Driven Brands Holdings Inc
For the period ended Dec 30, 2023. Filed Feb 28, 2024.
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FY2023 · Filed Feb 28, 2024
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Item 8. Financial Statements and Supplementary Data
| Index to Consolidated Financial Statements | |
|---|---|
| Page | |
| Report of Independent Registered Public Accounting Firm (PCAOB ID 238) | 62 |
| Report of Independent Registered Public Accounting Firm (PCAOB ID 248) | 64 |
| Consolidated Statements of Operations for the Years Ended December 30, 2023, December 31, 2022, and December 25, 2021 | 65 |
| Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 30, 2023, December 31, 2022, and December 25, 2021 | 66 |
| Consolidated Balance Sheets as of December 30, 2023 and December 31, 2022 | 67 |
| Consolidated Statements of Shareholders’ / Members’ Equity for the Years Ended December 30, 2023, December 31, 2022, and December 25, 2021 | 68 |
| Consolidated Statements of Cash Flows for the Years Ended December 30, 2023, December 31, 2022, and December 25, 2021 | 69 |
| Notes to the Consolidated Financial Statements | 71 |
To the Board of Directors and Shareholders of Driven Brands Holdings Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Driven Brands Holdings Inc. and its subsidiaries (the “Company”) as of December 30, 2023 and December 31, 2022, and the related consolidated statements of operations, comprehensive income (loss), shareholders’/members’ equity and cash flows for each of the two years in the period ended December 30, 2023, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 30, 2023, based on criteria established in Internal Control - Integrated Framework(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 30, 2023 and December 31, 2022, and the results of its operations and its cash flows for the two years in the period ended December 30, 2023 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 30, 2023, based on criteria established in Internal Control - Integrated Framework(2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating ef1fectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.
As described in Management’s Annual Report on Internal Control Over Financial Reporting, management has excluded 11 businesses from its assessment of internal control over financial reporting as of December 30, 2023 because they were acquired by the Company in purchase business combinations during 2023. We have also excluded these 11 businesses from our audit of internal control over financial reporting. These businesses, each of which is wholly-owned, comprised, in the aggregate, total assets and total net revenue excluded from management’s assessment and our audit of internal control over financial reporting of approximately less than 1% of consolidated total net revenue and consolidated total assets, respectively, as of and for the year ended December 30, 2023.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Interim Goodwill Impairment Assessments – Maintenance-Repair, U.S. Car Wash, and International Car Wash Reporting Units
As described in Notes 2, 6 and 7 to the consolidated financial statements, the Company’s goodwill balance was $1.46 billion as of December 30, 2023, and the goodwill associated with the Maintenance and Car Wash reportable segments was $482.0 million and $217.4 million, respectively. Management has determined that the Maintenance reportable segment includes the Maintenance-Quick Lube and Maintenance-Repair reporting units, and the Car Wash reportable segment includes the International Car Wash and U.S. Car Wash reporting units. Management tests goodwill for impairment at the reporting unit level on the first day of the fourth quarter every year or more frequently if events or changes in circumstances indicate the asset might be impaired. If a reporting unit’s carrying amount exceeds its fair value, the Company will record an impairment charge based on that difference. Management performed a strategic review of the U.S. car wash operations, and as a result of the strategic review, as well as other qualitative and quantitative factors, including a decline in the stock price during the third quarter of 2023, management determined a triggering event had occurred requiring a quantitative analysis of the Company’s goodwill as of September 30, 2023. Based on the results of the interim impairment analysis, management determined that the carrying value of the U.S. Car Wash reporting unit exceeded its fair value and recorded a goodwill impairment charge of $851 million. Management uses the income approach method of valuation that includes the discounted cash flow method and the market approach that includes the guideline public company method to determine the fair value of goodwill. Significant assumptions used by management in estimating fair value under the discounted cash flow model include revenue growth rates, terminal growth rates, discount rates and EBITDA margins.
