UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 1, 2023March 30, 2024
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 001-39898
Driven Brands Holdings Inc.
(Exact name of Registrant as specified in its charter)
| | |
Delaware |
(State or other jurisdiction of incorporation or organization) |
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47-3595252 |
(I.R.S. Employer Identification No.) |
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440 South Church Street, Suite 700 |
Charlotte, North Carolina |
(Address of principal executive offices) |
Registrant’s telephone number, including area code: (704) 377-8855
| | |
Title of each class |
Common Stock, $0.01 par value |
| | |
Name of each exchange on which registered |
The Nasdaq Global Select Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | |
Large accelerated filer ☒ |
Non-accelerated filer ☐ |
|
| | |
Accelerated filer ☐ |
Small reporting company ☐ |
Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
As of August 4, 2023,May 6, 2024, the Registrant had 167,532,382164,079,785 shares of Common Stock outstanding.
Driven Brands Holdings Inc.
Table of Contents
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PART I. FINANCIAL INFORMATION | |
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Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are generally identified by the use of forward-looking terminology, including the terms “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “likely,” “may,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “target,” “will,” “would” and, in each case, their negative or other various or comparable terminology. All statements other than statements of historical facts contained in this Quarterly Report, including statements regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, trends, plans, objectives of management, impact of accounting standards and guidance, impairments, and expected market growth are forward-looking statements. In particular, forward-looking statements include, among other things, statements relating to: (i) our strategy, outlook, and growth prospects; (ii) our operational and financial targets and dividend policy; (iii) general economic trends and trends in the industry and markets; (iv) the risks and (iv)costs associated with the integration of, and or ability to integrate, our stores and business units successfully; (v) the proper application of generally accepted accounting principles, which are highly complex and involve many subjective assumptions, estimates, and judgments; and (vi) the competitive environment in which we operate. Forward-looking statements are not based on historical facts but instead represent our current expectations and assumptions regarding our business, the economy, and other future conditions, and involve known and unknown risks, uncertainties, and other important factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements. Given these uncertainties, you should not place undue reliance on these forward-looking statements. It is not possible to predict or identify all such risks. These risks include, but are not limited to, the risk factors that are described under the section titled “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 202230, 2023 as well as in our other filings with the Securities and Exchange Commission, which are available on its website at www.sec.gov. Given these uncertainties, you should not place undue reliance on these forward-looking statements.
Forward-looking statements represent our estimates and assumptions only as of the date on which they are made, and we undertake no obligation to update or review publicly any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law.
Part I -I. Financial Information
Item 1. Financial Statements (Unaudited)
DRIVEN BRANDS HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
| | Three Months Ended | |
| Three Months Ended | |
| Three Months Ended | |
(in thousands, except per share amounts) | |
(in thousands, except per share amounts) | |
(in thousands, except per share amounts) | |
Net revenue: | |
Net revenue: | |
Net revenue: | |
Franchise royalties and fees | |
Franchise royalties and fees | |
Franchise royalties and fees | |
Company-operated store sales | |
Company-operated store sales | |
Company-operated store sales | |
Independently-operated store sales | |
Independently-operated store sales | |
Independently-operated store sales | |
Advertising contributions | |
Advertising contributions | |
Advertising contributions | |
Supply and other revenue | |
Supply and other revenue | |
Supply and other revenue | |
Total net revenue | |
Total net revenue | |
Total net revenue | |
Operating Expenses: | |
Operating Expenses: | |
Operating Expenses: | |
Company-operated store expenses | |
Company-operated store expenses | |
Company-operated store expenses | |
Independently-operated store expenses | |
Independently-operated store expenses | |
Independently-operated store expenses | |
Advertising expenses | |
Advertising expenses | |
Advertising expenses | |
Supply and other expenses | |
Supply and other expenses | |
Supply and other expenses | |
Selling, general, and administrative expenses | |
Selling, general, and administrative expenses | |
Selling, general, and administrative expenses | |
Acquisition related costs | |
Acquisition related costs | |
Acquisition related costs | |
Store opening costs | |
Store opening costs | |
Store opening costs | |
Depreciation and amortization | |
Depreciation and amortization | |
Depreciation and amortization | |
| | | Three Months Ended | | Six Months Ended | |
(in thousands, except per share amounts) | July 1, 2023 | | June 25, 2022 | | July 1, 2023 | | June 25, 2022 | |
Revenue: | | | | | | | | |
Franchise royalties and fees | $ | 49,805 | | | $ | 44,850 | | | $ | 93,320 | | | $ | 82,738 | | |
Company-operated store sales | 394,578 | | | 323,885 | | | 770,644 | | | 616,276 | | |
Independently-operated store sales | 61,533 | | | 54,942 | | | 114,065 | | | 118,031 | | |
Advertising contributions | 24,749 | | | 22,091 | | | 46,426 | | | 41,789 | | |
Supply and other revenue | 76,186 | | | 62,856 | | | 144,863 | | | 118,113 | | |
Total revenue | 606,851 | | | 508,624 | | | 1,169,318 | | | 976,947 | | |
Operating Expenses: | | | | | | | | |
Company-operated store expenses | 257,040 | | | 192,939 | | | 500,449 | | | 370,806 | | |
Independently-operated store expenses | 31,958 | | | 28,843 | | | 61,322 | | | 62,142 | | |
Advertising expenses | 24,749 | | | 22,091 | | | 46,426 | | | 41,789 | | |
Supply and other expenses | 42,106 | | | 35,800 | | | 79,372 | | | 68,574 | | |
Selling, general, and administrative expenses | 96,815 | | | 97,977 | | | 209,143 | | | 190,197 | | |
Acquisition related costs | 3,750 | | | 3,338 | | | 5,597 | | | 7,656 | | |
Store opening costs | 1,377 | | | 666 | | | 2,402 | | | 1,172 | | |
Depreciation and amortization | 45,419 | | | 38,087 | | | 83,617 | | | 71,110 | | |
Trade name impairment | — | | | 125,450 | | | — | | | 125,450 | | |
Asset impairment charges and lease terminations | |
| Asset impairment charges and lease terminations | |
| Asset impairment charges and lease terminations | Asset impairment charges and lease terminations | 6,044 | | | (882) | | | 6,211 | | | 16 | | |
Total operating expenses | Total operating expenses | 509,258 | | | 544,309 | | | 994,539 | | | 938,912 | | |
Operating income (loss) | 97,593 | | | (35,685) | | | 174,779 | | | 38,035 | | |
Total operating expenses | |
Total operating expenses | |
Operating income | |
Operating income | |
Operating income | |
Other expenses, net: | |
Other expenses, net: | |
Other expenses, net: | Other expenses, net: | | | | | | | | |
Interest expense, net | Interest expense, net | 40,871 | | | 26,270 | | | 79,012 | | | 51,623 | | |
(Gain) loss on foreign currency transactions | (1,302) | | | 13,937 | | | (2,977) | | | 14,908 | | |
Interest expense, net | |
Interest expense, net | |
Loss (gain) on foreign currency transactions | |
Loss (gain) on foreign currency transactions | |
Loss (gain) on foreign currency transactions | |
| Other expense, net | Other expense, net | 39,569 | | | 40,207 | | | 76,035 | | | 66,531 | | |
Income (loss) before taxes | 58,024 | | | (75,892) | | | 98,744 | | | (28,496) | | |
Income tax expense (benefit) | 20,275 | | | (18,848) | | | 31,246 | | | (5,880) | | |
Net income (loss) | 37,749 | | | (57,044) | | | 67,498 | | | (22,616) | | |
Net loss attributable to non-controlling interest | — | | | — | | | — | | | (15) | | |
Net income (loss) attributable to Driven Brands Holdings Inc. | $ | 37,749 | | | $ | (57,044) | | | $ | 67,498 | | | $ | (22,601) | | |
| Earnings (loss) per share: | | |
Other expense, net | |
| Other expense, net | |
Income before taxes | |
Income before taxes | |
Income before taxes | |
Income tax expense | |
Income tax expense | |
Income tax expense | |
Net income | |
Net income | |
Net income | |
Net income attributable to non-controlling interest | |
Net income attributable to non-controlling interest | |
Net income attributable to non-controlling interest | |
Net income attributable to Driven Brands Holdings Inc. | |
Net income attributable to Driven Brands Holdings Inc. | |
Net income attributable to Driven Brands Holdings Inc. | |
| Earnings per share: | |
| Earnings per share: | |
| Earnings per share: | |
Basic | |
Basic | |
Basic | Basic | $ | 0.23 | | | $ | (0.34) | | | $ | 0.41 | | | $ | (0.14) | | |
Diluted | Diluted | $ | 0.22 | | | $ | (0.34) | | | $ | 0.40 | | | $ | (0.14) | | |
Diluted | |
Diluted | |
Weighted average shares outstanding | |
Weighted average shares outstanding | |
Weighted average shares outstanding | Weighted average shares outstanding | | |
Basic | Basic | 162,911 | | | 162,781 | | | 162,848 | | | 162,772 | | |
Basic | |
Basic | |
Diluted | |
Diluted | |
Diluted | Diluted | 166,888 | | | 162,781 | | | 166,882 | | | 162,772 | | |
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The accompanying notes are an integral part of these unaudited consolidated financial statements.
DRIVEN BRANDS HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended | | Six Months Ended | | |
(in thousands) | | | | | July 01, 2023 | | June 25, 2022 | | July 01, 2023 | | June 25, 2022 | | | | |
Net income (loss) | | | | | $ | 37,749 | | | $ | (57,044) | | | $ | 67,498 | | | $ | (22,616) | | | | | |
Other comprehensive income (loss): | | | | | | | | | | | | | | | |
Foreign currency translation adjustments | | | | | 6,165 | | | (42,114) | | | 17,516 | | | (47,688) | | | | | |
Unrealized (loss) gain from cash flow hedges, net of tax benefit of ($19), ($26), ($21), and ($26), respectively | | | | | 222 | | | (225) | | | 22 | | | (93) | | | | | |
Actuarial (loss) gain of defined (benefit) expense pension plan, net of tax expense of $0, | | | | | (4) | | | 7 | | | 12 | | | 7 | | | | | |
Other comprehensive income (loss), net | | | | | 6,383 | | | (42,332) | | | 17,550 | | | (47,774) | | | | | |
Total comprehensive income (loss) | | | | | 44,132 | | | (99,376) | | | 85,048 | | | (70,390) | | | | | |
Comprehensive income (loss) attributable to non-controlling interests | | | | | 14 | | | (19) | | | 13 | | | (21) | | | | | |
Comprehensive income (loss) attributable to Driven Brands Holdings Inc. | | | | | $ | 44,118 | | | $ | (99,357) | | | $ | 85,035 | | | $ | (70,369) | | | | | |
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| | | Three Months Ended | | | | |
(in thousands) | | | | | March 30, 2024 | | April 1, 2023 | | | | | | | | | | |
Net income | | | | | $ | 4,261 | | | $ | 29,749 | | | | | | | | | | | |
Other comprehensive (loss) income: | | | | | | | | | | | | | | | | | |
Foreign currency translation adjustments | | | | | (15,907) | | | 11,351 | | | | | | | | | | | |
Unrealized loss from cash flow hedges, net of tax expense (benefit) of $15 and ($2), respectively | | | | | (617) | | | (200) | | | | | | | | | | | |
Actuarial (loss) gain of defined pension plan, net of tax expense of $0 and $0, respectively | | | | | (8) | | | 16 | | | | | | | | | | | |
Other comprehensive (loss) income, net | | | | | (16,532) | | | 11,167 | | | | | | | | | | | |
Total comprehensive (loss) income | | | | | (12,271) | | | 40,916 | | | | | | | | | | | |
Comprehensive loss attributable to non-controlling interests | | | | | — | | | (1) | | | | | | | | | | | |
Comprehensive (loss) income attributable to Driven Brands Holdings Inc. | | | | | $ | (12,271) | | | $ | 40,917 | | | | | | | | | | | |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
DRIVEN BRANDS HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
| | | | | | | | | | | |
(in thousands, except share and per share amounts) | July 1, 2023 | | December 31, 2022 |
Assets | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 212,123 | | | $ | 227,110 | |
Restricted cash | 657 | | | 792 | |
Accounts and notes receivable, net | 200,377 | | | 179,888 | |
Inventory | 83,036 | | | 72,040 | |
Prepaid and other assets | 52,353 | | | 40,084 | |
Income tax receivable | 14,344 | | | 15,075 | |
| | | |
Advertising fund assets, restricted | 51,210 | | | 36,421 | |
Total current assets | 614,100 | | | 571,410 | |
Other assets | 36,923 | | | 30,561 | |
Property and equipment, net | 1,677,804 | | | 1,545,738 | |
Operating lease right-of-use assets | 1,449,708 | | | 1,299,189 | |
Deferred commissions | 6,400 | | | 7,121 | |
Intangibles, net | 755,990 | | | 765,903 | |
Goodwill | 2,299,953 | | | 2,277,065 | |
Deferred tax assets | 3,030 | | | 2,911 | |
Total assets | $ | 6,843,908 | | | $ | 6,499,898 | |
Liabilities and shareholders' equity | | | |
Current liabilities: | | | |
Accounts payable | $ | 81,751 | | | $ | 60,606 | |
Accrued expenses and other liabilities | 311,352 | | | 317,318 | |
Income tax payable | 3,145 | | | 4,454 | |
Current portion of long-term debt | 32,044 | | | 32,986 | |
Income tax receivable liability | 53,781 | | | 53,328 | |
Advertising fund liabilities | 36,910 | | | 36,726 | |
Total current liabilities | 518,983 | | | 505,418 | |
Long-term debt | 2,779,511 | | | 2,705,281 | |
Deferred tax liabilities | 297,884 | | | 276,749 | |
Operating lease liabilities | 1,320,670 | | | 1,177,501 | |
Income tax receivable liability | 117,915 | | | 117,915 | |
Deferred revenue | 30,155 | | | 30,046 | |
Long-term accrued expenses and other liabilities | 31,132 | | | 33,419 | |
Total liabilities | 5,096,250 | | | 4,846,329 | |
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Preferred Stock $0.01 par value; 100,000,000 shares authorized; none issued or outstanding | — | | | — | |
Common stock, $0.01 par value, 900,000,000 shares authorized: and 167,366,561 and 167,404,047 shares outstanding; respectively | 1,674 | | | 1,674 | |
Additional paid-in capital | 1,637,945 | | | 1,628,904 | |
Retained earnings | 152,293 | | | 84,795 | |
Accumulated other comprehensive loss | (44,898) | | | (62,435) | |
Total shareholders’ equity attributable to Driven Brands Holdings Inc. | 1,747,014 | | | 1,652,938 | |
Non-controlling interests | 644 | | | 631 | |
Total shareholders' equity | 1,747,658 | | | 1,653,569 | |
Total liabilities and shareholders' equity | $ | 6,843,908 | | | $ | 6,499,898 | |
| | | | | | | | | | | |
(in thousands, except share and per share amounts) | March 30, 2024 | | December 30, 2023 |
Assets | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 165,513 | | | $ | 176,522 | |
Restricted cash | 657 | | | 657 | |
Accounts and notes receivable, net | 165,992 | | | 151,259 | |
Inventory | 82,875 | | | 83,171 | |
Prepaid and other assets | 49,901 | | | 46,714 | |
Income tax receivable | 7,337 | | | 15,928 | |
Assets held for sale | 290,818 | | | 301,229 | |
Advertising fund assets, restricted | 52,711 | | | 45,627 | |
Total current assets | 815,804 | | | 821,107 | |
Other assets | 90,175 | | | 56,565 | |
Property and equipment, net | 1,425,882 | | | 1,438,496 | |
Operating lease right-of-use assets | 1,383,400 | | | 1,389,316 | |
Deferred commissions | 6,643 | | | 6,312 | |
Intangibles, net | 729,354 | | | 739,402 | |
Goodwill | 1,435,618 | | | 1,455,946 | |
Deferred tax assets | 3,453 | | | 3,660 | |
Total assets | $ | 5,890,329 | | | $ | 5,910,804 | |
Liabilities and shareholders' equity | | | |
Current liabilities: | | | |
Accounts payable | $ | 82,843 | | | $ | 67,526 | |
Accrued expenses and other liabilities | 246,522 | | | 242,171 | |
Income tax payable | 2,022 | | | 5,404 | |
Current portion of long-term debt | 33,020 | | | 32,673 | |
Income tax receivable liability | 41,437 | | | 56,001 | |
Advertising fund liabilities | 33,208 | | | 23,392 | |
Total current liabilities | 439,052 | | | 427,167 | |
Long-term debt | 2,905,033 | | | 2,910,812 | |
Deferred tax liabilities | 149,931 | | | 154,742 | |
Operating lease liabilities | 1,319,936 | | | 1,332,519 | |
Income tax receivable liability | 108,215 | | | 117,915 | |
Deferred revenue | 32,159 | | | 30,507 | |
Long-term accrued expenses and other liabilities | 29,187 | | | 30,419 | |
Total liabilities | 4,983,513 | | | 5,004,081 | |
Commitments and contingencies (Note 12) | | | |
Preferred Stock $0.01 par value; 100,000,000 shares authorized; none issued or outstanding | — | | | — | |
Common stock, $0.01 par value, 900,000,000 shares authorized: and 164,079,581 and 163,965,231 shares outstanding; respectively | 1,641 | | | 1,640 | |
Additional paid-in capital | 1,664,764 | | | 1,652,401 | |
Accumulated deficit | (705,826) | | | (710,087) | |
Accumulated other comprehensive loss | (54,407) | | | (37,875) | |
Total shareholders’ equity attributable to Driven Brands Holdings Inc. | 906,172 | | | 906,079 | |
Non-controlling interests | 644 | | | 644 | |
Total shareholders' equity | 906,816 | | | 906,723 | |
Total liabilities and shareholders' equity | $ | 5,890,329 | | | $ | 5,910,804 | |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
DRIVEN BRANDS HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’/MEMBERS’ EQUITY (Unaudited) | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended |
| July 1, 2023 | | June 25, 2022 |
(in thousands, except share amounts) | Shares | | Amount | | Shares | | Amount |
Preferred stock, $0.01 par value per share | — | | | $ | — | | | — | | | $ | — | |
Common stock, $0.01 par value per share | | | | | | | |
Balance at beginning of period | 167,560,449 | | | $ | 1,675 | | | 167,506,829 | | | $ | 1,675 | |
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Shares issued for exercise/vesting of share-based compensation awards | 48,259 | | | 1 | | | 5,745 | | | — | |
Forfeiture of restricted stock awards | (242,147) | | | (2) | | | (68,466) | | | (1) | |
Balance at end of period | 167,366,561 | | | $ | 1,674 | | | 167,444,108 | | | $ | 1,674 | |
Additional paid-in capital | | | | | | | |
Balance at beginning of period | | | $ | 1,633,460 | | | | | $ | 1,610,585 | |
Equity-based compensation expense | | | 4,485 | | | | | 4,233 | |
Exercise of stock options | | | — | | | | | 109 | |
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Balance at end of period | | | $ | 1,637,945 | | | | | $ | 1,614,927 | |
Retained earnings | | | | | | | |
Balance at beginning of period | | | $ | 114,544 | | | | | $ | 76,050 | |
Net income (loss) | | | 37,749 | | | | | (57,044) | |
Balance at end of period | | | $ | 152,293 | | | | | $ | 19,006 | |
Accumulated other comprehensive income (loss) | | | | | | | |
Balance at beginning of period | | | $ | (51,267) | | | | | $ | (10,483) | |
Other comprehensive income (loss) | | | 6,369 | | | | | (42,313) | |
Balance at end of period | | | $ | (44,898) | | | | | $ | (52,796) | |
Non-controlling interests | | | | | | | |
Balance at beginning of period | | | $ | 630 | | | | | $ | 665 | |
| | | | | | | |
Other comprehensive income (loss) | | | 14 | | | | | (19) | |
| | | | | | | |
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Balance at end of period | | | $ | 644 | | | | | $ | 646 | |
| | | | | | | |
Total shareholders’ equity | | | $ | 1,747,658 | | | | | $ | 1,583,457 | |
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| Three Months Ended | |
| March 30, 2024 | | April 1, 2023 | | |
(in thousands, except share amounts) | Shares | | Amount | | Shares | | Amount | | | | |
Preferred stock, $0.01 par value per share | — | | | $ | — | | | — | | | $ | — | | | | | |
Common stock, $0.01 par value per share | | | | | | | | | | | |
Balance at beginning of period | 163,965,231 | | | $ | 1,640 | | | 167,404,047 | | | $ | 1,674 | | | | | |
Stock issued relating to Employee Stock Purchase Plan | 43,764 | | | — | | | 26,358 | | — | | | | | |
Shares issued for exercise/vesting of equity-based compensation awards | 170,172 | | | 2 | | | 130,044 | | | 1 | | | | | |
| | | | | | | | | | | |
Forfeiture of restricted stock awards | (99,586) | | | (1) | | | — | | | — | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Balance at end of period | 164,079,581 | | | $ | 1,641 | | | 167,560,449 | | | $ | 1,675 | | | | | |
Additional paid-in capital | | | | | | | | | | | |
Balance at beginning of period | | | $ | 1,652,401 | | | | | $ | 1,628,904 | | | | | |
Equity-based compensation expense | | | 11,861 | | | | | 2,564 | | | | | |
Exercise of stock options | | | — | | | | | 1,380 | | | | | |
Stock issued relating to Employee Stock Purchase Plan | | | 502 | | | | | 612 | | | | | |
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Balance at end of period | | | $ | 1,664,764 | | | | | $ | 1,633,460 | | | | | |
(Accumulated deficit) retained earnings | | | | | | | | | | | |
Balance at beginning of period | | | $ | (710,087) | | | | | $ | 84,795 | | | | | |
Net Income | | | 4,261 | | | | | 29,749 | | | | | |
| | | | | | | | | | | |
Balance at end of period | | | $ | (705,826) | | | | | $ | 114,544 | | | | | |
Accumulated other comprehensive loss | | | | | | | | | | | |
Balance at beginning of period | | | $ | (37,875) | | | | | $ | (62,435) | | | | | |
Other comprehensive (loss) income | | | (16,532) | | | | | 11,168 | | | | | |
Balance at end of period | | | $ | (54,407) | | | | | $ | (51,267) | | | | | |
Non-controlling interests | | | | | | | | | | | |
Balance at beginning of period | | | $ | 644 | | | | | $ | 631 | | | | | |
| | | | | | | | | | | |
Other comprehensive loss | | | — | | | | | (1) | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Balance at end of period | | | $ | 644 | | | | | $ | 630 | | | | | |
| | | | | | | | | | | |
Total shareholders’ equity | | | $ | 906,816 | | | | | $ | 1,699,042 | | | | | |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
DRIVEN BRANDS HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’/MEMBERS’ EQUITY (Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Six months ended |
| July 1, 2023 | | June 25, 2022 |
(in thousands, except share amounts) | Shares | | Amount | | Shares | | Amount |
Preferred stock, $0.01 par value per share | — | | | $ | — | | | — | | | $ | — | |
Common stock, $0.01 par value per share | | | | | | | |
Balance at beginning of period | 167,404,047 | | | $ | 1,674 | | | 167,380,450 | | | $ | 1,674 | |
Stock issued relating to Employee Stock Purchase Plan | 26,358 | | | — | | | 111,924 | | | 1 | |
Shares issued for exercise/vesting of share-based compensation awards | 178,303 | | | 2 | | | 20,200 | | | — | |
Forfeiture of restricted stock awards | (242,147) | | | (2) | | | (68,466) | | | (1) | |
Balance at end of period | 167,366,561 | | | $ | 1,674 | | | 167,444,108 | | | $ | 1,674 | |
Additional paid-in capital | | | | | | | |
Balance at beginning of period | | | $ | 1,628,904 | | | | | $ | 1,605,890 | |
Equity-based compensation expense | | | 7,049 | | | | | 6,851 | |
Exercise of stock options | | | 1,500 | | | | | 2,200 | |
Stock issued relating to Employee Stock Purchase Plan | | | 612 | | | | | — | |
Tax withholding equity-based transactions | | | (120) | | | | | (14) | |
