Driven Brands Holdings Inc.

Good morning and welcome to the Driven Brands first quarter 2021 earnings conference call. My name is Tamia and I will be your operator today. As a reminder, this call is being recorded. Joining the call this morning are Jonathan Fitzpatrick, President and Chief Executive Officer, Tiffany Mason, Executive Vice President and Chief Financial Officer, and Rachel Webb. During today's call, management will refer to certain non-GAAP financial measures. You can find the reconciliation to the most directly comparable GAAP financial measures on the company's investor relations website and its filings with the Securities and Exchange Commission. Please be advised that during the course of this call, management may also make forward-looking statements that reflect expectations for the future. These statements are based on current information, and actual results may differ materially from these expectations. Factors that may cause actual results to differ materially from expectations are detailed in the company's SEC filings, including the Form 8-K filed today containing the company's earnings release. Information about any non-GAAP financial measures referenced, including a reconciliation of those measure-to-GAAP measures, can also be found in the company SEC filings, and an earnings release available on the Investor Relations website. Today's prepared remarks will be followed by a question and answer session. We ask that you limit yourself to one question and one follow-up. Please press star 1 to be placed in the queue. I'll now turn the call over to Jonathan. Please go ahead, sir.

Thank you, Tamiya, and good morning, everyone across the board, and are excited to share the results. Before we jump in, though, let me explain the power of Driven Brands. Driven Brands is the largest automotive services company in North America. Our four operating segments provide diversification to our business model, diversity across our brands, geographies, and needs-based service categories. We have scale in an industry where scale matters. And we marry this scale with sophistication, which allows us to leverage our massive growing data capabilities to drive more cars to our shops through more effective marketing, to identify the best possible real estate, and to drive cost efficiencies through purchasing that creates profitable growth for us and our franchisees, generating better returns than most independents could achieve on their own. Our industry is massive and extremely fragmented. It's roughly $300 billion and growing. And we're the biggest in our space today, despite having less than 5% market share. Now, we have consistently taken share in this industry for the past decade, and we will continue to do this for the next decade. We have many levers to grow organically, and because of our asset life business model, we generate a ton of cash flow. Put all this together, we grow same store sales in units, and we generate a ton of cash. Over the long term, Driven will consistently deliver double digit revenue growth and double digit adjusted EBITDA growth. And this is before we layer on acquisitions, which we see as incremental upside to our model. This is the power of driven brands. I'm pleased with our Q1 results that we released this morning. Compared to Q1 of 2020, consolidated same-store sales were significantly ahead of expectations at positive 0.5%. Revenue increased 83%. Adjusted EBITDA more than doubled to 78 million at a margin of nearly 24%. And adjusted EPS was 19 cents, significantly beating expectations. A top-to-bottom beat. We are optimistic about the remainder of the year and are incredibly proud of these results. But I would be remiss not to mention some discrete tailwinds in the quarter. Pent-up demand. Stimulus. and rising consumer confidence, particularly in our southern markets, all meant that demand for our services was strong in Q1. Then in late March, we began comping over the beginning of COVID lockdowns last year. We were well positioned to capitalize on these tailwinds through the hard work of the team and franchisees in 2020 that positioned us to take market share in 2021. the overall strength and diversity of our business model, the inherent operating leverage in our business, and of course, the power of our data analytics platform. This momentum in the business has continued into Q2. Let me give you some additional color on our top line results and the state of the customer. Our same store sales performance was high quality. built on a foundation of marketing and operational execution, not by excessive discounting or increasing price. We drove more new and repeat customers to our shops, and this resulted in increased market share across all segments in Q1. We did many things differently than our competition in 2020 and in Q1 that is positively contributing to our results. While many reacted, we were proactive, putting our foot on the gas with key initiatives we knew would drive growth in 2021 and for years to come. We kept opening new stores and selling record numbers of new licenses. We remained open, staffed, and had inventory for our customers as they needed our services. We played offense with marketing. And as a result, we acquired new customers, both retail and commercial. With retail customers, we focused on both acquiring new customers and improving repeat rates through improved data-driven marketing strategies we initiated in 2020. You can see this in our strong same-store sales in Q1 in both our maintenance and car wash segments. Our insurance partners continue to place increased value on doing business with fewer scale providers that can service their customers better. The DRPs we added in 2020 continue to add more cars into 2021. This allowed our PC&G business to outperform the industry despite vehicle miles traveled still not back to normal. And maintaining best-in-class inventory levels, leveraging data and supply chain allowed franchisees within our platform services segment to continue to sell when many of our competitors could not. In fact, franchisees have been enjoying record sales weeks in 2021 as a result. These were just some of the actions that contributed to our share gains in 2020. and position us well to continue to build on these share gains throughout 2021. So now let me give you a little bit of color about our customer and vehicle miles traveled. Push about the impact of the reopening in the United States and the demand for our services for the remainder of 2021, 2022 and beyond. said simply as consumers drive more driven wins and we are already seeing more of our customers take to the road recent studies in the u.s show 40 percent of consumers have already booked or plan to book travel this year and tooth or car this is good for driven we leverage our scale, sophistication, data, and marketing engine to ensure that as consumers are driving more, we capture that demand. Let me spend a few minutes explaining how data impacts results.

