The following discussion and analysis forDriven 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 52/53-week fiscal year, which ends on the last Saturday in December. The three months endedMarch 26, 2022 andMarch 27, 2021 were both 13 week periods. . Overview of OperationsDriven Brands is the largest automotive services company inNorth America with a growing and highly-franchised base of more than 4,500 locations across 49 U.S. states and 14 other countries. Our scaled, diversified platform fulfills an extensive range of core consumer and commercial automotive needs, including paint, collision, glass, repair, car wash, oil change and maintenance.Driven Brands provides a breadth of high quality and high-frequency services to a wide range of customers, who rely on their cars in all economic environments to get to work and in many other aspects of their daily lives. Our asset-light business model has generated consistent recurring revenue and strong operating margins with limited maintenance capital expenditures, which has resulted in significant cash flow generation and capital-efficient growth. We have a diversified portfolio of highly-recognized brands, including Take 5 Oil Change®, Meineke Car Care Centers®, MAACO®, CARSTAR®, and 1-800-Radiator & A/C® that compete in the large, growing, recession-resistant and highly-fragmented automotive care industry. OurU.S. industry is underpinned by a large, growing population of more than 275 million vehicles in operation, and is expected to continue its long-term growth trajectory given (i) long-term increases in annual miles traveled; (ii) consumers more frequently outsourcing automotive services due to vehicle complexity; (iii) increases in average repair costs and (iv) average age of the car on the road getting older. We serve a diverse mix of customers, with sales coming from retail customers and commercial customers such as fleet operators and insurance carriers. Our success is driven in large part by our mutually beneficial relationships with more than 2,800 individual franchisees and independent operators. Our organic growth is complemented by a consistent and repeatable M&A strategy, having completed more than 100 acquisitions since 2015. Notably, inAugust 2020 we acquired ICWG, the world's largest conveyor car wash company by location count with more than 900 locations across 14 countries, demonstrating our continued ability to pursue and execute upon scalable and highly strategic acquisitions. We further complemented our expansion into the car wash segment by acquiring 112 locations in 2021 and six additional car wash locations during the first quarter of 2022. We grew our glass service offerings through the acquisition of Auto Glass Now ("AGN") in lateDecember 2021 which has 79 locations.
Significant Factors Impacting Financial Results
As noted above, we completed the acquisition of 112 independently-owned car wash sites during fiscal year 2021 and six additional car wash locations during the first quarter of 2022, which are included in our Car Wash segment. The acquisition of AGN during the first quarter of 2022, which is included in our Paint, Collision & Glass segment, expands our glass operations into the U.S. market. These acquisitions were a core driver of growth in our key performance indicators and our financial results for the three months endedMarch 26, 2022 , as compared to the three months endedMarch 27, 2021 . For additional information on our acquisitions, see Note 3 to the consolidated financial statements. We recognized net income of$34 million , or$0.20 per diluted share for the three months endedMarch 26, 2022 , compared to net loss of$(20) million , or$(0.13) per diluted share, for the three months endedMarch 27, 2021 . This increase was due to an increase in revenue, primarily related to the AGN acquisition and a number of car wash acquisitions in 2021 and the first quarter of 2022, as well as organic growth from store growth and same store sales growth, partially offset by higher operating, interest and income tax expenses associated with this growth. The increase was also due to$45 million in debt extinguishment cost in three months endedMarch 27, 2021 related to the repayment of the ICWG debt and a$10 million decrease in net loss on foreign currency transactions. Adjusted Net Income was$48 million for the three months endedMarch 26, 2022 , an increase of$17 million , compared to$30 million for the three months endedMarch 27, 2021 . The increase in Adjusted Net Income was primarily due to an increase in revenue, primarily related to the acquisition of AGN and a number of car wash acquisitions, as well as organic growth from store growth and same store sales growth, partially offset by an increase in an increase in operating, interest and income tax expenses associated with this growth. See Note 3
to
our consolidated financial statements for additional information regarding
acquisitions.
