Q1 2022 Driven Brands Holdings Inc Earnings Call
We deliver organic double digit revenue growth and double digit adjusted EBITDA growth.
That together with our asset light business model means we generate a ton of cash.
And our needs based services and franchise business model helped insulate our profit from the impacts of inflation.
We then invest that cash to further accelerate our growth by building new units and layering on acquisitions, which as we have proven adds massive incremental upside to our model.
Our dream Big plan of at least $850 million of adjusted EBITDA by 2026 is on track.
Exceeding that plan is now our primary focus.
We were making great strides already.
Driven is growth and cash.
I wanted to take a moment to highlight our Q1 results.
And all credit goes to our team, our amazing franchisees and our loyal and long term customers.
Compared to Q1 of 2021 consolidated same store sales were positive 16%.
Revenue increased 42% to $468 million.
Adjusted EBITDA increased 52% to $119 million.
And adjusted EPS increased 47% to 28.
Another top to bottom beat and our fifth in a row as a public company.
The World has changed since our last earnings call on February 16th.
I'll take a few minutes to address how these factors have had limited impact on driven.
How driven continued to grow in Q1 and the confidence we have in the balance of 2022.
Inflationary pressures have accelerated recently with the war in Ukraine higher gas prices rising interest rates and of course, the ongoing labor and supply chain challenges.
Let me explain how these macro conditions impact driven in terms of consumer demand labor supply chain and pricing.
We have not experienced any material impact to consumer demand in the first quarter and.
And we do not expect any material impact to demand as we look at the balance of 2022.
A few reasons for this.
Most importantly, driven provides needs based services.
Our businesses performed well because of the non discretionary aspect of maintaining an automobile.
Our core customer has been driving and we will continue to drive even with elevated gas prices.
Our core customers are also benefiting from higher wages and recent surveys indicate that customers are adjusting to the rise in core living expenses, such as gas and groceries.
This mirrors, what we have seen from history Q1 of 2022.
2007 and 2008.
Driven performance well, even in the most difficult economic conditions.
Next labor.
We continued to deliver share gains across every segment.
One of the contributing factors is our own and our franchisees' ability to staff locations and the quality of our people.
As I have mentioned before we and our franchisees are not immune to the labor challenges, but we have several competitive and structural advantages relative to our competition.
Variable compensation is a core tenant for driven and our franchisees and most employees have variable comp as part of their total comp.
Our franchisees are extremely resourceful owner operators and know how to recruit and retain employees for their businesses.
Yeah.
We operate better hours of operation compared to other retailers.
Most employees have nights and in many cases some days off.
Many of our positions don't require skilled labor.
And many of our employees like cars and the opportunity to work within automotive, which means it is more than just a job.
Finally, we are growing and that means we have significant advancement opportunities.
As an example, more than 70% are above shop leaders and the take five quick lube business or internally promoted from our shops as we've expanded.
This availability of a career path not just a job has a meaningful impact on our ability to recruit and retain.
Next let's talk about supply chain.
Scale continues to provide driven a competitive advantage, particularly when you consider 80% of our competition is small chains and independent operators.
This scale allows us to get preferred access to product at the best possible terms.
We have multiple strategic supplier relationships in our key businesses.
We have dedicated resources, whose sole focus is to ensure that we have product in our stores.
Our ability to leverage data analytics to order in advance leverage our scale, our balance sheet strategic supplier partnerships and preferred vendor status means that we are taking share when others don't have product.
The last element of the inflation equation is retail pricing.
We offer non discretionary needs based services.
This means even as prices rise consumers continue to get their vehicles repaired maintained washed and they're all changed.
And it will be very low on the list of services that are downsized when spending is squeezed.
We continually evaluate our prices at our company stores to both protect our margins, while still providing value to our customers.
We have done this strategically over the past 18 months in our company take find locations and we have not seen any material negative impact to traffic or customer satisfaction.
We will continue to manage price prudently to protect margins and ensure customers continue visiting our locations.
Our franchisees, who manage their own pricing are extremely adept at understanding how when and where to take price.
This is the ownership mentality at work.
Our average check is $842 across the driven portfolio as.
As low as $10 for Carwash and as high as $3500 for collision.
The ability to pass on small percentage increases has been proven for non discretionary needs based services.
So in summary, despite multiple inflationary challenges, which we are not immune to.
Driven brands continues to grow and take share.
We remain as confident as ever in our ability to deliver on our short medium and long term goals.
This is the power of our growing scale and sophistication.
This highly fragmented needs based industry.
It is also important to note that despite these challenges we have not lost focus on our growth across all our businesses.
As a result growth has continued at driven.
We continued to franchise build and buy new stores and we have made significant progress across our three primary growth levers.
So let me spend some time on the three highest growth priorities that driven quickly.
Quick lube Carwash and glass.
We are growing all three businesses at the same time.
This is the power of the driven model.
Multiple complementary levers to grow company franchise and M&A.
And we have the track record of doing this successfully over time.
This is why we are so confident in our 2026 goal of at least.
$850 million of adjusted EBITDA.
These three businesses share several characteristics simple.
Simple operating model highly fragmented competition significant white space in terms of unit growth.
And very strong unit level economics.
These highest growth businesses are supported by the rest of our highly cash generative and asset light businesses.
This is what makes driven such a powerful engine growth in cash.
Let's start with take five quick lube the stay in your car 10 minute oil change.
Our take five quick lube business continues to grow revenue same store sales units and profits.
This is a superior operating model with best in class unit level economics.
That is why we have a pipeline of 750 stores, which will open over the next three to four years.