It starts with our unique ability from so many touch points across our businesses.

Developed customized tools that we deploy across our segments. Our data capabilities continue to expand and positively impact. Our proprietary brand tracking studies helped us refine how we drive awareness and trial for take five shift led to an incremental 250,000 cars within the quarter.

Since then, we adapted and implemented our customer targeting algorithm. Existing driven customers, such as oil change or paint customers, to our cross-marketing efforts, leading to incremental car washes.

And we are ramping up 2021.

Driven brands is the impact of data on unit growth.

In addition to traditional real estate inputs, our proprietary models identify trade areas and locations whose surrounding demographics mirror our best customers. And this drives our confidence in the returns when building new sites. Putting that model to work, just seven months ago when we acquired Car Wash, there was no pipeline for greenfield stores. As of today, We have a pipeline of over 60 locations, and that pipeline continues to grow every month. This rigorous data-driven approach to unit growth has translated to a pipeline of over 850 units, which is the largest it's been since I got to Driven nine years ago. This is a combination of large and growing pipelines of both company and franchise locations. Our unit growth outlook remains very healthy for years to come. With over 150 locations and continues to build. And this provides strong visibility into both 2021 and 2022 openings. Let's talk about franchise unit growth. Demand for our brands is strong among new and existing franchisees. Today, we have more than 700 commitments to open franchise sites, which provides long-term visibility into unit growth for the next four years. And we have locations identified for over 200 of these already. Something I'm really happy about is our franchisees opening their new stores ahead of plan. They are ramping fast and making money. Today, we expected franchise openings for 2021. This morning, we reaffirmed our store opening guidance for 2021. We expect to open between 160 and 190 stores, which will be a combination of company and franchise locations. And while we don't forecast acquisitions, we continue to see great progress in our tuck-in pipeline. Remember, 80% of our industry is still independent operators who simply do not benefit from the sophistication and scale Driven has. There is room for more than 12,000 stores in North America alone, triple that of our current store base. So we have a lot of runway for growth. Growth for the quarter was strong. We grew revenue 83% versus prior year. This coupled with our attractive and stable margins allowed us to more than double adjusted EBITDA. Now, people have asked me before why this is why. They are incredible operating models that deliver best-in-class growth, EBITDA margins, and return on capital. Our company store four-wall EBITDA margins in Q1 were 39%. And as we continue to grow same-store sales and add new units, we will generate a ton of cash. We then reinvest that cash into even more future growth This is the compounding power of driven brands, growth and cash generation. Now, before I turn it over to Tiffany, let me share my thoughts about the rest of the year and beyond. It's positive. Our strong momentum is continuing into April. we are bullish on 2021 and feel very good about achieving our updated guidance for adjusted EBITDA of approximately $305 million for 2021. While we're bullish on 2021 overall, the real and it varies across states and countries. In Canada, a third shelter-in-place mandate was recently implemented, week-to-week by country. However, despite this

and the diversity of our business model will continue to deliver best-in-class results.

