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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 27, 2021
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 001-39898

https://cdn.kscope.io/360339bbd7ecb2f99055f0f5a2c64471-drvn-20210327_g1.jpg

Driven Brands Holdings Inc.
(Exact name of Registrant as specified in its charter)

Delaware
(State or other jurisdiction of incorporation or organization)
47-3595252
(I.R.S. Employer Identification No.)
440 South Church Street, Suite 700
Charlotte, North Carolina
(Address of principal executive offices)
28202
(Zip Code)
Registrant’s telephone number, including area code: (704) 377-8855

Title of each class
Common Stock, $0.01 par value
Trading Symbol
DRVN
Name of each exchange on which registered
The Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
Accelerated filer
Small reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No

As of May 6, 2021, the Registrant had 167,411,840 shares of Common Stock outstanding.



Driven Brands Holdings Inc.
Table of Contents
Page
PART I. FINANCIAL INFORMATION
PART II. OTHER INFORMATION



Forward-Looking Statements

This Quarterly Report on Form 10-Q 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 Quarterly Report, 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.




Part I - Financial Information
Item 1. Financial Statements (Unaudited)
DRIVEN BRANDS HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three months ended
(in thousands, except per share amounts)March 27,
2021
March 28,
2020
Revenue:
Franchise royalties and fees$30,414 $29,412 
Company-operated store sales183,855 94,891 
Independently-operated store sales56,163  
Advertising contributions17,255 14,883 
Supply and other revenue41,733 40,921 
Total revenue329,420 180,107 
Operating expenses:
Company-operated store expenses112,756 63,292 
Independently-operated store expenses31,108  
Advertising expenses17,255 14,883 
Supply and other expenses22,489 23,059 
Selling, general and administrative expenses69,050 51,065 
Acquisition costs1,646 195 
Store opening costs289 1,175 
Depreciation and amortization23,852 7,799 
Asset impairment charges1,253 2,912 
Total operating expenses279,698 164,380 
Operating income49,722 15,727 
Other expenses, net:
Interest expense, net18,091 17,516 
Loss on foreign currency transactions, net10,511 3,479 
Loss on debt extinguishment45,498  
Total other expenses, net74,100 20,995 
Loss before taxes(24,378)(5,268)
Income tax benefit(4,446)(1,321)
Net loss(19,932)(3,947)
Net income (loss) attributable to non-controlling interests7 (99)
Net loss attributable to Driven Brands Holdings Inc.$(19,939)$(3,848)
Loss per share(1):
Basic and diluted$(0.13)$(0.04)
Weighted average shares outstanding(1):
Basic and diluted154,827 88,990 
(1) Shares and loss per share for 2020 have been adjusted to reflect an implied 88,990-for-one stock split that became effective on January 14, 2021. See Note 1 for additional information.

The accompanying notes are an integral part of these condensed consolidated financial statements.
3



DRIVEN BRANDS HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)
Three months ended
(in thousands)March 27,
2021
March 28,
2020
Net loss$(19,932)$(3,947)
Other comprehensive income (loss):
   Foreign currency translation adjustment(9,243)(15,767)
   Unrealized gain from cash flow hedges, net of tax30  
   Actuarial gain of defined benefit pension plan, net of tax128  
Other comprehensive income (loss), net(9,085)(15,767)
Total comprehensive income (loss)(29,017)(19,714)
Comprehensive income attributable to non-controlling interests4134 
Comprehensive income (loss) attributable to Driven Brands Holdings Inc.$(29,058)$(19,748)

The accompanying notes are an integral part of these condensed consolidated financial statements.
4