Balance at end of period | | | $ | 1,637,945 | | | | | $ | 1,614,927 | |
Retained earnings | | | | | | | |
Balance at beginning of period | | | $ | 84,795 | | | | | $ | 41,607 | |
Net income (loss) | | | 67,498 | | | | | (22,601) | |
Balance at end of period | | | $ | 152,293 | | | | | $ | 19,006 | |
Accumulated other comprehensive income (loss) | | | | | | | |
Balance at beginning of period | | | $ | (62,435) | | | | | $ | (5,028) | |
Other comprehensive income (loss) | | | 17,537 | | | | | (47,768) | |
Balance at end of period | | | $ | (44,898) | | | | | $ | (52,796) | |
Non-controlling interests | | | | | | | |
Balance at beginning of period | | | $ | 631 | | | | | $ | 1,099 | |
Net loss | | | — | | | | | (15) | |
Other comprehensive income (loss) | | | 13 | | | | | (6) | |
Divestiture of Denmark car wash operations | | | — | | | | | (432) | |
| | | | | | | |
Balance at end of period | | | $ | 644 | | | | | $ | 646 | |
| | | | | | | |
Total shareholders’ equity | | | $ | 1,747,658 | | | | | $ | 1,583,457 | |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
DRIVEN BRANDS HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
| | Three Months Ended | |
| Three Months Ended | |
| Three Months Ended | |
(in thousands) | |
Net income | |
Net income | |
Net income | |
Adjustments to reconcile net income to net cash provided by operating activities: | |
Adjustments to reconcile net income to net cash provided by operating activities: | |
Adjustments to reconcile net income to net cash provided by operating activities: | |
Depreciation and amortization | |
Depreciation and amortization | |
Depreciation and amortization | |
| | | Six Months Ended |
(in thousands) | July 01, 2023 | | June 25, 2022 |
Net income (loss) | $ | 67,498 | | | $ | (22,616) | |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |
Depreciation and amortization | 83,617 | | | 71,110 | |
Trade name impairment | �� | | | 125,450 | |
| Equity-based compensation expense | Equity-based compensation expense | 7,049 | | | 6,851 | |
(Gain) loss on foreign denominated transactions | (1,723) | | | 14,908 | |
| Equity-based compensation expense | |
| Equity-based compensation expense | |
Loss on foreign denominated transactions | |
Loss on foreign denominated transactions | |
Loss on foreign denominated transactions | |
Gain on foreign currency derivatives | Gain on foreign currency derivatives | (1,254) | | | — | |
Gain on sale of businesses, fixed assets, and sale-leaseback transactions | (12,230) | | | (9,059) | |
Gain on foreign currency derivatives | |
Gain on foreign currency derivatives | |
Loss (gain) on sale and disposal of businesses, fixed assets, and sale-leaseback transactions | |
Loss (gain) on sale and disposal of businesses, fixed assets, and sale-leaseback transactions | |
Loss (gain) on sale and disposal of businesses, fixed assets, and sale-leaseback transactions | |
Reclassification of interest rate hedge to income | |
Reclassification of interest rate hedge to income | |
Reclassification of interest rate hedge to income | Reclassification of interest rate hedge to income | (1,039) | | | — | |
Bad debt expense | Bad debt expense | 602 | | | 936 | |
Asset impairment costs | 6,211 | | | 16 | |
Bad debt expense | |
Bad debt expense | |
Asset impairment charges and lease terminations | |
Asset impairment charges and lease terminations | |
Asset impairment charges and lease terminations | |
Amortization of deferred financing costs and bond discounts | Amortization of deferred financing costs and bond discounts | 4,343 | | | 4,565 | |
Provision (benefit) for deferred income taxes | 18,812 | | | (31,908) | |
Amortization of deferred financing costs and bond discounts | |
Amortization of deferred financing costs and bond discounts | |
Amortization of cloud computing | |
Amortization of cloud computing | |
Amortization of cloud computing | |
(Benefit) provision for deferred income taxes | |
(Benefit) provision for deferred income taxes | |
(Benefit) provision for deferred income taxes | |
| Other, net | |
| Other, net | |
| Other, net | Other, net | 9,641 | | | 9,681 | |
Changes in assets and liabilities, net of acquisitions: | Changes in assets and liabilities, net of acquisitions: | |
Changes in assets and liabilities, net of acquisitions: | |
Changes in assets and liabilities, net of acquisitions: | |
Accounts and notes receivable, net | |
Accounts and notes receivable, net | |
Accounts and notes receivable, net | Accounts and notes receivable, net | (30,373) | | | (59,579) | |
Inventory | Inventory | (11,108) | | | (6,899) | |
Inventory | |
Inventory | |
Prepaid and other assets | |
Prepaid and other assets | |
Prepaid and other assets | Prepaid and other assets | (7,894) | | | (19,082) | |
Advertising fund assets and liabilities, restricted | Advertising fund assets and liabilities, restricted | (8,768) | | | (1,321) | |
Other Assets | (25,456) | | | (1,882) | |
Advertising fund assets and liabilities, restricted | |
Advertising fund assets and liabilities, restricted | |
Other assets | |
Other assets | |
Other assets | |
Deferred commissions | |
Deferred commissions | |
Deferred commissions | Deferred commissions | 330 | | | (178) | |
Deferred revenue | Deferred revenue | 1,585 | | | 497 | |
Deferred revenue | |
Deferred revenue | |
Accounts payable | |
Accounts payable | |
Accounts payable | Accounts payable | 16,231 | | | 20,209 | |
Accrued expenses and other liabilities | Accrued expenses and other liabilities | (1,171) | | | (45,950) | |
Accrued expenses and other liabilities | |
Accrued expenses and other liabilities | |
Income tax receivable | |
Income tax receivable | |
Income tax receivable | Income tax receivable | (320) | | | 19,640 | |
| Cash provided by operating activities | Cash provided by operating activities | 114,583 | | | 75,389 | |
| Cash provided by operating activities | |
| Cash provided by operating activities | |
Cash flows from investing activities: | |
Cash flows from investing activities: | |
Cash flows from investing activities: | Cash flows from investing activities: | | | |
Capital expenditures | Capital expenditures | (320,071) | | | (148,763) | |
Capital expenditures | |
Capital expenditures | |
Cash used in business acquisitions, net of cash acquired | Cash used in business acquisitions, net of cash acquired | (44,868) | | | (394,388) | |
Cash used in business acquisitions, net of cash acquired | |
Cash used in business acquisitions, net of cash acquired | |
Proceeds from sale-leaseback transactions | |
Proceeds from sale-leaseback transactions | |
Proceeds from sale-leaseback transactions | Proceeds from sale-leaseback transactions | 143,622 | | | 56,083 | |
| Proceeds from sale or disposal of businesses and fixed assets | Proceeds from sale or disposal of businesses and fixed assets | 217 | | | 2,183 | |
| Proceeds from sale or disposal of businesses and fixed assets | |
| Proceeds from sale or disposal of businesses and fixed assets | |
Cash used in investing activities | |
Cash used in investing activities | |
Cash used in investing activities | Cash used in investing activities | (221,100) | | | (484,885) | |
Cash flows from financing activities: | Cash flows from financing activities: | | | |
Cash flows from financing activities: | |
Cash flows from financing activities: | |
| | Repayment of long-term debt | |
| Repayment of long-term debt | |
| Repayment of long-term debt | Repayment of long-term debt | (13,961) | | | (9,682) | |
Proceeds from revolving lines of credit and short-term debt | Proceeds from revolving lines of credit and short-term debt | 230,000 | | | 105,000 | |
Repayments of revolving lines of credit and short-term debt | (120,000) | | | — | |
Proceeds from revolving lines of credit and short-term debt | |
Proceeds from revolving lines of credit and short-term debt | |
Repayment of revolving lines of credit and short-term debt | |
Repayment of revolving lines of credit and short-term debt | |
Repayment of revolving lines of credit and short-term debt | |
Repayment of principal portion of finance lease liability | Repayment of principal portion of finance lease liability | (1,889) | | | (1,156) | |
| Purchase of equity securities | (716) | | | — | |
| Stock option exercises | 1,758 | | | 188 | |
Other, net | (64) | | | (36) | |
Cash provided by financing activities | 95,128 | | | 94,314 | |
Repayment of principal portion of finance lease liability | |
Repayment of principal portion of finance lease liability | |
| |
| Payment of Tax Receivable Agreement | |
Payment of Tax Receivable Agreement | |
Payment of Tax Receivable Agreement | |
| Stock option exercises | |
| Stock option exercises | |
| Stock option exercises | |
Other, net | |
Other, net | |
Other, net | |
Cash (used in) provided by financing activities | |
Cash (used in) provided by financing activities | |
Cash (used in) provided by financing activities | |
Effect of exchange rate changes on cash | |
Effect of exchange rate changes on cash | |
Effect of exchange rate changes on cash | Effect of exchange rate changes on cash | 2,087 | | | (4,454) | |
Net change in cash, cash equivalents, restricted cash, and cash included in advertising fund assets, restricted | Net change in cash, cash equivalents, restricted cash, and cash included in advertising fund assets, restricted | (9,302) | | | (319,636) | |
Net change in cash, cash equivalents, restricted cash, and cash included in advertising fund assets, restricted | |
Net change in cash, cash equivalents, restricted cash, and cash included in advertising fund assets, restricted | |
Cash and cash equivalents, beginning of period | |
Cash and cash equivalents, beginning of period | |
Cash and cash equivalents, beginning of period | Cash and cash equivalents, beginning of period | 227,110 | | | 523,414 | |
Cash included in advertising fund assets, restricted, beginning of period | Cash included in advertising fund assets, restricted, beginning of period | 32,871 | | | 38,586 | |
Cash included in advertising fund assets, restricted, beginning of period | |
Cash included in advertising fund assets, restricted, beginning of period | |
Restricted cash, beginning of period | |
Restricted cash, beginning of period | |
Restricted cash, beginning of period | Restricted cash, beginning of period | 792 | | | 792 | |
Cash, cash equivalents, restricted cash, and cash included in advertising fund assets, restricted, beginning of period | Cash, cash equivalents, restricted cash, and cash included in advertising fund assets, restricted, beginning of period | 260,773 | | | 562,792 | |
Cash, cash equivalents, restricted cash, and cash included in advertising fund assets, restricted, beginning of period | |
Cash, cash equivalents, restricted cash, and cash included in advertising fund assets, restricted, beginning of period | |
Cash and cash equivalents, end of period | |
Cash and cash equivalents, end of period | |
Cash and cash equivalents, end of period | Cash and cash equivalents, end of period | 212,123 | | | 197,853 | |
Cash included in advertising fund assets, restricted, end of period | Cash included in advertising fund assets, restricted, end of period | 38,691 | | | 44,511 | |
Cash included in advertising fund assets, restricted, end of period | |
Cash included in advertising fund assets, restricted, end of period | |
Restricted cash, end of period | |
Restricted cash, end of period | |
Restricted cash, end of period | Restricted cash, end of period | 657 | | | 792 | |
Cash, cash equivalents, restricted cash, and cash included in advertising fund assets, restricted, end of period | Cash, cash equivalents, restricted cash, and cash included in advertising fund assets, restricted, end of period | $ | 251,471 | | | $ | 243,156 | |
Cash, cash equivalents, restricted cash, and cash included in advertising fund assets, restricted, end of period | |
Cash, cash equivalents, restricted cash, and cash included in advertising fund assets, restricted, end of period | |
|
| | | | | | | | | | | |
Supplemental cash flow disclosures - non-cash items: | | | |
Capital expenditures included in accrued expenses and other liabilities | $ | 43,191 | | | $ | 5,464 | |
Deferred consideration included in accrued expenses and other liabilities | 16,129 | | | 14,227 | |
| | | |
Supplemental cash flow disclosures - cash paid for: | | | |
Interest | $ | 78,955 | | | $ | 51,491 | |
Income taxes | 13,614 | | | 5,457 | |
| | | | | | | | | | | | | |
Supplemental cash flow disclosures - non-cash items: | | | | | |
Capital expenditures included in accrued expenses and other liabilities | $ | 24,060 | | | $ | 39,534 | | | |
Deferred consideration included in accrued expenses and other liabilities | 2,955 | | | $ | 19,069 | | | |
| | | | | |
Supplemental cash flow disclosures - cash paid for: | | | | | |
Interest | $ | 41,784 | | | $ | 37,942 | | | |
Income taxes | 3,721 | | | $ | 5,671 | | | |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
DRIVEN BRANDS HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 1—Description of Business
Description of Business
Driven Brands Holdings Inc. together with its subsidiaries (collectively, the “Company”) is a Delaware corporation and is the parent holding company of Driven Brands, Inc. and Shine Holdco (UK) Limited (collectively, “Driven Brands”). Driven Brands is the largest automotive services company in North America with a growing and highly-franchised base of more than 4,9005,000 franchised, independently-operated, and company-operated locations across 49 U.S. states and 13 other countries. The Company has a portfolio of highly recognized brands, including Take 5 Oil Change®, Take 5 Car Wash®, Meineke Car Care Centers®, MAACO®, CARSTAR®, Auto Glass Now®, and 1-800-Radiator & A/C® that compete in the automotive services industry. Approximately 74% of the Company’s locations are franchised or independently-operated.
Tax Receivable Agreement
The Company expects to be able to utilize certain tax benefits which are related to periods prior to the effective date of the Company’s IPO and are attributed to current and former shareholders. The Company previously entered into a tax receivable agreementTax Receivable Agreement which provides our pre-IPO shareholders with the right to receive payment of 85% of the amount of cash savings, if any, in U.S. and Canadian federal, state, local, and provincial income tax that the Company will actually realize. The tax receivable agreementTax Receivable Agreement was effective as of the date of the Company’s IPO. The Company recorded a current tax receivable liability of $54$41 million and $53$56 million as of July 1, 2023March 30, 2024 and December 31, 2022,30, 2023, respectively, and a non-current tax receivable liability of $108 million and $118 million as of July 1, 2023March 30, 2024 and December 31, 2022,30, 2023, respectively, on the consolidated balance sheets. We made an initial payment of approximately $25 million under the Tax Receivable Agreement in January 2024.
Note 2— Summary of Significant Accounting Policies
Fiscal Year
The Company operates and reports financial information on a 52- or 53-week year with the fiscal year ending on the last Saturday in December and fiscal quarters ending on the 13th Saturday of each quarter (or 14th Saturday when applicable with respect to the fourth fiscal quarter). The three and six months ended JulyMarch 30, 2024 and April 1, 2023 and June 25, 2022, each consisted of 13 weeks and 26 weeks, respectively. The Car Wash segment is currently consolidated based on a calendar month end.
Basis of Presentation
The unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"(“GAAP”) for interim financial information and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission.Commission (“SEC”). In the opinion of management, the unaudited interim financial data includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results of operations, balance sheet, cash flows, and shareholders’/members’ equity for the interim periods presented. The adjustments include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balancesIntercompany accounts and transactions have been eliminated in consolidation.
These unaudited interim consolidated financial statements should be read in conjunction with the consolidated financial statements as of and for the year ended December 31, 2022.30, 2023. Certain information and note disclosures normally included in the unaudited financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. The results of operations for the three and six months ended July 1, 2023March 30, 2024 may not be indicative of the results to be expected for any other interim period or the year ending December 28, 2024.
The three months ended March 30, 2023.
Certain2024 includes an adjustment to the unaudited consolidated balance sheet and consolidated statement of operations that originated in the prior year amounts have been reclassifiedyear. The adjustment decreased both current assets and selling, general, and administrative expenses by $3.7 million. The Company evaluated the materiality of the adjustment on prior period financial statements, recorded the adjustment in the current period, and concluded the effect of the adjustment was immaterial to conform toboth the current year presentation.and prior financial statements.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts in the unaudited consolidated financial statements and the related notes to the unaudited consolidated financial
statements. Significant items that are subject to estimates and assumptions include, but are not limited to, valuation of intangible assets and goodwill; income taxes; allowances for credit losses; valuation of derivatives; self-insurance claims; and stock-basedequity-based compensation. Management evaluates its estimates on an ongoing basis and may employ outside experts to assist in its evaluations. Changes in such estimates, based on historical experience, current conditions, and various other additional information, may affect amounts reported in future periods. Actual results could differ due to uncertainty inherent in the naturesnature of these estimates.
Fair Value of Financial Instruments
Financial assets and liabilities are categorized, based on the inputs to the valuation technique, into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to the quoted prices in active markets for identical assets and liabilities and the lowest priority to unobservable inputs. Observable market data, when available, is required to be used in making fair value measurements. When inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement.
The Company classifies and discloses assets and liabilities carried at fair value in one of the following three categories:
Level 1: Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date;
Level 2: Inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; or
Level 3: Inputs are unobservableUnobservable inputs for the asset or liability. Unobservable inputs are used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.
Financial assets and liabilities measured at fair value on a recurring basis as of July 1, 2023March 30, 2024 and December 31, 202230, 2023 are summarized as follows:
| Items Measured at Fair Value at July 1, 2023 | Items Measured at Fair Value at March 30, 2024 | | Items Measured at Fair Value at March 30, 2024 |
(in thousands) | (in thousands) | Level 1 | | Level 2 | | Total | (in thousands) | Level 1 | | Level 2 | | Total |
Mutual fund investments held in rabbi trust | $ | 207 | | | $ | — | | | $ | 207 | |
| Derivative assets, recorded in other assets | Derivative assets, recorded in other assets | — | | | 560 | | | 560 | |
Derivative liabilities, recorded in accrued expenses and other liabilities | Derivative liabilities, recorded in accrued expenses and other liabilities | — | | | 494 | | | 494 | |
|
| | | | | | | | | | | | | | | | | |
Items Measured at Fair Value at December 31, 2022 |
(in thousands) | Level 1 | | Level 2 | | Total |
Mutual fund investments held in rabbi trust | $ | 758 | | | $ | — | | | $ | 758 | |
Derivative assets, recorded in prepaid and other assets | — | | | 158 | | | 158 | |
Derivative assets, recorded in other assets | — | | | 2,148 | | | 2,148 | |
Derivative liabilities, recorded in accrued expenses and other liabilities | — | | | 5,005 | | | 5,005 | |
The fair value of the Company’s foreign currency derivative instruments is derived from valuation models, which use Level 2 observable inputs such as quoted market prices, interest rates, and forward yield curves. | | | | | | | | | | | | | | | | | |
Items Measured at Fair Value at December 30, 2023 |
(in thousands) | Level 1 | | Level 2 | | Total |
Derivative assets, recorded in other assets | — | | | 285 | | | 285 | |
Derivative liabilities, recorded in accrued expenses and other liabilities | — | | | 493 | | | 493 | |
The carrying value and estimated fair value of total long-term debt were as follows:
| | July 1, 2023 | | December 31, 2022 |
| March 30, 2024 | | | March 30, 2024 | | December 30, 2023 |
(in thousands) | (in thousands) | Carrying value | | Estimated fair value | | Carrying value | | Estimated fair value | (in thousands) | Carrying value | | Estimated fair value | | Carrying value | | Estimated fair value |
Long-term debt | Long-term debt | $ | 2,850,789 | | | $ | 2,592,533 | | | $ | 2,784,175 | | | $ | 2,477,456 | |
Recently Issued Accounting Standards
In March 2020,November 2023, the FASB issued ASU 2020-04,2023-07, Reference Rate Reform (Topic 848): FacilitationImprovements to Reportable Segment Disclosures. The standard enhances segment disclosure requirements of significant segment expenses that are regularly provided to the Effectschief operating decision maker (“CODM”) to assist in understanding how segment expenses and operating results are evaluated. The new standard does not change the definition or aggregation of Reference Rate Reformoperating segments. The standard also expands the interim disclosure requirements on Financial Reporting.a retrospective basis. This ASU provides optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. In response to the concerns about structural risks of interbank offered rates and, particularly, the risk of cessation of LIBOR, regulators in several jurisdictions around the world have undertaken reference rate reform initiatives to identify alternative reference rates that are more observable or transaction based and less susceptible to manipulation. The ASU provides companies with optional guidance to ease the potential accounting burden associated with transitioning away from reference rates that are expected to be discontinued. This guidance is effective immediatelyfor annual periods beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. The Company is evaluating the amendments may be applied prospectively throughimpact of this guidance on its consolidated financial statements and related disclosures.
In December 31, 2024. On June 2, 2023, the Company entered into a loan amendmentFASB issued ASU 2023-09, Improvements to transition ourIncome Tax Disclosures. This ASU improves the transparency of income tax disclosures, including consistent categories and greater disaggregation of information in the tax rate
LIBOR-based loans toreconciliation as well as disaggregation of income taxes paid by jurisdiction. This ASU is effective for annual periods beginning after December 15, 2024, with early adoption permitted for annual financial statements that have not yet been issued or made available for issuance. The Company is evaluating the Secured Overnight Financing Rate (“SOFR”). The amendment went into effectimpact of this guidance on July 1, 2023its consolidated financial statements and did not have a material impact on the loans affected.related disclosures.
