Q2 2021 Driven Brands Holdings Inc Earnings Call
Yeah.
Yes.
[music].
Good morning.
And welcome to driven brands second quarter 2021 earnings conference call.
My name is to me and I will be your operator today.
As a reminder, this call is being recorded.
Joining the call. This morning are Johnathan Fitzpatrick, President and Chief Executive Officer.
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<unk> Executive Vice President and Chief Financial Officer, and Rachel Webb, Vice President of Investor Relations.
During today's call 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 Exchange Commission.
Please be advised that during the course of this call management May also make forward looking statements that reflect expectations for the future.
These statements are based upon current information and actual results may differ materially from defense Spectation.
Factors that may cause actual results to differ materially from expectations are detailed in the company's SEC filings, including the form 8-K filed today containing the Companys earnings release.
Information about any non-GAAP financial measures referenced including a reconciliation of those measures to GAAP measures.
<unk> can also be found in the company's SEC filings in the earnings release available on the Investor Relations website.
Today's prepared remarks will be followed by a question and answer session.
We ask that you limit yourself to 1 question and 1 follow up.
Please press star 1 to be placed in the.
Okay.
I'll now turn the call over to Jonathan. Please go ahead Sir.
Thank you and good morning, we had another great quarter across the board and are excited to share the results before.
Before we jump in let me reiterate the power of driven brands.
Driven brands as the largest automotive services.
Company in North America, and yet we have less than 5% market share in this highly fragmented and consolidating industry.
Our scale means that we have many competitive advantages like our marketing dollars data purchasing power unit growth to name just a few.
We have consistently taken share in.
This industry for the past decade, and we will continue for.
For the next decade.
Our 4 operating segments provide diversification to our business model.
Diversity across our brands geographies needs based service categories.
These multiple segments provide many levers to organically.
Lee grow same store sales and units.
And because of our asset light business model, we generate a ton of cash, which we reinvest back into the growth engine.
Over the long term driven has and will consistently deliver double digit revenue growth and double digit adjusted EBITDA growth.
And this is.
Before we layer on acquisitions, which is incremental upside to our model.
This is the compounding power of driven brands.
We're pleased with our Q2 results that we released this morning, and all credit goes to our team and our amazing franchisees who consistently deliver.
Compared to Q.
2 of 2020 consolidated same store sales were significantly ahead of expectations at positive 39%.
On a 2 year basis same store sales were up 19% accelerating from Q1 into Q2.
Revenue more than doubled to $375 million.
With EBITDA more than doubled to $101 million and adjusted EPS was <unk> 25, beating expectations.
Another top to bottom beat.
We are very proud of these results and remain optimistic for the remainder of the year.
Our same store sales performance was high quality built.
Just foundation of marketing and operational execution, we drove more new and repeat customers to our shops.
Our teams are executing across all segments.
Resulting in both 1 and 2 year same store sales growth across all segments and increased market share across all segments in Q2.
We continued to benefit from our competitive advantages marketing operation scale inventory, which led to more <unk>.
More sales and more profits for our franchisees and for driven.
For our retail customers are driven playbook is simple.
We leverage our significant.
Marketing firms to bring customers to our shops.
We provide the highest quality of service proven by industry, leading NPS scores and when.
<unk> are in our data ecosystem, our CRM engine can predict our next visit potential upsells and more.
Execution is critical to getting this right.
And the teams have proven over the past 10 years the ability to do so.
You can see this in the performance of our maintenance business and we're pumped that we're still in the early innings of implementing it with carwash, even before layering on more wash clubs subscriptions.
We see tremendous upside to our retail.
<unk> businesses.
We're driving trial gathering more customer data and we're only just beginning to add customer cross marketing from our other brands.
To illustrate on average we see over 300 cars a day from our quick lube and a car wash in the same trade area and today less than 5%.
And tumors visiting 1 service have ever visited the other.
This provides significant opportunity to cross market our services.
1 example, we've already learned that our premium oil customers mirror the same customer profile as our carwash subscription members allow.
Allowing for more upsell.
<unk> and targeting opportunities.
There are many similarities between these 2 businesses in fact, we have started testing rebranding some of our car wash locations to take 5 carwash.
We are very early in the test and look forward to sharing more details down the road.
We continue to see growth with our commercial customers as well.
Over the past 10 years vehicle complexity has provided a natural tailwind as average repair orders have grown by approximately $1000 or 40%.
As vehicle complexity continues to evolve so does driven and our commercial.
Commercial customers value that.
Our insurance partners continue to want fewer scaled providers that can service their customers better.
We've added over 400 direct repair programs. So far this year with half of those coming from the top 10 insurance carriers.
An existing partner.
Trips continue to drive more cars to our shops in 2021.
Let me take a minute and highlight our platform services segment.
Our scale and competitive advantage shine through in the second quarter.
We were able to secure parts for our franchisees and customers while 80%.
Partners market independents experienced significant inventory challenges.
Given the tightness in the market throughout 2020, we secured inventory several quarters in advance of our historical timelines.
Leveraging our data our scale and our supply chain relationships.
3 things.