DRIVEN BRANDS HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)March 27, 2021 (Unaudited)December 26, 2020
Assets
Current assets:
Cash and cash equivalents$175,371 $172,611 
Restricted cash 10,133 15,827 
Accounts and notes receivable, net104,215 84,805 
Inventory42,913 43,039 
Prepaid and other assets45,697 25,070 
Income tax receivable2,057 3,055 
Advertising fund assets, restricted31,072 29,276 
Total current assets411,458 373,683 
Notes receivable, net3,845 3,828 
Property and equipment, net766,511 827,392 
Operating lease right-of-use assets910,255 884,927 
Deferred commissions9,253 8,661 
Intangibles, net829,406 829,308 
Goodwill1,718,249 1,727,351 
Total assets$4,648,977 $4,655,150 
Liabilities and shareholders' equity
Current liabilities:
Accounts payable$67,229 $67,802 
Accrued expenses and other liabilities185,707 190,867 
Income tax payable 4,388 3,513 
Current portion of long term debt17,142 22,988 
Advertising fund liabilities22,906 20,276 
Total current liabilities297,372 305,446 
Long-term debt, net1,428,760 2,102,219 
Deferred tax liability241,305 249,043 
Operating lease liabilities846,360 818,001 
Income tax receivable liability155,970  
Deferred revenue22,350 20,757 
Long-term accrued expenses and other liabilities31,551 53,324 
Total liabilities3,023,668 3,548,790 
Common stock, $0.01 par value, 900 million shares authorized at March 27, 2021 and December 26, 2020, respectively; 167 million and 89 million shares issued and outstanding at March 27, 2021 and December 26, 2020, respectively(1)
1,674 565 
Additional paid-in capital1,602,092 1,055,172 
Retained earnings12,036 31,975 
Accumulated other comprehensive income7,443 16,528 
Total shareholders’ equity attributable to Driven Brands Holdings Inc.1,623,245 1,104,240 
Non-controlling interests2,064 2,120 
Total shareholders' equity1,625,309 1,106,360 
Total liabilities and shareholders' equity$4,648,977 $4,655,150 
(1) Common stock at December 26, 2020 has been adjusted to reflect an implied 88,990-for-one stock split that became effective on January 14, 2021. See Note 1 for additional information.
The accompanying notes are an integral part of these condensed consolidated financial statements.
5


DRIVEN BRANDS HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’/MEMBERS’ EQUITY (Unaudited)
in thousandsCommon stockAdditional paid-in capitalRetained earningsAccumulated other
comprehensive
income (loss)
Non-controlling
interests
Total shareholders'/members' equity
Balance as of December 26, 2020$565 $1,055,172 $31,975 $16,528 $2,120 $1,106,360 
Net income (loss)— — (19,939)— 7 (19,932)
Other comprehensive income (loss)— — — (9,085)— (9,085)
Equity-based compensation expense— 983 — — — 983 
Issuance of common stock upon initial public offering, net of underwriting discounts and commissions1,082 660,418 — — — 661,500 
Common stock issued upon underwriter's exercise of over-allotment48 99,177 — — — 99,225 
Repurchase of common stock(21)(42,956)— — — (42,977)
Exercise of stock options— 25 — — — 25 
Establishment of income tax receivable liability— (155,970)— — — (155,970)
IPO fees— (14,757)— — — (14,757)
Other— — — — (63)(63)
Balance at March 27, 2021$1,674 $1,602,092 $12,036 $7,443 $2,064 $1,625,309 
Balance as of December 28, 2019$565 $242,240 $41,983 $3,626 $1,464 $289,878 
Net loss— — (3,848)— (99)(3,947)
Other comprehensive income (loss)— — — (15,767) (15,767)
Equity-based compensation expense— (101) — — (101)
Balance at March 28, 2020$565 $242,139 $38,135 $(12,141)$1,365 $270,063 

The accompanying notes are an integral part of these condensed consolidated financial statements.
6