24 --------------------------------------------------------------------------------
Adjusted Net Income and Adjusted EBITDA are non-GAAP financial measures of
performance. For a discussion of our use of these non-GAAP measures and a
reconciliation from net income (loss) to Adjusted Net Income and Adjusted
EBITDA, see “Reconciliation of Non-GAAP Financial Information”.
Strong operational execution, improving consumer and driving trends and
acquisitions led to total system-wide sales of
months ended
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. Franchise royalties and fees revenue represented 8% and 9% of our total revenue for the three months endedMarch 26, 2022 andMarch 27, 2021 . For the three months endedMarch 26, 2022 andMarch 27, 2021 , approximately 98% and 97%, respectively, of franchise royalties and fees revenue is attributable to royalties, with the remaining balance attributable to license and development fees. Revenue from company-operated stores represented 62% and 56% of total revenue for the three months endedMarch 26, 2022 andMarch 27, 2021 , respectively. Revenue from independently-operated stores represented 13% and 17% of our total revenue for the three months endedMarch 26, 2022 andMarch 27, 2021 , respectively. 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, 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 months endedMarch 26, 2022 andMarch 27, 2021 . 25 --------------------------------------------------------------------------------
The following table sets forth our key performance indicators for the three
months ended
Three months ended
(in thousands, except store count or as otherwise noted) March 26, 2022 March 27, 2021
System-Wide Sales
System-Wide Sales by Segment:
Maintenance $ 357,112 $ 277,884
Car Wash 157,584 113,211
Paint, Collision & Glass 658,967 542,433
Platform Services 90,794 69,356
Total $ 1,264,457 $ 1,002,884
System-Wide Sales by Business Model:
Franchised Stores $ 908,895 $ 762,693
Company-Operated Stores 292,473 184,028
Independently-Operated Stores 63,089 56,163
Total $ 1,264,457 $ 1,002,884
Store Count
Store Count by Segment:
Maintenance 1,531 1,470
Car Wash 1,063 954
Paint, Collision & Glass 1,730 1,627
Platform Services 202 198
Total 4,526 4,249
Store Count by Business Model:
Franchised Stores 2,794 2,766
Company-Operated Stores 1,010 749
Independently-Operated Stores 722 734
Total 4,526 4,249
Same Store Sales %
Maintenance 19.2 % 16.5 %
Car Wash 6.6 % N/A
Paint, Collision & Glass 13.7 % (9.4 %)
Platform Services 30.9 % 22.0 %
Total 15.6 % 0.5 %
Segment Adjusted EBITDA
Maintenance $ 52,485 $ 40,440
Car Wash 55,720 34,155
Paint, Collision & Glass 29,012 17,639
Platform Services 14,165 11,008
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.
26
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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 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
(in thousands, except per share data) March 26, 2022 March 27, 2021
Net income (loss) $ 34,428 $ (19,932)
Acquisition related costs(a) 4,318 1,646
Non-core items and project costs, net(b) 866 32
Straight-line rent adjustment(c) 4,093 2,485
Equity-based compensation expense(d) 2,618 983
Foreign currency transaction (gain) loss, net(e) 971 10,511
Asset sale leaseback (gain) loss, impairment and closed store
expenses(f)
(124) (786) Loss on debt extinguishment(g) - 45,498 Amortization related to acquired intangible assets(h) 5,142 3,652 Provision for uncertain tax positions(i) 76 - Adjusted net income before tax impact of adjustments 52,388 44,089 Tax impact of adjustments(j) (4,612) (13,641) Adjusted net income 47,776 30,448 Net income (loss) attributable to non-controlling interest (15) 7
Adjusted net income attributable to
Inc.