As many of our smaller competitors do not have.
Being in stock when others are not as leading to share gains.
We've also successfully passed on higher costs without any impact of volume and.
In fact, our active customers are at an all time high and we continue to add new customers.
This has allowed our franchisees to do to enjoy record sales in Q2 and grow share.
We remain bullish about the demand for our services and we will get an added boost from the reopening for 2021.2022 and beyond.
Said simply as consumer.
I have more driven wins.
We leverage our scale sophistication data and marketing engine to ensure that as consumers drive more we capture that demand.
And the fundamental growth in our business is hard to Miss.
2 year same store sales growth was strong.
Strong 19%.
Turning to unit growth in the second quarter, we added 70 net new units.
This was a healthy balance of franchised and company store openings and tuck in acquisitions.
We have the team tools and processes in place to execute these multiple.
A bowl unit growth levers.
Our unit growth outlook remains very healthy for years to come.
Our new unit pipeline continued to grow into Q2.
Our organic growth pipeline now sits at over 950 units.
And this is a combination of large and growing pipelines of both company.
Franchise locations.
Our company store pipeline is strong with over 200 locations and continues to build.
This provides very strong visibility into both 2021 and 2022 openings.
Let's talk about franchise unit growth.
<unk> for our brands is strong.
And amongst new and existing franchisees.
Today, we have more than 750 commitments to open franchise sites, which provides visibility into unit growth for the next 4 years.
And we have locations identified for over 250 of these already.
Our franchisees are opening a new.
New stores ahead of plan.
Fast and making money.
Today, we have visibility in all of the expected franchise openings for 2021.
Something I'm really happy about is take 5 was recently named in the top 10 in entrepreneur magazine's franchise list.
They cited take.
<unk> 5 is 1 of the most innovative emerging brands with strong growth potential and we feel that demand in our pipeline.
This morning, we reaffirmed our store opening guidance for 2021.
We expect to open between $160.190 stores, which will be a combination of greenfield and franchise.
Locations.
I want to spend a moment talking about M&A.
This is a core strength of driven however, it's not in our earnings guidance.
All transactions have been accretive to earnings we make the businesses, we acquire better and they make us better.
The fragmentation in this industry.
<unk> allows for highly accretive acquisitions for many years to come.
Following the acquisition of take 5 in 2016, we invested heavily in building a best in class tuck in M&A playbook.
This includes the processes the system as the people and the relationships.
Which results.
<unk> been acquiring more than 250 locations since 2016.
Couple that with more than 300 company and franchise Greenfield openings over that same timeframe.
That is how we grow fast.
With the highly fragmented carwash industry, we will again leverage our M&A muscle.
Earlier this month, we announced that we closed on 2 larger carwash acquisitions.
So far in 2021, we have acquired units and 67 units since acquiring <unk> in August 2020.
Our Greenfield company pipeline is also strong and that will start yielding open.
Muscle in the second half of 2021 and into 2022 and beyond.
Both our quick lube and Carwash tuck in acquisitions are highly accretive.
And in all cases, the stores are rebranded and incorporated into our base business.
Integration typically happens within a 180 days of purchase.
<unk> really focused on improving the business through better operations marketing leadership and of course purchasing synergies.
Scale matters in our industry.
And tuck in M&A as 1 of the highest and best uses of our cash flow, which will compound over time driving for.
For all.
Stakeholders.
There is room for more than 12000 stores in North America alone tripled.
Triple that of our current store base. So we have a lot of runway for growth.
Our topline growth was strong for the quarter, we grew revenue of 123% versus prior year.
That coupled with our attractive and stable margins allowed us to more than double adjusted EBITDA.
Company store 4 wall margins in Q2, 40%.
That is why we are deploying capital into growing our company stores.
And our visibility into over 200 stores.
Over the next 24 months.
This is a great use of free cash flow that drive substantially higher EBITDA.
And high return on equity projects that will also compound over time.
As we continue to grow same store sales and add new units, we will generate a ton of cash.
We've.
And then reinvest that cash into even more future growth.
This is the compounding power of driven brands growth and cash generation.
Consumer trends are positive, but not fully back to pre COVID-19 levels across all our segments just yet.
We are optimistic.
All vehicle.
Miles traveled are BMT.
Levels will continue to trend towards pre COVID-19 levels and grow from there this will likely be mid to late 2022.
What's very encouraging is that despite viente not being fully back to normal we are significantly outperforming pre COVID-19.
Good levels.
We are gaining share and delivering strong results because of our great execution across unit growth marketing operations and supply chain.
Let me share my thoughts about the rest of the year and beyond it's positive.
We remain bullish on 2021 and feel very.
What about achieving our updated guidance for adjusted EBITDA of $345 million for 2021.
The strength and diversity of our business model will continue to deliver best in class results.
In addition to our increasing operating capability the reopening is not yet complete.
Very good I would summarize our view on 2021 this way.
Driven will continue to take share in this highly fragmented industry.
And our scale data analytics same store sales and unit growth will continue to expand our competitive advantage.
Consumers are driving again and thats good for driven.
And I remain very bullish on driven longer term future because we are a compound grower.