Here is how I 21. Consumers are driving again, and that's good. Scale, data analytics, and unit growth will continue to expand our competitive advantage to take share in this highly fragmented industry. I'm also so bullish on Driven's future because we are a compact .

Our growth is low risk because of . We are asset light and . Our business model works well .

And finally, we execute and do what we say we're going to do. This is what will drive Driven's long-term growth model.

attractive, consistent margins, even the growth and significance. It's simple, predictable, and will compound as we grow.

And you can see this very clearly in our Q1 results, growth and cash. I'll now turn it over to Tiffany for a deeper dive into the Q1 financials and 2021

One, we delivered strong hard work of the entire Driven Brands team. Their efforts allowed us to capitalize on some important industry tailwinds. Our consumer has more money in the bank, the distribution is accelerating, consumer sentiment is picking up, and vehicle miles traveled are beginning to include news for Driven. We took important steps in 2020 to market share in 2021. And we are off to a great start. System-wide sales were a record $1 billion in the first quarter, from which we generated revenue, an increase of 83% versus the prior year. Adjusted EBITDA was $78 million, more than double that of the prior year. And as a percentage of revenue, adjusted EBITDA margin was nearly 24%. And finally, adjusted EPS was 19%, exceeding our expectations. As a result of strong sales volume, and space, driving significant flow through. This is the power of the Driven Brands platform. Going highly franchised business, with a diverse needs-based service offering that delivers very attractive margins. Now, let me break things down a bit more. System-wide sales growth in the core edition of new stores, from acquisitions as well as new franchise and company-operated stores. We have tremendous white space to continue growing our store count in this roughly $300 billion highly fragmented Franchise, company greenfield, and M&A pipelines are all robust, and we are aggressively. Since Q1 last year, we've added 1,150. In the first quarter of this year alone, we added 22. Same store sales were positive 1.5% for the quarter. despite the fact that vehicle miles traveled were still down roughly 10%. Our Q1 same-store sales improved 390 basis points sequentially from Q stacked basis, or nearly 3% of the historical average. We outpaced the industry across all businesses in market share as the reopening begins to take shape across many of the markets in which we operate. we are over 80% franchised, so not all segments contribute to revenue proportionally. For example, PC&G is over half of system-wide sales, but less than 15% of revenue because it's effectively all franchised. Maintenance and car wash are a mix of franchised and company-operated, and each contribute roughly 40% of revenue. This is all laid out in our infographic, which is posted on our IR website. and I encourage you to spend some time with us. Put that all in the blender, and our reported revenue in the quarter was $329 million, an increase of 83% versus the prior year. From an expense perspective, we continue to carefully manage site-level expenses across the portfolio. Prudent expense management, together with strong sales volumes, drove four-wall margins of 39% at company-operated stores. The flow-through of this model is powerful. Above shop, SG&A as a percentage of revenue was 22% in the quarter, and nearly 900 basis points improvement versus last year. Depreciation and amortization was $24 million versus $8 million in the prior year. This increase was primarily attributable to the ICWG acquisition. And interest expense was $18 million in the quarter, effectively flat to last year. We did, however, recognize a $45 million one-time non-cash loss on debt extinguishment in the quarter. As a reminder, we paid off the debt assumed in the ICWG acquisition using proceeds from the IPO. In the quarter, we recorded an income tax benefit of $4 million. The lower effective tax rate this quarter versus our expected annual effective tax rate was due to the impact of the loss on debt extinguishment. For the first quarter, we posted a net loss of roughly $20 million. But after adjusting for the $45 million loss on debt extinguishment and other non-cash and non-recurring items, we delivered adjusted net income of roughly $30 million. And you can find a reconciliation of adjusted net income, adjusted EPS, and adjusted EBITDA in today's release. Now, a bit more color on our first quarter results by segment. The maintenance segment posted positive same-store sales of 16.5%. Maintenance continued to benefit from the new Take 5 advertising campaign that launched in early 2020, as well as more targeted digital marketing, which led to a significant increase in car count for both new and repeat customers. We also continued to benefit from our decision to refine Take 5's labor model, reducing labor hours per car, which