DRIVEN BRANDS HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

Three months ended
(in thousands)March 27,
2021
March 28,
2020
Net loss$(19,932)$(3,947)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization23,852 7,799 
Noncash lease cost20,028  
Loss on foreign denominated transactions13,000 3,479 
Gain on foreign currency derivative(2,489) 
Bad debt expense657 523 
Asset impairment costs1,253 2,912 
Amortization of deferred financing costs and bond discounts2,139 1,140 
Benefit for deferred income taxes(8,018)(1,345)
Loss on extinguishment of debt45,498  
Other, net(749)39 
Changes in assets and liabilities:
Accounts and notes receivable, net(19,693)(14,067)
Inventory135 (1,851)
Prepaid and other assets(8,184)2,435 
Advertising fund assets and liabilities, restricted2,621 4,890 
Deferred commissions(573)(428)
Deferred revenue1,551 (1,173)
Accounts payable638 21,404 
Accrued expenses and other liabilities(6,451)(15,920)
Income tax receivable3,061 (7)
Operating lease liabilities(15,758) 
Cash provided by operating activities32,586 5,883 
Cash flows from investing activities:
Capital expenditures(23,280)(16,172)
Cash used in business acquisitions, net of cash acquired(26,732)(975)
Proceeds from sale-leaseback transactions41,023  
Proceeds from sale of company-operated stores 4,481  
Cash used in investing activities(4,508)(17,147)
Cash flows from financing activities:
Payment of contingent consideration related to acquisitions (1,783)
Payment of debt issuance cost (104)
Repayment of long-term debt(707,384)(3,263)
Proceeds from revolving lines of credit and short-term debt114,800 39,501 
Repayments of revolving lines of credit and short-term debt(132,800) 
Repayment of principal portion of finance lease liability(409) 
Proceeds from initial public offering, net of underwriting discounts661,500  
Net proceeds from underwriters' exercise of over-allotment option99,225  
Repurchases of common stock(42,977) 
Payment for termination of interest rate swaps(21,826) 
Cash provided by (used in) financing activities(29,871)34,351 
Effect of exchange rate changes on cash650 3,850 
Net change in cash, cash equivalents, restricted cash, and cash included in advertising fund assets, restricted(1,143)26,937 
7


Cash and cash equivalents, beginning of period172,611 34,935 
Cash included in advertising fund assets, restricted, beginning of period19,369 23,091 
Restricted cash, beginning of period15,827  
Cash, cash equivalents, restricted cash, and cash included in advertising fund assets, restricted, beginning of period207,807 58,026 
Cash and cash equivalents, end of period175,371 60,154 
Cash included in advertising fund assets, restricted, end of period21,160 24,809 
Restricted cash, end of period10,133  
Cash, cash equivalents, restricted cash, and cash included in advertising fund assets, restricted, end of period$206,664 $84,963 
Supplemental cash flow disclosures - non-cash items:
Accrued capital expenditures $3,804 $4,283 
Supplemental cash flow disclosures - cash paid for:
Interest $16,424 $16,020 
Income taxes 1,373 10 

The accompanying notes are an integral part of these condensed consolidated financial statements.
8


DRIVEN BRANDS HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



Note 1—Description of Business
Description of Business
Driven Brands Holdings Inc., together with its subsidiaries (collectively, the “Company”), is a Delaware corporation and is the parent holding company of Driven Brands, Inc. and Shine Holdco (UK) Limited (collectively, “Driven Brands”). Driven Brands is the largest automotive services company in North America with a growing and highly-franchised base of more than 4,200 franchised, independently-operated, and company-operated locations across 49 U.S. states and 14 other countries. The Company has a portfolio of highly recognized brands, including Take 5 Oil Change®, Meineke Car Care Centers®, MAACO®, CARSTAR®, and 1-800-Radiator & A/C® that compete in the automotive services industry. Approximately 82% of the Company’s locations are franchised or independently-operated.

Initial Public Offering
On January 14, 2021, the Company completed an initial public offering (the “IPO”) of approximately 32 million shares of common stock at $22 per share. On February 10, 2021, the Company’s underwriters exercised their over-allotment option to purchase approximately 5 million additional shares of common stock. The Company received total proceeds of $761 million from these transactions, net of the underwriting discounts and commissions.

The Company used the proceeds from the IPO, along with cash on hand, to fully repay the First Lien Term Loan, Second Lien Term Loan, and revolving credit facility assumed as part of the acquisition of International Car Wash Group (“ICWG”) in 2020 (collectively, the “Car Wash Senior Credit Facilities”), which totaled $725 million with interest and fees. The Company recognized a $45 million loss on debt extinguishment related to this settlement, primarily related to the write-off of unamortized discount. The Company cancelled the interest rate and cross currency swaps associated with these debt agreements as part of the settlement. The Company also used $43 million in proceeds to purchase approximately 2 million shares of common stock from certain of our existing shareholders.