Our growth is low risk because of our current market share.
We're asset light and generate a lot of cash.
Our business model works well in all economic cycles, and finally, we execute.
And do what we say we're going to do.
This is what will drive driven long term growth model.
Revenue growth at attractive consistent margins, which leads to adjusted EBITDA growth and significant cash generation.
It's simple predictable and more compact.
And you can see this very clearly in both our Q1 and Q2 results.
Driven this growth and cash.
I'll now turn it over to Tiffany for a deeper dive into the Q2 financials.
1 guidance Tiffany.
Thanks, Jonathan and good morning, everyone, we delivered another.
Other strong quarter, thanks to the hard work of the entire driven brands team.
<unk> continues to capitalize on important industry more room with a relentless focus on operational excellence.
And our proven playbook enabled these results.
For the.
A record $1.2 billion in the quarter.
Provided revenue $375 million more than double that of the prior year.
Adjusted EBITDA was $100 million.
And as a percentage of revenue adjusted EBITDA margin with nearly 27%.
And finally, adjusted EPS was <unk> 25.
As we begin the second quarter exceeding our expectations.
As a result of strong sales volume, which allowed us to leverage.
Driving significant flow through.
This is the power driven brands platform at scale growing whole franchise business with a diverse needs.
Thanks service offering that delivered very attractive margin.
Now, let me move down a bit more.
System wide sales growth in the quarter was driven by same store sales growth as well as the addition of new stores.
Company and franchise store brands and tuck in acquisition.
We have tremendous white space.
<unk> continued growing our store count is roughly $300 billion highly fragmented industry.
Our franchise company Greenfield and M&A pipeline are all robust and we are aggressively growing our footprint.
Since Q2 last year, we've added 1087 net new.
Chris.
In the second quarter of this year alone we added 70.
With healthy growth across the portfolio.
With net new unit.
<unk> segment.
Same store sales growth, 39% for the quarter.
Of course.
Net of the pandemic.
<unk> last year.
Normalized debate, if we look at same store sales on a 2 year basis same store sales grew 19% and 2 year trend has improved substantially from nearly 3% in Q1.
This strong 2 year trend indicate.
New store continued momentum in the fundamentals of our business.
And as a testament to the offensive strategy, we put into motion in 2020 to drive performance in 2021.
We once again outpaced the industry across all business segments, continuing to gain market share.
And we.
This momentum to continue into the back half of the year.
Now remember we are over 80% franchised.
Not all segments contribute to revenue proportionately.
For example, <unk> was roughly half of systemwide sales this quarter, but less than 15% of revenue because it's effectively.
Expect franchise with lower royalty rates.
Maintenance and Carwash or a mix of franchised and company operated contributing approximately 40% and 35% of revenue respectively.
This is all laid out in our into graphic which is posted on our IR website.
I encourage you to.
Often time with it to help you better.
Better digestible portfolio mix unbalance its contribution.
When you put unit growth and same store sales growth in the blender and account for our franchise mix.
Our reported revenue in the quarter was $375 million.
An increase of 123%.
Versus the prior year.
From an expense perspective.
We continue to carefully manage site level expenses across the portfolio.
In fact prudent expense management together with a strong sales volume.
<unk> margin of 40% company operated stores.
About shop SG&A as a percentage of revenue was 22% in the quarter and over 700 basis points improvement versus last year.
Depreciation and amortization was $26 million, firstly, <unk> 8 million in the prior year.
This is primarily attributable.
The IC WG acquisition.
Interest expense was nearly $17 million in the quarter.
And we recorded income tax expense of $17 million, which is an effective tax rate of approximately 33%.
For the second quarter, we delivered net income of 30.
We'll get about $1 million.
And adjusted net income of $42 million.
You can find a reconciliation of adjusted net income adjusted EPS and adjusted EBITDA in todays release.
Now a bit more color on our second quarter results by segment.
The maintenance.
Segment.
Positive same store sales a 42%.
Strongest across the portfolio.
On a 2 year basis same store sales growth with 27%.
Maintenance continued to benefit from more targeted digital marketing, which led to a significant increase in car count from both new.
New and repeat customers.
We capitalized on the back.
Cumulus are driving more and their travel plan are increasing.
For example over Memorial day weekend DMT surpassed 2019.
5%.
And it's important to report.
That 9 in 10 Americans have plans to travel in the next 6 months.
A new pandemic hot.
From a profitability perspective, while we continued to benefit from our decision to refine take 5 labor model, reducing labor hours car, we ran slightly leaner on labor as a.
Thank you <unk> my favorite slides, which led to an even higher LOE through on incremental sales.
And we continue to leverage the purchasing power of our platform to drive cost savings from oil purchases all state data volume rebate.
As we continue to grow store count and same store sales.
Results will generate incremental pricing power.
While not included in our consolidated same store sales base until the anniversary of the acquisition next quarter. The Carwash segment posted same store sales growth of 35%.
On a 2 year basis same store sales were positive 21.
1%.
Whilst club subscription increased to over 47% of sales in the second quarter and the number of lots of members grew by an additional 50000.