Our franchise quick lube business is doubling annually.
37 units in Q1 'twenty.
77 units in Q1 'twenty one.
159 units in Q1 'twenty two.
We expect to add approximately 100, new franchise locations in 2022, and our total franchise pipeline now sits at over 600 locations.
Our franchisees have secured 180 sites and this gives us great visibility into franchise unit growth for the next three to four years.
Our franchisees in quick lube are typically larger and well capitalized many with existing multi unit businesses in other sectors.
They were attracted to the take five business because of the superior operating model unit level economics and returns.
Today, we have 56 franchisees and 30% of those franchisees have already signed a second or third development agreement.
Approximately half of the stores in our current pipeline will come from existing franchisees.
These are franchisees who were so pleased with their initial units that they have come back sometimes repeatedly for the rights to open more.
We will continue to open significantly more franchise than company units in the future.
Our company stores are generating four wall EBITDA margins of 40%.
And we are on track to open approximately 50 new units in 2022.
In summary, the quick lube business is performing extremely well on all fronts and we expect this to continue for many years to come.
Take five quick lube is the blueprint, we are applying to our newer growth assets Carwash and glass.
I find it helpful to remind folks that we have been in the car wash business for 18 months.
And I'm very pleased with our overall progress both domestically and internationally.
Driven has the largest car wash footprint in the world with over 1000 locations at the end of Q1 2022.
Q1 same store sales of 7% was a solid performance.
We have 725 stores approximately in our international car Wash division, which operate under the I M O brand.
Predominantly in the UK and Germany.
These stores are independently operated which is similar to a franchise model.
I mentioned, our scaled international business because this is a very powerful source of revenue profits and best practices for our company owned business in the United States.
Our international car wash business is run by Tracy gallon based in the U K, who has decades of experience running large scaled multi unit platforms.
Tracey and her team have done a terrific job with that business over the last 18 months.
In the U S. John <unk> and his team continue to make great strides.
We continued to strengthen this team with great talent from both the car wash industry and best in class retailers.
I'm very pleased with the progress on standardizing operations merchandising labor and margin management.
Here are just some of the highlights from our first 18 months in this business.
We have added 142 locations in the U S.
That represents more than one a week.
We have grown our greenfield pipeline to over 180 locations.
And expect to open approximately 40 to 50 Greenfield locations in 2022 that is almost one per week.
And we are optimistic that we can significantly accelerate that number in 2023 and beyond.
We are actively working on a single national branding strategy in the U S and we will share more details on future calls.
We have opened our first co development sites with our take five quick lube business.
We continue to be acquisitive.
Disciplined with the multiples we are willing to pay in this extremely frothy market.
We have more than doubled wash club subscribers from 220018 months ago to now over 530000.
And we are leveraging our driven customer data to drive trial at our U S car wash locations.
We have grown revenue, 80% and profits of 130% over the last 18 months.
And we have achieved all of this in 18 months, not 20 or 30 years.
And as I have said before we love the car wash business for its simple operating model efficient labor model subscription revenue stream strong returns on capital and white space for unit growth.
We are still early in our car wash journey and have massive conviction and the future growth and profitability for this business.
And our confidence comes from running the proven playbook, we leverage to grow the quick lube business.
And it is underpinned by very similar strong unit level economics.
Car wash four wall EBITDA margins are in the high 30%.
With cash on cash returns of approximately 40%.
The future is very promising for our car wash business in terms of same store sales units M&A and profit growth.
Similar growth at quick Lube took us three to four years. So our team is getting faster at executing the driven brands playbook.
And we think we'll have even more rapid progress in our glass business.
Now, let's turn to our third growth priority driven glass.
A quick refresh on why we are so excited about the opportunity.
We completed the acquisition of auto glass now in late December .
AGN is a great starting platform for our entry into the U S glass market, because just like our quick lube and car wash businesses. It has a simple and differentiated operating model a simple menu and simple building.
This translates into strong unit level economics.
<unk> of $1 million mid 20% four wall EBITDA margins.
Cash on cash returns, we're excited about because of the low initial investment.
AGM is a business, where we can leverage our growth blueprint and significantly accelerate our presence in this segment.
Our thesis on the glass opportunity is simple.
This is a $5 billion plus growing market in North America.
It's highly fragmented like all parts of automotive aftermarket.
There is tailwind with the increasing need for calibration.
Glass repair and replacement is required for all vehicle types.
We can leverage our existing same store sales levers, including our 20 plus million unique retail customers.
Our deep insurance relationships and our fleet customers to grow this business.
We've learned a lot about the glass operating model since we entered the Canadian market in 2019.
And Mike Macaluso and his team are unlocking the opportunity we underwrote with this business.
I'm very pleased with our progress over the first 90 days.
We have integrated the AGM acquisition into the driven platform.
We have the right team in place to run and grow this business.
We have made very good progress in terms of new unit pipeline, which is growing weekly.
We guided to 35, new locations in 2022 and that is very much on track.
Our M&A pipeline is developing and we expect 2022 to be robust in terms of bolt on acquisitions at attractive multiples.
We're making good progress with driven as existing fleet and insurance partners and introducing them to our glass capabilities.
And we're pleased with the 25% plus margins and customer demand.
We're repeating our proven growth playbook and getting better each time, we do it.
As we generate cash we continued to reinvest in the business in 2022.
Growth capital will be spent on new company units for quick lube, Carwash and now glass.
We have plenty of available capital and look forward to growing all three businesses at the same time.
And remember, we're growing franchise stores as well.
Between company and franchise stores our pipeline currently sits at over 1200 units.