The principal considerations for our determination that performing procedures relating to the interim goodwill impairment assessments of the Maintenance-Repair, U.S. Car Wash, and International Car Wash reporting units is a critical audit matter are (i) the significant judgment by management when developing the fair value estimate of the U.S. Car Wash, Maintenance-Repair, and International Car Wash reporting units using the income approach; (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to revenue growth rates, terminal growth rates, and discount rates for the Maintenance-Repair and U.S. Car Wash reporting units and revenue growth rates, terminal growth rate, discount rate, and EBITDA margin for the International Car Wash reporting unit; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s interim goodwill impairment assessments, including controls over the valuation of the Maintenance-Repair, U.S. Car Wash, and International Car Wash reporting units. These procedures also included, among others (i) testing management’s process for developing the fair value estimate of the Maintenance-Repair, U.S. Car Wash, and International Car Wash reporting units; (ii) evaluating the appropriateness of the discounted cash flow method used by management; (iii) testing the completeness and accuracy of the underlying data used in the discounted cash flow method; and (iv) evaluating the reasonableness of the significant assumptions used by management related to revenue growth rates, terminal growth rates, and discount rates for the Maintenance-Repair and U.S. Car Wash reporting units and revenue growth rates, terminal growth rate, discount rate, and EBITDA margin for the International Car Wash reporting unit. Evaluating management’s assumptions related to revenue growth rates, terminal growth rates, and EBITDA margin involved evaluating whether the assumptions used by management were reasonable considering (i) the current and past performance of the Maintenance-Repair, U.S. Car Wash and International Car Wash reporting units; (ii) the consistency with external market and industry data; and (iii) whether the assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in evaluating (i) the appropriateness of the discounted cash flow method and (ii) the reasonableness of the discount rate assumption.
/s/PricewaterhouseCoopers LLP
Charlotte, North Carolina
February 28, 2024
We have served as the Company’s auditor since 2022.
Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders
Opinion on the financial statements
We have audited the accompanying consolidated statements of operations, comprehensive income (loss), shareholders’/members’ equity, and cash flows of Driven Brands, Inc. (a Delaware corporation) and subsidiaries (the “Company”) for the period ended December 25, 2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the results of its operations and its cash flows for the period ended December 25, 2021, in conformity with accounting principles generally accepted in the United States of America.
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/GRANT THORNTON LLP
We served as the Company’s auditor from 2009 to 2022.
Charlotte, North Carolina
February 28, 2024
| Year Ended | |||
|---|---|---|---|
| (in thousands, except per share amounts) | December 30, 2023 | December 31, 2022 | December 25, 2021 |
| Net revenue: | |||
| Franchise royalties and fees | $190,367 | $171,734 | $144,413 |
| Company-operated store sales | 1,526,353 | 1,324,408 | 843,646 |
| Independently-operated store sales | 196,395 | 195,157 | 204,246 |
| Advertising contributions | 98,850 | 87,750 | 75,599 |
| Supply and other revenue | 292,064 | 254,145 | 199,376 |
| Total net revenue | 2,304,029 | 2,033,194 | 1,467,280 |
| Operating Expenses: | |||
| Company-operated store expenses | 1,004,472 | 812,262 | 515,837 |
| Independently-operated store expenses | 109,078 | 107,940 | 114,115 |
| Advertising expenses | 97,290 | 87,986 | 74,765 |
| Supply and other expenses | 158,436 | 145,481 | 112,318 |
| Selling, general, and administrative expenses | 443,112 | 383,478 | 292,263 |
| Acquisition related costs | 13,174 | 15,304 | 62,386 |