This is a great recurring revenue stream that provides a level of predictability to this business.
Non wash club revenue.
<unk> continues to increase as well.
Ultimate simplified menu board and the focus that our teams have placed on improved selling technique.
Revenue for loss.
10% versus last year.
From a profitability perspective, we have renegotiated contract achieving a significant.
Significant cost reduction, while increasing service level and associated growth incentives.
Similar to our oil program the more volume, we do the greater the benefit.
The takeaway from the last segment posted positive same store sales in the quarter, 37%.
On a 2.
2 year basis same store sales increased 11%.
We have experienced several quarters of reduced collisions films, resulting from less congestion on the road.
We are encouraged by the improved TMT trend in the second quarter and posted our first quarter of positive same store sales in the last year. Despite.
Canadian footprint for BMT still lags the U S. A.
Hard work of this team despite the pressure in 2020 can now shines group they can.
Continue to build our commercial partnerships in this segment through DRP and fleet programs.
Help position us very well as the reopening continues to take.
Across the markets we serve.
And finally, the platform services segment posted same store sales growth in Q2 of 37%.
On a 2 year basis same store sales grew 34%.
Having a strong in stock levels at 100, right ear, while many competitor.
Shape, not coupled with an opportunistic increase in average selling price.
Ultimately drove continued record sales levels within the quarter.
We are pleased with our strong operating performance in the quarter, which resulted in significant cash generation that allowed us to further invest in the business.
Let me take a moment to speak to our liquidity and capital structure.
We ended the second quarter with $147 million.
Cash.
In May we closed on a new $300 million revolving credit facility.
Facility together with the variable funding note that as part of our whole business securitization structure brings.
Total revolving credit capacity to $416 million.
We had $321 million of Undrawn capacity on our revolving credit facility at the end of the quarter, resulting in total liquidity of $468 million.
We intend to continue using our balance sheet to capitalize on the.
<unk> white space, and a roughly $300 billion consolidating industry, while maintaining an investment grade credit rating.
Now looking ahead at the balance of the year, we are focused on our proven formula progress with a platform that has scale and diversify.
Our formula is simple.
We add new stores, we grow same store sales only deliver stable margins.
This results in significant cash flow generation that we reinvest in the business.
We continue to be bullish on 2021.
We have delivered 2 strong quarters the U S reopen.
Reopening continues.
Canada and parts of Europe are set to reopen in the second half of the year.
In this morning's earnings release, we raised our full year guidance to account for the strong operating performance in the second quarter and better visibility for the back half of the year.
We.
We're on track to open 160 to 190 net new stores across the portfolio.
This is organic growth it does not include M&A.
We expect positive same store sales growth across all of our segments.
And on a consolidated basis.
That's low.
Low double digit same store sales growth.
That will drive revenue of approximately $1.4 billion.
Adjusted EBITDA of approximately $345 million.
And should result in adjusted EPS of approximately 83%.
Based on 165 million.
Weighted average shares outstanding.
Now there are a few additional items I want to mention as you update your models for 2021.
First we have completed the analysis of Carwash leasehold improvements and now expect depreciation and amortization to be approximately $105 million.
Our interest.
Expense assumption is unchanged at approximately $70 million.
And our effective tax rate is unchanged at approximately 30%.
In closing we have delivered strong results in the first half of this year raised our guidance substantially.
And expect the strength of this portfolio.
It can deliver best in class results with significant opportunity for continued growth in a fragmented and consolidating industry.
We look forward to speaking with you again in late October when we release, our third quarter results.
Operator, we'd now like to open the call up for questions.
At this time.
<unk> I would like to remind everyone in order to ask a question Press Star then the number 1 on your telephone keypad well pause for just a moment to compile the Q&A roster.
Your first question comes from the line of Chris <unk> with J P. Morgan.
<unk> Your line is open.
Okay.
Thanks, Good morning, everybody.
I know youre not guiding by quarter, but can you give us some flavor on how youre thinking about the cadence of sales and EBITDA in the back half how are you thinking about it on a 2 year basis in sales are you raising more for 3 Q versus later in the year.
And then if so is that just prudence and then any comments on margins overall would be really helpful.
Yeah.
Hey, guys. Good morning, Thanks for the question so if.
If I can I'm going to take a few minutes just to give you more color even in your asphalt because I think this could be helpful. Incredibly answers a few questions that are on the line.
So let me let me give you a little bit of color on monthly comps in the second quarter I'll tell you. How we're feeling about July and then I'll answer your direct question because I think all of that provides a really good picture for you. So qualitatively on the second quarter itself on both a 1 and 2 year basis monthly comps were just as you would've expected.
Our strongest.
Lapsed the strictest shelter in place orders from a year ago, and then same store sales trended down each month of the quarter as we lap tougher compares.
So while same store sales same store sales trended down throughout the quarter comps in June on a 1.2 year basis, we're still double digit.
With other live.
As we come into July we are off to a great start we're really pleased with our performance and we're seeing strength across the segments now.
Now our guidance for the full year.
Basically implies about a 4.5% comp in the back half.
I would say in terms of.
