Driven Brands Holdings Inc. Reports Second Quarter Results

Jul 28, 2021
Supporting Materials:

Delivers Strong Same-Store Sales Growth and Adds 70 Net New Stores
Reports Robust Operating Income and Earnings per Share Growth
Raises Fiscal Year 2021 Guidance

CHARLOTTE, N.C., July 28, 2021 (GLOBE NEWSWIRE) -- Driven Brands Holdings Inc. (NASDAQ: DRVN) (“Driven Brands” or “the Company”) today reported financial results for the second quarter ended June 26, 2021.

For the second quarter, revenue was $374.8 million, an increase of 123% versus the prior year. System-wide sales hit a record $1.2 billion, an increase of 65% versus the prior year, with 34% net store growth and an increase in consolidated same-store sales of 38.7%. On a two-year basis, same-store sales increased 19.1%.

Earnings per share was $0.21 for the second quarter, an increase of 600% versus the prior year.

Adjusted earnings per share2 was $0.25, an increase of 79% versus the prior year.

“The power of Driven Brands is evident in our continued strong operating results,” said Jonathan Fitzpatrick, president and chief executive officer. “While this quarter laps the depths of COVID-19 in the prior year, our strong two-year trend indicates continued momentum in the fundamentals of our business.

“Initiatives we implemented last year, coupled with strong execution from employees and franchisees drove compounding same-store sales and store growth. We continued to capitalize on opportunities as consumers drove more in the second quarter,” Fitzpatrick added.

“Given our scale, the significant whitespace in this fragmented and needs-based industry, and our robust cash generation, our business model remains well-positioned to maximize long-term value for all of our stakeholders.”

Second Quarter Highlights

  • Revenue increased 123% versus the prior year, driven primarily by the acquisition of International Car Wash Group (“ICWG”) in the third quarter of 2020 as well as organic growth across all segments from positive same-store sales growth and net store growth.
  • Consolidated same-store sales increased 38.7% for the quarter and increased 19.1% on a two-year basis.
  • Same-store sales increased across all segments on both a one- and two-year basis.
  • The Company added 70 net new stores during the quarter.
  • The Company recorded net income in the second quarter of $35.2 million, an increase of 1051% versus the prior year.
  • Adjusted Net Income1 was $41.9 million, an increase of 233% versus the prior year.
  • Adjusted EBITDA3 was $100.8 million, an increase of 152% versus the prior year.

Second Quarter 2021 Key Performance Indicators by Segment

  System-wide Sales
(in millions)
Store Count Same-Store Sales* Revenue
(in millions)
Segment Adjusted EBITDA4
(in millions)
Maintenance $ 321.2   1,485 41.9 % $ 145.0   $ 44.6  
Car Wash 122.1   979 35.2 % 123.9   43.1  
Paint, Collision & Glass 597.6   1,655 37.3 % 50.6   21.9  
Platform Services 117.5   200 37.2 % 44.8   17.6  
Corporate / Other N/A   N/A N/A   10.5    
Total $ 1,158.3    4,319 38.7  % $ 374.8   

*Car Wash will not be included in consolidated same-store sales until the one-year anniversary of the ICWG acquisition in the third quarter of 2021.

Capital and Liquidity

In May 2021, the Company closed on a new $300 million revolving credit facility. Borrowings under this facility, in conjunction with the variable funding note associated with the Company’s whole business securitization and cash on hand, will be utilized to fuel further growth and for general corporate purposes. From time-to-time, the Company expects to supplement liquidity with long-term borrowings under its whole business securitization structure.

The Company ended the second quarter with total liquidity of $468.2 million, which includes $147.4 million in cash, cash equivalents, and restricted cash, as well as $320.8 million of undrawn capacity on its revolving credit facilities.

