Driven Brands Holdings Inc.

Good morning, ladies and gentlemen, and welcome to the Driven Brands, Inc. Q3 2024 earnings conference 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 has been recorded on Thursday, October 31st, 2024. I would now like to turn the conference over to Joel Arnao, SVP of Finance, Treasury, and Investor Relations. Please go ahead.

Good morning and welcome to Driven Brands' third quarter 2024 earnings conference call. The earnings release and the leverage ratio reconciliation are available for download at our website at investors.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 Mike Diamond, Executive Vice President and Chief Financial Officer. In a moment, Jonathan, Danny, and Mike 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 these reconciliations to the most directly comparable GAAP financial measures on the company's Investor Relations website and in our filings with the Securities and Exchange Commission. During the course of this call, we may also make forelooking statements in regards to our current plans, beliefs, and expectations. These statements are not guarantees for 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 the results and events contemplated by these four looking statements. Please see our earnings release and our filings with the Security and Exchange Commission for more information. Today's prepared remarks will be followed 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 my partner, Jonathan.

Good morning. Thank you for joining us today to discuss Driven Brands' third quarter 2024 financial results. First, I want to acknowledge the hard work and great 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. Now, my focus remains steadfast on three key priorities. Firstly, delivering our 2024 outlook. Secondly, utilizing excess free cash flow to reduce debt. And thirdly, active portfolio management. Now, I will begin with a review of our third quarter 2024 highlights and corporate initiatives, and then turn it over to Danny, who will discuss some of our operating segments and then Mike, who will detail our third quarter financial results and full year outlook. I'd like to add that Mike, while only with Driven for a quarter, is having a terrific impact. Mike has deep experience with multi-unit businesses, understands the importance of driving cash flow and paying down debt, and knows where we should be prioritizing resources to maximize equity value. For Q3, 2024, we delivered revenue of 592 million, up 2% versus the prior year, supported by 56 net new stores and 1.1% same-store sales growth, our 15th consecutive quarter of positive same-store sales growth, and an adjusted EBITDA of 138.8 million, generating diluted adjusted EPS of 26 cents per share. And we continue to be pleased by the performance of our Take 5 oil change and franchise businesses, all being key contributors to a solid Q3 2024. Q3 results were good, despite significant weather impacts from four named hurricanes in Q3. Unfortunately, weather will be another factor in Q4 as we experienced impact from Hurricane Milton, particularly affecting our take 5 oil change stores in South Florida. I'm happy to report all stores are back up and running. As discussed in our Q2 earnings call, we anticipate that the ongoing inflationary environment will likely continue to pressure consumer spending for the remainder of 2024, with lower income households being the most impacted. And we expect that this pressure will be somewhat mitigated by strength in our commercial business and our needs-based businesses. We remain focused on delivering our 2024 outlook, even with ongoing consumer uncertainty and major weather events in Q3 and Q4. Mike will provide more details on our 2024 outlook shortly. I'd now like to spend a few minutes on some key corporate initiatives. As previously reported, we closed on the sale of PHVs, our Canadian distribution business, on August 31st. This strategic decision allowed Driven to exit a lower priority, lower growth business and utilize the proceeds to pay down debt. Mike will cover the full year impact to Driven shortly. We've received a lot of questions regarding our U.S. car wash asset over the past several quarters. The US car wash business has been under strategic review, and I'm confident we'll have a definitive view by the time we announce fiscal 2024 results. Additionally, Mike and I continue to evaluate additional opportunities for portfolio management, which would help simplify our operations by exiting non-core businesses and further reducing debt. Our team is continuing to make good progress on divesting our U.S. car wash pipeline properties. As a reminder, through Q2, we had sold approximately $100 million of assets, and we sold an additional $60 million in Q3. This puts the year-to-date total at approximately $160 million. As I have previously mentioned, reducing our overall leverage remains one of my primary objectives. Our goal was to finish the year at 4.5 times or below, which I'm pleased to report we achieved in Q3. Our focus now shifts to achieving our target of less than three times leverage by year end 2026 or sooner. Now let me spend a few minutes on some key drivers of our results, Take-5 Oil Change and our franchise businesses. Q3 24 marks the 17th consecutive quarter of positive same-store sales growth for Take-5 Oil Change. Revenue grew by 15%, EBITDA grew by 14% compared to Q3 23, and we opened 45 new stores in the quarter. As of Q3, approximately 40% 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 our total Take 5 locations over time. Our unit economics continue to attract new franchisees and drive our existing franchisees to sign incremental development agreements. Today we have a very robust pipeline of approximately a thousand sites in place. One that we built organically over the past five years and will continue to build. We have direct real estate visibility into more than a third of this pipeline. which provides us with clear line of sight into the next five years of unit growth and achieving our target of at least 2,000 locations. Take-5 oil change performance and growth rates over the past three years are as good or better than any national scaled oil change business. We will continue to prioritize growth for this brand as its competitive positioning and long runway for growth will help drive significant value for Driven long term. Over time, we remain optimistic that analysts and investors will come to appreciate the massive value that Take 5 Oil Change has and will continue to deliver. I want to make sure that investors and analysts understand the importance of our franchise businesses, which today are spread across our maintenance, PC&G, and platform services segments, and include market-leading brands like Meineke, Mako, Carstar, and 1-800-RADIATOR. Driven was founded on franchise businesses in the needs-based auto services category. And today, we are the world's largest franchisor of auto service brands. We have hundreds of dedicated employees whose sole mission is to help our franchisees be successful and to be in business for themselves, but not by themselves. These businesses, some of which have been around since the early 1970s, are run by long-tenured franchisees who wake up every day focused on delivering great service to their customers. Today, we have more than 2,600 franchise locations across multiple categories. Combined, these businesses generate more than $80 million of advertising funds, which we use to continue to drive sales and traffic. Our franchise businesses represent approximately two-thirds of driven system sales, with more than 50% of those system sales coming from longstanding, sticky, predictable commercial partners. Our scaled franchise businesses are the largest in the industry, and AssetLite, providing driven with consistent, predictable growth, compelling AssetLite margins, and steady cash flow. Recurring steady cash flow from our franchise businesses allows us to fund growth and investment in our industry-leading Take 5 oil change brand. This is the compelling one-two punch of growth and cash flow. In addition to this one-two punch, we have other levers that we expect to drive growth over time for Driven. 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. This is a uniquely powerful platform we have created that benefits our franchisees, company stores, vendor partners, and driven. Finally, our glass business, Auto Glass Now, provides a compelling entry point into an attractive end market. And as I mentioned on our Q2 call, earning insurance and commercial business can take time, and we want to do it right because of the importance of long-term sustainable partnerships. We remain very confident in the long-term opportunity for this business but recognize it will take time to deliver growth. My focus in 2024 is clear, delivering on our outlook, reducing debt, and active portfolio management. 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.