led to strong flow-through on incremental sales. And we continue to leverage the purchasing power of our platform to drive cost savings from oil purchases and associated volume rebates. As we continue to grow store count and same-store sales power. While not included in our consolidated same-store sales base until the anniversary of the acquisition in August of this year, the car wash segment posted positive same-store sales of 27.8%. Wash Club subscriptions remain around 45% of sales as both members and revenue have continued to increase. The number of Wash Club members has grown by close to 50,000 in the first quarter. This is a great recurring revenue stream that provides a level of predictability to this business. And non-Wash Club revenue per wash has increased over 6% as a result of a simplified menu board and the focus that our teams have placed on improved selling techniques. From a cost savings perspective, we have renegotiated our chemical contract, achieving a significant cost reduction while increasing the service level and associated growth incentives. Similar to our oil program, the more volume we do, the greater the benefit. Paint collision in glass posted a sand store sales decline of 9.4% in the quarter. This segment lags the others in terms of COVID recovery due to reduced collision trends resulting from less congestion on the roadways. This is a unique challenge for PC&G, but as vehicle miles traveled accelerates, so too will the pace of this segment's recovery. We anticipated the sequential deceleration in this segment from Q4 to Q1 as a result of a tough prior year comparison and the prolonged COVID-related lockdowns, particularly in Canada. However, PC&G performed better than we expected and outperformed the competition according to industry data. We continued to gain market share as we added new direct repair programs and are very well positioned with our insurance partners as the reopening begins to take shape across the markets we serve. In fact, estimate counts are up, which is a great leading indicator. And finally, platform services experienced the strongest same-store sales growth in Q1, with a positive 22%. Having strong in-stock levels at 1,800 radiator, while many competitors did not, coupled with an increase in average selling price, ultimately drove record sales levels within the quarter. The addition of exhaust to the product line has also been a success. And in 2021, we're scaling our product line for heavy-duty commercial vehicles and are seeing good early results. And that brings me to our liquidity and capital structure. We ended the first quarter with just over $185 million in cash and cash equivalents, as well as approximately $100 million of undrawn capacity on a revolving credit facility. We have 167.4 million shares outstanding and a $1.5 billion whole business securitization debt portfolio. That portfolio has a weighted average fixed annual interest rate of 4% and a weighted average remaining term of six years. Since last quarter, we have reduced our net debt leverage ratio by roughly three quarters of a term. We intend to use our balance sheet to capitalize on the substantial white space in a roughly $300 billion consolidating industry while maintaining an investment-grade credit rating. Now, looking ahead at the balance of the year, we are focused on our proven formula for growth with a platform that is scaled and diversified. Our formula is simple. We add new stores. We grow same-store sales, and we deliver stable margins. This results in significant cash flow generation that we reinvest in the business. We continue to be bullish on 2021. Consumer sentiment is on the rise. Traffic is beginning to decrease. Vacation road trips are back this summer. We feel very good about the start to our year and don't have any reason to believe that our outperformance in Q1 is a pull forward of demand from later in the year. While we have strong momentum in April, as Jonathan said, the reopening has only just begun and it varies across geographies. As such, we believe it's prudent to remain focused and deliberate. And that's why we raised our guidance for fiscal 2021 this morning to simply account for the strong operating performance in the first quarter while staying resolute for the balance of the year until we have another quarter or so under our belt. We still expect to open 160 to 190 net new stores across the portfolio, and we expect positive same-store sales growth across all of our segments. That will drive revenue of approximately $1.3 billion, adjusted EBITDA of approximately $305 million, and should result in adjusted EPS of approximately 65 cents based on 165 million weighted average shares outstanding. We certainly expect the strengths of this portfolio to continue to deliver best-in-class results, and we have significant opportunity for growth in a fragmented and consolidating industry. We look forward to speaking with you again in late July when we release second quarter results. And Tamia, we'd like to open up the call for questions.

