Driven Brands Holdings Inc.

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is the jewelry shop. Good morning. My name is Karina. I will be your conference operator today. At this time, I would like to welcome everyone to the Driven Brands Q1 2024 earnings call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press tar followed by the number 1 on your telephone keypad. If you would like to withdraw your question, press the star followed by the number 2. Thank you. I will now turn the call over to Joel Arneu, SVP of Finance. Joel, you may begin your

conference. Good morning and welcome to Driven Brands

Q1 2024 earnings conference call. The earnings release and the leverage ratio reconciliation are available for download on our website at .drivenbrands.com. On the call today with me are Jonathan Fitzpatrick, President and Chief Executive Officer, Danny Rivera, Executive Vice President and Chief Operating Officer, and Gary Ferreira, Executive Vice President and Chief Financial Officer. In a moment, Jonathan, Danny, and Gary will walk you through our financial and operating performance for the quarter. Before we begin our remarks, I'd like to remind you that management will refer to certain non-GAAP financial measures. You can find the reconciliations to most directly comparable GAAP financial measures on the company's investor relations website and in its filings with the Securities and Exchange Commission. During the course of this call, we may also make four looking statements in regard to our current plans, beliefs, and performance and are subject to a number of risks and uncertainties and other factors that could cause actual results and events to differ materially from the results and events contemplated by these forward-looking statements. Please see our earnings release and our filings with the Securities and Exchange Commission for more information. Today's prepared remarks will be followed by a question and answer session. We will ask you to limit yourself and one follow-up. Now I'll turn it over to my partner, Jonathan.

Good morning. We appreciate everyone joining us today to discuss Driven Brands' first quarter 2024 financial results. To begin, I want to acknowledge the hard work and strong execution by our more than 10,000 Driven Brands team members and our amazing franchisees for how they continue to navigate an extremely dynamic macroeconomic environment. I will start with a review of some of our first quarter 2024 highlights and then turn it over to Dani, who will discuss our operating segments, and then Gary, who will detail our first quarter financial results and full year outlook. For Q1 2024, we delivered .7% revenue growth versus the prior year, supported by 144 net new stores and .7% same-store sales growth, achieving diluted adjusted EPS of 23 cents. We continue to be pleased by the performance of our Take 5 oil change and franchise businesses, all being key contributors to a solid Q1 2024. Now on our last earnings call, I mentioned the effects of extremely challenging weather conditions on our business in January. And despite these challenges, we were still able to deliver a solid first quarter and feel confident about the balance of the year. Now before we dive in, I want to spend a moment on Gary. And as you likely saw on our earnings release, Gary has decided to pursue another opportunity in order to be closer to his family in Colorado. He will be working closely with a former colleague he has known for decades. Joel Arnao, our Senior Vice President of Finance, who many of you know, will assume the role of interim CFO while we conduct a search for Gary's successor. We are focused on finding the right person for the role, and we appreciate that Gary will make himself available to support the transition, which we expect will be seamless. Gary has been a great partner this last year, and on behalf of the board and the management team, we wish him great success in his new role. Turning to the results for the quarter, Q1 revenue was impacted by the extreme weather conditions in January. We also believe that the ongoing inflationary environment will likely continue to pressure consumer spending throughout the balance of 2024, and that lower income households will be the most impacted. We expect that this pressure will be offset by continued strength in our B2B and commercial business and our needs-based businesses. We are focused on delivering our 2024 guidance despite this ongoing consumer uncertainty. I want to take a few moments to speak about one of the key drivers of our performance, take five oil change. Despite the challenging start to the quarter, this marks the 15th consecutive quarter of positive same-store sales, and we're particularly pleased with the -over-year margin expansion of approximately 300 basis points, delivered by an increasing franchise revenue mix coupled with great margin management at our company locations. Next, I want to provide an update on our purchasing platform, Driven Advantage, which we previewed at our investor day in 2023. You may recall that this is an online marketplace where our company stores, franchisees, and affiliates can purchase from over 90,000 SKUs from more than 50 vendor partners, ranging from office supplies to paint, oil, and equipment. And since its launch in Q1 2023, approximately 75% of eligible locations have already begun purchasing products and services on the platform. The team is now focused on making additional enhancements aimed at increasing our wallet share and driving additional convenience and value for our partners. We continue to augment our vendor landscape with new SKUs and make technical enhancements to the platform, such as suggestive selling and customized advertising. This is a uniquely powerful platform we have created that benefits our franchisees, company stores, vendor partners, and Driven. And we feel very good about delivering on the growth from this platform we outlined at investor day, including the incremental $35 million in adjusted EBITDA we expect by 2026. Our franchise businesses, Minike, Mako, Carstar, and 1800, all delivered strong results in Q1 and continue to drive significant cash flow and very strong margins. Now let me give you an update on our car wash segment. Margins in the U.S. business were negatively impacted in Q1 by lower revenue. And revenue was impacted by a combination of consumer softness, weather, and the continued impact of competitive intrusion. As mentioned on our previous earnings call, we have stopped all new growth capital investments in this business and will not open new U.S. car wash stores. Additionally, the team is making good progress on divesting pipeline properties we owned when we made this decision. Through Q1, we have received approximately 33 million of proceeds and are still planning on at least 100 million in fiscal year 2024. On the other hand, our international car wash business had a solid first quarter, and we're seeing really nice trends in April. Now switching to our U.S. glass business, Auto Glass Now. We remain excited about the medium and longer term prospects for this business, but also know that it will take time to build scale and momentum. The team is focused on growing both the top and bottom lines of this business. And while we saw a slower Q1 from the retail consumer, similar to some of our other businesses, we're pleased with the continued progress in our commercial business. The team is focused on building our insurance sales with an immediate focus on regional carriers. And we're pleased with the growing pipeline and look forward to turning this into new revenue throughout the remainder of the year. My focus in 2024 is delivering on our guidance, reducing debt, and actively managing the portfolio, which means making sure that Driven has the right assets to execute on our short, medium, and longer term goals. We have a platform that generates high steady state returns with a long runway for reinvestment at attractive returns. And we're incredibly motivated to see our valuation mirror our results over time. Now let me hand it over to my partner, Danny, our Chief Operating Officer, to discuss our key business segments.