$
47,791
Adjusted earnings per share
Basic $ 0.29 $ 0.19
Diluted $ 0.28 $ 0.19
Weighted average shares outstanding
Basic 162,762 154,827
Diluted 166,748 158,761
27
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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 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 to Adjusted EBITDA:
Adjusted EBITDA
Three months ended
March 26, 2022 March 27, 2021
Net income (loss) $ 34,428 $ (19,932)
Income tax expense 12,968 (4,446)
Interest expense, net 25,353 18,091
Depreciation and amortization 33,023
23,852
EBITDA 105,772
17,565
Acquisition related costs(a) 4,318
1,646
Non-core items and project costs, net(b) 866 32 Straight-line rent adjustment(c) 4,093
2,485
Equity-based compensation expense(d) 2,618 983 Foreign currency transaction (gain) loss, net(e) 971
10,511
Asset impairment and closed store expenses(f) (124)
(786)
Loss on debt extinguishment(g) - 45,498 Adjusted EBITDA$ 118,514 $ 77,934 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. b.Consists of discrete items and project costs, including (i) third-party consulting and professional fees associated with strategic transformation initiatives and (ii) other miscellaneous expenses, including non-capitalizable expenses relating to the Company's initial public offering and other strategic transactions. c.Consists of the non-cash portion of rent expense, which reflects the extent to which our straight-line rent expense recognized under GAAP exceeds or is less than our cash rent payments.
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. These losses are offset by unrealized gains/losses on remeasurement of cross currency swaps and forward contracts. f.Relates to (gain) loss on sale leasebacks, impairment of certain fixed assets and operating lease right-of-use assets related to closed locations. Also, represents lease exit costs and other costs associated with stores that were closed prior to the respective lease termination dates.
g.Represents the write-off of unamortized discount associated with early
termination of debt.
h.Consists of amortization related to acquired intangible assets as reflected
within depreciation and amortization in the consolidated statements of
operations.
i.Represents uncertain tax positions recorded for tax positions inclusive of
interest and penalties.
j.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 taxes. 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.
28
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Results of Operations for the three months ended
three months ended
To facilitate 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
Three months ended
(in thousands) March 26, 2022 March 27, 2021 Change
Franchise royalties and fees $ 37,888 $ 30,414 $ 7,474 25 %
Company-operated store sales 292,391 183,855 108,536 59 %
Independently-operated store sales 63,089 56,163 6,926 12 %
Advertising fund contributions 19,698 17,255 2,443 14 %
Supply and other revenue 55,257 41,733 13,524 32 %
Total revenue $ 468,323 $ 329,420 $ 138,903 42 %
Franchise Royalties and Fees
Franchise royalties and fees increased$7 million primarily due to same store sales growth and benefited from a net increase of 28 franchise stores. Franchise system-wide sales increased by$146 million or 19%.
Company-operated Store Sales
Company-operated store sales increased$109 million of which$43 million ,$37 million ,$28 million related to the Maintenance, Car Wash and Paint, Collision and Glass segments, respectively. The sales increase in Maintenance segment was primarily due to same store sales growth and 54 net new stores. The sales increase in Paint, Collision and Glass segment was primarily due to same store sales growth as well as net store growth from acquisitions. The acquisition of AGN, which had 79 stores at the time of the acquisition in lateDecember 2021 , generated$20 million of sales for three months endedMarch 26, 2022 and the acquisition of 10Carstar franchise sites in the fourth quarter of 2021 generated$6 million of sales for three months endedMarch 26, 2022 . The sales increase in Car Wash segment was primarily due to the addition of 109 net new stores primarily from a number of acquisitions in the second half of 2021 and first quarter of 2022, new greenfield store openings and same store sales growth. In total, the Company added 261 company-operated stores year-over-year.
Independently-operated Store Sales
Independently-operated store sales (comprised entirely of the international car wash locations) increased$7 million primarily due to same store sales growth as a result of increased volume.