Thank you. At this time, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Simeon Gutman with Morgan Stanley. Your line is open.

Hey, guys. This is Michael Kessler on for Simeon. Thank you for taking our questions. I guess first, I want to ask about the cadence through Q1. It was clearly a step up if you look at sales per store, the comp, the sales themselves. If you could just talk about how that trended through Q1, and if you could dissect it all. I know you mentioned stimulus, the reopening and miles-driven recovery, consumer confidence, your own share gains. If you can just kind of dissect how those interplayed and how you saw that play out through the quarter with the cadence of how trends went through Q1.

Hey, Michael, thanks for the question, Tiffany. So I'll give you qualitatively. We're not going to provide monthly comps here, but would be happy to talk about it qualitatively. January was solid. We had... strong growth in maintenance and in platform services. Those comps were positive, certainly supported by stimulus and pent-up demand from Q4. You know, obviously in Q4, we were dealing with a second wave of COVID. We saw some folks sit on the sidelines as it related to deferred maintenance on their vehicles. Those folks came back with some extra money in their pockets in Q1. And so those categories or those segments of our business certainly benefited. February was the low point, and then in March we had double-digit positive same-store sales overall as vaccine distribution picked up, as consumer sentiment was improving, and vehicle miles traveled was increasing. If you were to normalize our monthly comps on a two-year basis, it looks just like you'd expect. January is positive. February is just slightly negative. March is positive and certainly the strongest month of the quarter. And that follows pretty well with VMT when you compare VMT month by month in 2021 versus 2020. So I think, you know, really good signs and certainly that momentum that we saw in March, as Jonathan said, and his prepared remarks continues into April.

Great. Thank you. That's very helpful. A quick follow-up, I guess, on your expectations for the rest of the year and I mean, how, I guess, you incorporated the improving trends into the, you know, the raised guidance. And, I mean, is there, I guess, a change to your expectations for the rest of the year? Are we more kind of just beat versus what you were expecting? Just kind of your thoughts there. And I guess also, should we interpret, I guess, the fact that there's been a further acceleration versus March or more consistent now that we're, you know, at the stage of the reopening?

Yeah, Michael, thanks for the question. So I want to be really clear here. We have rolled the beat from Q1 into our guidance, and we have held our expectations for the balance of the year. I think it's really important early in this reopening to not get ahead of our skis. What I would say is one quarter doesn't make a trend. I think there's a lot of volatility potential in Q2. As you know, Q2 is the low point or the sort of peak of the pandemic a year ago. We have strong momentum in April, but I think we need more, you know, we feel good about giving for 2021.

So we've rolled in the beat. We're bullish on 2020.

We're moving in the right direction, and we want to stay focused, deliberate, and resolute as we finish out this second quarter.

Thank you.

Liz Suzuki with Bank of America. Your line is open.

Great. Thank you. Just can you provide any in-segment performance? So in areas that opened up earlier are segments that are more greater recovery.

Hey, Liz. It's Jonathan.

I'll take that. Tiffany can obviously come in over the top if she wants to. Look, it's pretty obvious, right? I mean, places in the south, Texas, Florida, the Carolinas, places in the northeast, right, and the west to some extent. So we're definitely seeing correlation in terms of those markets, you know, doing better than some of the northern markets, I would say, and I would include Canada. And obviously as things are starting to open up now and CDC just released some data, we'll see more and more driving throughout. all of our geographies, but definitely we saw some increased movement in our sort of broadly southern markets.

Great. Sorry, Liz. I think the only thing I was going to ask

Just keep in mind, our services are essential, right? So in most cases, anytime you see, you know, a shutdown or a temporary restriction of some sort, it's going to delay an occasion, but it's not going to be a lost occasion. So that's the only thing I'd add to the commentary there.

Yeah, yeah, of course. And just curious if interests from franchisees are following any of those regional trends as well. So in the areas that have opened up quickly, are you seeing that there's more interest from potential franchisees to start new businesses?