Thank you, Jonathan. I wanted to start by formally welcoming two new leaders to Driven, Tim Austin and Missy McKinley. Tim joins us as our new President of Take 5 Car Wash. Tim built his career at Walmart, where he grew from a store manager to regional Vice President. He also held several leadership roles at Sears before becoming COO at Lucid Hearing, helping to grow the company to over 500 locations in five countries. Missy is our new Vice President of Field Operations for Take 5 Oil Change. Missy joins us from Scooters Coffee, where she served as President of Operations. Before Scooters, she held operational leadership positions at several great retailers, including CVS, Dollar Tree, and Circle K. Welcome, Tim and Missy, to the Driven team. Switching gears to Q1 performance. Q1 was a difficult quarter with a few headwinds from weather and a softer retail environment. However, I'm happy with the results our team achieved. First, weather was not our friend in the first quarter, particularly in January. January was the tenth wettest on record in the United States, and multiple major winter storms forced us to lose over 200 retail days due to store closures. Second, as other major retailers have recently mentioned, we saw some moderate softness with consumer demand, particularly from lower income households. Despite these headwinds, the team was able to deliver a very solid quarter with -over-year increases in system-wide sales, same store sales, revenue, EBITDA, and EBITDA margin, and new units. That's the power of Driven's diversified platform. While some of our businesses, which I'll discuss shortly, may not be hitting on all cylinders, others are more than making up the slack. Before I jump into the segments, it's worth spending a moment on Driven's highly franchised businesses. Mako, Car Star, Miniky, and 1-800 are asset-light franchise businesses, but an important part of Driven's portfolio. These iconic businesses, some of which have been around for more than 50 years, continue to produce steady results, adjusted EBITDA margins north of 50 percent, and significant cash flow. They are a major part of Driven's DNA and performance, and I'd like to once again thank our franchisees for their hard work and dedication. Moving on to our maintenance segment, which was up -over-year in system-wide sales, revenue, adjusted EBITDA, and adjusted EBITDA margin. Take-five oil change led the way and continued its streak of -to-bottom growth. In Q1, Take-five was up -over-year about 16 percent in revenue, 7 percent in same-store sales, 30 percent in adjusted EBITDA, and 350 basis points in adjusted EBITDA margin. We also opened an additional 28 net locations in Q1, 162 more locations than in Q1 of 2023. About two-thirds of these locations are franchised. Take-five oil change continues to win because of our differentiated, fast, friendly, and simple business model. We deliver -your-car oil changes in less than 10 minutes with no high-pressure selling. The result is a premium oil conversion rate of approximately 90 percent, ancillary attachment rates north of 40 percent, and top-two box MPS scores in the mid-70s. Our growth plan for Take-five oil change remains unchanged thanks to the success we've seen to date. As highlighted at our investor day, we will open about 150 new locations every year. Of these, about two-thirds will operate as franchises, while the remaining one-third will be corporate owned. We're planning for continued organic same-store sales growth due to a steady pipeline of newer vintages that are ramping, healthy repeat rates thanks to our differentiated service offering, and leaning into new channels that tap into new customer segments such as online appointments. We launched online appointments towards the end of last year and have recently finished the rollout in our company-owned locations. For 30-plus years of Take-five's history, no appointment was necessary and customers were free to come any time that was convenient to them. Today, our no appointment necessary culture hasn't changed, but we now offer appointments for customers that are starved and want to carefully plan exactly when to get their next oil change. We're very encouraged with results we've seen to date. In the stores where we've rolled out online appointments, this new channel has led to an incremental half-car per day per store. Importantly, over 80% of the customers we're seeing through this new channel have either never been to Take-five oil change or have lapsed, meaning they haven't been to Take-five oil change in the past 12 months. Many thanks to Mo Khalid, President of Take-five oil change, our employees, and our amazing franchisees for the continued success we've seen. Moving over to our car wash segment, the softening of this part of our business continued into Q1 with -over-year declines in revenue of about 8%, adjusted EBITDA of about 29%, and EBITDA margins of about 600 basis points. We did see some positive signs, however, as we sequentially improved revenue and EBITDA. From an adjusted EBITDA margin perspective, we've maintained the variable cost improvements we made in Q4 into Q1. However, rents on a -over-year basis was higher in the first quarter of 2024 by about $2 million due to the execution of sale leasebacks. While we saw approximately 65 basis points sequential drop in this is entirely due to year-end rebates we received in Q4. The softness within the segment continues to be entirely due to our domestic business as our international business, led by Tracy Gellin, turned in another solid quarter with positive -over-year financial growth. The themes for our U.S. car wash business remain the same. Revenue declines due to unfavorable weather conditions and competitive intrusion. January was particularly difficult from a weather perspective for our U.S. car wash business. Massive winter storms forced store closures resulting in over 200 lost retail days. Unlike other parts of our business, like oil change, these tend to be lost occasions that do not result in pent-up future demand. The operational plan that we established for our U.S. car wash business in Q4 remains the same. Preserve the variable cost improvements we made and grow membership revenue. When it comes to membership revenue, we began testing some pricing changes in two markets in early Q1. Based on the encouraging results we saw with these two markets, we grew the test to approximately half of the portfolio early in March. While we're in very early innings, this new program has materially improved both member conversion rates and churn rates. We continue to monitor this program closely and remain optimistic about what this could mean for the trajectory of the U.S. car wash business in 2024. Our PC&G segment had -over-year decreases in revenue and adjusted EBITDA while generating positive same-store sales. It's worth noting that we refranchised nine company-owned collision centers and secured a significant multi-year development agreement in January of this year. This leaves us with one remaining company-operated collision center. Refranchising these locations naturally leads to a reduction in revenue for the segment with no changes to system-wide sales. When looking at individual performance of AutoGlass Now, Mako, and Carstar, we have a tale of two cities. Mako and Carstar continue to deliver solid performance and adjusted EBITDA margins in excess of 50%. AutoGlass Now continues to be a strategic growth area for us. The plan for AutoGlass Now that was established in Q4 hasn't changed. Improve our cost structure and grow revenue was a heavy focus on driving regional insurance. Michael Macaluso and the AGN team started 2024 on the right foot by delivering sequential growth in financial performance. The team also has a robust pipeline of regional insurance carriers that are in the latter stages of negotiation. We are optimistic that we will start to see growth in regional insurance revenue in the second half of 2024. Lastly, our platform services segment had another solid quarter with -over-year increases in revenue, adjusted EBITDA, and adjusted EBITDA margin driven by strong performance from 1,800 and Spire, which benefits directly from the continued amazing growth in Take-5 Old Change that I spoke about a moment ago. I would also like to echo Jonathan's sentiments on Driven Advantage. We are excited with results Kyle Marshall, EVP of our platform segment, and the team have been able to deliver just one short year into building this truly unique platform. To summarize, I'm proud of the -over-year growth the Driven team, both employees and franchisees, achieved despite facing many headwinds in the quarter. While there's still much work ahead to get our U.S. car washing glass businesses to where we want them to be, Take-5 Old Change continues to knock it out of the park and our franchise businesses remain strong. With that, I'd like to hand it over to my partner, Gary.