Income Tax Receivable Agreement
The Company expects to be able to utilize certain tax benefits which are related to periods prior to the effective date of the Company’s IPO and are attributed to current and former shareholders. The Company previously entered into an income tax receivable agreement which provides our pre-IPO shareholders with the right to receive payment of 85% of the amount of cash savings, if any, in U.S. and Canadian federal, state, local and provincial income tax that the Company will actually realize. The income tax receivable agreement is effective as of the date of the Company’s IPO, and the Company has recorded a liability of $156 million as of March 27, 2021, which is recorded under long-term liabilities as the income tax receivable liability on the condensed consolidated balance sheet.

Stock Split
On January 14, 2021, the Company’s shareholders approved an amendment to the Company’s certificate of incorporation (the "Amendment") to effect an implied 88,990-for-one stock split of shares of the Company’s outstanding common stock. In addition, the Amendment increased the number of authorized shares of the Company's stock from 10,000 shares to 1 billion shares (900 million shares of common stock and 100 million shares of preferred stock). All share and per-share data in the condensed consolidated financial statements and footnotes has been retroactively adjusted to reflect the stock split for all periods presented. The Company does not have any shares of preferred stock outstanding.

Note 2— Summary of Significant Accounting Policies

Fiscal Year
The Company operates and reports financial information on a 52- or 53-week year with the fiscal year ending on the last Saturday in December and fiscal quarters ending on the 13th Saturday of each quarter (or 14th Saturday when applicable with respect to the fourth fiscal quarter). The three months ended March 27, 2021 and March 28, 2020, respectively, consist of 13 weeks.


9


In August 2020, the Company acquired ICWG, which is currently consolidated based on a calendar month that ended on March 31, 2021. See Note 3 for additional discussion regarding the acquisition of ICWG.

Basis of Presentation
The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of results of operations, balance sheet, cash flows, and shareholders’ equity for the periods presented have been reflected. The adjustments include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

Certain amounts in the 2020 condensed consolidated financial statements have been reclassified to conform to the 2021 presentation. In the Company's consolidated statements of operations, $1 million of franchise royalties and fees within the Platform Services segment has been reclassified to supply and other revenue to conform to the current year presentation.

These interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements as of and for the year ended December 26, 2020. Certain information and note disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. The results of operations for the three months ended March 27, 2021 may not be indicative of the results to be expected for any other interim period or the year ending December 25, 2021.

Use of Estimates    
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and the related notes to the condensed consolidated financial statements. Estimates are based upon historical factors, current circumstances and the experience and judgment of the Company’s management. Management evaluates its estimates and assumptions on an ongoing basis and may employ outside experts to assist in its evaluations. Changes in such estimates, based on more accurate future information, or different assumptions or conditions, may affect amounts reported in future periods.

Deferred IPO costs
Costs incurred that are directly related to the IPO, such as legal and accounting fees, registration fees, printing expenses, and other similar fees and expenses, totaling $9 million were capitalized and included within prepaid and other assets as of December 26, 2020. Upon completion of the IPO, the Company reclassified these costs, as well as an additional $6 million of IPO costs incurred during the three months ended March 27, 2021, to additional paid-in-capital.

Fair Value of Financial Instruments
Financial assets and liabilities are categorized, based on the inputs to the valuation technique, into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to the quoted prices in active markets for identical assets and liabilities and the lowest priority to unobservable inputs. Observable market data, when available, is required to be used in making fair value measurements. When inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement.

The Company classifies and discloses assets and liabilities carried at fair value in one of the following three categories:

Level 1: Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity as the ability to access at the measurement date;
Level 2: Inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; or
Level 3: Inputs are unobservable inputs for the asset or liability. Unobservable inputs are used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.

10


Financial assets and liabilities measured at fair value on a recurring basis as of March 27, 2021 and December 26, 2020 are summarized as follows:

Items Measured at Fair Value at March 27, 2021
(in thousands)Level 1Level 2Total
Mutual fund investments held in rabbi trust$941 $ $941 
Derivative liabilities designated as hedging instruments$ $(990)$(990)

Items Measured at Fair Value at December 26, 2020
(in thousands)Level 1Level 2Total
Mutual fund investments held in rabbi trust$704 $ $704 
Derivative assets not designated as hedging instruments 227 227 
Total assets measured at fair value on a recurring basis$704 $227 $931 
Derivative liabilities designated as hedging instruments$ $(9,561)$(9,561)
Derivative liabilities not designated as hedging instruments (12,197)(12,197)
Total derivative liabilities$ $(21,758)$(21,758)

The fair value of the Company’s derivative instruments are derived from valuation models, which use observable inputs such as quoted market prices, interest rates and forward yield curves.