Guidance

The Company has raised its guidance for fiscal year 2021 to account for the strong operating performance in the second quarter and an updated outlook for the remainder of the year. The following guidance reflects the Company’s current expectations for the fiscal year ending December 25, 2021:

  • Revenue of approximately $1.4 billion
  • Adjusted EBITDA3 of approximately $345 million
  • Adjusted Earnings per Share2 of approximately $0.83
  • Low double-digit same-store sales growth with positive same-store sales across all segments
  • Net Store Growth:
    • Maintenance: 80 to 90 stores; driven by roughly equal parts franchise and company-operated store growth;
    • Car Wash: 20 to 30 stores; driven by company-operated store growth; and
    • Paint, Collision & Glass: 60 to 70 stores; driven by franchise store growth.

Conference Call
Driven Brands will host a conference call to discuss second quarter 2021 results today, Wednesday, July 28, 2021 at 9:00am ET. The call will be available by webcast and can be accessed by visiting Driven Brands’ Investor Relations website at investors.drivenbrands.com. A replay of the call will be available until October 26, 2021.

About Driven Brands
Driven Brands™, headquartered in Charlotte, NC, is the largest automotive services company in North America, providing a range of consumer and commercial automotive needs, including paint, collision, glass, vehicle repair, oil change, maintenance and car wash. Driven Brands is the parent company of some of North America’s leading automotive service businesses including Take 5 Oil Change®, Meineke Car Care Centers®, Maaco®, 1-800-Radiator & A/C®, and CARSTAR®. Driven Brands has more than 4,300 locations across 15 countries, and services over 50 million vehicles annually. Driven Brands’ network generates more than $1 billion in revenue from more than $3 billion in system-wide sales.

Contacts  
Shareholder/Analyst inquiries: Media inquiries:
Rachel Webb Media
rachel.webb@drivenbrands.com media@drivenbrands.com
(704) 644-8125 (704) 644-8129

 

Disclosure Regarding Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are generally identified by the use of forward-looking terminology, including the terms “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “likely,” “may,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “target,” “will,” “would” and, in each case, their negative or other various or comparable terminology. All statements other than statements of historical facts contained in this press release, including statements regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans, objectives of management, and expected market growth are forward-looking statements. In particular, forward-looking statements include, among other things, statements relating to: (i) our strategy, outlook and growth prospects; (ii) our operational and financial targets and dividend policy; (iii) general economic trends and trends in the industry and markets; and (iv) the competitive environment in which we operate. Forward-looking statements are not based on historical facts but instead represent our current expectations and assumptions regarding our business, the economy and other future conditions, and involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements. It is not possible to predict or identify all such risks. These risks include, but are not limited to, the risk factors that are described under the section titled “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 26, 2020, and in our other filings with the Securities and Exchange Commission, which are available on its website at www.sec.gov. Given these uncertainties, you should not place undue reliance on these forward-looking statements.

Forward-looking statements represent our estimates and assumptions only as of the date on which they are made, and we undertake no obligation to update or review publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Disclosure Regarding Non-GAAP Financial Measures

In addition to the financial measures presented in this release in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”), the Company has included certain non-GAAP financial measures in this release, including Adjusted Net Income1, Adjusted Earnings Per Share2, and Adjusted EBITDA3. Management believes these non-GAAP financial measures are useful because they enable management, investors, and others to assess the operating performance of the Company and its segments. Please refer to the Reconciliation of Non-GAAP Financial Information tables located in the financial supplement in this release.
This release includes forward-looking guidance for certain non-GAAP financial measures, including Adjusted Earnings Per Share2 and Adjusted EBITDA3. These measures will differ from net income, determined in accordance with GAAP, in ways similar to those described in the reconciliations at the end of this release. We do not provide guidance for net income, determined in accordance with GAAP, or a reconciliation of guidance for Adjusted EBITDA3 to the most directly comparable GAAP measure because the Company is not able to predict with reasonable certainty the amount or nature of all items that will be included in net income.