Thanks, Danny, and welcome everyone. This morning I will review our first quarter financial performance and discuss our outlook for the rest of the year. Before I start, I just want to take a moment to thank Jonathan and Danny for being such great partners. It's been an honor to work alongside both of you, the rest of the executive team, our board of directors, and all of our credible employees. I joined Driven Brands a year ago, and while 2023 was a bit of a challenge, we adjusted course where needed and delivered on a revised outlook. The team is now focused on accelerating growth in 2024 while remaining hyper-focused on generating cash flow and delivering. While I will miss working with everyone, I look forward to being able to spend more time with my family in Colorado. I'll be joining a private company and, as I said, I'm partnering with a long-term friend. Importantly, I believe here knowing that Driven Brands is in very capable hands and has a bright future ahead. Now turning to our results, as Jonathan and Danny discussed, we had extremely challenging weather during the quarter, especially in the U.S. during January. Additionally, we experienced some moderate softness with consumer demand, particularly from lower income households. Even with these challenges, we still delivered our 13th straight quarter of positive same-store sales growth. Adjusted EBITDA and adjusted EBITDA margin for the quarter increased both sequentially and year over year, and cash flows from operations increased approximately 64%. I am proud of how well our team executed in a dynamic environment, especially how they managed the bottom line. For the first quarter, our system-wide sales were $1.6 billion, up .7% versus the prior year. This growth was driven by 144 net new stores year over year, and .7% same-store sales growth. As planned, the majority of our new store openings came from the maintenance segment, with approximately 60% of those being franchise openings. Our same-store sales performance for the first quarter was lower than the outlook we provided for the full year 2024, but in line with our expectations for the quarter. The lower growth rate was primarily driven by the extreme weather in January impacting most of our businesses, as well as generally poor weekend weather impacting the car wash segment. We continue to expect same-store sales for the full year to be between 3 and 5%, and for the majority of that growth to occur in the second half of the year. As a reminder, we had our highest same-store sales in 2023 during the first quarter. Total revenue for the quarter was $572.2 million, and adjusted EBITDA was $131 million, an increase of .7% and .1% respectively. Adjusted EBITDA margin was 22.9%, representing an increase of 95 basis points versus the prior year period. Cash provided by operating activities was $60.3 million versus $36.8 million in the prior year quarter, an increase of approximately 64%. I will now focus on our performance by segment. In our maintenance segment, system-wide sales were $500 million, and same-store sales grew 4.8%. Our same-store sales growth and margin expansion were driven by strong attachment rates of our ancillary products, particularly coolant, which helped drive ticket expansion and take-five oil change. During the quarter, we opened 28 net new stores, with 19 franchise stores and 9 company-owned stores. We achieved revenue of $261.7 million, and adjusted EBITDA of $91.4 million, representing growth of 15% and .6% respectively, while adjusted EBITDA margin at .9% increased 320 basis points versus the prior year period. In our car wash segment, same-store sales declined 7.4%. This decline was driven by our U.S. car wash operations, which saw lower volume due to weather and competitive intrusion. We delivered revenue of $144.7 million, and adjusted EBITDA of $29.1 million. While these represent significant declines from the prior year period, we experienced sequential growth in revenue and adjusted EBITDA of .7% and .2% respectively versus the fourth quarter of 2023, despite having the benefit of some one-time rebates being recognized in Q4 and considerable weather disruptions in the first quarter of 2024. In our PC&G segment, system-wide sales were $882.1 million, up .1% driven by our franchise businesses. Same-store sales increased 1.3%. Revenue was $106.4 million, and adjusted EBITDA was $30.8 million, resulting in decreases of .9% and .1% respectively. These declines were primarily driven by the refranchising of nine company-owned collision stores earlier this year and the performance at AutoGlass Now. In our platform services segment, we delivered revenue of $53.8 million and adjusted EBITDA of $19.9 million