We are also budgeted capital to invest into the existing U S car wash store base will be investing in store Remodels and upgrades and we will continue to invest in having one U S brand take five carwash.
And as always we will continue to be acquisitive and you can expect additional growth capital to be deployed into Carwash and glass.
Now pulling everything together into 'twenty, 'twenty, two guidance and our longer term outlook.
Just as a reminder, that as we said on our last call we will be updating fiscal year 2022 guidance in connection with Q2 earnings.
We remain bullish on 2022 and remain confident in the business performance and our ability to meet or exceed our full year guidance of at least $465 million of adjusted EBITDA.
And we feel good about the momentum in our business because the team and strategy are in place it's about execution.
Every segment is performing well growing taking share and generating cash.
Our pipeline for unit growth franchise company owned and M&A is very strong.
Our digital and data unlock is underway.
Nothing is model for 2022, but we expect it will provide upside.
Our scale gives us a competitive advantage, which continues to expand and compound.
Our dream Big plan of at least $850 million of adjusted EBITDA by the end of 2026 is very much on track and we're confident in our ability to beat it.
And the addition of the U S glass business adds to our conviction.
And we're believers in this long term plan because we are a compound grower.
Our growth is low risk because of our current market share.
We generate a lot of cash, which we reinvest back into growth.
Scale is driving even bigger competitive advantages.
Our business model works well in all economic cycles.
And finally, we execute and do what we say we're going to do.
And you can see this very clearly in our Q1 2022 results and our confidence around 2022.
Momentum continues to build.
Driven is growth and cash.
I'll now turn it over to Tiffany for a deeper dive into the Q1 financials Tiffany thank.
Thanks, Jonathan and good morning, everyone. Our fiscal 2022 is off to a great start.
We posted strong first quarter results. Despite the numerous macroeconomic factors that Jonathan outlined which impacted the retail industry. This quarter and we have positioned ourselves well to continue to post strong results throughout the remainder of 2022.
The entire driven brands team has worked diligently to ensure that we have the right service offering inventory and marketing strategies to capitalize on consumer demand.
Vehicle miles traveled are still expected to increase in 2022.
And there will continue to be an influx of demand as consumers look to bring extra miles out of their vehicles.
Driven brands provides best in class services in an efficient manner, which should allow us to continue to gain market share.
Diving into our first quarter results.
System wide sales of one 3 billion.
From which we generated $468 million of revenue.
Adjusted EBITDA was $119 million and adjusted EPS was <unk> 28.
Another top to bottom beat.
System wide sales growth in the quarter was driven by same store sales growth as well as the addition of new stores.
We have tremendous white space to continue growing our store count.
It's 300 plus billion dollar Holly fragmented and growing industry.
Our franchise company Greenfield and M&A pipeline are robust and we are aggressively growing our footprint.
In the first quarter, we added 114 net new stores, which included 79 AGN cites creating the platform to expand our glass business in the U S.
And we continue to lean into opportunities in the quick lube and Carwash businesses.
Same store sales growth was 16% for the quarter.
We posted double digit comps each month of the quarter. Despite the surge of the omicron Barry in January and rising gas prices in March.
And we once again outpaced the industry across all business segments.
Our same store sales grew to a combination of car count and average ticket increases.
We continued to experience positive car count as a result of our best in class marketing and customer experience.
And average ticket benefited from pricing actions as a result of inflation as well as the increasing complexity of vehicles.
Now remember we are approximately 80% franchised so not all segments contribute to revenue proportionately.
For example, do you Sanjay was over half of system wide sales this quarter, but only about 17% of revenue.
It's effectively all franchised with lower average royalty rates.
Maintenance and Carwash or a mix of franchised and company operated contributing approximately 40% and 35% of revenue respectively.
As always this is provided on our integral.
It's posted on our Investor Relations website.
When you put unit growth and same store sales growth in the blender and account for a franchise mix our reported revenue in the quarter with $468 million, an increase of 42% 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 the strong sales volume.
Four wall margins of 39% at company operated stores.
And the best shop, SG&A as a percentage of revenue was 21% in the quarter over 150 basis points of improvement versus last year.
This resulted in adjusted EBITDA of $119 million for the quarter, an increase of 52% versus the prior year.
Adjusted EBITDA margin was 25% expanding over 160 basis points year over year.
Estimate to the power of the driven brands model.
Depreciation and amortization expense was $33 million.
$9 million increase versus the prior year was primarily attributable to the growth in company operated stores.
And interest expense was $25 million.
This $7 million increase versus the prior year was primarily attributable to increased debt levels as we leaned into opportunities across our quick lube carwash and glass businesses.
For the first quarter, we delivered adjusted net income of $48 million and adjusted EPS of <unk> 28.
You can find a reconciliation of adjusted net income adjusted EPS and adjusted EBITDA in todays release.
Now a bit more color on our first quarter results by segment.
The maintenance segment posted positive same store sales of 19%.
Maintenance continues to benefit from more targeted digital marketing.
And we just pass along a series of retail price increases, while maintaining our premium oil mix driving an increase in average ticket.
In the first quarter, we also had a 30% attachment rate of ancillary products, such as wiper blades cabin air filters and cooling exchange also contributing to a higher average ticket.
Yeah.
The car wash segment posted positive same store sales of 7%.
The number of Wash club members grew by an additional 100000 in the first quarter equating to approximately 50% of sales.
This is an increase of over 300000 members since the acquisition in August of 2020.
This is a great recurring revenue stream that provides a level of predictability to this business.
Non wash club revenue per wash continues to increase as well.
Relative a simplified menu board and the focus that our teams have placed on improved selling techniques.