Advertising Fund Contributions
Advertising fund contributions increased by$2 million primarily due to an increase in franchise system-wide sales of approximately$146 million from same store sales growth and additional net new franchise stores. Our franchise agreements typically require the franchisee to pay continuing advertising fund fees based on a percentage of franchisee gross sales.
Supply and Other Revenue
Supply and other revenue increased$14 million primarily from growth in product and service revenue within the Platform Services, Paint, Collision and Glass and Maintenance segments due to an increase in system wide sales. 29 --------------------------------------------------------------------------------
Operating Expenses
Three months ended
(in thousands) March 26, 2022 March 27, 2021 Change
Company-operated store expenses $ 177,867 $ 112,756 $ 65,111 58 %
Independently-operated store expenses 33,299 31,108 2,191 7 %
Advertising fund expenses 19,698 17,255 2,443 14 %
Supply and other expenses 32,774 22,489 10,285 46 %
Selling, general, and administrative expenses 92,220 69,050 23,170 34 %
Acquisition costs 4,318 1,646 2,672 162 %
Store opening costs 506 289 217 75 %
Depreciation and amortization 33,023 23,852 9,171 38 %
Asset impairment charges and lease
terminations 898 1,253 (355) (28) %
Total operating expenses $ 394,603 $ 279,698 $ 114,905 41 %
Company-operated Store Expenses
Company-operated store expenses increased
is commensurate with the increase in Company-operated store sales.
Independently-operated Store Expenses
Independently-operated store expenses, which are entirely related to the Car Wash segment, increased$2 million due to an increase in Independently-operated store sales. Advertising Fund Expenses The$2 million increase in advertising fund expenses represents a commensurate 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$10 million due the increase in Supply and other revenue as well as higher oil and freight costs incurred in the Platform Services segment.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased
to increased employee compensation, other employee-related expenses and
insurance expenses driven primarily by acquisitions and an increase in
advertising costs.
Acquisition Costs
Acquisition costs increased by$3 million . The three months endedMarch 26, 2022 had costs associated with the acquisition of AGN and several tuck-in car wash locations while the three months endedMarch 27, 2021 had costs associated with several car wash tuck-in locations.
Store Opening Costs
Store opening costs increased slightly due to an increase in company-operated new store openings and conversions of acquired stores to the Take 5 brand. There were seven new company-operated store openings and one Take 5 store conversion in the three months endedMarch 26, 2022 , compared to four company-operated store openings during the three months endedMarch 27, 2021 .
Depreciation and Amortization
Depreciation and amortization expense increased$9 million due to additional fixed assets and finite-lived intangible assets recognized in conjunction with recent acquisitions and higher current period capital expenditures. 30 --------------------------------------------------------------------------------
Asset Impairment Charges and Lease Terminations
Asset impairment charges were approximately$1 million for both the three months endedMarch 26, 2022 and three months endedMarch 27, 2021 , which consisted of impairment related to certain property and equipment and operating lease right-of-use assets at closed locations. Interest Expense, Net Three months ended (in thousands) March 26, 2022 March 27, 2021 Change Interest expense, net$ 25,353 $ 18,091 $ 7,262 40 % Interest expense, net increased$7 million as a result of higher average debt outstanding which was partially offset by a lower average interest rate in the current period. The Company issued debt in the fourth quarter of 2021 to fund the AGN and other acquisitions and for general corporate purposes.