for growth of .4% and .8% respectively. Adjusted EBITDA margin increased 423 basis points versus the prior year of 36.9%, which was due to effective cost management. Corporate and other spending decreased .9% primarily due to the timing of third-party expenses, which we expect will hit in future quarters. Now I will focus on some key components below adjusted EBITDA. For the quarter, depreciation and amortization expenses totaled $43.2 million, which was an increase of $5 million from the prior year due to an increase in company-owned stores. Additionally, interest expense was $43.8 million, a $5.6 million increase from the prior year, primarily due to the higher interest rates and increased use of the revolver. Net income for the first quarter was $4.3 million versus net income of $29.7 million in Q1 2023, or a decrease of $25.5 million. This decrease was primarily due to asset impairment and lease termination charges, as well as the increases in DNA and interest expense that I just mentioned. Adjusted net income was $38.1 million in the first quarter, slightly lower than the $39.1 million last year, resulting in adjusted diluted EPS of $0.23, flat versus the same period in 2023. Gross capital investments were $89.5 million for the quarter versus $169.2 million in the same period last year. This is a 47% reduction from the first quarter of 2023 and consistent with our expectations based on the full year outlook we shared last quarter. Total sale leaseback activity for the quarter was $4.5 million, driven by our maintenance segment. This resulted in net capex of $84.9 million, which is consistent with the Dream Big 2026 plan that we shared at our investor day in September of 2023. As I mentioned last quarter, we're in the process of rolling out a new enterprise resource planning, or ERP, system. As a reminder, this project will replace multiple legacy ERP systems with Oracle Fusion. US GAAP does not consider investments in cloud computing to be a capital investment. Therefore, our ERP project investment flows through operating cash flows. At quarter end, our net leverage ratio declined sequentially to 4.92 times versus 4.96 times for Q4 2023. We anticipate continued delevering throughout 2024, as future quarters will have increased operating cash flow and decreased capex spend, all while we continue generate cash through our US car wash assets held for sale. We generated $33 million in cash through these sales during Q1 and remain on track to deliver at least $100 million in 2024. At quarter end, the balance on a revolving credit facility was $248 million, consistent with year end 2023. And as of earlier this week, we are now down to a balance of $223 million, and we expect this amount to continue to decline as we move through the rest of the year. At the end of the first quarter, we had $308 million in liquidity, comprising $166 million in cash and cash equivalents, along with $142 million of undrawn capacity on our variable funding securitization senior notes and our revolving credit facility. Our liquidity does not account the additional $135 million of variable funding notes, which could be utilized at the company's discretion if specific conditions continue to be met. I will now turn to our outlook for the remainder of fiscal 2024. While we had significant weather-related issues in the first quarter, and we noticed some softness in consumer spending, we are reaffirming our fiscal 2024 outlook that we provided on our fourth quarter earnings call. As a reminder, that consisted of revenue of between $2.35 and $2.45 billion, adjusted EBITDA of $535 to $565 million, and adjusted diluted EPS of $0.88 to $1. We also continue to expect same store sales growth of 3 to 5% in 2024. While we don't provide specific quarterly outlook, we continue to expect that approximately 80% of the -over-year adjusted EBITDA total growth will come in the second half of the year. As we laugh weak at comparables and see continued improvement in our U.S. car wash and U.S. class businesses, we expect adjusted EBITDA to peak in Q2 and decline sequentially throughout the remainder of the year. Last year, we had a very strong second quarter. Therefore, we currently anticipate second quarter adjusted EBITDA growth to be in the low single digits. While we are focused on accelerating growth in our business segments, we remain committed to generating cash in order to pay down debt and remain hyper-focused on driving leverage down to our target of below 4.5 times by year end. While we experienced a modest sequential decrease in leverage in Q1, we expect slightly greater delevering in Q2 and continue to expect the majority of the decrease to occur in the second half of the year.

