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Basis of Presentation and Summary of Significant Accounting Policies | 9 Months Ended
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Sep. 30, 2022
Accounting Policies [Abstract] |
Basis of Presentation and Summary of Significant Accounting Policies | NOTE 2 — Basis of Presentation and Summary of Significant Accounting Policies Financial Statements Presentation The accompanying unaudited condensed consolidated financial statements as of September 30, 2022 and for the three and nine months ended September 30, 2022 and 2021 are prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the SEC) for interim financial information. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America (GAAP) for complete financial statements. Therefore, the unaudited financial statements should be read in conjunction with the audited consolidated financial statements contained in our Annual Report on Form 10-K filed with the SEC and on March 11, 2022. Immaterial Correction of Previously Issued Consolidated Financial Statements Subsequent to the issuance of the Company’s 2021 consolidated financial statements, management of the Company identified an error in application of Accounting Standards Codification (ASC) 710, Compensation-General, related to accrued sick leave pay. ASC 710-10-25-7 states that an employer is not required to accrue a liability for nonvesting accumulating rights to receive sick pay benefits. Historically, the Company accrued sick leave pay expense for each employee. As unused sick leave pay does not carry forward and is not paid out upon termination, the accrued liability should not have been recorded. The Company has evaluated the effects of the corrections detailed in the table below on the previously issued consolidated financial statements, individually and in the aggregate, in accordance with the guidance in ASC 250, Accounting Changes and Error Corrections. The Company has concluded such corrections to be immaterial to its previously issued consolidated financial statements. While management believes the effect of the error is immaterial to the Company’s previously issued consolidated financial statements as of December 31, 2021, and for the three and nine months ended September 30, 2021, the financial statement line items impacted by this error have been corrected. In addition, the immaterial error is being corrected prospectively in the Company’s subsequent quarterly and annual filings. The tables below reflect the sections of the Company’s condensed consolidated financial statements that were impacted by the error. Condensed Consolidated Balance Sheet:
|  | December 31, 2021
(in thousands) |  | As Reported |  | Adjustments |  | As Corrected
Current liabilities: |  |  |  |  |  |
Accrued liabilities |  | $ | 24,513 |  |  | $ | (3,543) |  |  | $ | 20,970 |
Total current liabilities |  | 142,277 |  |  | (3,543) |  |  | 138,734 |
Total liabilities |  | 343,514 |  |  | (3,543) |  |  | 339,971 |
Stockholders’ equity: |  |  |  |  |  |
Additional paid in capital |  | 106,410 |  |  | 783 |  |  | 107,193 |
Accumulated deficit |  | (12,914) |  |  | 235 |  |  | (12,679) |
Total stockholders’ equity attributable to Dutch Bros Inc. / members’ equity |  | 93,498 |  |  | 1,018 |  |  | 94,516 |
Non-controlling interests |  | 116,688 |  |  | 2,525 |  |  | 119,213 |
Total equity |  | $ | 210,186 |  |  | $ | 3,543 |  |  | $ | 213,729 |
Condensed Consolidated Statements of Operations:
|  | Three Months Ended September 30, 2021
(in thousands) |  | As Reported |  | Adjustments |  | As Corrected
Costs and expenses |  |  |  |  |  |
Cost of sales |  | $ | 91,060 |  |  | $ | (281) |  |  | $ | 90,779 |
Selling, general and administrative |  | 153,727 |  |  | (27) |  |  | 153,700 |
Total costs and expenses |  | 244,787 |  |  | (308) |  |  | 244,479 |
Loss from operations |  | (114,984) |  |  | 308 |  |  | (114,676) |
Loss before income taxes |  | (118,418) |  |  | 308 |  |  | (118,110) |
Net loss |  | $ | (117,138) |  |  | $ | 308 |  |  | $ | (116,830) |
Less: Net loss attributable to non-controlling interests 1 |  | (31,531) |  |  | 219 |  |  | (31,312) |
NET LOSS ATTRIBUTABLE TO DUTCH BROS INC.1 |  | $ | (11,166) |  |  | $ | 89 |  |  | $ | (11,077) |
_________________ 1 Amounts and balances have been updated to reflect reclassifications based on updated timing and sequence of certain Reorganization Transactions and purchase of Dutch Bros OpCo Class A common units in connection with the IPO from previously reported figures in the Company’s Form 10-Q for the period ended September 30, 2021, as filed with the SEC on November 12, 2021.