<unk> presentation for Q3, and Q4, not a big disparity.
Obviously as we got further into the year, we had some challenges in Q4 city pairs are little.
Covid than Q3, so qualitatively I'd give you that.
Little bit of color.
We expect positive comps.
Across all of our segments DMT is expected to be flat in the back half of the year. So that's a little bit of color commentary for you in that regard.
And I'll stop there any follow up questions for me as you think about that cadence.
Yeah, So just maybe.
Hi Mountain top line just to clarify so you were saying that June.
On a 1 into your basis, you were low double digits across all segments.
1 and 2 year difference so on a on a 2 year basis.
I would say better right on a on a 1 year basis, we were low double digit yet.
With low double digit got you.
And then the commentary around July would suggest that.
I mean, it is a bit of more of a travel months.
All regions of the country out of school, so July trending better than June.
July is not complete yet so we're off to a great start we're pleased with performance I'm going to leave it there.
[laughter] 228.
Understood.
Got it and then just to clarify clarification question are the acquisitions that you've made year to date and the updated guidance and just not the future potential acquisitions or.
Or is it excluding both.
Yes, great question Chris.
Our guidance includes acquisitions, we've made to date, but does not include acquisitions that are under LOI are contemplated in our pipeline in the back half of the year.
Got it thanks, very much I'll open up for somebody else.
Your next question comes.
From the line of Simeon Gutman with Morgan Stanley. Your line is open.
Good morning, Hi, Jonathan Hi, Stephanie My first question is a 2 parter on the car wash segment.
The first part of it is the penetration Tiffany I think you said 47.
We had 45 on the wash club last.
Last quarter can you talk about seasonally is normally an uptick from Q1 to Q2 I don't know if we have the numbers, but how they compare to a year ago and then bigger picture can you talk about any updated thoughts.
Franchising carwash or rebranding to a single banner.
I'm assuming.
Okay, I'll start and Tiffany can certainly M D.
Jump in.
In terms of wash club seasonality I think you know this is a bit of a weird year. Because you know people are now getting out and driving and all that kind of stuff. So I think there is some natural seasonality to the business, but I don't want to give any sort of deeper color commentary onset of seasonal.
Analogy with wash club subscriptions.
Continuing to execute our plan, which is focused on great operations simplified menu better selling techniques at the stores and we're reaping the benefits there. So I think hard to comment on seasonality regarding wash love subscriptions in terms of rebranding I mentioned.
It's jobs that we're testing rebounding some of our stores to take 5 car wash its very early in the test we think that.
Having a unified banner potentially in time makes sense from a brand equity and consumer perspective, but very early stages of the test and we'll look forward to updating you guys in future quarters.
I think the only thing I'd add is we're making great progress on watch club penetration subscription penetration right. So you've seen that that penetration percentage tick up.
Just about every quarter and more importantly, even in the penetration because that bounces around based on the mix of wash club and non wash club is that we're adding members every month.
Andre 50000, this quarter I think it's 50000 last quarter. So the team is making great progress.
And is there seasonality in general not saying what the numbers are but is there a seasonality to wash club penetration or it shouldn't work that way given that it's a loyalty program and it should build cumulatively over time.
The latter Sydney and it does build.
Bill cumulatively cumulatively over time.
Okay. That's fair and then my follow up question is <unk>.
Thinking about the incremental margins or the flow through for the remainder of the year. Tiffany you mentioned that youre not fully staffed in some places in some businesses.
How should we think about it even.
Maintenance this quarter.
Our model, we flipped flow through was I think a little bit better last quarter and yet the comp was even stronger and so we're trying to think about.
Get the guidance and it's better in the back half, but how do you think about flow through and in some of the considerations you mentioned around labor.
Yeah, so listen.
I wanted to be really clear here I don't want to overplay that card right. We are certainly not immune to the labor challenges the nationwide labor challenges.
We're facing the same thing.
<unk> as everyone else.
It's important to note that in the maintenance segment in particular, while we're facing those challenges and it did give us a little bit of incremental flow through.
I just.
On the order of magnitude here.
The company operated store 4 wall margins were 40% in the quarter.
That's a combination of Carwash and maintenance if you look at maintenance maintenance was about 43%.
The impact of the labor shortage was about 50 basis.
Give me at $700000, it's 50 basis points, it's not a large number right. So it is there is a benefit but the bigger benefit that's boosting theres incremental margin is just sheer car count right in the fact that consumers driving more of them are pushing more cars through those boxes and those incremental cars are driving incremental margin.
So I don't want to overplay that point that we are facing some labor shortages.
Okay. Thanks, that's helpful take care.
Your next question comes from the line of Lee <unk> with Bank of America. Your line is open.
Great. Thank.
Q.
Are you starting to see any pause in the recovery in areas that are starting to buy some perfect cases from itself the variance or does it seem like that recovery in driving activity is really still chugging along.
Hey, Liz as Jonathan I'd say that we're not seeing any detrimental moves and.
The demand in those areas, but.
Look this is a moving target, but so far we're not seeing that.
Okay.