I will now turn the call back over to the operator.

Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the number one on your touchstone phone. You will hear a prompt that your hand has been graced. Should you wish to decline from the polling process, please press the star followed by the number two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment please for our first question. Your first question comes from Simon Gottman from Morgan Stanley. Please go ahead.

Good morning everyone. I wanted to ask about Car Wash and its environment. I heard you mentioned international positive, so US is a little bit weaker. Can you talk about just the competitive set and curious because it seems like maybe the membership models are maybe performing a little bit better, a little stickier right now. Is that a disadvantage? I'm not sure how much that matters in this or if it's whether because call it the retailer, the occasional customer, just didn't have a reason to show up this quarter.

Hey, Simon, I'll start and Danny can certainly chime

in. Look, I think the three contributing factors on the loss or lower revenue in Q1 really were that extreme weather conditions, definitely some softness with the retail consumer and obviously competitive intrusion hasn't really changed. I think what Danny mentioned is this new pricing promotion effort that we kicked off and tested in Q1 targeting membership is showing some nice early results. Danny, I don't know if you want to add anything.

No, I think I just echo what Jonathan just said. I mean the pricing kind of changes that we're leaning into value a little bit more and we're seeing a nice positive change to member conversion and to retention. So it's early endings there.

Okay, and then I guess my follow-up is I guess complexion on the path to higher EBITDA. I'm reluctant to say the 850 number given maybe it's a moving target, but thinking about the pieces where we talk about maturing businesses and then sort of growth pieces and then the different contributions among the different businesses. This is only a quarter into this year, but clearly maintenance is leading the charge. Is that sort of different or expected in the way that you thought the progression would look in 2024? And are the pieces moving around? Is paint collision and glass going, you know, looks like a positive or sort of a negative to that contribution path, if that makes sense?

Yeah, thematically Simeon, you know, the growth that we've seen in the maintenance segment is what we've underwritten for, you know, the multi-year growth profile. So there's nothing different there in terms of maintenance leading the charge. Obviously our Driven Advantage platform continues to do really, really well. And then, you know, over time we're excited about the opportunity to grow that glass business. So thematically nothing different what you're seeing in Q1, still some volatility certainly within the US car wash business. And, you know, but again our focus right now is, you know, the outlook that, you know, we gave on the last earnings call and Gary reiterated this morning is all about delivering a really great 2024. But thematically you're not seeing anything different in the trajectory of the business. Okay,

that's helpful. Thanks. Good luck.

Our next question comes from the line of Peter Benedict from Baird. Please ask your question.

Oh, hey guys. Good morning. Thanks for taking the question and Gary, good luck. The, I guess a quick follow up on Simeon's question. Just the changes you're doing in car wash. I'm assuming he was a little bit more detail on what exactly you're doing, what you tried, what's working there and what's kind of baked into your outlook now from that. Have you assumed, you know, the improvement that you've seen initially and rolled that through to the balance of the year or if those impacts were to play out, would that be incremental to your view with car wash for the balance of the year? That's my first question.