Interest is pretty widespread, Liz. I mean, you see the pipeline numbers that I talk of that I've been a driven brand. So we're seeing interest from far and wide because I think people understand the the resiliency of our business models, that we perform well in all cycles, there's money to be made, massive fragmentation in the industry. So we're not seeing a correlation to, you know, franchise interest in only those states that are opening up, but in all places.

Yeah. Okay, great.

Thank you. Your next question comes from the line of Chris Horvers with JP Morgan. Your line is open.

So you talked about a number of positive factors, but you also had a couple of headwinds during the quarter in terms of, you know, the weather in Texas and that region in February. And then you talked about Canada. Is there a way to sort of you know, diagnose how much of a headwind that might be in terms of like, I don't know, regional sort of store exposure or percentage of sales. And then did you talk about the overall two-year comp trend in March in terms of how that was relative to the overall quarter?

Go ahead, Tiffany. Okay. Sorry, Jonathan. Yeah, I was just going to say, and Jonathan, feel free to jump in. I would say, you know, in terms of weather, I mean, certainly we saw, you know, some pretty extreme weather, to your point, in Texas and in the Gulf Coast states, you know, towards the middle and latter part of February. You can certainly see that reflected in our monthly comp. And so when I said the February comp was the weakest of the three months, that's partly why that is the trend. Texas is about 14% of our footprint, so just to give you some magnitude there. When you think about Canada and its relative size for PC&G, that's about 20%. So when you think about lockdowns in Canada, that's having an impact certainly, just to give you some magnitude in that regard. But the beauty of the Driven Brands platform is diversification, right? We operate in Canada. We operate in just about every part of the U.S., and we have now with the car wash business an international footprint. So diversification is a beautiful thing, not only in terms of geography, but in terms of certification as well.

And then in terms of the two-year trend in March relative to the overall quarter?

So two-year is the strongest on a one-year basis, and it's certainly the strongest on a two-year basis.

Got it. And then the other question is just more specific around modeling. The corporate and other line, can you help us? Obviously, your revenue did this line. It's also higher, but obviously the great. What drives that line item? Was there any sort of like incentive comp, sort of accrual that was in just, or is it just, you know, the variable cost side of relative to revenues?

Yeah, Chris, the only thing that's in corporate and other would be shared services. So corporate office advertising flows through that line as well. So we can follow up in calls this afternoon and kind of work through the details there, but there's nothing out of the ordinary.

Got it. Thanks. Have a great spring.

Thanks, Chris.

Your next question comes from the line of Peter Benedict with Baird. Your line is open.

First question, we noticed there were 62 PCG stores that were reclassified over the maintenance in the quarter. Can you give us a sense for what was behind that adjustment?

Sure, Peter, yeah, I'd be happy to. So those 52 stores are for a brand called Drive & Style. That is a brand that's actually managed by Danny Rivera, who runs our maintenance segment. And so we reclass those stores to align with all of the other brands that he manages in the maintenance portfolio. Drive & Style, in terms of financial results, is pretty insignificant. So it really doesn't move the needle in terms of financial performance. But it is 62 stores in terms of maintenance as of the first of the year.

Okay.

In material to the financial statements as a whole.

Yeah, of course.

Yeah. Yeah. No, I understand. I guess my other question is just there's a lot of obviously moving parts here. But just as we think about EBIT going forward, I mean, is there any reason why the second quarter wouldn't be larger than the first quarter? I mean, is there anything from a seasonality standpoint? I'm not sure how stimulus, if you're thinking about stimulus. I mean, I know you're not giving specific guidance, but it would certainly seem that the trajectory should continue to grow. But I just wanted to make sure we aren't missing something, whether it be Canada or something else that we need to think about in the second quarter.

Yeah, Peter, I think you're thinking about it the right way. This business is roughly 60% fixed, 40% variable. So the beauty of this business is as we get the flywheel working, right, so as you get the volume running through the top line, we get phenomenal fixed cost leverage and therefore flow through in the business. So, again, we've rolled in the beat from Q1 into the outlook or into the guidance for the full year. and we've held Q2 through Q4 steady, to the extent we see continued improvement in, you know, consumer sentiment from vaccines, which prove, and the business outperforms our current expectation, then I would agree you'll start to see, you know, just even better flow through on the business.

