Driven Brands Holdings Inc.

Good morning, ladies and gentlemen, and welcome to the Driven Brands Inc. Q2 24 earnings call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on August 1, 2024. I would now like to turn the conference over to Mr. Chris Thompson, Senior Director of Treasury and Investor Relations. Please go ahead.

Good morning, and welcome to Driven Brands' second quarter 2024 earnings conference call. The earnings release and the leverage ratio reconciliation are available for download on our website at investors.drivenbrands.com. On the call with me today are Jonathan Fitzpatrick, President and Chief Executive Officer, Danny Rivera, Executive Vice President and Chief Operating Officer, and Joel Arnao, Senior Vice President and Interim Chief Financial Officer. In a moment, Jonathan, Danny, and Joel 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 the 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 forward-looking statements in regards to our current plans, beliefs, and expectations. These statements are not guarantees of future 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 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 up by a question and answer session. We ask you to limit yourself to one question and one follow-up. Now I'll turn it over to Jonathan.

Good morning. We appreciate everyone joining us today to discuss Driven Brown's second 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 their amazing franchisees for how they continue to navigate an extremely dynamic macroeconomic environment. After a very thorough national search, I'm delighted to announce that Mike Diamond has joined Driven as our CFO. Although Mike will officially start in a couple of weeks, he is here with me today. Mike has a terrific background in multi-unit businesses, and was most recently CFO at the Michaels Companies. And you can read about Mike's background in our earnings release. We're super excited to have him join the team. I also want to take a moment to recognize and thank Joel Arnao, our Senior Vice President of Finance, who has done such a terrific job as interim CFO over this past quarter. My focus continues to be on delivering our outlook for 2024, and using excess free cash flow to pay down debt with a year-end target of less than four and a half times levered and a year-end 2026 target of less than three times. And finally, active portfolio management. I will start with a review of some of our second quarter 2024 highlights and corporate initiatives, and then turn it over to Danny, who will discuss our operating segments, and then Joel, who will detail our second quarter financial results and full year outlook. For Q2 2024, we delivered revenue of $612 million, up 1% versus the prior year, supported by 115 net new stores and 0.5% same-store sales growth, our 14th consecutive quarter of positive same-store sales growth. An adjusted EBITDA of $152.2 million, resulting in diluted adjusted EPS of $0.35. We continue to be pleased by the performance of our Take 5 oil change and franchise businesses, all being key contributors to a solid Q2 2024. And it is worth noting that on a two-year basis, Driven delivered 8.1% same-store sales growth. Our PC&G segment, which represents more than 50% of that comp, delivered a two-year comp of 11.7%. And Take 5 oil change, our biggest and fastest growing business delivered a two-year comp of 23.5%. As I mentioned on Q1 earnings call, we still 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 saw that it impacted our Q2 results, and we are taking this into account in our updated expectations. And we believe that this pressure will be somewhat offset by strength in our commercial business and our needs-based businesses. We remain focused on delivering our 2024 outlook despite this ongoing consumer uncertainty. Joel will provide more details on our 2024 outlook shortly. I'd now like to spend a few minutes on some key corporate initiatives. We began the migration to our new ERP platform at the start of Q3. And so far, we're pleased with the progress of the implementation. This is testament to the hard work and extensive preparation from the entire team, led by our Chief Information Officer, Karen Conrad. The team is continuing to make good progress on divesting U.S. car wash pipeline properties. In Q1, we received approximately 33 million of proceeds. And in Q2, we received an incremental approximate 66 million for a total of approximately 100 million. Year to date, we are now at 107 million of proceeds. Our previous target was at least 100 million for fiscal 2024. Now that we've achieved that, we're confident in delivering at least another 50 million in U.S. car wash divestitures in the second half of 2024. As I have previously mentioned, reducing our overall leverage is one of my primary objectives. Our goal is to finish the year at less than four and a half times. While we saw a moderate reduction from Q1 to Q2, we remain on target to achieve our goal by the end of 2024 and will continue to focus on paying down debt towards our long term target of less than three times levered by year end 2026. I'm pleased to report that we successfully refinanced $258 million of WBS notes, which were coming due in April 2025, by issuing new $275 million seven-year