Loss (Gain) on Foreign Currency Transactions, Net
Three months
ended
(in thousands) March 26, 2022 March 27, 2021 Change Loss (gain) on foreign currency$ 971 $ 10,511 $ (9,540) (91) %
transactions, net
The loss on foreign currency transactions for the three months endedMarch 26, 2022 was comprised of a$3 million net remeasurement loss on our foreign third party long-term debt and intercompany notes, partially offset by$2 million of unrealized gain incurred on foreign currency hedges that are not designated as hedging instruments. The loss on foreign currency transactions for the three months endedMarch 27, 2021 was comprised of a$13 million net remeasurement loss on our foreign third party long-term debt and foreign intercompany notes partially offset by$2 million of unrealized translation gains on other foreign currency hedges. Loss on Debt Extinguishment Three months ended (in thousands) March 26, 2022 March 27, 2021 Change Loss on debt extinguishment $ -$ 45,498 $ (45,498) 100 % The loss on debt extinguishment for the three months endedMarch 27, 2021 was due to the write-off of unamortized discount associated with the settlement of the Car Wash Senior Credit Facilities, which were repaid during the three months endedMarch 27, 2021 with proceeds from the IPO and cash on hand. Income Tax Expense Three months ended (in thousands) March 26, 2022 March 27, 2021 Change Income tax expense$ 12,968 $ (4,446) $ 17,414 (392) % Income tax expense increased by$17 million . The effective income tax rate for the three months endedMarch 26, 2022 was 27.4% compared to 18.2% for the three months endedMarch 27, 2021 . The increase in rate was primarily driven by an increase in income before taxes relative to the tax effects of our permanent differences for the three months endedMarch 26, 2022 , and favorable discrete tax adjustments related to a non-taxable loss on debt extinguishment as well as tax deductible costs incurred related to the initial public offering for the three months endedMarch 27, 2021 . 31 --------------------------------------------------------------------------------
Segment Results of Operations for the three months ended
to the three months ended
We assess the performance of our segments based on Segment Adjusted EBITDA, which is defined as earnings before interest expense, net, income tax expense, and depreciation and amortization, with further adjustments for acquisition-related costs, store opening and closure costs, straight-line rent, equity compensation, loss on debt extinguishment and certain non-recurring, non-core, infrequent or unusual charges. Additionally, shared services costs are not allocated to these segments and are included in Corporate and Other. Segment Adjusted EBITDA may not be comparable to similarly titled metrics of other companies due to differences in methods of calculation.
Maintenance
Three months
ended
(in thousands, unless otherwise noted) March 26, 2022 March 27, 2021 Change Franchise royalties and fees$ 9,635 $ 7,927 $ 1,708 22 % Company-operated store sales 156,828 114,067 42,761 37 % Supply and other revenue 12,279 6,157 6,122 99 % Total revenue$ 178,742 $ 128,151 $ 50,591 39 % Segment Adjusted EBITDA$ 52,485 $ 40,440 $ 12,045 30 % System-Wide Sales Franchised stores$ 200,284 $ 163,817 $ 36,467 22 % Company-operated stores 156,828 114,067 42,761 37 % Total System-Wide Sales$ 357,112 $ 277,884 $ 79,228 29 % Store Count (in whole numbers) Franchised stores 982 975 7 1 % Company-operated stores 549 495 54 11 % Total Store Count 1,531 1,470 61 4 % Same Store Sales % 19.2 % 16.5 % N/A N/A Maintenance revenue increased$51 million for the three months endedMarch 26, 2022 , as compared to the three months endedMarch 27, 2021 . Franchise royalties and fees increased by$2 million primarily due a$36 million increase in franchised system-wide sales from same store sales growth and 7 net new franchise stores. Company-operated store sales increased by$43 million primarily due to same store sales growth and 54 net new company operated stores. Supply and other revenue increased by$6 million due to higher income resulting from higher system-wide sales.
Maintenance Segment Adjusted EBITDA increased
revenue growth, cost management and operational leverage. We continue to utilize
a more efficient labor model at company-operated locations.