___________
1 “Adjusted Net Income” is calculated by eliminating from net income the adjustments described for Adjusted EBITDA, amortization related to acquired intangible assets and the tax effect of the adjustments. Please refer to Non-GAAP reconciliation tables located in the financial supplement in this release.
2 “Adjusted Earnings Per Share” represents Adjusted Net Income divided by weighted average shares (basic and diluted). Please refer to Non-GAAP reconciliation tables located in the financial supplement in this release.
3 “Adjusted EBITDA” represents earnings before interest expense, income tax expense, and depreciation and amortization, with further adjustments for acquisition-related costs, straight-line rent, equity compensation, loss on debt extinguishment and certain non-recurring, non-core, infrequent or unusual charges. Please refer to Non-GAAP reconciliation tables located in the financial supplement in this release.
4 “Segment Adjusted EBITDA” is defined as Adjusted EBITDA with a further adjustment for store opening costs. Corporate & Other costs are not allocated across segments. Segment Adjusted EBITDA is a supplemental measure of operating performance of our segments and may not be comparable to similar measures reported by other companies. Please refer to reconciliation to Adjusted EBITDA located in the financial supplement in this release.

 

DRIVEN BRANDS HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

    Three months ended   Six months ended
(in thousands, except per share amounts)   June 26,
2021
  June 27,
2020
  June 26,
2021
  June 27,
2020
Revenue:                
Franchise royalties and fees   $ 37,873     $ 28,282     $ 68,287     $ 57,694  
Company-operated store sales   206,198     87,660     390,053     182,551  
Independently-operated store sales   56,379         112,542      
Advertising contributions   19,648     12,619     36,903     27,502  
Supply and other revenue   54,730     39,262     96,462     80,183  
Total revenue   374,828     167,823     704,247     347,930  
Operating expenses:                
Company-operated store expenses   123,820     53,373     236,575     116,665  
Independently-operated store expenses   30,792         61,900      
Advertising expenses   19,648     12,619     36,903     27,502  
Supply and other expenses   29,598     21,295     52,087     44,354  
Selling, general and administrative expenses   77,935     45,456     146,984     96,521  
Acquisition costs   389     1,016     2,038     1,211  
Store opening costs   405     627     694     1,802  
Depreciation and amortization   26,423     8,636     50,275     16,435  
Asset impairment charges   2,178     3,499     3,431     6,411  
Total operating expenses   311,188     146,521     590,887     310,901  
Operating income   63,640     21,302     113,360     37,029  
Other expenses, net:                
Interest expense, net   16,612     17,863     34,702     35,379  
(Gain) / loss on foreign currency transactions, net   (5,229 )   (1,194 )   5,282     2,285  
Loss on debt extinguishment   78         45,576      
Total other expenses, net   11,461     16,669     85,560     37,664  
Net income (loss) before taxes   52,179     4,633     27,800     (635 )
Income tax expense   17,011     1,542     12,565     221  
Net income (loss)   $ 35,168     $ 3,091     $ 15,235     $ (856 )
Net income (loss) attributable to non-controlling interests   $ (36 )   $ 33     $ (30 )   $ (66 )
Net income (loss) attributable to Driven Brands Holdings Inc.   $ 35,204     $ 3,058     $ 15,265     $ (790 )
                 
Earnings (loss) per share(1):                
Basic   $ 0.21     $ 0.03     $ 0.09     $ (0.01 )
Diluted   $ 0.21     $ 0.03     $ 0.09     $ (0.01 )
Weighted average shares outstanding(1):                
Basic   162,626     88,990     158,727     88,990  
Diluted   166,512     88,990     162,271     88,990  

(1) Share and per share amounts for the three and six months ended June 27, 2020 have been adjusted to reflect an implied 88,990-for-one stock split that became effective on January 14, 2021.