The big gap in performance in areas that are really reopens like in the U S versus like Canada, that's still pretty tightly locked down.
Yes, I think I mentioned.
Traffic Tiffany mentioned in our prepared remarks Canada's.
Hard to say exactly but 2 to 3 quarters, maybe behind the U S. In terms of opening they really started opening up in early July.
So it's still a bit of softness there and then obviously we mentioned some of our European markets.
I don't want to go through all 13 countries, but you could.
Various degrees of sort of normality in Europe.
So we definitely think the U S is ahead in terms of consumer behavior consumer spending with sort of a lag certainly in Canada and parts of Europe, that's how we think about it.
Okay, great. Thank you.
Your next question comes from.
Kate Mcshane with Goldman Sachs. Your line is open.
Hi, good morning, Thanks for taking our questions you.
You had mentioned in the prepared remarks that being in stock when others Werent was driver of market share.
During the quarter I wondered how big of a driver.
In our lives and how.
Look as the year goes on just given some of the challenges foreseen within the supply chain.
Hey, Kate it's Jonathan I'll start and Tiffany can certainly jump in but.
I think I mentioned, we were very.
Proactive on this sort of area really back in sort of.
Q1.
Was Q2 of 2020, we feel very good about our supply chain and inventory availability and access to inventory for the balance of this year and beyond there are certain certainly pressures there in terms of actual availability than some of the shipping costs were certainly seeing that as I mentioned, we have successfully pass that onto to our customers.
And we're seeing sort of active customers at an all time high so.
I don't know exactly when these things sort of relieves itself I think we're probably looking at another maybe 2 to 3 quarters of this sort of being a big impact, but we feel very good about where we are today.
Thank you.
Your next question comes from the line of Peter Benedict with Baird. Your line is open.
Hey, guys. Good morning, Thanks for taking the question.
I guess my first is around Carwash, just curious any comments qualitative.
Or what around the competitive environment just for the Carwash.
Our watch segment around M&A.
Multiples, where they may be landing.
And related to that.
Your thoughts on you talked about the rebranding.
Is that something that can be.
Precursor to where.
And then it'd be a franchisee within that segment longer term.
Your thoughts on that.
Sure. Thanks, Peter Good question in terms of multiples I think we've talked before that.
Tuck in M&A acquisitions are sort of in that mid to high single digit and no change in that in that guidance.
In terms of rebranding.
Something that was part of our own.
Just curious your thesis when we first looked at this business back in August 2020, we do think there's power in having potentially 1 brand for our car wash business.
I think I've also mentioned on previous calls that like we did with the quick lube business, we own that business company stores for about a year, we sort of worked on the model made some tweaks to it and then obviously we started franchise.
Franchising it.
<unk> commitment to franchising the car wash business, but I think it wouldn't it wouldn't be unfair to look at that playbook, what we've done in the past and say that we would do it again so.
More to come on that.
Okay, Great. That's helpful. And then my follow up would be just around the cross segment and engagement by your customers you mentioned kind.
Underwriting.
Less than 5% maybe crossover.
Can you maybe build a little bit on how you how you plan to grow this timeline.
Is this something that couldn't see meaningful traction in the next 12 to 24 months or or is it just a longer longer term.
I guess thank you.
Yeah, I think we mentioned, let them sort of 5% on average our sort of visiting 1 service to it.
It's part of our digital journey, it's part of our data journey.
Early into it obviously that overlap matters in terms of proximity from 1 store to another.
So we think this is a multiyear journey.
And we're super excited about it.
And.
I think we would hope to obviously grow that less than 5% to weigh more than 5% over a multi year basis. So.
Just an important opportunity for us that we're sort of leaning into now.
Okay fair enough. Thanks, so much.
Your next question.
Comes from the line of Sharon Zackfia with William Blair. Your line is open.
Hi, good morning.
I guess I wanted to delve a little bit deeper on the implied second half guidance I guess, there is some conservatism it appears and the comp guidance.
I know you said July was.
After a strong start I'm wondering if July is the head of that and hit it kind of a 4% comp for the second half and then also on the margin I think there's a bit of a step down in the implied EBITDA margin is that just seasonality in the business are you expecting any kind of incremental pressure on margin in the second half.
Thank you Sarah and thank you for your question so.
As I said that the guidance implies about a 4.5% same store sales guide in the back half, we're pleased with where July is trending and we're.
We're gonna stay qualitative theyre not not any class a share.
Look I think.
We continue to be.
Somewhat.
Cost is right there we're still we're not post pandemic, yet there's still some variability in the market we feel good about.
Level of execution, certainly as we've talked about in our prepared remarks, we played offense last year when others are playing defense, but we feel good about how we enter 2021 relating to set ourselves up as.
When he takes shape.
You're certainly seeing it in our in our first and second quarter print.
But with Delta variant out there, we've certainly taken that taking that into consideration and we want to remain prudent as we think about the back half but.
We're excited about 2021, and we're going to continue to execute at the top of our game and hopefully we can come back with some great.
Really here in the back half of the year.
That's really helpful can I ask a follow up question on the staffing levels are you fully staffed now.