32 --------------------------------------------------------------------------------
Car Wash
Three months ended
(in thousands, unless otherwise noted) March 26, 2022 March 27, 2021 Change
Company-operated store sales $ 94,495 $ 57,048 $ 37,447 66 %
Independently-operated store sales 63,089 56,163 6,926 12 %
Supply and other revenue 1,691 1,453 238 16 %
Total revenue $ 159,275 $ 114,664 44,611 39 %
Segment Adjusted EBITDA $ 55,720 $ 34,155 21,565 63 %
System-Wide Sales
Company-operated stores 94,495 57,048 37,447 66 %
Independently-operated stores 63,089 56,163 6,926 12 %
Total System-Wide Sales $ 157,584 $ 113,211 44,373 39 %
Store Count (in whole numbers) -
Company-operated stores 341 220 121 55 %
Independently-operated stores 722 734 (12) (2) %
Total Store Count 1,063 954 109 11 %
Same Store Sales % 6.6 % N/A N/A N/A
The Car Wash segment is comprised of our car wash sites throughout
States
Car Wash Segment revenue increased by$45 million driven by the addition of 109 net new stores primarily from a number of acquisitions in the second half of 2021 and first quarter of 2022 and 6.6% same store sales growth.
Car Wash Segment Adjusted EBITDA increased by
higher sales as well as cost management and operational leverage.
Paint, Collision & Glass
Three months
ended
(in thousands, unless otherwise noted) March 26, 2022 March 27, 2021 Change Franchise royalties and fees$ 21,365 $ 17,309 $ 4,056 23 % Company-operated store sales 39,998 11,930 28,068 235 % Supply and other revenue 18,080 14,652 3,428 23 % Total revenue$ 79,443 $ 43,891 $ 35,552 81 % Segment Adjusted EBITDA$ 29,012 $ 17,639 $ 11,373 64 % System-Wide Sales Franchised stores$ 618,969 $ 530,503 $ 88,466 17 % Company-operated stores 39,998 11,930 28,068 235 % Total System-Wide Sales$ 658,967 $ 542,433 $ 116,534 21 % Store Count (in whole numbers) Franchised stores 1,611 1,594 17 1 % Company-operated stores 119 33 86 261 % Total Store Count 1,730 1,627 103 6 % Same Store Sales % 13.7 % (9.4) % N/A N/A 33
-------------------------------------------------------------------------------- Paint, Collision & Glass revenue increased$36 million for the three months endedMarch 26, 2022 , as compared to the three months endedMarch 27, 2021 . The Company-operated store sales increased$28 million driven primarily by$20 million from the acquisition of AGN, which had 79 stores, and$6 million from the acquisition of 10Carstar franchise sites. The Company-operated store sales increase was augmented by same store sales growth at Company-operated stores. Franchise royalties and fees increased by$4 million primarily due to a$88 million increase in franchise system-wide sales generated by same store sales growth and an increase in franchise stores. Supply and other revenue increased by$3 million primarily due to higher vendor rebates resulting from an increase in system wide sales.
Paint, Collision & Glass Segment Adjusted EBITDA increased
due to higher revenue from acquisitions and same store sales growth.
Platform Services
Three months
ended
(in thousands, unless otherwise noted) March 26, 2022 March 27, 2021 Change Franchise royalties and fees$ 6,888 $ 5,178 $ 1,710 33 % Company-operated store sales 1,152 983 169 17 % Supply and other revenue 35,126 28,435 6,691 24 % Total revenue$ 43,166 $ 34,596 $ 8,570 25 % Segment Adjusted EBITDA$ 14,165 $ 11,008 $ 3,157 29 % System-Wide Sales Franchised stores$ 89,642 $ 68,373 $ 21,269 31 % Company-operated stores 1,152 983 169 17 % Total System-Wide Sales$ 90,794 $ 69,356 $ 21,438 31 % Store Count (in whole numbers) Franchised stores 201 197 4 2 % Company-operated stores 1 1 - - % Total Store Count 202 198 4 2 % Same Store Sales % 30.9 % 22.0 % N/A N/A Platform Services revenue increased$9 million primarily due to higher revenue resulting from an increase in distribution sales to the Maintenance segment and higher franchise income resulting primarily from franchisee same store sales growth and an increase in franchise store count.
Platform Services Segment Adjusted EBITDA increased
by revenue growth, cost management and operational leverage.