notes, essentially leverage neutral. We also increased our liquidity through the addition of $400 million of variable funding notes, which replaced our $115 million variable funding notes from 2019. our variable funding notes remain fully undrawn. Our debt stack is comprised of approximately 80% WBS notes with a blended fixed rate of 4.5% and a weighted average maturity of 3.6 years. There are no maturities coming due until Q2 2026. Now let me spend a few minutes on our growth priorities. Take five oil change, auto glass now and driven advantage. Take five continues to deliver very strong results. Q2 2024 marks the 16th consecutive quarter of positive same store sales growth. Revenue grew by 16% and EBITDA grew by 22% compared to Q2 23. Additionally, Mo Khalid and the team grew margins by approximately 170 basis points over Q1. The team remains focused on executing the take five playbook to drive sales while maintaining strong operational efficiency and satisfied customers manifested in our net promoter score of 77%. Take five oil change has seen robust unit growth, adding 68 new units year to date, a majority of which are asset light franchises. We also expect to add approximately 100 additional stores in the second half. At the end of the quarter, 37% of Take 5 stores are franchised. Over a two-year period, our franchise store count has almost doubled, and we anticipate franchisees to account for approximately 50% of total locations over time. Our unit economics continue to attract new franchisees and drive our existing franchisees to sign new development agreements. Now looking at the last eight quarters for Take 5 Oil Change, some KPIs measured on a two-year CAGR include franchise unit growth of 39.9%, company unit growth of 10.1%, for a combined unit growth of 18.8%, system-wide sales growth of 24.8%, and net revenue growth of 20.3%. In summary, Very strong performance across all metrics. Now switching to our US glass business, Auto Glass Now. We remain excited about the medium and longer term prospects for this business and know that it will take time to build scale and momentum. Earning insurance and commercial business can take time and we want to do it right because of the importance of long term sustainable partnerships. Now revenue for AGN is blended approximately one-third retail, one-third commercial, and one-third insurance. And over time, we expect to grow the commercial and insurance revenue faster than our retail business. So let's start with our retail customers. These are typically out-of-pocket pay with an average check of approximately $300. Now in order to capture additional retail revenue, We rolled out the online estimator in late Q2, allowing customers to avoid coming to the shops for quotes, and we are very pleased with the early adoption rates. Next are commercial customers who are owners and managers of large fleets of vehicles. The average check is approximately $400 with a calibration attachment rate of approximately 31%. We're pleased to have signed contracts with two major national car rental companies in Q2, and we'll start seeing that volume materialize in the second half of 2024. Finally, our insurance customers have an average check of approximately $650 and calibration attachment rate of approximately 42%. I'm also pleased to report that we finalized six new agreements with regional partners in Q2. And this volume will start flowing in the second half of 2024. We also have a growing pipeline of regional and national carriers and are currently in multiple RFPs. The momentum and interest continue to build with carriers presenting increasing medium and long-term opportunities. And as I have mentioned multiple times over the past several quarters, it will take time to build this business. However, we remain very optimistic about the future of this nascent category. Driven Advantage is our online marketplace where our company stores, franchisees, and affiliates can purchase over 90,000 SKUs from more than 50 vendor partners, ranging from office supplies to paint, oil, and equipment. Since its launch in Q1 2023, Approximately 80% of eligible locations have already begun purchasing products and services on the platform. While the majority of revenue and contribution benefits from Driven Advantage show up in our operating segments, some highlights from the first half of 2024 include we've added 1,500 customers in the first half of 2024, almost entirely from our franchisees and affiliates. Sales in the first half of 2024 were up approximately 170 million, up from 70 million in the first half of 2023. We launched new capabilities to further increase sales like automatic reordering, vendor promotions, and are now generating advertising revenue from our vendor partners. We also see a growing interest in the industry as more third parties see the platform. both from automotive suppliers looking to sell on Driven Advantage and from other automotive companies looking to use Driven Advantage at their own locations. This is a uniquely powerful platform that we have created that benefits our franchisees, company stores, vendor partners, and Driven. Now my focus in 2024 again is on delivering our outlook, reducing debt, and actively managing the portfolio. 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.