Note 3—Acquisitions and DispositionsDivestitures
The Company strategically acquires companies and assets in order to increase its footprint and offer products and services that diversify its existing offerings, primarily through asset purchase agreements. These acquisitions are accounted for as business combinations using the acquisition method, whereby the purchase price is allocated to the assets acquired and liabilities assumed, based on their fair values as of the date of the acquisition with the remaining amount recorded in goodwill.
2024 Acquisitions
The Company completed one acquisition within the Maintenance segment and one acquisition in the international car wash business within the Car Wash segment representing two sites and one site, respectively, for an aggregate total cash consideration, net of cash acquired of less than $2 million.
2023 Acquisitions
The Company completed threetwo acquisitions inwithin the Maintenance segment during the sixthree months ended JulyApril 1, 2023, representing three sites. The aggregate cash consideration for these acquisitions, net of cash acquired and liabilities assumed, was approximately $6 million.
The Company completed two acquisitions in the Car Wash segment during the six months ended July 1, 2023, representing three sites. The aggregate cash consideration for these acquisitions, net of cash acquired and liabilities assumed, was approximately $15 million.
The Company completed two acquisitions in the Paint, Collision & Glass segment during the six months ended July 1, 2023, representing two sites. The aggregate cash consideration for these acquisitions, net of cash acquired and liabilities assumed, was approximately $6$2 million.
The Company completed one acquisition within the Car Wash segment during the three months ended April 1, 2023, representing one site. The aggregate cash consideration for this acquisition, net of cash acquired and liabilities assumed, was approximately $11 million.
The Company estimated the fair value of acquired assets and liabilities as of the date of acquisition based on information currently available. As the Company finalizes the fair value of assets acquired and liabilities assumed, additional purchase price adjustments may be recorded during the measurement period. The provisional amounts for assets acquired and liabilities assumed for the 2023 acquisitions are as follows:
2023Maintenance Segment
| | | | | | | |
(in thousands) | | | Maintenance |
Assets: | | | |
Operating lease right-of-use assets | | | $ | 658 | |
Property and equipment, net | | | 3,7051,655 | |
| Goodwill | | | 2,445 |
Assets acquired | | | 6,8082,313 | |
Liabilities: | | | |
Accrued Expensesexpenses and other liabilities | | | 2017 | |
Operating lease liabilities | | | 641 | |
Total liabilities assumed | | | 661658 | |
Cash consideration, net of cash acquired | | | 5,8622,255 | |
Deferred consideration | | | 28595 | |
Total consideration, net of cash acquired | | | $ | 6,1472,350 | |
Goodwill | | | $ | 695 | |
2023Car Wash Segment
| | | | | | | |
(in thousands) | | | Car Wash |
Assets: | | | |
| | | |
Property and equipment, net | | | $ | 11,0528,270 | |
| Goodwill | | | 3,948 |
Assets acquired | | | 15,0008,270 | |
| | | |
| | | |
| | | |
| | | |
| | | |
Cash consideration, net of cash acquired | | | 10,994 | |
| | | |
Total consideration, net of cash acquired | | | $ | 15,00010,994 | |
Paint, Collision & Glass Segment
| | | | | | | | |
{in thousands) | | | Paint, Collision & Glass | |
Assets: | | | | |
| | | | |
Inventory | | | $ | 35 | | |
Property and equipment, net | | | 667 | |
Goodwill | | | 4,940 | | |
Assets acquired | | | 5,642 | | |
| | | | |
| | | | |
| | | | |
| | | | |
Cash consideration, net of cash acquired | | | 4,947 | | |
Deferred consideration | | | 695 | | |
Total consideration, net of cash acquired | | | $ | 5,6422,724 | | |
Goodwill represents the excess of the consideration paid over the fair value of net assets acquired and includes the expected benefit of synergies within the existing segments and intangible assets that do not qualify for separate recognition. Goodwill, which was allocated to the Car Wash, Maintenance and Paint, Collision & GlassCar Wash segments, is substantially all deductible for income tax purposes.
Deferred Consideration and Transaction Costs
Deferred consideration is typically paid six months to one-year after the acquisition closing date once all conditions under the purchase agreement have been satisfied.
| | | | | | | | | | | | | | | | | |
| Six Months Ended | | | |
(in thousands) | July 1, 2023 | | June 25, 2022 | | | | | | |
Deferred consideration at beginning of period | $ | 35,007 | | | $ | 16,000 | | | | | | | |
Change in accrual | 1,230 | | | 5,552 | | | | | | | |
Payments | (20,108) | | | (7,325) | | | | | | | |
Deferred consideration at end of period | $ | 16,129 | | | $ | 14,227 | | | | | | | |
The Company had $3 million and $19 million of deferred consideration related to acquisitions as of March 30, 2024 and April 1, 2023, respectively. The Company paid less than $1 million and $16 million of deferred consideration related to prior acquisitions during the three months ended March 30, 2024 and April 1, 2023, respectively. Deferred consideration is recorded within investing activities at the time of payment.
The Company incurred less than $1 million and approximately $1 million of transaction costs during each of the three months ended JulyMarch 30, 2024 and April 1, 2023 and June 25, 2022, respectively.2023.
Divestitures
During the three months ended March 30, 2024, the Company sold nine company-operated stores within the Paint, Collision, & Glass segment to a franchisee at a purchase price of $18 million. The Company incurred less than $1 million and approximately $3sold certain store assets as well as allocated $9 million of transaction costs duringPaint, Collision & Glass goodwill based on the six months ended July 1, 2023 and June 25, 2022, respectively.
2022 Disposition
On March 16, 2022, the Company disposed of its 75% owned subsidiary, IMO Denmark ApS, for consideration of $2 million. As a resultfair value of the segment at the time of sale, resulting in a $1gain of $6 million loss was recognizedon the sale of businesses within selling, general, and administrative expenses on the unaudited consolidated statement of operations during the three months ended June 25, 2022. Also, a noncontrolling interest of less than $1 million was derecognized. The Company allocated less than $1 million of goodwill as part of the sale.March 30, 2024.
Note 4— Revenue from Contracts with Customers
The Company records contract assets for the incremental costs of obtaining a contract with a customer if it expects the benefit of those costs to be longer than one year and if such costs are material. Commission expenses, a primary cost associated with the sale of franchise licenses, are amortized to selling, general, and administrative expenses in the unaudited consolidated statements of operations ratably over the life of the associated franchise agreement.
Capitalized costs to obtain a contract as of July 1, 2023March 30, 2024 and December 31, 202230, 2023 were $6$7 million and $7$6 million, respectively, and are presented within deferred commissions on the consolidated balance sheets. The Company recognized less than $1 million of costs during the three and six months ended JulyMarch 30, 2024 and April 1, 2023, andJune 25, 2022respectively, that were recorded as a contract asset at the beginning of the periods.
Contract liabilities consist primarily of deferred franchise fees and deferred development fees. The Company had contract liabilities of $31$32 million and $29$31 million as of July 1, 2023March 30, 2024 and December 31, 2022,30, 2023, respectively, which are presented within deferred revenue on the consolidated balance sheets. The Company recognized $1 million and less than $1 million of revenue relating to contract liabilities during each of the three months ended JulyMarch 30, 2024 and April 1, 2023 and June 25, 2022, respectively. The Company recognized $2 million of revenue relating to contract liabilities during the six months ended July 1, 2023 and June 25, 2022.2023.
Note 5—Segment Information
The Company’s worldwide operations are comprised of the following reportable segments: Maintenance, Car Wash, Paint, Collision & Glass, and Platform Services.
In addition to the reportable segments, the Company’s consolidated financial results include “Corporate and Other” activity. Corporate and Other incurs costs related to the advertising fund revenues and expenses and shared service costs, which are related to finance, information technology,IT, human resources, legal, supply chain, and other support services. Corporate and Other activity includes the adjustments necessary to eliminate certain intercompany transactions, namely sales by the Platform Services segment to the Paint, Collision & Glass and Maintenance segments.
Segment results for the three and six months ended July 1, 2023 and June 25, 2022 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended July 1, 2023 |
(in thousands) | Maintenance | | Car Wash | | Paint, Collision & Glass | | Platform Services | | Corporate and Other | | Total |
Franchise royalties and fees | $ | 14,215 | | | $ | — | | | $ | 26,530 | | | $ | 9,060 | | | $ | — | | | $ | 49,805 | |
Company-operated store sales | 205,673 | | 101,615 | | | 86,110 | | | 1,180 | | | — | | | 394,578 | |
Independently-operated store sales | — | | | 61,533 | | | — | | | — | | | — | | | 61,533 | |
Advertising fund contributions | — | | | — | | | — | | | — | | | 24,749 | | | 24,749 | |
Supply and other revenue | 22,439 | | | 1,607 | | | 20,518 | | | 47,098 | | | (15,476) | | | 76,186 | |
Total revenue | $ | 242,327 | | | $ | 164,755 | | | $ | 133,158 | | | $ | 57,338 | | | $ | 9,273 | | | $ | 606,851 | |
Segment Adjusted EBITDA | $ | 85,753 | | | $ | 43,263 | | | $ | 41,249 | | | $ | 22,537 | | | $ | (40,417) | | | $ | 152,385 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 25, 2022 |
(in thousands) | Maintenance | | Car Wash | | Paint, Collision & Glass | | Platform Services | | Corporate and Other | | Total |
Franchise royalties and fees | $ | 11,326 | | | $ | — | | | $ | 23,605 | | | $ | 9,919 | | | $ | — | | | $ | 44,850 | |
Company-operated store sales | 168,648 | | | 101,796 | | | 52,049 | | | 1,392 | | | — | | | 323,885 | |
Independently-operated store sales | — | | | 54,942 | | | — | | | — | | | — | | | 54,942 | |
Advertising fund contributions | — | | | — | | | — | | | — | | | 22,091 | | | 22,091 | |
Supply and other revenue | 14,331 | | | 1,841 | | | 19,715 | | | 41,891 | | | (14,922) | | | 62,856 | |
Total revenue | $ | 194,305 | | | $ | 158,579 | | | $ | 95,369 | | | $ | 53,202 | | | $ | 7,169 | | | $ | 508,624 | |
Segment Adjusted EBITDA | $ | 64,076 | | | $ | 53,677 | | | $ | 32,916 | | | $ | 20,541 | | | $ | (35,123) | | | $ | 136,087 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six months ended July 1, 2023 |
(in thousands) | Maintenance | | Car Wash | | Paint, Collision & Glass | | Platform Services | | Corporate and Other | | Total |
Franchise royalties and fees | $ | 26,658 | | | $ | — | | | $ | 50,828 | | | $ | 15,834 | | | $ | — | | | $ | 93,320 | |
Company-operated store sales | 400,933 | | | 204,061 | | | 163,589 | | | 2,061 | | | — | | | 770,644 | |
Independently-operated store sales | — | | | 114,065 | | | — | | | — | | | — | | | 114,065 | |
Advertising fund contributions | — | | | — | | | — | | | — | | | 46,426 | | | 46,426 | |
Supply and other revenue | 42,404 | | | 3,609 | | | 39,544 | | | 91,476 | | | (32,170) | | | 144,863 | |
Total revenue | $ | 469,995 | | | $ | 321,735 | | | $ | 253,961 | | | $ | 109,371 | | | $ | 14,256 | | | $ | 1,169,318 | |
Segment Adjusted EBITDA | $ | 158,739 | | | $ | 87,572 | | | $ | 76,961 | | | $ | 39,567 | | | $ | (81,601) | | | $ | 281,238 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six months ended June 25, 2022 |
(in thousands) | Maintenance | | Car Wash | | Paint, Collision & Glass | | Platform Services | | Corporate and Other | | Total |
Franchise royalties and fees | $ | 20,961 | | | $ | — | | | $ | 44,970 | | | $ | 16,807 | | | $ | — | | | $ | 82,738 | |
Company-operated store sales | 325,476 | | | 196,291 | | | 91,965 | | | 2,544 | | | — | | | 616,276 | |
Independently-operated store sales | — | | | 118,031 | | | — | | | — | | | — | | | 118,031 | |
Advertising fund contributions | — | | | — | | | — | | | — | | | 41,789 | | | 41,789 | |
Supply and other revenue | 26,610 | | | 3,532 | | | 37,795 | | | 77,017 | | | (26,841) | | | 118,113 | |
Total revenue | $ | 373,047 | | | $ | 317,854 | | | $ | 174,730 | | | $ | 96,368 | | | $ | 14,948 | | | $ | 976,947 | |
Segment Adjusted EBITDA | $ | 116,561 | | | $ | 109,397 | | | $ | 61,928 | | | $ | 34,706 | | | $ | (67,485) | | | $ | 255,107 | |
Segment results for the three months ended March 30, 2024 and April 1, 2023 are as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended March 30, 2024 |
(in thousands) | Maintenance | | Car Wash | | Paint, Collision & Glass | | Platform Services | | Corporate and Other | | Total |
Franchise royalties and fees | $ | 14,454 | | | $ | — | | | $ | 24,632 | | | $ | 5,959 | | | $ | — | | | $ | 45,045 | |
Company-operated store sales | 220,871 | | | 90,227 | | | 62,509 | | | 849 | | | — | | | 374,456 | |
Independently-operated store sales | — | | | 53,047 | | | — | | | — | | | — | | | 53,047 | |
Advertising fund contributions | — | | | — | | | — | | | — | | | 24,070 | | | 24,070 | |
Supply and other revenue | 26,388 | | | 1,448 | | | 19,247 | | | 47,018 | | | (18,493) | | | 75,608 | |
Total net revenue | $ | 261,713 | | | $ | 144,722 | | | $ | 106,388 | | | $ | 53,826 | | | $ | 5,577 | | | $ | 572,226 | |
Segment Adjusted EBITDA | $ | 91,436 | | | $ | 29,134 | | | $ | 30,820 | | | $ | 19,871 | | | $ | (38,980) | | | $ | 132,281 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended April 1, 2023 |
(in thousands) | Maintenance | | Car Wash | | Paint, Collision & Glass | | Platform Services | | Corporate and Other | | Total |
Franchise royalties and fees | $ | 12,443 | | | $ | — | | | $ | 24,298 | | | $ | 6,774 | | | $ | — | | | $ | 43,515 | |
Company-operated store sales | 195,260 | | | 102,446 | | | 77,479 | | | 881 | | | — | | | 376,066 | |
Independently-operated store sales | — | | | 52,532 | | | — | | | — | | | — | | | 52,532 | |
Advertising fund contributions | — | | | — | | | — | | | — | | | 21,677 | | | 21,677 | |
Supply and other revenue | 19,965 | | | 2,002 | | | 19,026 | | | 44,378 | | | (16,694) | | | 68,677 | |
Total net revenue | $ | 227,668 | | | $ | 156,980 | | | $ | 120,803 | | | $ | 52,033 | | | $ | 4,983 | | | $ | 562,467 | |
Segment Adjusted EBITDA | $ | 72,233 | | | $ | 41,048 | | | $ | 35,450 | | | $ | 17,008 | | | $ | (41,251) | | | $ | 124,488 | |
The reconciliations of Income before taxes to Segment Adjusted EBITDA for the three and six months ended JulyMarch 30, 2024 and April 1, 2023 and June 25, 2022 are as follows:
| | Three Months Ended | |
| Three Months Ended | |
| Three Months Ended | |
(in thousands) | |
(in thousands) | |
(in thousands) | |
Income before taxes | |
Income before taxes | |
Income before taxes | |
Depreciation and amortization | |
Depreciation and amortization | |
Depreciation and amortization | |
Interest expense, net | |
Interest expense, net | |
Interest expense, net | |
Acquisition related costs(a) | |
Acquisition related costs(a) | |
Acquisition related costs(a) | |
Non-core items and project costs, net(b) | |
Non-core items and project costs, net(b) | |
Non-core items and project costs, net(b) | |
Store opening costs | |
Store opening costs | |
Store opening costs | |
| | | Three Months Ended | | Six Months Ended | |
(in thousands) | July 1, 2023 | | June 25, 2022 | | July 1, 2023 | | June 25, 2022 | |
Income (loss) before taxes | $ | 58,024 | | | $ | (75,892) | | | $ | 98,744 | | | $ | (28,496) | | |
Depreciation and amortization | 45,419 | | | 38,087 | | | 83,617 | | | 71,110 | | |
Interest expense, net | 40,871 | | | 26,270 | | | 79,012 | | | 51,623 | | |
Acquisition related costs(a) | 3,750 | | | 3,338 | | | 5,597 | | | 7,656 | | |
Non-core items and project costs, net(b) | 2,803 | | | 1,719 | | | 4,627 | | | 2,585 | | |
Store opening costs | 1,377 | | | 666 | | | 2,402 | | | 1,172 | | |
Cloud computing amortization(c) | |
| Straight-line rent adjustment(c) | 4,638 | | | 4,217 | | | 9,003 | | | 8,310 | | |
| Cloud computing amortization(c) | |
| Cloud computing amortization(c) | |
Equity-based compensation expense(d) | Equity-based compensation expense(d) | 4,485 | | | 4,233 | | | 7,049 | | | 6,851 | | |
Foreign currency transaction (gain) / loss, net(e) | (1,302) | | | 13,937 | | | (2,977) | | | 14,908 | | |
Equity-based compensation expense(d) | |
Equity-based compensation expense(d) | |
Foreign currency transaction (gain) loss, net(e) | |
Foreign currency transaction (gain) loss, net(e) | |
Foreign currency transaction (gain) loss, net(e) | |
| Trade name impairment(f) | — | | | 125,450 | | | — | | | 125,450 | | |
Asset sale leaseback loss (gain), impairment and closed store expenses(g) | (7,680) | | | (5,938) | | | (5,836) | | | (6,062) | | |
| Asset sale leaseback (gain) loss, impairment and closed store expenses(f) | |
| Asset sale leaseback (gain) loss, impairment and closed store expenses(f) | |
| Asset sale leaseback (gain) loss, impairment and closed store expenses(f) | |
| Segment Adjusted EBITDA | Segment Adjusted EBITDA | $ | 152,385 | | | $ | 136,087 | | | $ | 281,238 | | | $ | 255,107 | | |
| Segment Adjusted EBITDA | |
| Segment Adjusted EBITDA | |
(a) Consists of acquisition costs as reflected within the unaudited consolidated statements of operations, including legal, consulting and other fees, and expenses incurred in connection with acquisitions completed during the applicable period, as well as inventory rationalization expenses incurred in connection with acquisitions. We expect to incur similar costs in
connection with other acquisitions in the future and, under U.S. GAAP, such costs relating to acquisitions are expensed as incurred and not capitalized.incurred.
(b) Consists of discrete items and project costs, including third party consulting and professional fees associated with strategic transformation initiatives as well as non-recurring payroll-related costs.
(c) Consists of theIncludes non-cash portion of rent expense, which reflects the extent to which our straight-line rent expense recognized under U.S. GAAP exceeds or is less than our cash rent payments.amortization expenses relating cloud computing arrangements.
(d) Represents non-cash equity-based compensation expense.
(e) Represents foreign currency transaction (gains) losses, net that primarily related to the remeasurement of our intercompany loans which are partially offset by unrealizedas well as gains and losses on remeasurement of cross currency swaps and forward contracts.
(f) Relates to an impairment of certain Car Wash trade names as the Company elected to discontinue their use.
(g) Relates to (gains) losses, net on sale leasebacks, impairment of certain fixed assets and operating lease right-of-use assets related to closed and underperforming locations, assets held for sale, and lease exit costs and other costs associated with stores that were closed prior to the respective lease termination dates. Refer to
Note 6 for additional information.Note 6 —Other Intangible 6—Assets Held For Sale
During 2023, management performed an initial strategic review of the U.S. car wash operations, which included, but was not limited to, an evaluation of the following: store performance, the competitive landscape, revenue and expense optimization opportunities, and capital requirements. As a result of this strategic review, management approved the closure of 29 stores, halted the opening of new company-operated stores, and began marketing property and equipment for sale that will not be utilized by the Company. These actions resulted in the transfer of assets from property and equipment to assets held for sale during the third quarter of 2023.
The Company has acquired a numberchanges in assets held for sale were as follows:
| | | | | |
(in thousands) | |
Balance at December 30, 2023 | $ | 301,229 | |
Additions | 38,892 | |
Impairments | (18,347) | |
Sales and disposals | (30,956) | |
Balance at March 30, 2024 | $ | 290,818 | |
During the three months ending March 30, 2024, management continued to enhance properties included within held for sale resulting in additions of car wash businesses since 2020. As part of those acquisitions,$39 million. Management evaluated the Company determined a fair value for eachall assets included within held for sale, which resulted in an impairment of $18 million for the associated intangible assets including trade names and customer relationships. Duringthree months ended March 30, 2024. In addition, during the quarterthree months ended June 25 2022,March 30, 2024, the Company made the strategic decisionsold 13 locations resulting in a net gain of $6 million. The Company will continue to rebrand the majority of its U.S. car wash locations to operate under the name “Take 5 Car Wash”, and therefore discontinued the use of certain car wash trade names that were previously determined to have indefinite lives. Using a projected discounted cash flow analysis based on the relief from royalty method,evaluate the fair value of the trade names was determined to be $6 million while their carrying value was $131.5 million. As aassets held for sale, which may result the Company recognized a $125.5 million impairment charge, which is reported as trade name impairment chargein additional impairments based on unfavorable market or other economical factors in the unaudited consolidated statement of operations. The transition will take approximately two and a half years to complete from the date of impairment, and therefore the remaining carrying value is being amortized over 30 months.future.