Okay. Makes sense. Thanks so much.

You bet. Your next question comes from the line of Sharon Beckfield with William Blair. Your line is open.

Hi, good morning. I have a question on the maintenance segment where, you know, the margins have been kind of in that 30% range for most of the last year. And I think, you know, during due diligence, we talk about ongoing margins in the mid 20% range. Has something changed there? I mean, is the business just more profitable at this point? And should we be thinking about kind of 30% as the new normal.

So, Sharon, maintenance is a mix, as you know, of two important brands. So one is Take5, which is the quick-loop business. The other is Meineke, which is a fully franchised car care business. As, you know, Meineke has been around since the mid-'70s. Take5 is a relatively new brand and new growth vehicle for us. So it is – Take 5 is a mix of company-owned and franchised. Both are growing really well. In fact, franchised will eclipse company-owned growth this year. That business has phenomenal margins, mid-30% margins. And so as that business continues to do well, continues to grow in terms of store count, it mixes the entire margin profile of the maintenance segment higher. So I think that's the most important thing to keep in mind as you think about that segment.

I would just add, Sharon, I would just add specifically on the take five, Danny Rivera and the team did an amazing job in 2020 sort of re-looking at the operational efficiency of the business. And when we think about that business, it's incredibly labor efficient, and we sort of have made it even more labor efficient as we sort of had to in 2020 with some, you know – When demand went down in March of 2020, we matched our labor to that, and we've kept that labor very consistent even though we're doing more cars. So the business is an amazing labor-efficient model, and I guess that's what you're seeing, this sort of change in margin profile in that segment.

That's super helpful. Thanks.

Your next question comes from the line of Kate Metchain with Goldman Sachs. Your line is open.

Hi, thank you. Good morning. This is a somewhat open-ended question, but do miles driven have to be positive for the collision business to come positive, not where miles driven media is still down from the year before, but with a combination of market share gains

You nailed it, Kate. Look, miles driven, you know, are still Canada more so than the U.S. They're coming back pretty strong in Canada.

But, you know, our play over the next five years here is regardless of what you need to take share in this industry.

Sort of inflection point where I think the insurance carriers and our partners, you know, we fixed. you know, hundreds of millions of dollars of cars of repairs on their behalf, they now absolutely see the benefit of doing business with fewer scale providers. So I think as you look at the next five years, you know, we're not so focused on miles driven, but we're focused on share gains, right? So I think, you know, obviously we hope that miles driven come back and we expect they will, but really our focus is on continuing to take share in that industry. So we feel very good about that.

Okay, and then my second form, it sounds like in your prepared comments, you noted that from an inventory standpoint, you were in stock and had inventory versus maybe some of your competitors. How do you expect that to play out for the rest of 2021? Is that an area where you'll continue to have a disadvantage over your competitors?

Yeah, look, that business, a big part of that platform services business is, you know, a really unique platform. business in that it's a franchise distribution business and we specialize in a handful of product lines. The team at 1-800 led by Kyle Marshall have just done an incredible job of managing our supply chain, in-stock inventory levels, making sure our franchise... So we feel really good about... about the future in that segment because we've got embedded skills to manage our supply chain and in stock level. So we feel really good about the future for that business. And quite frankly, I think we've got capabilities there that a lot of our competitors don't have when it comes to inventory and supply chain management.

Thank you.

Your next question comes from the line of Karen Short with Barclays. Your line is open.

Hi, thanks very much. Just a couple questions. I wanted to just clarify with respect to the comp in terms of April. You're talking about the comp in April being in line with March, correct? Not in line with the quarter?

I don't think we actually gave Karen specific guidance for April comp. I think what we said is that we're very pleased with how April is performing so far.

Okay. And then I was wondering if you could maybe give a little bit more color on the repeat rates that you talked about with respect to the retail and commercial customers. You talked about how that had been improving. I just was wondering if you could give a little bit more directional color on that, where it is today versus where it's been in the past.