We are actively testing the rebranding of our car wash location in Nashville to the trusted take five brand name, which will help determine the go forward brand strategy and operating playbook for our U S car wash business.
The test kicked off in early April and will provide an update on our next earnings call.
To date between the National test.
Company operated Greenfield units and M&A conversions in other markets 75 of our U S car washes are branded take five.
The paint colors and glass segment posted positive same store sales of 14%.
We added over 200 direct repair programs with insurance carriers in the first quarter.
That compares to 650 for the entirety of fiscal 2021.
Our expanding commercial partnerships are a testament to the strength and scale of driven brands and the ease of working with one large national provider.
The recovery in the collision business continues in fact estimate accounts for the industry continued to grow and our shops have consistently outpaced the industry.
We're also excited to expand our glass offering into the U S with the acquisition of auto glass now.
Foster parents are growing as a percentage of auto repairs and repair complexity is increasing due to the necessary calibration.
This provides yet another exciting avenue for growth leveraging our proven playbook.
And finally, the platform services segment posted positive same store sales of 31%.
Platform services as the segment most exposed to supply chain pressures.
<unk> leveraged our scale and leadership in the industry to turn this into a strength and differentiator for driven.
The contract with multiple suppliers, while most of our competitors, 80% of the industry that is independent operators rely on one primary supplier.
We leverage the strength of our balance sheet to place orders earlier, and we have a team dedicated to relationship management and ensuring we keep close watch on every step of the supply chain.
This is translated into more inventory in stock at one 800 radiator and many of our competitors.
And customers have been willing to pay a premium driving continued record sales levels within the quarter.
We were pleased with our strong operating performance in the quarter, which resulted in significant cash generation that allowed us to further invest in the business.
That cash generation.
Whether with our revolving credit facilities and access to the debt capital markets is important for our strategic growth plans.
And as we've consistently stated investing in our business and growing our footprint is our number one priority.
We ended the first quarter with $271 million in cash and cash equivalents.
And we had $397 million of Undrawn capacity on our revolving credit facilities.
And total liquidity of $668 million.
Our net leverage ratio at the end of the first quarter was four eight times you can find a reconciliation of our net leverage ratio posted on our Investor Relations website.
We intend to continue using our balance sheet to capitalize on the substantial white space and a 300 plus billion dollar consolidating industry.
Now looking ahead.
We continue to be enthusiastic about the balance of the year.
We provided guidance for fiscal 2022 on our fourth quarter earnings call, which in summary included the expectation.
For revenue of approximately $1 9 billion adjusted EBITDA of approximately $465 million and adjusted EPS of approximately $1.04.
While we beat our internal expectations by $12 million in the first quarter.
As I shared on our last earnings call, we will provide updated guidance in connection with the release of our second quarter results.
At that time, we were rolling all M&A activity for the first six months a year plus organic performance to date.
And we'll share our latest forecast for the second half of the year.
Qualitatively, though let me share a few thoughts.
First while inflationary pressures have exploited we do not expect a material impact on consumer demand for our services.
We serve both consumer and professional customers and.
And our services are diverse and needs based largely insulating us from the volatility of any pullback in discretionary spending.
Consumers navigate the current environment.
Second we don't expect to see a significant impact from gas prices DMT as road trip interest is still high.
In fact, the empty is still expected to increase in 2022.
And lastly, so far in the second quarter, we continue to be pleased with our performance.
Our business is performing well and we are enthusiastic about the balance of the year.
In closing, we expect the strength of this portfolio to continue to deliver best in class results.
We're focused on our proven formula with a platform that is scaled and diversified.
Our formula is simple, we add new stores.
Same store sales and we deliver stable margins.
This results in significant cash flow generation that we reinvest in the business.
We look forward to speaking with you again in late July when we release, our second quarter results.
Operator, we'd now like to open up the call for questions.
Thank you.
Wonder if you'd like to ask a question. Please press star one on your telephone keypad.
Our first question is from Simeon Gutman with Morgan Stanley . Your line is open.
Hey, guys. This is Michael Kessler on for Chris. Thank you for taking my questions.
First I wanted to ask about same store sales in Q1, if there's any more color you guys can provide on the split between car count on traffic versus inflation and price increases and then you mentioned as well the underlying ticket tailwind and then looking into the balance of the year. The compares get a little bit tougher.
But if we think about the underlying.
Comp rate in the business at a high teens rate or a three year basis any reason to think that shouldn't continue and could even accelerate because as you guys are saying inflation is accelerating but demand seems to be holding pretty well.
Okay.
Hey, Michael Thanks for your question. So a couple of thoughts for your specific first of all the Q1 so.
We saw positive car count as I said in my scripted remarks caused this car count as well as positive ticket overall for the business.
Certainly our just given the current environment. Our performance is skewed more towards ticket today than it is to car count, but we are seeing good momentum in both the positive ticket is driven by two things.
It's driven by inflation and our ability to pass along price to the consumer I think Jonathan and I. Both today spoke about the fact that with our higher average ticket and our needs based services that affords us the ability to pass along any inflation, we're seeing and we're doing that as we need to manage to manage our cost as well as <unk>.
Needed to.
To drive you know balancing that to continue to drive traffic. So we are also though seeing the increased complexity of vehicles I'll say to continue to drive ticket up.
And I gave a statistic in my comments today about 30% attachment rate specifically in our maintenance business, which is driving ticket as well. So all of those factors are driving our performance. If you just zero in on ticket for a minute, though I would say it.
If youre thinking about mix versus price. It is in Q1 more driven by price than mix.