Note 7—7 — Long-Term Debt
The Company’s long-term debt obligations consist of the following:
| (in thousands) | (in thousands) | July 1, 2023 | | December 31, 2022 | (in thousands) | March 30, 2024 | | December 30, 2023 |
Series 2018-1 Securitization Senior Notes, Class A-2 | Series 2018-1 Securitization Senior Notes, Class A-2 | $ | 260,563 | | | $ | 261,938 | |
Series 2019-1 Securitization Senior Notes, Class A-2 | Series 2019-1 Securitization Senior Notes, Class A-2 | 286,500 | | | 288,000 | |
Series 2019-2 Securitization Senior Notes, Class A-2 | Series 2019-2 Securitization Senior Notes, Class A-2 | 264,688 | | | 266,063 | |
Series 2020-1 Securitization Senior Notes, Class A-2 | Series 2020-1 Securitization Senior Notes, Class A-2 | 169,750 | | | 170,625 | |
Series 2020-2 Securitization Senior Notes, Class A-2 | Series 2020-2 Securitization Senior Notes, Class A-2 | 438,750 | | | 441,000 | |
Series 2021-1 Securitization Senior Notes, Class A-2 | Series 2021-1 Securitization Senior Notes, Class A-2 | 442,125 | | | 444,375 | |
Series 2022-1 Securitization Senior Notes, Class A-2 | Series 2022-1 Securitization Senior Notes, Class A-2 | 362,263 | | | 364,088 | |
Term Loan Facility | Term Loan Facility | 493,750 | | | 496,250 | |
Revolving Credit Facility | Revolving Credit Facility | 110,000 | | | — | |
Other debt (a) | Other debt (a) | 22,400 | | | 51,836 | |
Total debt | Total debt | 2,850,789 | | | 2,784,175 | |
| Less: unamortized debt issuance costs | Less: unamortized debt issuance costs | (39,234) | | | (45,908) | |
Less: unamortized debt issuance costs | |
Less: unamortized debt issuance costs | |
Less: current portion of long-term debt | Less: current portion of long-term debt | (32,044) | | | (32,986) | |
Total long-term debt, net | Total long-term debt, net | $ | 2,779,511 | | | $ | 2,705,281 | |
(a)Consists primarily of finance lease obligations.
Series 2019-3 Variable Funding Securitization Senior Notes
In December 2019, Driven Brands Funding, LLC (the “Issuer”) issued Series 2019-3 Variable Funding Senior Notes, Class A-1 (the “2019 VFN”) in the revolving amount of $115 million. The 2019 VFN have a final legal maturity date in January 2050. The commitment under the 2019 VFN was set to expire in July 2022, with the option of three one-year extensions. In July 2023, the Company exercised the option to extend an additional year.second of three one-year extension options. The 2019 VFN are secured by substantially all assets of the Issuer and are guaranteed by the Securitization Entities. As of July 1, 2023, borrowings will incur interest at the Base Rate plus an applicable margin or Secured Overnight Financing Rate (“SOFR”) plus an applicable term adjustment. No amounts were outstanding under the 2019 VFN as of July 1, 2023March 30, 2024 and no borrowings or repayments were made during the sixthree months ended July 1, 2023.March 30, 2024. As of July 1, 2023,March 30, 2024, there were $25 million of outstanding letters of credit which reduced the borrowing availability under the 2019 VFN.
Driven Holdings Revolving Credit Facility
In May 2021, Driven Holdings, LLC, (“the Borrower”(the “Borrower”) a Delaware limited liability company and indirect wholly-owned subsidiary of Driven Brands Holdings Inc., entered into a credit agreement to secure a revolving line of credit with a group of financial institutions (“Revolving(the “Revolving Credit Facility”), which provides for an aggregate amount of up to $300 million, and has a maturity date in May 2026 (“Credit(the “Credit Agreement”). On June 2, 2023, the Credit Agreement was amended pursuant to which as of July 1, 2023, borrowings will incur interest at the Base Rate plus an applicable margin or SOFR plus an applicable term adjustment. The Revolving Credit Facility also includes periodic commitment fees based on the available unused balance and a quarterly administrative fee.
There was $110$248 million outstanding on the Revolving Credit Facility as of July 1, 2023March 30, 2024 with $230$46 million of borrowings and $120$46 million of repayments made during the sixthree months ended July 1, 2023.March 30, 2024.
The Company’s debt agreements are subject to certain quantitative and qualitative covenants. As of July 1, 2023,March 30, 2024, the Company and its subsidiaries were in material compliance with allsuch covenants.
Note 8—8 — Leases
During the sixthree months ended JulyMarch 30, 2024, the Company sold three maintenance properties in various locations throughout the U. S. for a total of $4 million. During the three months ended April 1, 2023, the Company sold fourone maintenance and 33five car wash properties in various locations throughout the United StatesU.S. for a total of $144 million, resulting in a net gain of $25$17 million. ConcurrentConcurrently with the closing of these sales, the Company entered into various operating lease agreements pursuant to which the Company leased back the properties. These lease agreements each have an initial termsterm of 18 to 20 years. The Company does not include option periods in its determination of the lease term unless renewals are deemed reasonably certain to be exercised. The Company recorded an
operating lease right-of-use asset and operating lease liability of $112 million and $112 million, respectively, related to these lease arrangements as of July 1, 2023.
During the six months ended June 25, 2022, the Company sold six maintenance and ten car wash properties in various locations throughout the United States for a total of $55 million, resulting in a net gain of $7 million. Concurrent with the closing of these sales, the Company entered into various operating lease agreements pursuant to which the Company leased back the properties. These lease agreements have initial terms of 15 years to 20 years.The Company does not include option periods in its determination of the lease term unless renewals are deemed reasonably certain to be exercised. The Company recorded an operating lease right-of-use asset and operating lease liability of $47$3 million and $47$3 million, respectively, as of March 30, 2024, and $10 million
and $10 million, respectively, as of April 1, 2023 related to these lease arrangements asarrangements. The company recorded gains of June 25, 2022.less than $1 million and $3 million for the three months ended March 30, 2024 and April 1, 2023, respectively.
Supplemental cash flow information related to the Company’s lease arrangements for the sixthree months ended JulyMarch 30, 2024 and April 1, 2023, and June 25, 2022, respectively, was as follows:
| | Six Months Ended |
| Three Months Ended | | | Three Months Ended |
(in thousands) | (in thousands) | July 1, 2023 | | June 25, 2022 | (in thousands) | March 30, 2024 | | April 1, 2023 |
Cash paid for amounts included in the measurement of lease liabilities: | Cash paid for amounts included in the measurement of lease liabilities: | | | |
Operating cash flows used in operating leases | |
Operating cash flows used in operating leases | |
Operating cash flows used in operating leases | Operating cash flows used in operating leases | $ | 67,107 | | | $ | 57,330 | |
Operating cash flows used in finance leases | Operating cash flows used in finance leases | 810 | | | 785 | |
Financing cash flows used in finance leases | Financing cash flows used in finance leases | 953 | | | 829 | |
|
Note 9 — Equity-based Compensation
The Company granted new awards during the three months ended July 1, 2023,March 30, 2024, consisting of 68,119932,323 restricted stock units (“RSUs”) and 72,0921,056,570 performance stock units (“PSUs”). The Company granted new awards during the six months ended July 1, 2023 consisting of 380,736 RSUs and 647,359 PSUs.
Awards are eligible to vest provided that the employee remains in continuous service on each vesting date. Generally, theThe RSUs vest ratably ineach year on the anniversary date generally over a two or three installments on each of the first three anniversaries of the grant date.year period. The PSUs vest after athree-year performance period. The number of PSUs that vest is contingent on the Company achieving certain performance goals, one being a marketperformance condition and the other being a performancemarket condition. The number of PSU shares that vest may range from zero0% to 200% of the original grant, based upon the level of performance. TheCertain awards are considered probable of meeting vesting requirements, and therefore, the Company has started recognizing expense. For both RSUs and PSUs, if the grantee’s continuous service terminates for any reason, the grantee shall forfeit all right, title, and interest in any unvested units as of the termination date.
The fair value of the total RSUs, performance basedperformance-based PSUs, and market basedmarket-based PSUs granted during the three months ended July 1, 2023March 30, 2024 were $2 million, $1 million, and $1 million, respectively. The fair value of the total RSUs, performance based PSUs and market based PSUs granted during the six months ended July 1, 2023 were $11$12.9 million, $118.6 million, and $98.1 million, respectively. The Company based the fair value of the RSUs and performance basedperformance-based PSUs on the Company’s stock price on the grant date.
The range of assumptions used for issued PSUs with a market condition valued using the Monte Carlo model were as follows:
| | | | | | | | | | | |
| Six months ended |
| July 1, 2023 | | June 25, 2022 |
Annual dividend yield | —% | | —% |
Expected term (years) | 2.6 - 2.8 | | 2.7 - 2.8 |
Risk-free interest rate | 3.65% - 4.51% | | 2.32% - 2.76% |
Expected volatility | 37.9% - 38.8% | | 40.9% - 43.9% |
Correlation to the index peer group | 60.2% - 60.3% | | 50.7% - 59.5% |
| | | | | | | | | | | |
| Three Months Ended |
| March 30, 2024 | | April 1, 2023 |
Annual dividend yield | —% | | —% |
Expected term (years) | 2.8 | | 2.8 |
Risk-free interest rate | 4.5% | | 4.51% |
Expected volatility | 49.2% | | 38.8% |
Correlation to the index peer group | 49.2% | | 60.2% |
The Company recorded $4$12 million and $7 $3 million of share-basedequity-based compensation expense during the three and six months ended JulyMarch 30, 2024 and April 1, 2023, respectively, and $4 million and $7 million during the three and six months ended June 25, 2022, respectively, within selling, general, and administrative expenses on the unaudited consolidated statements of operations.
Note 10—Earnings (loss) per sharePer Share
The Company calculates basic and diluted earnings (loss)per share using the two-class method. The following table sets forth the computation of basic and diluted earnings per share attributable to common shareholders:
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| Three Months Ended | | Six Months Ended | | |
(in thousands, except per share amounts) | July 1, 2023 | | June 25, 2022 | | July 1, 2023 | | June 25, 2022 | | | | |
Basic earnings (loss) per share: | | | | | | | | | | | |
Net income (loss) attributable to Driven Brands Holdings Inc. | $ | 37,749 | | | (57,044) | | | $ | 67,498 | | | (22,601) | | | | | |
Less: Net income (loss) attributable to participating securities, basic | 794 | | | (1,210) | | | 1,420 | | | (481) | | | | | |
Net income (loss) after participating securities, basic | 36,955 | | | (55,834) | | | 66,078 | | | (22,120) | | | | | |
Weighted-average common shares outstanding | 162,911 | | | 162,781 | | | 162,848 | | | 162,772 | | | | | |
Basic earnings (loss) per share | $ | 0.23 | | | $ | (0.34) | | | $ | 0.41 | | | $ | (0.14) | | | | | |
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| Three Months Ended | | | | |
(in thousands, except per share amounts) | March 30, 2024 | | April 1, 2023 | | | | | | | | | | |
Basic earnings per share: | | | | | | | | | | | | | |
Net income attributable to Driven Brands Holdings Inc. | $ | 4,261 | | | 29,749 | | | | | | | | | | | |
Less: Net income attributable to participating securities, basic | 90 | | | 626 | | | | | | | | | | | |
Net income after participating securities, basic | 4,171 | | | 29,123 | | | | | | | | | | | |
Weighted-average common shares outstanding | 159,631 | | | 162,784 | | | | | | | | | | | |
Basic earnings per share | $ | 0.03 | | | $ | 0.18 | | | | | | | | | | | |
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| Three Months Ended | | Six Months Ended | | |
(in thousands, except per share amounts) | July 1, 2023 | | June 25, 2022 | | July 1, 2023 | | June 25, 2022 | | | | |
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Diluted earnings (loss) per share: | | | | | | | | | | | |
Net income (loss) attributable to Driven Brands Holdings Inc. | $ | 37,749 | | | $ | (57,044) | | | $ | 67,498 | | | $ | (22,601) | | | | | |
Less: Net income (loss) attributable to participating securities, diluted | 708 | | | (1,080) | | | 1,267 | | | (430) | | | | | |
Net income (loss) after participating securities, diluted | $ | 37,041 | | | $ | (55,964) | | | $ | 66,231 | | | $ | (22,171) | | | | | |
Weighted-average common shares outstanding | 162,911 | | | 162,781 | | | 162,848 | | | 162,772 | | | | | |
Dilutive effect of share-based awards | 3,978 | | | — | | | 4,034 | | | — | | | | | |
Weighted-average common shares outstanding, as adjusted | 166,888 | | | 162,781 | | | 166,882 | | | 162,772 | | | | | |
Diluted earnings (loss) per share | $ | 0.22 | | | $ | (0.34) | | | $ | 0.40 | | | $ | (0.14) | | | | | |
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| Three Months Ended | | | | |
(in thousands, except per share amounts) | March 30, 2024 | | April 1, 2023 | | | | | | | | | | |
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Diluted earnings per share: | | | | | | | | | | | | | |
Net income attributable to Driven Brands Holdings Inc. | $ | 4,261 | | | $ | 29,749 | | | | | | | | | | | |
Less: Net income attributable to participating securities, diluted | 17 | | | 559 | | | | | | | | | | | |
Net income after participating securities, diluted | $ | 4,244 | | | $ | 29,190 | | | | | | | | | | | |
Weighted-average common shares outstanding | 159,631 | | | 162,784 | | | | | | | | | | | |
Dilutive effect of share-based awards | 973 | | | 4,090 | | | | | | | | | | | |
Weighted-average common shares outstanding, as adjusted | 160,604 | | | 166,874 | | | | | | | | | | | |
Diluted earnings per share | $ | 0.03 | | | $ | 0.17 | | | | | | | | | | | |
| | | | | | | | | | | | | |
Basic earnings (loss) per share is computed by dividing the net income (loss) attributable to Driven Brands Holdings Inc. by the weighted-average number of common shares outstanding for the period. In addition, the Company’s participating securities are related to certain restricted stock awards issued to Section 16 officers which include non-forfeitable dividend rights.
The Company has 4,881,6302,067,468 and 5,351,252 shares of performance awards that are contingent on performance conditions which have not yet been met and therefore have been excluded from the computation of weighted average shares for the three and six months ended JulyMarch 30, 2024 and April 1, 2023.2023, respectively.
The following securities were not included in the computation of diluted shares outstanding because the effect would be antidilutive:
| | Three Months Ended | |
| Three Months Ended | |
| Three Months Ended | |
Number of securities (in thousands) | |
Number of securities (in thousands) | |
Number of securities (in thousands) | |
Restricted stock units | |
Restricted stock units | |
Restricted stock units | |
| | | Three Months Ended | | Six Months Ended | |
Number of securities (in thousands) | July 1, 2023 | | June 25, 2022 | | July 1, 2023 | | June 25, 2022 | |
Stock Options | |
| | Stock Options | |
| Stock Options | Stock Options | 1,703 | | | — | | | 1,703 | | | — | | |
| Total | Total | 1,703 | | | — | | | 1,703 | | | — | | |
| Total | |
| Total | |
Note 11—Income Taxes
The Company’s tax provision (benefit) is comprised of the most recent estimated annual effective tax rate applied to year-to-date ordinary income (loss) before taxes. The tax impacts of unusual or infrequently occurring items, including changes in judgment about valuation allowances and effects of changes in tax laws or rates, are recorded discretely in the interim period in which they occur.
Income tax expense was $20$6 million for the three months ended July 1, 2023March 30, 2024 compared to an income tax benefit of $19$11 million for the three months ended June 25, 2022.April 1, 2023. The effective income tax rate for the three months ended July 1, 2023March 30, 2024 was 34.9%59.1% compared to 24.8%26.9% for the three months ended June 25, 2022.April 1, 2023. The net increase in income tax expense and effective tax rate was primarily driven by a non-recurring tax benefit related to a trade name impairment for the three months ended June 25, 2022, partially offsetMarch 30, 2024 was primarily driven by the asset impairment charges and the non-deductible equity-based compensation expense. The effective tax rate for three months ended April 1, 2023 was driven by the inclusion of foreign disregarded entity losses for the three months ended July 1, 2023.losses.
Note 12—Commitments and Contingencies
Income tax expense was $31 millionWe are subject to various lawsuits, administrative proceedings, audits, and claims. Some of these lawsuits purport to be class actions and/or seek substantial damages. We are required to record an accrual for litigation loss contingencies that are both probable and reasonably estimable. Management regularly assesses our insurance deductibles, analyzes litigation information with our attorneys, and evaluates our loss experience in connection with pending legal proceedings. We record our best estimate of a loss when the loss is considered probable and the amount of such loss can be reasonably estimated. When a loss is probable and there is a range of estimated loss with no best estimate within the range, we record the minimum estimated liability related to the lawsuit or claim. As additional information becomes available, we reassess the potential liability and revise our accruals, if necessary. Legal fees and expenses associated with the defense of all of our litigation are expensed as such fees and expenses are incurred. Because of uncertainties related to the resolution of lawsuits and claims, the ultimate outcome may differ materially from our estimates.
Genesee County Employees’ Retirement System v. Driven Brands Holdings Inc., et al. – On December 22, 2023, Genesee County Employees’ Retirement System filed a putative class action lawsuit in the U.S. District Court for the six months ended July 1, 2023 comparedWestern District of North Carolina (the “Court”) against the Company as well as a current and a former Company executive (the “Individual Defendants”) alleging violations of Section 10(b) and Rule 10b-5 of the Exchange Act by the Company, as well as violations of Section 20(a) of the Exchange Act by the Individual Defendants. Genesee County Employees’ Retirement System, Oakland County Employees’ Retirement System, and Oakland County Voluntary Employees’ Beneficiary Association (collectively the “Michigan Funds”) have moved for appointment as lead plaintiffs and for Bernstein Litowitz Berger & Grossmann LLP to an income tax benefit of $6 millionbe appointed as lead counsel for the six months ended June 25, 2022.purported class. The effective income tax rateMichigan Funds purport to represent a class of stockholders who purchased Company shares between October 27, 2021 and August 1, 2023. On March 5, 2024, the Michigan Funds filed a notice of unopposed motion asking the Court to grant their prior motion to appoint them as lead plaintiffs. The Court has yet to rule on the unopposed motion. The Company disputes the allegations of wrongdoing and intends to vigorously defend against the action. No assessment as to the likelihood or range of any potential adverse outcome has been made as of the date of this filing.
Other than the matter described above, as of March 30, 2024, there are no current proceedings or litigation matters involving the Company or its property that we believe would have a material adverse effect on our consolidated financial position or cash flows, although they could have a material adverse effect on our operating results for the six months ended July 1, 2023 was 31.6% compared to 20.6% for the six months ended June 25, 2022. The net increase in income tax expense and effective tax rate was primarily driven by a non-recurring tax benefit related to a trade name impairment for the six months ended June 25, 2022, partially offset by the inclusion of foreign disregarded entity losses for the six months ended July 1, 2023.
particular reporting period.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis for Driven Brands Holdings Inc. and Subsidiaries (“Driven Brands”,Brands,” “the Company”, “we”, “us”Company,” “we,” “us,” or “our”) should be read in conjunction with our consolidated financial statements and the related notes to our consolidated financial statements included elsewhere in this quarterly report. We operate on a 52/52 or 53-week fiscal year, which ends on the last Saturday in December. The three months ended JulyMarch 30, 2024 and April 1, 2023 and June 25, 2022 were both 13 week periods. The six months ended July 1, 2023 and June 25, 2022 were both 26 week periods.
Overview
Driven Brands is the largest automotive services company in North America with a growing and highly-franchised base of more than 4,9005,000 locations across 49 U.S. states and 13 other countries. Our scaled, diversified platform fulfills an extensive range of core consumerretail and commercial automotive needs, including paint, collision, glass, and repair services, as well as a variety of high-frequency services, such as oil changes and car washes. We have continued to generategrow our base of consistent reoccurringrecurring revenue expansionby adding new franchised and strong margins, which has resulted in significant cash flow generationcompany-operated stores and capital-efficientsame store sales growth. Driven Brands generated net revenue of approximately $572 million during the three months ended March 30, 2024, an increase of 2% compared to the prior year, and system-wide sales of approximately $1.6 billion during the three months ended March 30, 2024, an increase of 7% from the prior year.
We have continued to drive sustained predictable growth and share gain through our robust pipeline of organic growth adding 133 new stores during 2023, primarily through greenfield openings to drive density in key target locations.
Q2 2023 Three Months EndedQ1 2024 Highlights and Key Performance Indicators
(as compared to same period in the prior year, unless otherwise noted)
•RevenueNet revenue increased 19%2% to $607$572 million, driven by same-storesame store sales and net store growth.
•Consolidated same-storesame store sales increased 8%0.7%.
•The Company added 7420 net new stores duringin the quarter.
•Net Income increaseddecreased 86% to $38$4 million or $0.22 per diluted share in the current quarter compared to a Net Loss of $57 million or ($0.34) per diluted share in the prior year period.
•Adjusted Net Income “(non-GAAP)” decreased 18% to $49 million or $0.29 per diluted share.
•Adjusted EBITDA “(non-GAAP)” increased 12% to $151 million.
Q2 2023 Six Months Ended Highlights and Key Performance Indicators
(as compared to same period in the prior year, unless otherwise noted)
•Revenue increased 20% to $1,169 million, driven by same-store sales and net store growth.
•Consolidated same-store sales increased 10%.
•The Company added 133 net new stores during the first six months of 2023.
•Net Income increased to $67 million or $0.40$0.03 per diluted share in the current year, comparedprimarily relating to impairment charges, increased equity-based compensation expense, depreciation and amortization and interest expenses as well as an unfavorable impact from foreign exchange, partially offset by gains primarily from the sale of a Net Loss of $23 million or ($0.14) per diluted share in the prior year period.business, assets held for sale, and favorable lease terminations.
•Adjusted Net Income “(non-GAAP)”(non-GAAP) decreased 15%3% to $91$38 million or 0.54$0.23 per diluted share. The decrease was primarily due to decreased Segment Adjusted EBITDA within our Car Wash and Paint, Collision & Glass segments as well as increased interest and depreciation expense, partially offset by increased Segment Adjusted EBITDA within our Maintenance and Platform Services segments.
•Adjusted EBITDA “(non-GAAP)”(non-GAAP) increased 10%6% to $279$131 million. The increase was primarily due to increased Segment Adjusted EBITDA within our Maintenance and Platform Services segments, partially offset by decreased Segment Adjusted EBITDA within our Car Wash and Paint, Collision & Glass segments.
Key Performance Indicators
Key measures that we use in assessing our business and evaluating our segments include the following:
System-wide sales. System-wide sales represent the total of net sales for our franchised, independently-operated, and company-operated stores. This measure allows management to better assess the total size and health of each segment, our overall store performance, and the strength of our market position relative to competitors. Sales at franchised stores are not included as revenue in our results from operations, but rather, we include franchise royalties and fees that are derived from sales at franchised stores.