Sure. I'll give take five as an example, Karen. We talked about driving awareness and trial in our business. So when we get people into our stores, they have this incredible 10-minute stay-in-your-car oil change experience. We've got extremely sort of high industry-leading NPS scores, net promoter scores. So when we get customers to visit the first time, there's a high likelihood they're going to come back. So as we drive trial and awareness in 2020, those customers come back because they need two-plus oil changes a year. So that's how we drive repeat rates through great marketing and even better operational execution. In terms of our commercial customers, I think you've heard before that we have a very – dedicated team that focuses on delivering great service to our insurance partners. As the insurance partners see the capabilities of our franchisees, they give us more business, right? So that's how we win more business. It's a really meritocratic system. So that's how we're gaining share and repeat customer rates, both with commercial and retail customers.

Ray, but any way to just give some progress in terms of what repeat rates may be today versus where they've been in the past?

I think they're accelerating. I think within the Take-5 business, and we typically don't want to give business-level metrics, Karen, but I will tell you that within the Take-5 business, we've seen 500 basis points of improvement in repeat rates. And we've seen, obviously, when you look at our paint, collision, and glass business, when we look at our same-store sales performance versus the industry metrics, you can see that we're sort of 500 basis points better than the industry. So they would be some data points that I'd point you to.

Okay. Thank you.

Our last question comes from the line of Peter Keith with Piper Sandler. Your line is open.

Hey, thanks. Good morning, everyone. I wanted to ask you, Jonathan, about your advertising spend. So it's clear there seems to be some sequential improvement happening in the business. Can you now, I guess, press the gas pedal on your advertising spend? Do you have cash that you feel like you can allocate to that? And secondly, just now that you've integrated Car Wash, Has there been some type of unlock in terms of the cross-marketing opportunities across

Yeah, great questions, Peter. The answer on advertising spend is, thankfully, we're not like Henry Ford, who used to say, 50% of my marketing works, I just don't know which 50%. So we have a data-driven marketing team, and we're able to very quickly test and learn and quantify which programs work, which promotions work. So as we find things that work, we lean into those more heavily. And when we think about advertising investment, we think of it like any other investment at Driven Brands. We look at return on investment. So if there's an opportunity to lean in more heavily to an investment because we know it works, we will do so and have been doing so. So that's sort of question number one. Question number two in terms of the car wash unlock, look, it's a phenomenal business. We bought a really terrific business in August. We integrated it very quickly. specifically on the U.S. business. Gabe Mendoza and the team there are just doing wonderful things in terms of focusing on the key levers of that business. So the key levers are how do we further improve wash club membership rates, and Tiffany's talked about the benefit of recurring revenue streams. How do we maximize revenue per wash, and we're doing that through great merchandising and great selling techniques. So we've owned this business for seven months, and I will tell you that I couldn't be more pleased with the team and the progress that we've made over the first seven months, and I think there's just tremendous opportunity for us as we look ahead.

Okay, that's great. Maybe a quick follow-up on Car Wash then, and maybe it's a bit nitpicky, but you showed last quarter really strong improvement in the subscriber base as a percent of revenue from 41% to 45%. Now it sounds like Q1 you're still trending at 45%. I was wondering if you could comment on that. Maybe it's just a function of non-subscription revenue has really bounced back strongly, but any color would be appreciated.

Yeah, it's kind of a champagne problem, Peter, in that we have continued to add incremental wash probe subscriptions, but we've increased revenue per wash for non-wash probe subscriptions at a faster rate. So we're growing both incrementally. And we don't back off from our long-term view around sort of 60% Wash Club subscriptions over time. But we're just growing non-Wash Club revenue per wash at a faster rate in this quarter.

But we did add 50,000 Wash Club members, Peter, in the quarter, which is still phenomenal. Yeah, I agree.

Sounds good, guys. Thanks so much.

I will now turn the call back over to Mr. Fitzpatrick.

Thanks, Tamia, and I think that wraps up our earnings call for Q1. We look forward to talking to many of you over the next coming days and when we announce Q2 earnings. Thank you all.

Thank you. This concludes today's conference call. You may now disconnect.