Relative to the comps across the year I think I said, when we gave guidance last quarter.
The first half to be stronger than the second half.
Just because.
Pairs are easier in the first half and the second that's still true today.
I think as you think about the landscape over the course of the year, we as we've said multiple times today feel really good about the environment that we're operating in and our ability to navigate any supply chain or inflationary pressures.
First half stronger than second half that we don't think that there's dramatic difference across the segments as we move through the year. So not a lot of different versus what we said 90 days ago that we've had a great Q1, and we are enthusiastic about the balance of the year.
Okay, Great that's helpful.
And maybe a quick follow up on the car wash segment.
There was a significant amount of EBITDA margin expansion more than kind of what we're expecting.
I would say a comp that was above our expectations, but not dramatically higher so anything to call out there I think it was the highest margin for at least a couple of years at least since the onset of Covid. So I don't know anything you can speak to what was driving that and the sustainability there. Thank you.
Sure Michael Great question, So specifically in the car wash segment and segment adjusted EBITDA margin that youre seeing so roughly 35% versus somewhere around 30% Q1 of last year really predominantly driven by the international car wash business.
We saw great volume in the international Carmike Carwash business predominantly driven by that storm. So you know that that incremental.
Volume that we saw gave us a great.
Opportunity to leverage fixed expenses and really drive fantastic flow through.
In the international Carwash business, and that's what's driving that segment performance overall great question.
Alright, great. Thanks, guys good quarter, good luck rest of year.
Thank you.
The next question is from Christopher <unk> with Jpmorgan. Your line is open.
Thanks, and good morning can you talk a little bit about.
What youre seeing in the converted take five car wash brands and the one the greenfield location openings in terms of customer behavior membership ticket.
As we think about your opportunity to rebrand the rest of the.
The rest of the locations in 2022.
Hey, Chris Jonathan here. Thanks for the question look.
Look I think we mentioned on the call that we will give a more fulsome update on the rebranding strategy you know at the next earnings call, but look we're really pleased with what we're seeing so we've got about I think Tiffany mentioned about 75 stores that are rebranded that's part of creating sort of a network effect in the markets that we have so people know we've got multiple.
Brands multiple car washes under one brand and in a particular trade area. You saw that we're driving membership subscriptions up we're very pleased with the growth there Greenfield stores. We've opened a handful so far in Q1 very early in the ramp of those stores, but were excited about the quality of the real estate and the early opening trends.
From those stores. We've also opened a couple of our co development sites, where we've opened a car wash with our quick lube on the same piece of real estate pretty excited about the early results from those stores. So I think as the year progresses, we will give more information around the ramp of the stores and I would say that when it comes to the national rebranding strategy, we continue to move forward.
Which by definition means we're pleased with the progress.
Got it and then following up on earlier question just around the unit count.
In the maintenance segment seems like an oil changes the most deferrable sort of service.
Sort of necessary maintenance.
Are you seeing that and then as it related question just as a point of reference does this sort of a late spring have any impact on your business and if it does what divisions would you see that.
Yeah.
Yeah, we're not seeing any demand degradation in our oil change business whatsoever, Chris I think when we look at various studies that have been published by various banks are another another sources recently, what we believe is that consumers. When you think about tightening their spending many reduced spending on sort of discretionary.
The items far quicker than they will on sort of non discretionary items like maintaining their automobiles. So we're not seeing any demand destruction whatsoever in our quick lube business in terms of a later spring.
I promised investors that when we first came public thought I wouldn't I wouldn't views I wouldn't use weather as a positive or negative.
So I won't comment on weather weather is a positive or negative for our business, but what I will tell you is a later spring means that you'll have a later sort of pollen season. When you have more pollen on cars typically people want to get their car wash a little bit more so I think that's the only sort of a point that I would give you on on late spring Trey.
Trading impact.
Definitely and then Kevin Thank you very much.
Okay.
The next question is from Peter Benedict with Baird. Your line is open.
Hey, guys. Good morning, Thanks for taking the question I guess first question.
How does the rising interest rate environment impact your view on the appropriate pace and level of M&A and leverage for the business as you think about the next.
A few years and if it doesn't maybe is there a level at which it maybe does.
Yeah.
Good question Peter.
When it comes to leverage Tiffany will talk about that and sort of what we've said in the past around our sort of five times five times debt leverage and instead of the guardrails. There in terms of M&A. The rising interest rate environment does not change our calculus in terms of how we think about M&A Peter we ultimately.
<unk> asked ourselves two questions with any transaction that we do one can we make the acquired asset better and secondly cannot acquired asset make driven better and those are the two primary questions. We ask ourselves we have asked ourselves in the past, we'll continue to ask ourselves from the future and right now as of today the rising impact.
Rising interest rates has had no impact in terms of our calculus, our underwriting thesis when it comes to M&A.
Yeah.
And Peter I think just to tack on to Jonathan's question. There I think a couple of things that would I would share. The number one I think we've got great liquidity as we sit here today right. Both in terms of cash on the balance sheet as well as access to our revolving credit facility.
We've talked before about our sale leaseback strategy and the ability to.
To monetize our real estate portfolio. So there's there's still opportunity there should we need it and then of course.
As we think about leaning into opportunities and certainly in Carwash and Alex in glass and as you will know, having having talked to us about the glass opportunity over the last 60 days or so 90 days. The initial investment in the glass businesses is quite low for the return that we can see so.
I'm not sure that I think the rising rate environment changes or our outlook dramatically right. We feel really good about where we're positioned today.
Okay.
Helpful and just one follow up on that could.