| Store opening costs | 5,831 | 2,878 | 2,497 |
| Depreciation and amortization | 175,296 | 147,156 | 112,777 |
| Goodwill impairment | 850,970 | — | — |
| Trade name impairment | — | 125,450 | — |
| Asset impairment charges and lease terminations | 132,903 | 5,655 | 3,257 |
| Total operating expenses | 2,990,562 | 1,833,590 | 1,290,215 |
| Operating (loss) income | (686,533) | 199,604 | 177,065 |
| Other expenses, net: | |||
| Interest expense, net | 164,196 | 114,096 | 75,914 |
| (Gain) loss on foreign currency transactions | (3,078) | 17,168 | 20,683 |
| Loss on debt extinguishment | — | — | 45,576 |
| Other expense, net | 161,118 | 131,264 | 142,173 |
| (Loss) income before taxes | (847,651) | 68,340 | 34,892 |
| Income tax (benefit) expense | (102,689) | 25,167 | 25,356 |
| Net (loss) income | (744,962) | 43,173 | 9,536 |
| Net loss attributable to non-controlling interest | — | (15) | (96) |
| Net (loss) income attributable to Driven Brands Holdings Inc. | $(744,962) | $43,188 | $9,632 |
| (Loss) earnings per share: | |||
| Basic | $(4.50) | $0.26 | $0.06 |
| Diluted | $(4.53) | $0.25 | $0.06 |
| Weighted average shares outstanding | |||
| Basic | 161,917 | 162,762 | 160,684 |
| Diluted | 161,917 | 166,743 | 164,644 |
| Year Ended | |||
|---|---|---|---|
| (in thousands) | December 30, 2023 | December 31, 2022 | December 25, 2021 |
| Net (loss) income | $(744,962) | $43,173 | $9,536 |
| Other comprehensive income (loss): | |||
| Foreign currency translation adjustments | 26,098 | (64,418) | (20,994) |
| Unrealized (loss) gain from cash flow hedges, net of tax (benefit) expense of ($254), $1,849, and ($157), respectively | (892) | 5,941 | (671) |
| Actuarial (loss) gain of defined pension plan, net of tax expense of $18, $591, and $0, respectively | (633) | 1,049 | 132 |
| Other comprehensive income (loss), net | 24,573 | (57,428) | (21,533) |
| Total comprehensive loss | (720,389) | (14,255) | (11,997) |
| Comprehensive income (loss) attributable to non-controlling interests | 13 | (36) | (73) |
| Comprehensive loss attributable to Driven Brands Holdings Inc. | $(720,402) | $(14,219) | $(11,924) |
| (in thousands, except share and per share amounts) | December 30, 2023 | December 31, 2022 |
|---|---|---|
| Assets | ||
| Current assets: | ||
| Cash and cash equivalents | $176,522 | $227,110 |
| Restricted cash | 657 | 792 |
| Accounts and notes receivable, net | 151,259 | 179,888 |
| Inventory | 83,171 | 72,040 |
| Prepaid and other assets | 46,714 | 40,084 |
| Income tax receivable | 15,928 | 15,075 |
| Assets held for sale | 301,229 | — |
| Advertising fund assets, restricted | 45,627 | 36,421 |
| Total current assets | 821,107 | 571,410 |
| Other assets | 56,565 | 30,561 |
| Property and equipment, net | 1,438,496 | 1,545,738 |
| Operating lease right-of-use assets | 1,389,316 | 1,299,189 |
| Deferred commissions | 6,312 | 7,121 |
| Intangibles, net | 739,402 | 765,903 |
| Goodwill | 1,455,946 | 2,277,065 |
| Deferred tax assets | 3,660 | 2,911 |
| Total assets | $5,910,804 | $6,499,898 |
| Liabilities and shareholders' equity | ||
| Current liabilities: | ||
| Accounts payable | $67,526 | $60,606 |
| Accrued expenses and other liabilities | 242,171 | 317,318 |
| Income tax payable | 5,404 | 4,454 |
| Current portion of long-term debt | 32,673 | 32,986 |
| Income tax receivable liability | 56,001 | 53,328 |
| Advertising fund liabilities | 23,392 | 36,726 |
| Total current liabilities | 427,167 | 505,418 |
| Long-term debt | 2,910,812 | 2,705,281 |
| Deferred tax liabilities | 154,742 | 276,749 |
| Operating lease liabilities | 1,332,519 | 1,177,501 |
| Income tax receivable liability | 117,915 | 117,915 |
| Deferred revenue | 30,507 | 30,046 |
| Long-term accrued expenses and other liabilities | 30,419 | 33,419 |
| Total liabilities | 5,004,081 | 4,846,329 |
| Commitments and contingencies (Note 19) | ||
| 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 163,965,231 and 167,404,047 shares outstanding; respectively | 1,640 | 1,674 |
| Additional paid-in capital | 1,652,401 | 1,628,904 |
| Retained (deficit) earnings | (710,087) | 84,795 |