And did it impact any any of the topline results in the second quarter.
Yeah, Shaun we're staffed to deliver the results that we delivered in Q2.
Look there's this constant.
Neutral operating pressures, but.
We're optimistic that that will ease a little bit of some of the.
The employment stimulus sort of ease off in the back half of the year, but you got to remember that our company operated stores. Both car wash them quick lube are highly efficient labor models right there not a lot of people working in those stores. So we use.
Great operational.
Procedures and technology to sort of limit the labor exposure, there, so I'd say that their staffing pressure, but.
You don't deliver the comps that we delivered in Q2, if you don't have.
Really excellent sort of staffing levels in the stores.
Thank you.
Your next question comes from the line of Chris <unk> with Stifel. Your line is open.
Thank you good morning, guys.
Jonathan My question relates to the company's M&A strategy for the car wash segment.
Is the company trying to get into a dominant position in.
That it acquired stores are operated locations.
And is the focus on acquiring change with an express format, maybe talk a little bit about that and then I had a follow up.
Sure Thanks, Chris Yeah.
Good to have you on the team.
We buy stores in quick lube, our car wash because they are accretive trans.
Actions.
We have a machine that's being built since 2016 in order to execute against that.
We acquire.
Acquire at accretive multiples, we integrate and make the businesses better so.
Last thing I'd say in terms of your dominant position sure we want to have a dominant position in every single segment that we are.
Operating and I think you know scale really matters in this industry, so getting to a scale position in our segments is important to us so.
There are some things to think about from an M&A perspective and.
The only thing I would point you to is our quick lube business really provided an amazing playbook in terms.
Terms of Carwash, So we're sort of repeating to some extent the.
Playbook, we've done in our quick lube business.
In terms of the type of assets that we're acquiring we are very focused on the express tunnel Carwash business.
So that's our core focus in terms of acquisitions and Greenfield stores.
Yeah.
You mentioned there were no changes to your valuation assumptions and that acquisitions are still highly accretive but are you concerned at all that is the number of players.
Increase in P/e backed players I guess that it could impede your acquisition plans.
It's a good question, we have a M&A muscle and experience over the last 10 plus years, that's I think second to none in the industry.
We have a reputation because we are a known buyer in the industry.
And I would say that you know we continue.
To do highly accretive transactions, we're not worried about whether there are some smaller type P groups.
We have a Michigan and we're going to continue to continue on that and I think it's validated by 50 units have been acquired so far in 2021 and 67 total units since we acquired the business.
In August of 2020, so we feel very good about our M&A strategy. Both in terms of what we've delivered so far in the future.
Great. Thank you.
Yeah.
Your next question comes from the line of <unk> with Credit Suisse. Your line is open.
Hi, everyone. Congrats on the strong quarter and thanks for taking my question. So.
I had a follow up question on this plot that you'd be on heat branding loss take 5 locations I'm trying to understand if this is just the strategy because the market won't allow for separate locations or is it just being viewed from the customer angle that might drive more.
Marketing synergies over time.
Thanks, a lot.
I think I said in my prepared remarks, we're testing it. So I think we've got we've got it.
Thesis around the benefits for it but we will come back to you in future quarters, but.
From a big Big picture perspective, having a.
Single brand.
Which we presented the customers, there's probably long term positive for our business. So that's what we're testing and we'll come back to you with more results but.
Again early in the test and we're excited about what we're seeing so far.
Got it. Thank you I just had a quick follow up on the margin.
Got it.
From the renegotiated chemical contract our new.
Cable model.
It took some time this year early next year when the anniversary of that change or is this something that could cost significantly driving the business.
And then clarify your question, but I think you were asking about the renegotiated Kevin.
If in fact that was specific to the Carwash segment.
That contract was renegotiated at the end of 2020, so we lap the benefit of that renegotiation in the fourth quarter.
Got it and what about the big find labor market, you've got the same timeframe.
So the labor model with Q2 alright.
Nickel cost side Labor model, that's Q2 of 2020, so we just lapped the anniversary of those changes.
Understood. Thank you so much.
You bet.
Your next question comes from the line of Karen short with Barclays. Your line is open.
Hi.
Thanks for taking my question I have a couple of questions just in terms of the crossover shopper.
What do you actually think the potential is relative to the guest under 5% when you sign it and then what is the actual physical overlap and its store base within the appropriate trade area and I'm just trying to gauge what the opportunity is on that.
That crossover.
Sure. Thanks, Karen.
Less than 5% today, so a bigger number than that in the future. So.
Let's say that as a starting point for potential we've got 4000 locations, there's significant overlap within the businesses, but we've got businesses that have different.
Intervals with customers some of our customers come multiple times a month when carwash multiple times, a year with quick lube and so on and so forth. So I would say that we have the data because we capture data for across all of our businesses. So we know the habits of the customer. We're also understand lifetime value of a customer in the automotive.
Aftermarket spend so understanding where we have the opportunity to capture more of that wallet share is important to us but in terms of potential I would say, we're less than 5% today, we believe that it'll be much bigger than 5% in the future.
Okay, and then with respect to elasticity.