On the Carwash business have you have you taken any price in U S. Carwash I know you did and take five you've done some but not sure if you've done that in U S Carwash and it doesn't sound like it but alright.
I assume youre not seeing any uptick in subscription attrition I mean, a subscription numbers were really good but.
But just curious on that or any trade down into lower cost washes that kind of thing any color there would be great. Thank you.
Yeah.
No we haven't sort of systematically.
<unk> taken price in the car wash business, Peter I mean, we've got sort of a range of different prices for our car wash customers. Both in terms of the Ala Carte and also the subscription model. So.
We've not sort of taken price there again I go back to it's such a an unbelievably accretive business model with Super low labor.
So that feels like no need to take aggressive price. There I think it's it's it's menu management and making sure that we're getting customers into the right a la carte wash or sort of making sure that we've got the right subscription model options for customers.
So that is where we stand today in terms of attrition with wash club subscribers no nothing has changed our we've seen no change in sort of attrition rates in terms of that membership base.
Thanks very much.
Okay.
The next question is from Liz Suzuki with Bank of America. Your line is open.
Great. Thank you I am so based on your comments about the full year guidance and Antiphony, particularly your comments about how much your first quarter performance beat your internal expectations and our plans to update the guidance in the second quarter really should we expect the cadence of guidance updates to be every two quarters on a go forward.
Or was there any other factor that caused.
That gave you pause on raising that guidance this quarter.
Well that's awesome. Thanks for asking the question. It gives me an opportunity to clarify our guidance philosophy said, thanks for opening the door I appreciate that so look I think.
Obviously, the IPO in January of 2021, and I think it was certainly important over the quarters of 2021 to make sure that we were crystal clear and very transparent with the street about our performance quarter to quarter as we write new public company and everybody was getting used to who we were and what our story was on how we how our business model works and how we make money.
And we took that to heart and we made sure that we were providing those updates regularly last year I think as we came into 2022 and we're starting to mature although we're still relatively new on the scene, we're taking the opportunity to.
But a very specific guidance philosophy and the guidance philosophy, we said and I think we were very clear about it last quarter was to say, we're going to provide annual guidance at the start of our fiscal year.
Let the first six months of the year play out the way that they they should and they will including M&A. Because we are a very acquisitive company and then as we get to the middle part of the year, we're going to provide you an update and we're going to provide you an update on performance.
<unk> as well as our M&A activity and give you insight into our forecast for the back half of the year. So.
Or it was no new decision today or coming into the release today to decide not to update guidance. It was simply sticking with that guidance philosophy that we shared on February 16th.
We think it's the right thing to do to keep the focus on the long term frankly.
And we werent transparent today, and telling you that we beat our internal forecast by $12 million. So.
Year to build shareholder value over the long term and we're going to continue to operate our playbook and to continue to execute and continue to exceed expectations to the best of our ability. Thanks for the question is I appreciate it.
Great. Thank you for clarifying that and then just a follow up on.
Some of your segment growth.
Which was very impressive across the board I guess, the only segment that came in a little lower than our EBITDA estimate with platform services, which it sounds like was constrained by supply chain pressures. So how should we think about those headwinds as we adjust our models for this segment going through the rest of the year.
Okay.
Yeah, that's great. So first I would say remember platform services, it is 10% or less depending on the quarter of a total EBITDA, though as a contributing factor.
Relatively insignificant, but certainly platform services, where we're seeing the most significant supply chain pressure right.
That's the business that is on the front line as it relates to navigate any supply chain challenges, making sure we're moving product.
Product across the ocean getting it to the right location and making sure we have product in the right position and now have any any any price challenges. So they're doing a fantastic job, we've got a dedicated team.
Certainly top notch in the industry and we're managing that better than 80% of the industry, that's fragmented, but certainly thats, where youre seeing the most significant source of that pressure.
Great. Thank you.
Thank you.
The next question is from Kate Mcshane with Goldman Sachs. Your line is open.
Hi, good morning, Thanks for taking our question. Thank you for all the additional details around the AGM. We were just curious given the amount of timing now have had this business, but the biggest surprise about the business. Maybe is that you can appreciate before during during the due diligence.
And I also think you mentioned that glass repairs are growing as a percentage of total auto carriers in the industry and we were curious what was driving that.
Yeah, Hey, Kate Jonathan here, Thanks for the question.
I think the there's no real big surprise, because we've done 80 M&A deals over the last.
Seven or eight years, so are our diligence team and underwriting team is pretty solid. So we have a good ability to actually underwrite what we're borrowing so I'd say the only surprise we have is upside surprise in terms of how great and big the opportunity is to grow in glass right. So I'm, even more enthusiastic about this space.
And when we did the deal in late December . So that's number one number two in terms of growth I think what we said was the glass space is sort of a $5 billion plus space and growing so I think theres a couple of things happening. There. One is the calibration services required with glass replacement. So most vehicles since about 2015.
Have a forward facing camera.
Mounted on that front windshield, and if you replace that windshield you have to recalibrate that forward facing camera because that really is sort of the central nervous system associated with all the <unk> component on the vehicles. So that's driving sort of you know price or.
The size of the size of the repair check I think what we're also pretty bullish about is as we continue to sort of look at massive infrastructure building in the United States and all the road works and all the construction that's going to come with that we do think that there will be some nice incremental tailwind from that in terms of glass glass repair and the last.
I would say glass replacement I should say in the last thing I would say as you know.
When you think about this major acquisition plus our car wash acquisition from a few years ago.
These are both car agnostic right. So we're gonna be fixing.