| Accumulated other comprehensive loss | (37,875) | (62,435) |
| Total shareholders’ equity attributable to Driven Brands Holdings Inc. | 906,079 | 1,652,938 |
| Non-controlling interests | 644 | 631 |
| Total shareholders' equity | 906,723 | 1,653,569 |
| Total liabilities and shareholders' equity | $5,910,804 | $6,499,898 |
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’/MEMBERS’ EQUITY
| Year Ended | ||||||||
|---|---|---|---|---|---|---|---|---|
| December 30, 2023 · December 31, 2022 · December 25, 2021 | ||||||||
| (in thousands, except share amounts) · Shares · Amount · 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 | 56,500,000 | $565 | ||
| Stock issued relating to Employee Stock Purchase Plan | 82,546 | 1 | 143,707 | 1 | — | — | ||
| Shares issued for exercise/vesting of share-based compensation awards | 354,093 | 4 | 35,788 | — | 26,084 | — | ||
| Share repurchases | (3,601,694) | (36) | — | — | (2,067,172) | (21) | ||
| Forfeiture of restricted stock awards | (273,761) | (3) | (155,898) | (1) | (55,887) | |||
| Issuance of common stock upon initial public offering, net of underwriting discounts and commissions | — | — | — | — | 108,204,698 | 1,082 | ||
| Common stock issued upon underwriter’s exercise of over-allotment | — | — | — | — | 4,772,727 | 48 | ||
| Balance at end of period | 163,965,231 | $1,640 | 167,404,047 | $1,674 | 167,380,450 | $1,674 | ||
| Additional paid-in capital | ||||||||
| Balance at beginning of period | $1,628,904 | $1,605,890 | $1,055,172 | |||||
| Equity-based compensation expense | 15,300 | 20,583 | 4,301 | |||||
| Exercise of stock options | 6,117 | 354 | 505 | |||||
| Stock issued relating to Employee Stock Purchase Plan | 2,080 | 2,077 | — | |||||
| Issuance of common stock upon initial public offering, net of underwriting discounts and commissions | — | — | 645,661 | |||||
| Common stock issued upon underwriter’s exercise of over-allotment | — | — | 99,177 | |||||
| Repurchase of common stock | — | — | (42,956) | |||||
| Establishment of tax receivable agreement liability | — | — | (155,970) | |||||
| Balance at end of period | $1,652,401 | $1,628,904 | $1,605,890 | |||||
| Retained (deficit) earnings | ||||||||
| Balance at beginning of period | $84,795 | $41,607 | $31,975 | |||||
| Share repurchases | (49,920) | — | — | |||||
| Net (loss) income | (744,962) | 43,188 | 9,632 | |||||
| Balance at end of period | $(710,087) | $84,795 | $41,607 | |||||
| Accumulated other comprehensive loss | ||||||||
| Balance at beginning of period | $(62,435) | $(5,028) | $16,528 | |||||
| Other comprehensive loss (income) | 24,560 | (57,407) | (21,556) | |||||
| Balance at end of period | $(37,875) | $(62,435) | $(5,028) | |||||
| Non-controlling interests | ||||||||
| Balance at beginning of period | $631 | $1,099 | $2,120 | |||||
| Net loss | — | (15) | (96) | |||||
| Other comprehensive loss (income) | 13 | (21) | 23 | |||||
| Divestiture of Denmark car wash operations | — | (432) | — | |||||
| At-Pac divestiture | — | — | (948) | |||||
| Balance at end of period | $644 | $631 | $1,099 | |||||
| Total shareholders’ equity | $906,723 | $1,653,569 | $1,645,242 | |||||
| Year Ended | |||
|---|---|---|---|
| (in thousands) | December 30, 2023 | December 31, 2022 | December 25, 2021 |
| Net (loss) income | $(744,962) | $43,173 | $9,536 |
| Adjustments to reconcile net (loss) income to net cash provided by operating activities: | |||
| Depreciation and amortization | 175,296 | 147,156 | 112,777 |
| Goodwill impairment | 850,970 | — | — |
| Trade name impairment | — | 125,450 | — |
| Equity-based compensation expense | 15,300 | 20,583 | 4,301 |
| (Gain) loss on foreign denominated transactions | (2,022) | 17,147 | 25,324 |
| (Gain) loss on foreign currency derivatives | (1,056) | 21 | (4,642) |
| Loss (gain) on sale and disposal of businesses, fixed assets, and sale-leaseback transactions | 4,909 | (34,854) | (11,353) |
| Reclassification of interest rate hedge to income | (2,077) | (542) | — |
| Bad debt expense | 1,938 | 5,777 | 1,854 |
| Asset impairment charges and lease terminations | 132,903 | 5,655 | 3,257 |