The carrying value and estimated fair value of total long-term debt were as follows:

March 27, 2021December 26, 2020
(in thousands)Carrying valueEstimated fair valueCarrying valueEstimated fair value
Long-term debt$1,445,902 $1,499,384 $2,125,207 $2,169,597 

Accumulated Other Comprehensive Income (Loss)
The following tables present changes, net of tax, in each component of accumulated other comprehensive income (loss).

Three months ended March 27, 2021
(in thousands)Foreign currency translation adjustmentCash flow hedgesDefined benefit pension planAccumulated other comprehensive income
Balance at December 26, 2020$16,834 $(87)$(219)$16,528 
     Net change(9,243)30 128 (9,085)
Balance at March 27, 2021
$7,591 $(57)$(91)$7,443 

11


Three months ended March 28, 2020
(in thousands)Foreign currency translation adjustmentCash flow hedgesDefined benefit pension planAccumulated other comprehensive income (loss)
Balance at December 28, 2019
$3,626 $ $ $3,626 
     Net change(15,767)  (15,767)
Balance at March 28, 2020
$(12,141)$ $ $(12,141)

Recently Adopted Accounting Standards
In December 2019, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, as part of its initiative to reduce complexity in accounting standards. The amendments in this ASU simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and improve consistency by clarifying and amending existing guidance. The Company adopted the ASU on December 27, 2020, and the adoption did not have a material impact on our consolidated financial statements.
Note 3—Business Combinations
The Company strategically acquires companies in order to increase its footprint and offer products and services that diversify its existing offerings. These acquisitions are accounted for as business combinations using the acquisition method, whereby the purchase price is allocated to the assets acquired and liabilities assumed, based on their estimated fair values at the date of the acquisition.

2021 Acquisitions

During the three months ended March 27, 2021, the Company completed the acquisition of four car wash sites, each individually immaterial, which are included within the Company’s Car Wash segment (the “2021 Car Wash Acquisitions”). The aggregate cash consideration paid for these acquisitions, net of cash acquired and liabilities assumed, was $26 million.

A preliminary estimate of assets acquired and liabilities assumed for the 2021 Car Wash Acquisitions is as follows:
(in thousands)
Assets:
Cash$7 
Land and improvements4,065 
Building13,445 
Equipment2,260 
Deferred tax assets67 
Assets acquired19,844 
Liabilities:
Deferred revenue46 
Liabilities assumed46 
Net assets acquired19,798 
Total consideration25,542 
Goodwill$5,744 

All goodwill was allocated to the Car Wash segment and $6 million is deductible for income tax purposes.


12


2020 Acquisitions

Acquisition of International Car Wash Group
On August 3, 2020, the Company completed the acquisition of Shine Holdco (UK) Limited, the holding company of ICWG, to expand on its service offerings by entering into the car wash business (the “ICWG Acquisition”). The ICWG Acquisition resulted in the Company acquiring 940 car wash centers in 14 countries across the United States, Europe, and Australia. The following table presents an updated preliminary estimate of the purchase price allocation for the ICWG Acquisition:
(in thousands, except shares)August 3,
2020
Assets:
Cash$37,011 
Accounts and notes receivable2,591 
Inventory12,761 
Fixed assets692,486 
Operating lease right-of-use assets479,787 
Definite-lived intangibles5,972 
Indefinite-lived intangibles165,730 
Other assets7,476 
Total assets acquired1,403,814 
Liabilities:
Accounts payable13,435 
Long-term debt656,684 
Deferred income tax liability133,776 
Operating lease liabilities476,216 
Derivative liabilities12,714 
Other liabilities82,394 
Total liabilities assumed1,375,219 
Net assets acquired28,595 
Non-controlling interest acquired400 
Total consideration paid (39,169,857 common shares)(1)
809,000 
Goodwill$780,805 
(1) Common shares issued as consideration have been adjusted to reflect an implied 88,990-for-one stock split that became effective on January 14, 2021. See Note 1 for additional information.