Glass and replacing glass on all vehicle types and obviously in our car wash business, we're gonna be washing all vehicle types as well. So strategically. These are two really important things that we did and sort of set driven up for the next 20 years.
Thank you and if I could just ask a follow up question to the platform services question.
Answered before do you have any visibility into the supply chain between now and the end of the year, how much improvement you expect to.
C and how youre managing inventory as a result.
Kate.
It's kind of like asking how long is a piece of string in terms of the supply chain because it almost changes weekly but look.
There's a bunch of things that we know one is that there's continued pressure on sort of the production supply chain, particularly if you've got overseas suppliers, we know that the cost of containers. When we look at the cost of containers shipping.
Shipping containers pre COVID-19 versus now it's up 300% in many cases.
We have a dedicated team that are focused on multiple supply sources moving some of those supply sources from overseas to domestic or in in Latin America our.
Our team is working and pulling all the levers and leveraging our scale, which is obviously hugely important in this space, but our internal view on this Kate is that we're going to continue with I think sort of the current operating environment or supply chain challenges minimally through the balance of 2022 minimally through the balance of 'twenty two.
Two and quite frankly for US. This is now our normal operating conditions. So we're learning to live and work and thrive in this challenging environment, but we don't see any major reduction in the challenges certainly as we look at the balance of this calendar year.
Thank you.
Okay.
The next question is from Sharon Zackfia with William Blair. Your line is open.
Hi, good morning.
I guess I want to talk about.
The nice EBITDA margin expansion that you had in the quarter I recall, if I'm not mistaken that originally you were expecting flattish EBITDA.
Our margins for the year.
And I understand youre not updating your full year guidance, but I'm. Just wondering are there and puts the pressure that you're expecting in the remaining three quarters of this year that didn't occur in the first quarter and then secondarily in the maintenance segment I know there was there was some margin compression in that segment.
Tiffany I don't know if that was mix of company owned growing faster their franchise or if theres something else youre seeing in that business, but I'd be it would be helpful to get some clarity there.
Sure Sharon Thanks for the question.
So let me actually start with your second one and we'll work back to total company.
And then specifically if I may and segment adjusted EBITDA margin of 29, 4%, it's about 40 basis points better sequentially from Q4, but down about 200 basis points year over year.
So if you remember back to what we talked about in Q4 on the Q4 call in February 16th.
We talked about.
Product cost increases in excess of retail price increases.
Perfect to oil.
And then also talk about the fact that we in some cases, we are paying some alternative supply costs right to be able to make sure we had product availability.
At all of our shop Bruce.
Any significant supply chain challenges those.
Talented persisted in Q1, but not to the same degree that we saw in Q4. So of the 200 basis points of contraction year over year, I would say about 50% of that was related to oil cost and that's about half of the impact that we experienced in Q4. So it is getting better but it does still persists.
The other half of that pressure year over year has to do frankly with being able to have.
A rally or it could take five convention. This year that we couldn't frankly has last year as a result, the coke. That's a good thing right, we're able to get back in front of our franchisees back in front of them to motivate and to celebrate together and to make sure that we're all aligned in terms of what the priorities are for the brand and the franchise going forward. So there is some incremental SG&A as a result of that.
So that's what you're seeing in the maintenance segment, specifically earlier in the call. We talked about Carwash you didn't ask me about that but as we get to the company overall margin Carwash margin was up year over year predominantly because of great flow through on the card loss International business. As a result of conduct dorms that allowed them to really leverage fixed expenses.
So all of that those are really the two primary drivers are the biggest contributors to company margin the company EBITDA margins in the quarter over 25% that basically the same rate that we ended full year 2021, and we expect 2022 to be flat to about 25% rate.
So we're probably in all honesty.
Yeah, a little bit ahead in Q1.
Because of that fact that this factor.
But obviously on the right trajectory.
Feel good about where 2022 is is trending and again updating guidance.
For 90 days.
Thank you.
Thank you.
The next question is from Chris <unk> with Stifel. Your line is open.
Thank you.
And a follow up question about the rising interest rate environment.
Center or Tiffany I'm wondering if there's any risk that we are nearing a point where higher rates make the returns are less attractive for take five franchisees.
Chris The answer is no. We are growing that quick lube franchise pipeline weekly as I mentioned in my comments existing franchisees are coming back for expanded our new territory agreements, we're seeing zero.
Impact to rising interest rates in terms of franchisee interest in expanding that business quite frankly, we're seeing accelerated performance of our franchisees as they open new stores. The return profile is phenomenal on that business. So that's resulting in even more incremental demand. So it is having zero.
Packed in terms of franchisee demand or ability to open new stores.
Good to hear.
And then.
A question on Karl on the car wash segment.
As more platforms have entered the Carwash space as Consolidators, how has your acquisition strategy or maybe the profile of targets changed with that increased competition.
Yes, it's pretty simple.
Chris we're not gonna pay ridiculously high multiples for mediocre assets.
That's the basic comment right. There is a a lot of institutional capital has flowed into this space people need to pay.
I think exorbitant multiples to create initial entry points are platforms, we have a massive platform.
Globally, a massive platform in the United States with about 350 locations. So we don't have to buy a platform because we have arguably one of the biggest platforms already so we can be very laser focused on surgical on buying smaller.
Assets that fit our needs, both geographically and other and pay the right multiples that are highly accretive from day. One so I think that this institutional capital flow will continue for some time I think it's folks are having to pay multiples that just makes no sense.
We don't have to do it because we are in great shape and then secondly.
We have developed a greenfield pipeline for this business in incredibly short timeframe. You know we bought this business 18 months ago, We will open between 40 and 50 Greenfield locations. This year, Chris right. That's within 18 months of buying this business, the greenfield returns or even better.
