Driven Brands Holdings Inc

Previous wording

The following discussion and analysis for Driven Brands Holdings Inc. and Subsidiaries (“Driven Brands,” “the 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 or 53-week fiscal year, which ends on the last Saturday in December. The three months ended September 28, 2024 and September 30, 2023 were both 13 weeks periods. The nine months ended September 28, 2024 and September 30, 2023 were both 39 week periods.

Current wording

The following discussion and analysis for Driven Brands Holdings Inc. and Subsidiaries (“Driven Brands,” “the 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-or 53-week fiscal year, which ends on the last Saturday in December. The three months ended March 29, 2025 and March 30, 2024 were both 13 week periods.

Previous wording

Driven Brands is the largest automotive services company in North America with a growing and highly-franchised base of more than 5,100 locations across 49 U.S. states and 13 other countries. Our scaled, diversified platform fulfills an extensive range of core retail 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.

Current wording

Driven Brands is the largest automotive services company in North America with a growing and highly-franchised base of approximately 4,800 locations across 49 states in the U.S. and 13 other countries. Our scaled, diversified platform fulfills an extensive range of core retail and commercial automotive needs, including paint, collision, glass, and repair services, as well as a variety of more frequent services, such as oil changes and car washes. We have continued to grow our base of consistent recurring revenue through same store sales and adding new franchised and company-operated stores. Driven Brands generated net revenue of approximately $516.2 million during the three months ended March 29, 2025, an increase of 7% compared to the prior year period, and system-wide sales of approximately $1.5 billion during the three months ended March 29, 2025, an increase of 2% from the prior year period.

Previous wording

Although we have continued to experience total Company same store sales growth for 15 consecutive quarters through our diversified customer base and service offerings, we have experienced and expect to continue experiencing softening demand across several of our segments, primarily as a result of inflationary pressures, increased competition, industry dynamics, and negative weather patterns, including hurricanes.

Current wording

We have experienced same store sales growth for 17 consecutive quarters, which we attribute to our diversified customer base and service offerings. However, we have experienced and expect to continue experiencing softening demand across several of our segments, primarily as a result of tariffs, inflationary pressures, increased competition, industry dynamics, and negative weather patterns.

Previous wording

Q3 2024 Three Months Ended Highlights and Key Performance Indicators

Current wording

Q1 2025 Highlights and Key Performance Indicators

Previous wording

•Consolidated same store sales increased 1%.

Current wording

•Consolidated same store sales increased 0.7%.

Previous wording

These increases were partially offset by:

Current wording

•Net income from continuing operations increased 51% to $17 million or $0.11 per diluted share. The increase primarily relates to continued same store sales growth, improved operating margins within the Car Wash segment, lower interest expense, and reduction in foreign currency transaction losses in the current period, primarily relating to intercompany activity. These increases were partially offset by losses on the sale or disposal of fixed assets, increased selling, general, and administrative costs reflective of the Company’s growth, the non-recurrence of earnings relating to the sale of our Canadian distribution business in the third quarter of 2024, and reduced operating margins within the Take 5 and Franchise Brands segments.

Previous wording

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.

Current wording

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 continuing operations, but rather, we include franchise royalties and fees that are derived from sales at franchised stores.

Previous wording

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, 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 nine months ended September 28, 2024 and September 30, 2023.

Current wording

Adjusted EBITDA. We define Adjusted EBITDA as earnings from continuing operations before interest expense, net, income tax expense, and depreciation and amortization, with further adjustments for acquisition related costs, equity compensation, loss on debt extinguishment, foreign currency transaction related gains or losses, cloud computing amortization, and certain non-recurring and non-core, infrequent or unusual charges. Adjusted EBITDA is a supplemental measure of operating performance of our segments and may not be comparable to similar measures reported by other companies. 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 4 in our consolidated financial statements for a reconciliation of reportable segment Adjusted EBITDA to income from continuing operations before taxes for the three months ended March 29, 2025 and March 30, 2024.