Yeah, I'll start. Good morning, Pete. You know, it's a test. We're rolling this out to, you know, number of stores as we continue to see positive momentum from the test. We're not changing at this point any outlook for 2024 at a driven or a car wash level. You know, our focus is again, is on hitting the outlook that we've given and we reiterated that this morning. I think the test that, you know, Danny and Tim Austin, our new leader have been running, really is thinking about, you know, how do we develop higher levels of membership, which obviously is very important to create predictability and reduce volatility in sort of the revenue stream. So that's our focus and I still think that we're still seeing, you know, softness in general retail, but our focus is on building that membership base to sort of create incremental predictability in the segment.

Okay, fair enough. You know, one of the three focus areas that you mentioned, Jonathan, was managing, you know, the portfolio. I'm curious how the performance of the U.S. car wash, does this kind of impact your kind of your confidence in realizing at least, I guess, it's 100 million of proceeds from asset disposition this year? Does it make you more motivated? Does it make it harder to do? Just kind of curious where your mind is, your mindset is today relative to 90 days ago. Thank you.

Yeah,

the assets held for sale are the sort of dispositions that we're working on, really as completely isolated from the -to-day running of the business, Pete. So I think, you know, we're pleased with the 33 million of proceeds in Q1. Our target is still at least 100 million for the balance of the year. So that really is managed completely separately and distinctly from the -to-day running of the business. I think, you know, I'll let Danny talk about, you know, the efforts and how he feels about the U.S. car wash business and obviously with Tim on board now.

Yeah, as far as the U.S. car wash business, I mean, I just reiterate there's really two things that the team is focused on that we laid out in Q4. So let's preserve the variable cost improvements that we made in Q4, which Tim and the team have done a really nice job doing and we've preserved that going into Q1. And I mentioned, although you'll see a sequential degradation in margins, it's entirely due to some rebates in Q4. So if you double-click into that, Tim's done a really nice job in the team preserving what we did in Q4. And then growing the membership revenue, which we've talked about, you know, the test is encouraging. We're seeing increased conversion rates. We're seeing reduced churn rates. So we're seeing all the things we want to see.

Got it. Great. Good luck, guys. Thank you. Thanks. Your next question comes

from Robbie Ohms from Bank of America. Please ask your question.

Oh, hey, Jonathan. You know, my question was, my first question was if we could get a little more color on the sort of low-income consumer weakness. And I think I'd be curious, what, when you look at the segments, historically, when the low-income consumers, you know, weakening, which segments do better and which segments do worse? And, you know, so for example, is auto glass, does the auto glass segment have more negative exposure to low-income consumer weakness or not? You know, any kind of thoughts on that would be really helpful.

Yeah, great. Thanks, Robbie. Good morning. Really, what we're saying is I'm not calling out any of our individual businesses as having direct, you know, impact at this moment with the lower income households. What I'm saying is that, you know, given sort of the inflationary environment, we do believe that that customer cohort is likely to be the most challenged throughout the balance of the year. So that's sort of number one. I think when you think about driven in our portfolio, there's a couple of things that are naturally in our favor. Number one, we mentioned last on the last call, you know, about 50% of our sales come from commercial or B2B customers. So that's a really nice hedge. And obviously, there's no, you know, household income impacts there with that B2B customer set. I think the other thing is if you look across our portfolio, the majority of our businesses, Robbie, are needs-based businesses. So it's very hard to put those off. You really have to get those done. If you look at the history of driven brands, and obviously, you know, we've only been public a couple of years, if you look at the last two major sort of financial stress points, you know, the 07, 08 time, and obviously, you know, March of 2020, because of our needs-based businesses, you know, we see very minimal impact, you know, over time in those two time periods. So I'm just calling out that I think there is likely incremental challenge for those lower household incomes with the inflationary environment. But I think driven is uniquely positioned to sort of manage through that. So that's what I would say.

Gotcha. That's really helpful. And then just a follow up just on take five with the, you know, with the online appointments. I'm just curious, is, you know, how do you manage that? If that takes off like a rocket, and you, you know, you just get a ton of online appointments, does that interfere at all with the drive up customer?

No. Hey, Robbie, this is Danny. Appreciate the question. No, it doesn't interfere. So the team's done a really nice job of accounting for, you know, our model predominantly is, is we want folks to come in at any time, no appointment necessary, the way that we rolled out appointments that accounts for our business model, and it won't interfere. So it's, it's pretty intelligently laid out. And we like what we're seeing so far.

Great. Thanks so much.

Your next question comes from Seth Segment from Barclays. Please ask your question.

Great. Thanks. Good morning, everyone. I wanted to focus on the maintenance segment and the demand trends. Any more color on just the cadence after that difficult January? I guess, what did you see the rest of the quarter and then even, you know, early here in the second quarter? Any more on that and customer, you know, based on the issues you talked about, is that just driving lower transactions, just less frequency, or is there a trade down that you're seeing as well? Thanks.

