic leave expenses, COVID-19: prepaid costs not utilized, costs incurred for company-wide milestone events, executives transitions costs, (gain) loss on the remeasurement of the liability related to the TRAs, estimated expenses related to certain legal disputes, and organization realignment and restructuring costs.

Adjusted EBITDA in dollars (as defined), taken as a percentage of total revenue.

Usefulness to management and investors

These non-GAAP measures are supplemental operating performance measures we believe facilitate comparisons to historical performance and competitors’ operating results. We believe these non-GAAP measures presented provide investors with a supplemental view of our operating performance that facilitates analysis and comparisons of our ongoing business operations because they exclude items that may not be indicative of our ongoing operating performance.

Adjusted selling, general, and administrative (in dollars and as a percentage of revenue)

Definition and/or calculation

Selling, general, and administrative expenses, excluding equity-based compensation expense, expenses and donations associated with equity offerings, COVID-19: prepaid costs not utilized, costs incurred for company-wide milestone events, executives transitions, estimated expense related to certain legal disputes, and organization realignment and restructuring costs.

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Adjusted selling, general, and administrative in dollars (as defined), taken as a percentage of total revenue.

Usefulness to management and investors

This non-GAAP measure is used as a supplemental measure of operating performance that we believe is useful to evaluate our performance period over period and relative to our competitors. We believe the non-GAAP measure presented provides investors with a supplemental view of our operating performance that facilitates analysis and comparisons of our ongoing business operations because it excludes items that may not be indicative of our ongoing operating performance.

Non-GAAP adjustments

Below are the definitions of the non-GAAP adjustments that are used in the calculation of our non-GAAP measures, as described above.

Equity-based compensation

Non-cash expenses related to the grant and vesting of stock awards, restricted stock awards and restricted stock units in Dutch Bros Inc. and/or Profit Interest Units in Dutch Bros OpCo to certain eligible employees.

Expenses associated with equity offerings

Costs incurred as a result of our equity offerings. These costs include legal fees, consulting fees, tax and accounting fees, and payroll taxes related to the grant and vesting of equity awards for certain employees.

Donations associated with equity offerings

In connection with our IPO, we made a donation to the Foundation. This donation is separate from other donations to the Foundation that we may periodically make.

COVID-19: “Thank You” pay and catastrophic leave

Costs related to two separate programs established to support employees during the COVID-19 pandemic. We implemented an hourly wage supplement program for shop employees who continued to work while their state or county was under a stay at home order or similar lockdown requirement. This program lasted in various markets until April 2021. We also established a catastrophic leave policy that provided paid leave to employees who were required to quarantine due to in-shop exposures and could not work their regular hours. The catastrophic leave program was retired in May 2023.

COVID-19: Prepaid costs not utilized

Costs related to the write-off of previously prepaid expenses for the development of a virtual corporate engagement platform built in response to the health restrictions of the COVID-19 pandemic. The platform was developed as a substitute for in person engagement practices used pre-pandemic. The platform has been determined ineffective, particularly as we shift back to in-person events with the easing of restrictions related to the COVID-19 pandemic.

Milestone events

Costs incurred for company-wide events to celebrate 30 years of serving high QUALITY, hand-crafted beverages with unparalleled SPEED and superior SERVICE to our customers.

Executives transition

Employee severance and related benefit costs, as well as sign-on bonus(es) for several executive-level transitions occurring in 2022 and 2023.

TRAs remeasurements

(Gain) loss impacts on consolidated statements of operations related to adjustments of our TRAs liabilities.

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Legal proceedings

Estimated loss accrual related to certain legal disputes.

Organization realignment and restructuring

Fees and costs, including consulting fees and costs, related to a comprehensive initiative to develop and implement a long-term strategy involving changes to our organizational structure to support our growth, and the resulting realignment activities that have occurred in 2023 and are expected to continue for at least the next two years. Given this strategic initiative's magnitude and scope, the Company does not expect such costs will recur in the foreseeable future. The Company does not consider such costs reflective of the ongoing costs necessary to operate its business.

Following are the reconciliations of the most comparable GAAP metric to non-GAAP metrics presented:

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1    Selling, general and administrative expenses include depreciation and amortization.