| Amortization of deferred financing costs and bond discounts | 10,307 | 8,450 | 7,002 |
| (Benefit) provision for deferred income taxes | (125,804) | 20,567 | 9,866 |
| Loss on extinguishment of debt | — | — | 45,576 |
| Other, net | 24,243 | (21) | (2,183) |
| Changes in assets and liabilities, net of acquisitions: | |||
| Accounts and notes receivable, net | 13,561 | (58,837) | (36,395) |
| Inventory | (11,731) | (22,712) | (5,723) |
| Prepaid and other assets | (6,877) | (30,418) | (30,260) |
| Advertising fund assets and liabilities, restricted | (16,861) | 12,698 | 9,386 |
| Other assets | (39,814) | (23,378) | 483 |
| Deferred commissions | 418 | 3,407 | (1,899) |
| Deferred revenue | 1,937 | 1,925 | 6,678 |
| Accounts payable | 7,390 | (34,634) | 6,905 |
| Accrued expenses and other liabilities | (52,854) | 2,898 | 128,871 |
| Income tax receivable | 53 | (12,335) | 4,466 |
| Cash provided by operating activities | 235,167 | 197,176 | 283,827 |
| Cash flows from investing activities: | |||
| Capital expenditures | (596,478) | (436,205) | (160,760) |
| Cash used in business acquisitions, net of cash acquired | (59,574) | (763,061) | (800,829) |
| Proceeds from sale-leaseback transactions | 194,658 | 333,798 | 144,134 |
| Proceeds from sale or disposal of businesses and fixed assets | 9,987 | 25,188 | 2,519 |
| Cash used in investing activities | (451,407) | (840,280) | (814,936) |
| Cash flows from financing activities: | |||
| Payment of debt extinguishment and issuance costs | — | (7,172) | (19,756) |
| Proceeds from the issuance of long-term debt | — | 365,000 | 950,000 |
| Repayment of long-term debt | (27,971) | (23,912) | (721,500) |
| Proceeds from revolving lines of credit and short-term debt | 378,000 | 435,000 | 526,800 |
| Repayment of revolving lines of credit and short-term debt | (130,000) | (435,000) | (544,800) |
| Repayment of principal portion of finance lease liability | (5,165) | (3,369) | (2,199) |
| Proceeds from failed sale-leaseback transactions | — | — | 538 |
| Proceeds from initial public offering, net of underwriting discounts | — | — | 661,500 |
| Net proceeds from follow-on public offering | — | — | 99,225 |
|---|---|---|---|
| Share repurchases | (49,956) | — | (43,040) |
| Proceeds from the termination of interest rate swap | — | 10,870 | — |
| Payment for termination of interest rate swaps | — | — | (21,826) |
| Stock option exercises | 6,117 | 340 | 505 |
| Other, net | (326) | 1,611 | 89 |
| Cash provided by financing activities | 170,699 | 343,368 | 885,536 |
| Effect of exchange rate changes on cash | 484 | (2,283) | 558 |
| Net change in cash, cash equivalents, restricted cash, and cash included in advertising fund assets, restricted | (45,057) | (302,019) | 354,985 |
| Cash and cash equivalents, beginning of period | 227,110 | 523,414 | 172,611 |
| Cash included in advertising fund assets, restricted, beginning of period | 32,871 | 38,586 | 19,369 |
| Restricted cash, beginning of period | 792 | 792 | 15,827 |
| Cash, cash equivalents, restricted cash, and cash included in advertising fund assets, restricted, beginning of period | 260,773 | 562,792 | 207,807 |
| Cash and cash equivalents, end of period | 176,522 | 227,110 | 523,414 |
| Cash included in advertising fund assets, restricted, end of period | 38,537 | 32,871 | 38,586 |
| Restricted cash, end of period | 657 | 792 | 792 |
| Cash, cash equivalents, restricted cash, and cash included in advertising fund assets, restricted, end of period | $215,716 | $260,773 | $562,792 |
| Supplemental cash flow disclosures - non-cash items: | |||
|---|---|---|---|
| Capital expenditures included in accrued expenses and other liabilities | $33,695 | $18,857 | $4,753 |
| Deferred consideration included in accrued expenses and other liabilities | 3,311 | 35,007 | 16,000 |
| Contingent consideration | — | — | 56,000 |
| Supplemental cash flow disclosures - cash paid for: | |||
| Interest | $156,083 | $113,226 | $75,807 |
| Income taxes | 22,947 | 17,220 | 12,764 |
DRIVEN BRANDS HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 approximately 5,000 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.