Morning, Seth. Jonathan again, and I just want to reiterate, you know, we're saying that we think lower household income customers could be challenged with the sort of ongoing inflationary conditions. We're not pointing to any of our businesses that have seen impact yet. So I think we're just, you know, being prudent around the balance of the year. Within Q1 and maintenance, you know, I think we did see very challenging weather conditions in P1. I think most retailers in the United States saw that. The good news about our maintenance segment, both our Minahee business and our Take 5 oil change business, is it is a truly needs-based category. So while we did see some, you know, challenge in P1, we obviously think that we catch up those, you know, customers that we're looking for those services. So nothing at this point, you know, in that segment that concerns us. Obviously, we're keeping an eye very closely on how the consumer reacts throughout the balance of the year.

So just fair to think that as the weather has normalized in certain markets, you've seen evidence of that pent-up demand. It's coming through. I guess that, and then just I'll add a follow-up question there around the guidance. I think I heard you say most of the comp growth is expected to come in the second half of the year. That's overall across the business segments. So does that imply second quarter will look a lot like the first quarter? Thank you.

Yeah, I would say that on your first question on same store sales for maintenance segment, we're very pleased with how the business finished the quarter and, you know, excited about the next three quarters for that business. And then I'll let Gary talk about the guidance.

Yeah, I mean, we don't give specifically quarterly guidance. I mean, I think I was pretty direct where I thought at least adjusted EBITDA will come out in Q2 and that, you know, in the second half of the year is where we expect to see most of the growth because just the comps and the lapping of the comps. Q2 is usually our largest quarter on an adjusted EBITDA basis. We don't see that changing. I think

that's it. Okay, thanks,

Your next question comes from Brian. From Canocora Genuity. Please ask your question.

Hi, guys. This is Madison Callanan. Thanks for taking our question. The CFO changes just really typically aren't well received by the market. It was two changes in a year, regardless of the circumstances or circumstances. What would you guys say to reassure investors concerned by the recent turnover in the seat? Thanks.

Well, maybe I'll start with Gary, and then I'll sort of follow up.

But yeah, I know I repeat what I said is, you know, I'm going to an opportunity to work with someone I've known for three decades and move my family back to Colorado or be back with my family in Colorado. But you know, loved working with Jonathan and Danny and, you know, Joel's been by my side ever since I walked in the door. So the two of us have done everything done together. And Mike's been here for a few years and knows the company in and out. So I think we're transition should be pretty smooth.

Yeah, Madison, I think it's a good question. We've got a strong bench of talent here. Joel's going to do an amazing job as interim. Mike Beland is our, you know, fabulous chief accounting officer. Gary's got a phenomenal opportunity. And a lot of this is personal decisions. And I would remind you that, you know, there's no one person that's overly important in Driven Brands. And we feel really good about the year. And again, I would just thank Gary for all the partnership over the last 12 months.

Great. Thanks,

guys. Your next question comes from Christian Carlino from JP Morgan. Please ask your question.

Hi, good morning. Thanks for taking our questions. Just wanted to follow up on some of the competitive dynamics in Car Wash. You know, are the recent pricing changes, is that a result of maybe some pressure from peers in certain markets where you need to lean into value? And just given the development pipelines in the Car Wash business are quite long. Do you see the industry continuing to slow unit growth into next year? Or does it seem like we've found maybe a local bottom?

Yeah, I'll start with sort of the development view, Christian. And then Danny can probably talk a little bit about the other question. You know, I think I've said it on multiple occasions. I think we've seen a massive increase in the number of car washes over the last sort of three to four years while we've been in this category. You know, somewhere between 2,000 and 3,000 new express tunnel car washes have come online in the United States, which is obviously a massive impact. We did, I have said in the past that we think that will moderate in 2024. But again, with the sort of long lead times on the pipeline, I think, you know, we'll see further moderation in 2025. And then Danny on the first question.

Yeah, and Christian, on the first question, look, I think we've mentioned before we're under index as it relates to membership in our U.S. Car Wash business. And membership is obviously a hugely important part of that business because it just predictability in that business. So leaning into value just seemed like a natural thing to do to build up our membership base. And the results is exactly what we're hoping for, you know, increased member conversion or reduced churn. So we're happy with what we're seeing. And it's doing exactly what we hoped it would.

Got it. That's helpful. And I think last quarter, you said the lower end of the guide implies, you know, continued pressure from weather and some macro overhang. And you talked about inflation continuing to pressure at least low income consumers for the balance of the year. So while you reiterated the range, is it now biased more towards the low end or are you outperforming in other areas where you think you can still achieve the EBITDA you laid out at the analyst date?

Yeah. So I think when you, you know, everything we talked about earlier, you know, when we set the range this year, the top end of the range was dead on what we said on investor day. Right. So we don't we don't have any questions on on 2026. I mean, that's still our goal is everything will drive towards, of course, consumer confidence and things like that will obviously impact us as we move through the year. But everything we're looking at, whether it's adjusted EBITDA debt pay down, etc., we're still all on track for

the

plan for

2026. Got it. Thank you very much. That's a lot. Your

next question comes from Kate machine from Goldman Sachs. Please ask your question. Hi,

good morning. Thanks for taking our questions. Are you still expecting to open between 205 and 220 stores this year? And how should we think about the cadence of store openings, especially in the maintenance segment?