The preliminary fair value of the equity consideration was determined based on an estimated enterprise value using a market approach and income approach as of the purchase date, reduced by borrowings assumed. The Company updated its purchase accounting estimates during the three months ended March 27, 2021 related to the deferred tax liability and, as a result, reduced goodwill related to the ICWG Acquisition by approximately $1 million.

Acquisition of Fix Auto

On April 20, 2020, the Company acquired 100% of the outstanding equity of Fix Auto USA (“Fix Auto”), a franchisor and operator of collision repair centers, for $29 million, net of cash received of approximately $2 million. This acquisition resulted in the Company acquiring 150 franchised locations and 10 company-operated locations and increased the Company’s collision services footprint.


13


The assets acquired and liabilities assumed from Fix Auto are as follows:

(in thousands)April 20,
2020
Assets:
Cash$2,020 
Accounts and notes receivable, net2,317 
Inventory414 
Prepaid and other assets293 
Operating lease right-of-use assets7,520 
Fixed assets1,023 
Definite-lived intangibles15,200 
Assets acquired28,787 
Liabilities:
Accounts payable1,835 
Accrued expenses and other liabilities2,919 
Operating lease liability7,520 
Income taxes payable673 
Deferred income tax liability3,770 
Liabilities assumed16,717 
Net assets acquired12,070 
Total consideration31,460 
Goodwill$19,390 

A summary of total consideration for Fix Auto is as follows:

(in thousands)
Cash$28,517 
Fair value of contingent consideration2,943 
Total consideration$31,460 

Other Acquisitions

During 2020, the Company completed the acquisition of 17 car wash sites, each individually immaterial, which are included within the Company’s Car Wash segment (the “2020 Car Wash Acquisitions”). The aggregate cash consideration paid for these acquisitions, net of cash acquired and liabilities assumed, was approximately $109 million.
14



The assets acquired and liabilities assumed for the 2020 Car Wash Acquisitions are as follows:
(in thousands)
Assets:
Cash$41 
Land and improvements18,635 
Building42,570 
Equipment12,125 
Deferred tax assets5,117 
Assets acquired78,488 
Liabilities:
Deferred revenue368 
Liabilities assumed368 
Net assets acquired78,120 
Total consideration108,771 
Goodwill$30,651 

The valuation for the acquisitions requires significant estimates and assumptions. The estimates are inherently uncertain and subject to revision as additional information is obtained during the measurement period for the acquisitions. There were no measurement period changes related to Fix Auto and the 2020 Car Wash Acquisitions during the three months ended March 27, 2021.
Note 4— Revenue from Contracts with Customers

The Company records contract assets for the incremental costs of obtaining a contract with a customer if it expects the benefit of those costs to be longer than one year and if such costs are material. Commission expenses, a primary cost associated with the sale of franchise licenses, are amortized to selling, general and administrative expenses in the condensed consolidated statements of operations ratably over the life of the associated franchise agreement.
Capitalized costs to obtain a contract as of March 27, 2021 and December 26, 2020 were $9 million and $9 million, respectively, and are presented within deferred commissions on the condensed consolidated balance sheets. The Company recognized an immaterial amount of costs during the three months ended March 27, 2021 and March 28, 2020, respectively, that were recorded as a contract asset at the beginning of the period.
Contract liabilities consist primarily of deferred franchise fees and deferred development fees. The Company had contract liabilities of $22 million and $21 million as of March 27, 2021 and December 26, 2020, respectively, which are presented within deferred revenue on the condensed consolidated balance sheets. The Company recorded an immaterial amount of revenue during the three months ended March 27, 2021 and March 28, 2020, respectively, that was recorded as a contract liability as of the beginning of the period.
Note 5—Segment Information
The Company’s worldwide operations are comprised of the following reportable segments: Maintenance; Car Wash; Paint, Collision & Glass; and Platform Services. The Car Wash segment was formed in connection with the acquisition of ICWG in August 2020.