 

DRIVEN BRANDS HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in thousands) June 26,
2021
  December 26,
2020
Assets      
Current assets:      
Cash and cash equivalents $ 147,257     $ 172,611  
Restricted cash 159     15,827  
Accounts and notes receivable, net 106,846     84,805  
Inventory 41,899     43,039  
Prepaid and other assets 43,990     25,070  
Income tax receivable 1,038     3,055  
Advertising fund assets, restricted 40,084     29,276  
Assets held for sale 990      
Total current assets 382,263     373,683  
Notes receivable, net 3,594     3,828  
Property and equipment, net 922,370     827,392  
Operating lease right-of-use assets 906,066     884,927  
Deferred commissions 9,508     8,661  
Intangibles, net 827,357     829,308  
Goodwill 1,768,244     1,727,351  
Total assets $ 4,819,402     $ 4,655,150  
Liabilities and shareholders’ equity      
Current liabilities:      
Accounts payable $ 79,238     $ 67,802  
Accrued expenses and other liabilities 198,939     190,867  
Income taxes payable 3,644     3,513  
Current portion of long-term debt 17,793     22,988  
Advertising fund liabilities 32,047     20,276  
Total current liabilities 331,661     305,446  
Long-term debt, net 1,503,957     2,102,219  
Deferred tax liability 253,507     249,043  
Operating lease liabilities 844,809     818,001  
Income tax receivable liability 155,970      
Deferred revenue 23,837     20,757  
Accrued expenses and other long-term liabilities 33,719     53,324  
Total liabilities 3,147,460     3,548,790  
Common stock 1,674     565  
Additional paid-in capital 1,603,095     1,055,172  
Retained earnings 47,240     31,975  
Accumulated other comprehensive income 18,854     16,528  
Total shareholders’ equity attributable to Driven Brands Holdings Inc. 1,670,863     1,104,240  
Non-controlling interests 1,079     2,120  
Total shareholders’ equity 1,671,942     1,106,360  
Total liabilities and shareholders’ equity $ 4,819,402     $ 4,655,150  

 

DRIVEN BRANDS HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

  Six months ended
(in thousands) June 26,
2021
  June 27,
2020
Net income $ 15,235     $ (856 )
Adjustments to reconcile net loss to net cash provided by operating activities:      
Depreciation and amortization 50,275     16,435  
Noncash lease cost 37,990     17,412  
Gain on foreign denominated transactions 5,707     2,285  
Bad debt expense 1,739     4,351  
Asset impairment costs 3,431     6,411  
Amortization of deferred financing costs and bond discounts 3,619     2,573  
Loss on derivatives not designed as hedges (425 )    
Benefit (provision) for deferred income taxes 4,742     (1,471 )
Loss on extinguishment of debt 45,576      
Other, net 1,375     1,342  
Changes in assets and liabilities:      
Accounts and notes receivable, net (24,174 )   (26,134 )
Inventory (396 )   (577 )
Prepaid and other assets (20,885 )   (9,643 )
Advertising fund assets and liabilities, restricted 12,548     4,165  
Deferred commissions (809 )   (1,614 )
Deferred revenue 2,994     (2,780 )
Accounts payable 3,860     11,686  
Accrued expenses and other liabilities 9,707     301  
Income tax receivable 3,665     4,051  
Operating lease liabilities (31,034 )   (14,427 )
Cash provided by operating activities 124,740     13,510  
Cash flows from investing activities:      
Capital expenditures (47,274 )   (24,708 )
Cash used in business acquisitions, net of cash acquired (204,556 )   (28,490 )
Proceeds from sale-leaseback transactions 49,166      
Proceeds from sale of company-operated stores 5,775      
Cash used in investing activities (196,889 )   (53,198 )
Cash flows from financing activities:      
Payment of contingent consideration related to acquisitions     (1,783 )
Payment of debt extinguishment and issuance costs (2,408 )   (2,421 )
Repayment of long-term debt (712,649 )   (12,809 )
Repayments of revolving lines of credit and short-term debt (152,800 )    
Proceeds from revolving lines of credit and short-term debt 213,800     79,501  
Repayment of principal portion of finance lease liability (1,127 )   (282 )
Proceeds from initial public offering, net of underwriting discounts 661,500      
Net proceeds from underwriters’ exercise of over-allotment option 99,225      
Repurchases of common stock (43,040 )    
Payment for termination of interest rate swaps (21,826 )    
Other, net 152      
Cash provided by financing activities 40,827     62,206  
Effect of exchange rate changes on cash 1,374     (337 )
Net change in cash, cash equivalents, restricted cash, and cash included in advertising fund assets, restricted (29,948 )   22,181  
Cash and cash equivalents, beginning of period 172,611     34,935  
Cash included in advertising fund assets, restricted, beginning of period 19,369     23,091  
Restricted cash, beginning of period 15,827      
Cash, cash equivalents, restricted cash, and cash included in advertising fund assets, restricted, beginning of period 207,807     58,026  
Cash and cash equivalents, end of period 147,257     67,617  
Cash included in advertising fund assets, restricted, end of period 30,882     12,590  
Restricted cash, end of period 159      
Cash, cash equivalents, restricted cash, and cash included in advertising fund assets, restricted, end of period $ 178,298     $ 80,207  

