Shares of Dutch Bros., a Grants Pass, Ore.-based purveyor of coffee and other hot and cold drinks, soared 60% soon after they began trading on Wednesday in their first session as a public company.
Shares pulled back just 0.5% to close the first trading day.
The stock, which is trading on the New York Stock Exchange under the ticker “BROS,” opened 41% above the $ 23 IPO issue price, which was itself above the proposed price range of $ 18 to $ 20. The company sold 21.05 million shares in the IPO to raise $ 484.2 million at a valuation of about $ 3.7 billion.
The stock’s first trade on the NYSE was at $ 32.50 at 12:20 p.m. Eastern for 2.6 million shares.
BofA Securities, JPMorgan and Jefferies were lead underwriters in a syndicate of 13 banks working on the deal. Proceeds are to be used to purchase additional Class A shares — the company is planning to have four classes of stock with differing voting rights.
It is also a controlled company, with co-founder Travis Boersma owning 74.4% of the voting power, and the company’s sponsor, TSG Consumer Partners, holding all of the Class C shares.
Founded in 1992 by brothers and third-generation farmers Travis and Dane Boersma, Dutch Bros. BROS, +59.48% launched after the Boersmas determined that the prospects for dairy farming were low. Eventually they bought a pushcart, then a drive-through location, and now there are 471 drive-through coffee locations in 11 states including Washington, Oregon, Idaho and California. The company entered Texas and Oklahoma during the first half of 2021.
Dutch Bros. is a franchise business, however the company stopped selling franchises to those outside of the existing network in 2008. In 2017, the company stopped franchising all together and moved to a company-operated model. As of June 30, 2021, there were 264 franchised shops and 207 company-operated locations.
“While we maintain great relationships with our existing franchise partners and they continue to open new shops as they look to infill their high-demand markets, the majority of our growth is expected to continue to come from company-operated shops,” the company said in its prospectus.
Together, the company and its franchises employ 16,500 workers, including “broistas” who run to cars before they arrive at the drive-through armed with tablets to take orders and answer questions, chat with regular customers, offer pet treats and even a free drink to those who could use it.
New shops are usually 865-to-950 square feet with lots spanning at least 25,000 square feet with double or single drive-through windows. There are also walk-up windows and patios for those who want to drink their orders on the premises.
Dutch Bros. launched an app in 2021 and has a loyalty program with 2.3 million members.
Travis Boersma is the co-founder and executive chairman of Dutch Bros. Dane Boersma was diagnosed with ALS in 2004 and succumbed to the illness five years later.
Chief Operating Officer Brian Maxwell is Travis Boersma’s brother-in-law and Chief Administrative Officer Christine Schmidt is his sister-in-law.
Joth Ricci has served as chief executive since August 2021. From April 2017 to January 2019, he was the CEO of Adelsheim Vineyard. And from February 2013 to April 2017, he was president of Stumptown Coffee Roasters.
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Charles Jemley has been chief financial officer since August 2021. From July 2018 to December 2019, he served as CFO of CKE Restaurant Holdings Inc., parent company to Carl’s Jr. and Hardee’s. Prior to that, he held several positions at Starbucks Corp. SBUX, -3.55%, including senior vice president of finance for Starbucks Reserve and Roastery, global digital and store development.
Shelley Broader joined the board in August. She is the former chief executive of Chico’s FAS Inc. CHS, +1.98% and served in a number of executive roles at Walmart Inc. WMT, +0.17% between 2009 and November 2015.
The company had a pro forma consolidated net loss of $ 13.6 million, or 32 cents a share, in the first six months of the year, narrower than the loss of $ 16.5 million, or 38 cents a share, posted in the year-earlier period. Revenue fell to $ 227.9 million from $ 327.4 million.
Net income in 2020 totaled $ 5.73 million, down from $ 28.39 million in 2019. Revenue rose to $ 327.4 million from $ 238.4 million.
The average Dutch Bros. check is $ 7.50, and average unit volume (AUV) in 2020 was $ 1.7 million. The business was impacted by COVID-19 as well as wildfires in the Northwest during 2020.
Dutch Bros. is an emerging growth company, which means it does not have to make the same disclosures required of bigger public companies. A business remains an emerging growth company until it reaches a number of milestones, including annual revenue of more than $ 1.07 billion.
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The company has no plans to pay a dividend on Class A and Class D shares. Class B and Class C shares don’t have dividend rights.
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Here are four more things to know about Dutch Bros. now that it’s a publicly traded company:
The menu includes items like the Iced Tiger’s Blood Lemonade and the Golden Eagle Freeze. Dutch Bros. also has a proprietary Dutch Bros. Blue Rebel brand of energy drinks, lemonade, tea and other beverages that serve as the base for other drinks and a driver for its afternoon business. A creamy, whipped topping called the “soft-top” can also be added to just about any drink. Espresso-based coffee and cold brew are also on the menu.
Dutch Bros. says it has market share opportunity across three large categories. The company is expecting to take market share in the coffee category (which it puts at $ 36 billion), the convenience store category (also a $ 36 billion market) and the quick-service restaurant category where beverages are sold (a $ 239 billion market).
While these categories are an opportunity, there is also a lot of competition in each, a risk factor that Dutch Bros. highlights in its filing documents.
Dutch Bros. could be impacted by the fluctuating cost of coffee. Coffee futures soared in July after a frost in Brazil raised the threat of an impact to the coffee supply.
Dutch Bros. says the cost of coffee as well as other parts of the supply chain such as coffee machines and flavored syrup are a risk factor that the company faces.
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Dutch Bros. identified a material weakness in the internal controls of its financial reporting. The company and its auditors attributed the weakness to “limited accounting department personnel capable of appropriately accounting for complex transactions,” according to the prospectus.
“While we continue to take remediation steps, including hiring additional personnel subsequent to December 31, 2020, we continued to have a limited number of personnel with the level of GAAP accounting knowledge, specifically related to complex accounting transactions, commensurate with our financial reporting requirements. As such, we continued to have a material weakness in our control over financial reporting as of December 31, 2020.”
The Renaissance IPO ETF IPO is up 5.8% for the year to date while the S&P 500 index SPX has gained 19.3% for the period.