Store count. Store count reflects the number of franchised, independently-operated, and company-operated stores open at the end of the reporting period. Management reviews the number of new, closed, acquired, and divested stores to assess net unit growth and drivers of trends in system-wide sales, franchise royalties and fees revenue, company-operated store sales, and independently-operated store sales.
Same store sales. Same store sales reflect the change in sales year-over-year for the same store base. We define the same store base to include all franchised, independently-operated, and company-operated stores open for comparable weeks during the given fiscal period in both the current and prior year, which may be different from how others define similar terms. This measure highlights the performance of existing stores, while excluding the impact of new store openings and closures and acquisitions and divestitures.
Segment Adjusted EBITDA. We define Segment Adjusted EBITDA as earnings before interest expense, net, income tax expense, and depreciation and amortization, with further adjustments for acquisition-related costs, straight-line rent, equity compensation, loss on debt extinguishment, foreign currency transaction related gains or losses, store opening costs, cloud computing amortization, and certain non-recurring and non-core, infrequent or unusual charges. Segment Adjusted EBITDA is a supplemental measure of operating performance of our segments and may not be comparable to similar measures reported by other companies. Segment Adjusted EBITDA is a performance metric utilized by our Chief Operating Decision Maker to allocate resources to and assess performance of our segments. Refer to Note 5 in our consolidated financial statements for a reconciliation of income before taxes to Segment Adjusted EBITDA for the three and six months ended JulyMarch 30, 2024 and April 1, 2023 and June 25, 2022.2023.
The following table sets forth our key performance indicators for the three and six months ended JulyMarch 30, 2024 and April 1, 2023 and June 25, 2022:2023: | | Three Months Ended | | Six months ended |
| Three Months Ended | |
| Three Months Ended | |
| Three Months Ended | |
(in thousands, except store count or as otherwise noted) | |
(in thousands, except store count or as otherwise noted) | |
(in thousands, except store count or as otherwise noted) | (in thousands, except store count or as otherwise noted) | | July 1, 2023 | | June 25, 2022 | | July 1, 2023 | | June 25, 2022 |
System-Wide Sales | System-Wide Sales | | | | | | | | |
System-Wide Sales | |
System-Wide Sales | |
System-Wide Sales by Segment: | |
System-Wide Sales by Segment: | |
System-Wide Sales by Segment: | System-Wide Sales by Segment: | |
Maintenance | Maintenance | | $ | 484,624 | | | $ | 399,153 | | | $ | 926,567 | | | $ | 756,265 | |
Maintenance | |
Maintenance | |
Car Wash | |
Car Wash | |
Car Wash | Car Wash | | 163,148 | | | 156,738 | | | 318,126 | | | 314,322 | |
Paint, Collision & Glass | Paint, Collision & Glass | | 892,530 | | | 724,665 | | | 1,708,572 | | | 1,383,550 | |
Paint, Collision & Glass | |
Paint, Collision & Glass | |
Platform Services | |
Platform Services | |
Platform Services | Platform Services | | 118,728 | | | 131,320 | | | 208,712 | | | 222,114 | |
Total | Total | | $ | 1,659,030 | | | $ | 1,411,876 | | | $ | 3,161,977 | | | $ | 2,676,251 | |
Total | |
Total | |
System-Wide Sales by Business Model: | |
System-Wide Sales by Business Model: | |
System-Wide Sales by Business Model: | System-Wide Sales by Business Model: | | | | | | | | |
Franchised Stores | Franchised Stores | | $ | 1,202,919 | | | $ | 1,033,049 | | | $ | 2,277,268 | | | $ | 1,941,944 | |
Franchised Stores | |
Franchised Stores | |
Company-Operated Stores | |
Company-Operated Stores | |
Company-Operated Stores | Company-Operated Stores | | 394,578 | | | 323,885 | | | 770,644 | | | 616,276 | |
Independently-Operated Stores | Independently-Operated Stores | | 61,533 | | | 54,942 | | | 114,065 | | | 118,031 | |
Independently-Operated Stores | |
Independently-Operated Stores | |
Total | |
Total | |
Total | Total | | $ | 1,659,030 | | | $ | 1,411,876 | | | $ | 3,161,977 | | | $ | 2,676,251 | |
Store Count | Store Count | | | | | | | | |
Store Count | |
Store Count | |
Store Count by Segment: | |
Store Count by Segment: | |
Store Count by Segment: | Store Count by Segment: | |
Maintenance | Maintenance | | 1,694 | | | 1,559 | | | 1,694 | | | 1,559 | |
Maintenance | |
Maintenance | |
Car Wash | |
Car Wash | |
Car Wash | Car Wash | | 1,131 | | | 1,074 | | | 1,131 | | | 1,074 | |
Paint, Collision & Glass | Paint, Collision & Glass | | 1,905 | | | 1,771 | | | 1,905 | | | 1,771 | |
Paint, Collision & Glass | |
Paint, Collision & Glass | |
Platform Services | |
Platform Services | |
Platform Services | Platform Services | | 208 | | | 202 | | | 208 | | | 202 | |
Total | Total | | 4,938 | | | 4,606 | | | 4,938 | | | 4,606 | |
Total | |
Total | |
Store Count by Business Model: | |
Store Count by Business Model: | |
Store Count by Business Model: | Store Count by Business Model: | | | | | | | | |
Franchised Stores | Franchised Stores | | 2,948 | | | 2,813 | | | 2,948 | | | 2,813 | |
Franchised Stores | |
Franchised Stores | |
Company-Operated Stores | |
Company-Operated Stores | |
Company-Operated Stores | Company-Operated Stores | | 1,274 | | | 1,075 | | | 1,274 | | | 1,075 | |
Independently-Operated Stores | Independently-Operated Stores | | 716 | | | 718 | | | 716 | | | 718 | |
Independently-Operated Stores | |
Independently-Operated Stores | |
Total | |
Total | |
Total | Total | | 4,938 | | | 4,606 | | | 4,938 | | | 4,606 | |
Same Store Sales % | Same Store Sales % | | | | | | | | |
Same Store Sales % | |
Same Store Sales % | |
Maintenance | |
Maintenance | |
Maintenance | Maintenance | | 10.2 | % | | 15.0 | % | | 11.6 | % | | 16.9 | % |
Car Wash | Car Wash | | (4.0 | %) | | (2.7%) | | (7.7 | %) | | 1.8 | % |
Car Wash | |
Car Wash | |
Paint, Collision & Glass | |
Paint, Collision & Glass | |
Paint, Collision & Glass | |
| Total consolidated | |
| Total consolidated | |
| Total consolidated | |
Segment Adjusted EBITDA | |
Segment Adjusted EBITDA | |
Segment Adjusted EBITDA | |
Maintenance | |
Maintenance | |
Maintenance | |
Car Wash | |
Car Wash | |
Car Wash | |
Paint, Collision & Glass | |
Paint, Collision & Glass | |
Paint, Collision & Glass | Paint, Collision & Glass | | 12.2 | % | | 16.1 | % | | 15.8 | % | | 16.6 | % |
Platform Services | Platform Services | | (11.3 | %) | | 11.8 | % | | (8.7 | %) | | 18.9 | % |
Total | | 7.6 | % | | 13.2 | % | | 9.7 | % | | 15.2 | % |
Segment Adjusted EBITDA | | | | | | | | |
Platform Services | |
Platform Services | |
Adjusted EBITDA as a percentage of net revenue by segment | |
Adjusted EBITDA as a percentage of net revenue by segment | |
Adjusted EBITDA as a percentage of net revenue by segment | |
Maintenance | |
Maintenance | |
Maintenance | Maintenance | | $ | 85,753 | | | $ | 64,076 | | | $ | 158,739 | | | $ | 116,561 | |
Car Wash | Car Wash | | 43,263 | | | 53,677 | | | 87,572 | | | 109,397 | |
Car Wash | |
Car Wash | |
Paint, Collision & Glass | |
Paint, Collision & Glass | |
Paint, Collision & Glass | Paint, Collision & Glass | | 41,249 | | | 32,916 | | | 76,961 | | | 61,928 | |
Platform Services | Platform Services | | 22,537 | | | 20,541 | | | 39,567 | | | 34,706 | |
Adjusted EBITDA as a percentage of net revenue by segment | |
Maintenance | | 35.4 | % | | 33.0 | % | | 33.8 | % | | 31.2 | % |
Car Wash | | 26.3 | % | | 33.8 | % | | 27.2 | % | | 34.4 | % |
Paint, Collision & Glass | | 31.0 | % | | 34.5 | % | | 30.3 | % | | 35.4 | % |
Platform Services | |
Platform Services | Platform Services | | 39.3 | % | | 38.6 | % | | 36.2 | % | | 36.0 | % |
Total consolidated | Total consolidated | | 24.9 | % | | 26.6 | % | | 23.8 | % | | 26.0 | % |
Total consolidated | |
Total consolidated | |
Reconciliation of Non-GAAP Financial Information
To supplement our consolidated financial statements prepared and presented in accordance with GAAP, we use certain non-GAAP financial measures throughout this quarterly report, as described further below, to provide investors with additional useful information about our financial performance, to enhance the overall understanding of our past performance and future prospects and to allow for greater transparency with respect to important metrics used by our management for financial and operational decision-making.
Non-GAAP financial measures have limitations in their usefulness to investors because they have no standardized meaning prescribed by GAAP and are not prepared under any comprehensive set of accounting rules or principles. In addition, non-GAAP financial measures may be calculated differently from, and therefore may not be directly comparable to, similarly titled measures used by other companies. As a result, non-GAAP financial measures should be viewed as supplementing, and not as an alternative or substitute for, our consolidated financial statements prepared and presented in accordance with GAAP.
Adjusted Net Income/Adjusted Earnings per Share. We define Adjusted Net Income as net income calculated in accordance with GAAP, adjusted for acquisition-related costs, straight-line rent, equity compensation, loss on debt extinguishment, cloud computing amortization, and certain non-recurring, non-core, infrequent or unusual charges, amortization related to acquired intangible assets and the tax effect of the adjustments. Adjusted Earnings Per Share is calculated by dividing Adjusted Net Income by the weighted average shares outstanding. Management believes this non-GAAP financial measure is useful because it is a key measure used by our management team to evaluate our operating performance, generate future operating plans, and make strategic decisions.
The following table provides a reconciliation of Net Income (Loss) to Adjusted Net Income and Adjusted Earnings per Share:
Adjusted Net Income /Adjusted Earnings per Share
| | Three Months Ended | |
| Three Months Ended | |
| Three Months Ended | |
(in thousands, except per share data) | |
(in thousands, except per share data) | |
(in thousands, except per share data) | |
Net income | |
Net income | |
Net income | |
Acquisition related costs(a) | |
Acquisition related costs(a) | |
Acquisition related costs(a) | |
Non-core items and project costs, net(b) | |
Non-core items and project costs, net(b) | |
Non-core items and project costs, net(b) | |
| | | Three Months Ended | | Six Months Ended | |
(in thousands, except per share data) | July 1, 2023 | | June 25, 2022 | | July 1, 2023 | | June 25, 2022 | |
Net income (loss) | $ | 37,749 | | | $ | (57,044) | | | $ | 67,498 | | | $ | (22,616) | | |
Acquisition related costs(a) | 3,750 | | | 3,338 | | | 5,597 | | | 7,656 | | |
Non-core items and project costs, net(b) | 2,803 | | | 1,719 | | | 4,627 | | | 2,585 | | |
Cloud computing amortization(c) | |
| Straight-line rent adjustment(c) | 4,638 | | | 4,217 | | | 9,003 | | | 8,310 | | |
| Cloud computing amortization(c) | |
| Cloud computing amortization(c) | |
Equity-based compensation expense(d) | Equity-based compensation expense(d) | 4,485 | | | 4,233 | | | 7,049 | | | 6,851 | | |
Foreign currency transaction (gain) loss, net(e) | (1,302) | | | 13,937 | | | (2,977) | | | 14,908 | | |
Equity-based compensation expense(d) | |
Equity-based compensation expense(d) | |
Foreign currency transaction loss (gain), net(e) | |
Foreign currency transaction loss (gain), net(e) | |
Foreign currency transaction loss (gain), net(e) | |
| Trade name impairment(f) | — | | | 125,450 | | | — | | | 125,450 | | |
Asset sale leaseback loss (gain), impairment and closed store expenses(g) | (7,680) | | | (5,938) | | | (5,836) | | | (6,062) | | |
| Amortization related to acquired intangible assets(h) | 8,276 | | | 5,930 | | | 14,312 | | | 11,072 | | |
Provision for uncertain tax positions(i) | — | | | — | | | — | | | 76 | | |
| Asset sale leaseback (gain) loss, impairment and closed store expenses(f) | |
| Asset sale leaseback (gain) loss, impairment and closed store expenses(f) | |
| Asset sale leaseback (gain) loss, impairment and closed store expenses(f) | |
| Amortization related to acquired intangible assets(g) | |
| Amortization related to acquired intangible assets(g) | |
| Amortization related to acquired intangible assets(g) | |
| Valuation allowance for deferred tax asset(h) | |
| Valuation allowance for deferred tax asset(h) | |
| Valuation allowance for deferred tax asset(h) | |
Adjusted net income before tax impact of adjustments | Adjusted net income before tax impact of adjustments | 52,719 | | | 95,842 | | | 99,273 | | | 148,230 | | |
Tax impact of adjustments(j) | (3,577) | | | (36,184) | | | (7,790) | | | (40,796) | | |
Adjusted net income before tax impact of adjustments | |
Adjusted net income before tax impact of adjustments | |
Tax impact of adjustments(i) | |
Tax impact of adjustments(i) | |
Tax impact of adjustments(i) | |
Adjusted net income | Adjusted net income | 49,142 | | | 59,658 | | | 91,483 | | | 107,434 | | |
Net loss attributable to non-controlling interest | — | | | — | | | — | | | (15) | | |
Adjusted net income | |
Adjusted net income | |
Net income attributable to non-controlling interest | |
Net income attributable to non-controlling interest | |
Net income attributable to non-controlling interest | |
Adjusted net income attributable to Driven Brands Holdings Inc. | Adjusted net income attributable to Driven Brands Holdings Inc. | $ | 49,142 | | | $ | 59,658 | | | $ | 91,483 | | | $ | 107,449 | | |
Adjusted net income attributable to Driven Brands Holdings Inc. | |
Adjusted net income attributable to Driven Brands Holdings Inc. | |
| Earnings per share | |
| Earnings per share | |
| Earnings per share | |
Basic | |
Basic | |
Basic | |
Diluted | |
Diluted | |
Diluted | |
| Adjusted earnings per share | |
| Adjusted earnings per share | |
| Adjusted earnings per share | Adjusted earnings per share | | |
Basic | Basic | $ | 0.30 | | | $ | 0.36 | | | $ | 0.55 | | | $ | 0.65 | | |
Basic | |
Basic | |
Diluted | |
Diluted | |
Diluted | Diluted | $ | 0.29 | | | $ | 0.35 | | | $ | 0.54 | | | $ | 0.63 | | |
| Weighted average shares outstanding | | |
Weighted average shares outstanding for Net Income | |
| Weighted average shares outstanding for Net Income | |
| Weighted average shares outstanding for Net Income | |
Basic | |
Basic | |
Basic | Basic | 162,911 | | | 162,781 | | | 162,848 | | | 162,772 | | |
Diluted | Diluted | 166,888 | | | 166,659 | | | 166,882 | | | 166,692 | | |
Diluted | |
Diluted | |
| |
Adjusted EBITDA. We define Adjusted EBITDA as earnings before interest expense, net, income tax expense, and depreciation and amortization, with further adjustments for acquisition-related costs, straight-line rent, equity compensation, loss on debt extinguishment, cloud computing amortization, and certain non-recurring, non-core, infrequent or unusual charges. Adjusted EBITDA may not be comparable to similarly titled metrics of other companies due to differences in methods of calculation. Management believes this non-GAAP financial measure is useful because it is a key measure used by our management team to evaluate our operating performance, generate future operating plans, and make strategic decisions.
The following table provides a reconciliation of Net Income (Loss) to Adjusted EBITDA:
| Adjusted EBITDA | Adjusted EBITDA | |
Adjusted EBITDA | |
| | Three Months Ended | |
| Three Months Ended | |
| Three Months Ended | |
| March 30, 2024 | |
| March 30, 2024 | |
| March 30, 2024 | |
Net income | |
Net income | |
Net income | |
Income tax expense | |
Income tax expense | |
Income tax expense | |
Interest expense, net | |
Interest expense, net | |
Interest expense, net | |
Depreciation and amortization | |
Depreciation and amortization | |
Depreciation and amortization | |
EBITDA | |
EBITDA | |
EBITDA | |
Acquisition related costs(a) | |
Acquisition related costs(a) | |
Acquisition related costs(a) | |
Non-core items and project costs, net(b) | |
Non-core items and project costs, net(b) | |
Non-core items and project costs, net(b) | |
Cloud computing amortization(c) | |
Cloud computing amortization(c) | |
Cloud computing amortization(c) | |
Equity-based compensation expense(d) | |
Equity-based compensation expense(d) | |
Equity-based compensation expense(d) | |
Foreign currency transaction loss (gain), net(e) | |
Foreign currency transaction loss (gain), net(e) | |
Foreign currency transaction loss (gain), net(e) | |
| | | Three Months Ended | | Six months ended |
| | July 1, 2023 | | June 25, 2022 | | July 1, 2023 | | June 25, 2022 |
Net income (loss) | $ | 37,749 | | | $ | (57,044) | | | $ | 67,498 | | | $ | (22,616) | |
Income tax expense (benefit) | 20,275 | | | (18,848) | | | 31,246 | | | (5,880) | |
Interest expense, net | 40,871 | | | 26,270 | | | 79,012 | | | 51,623 | |
Depreciation and amortization | 45,419 | | | 38,087 | | | 83,617 | | | 71,110 | |
EBITDA | 144,314 | | | (11,535) | | | 261,373 | | | 94,237 | |
Acquisition related costs(a) | 3,750 | | | 3,338 | | | 5,597 | | | 7,656 | |
Non-core items and project costs, net(b) | 2,803 | | | 1,719 | | | 4,627 | | | 2,585 | |
Asset sale leaseback (gain) loss, impairment and closed store expenses(f) | |
| Straight-line rent adjustment(c) | 4,638 | | | 4,217 | | | 9,003 | | | 8,310 | |
Equity-based compensation expense(d) | 4,485 | | | 4,233 | | | 7,049 | | | 6,851 | |
Foreign currency transaction (gain) loss, net(e) | (1,302) | | | 13,937 | | | (2,977) | | | 14,908 | |
| Trade name impairment(f) | — | | | 125,450 | | | — | | | 125,450 | |
Asset impairment and closed store expenses(g) | (7,680) | | | (5,938) | | | (5,836) | | | (6,062) | |
| Asset sale leaseback (gain) loss, impairment and closed store expenses(f) | |
| Asset sale leaseback (gain) loss, impairment and closed store expenses(f) | |
Adjusted EBITDA | Adjusted EBITDA | $ | 151,008 | | | $ | 135,421 | | | $ | 278,836 | | | $ | 253,935 | |
Adjusted EBITDA | |
Adjusted EBITDA | |
(a) Consists of acquisition costs as reflected within the unaudited consolidated statements of operations, including legal, consulting and other fees, and expenses incurred in connection with acquisitions completed during the applicable period, as well as inventory rationalization expenses incurred in connection with acquisitions. We expect to incur similar costs in connection with other acquisitions in the future and, under U.S. GAAP, such costs relating to acquisitions are expensed as incurred and not capitalized.
(b) Consists of discrete items and project costs, including third party consulting and professional fees associated with strategic transformation initiatives as well as non-recurring payroll-related costs.
(c) Consists of theIncludes non-cash portion of rent expense, which reflects the extentamortization expenses relating to which our straight-line rent expense recognized under U.S. GAAP exceeds or is less than our cash rent payments.cloud computing arrangements.
(d) Represents non-cash equity-based compensation expense.
(e) Represents foreign currency transaction (gains) losses, net that primarily related to the remeasurement of our intercompany loans which are partially offset by unrealizedas well as gains and losses on remeasurement of cross currency swaps and forward contracts.
(f) Relates to an impairment of certain Car Wash trade names as the Company elected to discontinue their use.
(g) Relates to (gains) losses, net on sale leasebacks, impairment of certain fixed assets and operating lease right-of-use assets related to closed and underperforming locations, assets held for sale, and lease exit costs and other costs associated with stores that were closed prior to the respective lease termination dates.
(h)(g) Consists of amortization related to acquired intangible assets as reflected within depreciation and amortization in the unaudited consolidated statementsstatement of operations.
(i)(h) Represents uncertainvaluation allowances on income tax positions recorded for tax positions, inclusive of interest and penalties.carryforwards in certain domestic jurisdictions that are not more likely than not to be realized.
(j)(i) Represents the tax impact of adjustments associated with the reconciling items between net income and Adjusted Net Income, excluding the provision for uncertain tax positions.positions and valuation allowance for certain deferred tax assets. To determine the tax impact of the deductible reconciling items, we utilized statutory income tax rates ranging from 9% to 36% depending upon the tax attributes of each adjustment and the applicable jurisdiction.
Results of Operations for the Three Months Ended July 1, 2023March 30, 2024 Compared to the Three Months Ended June 25, 2022April 1, 2023
Net Income
We recognized net income of $38$4 million, or $0.22$0.03 per diluted share, for the three months ended July 1, 2023,March 30, 2024, compared to a net loss of $57$30 million, or ($0.34)$0.17 per diluted share, for the three months ended June 25, 2022. This increaseApril 1, 2023. The decrease of approximately $25 million was primarily due to the non-recurrence of a $125 million following:
•non-cash impairment chargecharges of $19 million, primarily relating to assets held for sale in the three months ended June 25, 2022 relatedcurrent period;
•increased interest expense of $6 million, primarily due to increased borrowings and higher variable rates on the change in intended use of certain existing Car Wash trade names migrating to the Take 5 Car Wash brand as well as a benefitRevolving Credit Facility;
•unfavorable impact from foreign exchange of $15$6 million;
•increased depreciation and amortization expenses of $5 million relating to capital expenditures and an increasenew store openings that occurred in gains from sale leaseback transactions. This increase in income was partially offset by reducedthe prior 12 months; and
•decreased operating margins for company-operated stores, primarily within the Car Wash and Paint, Collision & Glass segments, higher interest expense,segments.