|  | Nine Months Ended September 30, 2021
(in thousands) |  | As Reported |  | Adjustments |  | As Corrected
Costs and expenses |  |  |  |  |  |
Cost of sales |  | $ | 239,869 |  |  | $ | (1,115) |  |  | $ | 238,754 |
Selling, general and administrative |  | 223,595 |  |  | (421) |  |  | 223,174 |
Total costs and expenses |  | 463,464 |  |  | (1,536) |  |  | 461,928 |
Loss from operations |  | (105,668) |  |  | 1,536 |  |  | (104,132) |
Loss before income taxes |  | (112,015) |  |  | 1,536 |  |  | (110,479) |
Net loss |  | $ | (111,299) |  |  | $ | 1,536 |  |  | $ | (109,763) |
Less: Net loss attributable to Dutch Bros OpCo prior to the Reorganization Transactions |  | (68,602) |  |  | 1,228 |  |  | (67,374) |
Less: Net loss attributable to non-controlling interests 1 |  | (31,531) |  |  | 219 |  |  | (31,312) |
NET LOSS ATTRIBUTABLE TO DUTCH BROS INC. 1 |  | $ | (11,166) |  |  | $ | 89 |  |  | $ | (11,077) |
_________________ 1 Amounts and balances have been updated to reflect reclassifications based on updated timing and sequence of certain Reorganization Transactions and purchase of Dutch Bros OpCo Class A common units in connection with the IPO from previously reported figures in the Company’s Form 10-Q for the period ended September 30, 2021, as filed with the SEC on November 12, 2021. Condensed Consolidated Statements of Stockholders’/Members’ Equity:
|  | Three Months Ended September 30, 2021
(in thousands) |  | As Reported 1 |  | Adjustments |  | As Corrected
Members' Equity |  |  |  |  |  |
Balance, June 30, 2021 |  | $ | (127,279) |  |  | $ | 2,725 |  |  | $ | (124,554) |
Effect of the Reorganization Transactions and initial public offering on non-controlling interests |  | 50,745 |  |  | (2,725) |  |  | 48,020 |
Additional Paid-in-Capital |  |  |  |  |  |
Effect of the Reorganization Transactions and initial public offering on non-controlling interests |  | (196,515) |  |  | 579 |  |  | (195,936) |
Purchase of OpCo Units in connection with the initial public offering |  | (239,622) |  |  | 201 |  |  | (239,421) |
Effect of exchange of Dutch Bros OpCo Class A common units |  | 285 |  |  | 4 |  |  | 289 |
Balance, September 30, 2021 |  | 104,259 |  |  | 784 |  |  | 105,043 |
Accumulated Deficit |  |  |  |  |  |
Net loss subsequent to the Reorganization Transactions |  | (11,166) |  |  | 89 |  |  | (11,077) |
Balance, September 30, 2021 |  | (11,166) |  |  | 89 |  |  | (11,077) |
Non-Controlling Interests |  |  |  |  |  |
Effect of the Reorganization Transactions and initial public offering on non-controlling interests |  | 145,768 |  |  | 2,146 |  |  | 147,914 |
Purchase of OpCo Units in connection with the initial public offering |  | (13,648) |  |  | (201) |  |  | (13,849) |
Net loss subsequent to the Reorganization Transactions |  | (31,531) |  |  | 219 |  |  | (31,312) |
Effect of exchange of Dutch Bros OpCo Class A common units |  | (285) |  |  | (4) |  |  | (289) |
Balance, September 30, 2021 |  | 116,527 |  |  | 2,160 |  |  | 118,687 |
Total Equity |  |  |  |  |  |
Balance, June 30, 2021 |  | (127,279) |  |  | 2,725 |  |  | (124,554) |
Net loss subsequent to the Reorganization Transactions |  | (42,697) |  |  | 308 |  |  | (42,389) |
Balance, September 30, 2021 |  | 209,622 |  |  | 3,033 |  |  | 212,655 |
_________________ 1 Amounts and balances have been updated to reflect reclassifications based on updated timing and sequence of certain Reorganization Transactions and purchase of Dutch Bros OpCo Class A common units in connection with the IPO from previously reported figures in the Company’s Form 10-Q for the period ended September 30, 2021, as filed with the SEC on November 12, 2021.