Previous wording

The following table sets forth our key performance indicators for the three and nine months ended September 28, 2024 and September 30, 2023:

Current wording

The following table sets forth our key performance indicators for the three months ended March 29, 2025 and March 30, 2024:

Previous wording

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, 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.

Current wording

Adjusted Net Income/Adjusted Earnings per Share. We define Adjusted Net Income as net income from continuing operations calculated in accordance with GAAP, adjusted for acquisition related costs, 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.

Previous wording

The following table provides a reconciliation of Net (Loss) Income to Adjusted Net Income and Adjusted Earnings per Share:

Current wording

The following table provides a reconciliation of Net Income from continuing operations to Adjusted Net Income and Adjusted Earnings per Share:

Previous wording

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, 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.

Current wording

Adjusted EBITDA. We define Adjusted EBITDA as earnings from continuing operations before interest expense, net, income tax expense, and depreciation and amortization, with further adjustments for acquisition related costs, 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.

Previous wording

The following table provides a reconciliation of Net (Loss) Income to Adjusted EBITDA:

Current wording

The following table provides a reconciliation of Net income from continuing operations to Adjusted EBITDA:

Previous wording

(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 GAAP, such costs relating to acquisitions are expensed as incurred and not capitalized.

Current wording

(a) Consists of acquisition costs as reflected within the 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 GAAP, such costs relating to acquisitions are expensed as incurred and not capitalized.

Previous wording

(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.

Current wording

(b) Consists of discrete items and project costs, including third-party professional costs associated with strategic transformation initiatives as well as non-recurring payroll-related costs.

Previous wording

(e)Represents foreign currency transaction (gains) losses, net that primarily related to the remeasurement of our intercompany loans as well as gains and losses on cross currency swaps and forward contracts.

Current wording

(e)Represents foreign currency transaction losses, net that primarily related to the remeasurement of our intercompany loans as well as gains and losses on cross currency swaps and forward contracts.

Previous wording

(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.

Current wording

(f) Consists of the following items (i) (gains) losses, net on sale leasebacks, disposal of assets, or sale of business; (ii) net losses (gains) on sale for assets held for sale; and (iii) impairment of certain fixed assets and operating lease right-of-use assets related to closed and underperforming locations, lease exit costs and other costs associated with stores that were closed prior to the respective lease termination dates.

Previous wording

(i)Consists of amortization related to acquired intangible assets as reflected within depreciation and amortization in the unaudited consolidated statement of operations.

Current wording

(g)Consists of amortization related to acquired intangible assets as reflected within depreciation and amortization in the consolidated statement of operations.

Previous wording

(j)Represents valuation allowances on income tax carryforwards in certain domestic jurisdictions that are not more likely than not to be realized.

Current wording

(h)Represents valuation allowances on income tax carryforwards in certain domestic jurisdictions that are not more likely than not to be realized.

Previous wording

(k)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 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.

Current wording

(i)Represents the tax impact of adjustments associated with the reconciling items between net income from continuing operations and Adjusted Net Income, excluding the provision for uncertain tax 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.

Previous wording

Adjusted net income was $138 million for the nine months ended September 28, 2024 compared to $115 million for the nine months ended September 30, 2023. This increase of $23 million was primarily due to the following:

Current wording

Adjusted net income was $44 million for the three months ended March 29, 2025 compared to $40 million for the three months ended March 30, 2024. This increase of approximately $4 million was primarily due to the following:

Previous wording

Adjusted EBITDA was $139 million for the three months ended September 28, 2024 compared to $122 million for the three months ended September 30, 2023. The increase of $17 million in Adjusted EBITDA was primarily due to:

Current wording

Adjusted EBITDA was $125 million for the three months ended March 29, 2025 compared to $123 million for the three months ended March 30, 2024. The increase of approximately $2 million was primarily due to:

Previous wording

Independently-operated store sales (comprised entirely of sales from the international car wash locations) increased $6 million, or 4%, due to same store sales growth as a result of improved price realization, new product offerings, and favorable impacts from foreign exchange.