Obviously, you commented that you're seeing inflation.
Can you just give a little color on what where inflation is today and what level. If you think there is a level where that may you may get some pushback from the customer.
Yes, I think I think it's a good question and we've talked about this before but if you look across our businesses take a car wash, our second which has an average check of about 10 or $11.
Next.
Smallest average check was about $80 in our in our quick lube business. So the ability to pass on price either because of commodity pressure, our labor and labor.
Labor pressure is.
Is very doable and in factor across all of our segments. We've done that over the last 12 months and we've seen no negative impact to consumer.
Our consumer demand or no negative impact to NPS scores net promoter scores, which is the customer satisfaction. So we have a unique position where.
Because of our higher average check because of our needs based services that we offer to consumers that we have very successfully passed on any sort of incremental and flush inflationary.
Traffic pressures that we've endured over the last 12 months, so I think inflation in <unk>.
Summary is a net positive for driven brands and then remember from our franchisees perspective, they do a great job of passing on price and obviously, we get paid royalty off the topline and franchisees. So I think inflation generally is a net positive.
<unk>.
Okay. A question on your longer term algorithm.
For low double digit revenue growth and low double digit EBITDA growth.
Yeah, obviously.
Much wider gap on the EBITDA growth versus the top line any thoughts on that algorithm longer term in terms.
EBITDA growth actually could be higher.
Well, we're certainly not going to change our long term growth algorithm 2 quarters into being a public company. So.
We're certainly sticking with the long term growth algorithm, obviously, we want to be prudent in terms of how we manage expectations, but we're very pleased with what our long term growth algorithm is and remember.
Whether it's organic thats before we think about any M&A, which is definitely upside to the model.
Alright, thank you.
Sure.
Our last question comes from the line of Peter Keith with Piper Sandler Your line is open.
Hey, Thanks, guys nice results.
So.
Remember that in 2 quarters into being a public company I'm curious what the conversations are like with potential franchisees.
Now that your results are public and we can see the attractive 4 wall EBITDA margins are you tracked potentially more institutional money or.
More well capitalized franchisees that perhaps.
Want to own a portfolio of the driven brands.
Hey, Peter Great question.
A really good 1.
Would say that look at our franchise pipeline I think it's up to 750 units grew by about 100 units from Q1 to Q2 demand for our brands are strong I don't think so.
Jonathan <unk> entry of driven brands is really affecting that demand I think if the demand is driven because these are great businesses needs based essential services with really strong unit level economics. So I don't think the average franchisee really cares, whether driven brands is public or not or potential franchisee.
And in terms of la.
Larger institutional type franchisees.
How we think about our franchisees as we want.
<unk> that is highly correlated with the term of the franchise agreement. So I don't necessarily want private equity I want patient equity our typical franchise.
15 years, and I want people that are investing.
Power business sort of tomorrow towards that franchise agreement. So that's how we think about that.
Okay fair enough.
And then I.
I did want to flesh out a little bit more around that cross marketing.
Maybe a basic question, but you pointed out that the premium oil.
Customers kind of mirrors.
<unk> and our customers maybe at a high level provide some characteristics on what those overlaps are and then as you're starting to get into this cross marketing are you finding it easier to drive 2 oil change or drive the car wash or is it pretty comparable.
Good question, so when we said the.
<unk> customer in the commerce of such subscription Custer mirror each other that's around demographics. That's around household income that's around proximity to the store likely around the car that they drive as well so those things sort of line up very well and you.
Not surprising the folks that are buying sort of the premium oil may have a little.
Disposable income more likely to buy a subscription.
Subscription for the car wash.
So I think that's but again, we know that because we capture data from both sides of the businesses. So then we can actually marry up the data to understand.
<unk>, which customers are buying both services that.
Then in terms.
More has to if we have premium or customers that are not buying a car wash subscriptions and live within relative close proximity that's definitely a target opportunity for us to invite them to come to us carwash. So that's how we think about that this is all data driven from our data Lake, which we've talked about before.
So I would say.
Lisa just a big opportunity for us and I think <unk> tried to push me on it as well.
Less than 5% what is it going to be in the future. We think it's going to be bigger than 5%, but it'll take time.
And that goes mostly.
Taking those oil customers 2 car wash not vice versa. I think this is absolute.
Yes.
It's not a sort of 1 way traffic so I think.
It works across all of our businesses. So when you think about our collision businesses. Our quick lube business is our mining business as other businesses all of those customers are spending money and sort of their lifetime, what we think about sort of the lifetime value of their spend on automotive aftermarket. So.
Absolute was opportunities not just with quick lube carwash, but across the entire driven brands ecosystem.
Okay. Thank you very helpful.
I will now turn the call back over to Mr. Patrick.
Thanks to me and I think we're out of questions, but I just wanted to say thank you to the driven.
And especially to our franchisees are just having a phenomenal first half of 2021 and just to reiterate how.
Optimistic and excited we are for the back half of the year. Thank you.
Youre welcome.
Today's conference call you may now disconnect.
<unk>.
Okay.
Okay.
Okay.
Okay.
Okay.
Okay.
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