|  | Nine Months Ended September 30, 2021
(in thousands) |  | As Reported 1 |  | Adjustments |  | As Corrected
Members' Equity |  |  |  |  |  |
Balance, December 31, 2020 |  | $ | 75,990 |  |  | $ | 1,497 |  |  | $ | 77,487 |
Net loss prior to the Reorganization Transactions |  | (68,602) |  |  | 1,228 |  |  | (67,374) |
Effect of the Reorganization Transactions and initial public offering on non-controlling interests |  | 50,745 |  |  | (2,725) |  |  | 48,020 |
Additional Paid-in-Capital |  |  |  |  |  |
Effect of the Reorganization Transactions and initial public offering on non-controlling interests |  | (196,515) |  |  | 579 |  |  | (195,936) |
Purchase of OpCo Units in connection with the initial public offering |  | (239,622) |  |  | 201 |  |  | (239,421) |
Effect of exchange of Dutch Bros OpCo Class A common units |  | 285 |  |  | 4 |  |  | 289 |
Balance, September 30, 2021 |  | 104,259 |  |  | 784 |  |  | 105,043 |
Accumulated Deficit |  |  |  |  |  |
Net loss subsequent to the Reorganization Transactions |  | (11,166) |  |  | 89 |  |  | (11,077) |
Balance, September 30, 2021 |  | (11,166) |  |  | 89 |  |  | (11,077) |
Non-Controlling Interests |  |  |  |  |  |
Effect of the Reorganization Transactions and initial public offering on non-controlling interests |  | 145,768 |  |  | 2,146 |  |  | 147,914 |
Purchase of OpCo Units in connection with the initial public offering |  | (13,648) |  |  | (201) |  |  | (13,849) |
Net loss subsequent to the Reorganization Transactions |  | (31,531) |  |  | 219 |  |  | (31,312) |
Effect of exchange of Dutch Bros OpCo Class A common units |  | (285) |  |  | (4) |  |  | (289) |
Balance, September 30, 2021 |  | 116,527 |  |  | 2,160 |  |  | 118,687 |
Total Equity |  |  |  |  |  |
Balance, December 31, 2020 |  | 75,990 |  |  | 1,497 |  |  | 77,487 |
Net loss prior to the Reorganization Transactions |  | (68,602) |  |  | 1,228 |  |  | (67,374) |
Net loss subsequent to the Reorganization Transactions |  | (42,697) |  |  | 308 |  |  | (42,389) |
Balance, September 30, 2021 |  | 209,622 |  |  | 3,033 |  |  | 212,655 |
_________________ 1 Amounts and balances have been updated to reflect reclassifications based on updated timing and sequence of certain Reorganization Transactions and purchase of Dutch Bros OpCo Class A common units in connection with the IPO from previously reported figures in the Company’s Form 10-Q for the period ended September 30, 2021, as filed with the SEC on November 12, 2021. Condensed Consolidated Statement of Cash Flows:
|  | Nine Months Ended September 30, 2021
(in thousands) |  | As Reported |  | Adjustments |  | As Corrected
Cash flows from operating activities: |  |  |  |  |  |
Net loss |  | $ | (111,299) |  |  | $ | 1,536 |  |  | $ | (109,763) |
Changes in operating assets and liabilities, net of acquisitions: |  |  |  |  |  |
Accrued liabilities |  | 7,888 |  |  | (1,536) |  |  | 6,352 |
Significant Accounting Policies Principles of Consolidation The condensed consolidated financial statements include the accounts of the Company and its subsidiaries that it controls due to ownership of a majority voting interest or pursuant to accounting guidance for non-controlling interests. All intercompany transactions and balances have been eliminated in consolidation. Use of Estimates The presentation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions, primarily related to long-lived asset valuation, leases, deferred revenue, tax receivable agreements, income taxes, and equity-based compensation that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Although management bases its estimates on historical experience and assumptions that are believed to be reasonable under the circumstances, actual results could differ from those estimates. Reclassifications The Company has reclassified certain amounts in prior-period financial statements to conform to the current period's presentation. •NOTE 5 — Inventories: components of inventory related to our Blue Rebel energy drink have been reclassified from finished goods to raw materials. Derivative Instruments The Company manages exposure to fluctuations in interest rates within its condensed consolidated financial statements according to a hedging policy. Under this policy, the Company may engage in interest rate swap agreements to hedge interest rate risk. A swap agreement is a contract between two parties to exchange cash flows based on specified underlying notional amounts, assets and/or indices. The Company does not enter into derivative instruments for speculative purposes. By using swap instruments, the Company is exposed to potential credit risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. The Company minimizes this credit risk by entering into transactions with carefully selected, credit-worthy counterparties. Cash Flow Hedges For derivative instruments that are designated and qualify as a cash flow hedge, the derivative's gain or loss is reported as a component of other comprehensive income (OCI) and recorded in accumulated other comprehensive income (AOCI) on our condensed consolidated balance sheets. The gain or loss is subsequently reclassified into net earnings when the hedged exposure affects net earnings, in the same line item as the underlying hedged item on the Company’s condensed consolidated statements of operations. Cash flow hedges related to anticipated transactions are designated and documented at the inception of each hedge. Cash flows from hedging transactions are classified in the same categories as the cash flows from the respective hedged items. Refer to NOTE 11 — Derivative Financial Instruments for further discussion of the Company’s derivative instruments. Leases The Company