These decreases were partially offset by:
•a gain primarily relating to the sale of a higher variable interest rate onbusiness, assets held for sale, and favorable lease terminations of approximately $13 million during the Term Loan Facilitythree months ended March 30, 2024 compared to a loss of $2 million during the three months ended April 1, 2023;
•a decrease in tax expense of $5 million; and
•positive same store sales, primarily within the current period as well as interest relating to borrowings under the Series 2022-1 Class A-2 Securitization Senior Notes issuedMaintenance segment, and organic store count that occurred in the fourth quarter of 2022, and increased depreciation and amortization relating to capital expenditures and business acquisitions over the prior 12 months.
Adjusted Net Income
Adjusted net income was $49$38 million for the three months ended July 1, 2023,March 30, 2024, a decrease of $11$1 million, compared to $60$39 million for the three months ended June 25, 2022.April 1, 2023. This decrease was primarily due to reducedthe following:
•increased interest expense of $6 million, primarily due to increased borrowings and higher variable rates on the Revolving Credit Facility;
•increased depreciation expenses of $5 million relating to capital expenditures and new store openings that occurred in the prior 12 months; and
•decreased operating margins for company-operated stores, primarily within the Car Wash and Paint, Collision & Glass segments, higher interest expense, relating to a higher variable interest rate onsegments.
The decreases were partially offset by:
•positive same store sales, primarily within the Term Loan FacilityMaintenance segment, and organic store count that occurred in the current period as well as interest relating to borrowings under the Series 2022-1 Class A-2 Securitization Senior Notes issued in the fourth quarter of 2022, and increased depreciation relating to capital expenditures and business acquisitions over the prior 12 months.
Adjusted EBITDA
Adjusted EBITDA was $151$131 million for the three months ended July 1, 2023,March 30, 2024, an increase of $16$8 million, compared to $135$123 million for the three months ended June 25, 2022.April 1, 2023. The increase in Adjusted EBITDA was primarily due to an increase in revenue related toto:
•positive same store sales, growth, unit growth fromprimarily within the U.S. glass and car wash acquisitions in the trailing twelve month period,Maintenance segment, and organic store count growth,that occurred in the prior 12 months.
The increases were partially offset by reducedby:
•decreased operating margins for company-operated stores, primarily within the Car Wash and Paint, Collision & Glass segments.
To facilitate the review of our results of operations, the following tables set forth our financial results for the periods indicated. All information is derived from the unaudited Consolidated Statementsconsolidated statements of Operations.operations. Certain percentages presented in this section have been rounded to the nearest number, therefore, totals may not equal the sum of the line items in the tables below.
Net Revenue
| | Three Months Ended | |
| Three Months Ended | |
| Three Months Ended | |
| Three Months Ended | |
(in thousands) | |
(in thousands) | |
(in thousands) | (in thousands) | July 1, 2023 | | % of Net Revenues | | June 25, 2022 | | % of Net Revenues | |
Franchise royalties and fees | Franchise royalties and fees | $ | 49,805 | | | 8.2 | % | | $ | 44,850 | | | 8.8 | % | |
Franchise royalties and fees | |
Franchise royalties and fees | |
Company-operated store sales | |
Company-operated store sales | |
Company-operated store sales | Company-operated store sales | 394,578 | | | 65.0 | % | | 323,885 | | | 63.7 | % | |
Independently-operated store sales | Independently-operated store sales | 61,533 | | | 10.1 | % | | 54,942 | | | 10.8 | % | |
Independently-operated store sales | |
Independently-operated store sales | |
Advertising fund contributions | |
Advertising fund contributions | |
Advertising fund contributions | Advertising fund contributions | 24,749 | | | 4.1 | % | | 22,091 | | | 4.3 | % | |
Supply and other revenue | Supply and other revenue | 76,186 | | | 12.6 | % | | 62,856 | | | 12.4 | % | |
Total revenue | $ | 606,851 | | | 100.0 | % | | $ | 508,624 | | | 100.0 | % | |
Supply and other revenue | |
Supply and other revenue | |
Total net revenue | |
Total net revenue | |
Total net revenue | |
Franchise Royalties and Fees
Franchise royalties and fees increased$5 $2 million, or 11%4%, primarily due to same store sales growth and a net increase of 135 franchise94 franchised stores. FranchiseFranchised system-wide sales increased by $170101 million, or 16%9%.
Company-operatedCompany-Operated Store Sales
Company-operated store sales increased $71 million, or 22%, of whichdecreased $372 million, or less than 1%, of which approximately $15 million and$34 $12 million related to a decrease in the Maintenance and Paint, Collision & Glass and Car Wash segments, respectively.respectively, partially offset by an increase of $26 million in the Maintenance segment. The sales decrease in the Paint, Collision & Glass segment was primarily driven by revenue associated with the sale of nine company-operated stores to a franchisee in the current period as well as decreased volume within the U.S. glass business. The sales decrease in the Car Wash segment primarily related to reduced volume resulting in decreased same store sales. The sales increase in the Maintenance segment was primarily due to same store sales growth and 5262 net new company-operated stores. The sales increase in the Paint, Collision & Glass segment was primarily due to same store sales growth as well as net store growth from the 2022 U.S. glass acquisitions. Car Wash sales were flat year over year as a result of sales from 59 net new company-operated stores offset by decreased same store sales. In aggregate, the Company added 199a net 48 company-operated stores year-over-year.
Independently-operatedIndependently-Operated Store Sales
Independently-operated store sales (comprised entirely of sales from the international car wash locations) increased by $7$1 million, or 12%1%, primarily due to an increase in same store sales, aspartially offset by a result of improved product mix and price as well as a favorablenegative impact from foreign exchange.
Advertising Fund Contributions
Advertising fund contributions increased by$3 $2 million, or 12%11%, primarily due to an increase in franchise system-wide sales of approximately $170$101 million, or 16%9%, from same store sales growth and an additional 94 net new franchise stores. Our franchise agreements typically require the franchisee to pay continuing advertising fund fees based on a percentage of franchiseethe franchisee’s gross sales.
Supply and Other Revenue
Supply and other revenue increased $137 million, or 21%10%, primarily fromdue to growth in product and service revenue within the Maintenance and Platform Services segment primarily due tosegments as a result of an increase in system-wide sales growth and 135 net new stores within the Maintenance segment.sales.
Operating Expenses
| | Three Months Ended | |
| Three Months Ended | |
| Three Months Ended | |
(in thousands) | |
(in thousands) | |
(in thousands) | |
Company-operated store expenses | |
Company-operated store expenses | |
Company-operated store expenses | |
Independently-operated store expenses | |
Independently-operated store expenses | |
Independently-operated store expenses | |
Advertising fund expenses | |
Advertising fund expenses | |
Advertising fund expenses | |
Supply and other expenses | |
Supply and other expenses | |
Supply and other expenses | |
Selling, general, and administrative expenses | |
Selling, general, and administrative expenses | |
Selling, general, and administrative expenses | |
Acquisition related costs | |
Acquisition related costs | |
Acquisition related costs | |
Store opening costs | |
Store opening costs | |
Store opening costs | |
Depreciation and amortization | |
Depreciation and amortization | |
Depreciation and amortization | |
| | | Three Months Ended | |
(in thousands) | July 1, 2023 | | % of Net Revenues | | June 25, 2022 | | % of Net Revenues | |
Company-operated store expenses | $ | 257,040 | | | 42.4 | % | | $ | 192,939 | | | 37.9 | % | |
Independently-operated store expenses | 31,958 | | | 5.3 | % | | 28,843 | | | 5.7 | % | |
Advertising fund expenses | 24,749 | | | 4.1 | % | | 22,091 | | | 4.3 | % | |
Supply and other expenses | 42,106 | | | 6.9 | % | | 35,800 | | | 7.0 | % | |
Selling, general, and administrative expenses | 96,815 | | | 16.0 | % | | 97,977 | | | 19.3 | % | |
Acquisition related costs | 3,750 | | | 0.6 | % | | 3,338 | | | 0.7 | % | |
Store opening costs | 1,377 | | | 0.2 | % | | 666 | | | 0.1 | % | |
Depreciation and amortization | 45,419 | | | 7.5 | % | | 38,087 | | | 7.5 | % | |
Trade name impairment | — | | | — | % | | 125,450 | | | 24.7 | % | |
Asset impairment charges and lease terminations | |
| Asset impairment charges and lease terminations | |
| Asset impairment charges and lease terminations | Asset impairment charges and lease terminations | 6,044 | | | 1.0 | % | | (882) | | | (0.2) | % | |
Total operating expenses | Total operating expenses | $ | 509,258 | | | 83.9 | % | | $ | 544,309 | | | 107.0 | % | |
Total operating expenses | |
Total operating expenses | |
Company-operatedCompany-Operated Store Expenses
Company-operated store expenses increased $64decreased $1 million, or 33%1%, primarily due to increased operations relating to 199the decreased company-operated stores added in the trailing twelve months as well asstore sales, partially offset by increased operating costs for rent expense at properties converted to leases through prior year sale leasebacks and increased labor costs.that occured during the prior 12 months.
Independently-operatedIndependently-Operated Store Expenses
Independently-operated store expenses which are(comprised entirely related toof expenses from the Car Wash segment, increased $3 million, or 11%, due primarily to an increase in same store sales and an increase in utilities and rent expensesinternational car wash locations) remained flat period over period as well as an unfavorable impact from foreign exchange.a result of cost management.
Independently-Operated Store Sales
Independently-operated store sales (comprised entirely of sales from the international car wash locations) increased$1 million, or1%, primarily due to an increase in same store sales, partially offset by a negative impact from foreign exchange.
Advertising Fund ExpensesContributions
Advertising fund expensescontributions increased $3by $2 million, or 12%11%, which is commensurateprimarily due to thean increase in franchise system-wide sales of approximately $101 million, or 9%, from same store sales growth and an additional 94 net new franchise stores. Our franchise agreements typically require the franchisee to pay continuing advertising fund contributions duringfees based on a percentage of the period. Advertising fund expenses generally trend consistent with advertising fund contributions.franchisee’s gross sales.
Supply and Other ExpensesRevenue
Supply and other expensesrevenue increased $6$7 million, or 18%10%, primarily due to increased freight costsgrowth in product and service revenue within the Maintenance and Platform Services segments as well asa result of an increase in supply and other revenue.system-wide sales.
Selling, General and AdministrativeOperating Expenses
Selling, general and administrative | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | |
(in thousands) | March 30, 2024 | | % of Net Revenues | | April 1, 2023 | | % of Net Revenues | |
Company-operated store expenses | $ | 242,053 | | | 42.3 | % | | $ | 243,409 | | | 43.3 | % | | | |
Independently-operated store expenses | 29,355 | | | 5.1 | % | | 29,364 | | | 5.2 | % | | | |
Advertising fund expenses | 24,070 | | | 4.2 | % | | 21,677 | | | 3.9 | % | | | |
Supply and other expenses | 36,216 | | | 6.3 | % | | 37,266 | | | 6.6 | % | | | |
Selling, general, and administrative expenses | 116,402 | | | 20.3 | % | | 112,328 | | | 20.0 | % | | | |
Acquisition related costs | 1,794 | | | 0.3 | % | | 1,847 | | | 0.3 | % | | | |
Store opening costs | 1,263 | | | 0.2 | % | | 1,025 | | | 0.2 | % | | | |
Depreciation and amortization | 43,229 | | | 7.6 | % | | 38,198 | | | 6.8 | % | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Asset impairment charges and lease terminations | 19,326 | | | 3.4 | % | | 167 | | | — | % | | | |
Total operating expenses | $ | 513,708 | | | 89.8 | % | | $ | 485,281 | | | 86.3 | % | | | |
Company-Operated Store Expenses
Company-operated store expenses decreased$1 $1 million, or 1%, primarily due to a decrease in employee compensation and other employee-related expenses and an increase in gains from sale leaseback transactions,the decreased company-operated store sales, partially offset by infrastructure costs, marketingincreased rent expense at properties converted to leases through sale leasebacks that occured during the prior 12 months.
Independently-Operated Store Expenses
Independently-operated store expenses and professional fees.
Acquisition Related Costs
Acquisition related costs(comprised entirely of expenses from the international car wash locations) remained flat period over period primarily due to the timing of legal and due diligence procedures for acquisitions.
Store Opening Costs
Store opening costs increased by less than $1 million, or 107%, primarily due to costs associated with converting stores from U.S. glass acquisitions to the Auto Glass Now (“AGN”) brand.
Depreciation and Amortization
Depreciation and amortization expense increased$7 million, or 19%, due to additional fixed assets and finite-lived intangible assets recognized in conjunction with recent acquisitions and higher capital expenditures, primarily related to car wash site development.
Trade Name Impairment Charges
During the three months ended June 25, 2022, the Company made the strategic decision to rebrand the majority of its U.S. car wash locations to operate under the name “Take 5 Car Wash”, and therefore are discontinuing the use of certain Car Wash trade names that had indefinite lives. As a result, the Company recognized a $125 million non-cash impairment charge.
Asset Impairment Charges and Lease Terminations
Asset impairment charges and lease terminations increased $7 million for the three months ended July 1, 2023 compared to a benefit of $1 million for three months ended June 25, 2022. Impairments in the current period related to certain property and equipment and operating lease right-of-use assets at closed and underperforming locations. The prior period benefit consisted of a favorable lease settlement.
Interest Expense, Net
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | |
(in thousands) | July 1, 2023 | | % of Net Revenues | June 25, 2022 | | % of Net Revenues | |
Interest expense, net | $ | 40,871 | | | 6.7 | % | $ | 26,270 | | | 5.2 | % | | | |
Interest expense, net increased $15 million, or 56%, primarily as a result of increased interest rates on the Term Loan Facility in the current period as well as interest relating to borrowings under the Series 2022-1 Class A-2 Securitization Senior Notes issued in the fourth quarter of 2022 and increased borrowings and interest rates on the Revolving Credit Facility in the current period.cost management.
(Gain) Loss on Foreign Currency Transactions, Net | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | |
| July 1, 2023 | | % of Net Revenues | June 25, 2022 | | % of Net Revenues | |
(Gain) loss on foreign currency transactions, net | $ | (1,302) | | | (0.2) | % | $ | 13,937 | | | 2.7 | % | | | |
The gain on foreign currency transactions for the three months ended July 1, 2023 was primarily comprised of translation gains in our foreign operations of $2 million and gains of $2 million on foreign currency hedges that are not designated as hedging instruments, partially offset by losses on foreign currency hedges that are designated as hedging instruments of $2 million. The loss on foreign currency transactions for the three months ended June 25, 2022 was comprised of a$16 million net remeasurement loss on our foreign third party long-term debt and foreign intercompany notes, partially offset by$2 million of translation gains on foreign currency hedges that are not designated as hedging instruments.
Income Tax Expense (Benefit) | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | |
(in thousands) | July 1, 2023 | | % of Net Revenues | June 25, 2022 | | % of Net Revenues | |
Income tax expense (benefit) | $ | 20,275 | | | 3.3 | % | $ | (18,848) | | | (3.7) | % | | | |
Income tax expense was $20 million for the three months ended July 1, 2023 compared to income tax benefit of $19 million for the three months ended June 25, 2022. The effective income tax rate for the three months ended July 1, 2023 was 34.9% compared to 24.8% for the three months ended June 25, 2022. The net increase in income tax expense and effective tax rate was primarily driven by a non-recurring tax benefit related to a trade name impairment for the three months ended June 25, 2022, partially offset by the inclusion of foreign disregarded entity losses for the three months ended July 1, 2023.
Results of Operations for the Six Months Ended July 1, 2023 Compared to the Six Months Ended June 25, 2022
We recognized net income of $67 million, or $0.40 per diluted share for the six months ended July 1, 2023, compared to a net loss of $23 million, or ($0.14) per diluted share, for the six months ended June 25, 2022. This increase was primarily due to the non-recurrence of a $125 million non-cash impairment charge in the six months ended June 25, 2022 related to the change in intended use of certain existing Car Wash trade names migrating to the Take 5 Car Wash brand, a positive benefit from foreign exchange of $18 million, and an increase in gains from sale leaseback transactions. The increase in net income was partially offset by reduced operating margins and increased marketing expenditures for company-operated stores, primarily within the Car Wash and Paint, Collision & Glass segments, higher interest expense, primarily relating to a higher variable interest rate on the Term Loan Facility in the current period as well as interest relating to borrowings under the Series 2022-1 Class A-2 Securitization Senior Notes issued in the fourth quarter of 2022, and increased depreciation and amortization relating to capital expenditures and business acquisitions over the prior 12 months.
Adjusted net income was $91 million for the six months ended July 1, 2023, a decrease of $16 million, compared to $107 million for the six months ended June 25, 2022. This decrease was primarily due to reduced operating margins and increased marketing expenditures for company-operated stores, primarily within the Car Wash and Paint, Collision & Glass segments, higher interest expense, relating to a higher variable interest rate on the Term Loan Facility in the current period as well as interest relating to borrowings under the Series 2022-1 Class A-2 Securitization Senior Notes issued in the fourth quarter of 2022, and increased depreciation relating to capital expenditures and business acquisitions over the prior 12 months.
Adjusted EBITDA was $279 million for the six months ended July 1, 2023, an increase of $25 million, compared to $254 million for the six months ended June 25, 2022. The increase in Adjusted EBITDA was primarily due to an increase in revenue related to same store sales growth, unit growth from the U.S. glass and car wash acquisitions in the trailing twelve month period, and organic store count growth, partially offset by reduced operating margins and increased marketing expenditures for company-operated stores, primarily within the Car Wash and Paint, Collision & Glass segments.
To facilitate the review of our results of operations, the following tables set forth our financial results for the periods indicated. All information is derived from the consolidated statements of operations.
Revenue
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Six months ended | | | |
(in thousands) | | July 1, 2023 | | % of Net Revenues | | June 25, 2022 | | % of Net Revenues | |
Franchise royalties and fees | | $ | 93,320 | | | 7.9 | % | | $ | 82,738 | | | 8.4 | % | | | |
Company-operated store sales | | 770,644 | | | 65.9 | % | | 616,276 | | | 63.1 | % | | | |
Independently-operated store sales | | 114,065 | | | 9.8 | % | | 118,031 | | | 12.1 | % | | | |
Advertising fund contributions | | 46,426 | | | 4.0 | % | | 41,789 | | | 4.3 | % | | | |
Supply and other revenue | | 144,863 | | | 12.4 | % | | 118,113 | | | 12.1 | % | | | |
Total revenue | | $ | 1,169,318 | | | 100.0 | % | | $ | 976,947 | | | 100.0 | % | | | |
Franchise Royalties and Fees
Franchise royalties and fees increased $11 million, or 13%, primarily due to same store sales growth as well as a net increase of 135 franchised stores. Franchised system-wide sales increased$335 million, or17%.
Company-operated Store Sales
Company-operated store sales increased$154 million, or 25%, of which $75 million, $72 million, and $8 million related to the Maintenance, Paint, Collision & Glass, and Car Wash segments, respectively. The sales increase in the Maintenance segment was primarily due to same store sales growth and52 net new company-operated stores. The sales increase in the Paint, Collision & Glass segment was primarily due to same store sales growth as well as net store growth from the 2022 U.S. glass acquisitions. The sales increase in the Car Wash segment was primarily driven by the addition of 59 net new company-operated stores primarily due to acquisitions and greenfield openings in the trailing twelve months, which was partially offset by a decrease in same store sales. In aggregate, the Company added 199 company-operated stores year-over-year.
Independently-Operated Store Sales
Independently-operated store sales (comprised entirely of sales from the international car wash locations) decreasedincreased $41 million, or 3%1%, primarily due to a decreasean increase in same store sales.sales, partially offset by a negative impact from foreign exchange.
Advertising Fund Contributions
Advertising fund contributions increased by $5$2 million, or 11%, primarily due to an increase in franchise system-wide sales of approximately $335$101 million, or 17%9%, from same store sales growth and an additional 13594 net new franchise stores. Our franchise agreements typically require the franchisee to pay continuing advertising fund fees based on a percentage of franchiseethe franchisee’s gross sales.
Supply and Other Revenue
Supply and other revenue increased $277 million, or 23%10%, primarily due to growth in product and service revenue within the Maintenance and Platform Services Paint, Collision & Glass, and Maintenance segments due toas a result of an increase in system-wide sales.
Operating Expenses
| | Three Months Ended | |
| Three Months Ended | |
| Three Months Ended | |
(in thousands) | |
(in thousands) | |
(in thousands) | |
Company-operated store expenses | |
Company-operated store expenses | |
Company-operated store expenses | |
Independently-operated store expenses | |
Independently-operated store expenses | |
Independently-operated store expenses | |
Advertising fund expenses | |
Advertising fund expenses | |
Advertising fund expenses | |
Supply and other expenses | |
Supply and other expenses | |
Supply and other expenses | |
Selling, general, and administrative expenses | |
Selling, general, and administrative expenses | |
Selling, general, and administrative expenses | |
Acquisition related costs | |
Acquisition related costs | |
Acquisition related costs | |
Store opening costs | |
Store opening costs | |
Store opening costs | |
Depreciation and amortization | |
Depreciation and amortization | |
Depreciation and amortization | |
| | | Six months ended | |
(in thousands) | | July 1, 2023 | | % of Net Revenues | | June 25, 2022 | | % of Net Revenues | |
Company-operated store expenses | | $ | 500,449 | | | 42.8 | % | | $ | 370,806 | | | 38.0 | % | |
Independently-operated store expenses | | 61,322 | | | 5.2 | % | | 62,142 | | | 6.4 | % | |
Advertising fund expenses | | 46,426 | | | 4.0 | % | | 41,789 | | | 4.3 | % | |
Supply and other expenses | | 79,372 | | | 6.8 | % | | 68,574 | | | 7.0 | % | |
Selling, general, and administrative expenses | | 209,143 | | | 17.9 | % | | 190,197 | | | 19.5 | % | |
Acquisition related costs | | 5,597 | | | 0.5 | % | | 7,656 | | | 0.8 | % | |
Store opening costs | | 2,402 | | | 0.2 | % | | 1,172 | | | 0.1 | % | |
Depreciation and amortization | | 83,617 | | | 7.2 | % | | 71,110 | | | 7.3 | % | |
Trade name impairment charges | | — | | | — | | | 125,450 | | | 12.8 | % | |
Asset impairment charges | | 6,211 | | | 0.5 | % | | 16 | | | — | % | |
Asset impairment charges and lease terminations | |
| Asset impairment charges and lease terminations | |
| Asset impairment charges and lease terminations | |
Total operating expenses | Total operating expenses | | $ | 994,539 | | | 85.1 | % | | $ | 938,912 | | | 96.1 | % | |
Total operating expenses | |
Total operating expenses | |
Company-Operated Store Expenses
Company-operated store expenses increased $130decreased $1 million, or 35%1%, primarily due to increased operations relating to 199the decreased company-operated stores added in the trailing twelve months as well asstore sales, partially offset by increased operating costs for rent expense at properties converted to leases through prior year sale leasebacks and increased labor costs.that occured during the prior 12 months.