On the M&A returns and then as I mentioned, our pipeline for Greenfield growth is expanding pretty rapidly and we feel very very confident about being able to open significantly more greenfield units been 40 to 50 in 2023 so.
People need to do what they need to do but because of our position our size our scale our experience, we don't need to pay those ridiculous multiples.
Thank you.
The next question is from Karen short with Barclays. Your line is open.
Hi, Thanks, very much apologies hurt a little bit of background noise, but I wanted to just ask a couple of questions. One is can.
Can you actually give us provide us with inflation in the quarter and then where your inflation expectations are in the quarter to date and then I had one other question.
Well, that's right and they are for the full year.
Asia.
Hey here so.
In the quarter itself. So if we think about Q1 and we look at Q1 year over year, we saw within our company owned businesses.
Approaching double digit cost inflation year over year predominantly when you think about oil and wages.
Yeah, that's probably the highest sort of tracking quarter each quarter in our commentary over the last few quarters, that's probably the highest we've seen so far just because it's been sort of an upward trajectory.
You know I think certainly this is Ben.
Peak inflationary cycle, because obviously we were battling.
Supply chain challenges and inflation last year, but the.
The heightened challenges with the situation in the Ukraine, and certainly Brian anything to add.
I don't know that we have a crystal ball for the balance of the year, but we certainly think that at least for the time being we're going to continue to operate in this current environment, but as you've heard today, we're navigating it with the best of our ability and.
We're not giving up any new car count or any opportunity to drive ticket as a result.
Okay. Thanks, and then my second question is just thinking about BMT you made a comment that BMT expectations for 'twenty, two I still expect it to be up and it looks like so far they're obviously down at least for January and February of this year, but my question is when you think about the puts and takes on.
Travel.
Specifically airline versus driving like is there a way to think about at what point or customers or consumers indifferent, because obviously airline costs are going up but sour gas prices. So how do you think about the possibility that BMT.
Is actually down for the year versus.
I mean, I know you said, 6% on your original call or you're a parkey call but.
It seems like that would be a high estimate.
Karen I'll answer this good morning, I think Tiffany mentioned that DMT would still be up for the year. She didn't actually mention a percentage right. So we still think it's going to be positive for the year in terms of a family of four people looking to do a summer vacation and if you think of a round trip in a car of three or 400 miles.
The incremental cost of that trip can be a 100 plus dollars something like that you know when you think about the incremental cost of gas. When you look at that family of four getting on an airplane. If anyone's travelled recently they knows that airplane travel is almost double the cost of what it was pre pandemic not to mention the absolute miserable.
Periods of traveling.
Through the airports today, so we see in our data that there was strong demand as Stephanie mentioned for vehicle travel this summer and we feel very good about the consumers will continue to drive throughout the summer and for vacation. So can't tell you exactly what theyre going to do but I think the calculus is it's pretty clear when you do some of the base.
Click math.
Great. Thank you.
Our final question is from Peter Keith with Piper Sandler Your line is open.
Hey, good morning, guys nice results everyone.
I wanted to ask about your digital marketing efforts, Jonathan I know I asked you about this last quarter and you've commented there'll be more details on the data and digital unlock to come.
But my specific question is just around the.
Our maintenance segment, you've talked about digital marketing and working very well with maintenance the comp there is spectacular.
But you are not mentioning with carwash that seems like a much more logical option, but why arent. The digital marketing efforts are working and carwash to date.
Well I think youre inferring theyre not working people are safe.
They're not working.
I I'd tell you what we've got this massive growth in unique customers I think we're growing unique customers that almost 1 million new customers a quarter I think we're up to 22 plus million new.
Unique customers in our sort of data Lake.
As we build out the car wash network as we think about the car wash rebranding exercise.
We are very actively sort of cross promoting our brands with exists with customers ill take five quick lube and inviting them to take five car wash our car wash business. So I think we're just a bit earlier in the car wash journey when it comes to the digital and data unlock.
We're very pleased with the progress we're making.
So I don't think it's not working I think it's just.
A couple of quarters or a couple of years behind what we've been doing at the quick lube space. So we still feel incredibly bullish about the modeled upside when it comes to that core asset that literally none of our competitors have in this space. So I'll commit I will commit to you Peter that will certainly spend more time on some of the numbers and behind the scenes improvements when we when we talked.
To you after Q2 results.
Okay, I look forward to that.
Second question, maybe more for Tiffany I know last quarter, you talked about the comp dynamics by segment should be in a pretty tight band.
Plus or minus 200 basis points.
Wideband, obviously with Q1 and now you've got more inflationary pressures.
Fair to assume that that's no longer is going to be so tight and maybe where you would expect outperformance by particular segments.
Okay.
So Peter I think it's I think it's a fair question I.
I have no no change to my thesis today right, we're going to provide updated guidance in 90 days.
I think Q1 was stronger than what our internal plan was.
We knew Q1 was going to be the outsized comp and the easiest compare versus the prior year. So I don't know that I would take Q1 as the.
The benchmark or the blueprint for the way that the segments are going to shake out for the balance of the year, but more to come in 90 days.
Okay fair enough. Thanks, a lot good luck.
Thank you.
I'll now turn the call back over to Mr. Fitzpatrick.
Yes. Thanks Al appreciate all the questions. We are delighted with our Q1 results and just to reiterate we will give full year updated guidance at the in connection with the Q2 earnings and we're very pleased with the momentum of the business. So thank you all will speak to you all soon.
This concludes today's conference call you may now disconnect.
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