In addition to the reportable segments, the Company’s consolidated financial results include “Corporate and Other” activity. Corporate and Other incurs costs related to advertising revenues and expenses and shared service costs, which are related to finance, IT, human resources, legal, supply chain and other support services. Corporate and Other activity includes the adjustments necessary to eliminate intercompany transactions, namely sales by the Platform Services segment to the Paint, Collision & Glass and Maintenance segments, respectively.
15


Segment results for the three months ended March 27, 2021 and March 28, 2020 are as follows:
Three months ended March 27, 2021
(in thousands)MaintenanceCar WashPaint,
Collision &
Glass
Platform
Services
Corporate
and Other
Total
Franchise fees and royalties$7,927 $ $17,309 $5,178 $ $30,414 
Company-operated store sales114,06757,048 11,930 983 (173)183,855 
Independently-operated store sales 56,163    56,163 
Advertising    17,255 17,255 
Supply and other6,157 1,453 14,652 28,435 (8,964)41,733 
Total revenue$128,151 $114,664 $43,891 $34,596 $8,118 $329,420 
Segment Adjusted EBITDA$40,440 $34,155 $17,639 $11,008 $(25,019)$78,223 
Three Months Ended March 28, 2020
(in thousands)MaintenancePaint,
Collision &
Glass
Platform
Services
Corporate
and Other
Total
Franchise fees and royalties$7,333 $17,746 $4,345 $(12)$29,412 
Company-operated store sales87,740 5,846 1,978 (673)94,891 
Advertising   14,883 14,883 
Supply and other4,624 15,354 25,835 (4,892)40,921 
Total revenue$99,697 $38,946 $32,158 $9,306 $180,107 
Segment Adjusted EBITDA$21,466 $15,877 $7,465 $(13,047)$31,761 
The reconciliations of Segment Adjusted EBITDA to loss before taxes for the three months ended March 27, 2021 and March 28, 2020 are as follows:
Three months ended
(in thousands)March 27,
2021
March 28,
2020
Segment Adjusted EBITDA$78,223 $31,761 
Acquisition related costs(a)
1,646 195 
Non-core items and project costs, net(b)
32 1,256 
Store opening costs289 1,175 
Sponsor management fees(c)
 539 
Straight-line rent adjustment(d)
2,485 850 
Equity-based compensation expense(e)
983 (101)
Foreign currency transaction loss, net(f)
10,511 3,479 
Asset impairment and closed store expenses(g)
(786)4,321 
Loss on debt extinguishment(h)
45,498  
Depreciation and amortization23,852 7,799 
Interest expense, net18,091 17,516 
Loss before taxes$(24,378)$(5,268)

(a)Consists of acquisition costs as reflected within the condensed consolidated statements 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 GAAP, such costs relating to acquisitions are expensed as
incurred and not capitalized.
16


(b)Consists of discrete items and project costs, including (i) third party consulting and professional fees associated with
strategic transformation initiatives and (ii) other miscellaneous expenses, including non-capitalizable expenses relating to the
Company’s initial public offering and other strategic transactions.
(c)Includes management fees paid to Roark Capital Management, LLC.
(d)Consists of the non-cash portion of rent expense, which reflects the extent to which our straight-line rent expense         
recognized under GAAP exceeds or is less than our cash rent payments.
(e)Represents non-cash equity-based compensation expense.
(f)Represents foreign currency transaction net losses primarily related to the remeasurement of our intercompany loans. These
losses are slightly offset by unrealized gains on remeasurement of cross currency swaps.
(g)Represents non-cash charges incurred related to the impairment of certain fixed assets and lease exit costs and other costs
associated with stores that were closed prior to their respective lease terminations dates.
(h)Represents the write-off of unamortized discount associated with the repayment of the Car Wash Senior Credit Facilities.
Note 6—Long-term Debt
Our long-term debt obligations consist of the following:
(in thousands)March 27,
2021
December 26,
2020
Series 2018-1 Securitization Senior Notes, Class A-2$266,750 $267,438 
Series 2019-1 Securitization Senior Notes, Class A-2293,250 294,000 
Series 2019-2 Securitization Senior Notes, Class A-2270,875 271,563 
Series 2020-1 Securitization Senior Notes, Class A-2173,688 174,125 
Series 2020-2 Securitization Senior Notes, Class A-2448,875 450,000 
Car Wash First Lien Term Loan 528,858 
Car Wash Second Lien Term Loan 175,000 
Car Wash Revolving Credit Facility 18,000 
Other debt (a)
25,729 26,763 
Total debt1,479,167 2,205,747 
Less: unamortized discount (46,030)
Less: debt issuance costs(33,265)(34,510)
Less: current portion of long-term debt(17,142)(22,988)
Total long-term debt, net$1,428,760 $2,102,219 
(a)Amount primarily consists of finance lease obligations.