Initial Public Offering and Secondary Offering
On January 14, 2021, the Company completed an initial public offering (the “IPO”) of approximately 32 million shares of common stock at $22 per share. On February 10, 2021, the Company’s underwriters exercised their over-allotment option to purchase approximately 5 million additional shares of common stock. The Company received total proceeds of $761 million from these transactions, net of the underwriting discounts and commissions.
The Company used the proceeds from the IPO, along with cash on hand, to fully repay the First Lien Term Loan, Second Lien Term Loan, and revolving credit facility assumed as part of the acquisition of International Car Wash Group (“ICWG”) in 2020 (collectively, the “Car Wash Senior Credit Facilities”), which totaled $725 million with interest and fees. The Company recognized a $46 million loss on debt extinguishment related to this settlement, primarily related to the write-off of unamortized discount. The Company cancelled the interest rate and cross currency swaps associated with these debt agreements as part of the settlement. The Company also used $43 million in proceeds to purchase approximately 2 million shares of common stock from certain of our existing shareholders.
On August 2, 2021, the Company filed a Registration Statement on Form S-1 for a secondary offering of approximately 12 million shares of common stock at $29.50 per share by certain of the Company’s stockholders, Driven Equity LLC and RC IV Cayman ICW Holdings LLC, each of which is a related party of Roark Capital Management, LLC. The Company did not sell any common stock in the offering and did not receive any proceeds from the offering. On September 8, 2021, the underwriters for the secondary offering exercised a portion of their over-allotment option and purchased 881,393 additional shares of common stock. The Company did not receive any proceeds from the exercise of the over-allotment option.
On September 12, 2022, the Company filed a Registration Statement on Form 424B7 for an underwritten secondary offering of 7 million shares of common stock at $32.19 per share by certain of the Company’s stockholders, Driven Equity LLC and RC IV Cayman ICW Holdings LLC, each of which is a related party of Roark Capital Management, LLC. The Company did not sell any common stock in the offering and did not receive any proceeds from the offering. After the secondary offering, related parties to Roark Capital Management, LLC held approximately 61% of our outstanding common stock.
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 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 Agreement was effective as of the date of the Company’s IPO. The Company recorded a current tax receivable liability of $56 million and $53 million as of December 30, 2023 and December 31, 2022, respectively, and a non-current tax receivable liability of $118 million as of December 30, 2023 and December 31, 2022, respectively, on the consolidated balance sheets. We made an initial payment of approximately $25 million under the Tax Receivable Agreement in January 2024.
Stock Split and Equity Structure
On January 14, 2021, the Company’s shareholders approved an amendment to the Company’s certificate of incorporation (the "Amendment") to effect an implied 88,990-for-one stock split of shares of the Company’s outstanding common stock. In addition, the Amendment increased the number of authorized shares of the Company's stock from 10,000 shares to 1 billion shares (900 million shares of common stock and 100 million shares of preferred stock). All share and per-share data in the consolidated financial statements and footnotes has been retroactively adjusted to reflect the stock split for all periods presented. The Company does not have any shares of preferred stock outstanding.
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