Independently-Operated Store Expenses
Independently-operated store expenses which are(comprised entirely related toof expenses from the Car Wash segment, decreased $1 million, or 1%, primarily due tointernational car wash locations) remained flat period over period as a decrease in Independently-operated store sales.result of cost management.
Advertising Fund Expenses
Advertising fund expenses increased $5$2 million, or 11%, which is commensurate with the increase to advertising fund contributions during the period. Advertising fund expenses generally trend consistent with advertising fund contributions.
Supply and Other Expenses
Supply and other expenses increased $11decreased $1 million, or 16%3%, due to an increase indecreased product costs associated with supply and other revenue as well as higher freight costs incurred in the Platform Services segment.revenue.
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses increased $19$4 million, or 10%4%, primarily due to an increaseincreased equity-based compensation expense resulting from modifications of certain stock awards in employee compensationthe fourth quarter of 2023 as well as increased third party and other employee-related expensemarketing expenditures. These expenses were partially offset by a gain primarily relating to the sale of a business, assets held for sale, and favorable lease terminations of approximately $13 million during the three months ended March 30, 2024 compared to a loss of $2 million during the three months ended April 1, 2023. During the three months ended March 30, 2024 the company recorded a gain of $6 million from increased headcountthe sale of nine company-operated stores to a franchisee, a gain of $6 million for assets held for sale, and acquisitions, infrastructure costs, travel costs, professional fees, andmarketing expenses.
favorable lease terminations of $6 million on previously impaired ROU assets, offset by $5 million of loss from disposals in the current period.
Acquisition Related Costs
Acquisition related costs decreased $2less than $1 million or 27% due to decreased acquisition activity in the current year compared to the prior year.
Store Opening Costs
Store opening costs increased by less than $1 million, or 105%,remained flat primarily dueas the Company continues to costsopen company-operated stores, primarily associated with converting stores from U.S. glass acquisitions to the AGN brand.Take 5 Oil new store openings and brand conversions of previously acquired locations.
Depreciation and Amortization
Depreciation and amortization expense increased $13$5 million, or 18%13%, due to additional fixed assets and finite-lived intangible assets recognized in conjunction with recent acquisitions and higher capital expenditures, primarily related to oil change and car wash site development.
Trade Name Impairment Charges
Duringdevelopment, as well as full year depreciation for store openings that occurred in the six months ended June 25, 2022, the Company made the strategic decision to rebrand the majority of its U.S. car wash locations to operate under the name “Take 5 Car Wash”, and therefore are discontinuing the use of certain Car Wash trade names that had indefinite lives. As a result, the Company recognized a $125 million non-cash impairment charge.prior 12 months.
Asset Impairment Charges and Lease Terminations
Asset impairment charges and lease terminations increased $6 million, dueby $19 million. During the three months ended March 30, 2024, the Company recorded impairment charges primarily related to certain property and equipment and operating lease right-of-use assets at closed and underperforming locations.held for sale. For more information, refer to Note 6 in our consolidated financial statements included within this Form 10-Q. Interest Expense, Net
| | Six months ended | |
| Three Months Ended | |
| Three Months Ended | |
| Three Months Ended | |
(in thousands) | |
(in thousands) | |
(in thousands) | (in thousands) | | July 1, 2023 | | % of Net Revenues | | June 25, 2022 | | % of Net Revenues | |
Interest expense, net | Interest expense, net | | $ | 79,012 | | | 6.8 | % | | $ | 51,623 | | | 5.3 | % | |
Interest expense, net | |
Interest expense, net | |
Interest expense, net increased $27$6 million, or 53%15%, primarily as a result of increased interest rates on the Term Loan Facility in the current period as well as interest relatingdue to borrowings under the Series 2022-1 Class A-2 Securitization Senior Notes issued in the fourth quarter of 2022 and increased borrowings and interesthigher variable rates on the Revolving Credit Facility in the current period.Facility.
Loss (Gain) Loss on Foreign Currency Transactions, Net | | Six months ended | |
| Three Months Ended | |
| Three Months Ended | |
| Three Months Ended | |
(in thousands) | (in thousands) | | July 1, 2023 | | % of Net Revenues | | June 25, 2022 | | % of Net Revenues | |
(Gain) loss on foreign currency transactions, net | | $ | (2,977) | | | (0.3) | % | | $ | 14,908 | | | 1.5 | % | |
(in thousands) | |
(in thousands) | |
Loss (gain) on foreign currency transactions, net | |
Loss (gain) on foreign currency transactions, net | |
Loss (gain) on foreign currency transactions, net | |
The loss on foreign currency transactions for the three months ended March 30, 2024 was primarily comprised of transaction losses in our foreign operations of $7 million, partially offset by a gain on foreign currency hedges of $3 million. The gain on foreign currency transactions for the sixthree months ended JulyApril 1, 2023 was primarily comprised of gains of $4 million on foreign currency hedges that are not designated as hedging instruments and translation gains in our foreign operations ofa $2 million partially offset by losses on foreign currency hedges that are designated as hedging instruments of $3 million. The loss on foreign currency transactions for the six months ended June 25, 2022 is comprised of a $14 million remeasurement loss on our foreign third party long-term debt and intercompany notes and a loss of $1 million incurredunrealized gain on foreign currency hedges that are not designated as hedging instruments.
Income Tax Expense (Benefit) | | Six months ended | | |
| Three Months Ended | |
| Three Months Ended | |
| Three Months Ended | |
(in thousands) | (in thousands) | | July 1, 2023 | | % of Net Revenues | | June 25, 2022 | % of Net Revenues | | |
Income tax expense (benefit) | | $ | 31,246 | | | 2.7 | % | | $ | (5,880) | | (0.6) | % | | |
(in thousands) | |
(in thousands) | |
Income tax expense | |
Income tax expense | |
Income tax expense | |
Income tax expense was $31 million for the six months ended July 1, 2023 compared to an income tax benefit of $6 million for the sixthree months ended June 25, 2022.March 30, 2024 compared to $11 million for the three months ended April 1, 2023. The effective income tax rate for the sixthree months ended July 1, 2023March 30, 2024 was 31.6%59.1% compared to 20.6%26.9% for the sixthree months ended June 25, 2022.April 1, 2023. The net increase in income tax expense and effective tax rate for the three months ended March 30, 2024 was primarily driven by a non-recurringthe asset impairment charges and the non-deductible equity-based compensation expense. The effective tax benefit related to a trade name impairmentrate for the sixthree months ended June 25, 2022, partially offsetApril 1, 2023 was driven by the inclusion of foreign disregarded entity losses for the six months ended July 1, 2023.
losses.
Segment Results of Operations for the Three Months Ended July 1, 2023March 30, 2024 Compared to the Three Months Ended June 25, 2022April 1, 2023
We assess the performance of our segments based on Segment Adjusted EBITDA, which is defined as earnings before interest expense, net, income tax expense, and depreciation and amortization, with further adjustments for acquisition-related costs, store opening and closure costs, straight-line rent, equity compensation, loss on debt extinguishment, cloud computing amortization, and certain non-recurring, non-core, infrequent or unusual charges. In addition, shared services costs are not allocated to these segments and are included in Corporate and Other. Segment Adjusted EBITDA is a supplemental measure of the operating performance of our segments and may not be comparable to similar measures reported by other companies.
Maintenance
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | 2023 | | 2022 | | | |
(in thousands, unless otherwise noted) | July 1, 2023 | | June 25, 2022 | | % Net Revenue For Segment | | % Net Revenue For Segment | |
Franchise royalties and fees | $ | 14,215 | | | $ | 11,326 | | | 5.9 | % | | 5.8 | % | | | |
Company-operated store sales | 205,673 | | | 168,648 | | | 84.8 | % | | 86.8 | % | | | |
Supply and other revenue | 22,439 | | | 14,331 | | | 9.3 | % | | 7.4 | % | | | |
Total revenue | $ | 242,327 | | | $ | 194,305 | | | 100.0 | % | | 100.0 | % | | | |
Segment Adjusted EBITDA | $ | 85,753 | | | $ | 64,076 | | | 35.4 | % | | 33.0 | % | | | |
| | | | | | | | | | |
System-Wide Sales | | | | | Change | | | |
Franchised stores | $ | 278,951 | | | $ | 230,505 | | | $ | 48,446 | | | 21.0 | % | | | |
Company-operated stores | 205,673 | | | 168,648 | | | 37,025 | | | 22.0 | % | | | |
Total System-Wide Sales | $ | 484,624 | | | $ | 399,153 | | | $ | 85,471 | | | 21.4 | % | | | |
| | | | | | | | | | |
Store Count (in whole numbers) | | | | | Change | | | |
Franchised stores | 1,084 | | | 1,001 | | | 83 | | | 8.3 | % | | | |
Company-operated stores | 610 | | | 558 | | | 52 | | | 9.3 | % | | | |
Total Store Count | 1,694 | | | 1,559 | | | 135 | | | 8.7 | % | | | |
Same Store Sales % | 10.2 | % | | 15.0 | % | | | | | | | |
Maintenance revenue increased $48 million, or 25%, for the three months ended July 1, 2023, as compared to the three months ended June 25, 2022. Franchise royalties and fees increased by $3 million primarily due to a $48 million, or 21%, increase in franchised system-wide sales from same store sales growth and 83 net new franchise stores. Company-operated store sales increased by $37 million, or 22%, primarily due to same store sales growth and 52 net new company-operated stores. Supply and other revenue increased by $8 million, or 57%, primarily due to higher system-wide sales from franchised stores.
Maintenance Segment Adjusted EBITDA increased $22 million, or 34%, primarily due to revenue growth, cost management, and operational leverage. We continue to utilize an efficient labor model at company-operated locations.
Car Wash
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | 2023 | | 2022 | | | |
(in thousands, unless otherwise noted) | July 1, 2023 | | June 25, 2022 | | % Net Revenue For Segment | | % Net Revenue For Segment | |
Company-operated store sales | $ | 101,615 | | | $ | 101,796 | | | 61.7 | % | | 64.2 | % | | | |
Independently-operated store sales | 61,533 | | | 54,942 | | | 37.3 | % | | 34.6 | % | | | |
Supply and other revenue | 1,607 | | | 1,841 | | | 1.0 | % | | 1.2 | % | | | |
Total revenue | $ | 164,755 | | | $ | 158,579 | | | 100.0 | % | | 100.0 | % | | | |
Segment Adjusted EBITDA | $ | 43,263 | | | $ | 53,677 | | | 26.3 | % | | 33.8 | % | | | |
| | | | | | | | | | |
System-Wide Sales | | | | | Change | | | |
Company-operated stores | 101,615 | | | 101,796 | | | $ | (181) | | | (0.2) | % | | | |
Independently-operated stores | 61,533 | | | 54,942 | | | 6,591 | | | 12.0 | % | | | |
Total System-Wide Sales | $ | 163,148 | | | $ | 156,738 | | | $ | 6,410 | | | 4.1 | % | | | |
| | | | | | | | | | |
Store Count (in whole numbers) | | | | | Change | | | |
Company-operated stores | 415 | | | 356 | | | 59 | | | 16.6 | % | | | |
Independently-operated stores | 716 | | | 718 | | | (2) | | | (0.3) | % | | | |
Total Store Count | 1,131 | | | 1,074 | | | 57 | | | 5.3 | % | | | |
Same Store Sales % | (4.0) | % | | (2.7) | % | | | | | | | |
| | | | | | | | | | |
Car Wash Segment revenue increased by $6 million, or 4%, driven by an increase in same store sales within independently-operated store sales, the addition of 59 net new company-operated stores primarily due to acquisitions and greenfield openings in the trailing twelve months, and a favorable impact from foreign exchange, partially offset by decreased same store sales within company-operated store sales.
Car Wash is comprised of car wash sites throughout the United States, Europe, and Australia with varying geographical, economical, and political factors, which could impact the results of the business. Car Wash has experienced increased competitive pressures and negative weather patterns, which have contributed to negative same store sales, as well as political disruptions in our international locations resulting in increased costs and reduced operational results. We perform site reviews, as needed, to evaluate operational efficiencies and these reviews could result in future impairment charges.
Car Wash Segment Adjusted EBITDA decreased by $10 million, or 19%, primarily driven by decreased same store sales within company-operated store sales and increased company-operated store costs primarily relating to employee compensation and rent expense for properties included in sale-leaseback transactions in the trailing twelve months, partially offset by a favorable impact from foreign exchange.
Paint, Collision & Glass
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | 2023 | | 2022 | | | |
(in thousands, unless otherwise noted) | July 1, 2023 | | June 25, 2022 | | % Net Revenue For Segment | | % Net Revenue For Segment | |
Franchise royalties and fees | $ | 26,530 | | | $ | 23,605 | | | 19.9 | % | | 24.8 | % | | | |
Company-operated store sales | 86,110 | | | 52,049 | | | 64.7 | % | | 54.6 | % | | | |
Supply and other revenue | 20,518 | | | 19,715 | | | 15.4 | % | | 20.6 | % | | | |
Total revenue | $ | 133,158 | | | $ | 95,369 | | | 100.0 | % | | 100.0 | % | | | |
Segment Adjusted EBITDA | $ | 41,249 | | | $ | 32,916 | | | 31.0 | % | | 34.5 | % | | | |
| | | | | | | | | | |
System-Wide Sales | | | | | Change | | | |
Franchised stores | $ | 806,420 | | | $ | 672,616 | | | $ | 133,804 | | | 19.9 | % | | | |
Company-operated stores | 86,110 | | | 52,049 | | | 34,061 | | | 65.4 | % | | | |
Total System-Wide Sales | $ | 892,530 | | | $ | 724,665 | | | $ | 167,865 | | | 23.2 | % | | | |
| | | | | | | | | | |
Store Count (in whole numbers) | | | | | Change | | | |
Franchised stores | 1,657 | | | 1,611 | | | 46 | | | 2.9 | % | | | |
Company-operated stores | 248 | | | 160 | | | 88 | | | 55.0 | % | | | |
Total Store Count | 1,905 | | | 1,771 | | | 134 | | | 7.6 | % | | | |
Same Store Sales % | 12.2 | % | | 16.1 | % | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Paint, Collision & Glass revenue increased $38 million, or 40%, for the three months ended July 1, 2023, as compared to the three months ended June 25, 2022. The company-operated store sales increased $34 million, or 65%, as a result of U.S. glass acquisitions in the trailing twelve months. Franchise royalties and fees increased by $3 million, or 12%, primarily due to a $134 million, or 20%, increase in franchise system-wide sales generated by same store sales growth and 46 net new franchise stores. Supply and other revenue increased by less than $1 million, or 4%, due to higher product sales resulting from an increase in system-wide sales.
We entered the U.S. glass market in the first quarter of 2022 through the acquisition of Auto Glass Now and have quickly become the second largest player in the auto glass servicing category. Since entering the market, we have completed 12 acquisitions and as of July 1, 2023 we have 222 glass stores. We have continued to integrate these acquisitions, standardize operations, and rebrand to the Auto Glass Now brand name throughout the first half of 2023. Due to the size and complexity of these acquisitions, the integrations have taken longer than planned resulting in less cost efficiencies in the current period.
Paint, Collision & Glass Segment Adjusted EBITDA increased $8 million, or 25%, primarily due to revenue growth from acquisitions and same store sales growth. Company-operated stores comprise 13% of the Paint, Collision & Glass store count in the current period compared to 9% in the prior year, which resulted in lower margins in the current period, primarily due to higher inventory costs and employee related costs.
Platform Services
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | 2023 | | 2022 | | | |
(in thousands, unless otherwise noted) | July 1, 2023 | | June 25, 2022 | | % Net Revenue For Segment | | % Net Revenue For Segment | |
Franchise royalties and fees | $ | 9,060 | | | $ | 9,919 | | | 15.8 | % | | 18.6 | % | | | |
Company-operated store sales | 1,180 | | | 1,392 | | | 2.1 | % | | 2.6 | % | | | |
Supply and other revenue | 47,098 | | | 41,891 | | | 82.1 | % | | 78.8 | % | | | |
Total revenue | $ | 57,338 | | | $ | 53,202 | | | 100.0 | % | | 100.0 | % | | | |
Segment Adjusted EBITDA | $ | 22,537 | | | $ | 20,541 | | | 39.3 | % | | 38.6 | % | | | |
| | | | | | | | | | |
System-Wide Sales | | | | | Change | | | |
Franchised stores | $ | 117,548 | | | $ | 129,928 | | | $ | (12,380) | | | (9.5) | % | | | |
Company-operated stores | 1,180 | | | 1,392 | | | (212) | | | (15.2) | % | | | |
Total System-Wide Sales | $ | 118,728 | | | $ | 131,320 | | | $ | (12,592) | | | (9.6) | % | | | |
| | | | | | | | | | |
Store Count (in whole numbers) | | | | | Change | | | |
Franchised stores | 207 | | | 201 | | | 6 | | | 3.0 | % | | | |
Company-operated stores | 1 | | | 1 | | | — | | | — | % | | | |
Total Store Count | 208 | | | 202 | | | 6 | | | 3.0 | % | | | |
Same Store Sales % | (11.3) | % | | 11.8 | % | | | | | | | |
Platform Services revenue increased $4 million, or 8%, driven by an increase in total company system-wide sales that resulted in increased product purchases.
Platform Services Segment Adjusted EBITDA increased $2 million, or 10%, primarily driven by revenue growth, cost management, and operational leverage.
Segment Results of Operations for the Six Months Ended July 1, 2023 Compared to the Six Months Ended June 25, 2022
We assess the performance of our segments based on Segment Adjusted EBITDA, which is defined as earnings before interest expense, net, income tax expense, and depreciation and amortization, with further adjustments for acquisition-related costs, store opening and closure costs, straight-line rent, equity compensation, loss on debt extinguishment and certain non-recurring, non-core, infrequent or unusual charges. Additionally, sharedShared services costs are not allocated to these segments and are included in Corporate and Other. Segment Adjusted EBITDA may not be comparable to similarly titled metrics of other companies due to differences in methods of calculation.
Maintenance
| | Six months ended | | 2023 | | 2022 | |
| Three Months Ended | |
| Three Months Ended | |
| Three Months Ended | |
(in thousands, unless otherwise noted) | |
(in thousands, unless otherwise noted) | |
(in thousands, unless otherwise noted) | (in thousands, unless otherwise noted) | | July 1, 2023 | | June 25, 2022 | | % Net Revenue For Segment | | % Net Revenue For Segment | |
Franchise royalties and fees | Franchise royalties and fees | | $ | 26,658 | | | $ | 20,961 | | | 5.7 | % | | 5.7 | % | |
Franchise royalties and fees | |
Franchise royalties and fees | |
Company-operated store sales | |
Company-operated store sales | |
Company-operated store sales | Company-operated store sales | | 400,933 | | | 325,476 | | | 85.3 | % | | 87.2 | % | |
Supply and other revenue | Supply and other revenue | | 42,404 | | | 26,610 | | | 9.0 | % | | 7.1 | % | |
Total revenue | | $ | 469,995 | | | $ | 373,047 | | | 100.0 | % | | 100.0 | % | |
Supply and other revenue | |
Supply and other revenue | |
Total net revenue | |
Total net revenue | |
Total net revenue | |
Segment Adjusted EBITDA | |
Segment Adjusted EBITDA | |
Segment Adjusted EBITDA | Segment Adjusted EBITDA | | $ | 158,739 | | | $ | 116,561 | | | 33.8 | % | | 31.2 | % | |
| System-Wide Sales | System-Wide Sales | | Change | |
| System-Wide Sales | |
| System-Wide Sales | |
Franchised stores | |
Franchised stores | |
Franchised stores | Franchised stores | | $ | 525,634 | | | $ | 430,789 | | | $ | 94,845 | | | 22.0 | % | |
Company-operated stores | Company-operated stores | | 400,933 | | | 325,476 | | | 75,457 | | | 23.2 | % | |
Company-operated stores | |
Company-operated stores | |
Total System-Wide Sales | |
Total System-Wide Sales | |
Total System-Wide Sales | Total System-Wide Sales | | $ | 926,567 | | | $ | 756,265 | | | $ | 170,302 | | | 22.5 | % | |
| Store Count (in whole numbers) | Store Count (in whole numbers) | | Change | |
| Store Count (in whole numbers) | |
| Store Count (in whole numbers) | |
Franchised stores | |
Franchised stores | |
Franchised stores | Franchised stores | | 1,084 | | | 1,001 | | | 83 | | | 8.3 | % | |
Company-operated stores | Company-operated stores | | 610 | | | 558 | | | 52 | | | 9.3 | % | |
Company-operated stores | |
Company-operated stores | |
Total Store Count | |
Total Store Count | |
Total Store Count | Total Store Count | | 1,694 | | | 1,559 | | | 135 | | | 8.7 | % | |
Same Store Sales % | Same Store Sales % | | 11.6 | % | | 16.9 | % | | | | |
Same Store Sales % | |
Same Store Sales % | |
Maintenance net revenue increased $97$34 million, or 26%15%, driven primarily by a $75$26 million increase in company-operated store sales from same store sales growth and 5262 net new company-operated stores. Supply and other revenue increased by $6 million, or 32%, primarily due to higher system-wide sales. Franchise royalties and fees increased by $6$2 million, or 27%16%, primarily due to the $95a $32 million, or 22%13%, increase in franchised system-wide sales from same store sales growth and 8386 net new franchise stores. Supply and other revenue increased by $16 million, or 59%, primarily due to higher system-wide sales from franchised stores.
Maintenance Segment Adjusted EBITDA increased $42$19 million, or 36%27%, primarily due to revenue growth, cost management, and operational leverage utilizing our efficient labor model at company-operated locations.