Current wording

Independently-operated store sales (comprised entirely of sales from the international car wash locations) increased $14 million, or 26%, due to same store sales growth resulting from increased volume and revenue per wash.

Previous wording

Advertising fund contributions remained flat primarily due to franchise system-wide sales mix. Our franchise agreements typically require the franchisee to pay continuing advertising fund fees based on a percentage of franchisee gross sales or a stated fee.

Current wording

Advertising fund contributions increased by $1 million, or 5%, primarily due to changes in the mix of system-wide sales among franchised brands. Our franchise agreements typically require the franchisee to pay continuing advertising fund fees based on a percentage of the franchisee’s gross sales or a stated fee.

Previous wording

Independently-operated store expenses (comprised entirely of expenses from the international car wash locations) increased $4 million, or 4%, due to variable costs associated with the increase in sales.

Current wording

Independently-operated store expenses (comprised entirely of expenses from the international car wash locations) increased $7 million, or 24%, primarily due to variable costs associated with the increase in sales.

Previous wording

Advertising fund expenses increased $2 million, or 3%, which is commensurate with the increase to advertising fund contributions during the period. Advertising fund expenses generally trend consistent with advertising fund contributions.

Current wording

Advertising fund expenses increased by $1 million, or 5%, which is commensurate with the increase to advertising fund contributions during the period. Advertising fund expenses generally trend consistent with advertising fund contributions.

Previous wording

The foreign currency transaction loss for the three months ended September 28, 2024 was primarily comprised of a loss on foreign currency hedges of $2 million, partially offset by a gain of $1 million on transaction gains in our foreign operations. The foreign currency transaction gain for the three months ended September 30, 2023 was primarily comprised of transaction losses in our foreign operations of $5 million, partially offset by a gain of $2 million on foreign currency hedges.

Current wording

The foreign currency transaction loss for the three months ended March 29, 2025 was primarily comprised of a loss on foreign currency hedges of less than $1 million, partially offset by transaction remeasurement gains in our foreign operations of less than $1 million. The foreign currency transaction loss 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.

Previous wording

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, equity compensation, loss on debt extinguishment, cloud computing amortization, and certain non-recurring, non-core, infrequent or unusual charges. Shared 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.

Current wording

We assess the performance of our segments based on Adjusted EBITDA, which is defined as earnings from continuing operations before interest expense, net, income tax expense, and depreciation and amortization, with further adjustments for acquisition related costs, store closure costs, equity compensation, loss on debt extinguishment, cloud computing amortization, and certain non-recurring, non-core, infrequent or unusual charges. Shared services costs are not allocated to these segments and are included in Corporate and Other. Adjusted EBITDA may not be comparable to similarly titled metrics of other companies due to differences in methods of calculation.

Previous wording

Maintenance net revenue increased $103 million, or 14%, driven primarily by a $77 million increase in company-operated store sales from same store sales growth and 71 net new company-operated stores. Supply and other revenue increased by $21 million, or 32%, primarily due to higher system-wide sales. Franchise royalties and fees increased by $5 million, or 11%, primarily due to a $65 million, or 8%, increase in franchise system-wide sales from same store sales growth and 96 net new franchise stores.

Current wording

Take 5 net revenue increased $39 million, or 15%, driven primarily by a $30 million increase in company-operated store sales from same store sales growth and 74 net new company-operated stores. Supply and other revenue increased by $6 million, or 23%, primarily due to higher system-wide sales. Franchise royalties and fees increased by $3 million, or 46%, primarily due to a $31 million, or 29%, increase in franchise system-wide sales from same store sales growth and 94 net new franchise stores.

Previous wording

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.

Current wording

Cash flow from operations, supplemented with our long-term borrowings and Revolving Credit Facility, has 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.