 

DRIVEN BRANDS HOLDINGS INC. AND SUBSIDIARIES

RECONCILIATION OF NON-GAAP FINANCIAL INFORMATION (UNAUDITED)

Adjusted Net Income/Adjusted Earnings Per Share        
                 
    Three months ended   Six months ended
(in thousands, except per share amounts)   June 26,
2021
  June 27,
2020
  June 26,
2021
  June 27,
2020
Net income (loss)   $ 35,168     $ 3,091     $ 15,235     $ (856 )
Acquisition related costs(a)   389     1,016     2,038     1,211  
Non-core items and project costs, net(b)   2,522     509     2,553     1,764  
Sponsor management fees(c)       539         1,079  
Straight-line rent adjustment(d)   3,358     1,787     5,843     2,639  
Equity-based compensation expense(e)   1,028     791     2,011     690  
Foreign currency transaction (gain) / loss, net(f)   (5,229 )   (1,194 )   5,282     2,285  
Bad debt expense(g)       2,842         2,842  
Asset impairment and closed store expenses(h)   3,478     2,560     2,692     6,880  
Loss on debt extinguishment(i)   78         45,576      
Amortization related to acquired intangible assets(j)   5,558     3,685     9,210     7,650  
Adjusted net income before tax impact of adjustments   46,350     15,626     90,440     26,184  
Tax impact of adjustments(k)   (4,441 )   (2,995 )   (18,082 )   (6,622 )
Adjusted net income   41,909     12,631     72,358     19,562  
Net (loss) / income attributable to non-controlling interest   (36 )   33     (30 )   (66 )
Adjusted net income attributable to Driven Brands Holdings Inc.   $ 41,945     $ 12,598     $ 72,388     $ 19,628  
                 
Adjusted earnings per share(1)                
Basic(2)   $ 0.25     $ 0.14     $ 0.45     $ 0.22  
Diluted(2)   $ 0.25     $ 0.14     $ 0.44     $ 0.22  
                 
Weighted average shares outstanding(1)                
Basic   162,626     88,990     158,727     88,990  
Diluted   166,512     88,990     162,271     88,990  

(1) Share and per share amounts have been adjusted to reflect an implied 88,990-for-one stock split that became effective on January 14, 2021.

(2) Adjusted earnings per share for the three and six months ended June 26, 2021 is calculated under the two-class method. Under the two-class method, adjusted earnings per share is calculated using adjusted net income attributable to common shares, which is derived by reducing adjusted net income by the amount attributable to participating securities. Adjusted net income attributable to participating securities used in the basic earnings per share calculation was $0.9 million and $1.6 million for the three and six months ended June 26, 2021, respectively, and adjusted net income attributable to participating securities used in the diluted earnings per share calculation was $0.8 million and $1.4 million for the three and six months ended June 26, 2021, respectively.