Car Wash
| | Six months ended | | 2023 | | 2022 | |
| Three Months Ended | |
| Three Months Ended | |
| Three Months Ended | |
(in thousands, unless otherwise noted) | |
(in thousands, unless otherwise noted) | |
(in thousands, unless otherwise noted) | (in thousands, unless otherwise noted) | | July 1, 2023 | | June 25, 2022 | | % Net Revenue For Segment | | % Net Revenue For Segment | |
Company-operated store sales | Company-operated store sales | | 204,061 | | | 196,291 | | | 63.4 | % | | 61.8 | % | |
Company-operated store sales | |
Company-operated store sales | |
Independently-operated store sales | |
Independently-operated store sales | |
Independently-operated store sales | Independently-operated store sales | | 114,065 | | | 118,031 | | | 35.5 | % | | 37.1 | % | |
Supply and other revenue | Supply and other revenue | | 3,609 | | | 3,532 | | | 1.1 | % | | 1.1 | % | |
Total revenue | | $ | 321,735 | | | $ | 317,854 | | | 100.0 | % | | 100.0 | % | |
Supply and other revenue | |
Supply and other revenue | |
Total net revenue | |
Total net revenue | |
Total net revenue | |
Segment Adjusted EBITDA | |
Segment Adjusted EBITDA | |
Segment Adjusted EBITDA | Segment Adjusted EBITDA | | $ | 87,572 | | | $ | 109,397 | | | 27.2 | % | | 34.4 | % | |
| System-Wide Sales | System-Wide Sales | | Change | |
| System-Wide Sales | |
| System-Wide Sales | |
Company-operated stores | |
Company-operated stores | |
Company-operated stores | Company-operated stores | | $ | 204,061 | | | 196,291 | | | $ | 7,770 | | | 4.0 | % | |
Independently-operated stores | Independently-operated stores | | 114,065 | | | 118,031 | | | (3,966) | | | (3.4) | % | |
Independently-operated stores | |
Independently-operated stores | |
Total System-Wide Sales | |
Total System-Wide Sales | |
Total System-Wide Sales | Total System-Wide Sales | | $ | 318,126 | | | $ | 314,322 | | | $ | 3,804 | | | 1.2 | % | |
| Store Count (in whole numbers) | Store Count (in whole numbers) | | Change | |
| Store Count (in whole numbers) | |
| Store Count (in whole numbers) | |
Company-operated stores | |
Company-operated stores | |
Company-operated stores | Company-operated stores | | 415 | | | 356 | | | 59 | | | 16.6 | % | |
Independently-operated stores | Independently-operated stores | | 716 | | | 718 | | | (2) | | | (0.3) | % | |
Independently-operated stores | |
Independently-operated stores | |
Total Store Count | |
Total Store Count | |
Total Store Count | Total Store Count | | 1,131 | | | 1,074 | | | 57 | | | 5.3 | % | |
Same Store Sales % | Same Store Sales % | | (7.7) | % | | 1.8 | % | | | | |
Same Store Sales % | |
Same Store Sales % | |
|
Car Wash segment net revenue increased $4decreased $12 million, or 1%8%, driven primarily by a $12 million decrease in company-operated store sales from the additionnet reduction of 59 net new12 company-operated stores primarily due to acquisitions and greenfield openings in the trailing twelve12 months which was partially offset byand a 7.7% decrease in same store sales primarily relating to lower volume. Independently-operated store sales increased $1 million due to an increase in same store sales for independently-operated stores and a favorable impact from foreign exchange. Supply and other revenue decreased $1 million due to reduced vending sales.
Car Wash is comprised of car wash sites throughout the United States,U.S., Europe, and Australia with varying geographical, economical, and political factors, which could impact the results of the business. Our U.S. Car Wash haslocations have experienced softening demand, increased competitive pressures, and negative weather patterns, which have contributed to negative same store sales, as well as political disruptions in our international locations resulting in increased costs and reduced operational results.sales. We perform site reviews as needed, to evaluate operational efficiencies and these reviews could result in future impairment charges.
Car Wash Segment Adjusted EBITDA decreased by $22$12 million, or 20%29%, primarily driven by decreased same store sales within company-operated store sales,stores and increased company-operated store costs primarily relating to employee compensation and rent expense for properties included inas a result of sale-leaseback transactions in the trailing twelve months as well as an unfavorable impact from foreign exchange.12 months.
Paint, Collision & Glass
| | Six months ended | | 2023 | | 2022 | |
| Three Months Ended | |
| Three Months Ended | |
| Three Months Ended | |
(in thousands, unless otherwise noted) | |
(in thousands, unless otherwise noted) | |
(in thousands, unless otherwise noted) | (in thousands, unless otherwise noted) | | July 1, 2023 | | June 25, 2022 | | % Net Revenue For Segment | | % Net Revenue For Segment | |
Franchise royalties and fees | Franchise royalties and fees | | $ | 50,828 | | | $ | 44,970 | | | 20.0 | % | | 25.7 | % | |
Franchise royalties and fees | |
Franchise royalties and fees | |
Company-operated store sales | |
Company-operated store sales | |
Company-operated store sales | Company-operated store sales | | 163,589 | | | 91,965 | | | 64.4 | % | | 52.6 | % | |
Supply and other revenue | Supply and other revenue | | 39,544 | | | 37,795 | | | 15.6 | % | | 21.7 | % | |
Total revenue | | $ | 253,961 | | | $ | 174,730 | | | 100.0 | % | | 100.0 | % | |
Supply and other revenue | |
Supply and other revenue | |
Total net revenue | |
Total net revenue | |
Total net revenue | |
Segment Adjusted EBITDA | |
Segment Adjusted EBITDA | |
Segment Adjusted EBITDA | Segment Adjusted EBITDA | | $ | 76,961 | | | $ | 61,928 | | | 30.3 | % | | 35.4 | % | |
| System-Wide Sales | System-Wide Sales | | Change | |
| System-Wide Sales | |
| System-Wide Sales | |
Franchised stores | |
Franchised stores | |
Franchised stores | Franchised stores | | $ | 1,544,983 | | | $ | 1,291,585 | | | $ | 253,398 | | | 19.6 | % | |
Company-operated stores | Company-operated stores | | 163,589 | | | 91,965 | | | 71,624 | | | 77.9 | % | |
Company-operated stores | |
Company-operated stores | |
Total System-Wide Sales | |
Total System-Wide Sales | |
Total System-Wide Sales | Total System-Wide Sales | | $ | 1,708,572 | | | $ | 1,383,550 | | | $ | 325,022 | | | 23.5 | % | |
| Store Count (in whole numbers) | Store Count (in whole numbers) | | Change | |
| Store Count (in whole numbers) | |
| Store Count (in whole numbers) | |
Franchised stores | |
Franchised stores | |
Franchised stores | Franchised stores | | 1,657 | | | 1,611 | | | 46 | | | 2.9 | % | |
Company-operated stores | Company-operated stores | | 248 | | | 160 | | | 88 | | | 55.0 | % | |
Company-operated stores | |
Company-operated stores | |
Total Store Count | Total Store Count | | 1,905 | | | 1,771 | | | 134 | | | 7.6 | % | |
Total Store Count | |
Total Store Count | |
Same Store Sales % | |
Same Store Sales % | |
Same Store Sales % | Same Store Sales % | | 15.8 | % | | 16.6 | % | | | | |
|
Paint, Collision & Glass net revenue increased $79decreased $14 million, or 45%12%, for the sixthree months ended July 1, 2023,March 30, 2024, as compared to the sixthree months ended June 25, 2022.April 1, 2023. Company-operated store revenue increased $72sales decreased $15 million, or 78%19%, primarily driven by revenue associated with the sale of nine company-operated stores to a franchisee in the current period as a result ofwell as decreased volume within the U.S. glass acquisitions in the trailing twelve months.business. Franchise royalties and fees revenue increased $6less than $1 million, or 13%1%, primarily due to a $253an $81 million, or 20%11%, increase in franchisedfranchise system-wide sales from same store sales growth. Supply and other revenue increased $2 million, or 5%, due togenerated by same store sales growth, and higher franchise income resulting from an increasepartially offset by a decrease in system-wide sales.
We entered the U.S. glass market in the first quarter of 2022 through the acquisition of Auto Glass Now and have quickly become the second largest player in the auto glass servicing category. Since entering the market, we have completed 12 acquisitions and as of July 1, 2023 we have 222 glass stores. We have continued to integrate these acquisitions, standardize operations, and rebrand to the Auto Glass Now brand name throughout the first half of 2023. Due to the size and complexity of these acquisitions, the integrations have taken longer than planned resulting in less cost efficiencies in the current period.average royalty rates.
Paint, Collision & Glass Segment Adjusted EBITDA increased $15decreased $5 million, or 24%13%, primarily due to revenue growth from acquisitionsdecreased volume associated with company-operated stores and decreased operating margins, partially offset by total segment same store sales growth. Company-operated stores comprise 13% of the Paint, Collision & Glass store count in the current period compared to 9% in the prior year, which resulted in lower margins in the current period, primarily due to higher inventory costs and employee related costs.
Platform Services
| | Six months ended | | 2023 | | 2022 | |
| | Three Months Ended | |
| | Three Months Ended | |
| | Three Months Ended | |
(in thousands, unless otherwise noted) | |
(in thousands, unless otherwise noted) | |
(in thousands, unless otherwise noted) | (in thousands, unless otherwise noted) | | July 1, 2023 | | June 25, 2022 | | % Net Revenue For Segment | | % Net Revenue For Segment | |
Franchise royalties and fees | Franchise royalties and fees | | $ | 15,834 | | | $ | 16,807 | | | 14.5 | % | | 17.4 | % | |
Franchise royalties and fees | |
Franchise royalties and fees | |
Company-operated store sales | |
Company-operated store sales | |
Company-operated store sales | Company-operated store sales | | 2,061 | | | 2,544 | | | 1.9 | % | | 2.6 | % | |
Supply and other revenue | Supply and other revenue | | 91,476 | | | 77,017 | | | 83.6 | % | | 80.0 | % | |
Total revenue | | $ | 109,371 | | | $ | 96,368 | | | 100.0 | % | | 100.0 | % | |
Supply and other revenue | |
Supply and other revenue | |
Total net revenue | |
Total net revenue | |
Total net revenue | |
Segment Adjusted EBITDA | |
Segment Adjusted EBITDA | |
Segment Adjusted EBITDA | Segment Adjusted EBITDA | | $ | 39,567 | | | $ | 34,706 | | | 36.2 | % | | 36.0 | % | |
| System-Wide Sales | System-Wide Sales | | Change | |
| System-Wide Sales | |
| System-Wide Sales | |
Franchised stores | |
Franchised stores | |
Franchised stores | Franchised stores | | $ | 206,651 | | | $ | 219,570 | | | $ | (12,919) | | | (5.9) | % | |
Company-operated stores | Company-operated stores | | 2,061 | | | 2,544 | | | (483) | | | (19.0) | % | |
Company-operated stores | |
Company-operated stores | |
Total System-Wide Sales | |
Total System-Wide Sales | |
Total System-Wide Sales | Total System-Wide Sales | | $ | 208,712 | | | $ | 222,114 | | | $ | (13,402) | | | (6.0) | % | |
| Store Count (in whole numbers) | Store Count (in whole numbers) | | Change | |
| Store Count (in whole numbers) | |
| Store Count (in whole numbers) | |
Franchised stores | |
Franchised stores | |
Franchised stores | Franchised stores | | 207 | | | 201 | | | 6 | | | 3.0 | % | |
Company-operated stores | Company-operated stores | | 1 | | | 1 | | | — | | | — | % | |
Company-operated stores | |
Company-operated stores | |
Total Store Count | Total Store Count | | 208 | | | 202 | | | 6 | | | 3.0 | % | |
Same Store Sales % | | (8.7) | % | | 18.9 | % | | | | |
Total Store Count | |
Total Store Count | |
| |
Platform Services net revenue increased $13$2 million, or 13%3%, driven primarily by an increase in total companyCompany system-wide sales thatof $1.6 billion in the current year compared to $1.5 billion in the prior year, which resulted in increased product purchases.purchases from franchisees and company-operated stores.
Platform Services Segment Adjusted EBITDA increased $5$3 million, or 14%17%, primarily driven by a combination of revenue growth and cost management, and operational leverage.management.
Financial Condition, Liquidity and Capital Resources
Sources of Liquidity and Capital Resources
Cash flow from operations, supplemented with our long-term borrowings and revolving credit facilities, have been sufficient to fund our operations while allowing us to make strategic investments to grow our business. We believe that our sources of liquidity and capital resources will be adequate to fund our operations, acquisitions, company-operated store development, other general corporate needs, and the additional expenses we expect to incur for at least the next twelve months. We expect to continue to have access to the capital markets at acceptable terms. However, this could be adversely affected by many factors including macroeconomic factors, a downgrade of our credit rating, or a deterioration of certain financial ratios.
Driven Brands Funding, LLC (the “Issuer”), a wholly-owned subsidiary of the Company, and Driven Brands Canada Funding Corporation (along with the Issuer, the “Co-Issuers”) are subject to certain quantitative covenants related to debt service coverage and leverage ratios in connection with our securitization senior notes. Our term loan facilityTerm Loan Facility and Revolving Credit Facility also have certain qualitative covenants. As of July 1, 2023,March 30, 2024, the Co-Issuers and Driven Holdings were in material compliance with all such covenants under their respective credit agreements.
At July 1, 2023,March 30, 2024, the Company had total liquidity of $493$308 million, which included $212166 million in cash and cash equivalents and $9190 million and $190$52 million of undrawn capacity on its 2019 VFN and Revolving Credit Facility, respectively. This does not include the additional $135 million Series 2022-1 Class A-1 Notes that expand our variable funding note borrowing capacity when the company elects to exercise it, assuming certain conditions continue to be met.
The following table illustrates the main components of our cash flows for the sixthree months ended JulyMarch 30, 2024 and April 1, 2023 and June 25, 2022:2023:
| | Six Months Ended |
| Three Months Ended | | | Three Months Ended |
(in thousands) | (in thousands) | July 1, 2023 | | June 25, 2022 | (in thousands) | March 30, 2024 | | April 1, 2023 |
Net cash provided by operating activities | Net cash provided by operating activities | $ | 114,583 | | | $ | 75,389 | |
Net cash used in investing activities | Net cash used in investing activities | (221,100) | | | (484,885) | |
Net cash provided by financing activities | 95,128 | | | 94,314 | |
Net cash (used in) provided by financing activities | |
Effect of exchange rate changes on cash | Effect of exchange rate changes on cash | 2,087 | | | (4,454) | |
Net change in cash, cash equivalents, restricted cash, and restricted cash included in advertising fund assets | Net change in cash, cash equivalents, restricted cash, and restricted cash included in advertising fund assets | $ | (9,302) | | | $ | (319,636) | |
Operating Activities
Net cash provided by operating activities was $115$60 million for the sixthree months ended July 1, 2023March 30, 2024 compared to $7537 million for the sixthree months ended June 25, 2022.April 1, 2023. The increase was primarily due to a $56 million payment for transaction costs associated with the AGN acquisition during the six months ended June 25, 2022, partially offset by higherimproved net working capital inmanagement during the current period.three months ended March 30, 2024.
Investing Activities
Net cash used in investing activities was $221$34 million for the sixthree months ended July 1, 2023March 30, 2024 compared to $485182 million for the sixthree months ended June 25, 2022.April 1, 2023. The decrease was due to a $350$80 million decrease in capital expenditures, proceeds from the sale or disposal of businesses and fixed assets of $53 million,primarily consisting of the sale of nine company-operated collision stores to a franchisee for $18 million and the sale of assets held for sale of $33 million as well as a $27 million decrease in net cash paid for acquisitions, and an $88partially offset by a $12 million increasedecrease in proceeds from sale-leaseback transactions, partially offset by a $171 million increase in capital expenditures, primarily relating to building new company-operated stores and remodeling and improving existing stores.transactions.
Financing Activities
Net cash provided byused in financing activities was $95$33 million for the sixthree months ended July 1, 2023March 30, 2024 primarily related to net borrowings on the revolving credit facilitya Tax Receivable Agreement payment of $110$25 million partially offset byand repayments of long-term debt, including finance leases, of $14$9 million. Net cash provided by financing activities was $94$108 million for the sixthree months ended June 25, 2022April 1, 2023 primarily related to net debt borrowings on the revolving credit facilityRevolving Credit Facility of $105 million, partially offset by repayments of long-term debt of $10$115 million. See Note 7 to our consolidated financial statements for additional information regarding the Company’s debt. Tax Receivable Agreement
We expect to be able to utilize certain tax benefits which are related to periods prior to the effective date of the Company’s initial public offering, which we therefore attribute to our existing shareholders. We expect that these tax benefits (i.e.
(i.e., the Pre-IPO and IPO-Related Tax Benefits) will reduce the amount of tax that we and our subsidiaries would otherwise be required to pay in the future. We have entered into a tax receivable agreementTax Receivable Agreement which provides our Pre-IPO shareholders with the right to receive payment by us of 85% of the amount of cash savings, if any, in U.S. and Canadian federal, state, local, and provincial income tax that we and our subsidiaries actually realize as a result of the utilization of the Pre-IPO and IPO-Related Tax Benefits. The Company recorded a current tax receivable liability of $41 million and $56 million as of March 30, 2024 and December 30, 2023, respectively, and a non-current tax receivable liability of $108 million and $118 million as of March 30, 2024 and December 30, 2023, respectively, on the consolidated balance sheets. We made an initial payment of approximately $25 million under the Tax Receivable Agreement in January 2024.
For purposes of the tax receivable agreement,Tax Receivable Agreement, cash savings in income tax will be computed by reference to the reduction in the liability for income taxes resulting from the utilization of the Pre-IPO and IPO-Related Tax Benefits. The term of the tax receivable agreementTax Receivable Agreement commenced upon the effective date of the Company’s initial public offering and will continue until the Pre-IPO and IPO-Related Tax Benefits have been utilized, accelerated, or expired.
Because we are a holding company with no operations of our own, our ability to make payments under the tax receivable agreementTax Receivable Agreement is dependent on the ability of our subsidiaries to make distributions to us. The securitized debt facility may restrict the ability of our subsidiaries to make distributions to us, which could affect our ability to make payments under the tax receivable agreement.Tax Receivable Agreement. To the extent that we are unable to make payments under the tax receivable agreementTax Receivable Agreement because of restrictions under our outstanding indebtedness, such payments will be deferred and will generally accrue interest. As of July 1, 2023, interest will accrueaccrues at the Base Rate plus an applicable margin or Secured Overnight Financing Rate (“SOFR”)SOFR plus an applicable term adjustment plus 1.0%. To the extent that we are unable to make payments under the tax receivable agreementTax Receivable Agreement for any other reason, such payments will generally accrue interest at a rate of SOFR plus an applicable term adjustment plus 5.0% per annum until paid.
Critical Accounting Policies and Estimates
Our significant accounting policies are more fully described in Note 2 of the consolidated financial statements presented in our Form 10-K for the year ended December 31, 2022.30, 2023. There have been no material changes to our critical accounting policies from those disclosed in our Form 10-K for the year ended December 31, 2022.30, 2023. Application of New Accounting Standards
See Note 2 of the consolidated unaudited financial statements for a discussion of recently issued accounting standards applicable to the Company. Item 3. Quantitative and Qualitative Disclosures About Market Risk
Refer to the Company’s annual report for the year ended December 31, 202230, 2023 for a complete discussion of the Company’s market risk. There have been no material changes in the Company’s market risk from those disclosed in the Company’s Form 10-K for the year ended December 31, 2022.30, 2023.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our CEO and CFO, has evaluated the design effectiveness of our disclosure controls and procedures (as defined in Rules 13a- 15(e) and 15d- 15(e) under the Exchange Act), as of July 1, 2023.March 30, 2024. The term “disclosure controls and procedures,” means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on evaluation of the design of our disclosure controls and procedures as of July 1, 2023,March 30, 2024, our CEO and CFO have concluded that as of such date, our disclosure controls and procedures were designed effectively and will provide a reasonable level of assurance.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the most recently completed quarter ended July 1, 2023March 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Part II. Other Information
Item 1. Legal Proceedings
We are subjectInformation relating to various lawsuits, administrative proceedings, audits, and claims arising in the ordinary course of business. Some of these lawsuits purport to be class actions and/or seek substantial damages. We are required to record an accrual for litigation loss contingencies that are both probable and reasonably estimable. Legal fees and expenses associated with the defense of allthis item is included within Note 12 of our litigation are expensed as such fees and expenses are incurred. Management regularly assesses our insurance deductibles, analyzes litigation information with our attorneys and evaluates our loss experience in connection with pending legal proceedings. While we do not presently believe that any of the legal proceedings to which we are currently a party will ultimately have a material adverse impact on us, there can be no assurance that we will prevail in all the proceedings we are party to, or that we will not incur material losses from them.financial statements included elsewhere within this Form 10-Q.Item 1A. Risk Factors
For a discussion of risk factors that could adversely affect our results of operations, financial condition, business reputation or business prospects, we refer you to Part I, Item 1A "Risk Factors" included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.30, 2023.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 5. Other Information
(c) Trading Plans
During the three months ended July 1, 2023,March 30, 2024, no director or Section 16 officer adopted or terminated any Rule 10b5-1 trading arrangements or non-Rule 10b5-1 trading arrangements (in each case, as defined in Item 408(a) of Regulation S-K).
Item 6. Exhibits.
| | | | | | | | |
Exhibit Number | | Exhibit Description |
| 10.1* | |
| 10.2† | |
| 10.3†* | |
| 10.4†* | |
| 10.5†* | |
31.1* | | |
31.2* | | |
32.1* | | |
32.2* | | |
101.INS* | | XBRL Instance Document |
101.SCH* | | XBRL Schema Document |
101.CAL* | | XBRL Calculation Linkbase Document |
101.DEF* | | XBRL Definition Linkbase Document |
101.LAB* | | XBRL Label Linkbase Document |
101.PRE* | | XBRL Presentation Linkbase Document |
104 | | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
* | | Filed herewith. |
† | | Indicates management contract or compensatory plan. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: August 9, 2023May 8, 2024
| | | | | | | | | | | | | | |
DRIVEN BRANDS HOLDINGS INC. |
| | | | |
By: | | /s/ Jonathan Fitzpatrick |
Name: | | Jonathan Fitzpatrick |
Title: | | President and Chief Executive Officer |
| | | | | | | | | | | | | | |
| | | | |
By: | | /s/ Michael Beland |
Name: | | Michael Beland |
Title: | | Senior Vice President and Chief Accounting Officer |