Previous wording

At September 28, 2024, the Company had total liquidity of $655 million, which included $204 million in cash and cash equivalents and $374 million and $77 million of undrawn capacity on its 2024 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.

Current wording

At March 29, 2025, the Company had total liquidity of $641 million consisting of $152 million in cash and cash equivalents and $489 million of undrawn capacity on its variable funding securitization senior notes and Revolving Credit Facility. This did not include the additional $135 million Series 2022 Class A-1 Notes that expand the Company’s variable funding note borrowing capacity if the Company elects to exercise them, assuming certain conditions continue to be met.

Previous wording

The following table illustrates the main components of our cash flows for the nine months ended September 28, 2024 and September 30, 2023:

Current wording

The following table illustrates the main components of our cash flows for the three months ended March 29, 2025 and March 30, 2024:

Previous wording

Net cash provided by investing activities was $51 million for the nine months ended September 28, 2024 compared to $361 million used in investing activities for the nine months ended September 30, 2023. The increase was due primarily due to a $263 million decrease in capital expenditures, $256 million proceeds from the sale or disposal of businesses and fixed assets, primarily consisting of $161 million from the sale of assets held for sale, $78 million from the sale of our Canadian distribution business, and $18 million from the sale of nine company-operated collision stores to a franchisee, as well as a $51 million decrease in net cash paid for acquisitions, partially offset by a $154 million decrease in proceeds from sale leaseback transactions.

Current wording

Net cash used in investing activities was $44 million for the three months ended March 29, 2025 compared to $34 million used in investing activities for the three months ended March 30, 2024. The increase was primarily due to reduced proceeds from the sale of U.S. Car Wash assets held for sale in the current year and the sale of nine company-operated stores to a franchisee in the prior year, partially offset by a $33 million decrease in capital expenditures.

Previous wording

Net cash used in financing activities was $227 million for the nine months ended September 28, 2024 primarily related to repayments of long-term debt, including finance leases, of $427 million, Tax Receivable Agreement payments of $38 million, net repayments on the Revolving Credit facility of $25 million and debt issuance costs of $10 million, partially offset by the 2024-1 Senior Notes issuance of $275 million. Net cash provided by financing activities was $148 million for the nine months ended September 30, 2023 primarily related to net debt borrowings on the Revolving Credit Facility of $215 million, partially offset by share repurchases of $50 million, and repayments of long-term debt, including finance leases of $23 million. See Note 7 to our consolidated financial statements for additional information regarding the Company’s debt.

Current wording

Net cash used in financing activities was $48 million for the three months ended March 29, 2025 compared to $33 million used in financing activities for the three months ended March 30, 2024. The increase in cash used in financing activities was primarily related to an increase in net repayments of long-term debt, including finance leases, of $25 million, primarily associated with Term Loan Facility repayments, and net repayments on the Revolving Credit Facility of $10 million in the current year, partially offset by Tax Receivable Agreement payments of $25 million in the prior year. See Note 7 to our consolidated financial statements for additional information regarding the Company’s debt.

Previous wording

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., 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 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 or divests. The Company recorded a current tax receivable liability of $56 million as of December 30, 2023 and a non-current tax receivable liability of $134 million and $118 million as of September 28, 2024 and December 30, 2023, respectively, on the consolidated balance sheets. We made payments of approximately $38 million under the Tax Receivable Agreement in 2024.

Current wording

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., 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 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 or divestitures. The Company recorded a current income tax receivable liability of $23 million as of March 29, 2025 and December 28, 2024, respectively, and a non-current income tax receivable liability of $111 million as of March 29, 2025 and December 28, 2024, respectively, on the consolidated balance sheets. We made payments of approximately $25 million under the Tax Receivable Agreement in January 2024. No payments were made during the three months ended March 29, 2025.

Previous wording

See Note 2 of the consolidated unaudited financial statements for a discussion of recently issued accounting standards applicable to the Company.

Current wording

See Note 2 of the consolidated financial statements for a discussion of recently issued accounting standards applicable to the Company.