 

DRIVEN BRANDS HOLDINGS INC. AND SUBSIDIARIES

RECONCILIATION OF NON-GAAP FINANCIAL INFORMATION (UNAUDITED)

Adjusted EBITDA        
                 
    Three months ended   Six months ended
(in thousands)   June 26,
2021
  June 27,
2020
  June 26,
2021
  June 27,
2020
Net income (loss)   35,168      $ 3,091      $ 15,235      $ (856 )
Income tax expense   17,011      1,542      12,565      221   
Interest expense, net   16,612      17,863      34,702      35,379   
Depreciation and amortization   26,423      8,636      50,275      16,435   
EBITDA   95,214      31,132      112,777      51,179   
Acquisition related costs(a)   389      1,016      2,038      1,211   
Non-core items and project costs, net(b)   2,522      509      2,553      1,764   
Sponsor management fees(c)   —      539      —      1,079   
Straight-line rent adjustment(d)   3,358      1,787      5,843      2,639   
Equity-based compensation expense(e)   1,028      791      2,011      690   
Foreign currency transaction (gain)/loss, net(f)   (5,229 )   (1,194 )   5,282      2,285   
Bad debt expense(g)   —      2,842      —      2,842   
Asset impairment and closed store expenses(h)   3,478      2,560      2,692      6,880   
Loss on debt extinguishment(i)   78      —      45,576      —   
Adjusted EBITDA   $ 100,838      $ 39,982      $ 178,772      $ 70,569   
  1. Consists of acquisition costs as reflected within the consolidated statement of operations, including legal, consulting and other fees and expenses incurred in connection with acquisitions completed during the applicable period, as well as inventory rationalization expenses incurred in connection with acquisitions. We expect to incur similar costs in connection with other acquisitions in the future and, under U.S. GAAP, such costs relating to acquisitions are expensed as incurred and not capitalized.
  2. Consists of discrete items and project costs, including (i) third-party consulting and professional fees associated with strategic transformation initiatives, (ii) wage subsidies received directly attributable to the COVID-19 pandemic and (iii) other miscellaneous expenses, including non-capitalizable expenses relating to the Company’s initial public offering and other strategic transactions.
  3. Includes management fees paid to Roark Capital Management, LLC.
  4. Consists of the non-cash portion of rent expense, which reflects the extent to which our straight-line rent expense recognized under U.S. GAAP exceeds or is less than our cash rent payments.
  5. Represents non-cash equity-based compensation expense.
  6. Represents foreign currency transaction gains/losses, net that primarily related to the remeasurement of our intercompany loans. For the six months ended June 26, 2021, these losses are offset by unrealized gains on remeasurement of cross currency swaps.
  7. Represents bad debt expense related to uncollectible receivables outside of normal operations.
  8. Relates to the impairment of certain fixed assets and operating lease right-of-use assets related to closed locations. Also represents lease exit costs and other costs associated with stores that were closed prior to their respective lease termination dates.
  9. Represents the write-off of debt issuance costs associated with early termination of debt.
  10. Consists of amortization related to acquired intangible assets as reflected within depreciation and amortization in the consolidated statements of operations.
  11. Represents the tax impact of adjustments associated with the reconciling items between net income and Adjusted Net Income, excluding the provision for uncertain tax positions and valuation allowance for certain deferred tax assets. To determine the tax impact of the deductible reconciling items, we utilized statutory income tax rates ranging from 9% to 38%, depending upon the tax attributes of each adjustment and the applicable jurisdiction.

 

DRIVEN BRANDS HOLDINGS INC. AND SUBSIDIARIES

ADJUSTED EBITDA AND SEGMENT ADJUSTED EBITDA RECONCILIATION (UNAUDITED)

    Three months ended   Six months ended
(in thousands)   June 26,
2021
  June 27,
2020
  June 26,
2021
  June 27,
2020
Segment Adjusted EBITDA:                
Maintenance   $ 44,561     $ 26,339     $ 85,001     $ 47,805  
Car Wash   43,069         77,224      
Paint, Collision & Glass   21,856     11,011     39,495     26,888  
Platform Services   17,602     15,969     28,610     23,434  
Corporate and other   (25,845 )   (12,710 )   (50,864 )   (25,756 )
Store opening costs   (405 )   (627 )   (694 )   (1,802 )
Adjusted EBITDA   $ 100,838     $ 39,982     $ 178,772     $ 70,569