Financial Condition, Liquidity and Capital Resources
Sources of Liquidity and Capital Resources
Cash flow from operations, supplemented with 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 a downgrade of our credit rating or a deterioration of certain financial ratios.Driven Brands Funding, LLC (the "Master Issuer"), a wholly owned subsidiary of the Company, andDriven Brands Canada Funding Corporation (along with the Master Issuer, the "Co-Issuers") are subject to certain quantitative covenants related to debt service coverage and leverage ratios in connection with the Securitization Senior Notes.Driven Holdings 34 --------------------------------------------------------------------------------
Revolving Credit Facility also has certain qualitative covenants. As of
covenants under its agreements.
AtMarch 26, 2022 , the Company had total liquidity of$668 million , which included$271 million in cash, cash equivalents and restricted cash,$97 million and$300 million of undrawn capacity on its 2019 variable funding securitization senior notes and Driven Holdings Revolving Credit Facility, respectively.
The following table illustrates the main components of our cash flows for the
three months ended
Three months ended
(in thousands) March 26, 2022 March 27, 2021
Net cash provided by operating activities $ 9,040 $ 32,586
Net cash used in investing activities (253,332) (4,508)
Net cash used in financing activities (5,719) (29,871)
Effect of exchange rate changes on cash (592) 650
Net change in cash, cash equivalents, restricted cash,
and restricted cash included in advertising fund assets
Operating Activities Net cash provided by operating activities was$9 million for the three months endedMarch 26, 2022 compared to$33 million for the three months endedMarch 27, 2021 . The decrease was due to$56 million payment of transaction costs associated with the AGN acquisition during the three months endedMarch 26, 2022 , which was partially offset by$15 million increase in operating results and a$17 million decrease in net working capital.
Investing Activities
Net cash used in investing activities was$253 million for the three months endedMarch 26, 2022 compared to$5 million for the three months endedMarch 27, 2021 . During the three months endedMarch 26, 2022 , there was a$198 million increase in net cash paid for acquisitions,$46 million increase in capital expenditures and a$3 million decrease in proceeds from sale-leaseback transactions. For the three months endedMarch 26, 2022 , we invested$69 million in capital expenditures, compared to$23 million for the three months endedMarch 27, 2021 . This increase is mostly due to new company-operated store openings within our Car Wash and Maintenance segments, as well as expenditures related to the maintenance of our existing store base and technology initiatives.
Financing Activities
Net cash used in financing activities was$6 million for the three months endedMarch 26, 2022 due primarily related to the repayment of senior securitization notes. Net cash used in financing activities was$30 million for the three months endedMarch 27, 2021 primarily resulting from our$722 million repayment of the Car Wash Senior Credit Facilities,$43 million in repurchases of our common stock, and$22 million payment related to the termination of our interest rate swaps. These were offset by the$761 million in proceeds from our IPO and the underwriters' exercise of their over-allotment option, net of underwriting discounts. See Note 6 to our consolidated financial statements for additional information regarding the Company's debt.
Income 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., 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 an income 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, inU.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. 35 -------------------------------------------------------------------------------- For purposes of the income 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 income tax 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 income tax 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 income tax receivable agreement. To the extent that we are unable to make payments under the income tax receivable agreement because of restrictions under our outstanding indebtedness, such payments will be deferred and will generally accrue interest at a rate of LIBOR plus 1.00% per annum until paid. To the extent that we are unable to make payments under the income tax receivable agreement for any other reason, such payments will generally accrue interest at a rate of LIBOR plus 5.00% 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. Refer to our annual report for the year endedDecember 25, 2021 for a full discussion of our critical accounting policies. There have been no material changes to our critical accounting policies from those disclosed in our Form 10-K for the year endedDecember 25, 2021 .
Application of New Accounting Standards
See Note 2 of the consolidated financial statements for a discussion of
recently issued accounting standards.
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