Driven Brands Holdings Inc.

Good morning and welcome to Driven Brand's second quarter 2022 earnings conference call. My name is Chris and I'll 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 Christy Moser, 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 to looking at 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 file 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 sixth 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, $350 billion and growing, and we have less than a 5% but growing share in that highly fragmented market. We will continue to grow and generate cash because of our core competitive advantages. are 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 in 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 growth together with our asset-life business model means we generate a ton of cash. And our needs-based services and franchise business model helps insulate our profits 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 the end of 2026 is on track. Exceeding that plan is our primary focus, and we continue to make great strides. Driven is growth and cash. I want to take a moment to highlight our Q2 results. All credit goes to our team, our amazing franchisees, and our loyal and long-term customers. Compared to Q2 of 2021, consolidated same-store sales were positive 13%. Revenue increased 36% to $509 million. Adjusted EBITDA increased 34% to $135 million. And adjusted EPS increased 40% to $0.35. Another top-to-bottom beat, our sixth in a row as a public company. In addition to the strength of our brands and quality of our service offerings, there are several benefits that come from having multiple categories of auto services together in a portfolio, which have helped drive the continued growth of driven brands and distance us from our competition. We have invested heavily in shared services, which provides each brand with more resources, generating better results than any individual brand could achieve on its own. Let me explain a few of these shared services that benefit from our scale and position driven for continued growth. The three areas I want to highlight are fleet, procurement, and direct-to-consumer digital marketing. We have a dedicated fleet team that works across our portfolio. We have significant opportunity to continue to grow this category, and it's a key priority for us. We estimate the size of our addressable fleet market to be more than $20 billion. Our fleet business today is about $250 million in system sales annually and is growing by about 30% each year. This does not include our B2B insurance collision business, which is $2 billion in system sales annually. Many of our fleet customers are buying multiple services, painting collision, repair and maintenance, oil changes, and now glass. This ability for our fleet customer to consolidate multi-category purchases with one provider is a unique competitive advantage for Driven. And we'll continue to deliver growth in fleet because more units means more locations to service our partners. The addition of glass and car wash creates additional revenue opportunities. our large national fleet partners are actively consolidating their vendors to increase efficiency. And delivering fleet volume to acquired locations makes M&A even more accretive to Driven. Now let's talk about how Driven benefits from our scale and specifically our procurement capabilities. We pool our purchasing power across multiple categories, leveraging our strong relationships with our vendor partners and working with them to get the best terms and conditions for our company and franchise locations. This centralized, large-scale procurement operation serves to mitigate rising input costs and keeps our stores in stock when independents are not. Put simply, the more we procure, the greater the benefits for all parties. In the first half of 2022, we generated approximately $52 million in revenue and approximately 22 million in EBITDA from internal product sales and rebates. This is a 50% improvement over the first half of 2021. We're also close to launching our new procurement marketplace, which will go live in late 2022. This cutting-edge technology platform will expand our product offering, make it easier, faster, and stickier to do business with Driven, enable increased purchase volume, and like a flywheel, it will feed itself, increasing our scale and purchasing power, which will further improve prices. We believe this new marketplace will provide significant value to our franchisees and vendor partners, and provide meaningful revenue and EBITDA growth for Driven for many years to come. Lastly, I want to explain how Driven is leveraging direct-to-consumer digital marketing to drive incremental sales and profits to our company and franchise locations. This is enabled by the investment we have made in people, process, and systems over the last three plus years, as well as our 27 million plus unique customers in our data lake, which has increased by 20% over the last 12 months. In the first half of 2022, DTC Digital Marketing delivered 36 million highly personalized customer contacts, resulting in 545,000 transactions across our business segments, which generated $76 million in system-wide sales, 37 million in revenue, and an ROI of 12x. To put this in context, it generated approximately 4% of driven revenue in the first half, and we expect this to continue to grow over time. This is a growing strategic capability which will compound over time. Three great examples of how the driven shared service platform enables growth and market share gains. This is the power of our growing scale and sophistication in this highly fragmented needs-based industry. and it adds to our confidence in our ability to deliver on our short, medium, and long-term goals. As I mentioned on our last call, we are not immune to the inflationary challenges. To date, we have not seen any material change in consumer engagement or spending habits. Nevertheless, we continue to monitor all of our businesses very closely and have levers to mitigate potential impacts. In the meantime, Growth has continued at Driven. We continue to franchise, build, and buy new stores. And we've made significant progress across our three priority growth levers, Quick Lube, Car Wash, and Glass.