Yeah, good morning, Kate. Yeah, nothing has changed in terms of our guidance that we gave on the call about 90 days ago. So we're reiterating the major financial numbers along with the same store sales and unit count assumptions that we gave on that call. So I would just say nothing has changed there. And we do expect that typically, you see a little bit more of waiting of stores in the back half of the year, but nothing has changed in terms of our overall unit count guidance.

Thank you. Your next question comes from

Chris Ockel from Stiefel. Please ask your question.

Thanks. My question is about the car wash segment. Jonathan, can you explain how the US and the international car wash businesses strategically support each other? And then I had a follow up.

Sure, I think,

you know, obviously, there are two different geographies. There's two different operating models because our European car wash is what we call an independently operated model, or you could think almost franchise like. But the teams do spend a lot of time together talking through pricing strategies, promotion strategies, you know, the right equipment, the right chemicals. It's really more of sharing best practices, what's working, what's not working with both teams, understanding opportunities, whether it's value engineering of the buildings, the chemistry, again, the marketing and promotion. So that's really how we sort of leverage the leadership between both groups.

Part of the driven thesis is that you have a national consumer platform for auto services. So how does an international car wash business support that strategy?

Our international business run by Tracy Gellin is a fabulous business that continues to deliver really solid results. And, you know, we bought that business as part of our initial entry into the US car wash market in August of 2020. So I would just say that Tracy and the team continue to deliver great results, very stable, predictable results. And of course, naturally, it doesn't necessarily impact our US business. But again, there's lots of learnings and best practices that we leverage between each other.

Okay,

fair

enough. And then lastly, I know the car wash EBITDA in the US was impacted by the weather. But can you guys describe how the US car wash profitability looked after January or once you got through that weather period?

Yeah, Chris, we don't

get

into

periods or sub-segment reporting within periods. I will tell you that, we've seen, you know, as we've gotten through the difficult weather periods in January, and, you know, like I said on the prepared remarks, we're seeing a nice trends in April, certainly with our international car wash business. And I think Danny and Tim Austin are pretty happy with how the business is performing right now in the US.

Okay, great. Thanks, guys.

As a

reminder, if you wish to ask a question, please press star one. Should you wish to decline from the polling process, please press the star followed by the

number two. Your next question comes

from Peter Keith from Piper Sandler. Please ask your question.

Hi, good morning, everyone. I wanted to dig into two different segments, one negative, one positive. I'll do the negative one first. Could you talk about PC and GE where the comp was 1.3? I'm not sure if weather played a role in that, but we've seen pretty steady comp deceleration there. I know the glass is in turnaround, but I tend to think about the collision business as being really steady and, you know, quite robust from a ticket standpoint. Could you flesh out some of the fundamentals that's dragging on the sales there?

Sure, Peter. Hey, this is Danny. Look, I think what you said is pretty spot on. I mean, if we look at the PC and GE segment, the paint and collision side of that segment continue to do quite well. Those are franchise businesses, mature business. They're very steady, delivering north of 50% margins, and they continue to do so. The glass part of that business, as Jonathan indicated in his comments, we're looking at that as a kind of mid to long term play for us. Just got through the integration. We're very focused on growth, both bottom and top line, like we mentioned. We're just in early innings, and we're excited about the future there.

Okay. I guess I don't answer my question. I guess is this low – you don't want to guide comp for the segments, but are we in a low single digit comp environment now for this area of the business?

Peter, I think we're reiterating our full same store sales guidance for the year, which Gary mentioned, which is a range of 3 to 5%, and we're very comfortable with that at a full driven level. Again, we don't guide on a segment level, but we're reiterating 3 to 5 for the full year. All right.

Let's pivot to the positive segment. So, maintenance – I guess what intrigues me there is the EBITDA improvement. Year on year margins expanded nicely. Even the EBITDA growth accelerated quite a bit, and you did so off of a very similar comp to Q4. To be operationally – help unpack that for us, what's driving the profitability improvement there?

Yeah. So, I think Mo Khalid and the team are doing an amazing job, kind of on three fronts. So, I'd say number one, just ongoing expense management. So, that's one obvious positive. The second one is improving our P mix. So, specifically – we've talked about this in the past – the team's really leaning into our coolant services, and that becomes a more important part, let's just say, of our product mix. And that's a very profitable service for us, so that's going to grow margins over time. And then the last thing is just look naturally as the business gets more heavily weighted to be a franchise business. As we continue to open, kind of two-thirds of our openings will be franchise-based. That'll naturally lead to an increase in margins as well.

Okay. Sounds good. Thank you. There are

no further questions at this time. That concludes today's conference call. Thank you for your participation. You may now disconnect.