As discussed in Note 1, the Company used the proceeds from the IPO, along with cash on hand, to fully repay the Car Wash Senior Credit Facilities, which totaled $725 million with interest and fees. The Company incurred a $45 million loss on debt extinguishment, related primarily to the write-off of unamortized discount, during the three months ended March 27, 2021 related to this settlement.

The Company’s debt agreements are subject to certain quantitative and qualitative covenants. As of March 27, 2021, the Company and its subsidiaries were in compliance with all covenants.
17


Note 7—Leases
The following table details our total investment in operating and finance leases where the Company is the lessee:
(in thousands)
March 27,
2021
December 26,
2020
Right-of-use assets
Finance leases (a)
$12,235 $14,211 
Operating leases910,255 884,927 
Total right-of-use assets$922,490 $899,138 
 
Current lease liabilities
Finance leases (b)
$1,752 $2,149 
Operating leases (c)
59,491 60,095 
Total current lease liabilities$61,243 $62,244 
 
Long-term lease liabilities
Finance leases (d)
$16,234 $16,726 
Operating leases846,360 818,001 
Total long-term lease liabilities$862,594 $834,727 
(a)Finance lease right-of-use assets are included in property and equipment, net on the condensed consolidated balance sheet.
(b)Current finance lease liabilities are included in current portion of long-term debt on the condensed consolidated balance sheet.
(c)Current operating lease liabilities are included in accrued expenses and other liabilities on the condensed consolidated balance sheet.
(d)Long-term finance lease liabilities are included in long-term debt on the condensed consolidated balance sheet.

The lease cost for operating and finance leases recognized in the condensed consolidated statement of operations for the three months ended March 27, 2021 and March 28, 2020 were as follows:
Three months ended
(in thousands)
March 27,
2021
March 28,
2020
Finance lease expense:
Amortization of right-of-use assets$614 $138 
Interest on lease liabilities237 105 
Operating lease expense27,748 12,782 
Short-term lease expense1,314 66 
Variable lease expense246 144 
Total lease expense, net$30,159 $13,235 
The Company also subleases certain facilities to franchisees and recognized $2 million in sublease revenue during each of the three months ended March 27, 2021 and March 28, 2020, respectively, as a component of supply and other revenue on the condensed consolidated statements of operations.

In March 2021, the Company sold 11 car wash properties in various locations throughout the United States for a total of $41 million, resulting in a net gain of $2 million. Concurrently with the closing of these sales, the Company entered into various operating lease agreements pursuant to which the Company leased back the properties. These lease agreements have terms ranging from 17 to 20 years and provide the Company with the option to extend the lease for up to 20 additional years. The Company does not include option periods in its determination of the lease term unless renewals are deemed reasonably certain to be exercised. The Company recorded an operating lease right-of-use asset and operating lease liability of $40 million and $37 million, respectively, related to these lease arrangements.
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The weighted average remaining lease term as of March 27, 2021 was 11.0 years for finance leases and 14.9 years for operating leases. The weighted average discount rate as of March 27, 2021 was 5.79% for finance leases and 4.82% for operating leases.
Supplemental cash flow information related to the Company’s lease arrangements for the three months ended March 27, 2021 and March 28, 2020, respectively, was as follows:
Three months ended
(in thousands)March 27,
2021
March 28,
2020
Cash paid for amounts included in the measurement of lease liabilities:
     Operating cash flows used in operating leases$25,794 $11,390 
     Operating cash flows used in finance leases216 102 
     Financing cash flows used in (for) finance leases317