Driven Brands Holdings Inc.

Good morning. Welcome to Driven Brand's first quarter 2022 earnings conference call. My name is Chris and I'll be your conference 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, Vice President of Investor Relations. During today's call, management will refer to certain non-GAAP financial measures. You can find the reconciliations to the most directly comparable GAAP financial measures on the company's investor relations website and in its filings with the Securities and Exchange Commission. Please be advised that during the course of this call, management may also look 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 8K filed today containing the company's earnings release. Information about any non-GAAP financial measures referenced, including a reconciliation of those measures to GAAP measures, can also be found in the company's SEC filings and the 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 one to be placed in the queue. I'll now turn the call over to Jonathan. Please go ahead, sir.

Thank you, and good morning. We had another great quarter across the board, our fifth as a public company, and are excited to share the results over the course of today's call. Driven is the largest automotive services company in North America. Our diversified portfolio of needs-based services provides many levers to grow revenue and profit through same-store sales, new units, and M&A. Our total addressable market is massive, over $300 billion and growing, and yet we have less than 5% share in this highly fragmented industry. We will continue to grow and generate cash because of our core competitive advantages. Our multiple levers to open new units. We can franchise, build, or buy. Our supply chain capabilities that keep us in stock and allow us to take share and price when others cannot. Our scale, which is growing, is a sustainable and increasingly significant competitive advantage in our highly fragmented industry. Over the long term, Driven has and will consistently deliver organic, double-digit revenue growth and double-digit adjusted EBITDA growth. That, together with our asset-light business model, means we generate a ton of cash. And our needs-based services and franchise business model help insulate our profit from the impacts of inflation. We then invest that cash to further accelerate our growth by building new units and layering on acquisitions, which, as we have proven, adds massive incremental upside to our model. Our dream big plan of at least $850 million of adjusted EBITDA by 2026 is on track. Exceeding that plan is now our primary focus, and we were making great strides already. Driven is growth and cash. I want to take a moment to highlight our Q1 results. And all credit goes to our team, our amazing franchisees, and our loyal and long-term customers. Compared to Q1 of 2021, consolidated same-store sales were positive 16%. Revenue increased 42% to $468 million. Adjusted EBITDA increased 52% to $119 million. And adjusted EPS increased 47% to $0.28. another top to bottom beat, and our fifth in a row as a public company. The world has changed since our last earnings call on February 16th. I'll take a few minutes to address how these factors have had limited impact on Driven, how Driven continued to grow in Q1, and the confidence we have in the balance of 2022. Inflationary pressures have accelerated recently with the war in Ukraine, higher gas prices, rising interest rates, and of course, the ongoing labor and supply chain challenges. Let me explain how these macro conditions impact driven in terms of consumer demand, labor, supply chain, and pricing. We have not experienced any material impact to consumer demand in the first quarter. And we do not expect any material impact to demand as we look at the balance of 2022. A few reasons for this. Most importantly, Driven provides needs-based services. Our businesses perform well because of the non-discretionary aspect of maintaining an automobile. Our core customer has been driving and will continue to drive even with elevated gas prices. Our core customers are also benefiting from higher wages, and recent surveys indicate that customers are adjusting to the rise in core living expenses, such as gas and groceries. This mirrors what we have seen from history, Q1 of 2020 and 2007 and 2008, that driven performs well even in the most difficult economic conditions. Next, labor. We continue to deliver shared gains across every segment. One of the contributing factors is our own and our franchisees' ability to staff locations and the quality of our people. As I have mentioned before, we and our franchisees are not immune to the labor challenges, but we have several competitive and structural advantages relative to our competition. Variable compensation is a core tenant for Driven and our franchisees, and most employees have variable comp as part of their total comp. Our franchisees are extremely resourceful owner-operators and know how to recruit and retain employees for their businesses. We operate better hours of operation compared to other retailers. Most employees have nights and, in many cases, Sundays off. many of our positions don't require skilled labor and many of our employees like cars and the opportunity to work within automotive which means it is more than just a job finally we are growing and that means we have significant advancement opportunities as an example more than 70 percent of our above shop leaders in the take five quick glue business were internally promoted from our shops as we've expanded. This availability of a career path, not just a job, has a meaningful impact on our ability to recruit and retain. Next, let's talk about supply chain. Scale continues to provide Driven a competitive advantage, particularly when you consider 80% of our competition is small chains and independent operators. This scale allows us to get preferred access to product at the best possible terms. We have multiple strategic supplier relationships in our key businesses. We have dedicated resources whose sole focus is to ensure that we have product in our stores. Our ability to leverage data analytics, to order in advance, leverage our scale, our balance sheet, strategic supplier partnerships, and preferred vendor status means that we are taking share when others don't have product. The last element of the inflation equation is retail pricing. We offer non-discretionary needs-based services. This means even as prices rise, consumers continue to get their vehicles repaired, maintained, washed, and they're all changed. and it will be very low on the list of services that are downsized when spending is squeezed. We continually evaluate our prices at our company stores to both protect our margins while still providing value to our customers. We have done this strategically over the past 18 months in our company take five locations, and we have not seen any material negative impact to traffic or customer satisfaction. we will continue to manage price prudently to protect margins and ensure customers continue visiting our locations. Our franchisees who manage their own pricing are extremely adept at understanding how, when, and where to take price. This is the ownership mentality at work. Our average check is $842 across the Driven portfolio. as low as $10 for car wash and as high as $3,500 for collision. The ability to pass on small percentage increases has been proven for non-discretionary needs-based services. So in summary, despite multiple inflationary challenges, which we are not immune to, Driven Brands continues to grow and take share. We remain as confident as ever in our ability to deliver on our short, medium, and long-term goals. This is the power of our growing scale and sophistication in this highly fragmented needs-based industry. It is also important to note that despite these challenges, we have not lost focus on our growth across all our businesses. As a result, growth has continued at Driven. We continue to franchise, build, and buy new stores, and we have made significant progress across our three primary growth levers.

Let me spend some time on the three highest growth priorities at Driven, Quick Lube, Car Wash, and Glass.