adopted ASC Topic 842 (ASC 842), Leases, as amended, with an effective date of January 1, 2022. Details of the adoption and the Company’s accounting policies related to leases are provided in NOTE 8 — Leases. Revenue Recognition Consolidated revenues are recognized net of any discounts, returns, allowances and sales incentives in accordance with Accounting Standard Codification (ASC) Topic 606, Revenue from Contracts with Customers. Loyalty Programs In February 2021, the Company transitioned from a traditional loyalty program to a digital loyalty program. Under the previous program, a customer earned a “Stamp” for each purchase at a Dutch Bros coffee shop. After accumulating a certain number of Stamps, the customer earned a reward that may be redeemed for free product that, regardless of where the related Stamps were earned, would have been honored at company-operated shops and franchised shop locations. The Company deferred revenue associated with the estimated selling price of Stamps earned by customers towards free product as each Stamp was earned, and a corresponding contract liability was established. The estimated selling price of each Stamp earned was based on the estimated value of the product for which the reward was expected to be redeemed, net of Stamps not expected to be redeemed, based on historical redemption patterns. Stamps did not expire. As a result of the COVID-19 pandemic beginning in March 2020, the Company discontinued new Stamps. The Company continued to redeem previously earned Stamps through March 2021. In February 2021, the Company released the digital loyalty program (Dutch Rewards) in which the customer earns rewards through use of the Company’s mobile app that can be redeemed for free drinks. Points collected but not redeemed expire after six months, and earned rewards expire six months after issuance. The Company defers revenue as points are accumulated and rewards are earned under the Dutch Rewards program. Deferred Revenue Deferred revenue primarily consists of the unredeemed gift card liability and unredeemed points from our Dutch Rewards loyalty program, as discussed above. Deferred revenue also includes bean and beverage sales to distributors where the performance obligation has not yet been satisfied as control has not transferred to the customer. Vendor Incentives The Company has entered into food and beverage supply agreements with certain major vendors. Pursuant to the terms of these arrangements, rebates are provided to the Company from the vendors based upon the dollar value of purchases for company-operated shops and franchised shops. These incentives are recognized as earned throughout the year and are classified as a reduction of cost of sales in the accompanying condensed consolidated statements of operations. Vendor incentives recognized in cost of sales were as follows for the periods presented:
|  | Three Months Ended September 30, |  | Nine Months Ended September 30, |  |
(in thousands) |  | 2022 |  | 2021 |  | 2022 |  | 2021 |  |
Vendor incentives |  | $ | 13,808 |  |  | $ | 11,585 |  |  | $ | 32,700 |  |  | $ | 30,348 |  |  |
Advertising Expense Advertising costs are expensed as they are incurred. Most franchise shops contribute to an advertising fund that the Company manages on behalf of the shops. Under the Company’s standard franchise agreement, the contributions received must be spent on marketing, creative efforts, media support, or other related purposes specified in the agreement. The expenditures are primarily amounts paid to third parties but may also include personnel expenses and allocated costs. Advertising expense was as follows for the periods presented:
|  | Three Months Ended September 30, |  | Nine Months Ended September 30, |  |
(in thousands) |  | 2022 |  | 2021 |  | 2022 |  | 2021 |  |
Advertising expense |  | $ | 8,158 |  |  | $ | 7,602 |  |  | $ | 22,840 |  |  | $ | 19,948 |  |  |
Recently Issued Accounting Standards In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13, as amended, replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. For accounts receivable and other financial instruments, the Company will be required to use a forward-looking expected loss model rather than the incurred loss model for recognizing credit losses which reflects losses that are probable. ASU 2016-13, as amended, is effective for fiscal years beginning after December 15, 2022. Application of the amendments is through a cumulative-effect adjustment to retained earnings as of the effective date. The Company is evaluating the impact of this standard on its condensed consolidated financial statements. In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The amendments in this update provide specific guidance to address diversity in practice related to (1) recognition of an acquired contract liability, and (2) payment terms and their effect on subsequent revenue recognized by the acquirer. The amendments in ASU 2021-08 are applied on a prospective basis, and are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted. The Company is evaluating the impact of this standard on its condensed consolidated financial statements Recently Adopted Accounting Standards In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The pronouncement requires lessees to recognize a liability for lease obligations, which represent the discounted obligation to make future lease payments, and a corresponding right-of-use asset on the balance sheet, as well as new disclosure requirements. The Company adopted Topic 842 effective January 1, 2022 using the modified transition approach. For additional information, refer to NOTE 8 — Leases.

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