Q2 2022 Driven Brands Holdings Inc Earnings Call

In our needs based services and franchise business model helps insulate our profits 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 the end of 2026 is on track.

Exceeding that plan is our primary focus and we continue to make great strides.

Driven is growth and cash.

I want to take a moment to highlight our Q2 results all credit goes to our team our amazing franchisees and our loyal and long term customers.

Compared to Q2 of 2021 consolidated same store sales were positive 13%.

Revenue increased 36% to $509 million.

Adjusted EBITDA increased 34% to $135 million and.

And adjusted EPS increased 40% to 35.

Another top to bottom beat our sixth in a row as a public company.

In addition to the strength of our brands and quality of our service offerings. There are several benefits that come from having multiple categories of auto services together in a portfolio.

Which have helped drive the continued growth of driven brands and distance us from our competition.

We've invested heavily in shared services, which provides each brand with more resources generating better results than any individual brand could achieve on its own.

Let me explain a few of these shared services that benefit from our scale and position driven for continued growth.

The three areas I want to highlight our fleet procurement and direct to consumer digital marketing.

We have a dedicated fleet team that works across our portfolio.

We have significant opportunity to continue to grow this category and it's a key priority for us.

We estimate the size of our addressable fleet market to be more than $20 billion.

Our fleet business today is about $250 million in system sales annually and is growing by about 30% each year.

This does not include our B to B insurance collision business, which is $2 billion in system sales annually.

Many of our fleet customers are buying multiple services painting collision repair and maintenance all changes and now glass.

This ability for our fleet customer to consolidate multi category purchases with one provider is a unique competitive advantage for driven.

And we will continue to deliver growth in fleet because more units means more locations to service our partners.

The addition of glass and car wash creates additional revenue opportunities.

Our large national fleet partners are actively consolidating their vendors to increase efficiency.

And delivering fleet volume to acquired locations makes M&A, even more accretive to driven.

Now, let's talk about how driven benefits from our scale and specifically our procurement capabilities.

We pool, our purchasing power across multiple categories.

Leveraging our strong relationships with our vendor partners and working with them to get the best terms and conditions for our company and franchise locations.

This centralized large scale procurement operation serves to mitigate rising input costs and keeps our stores in stock when independents are not.

Put simply the more we procure the greater the benefits for all parties.

In first half of 2022, we generated approximately $52 million in revenue and approximately $22 million in EBITDA from internal product sales and rebates. This is a 50% improvement over the first half of 2021.

We're also close to launching our new procurement marketplace, which will go live in late 2022.

This cutting edge technology platform will expand our product offering.

Make it easier faster and stickier to do business with driven.

Enable increased purchase volume and like a flywheel it will feed itself, increasing our scale and purchasing power, which will further improve prices.

We believe this new marketplace will provide significant value to our franchisees and vendor partners and provide meaningful revenue and EBITDA growth for driven for many years to come.

Lastly, I want to explain how driven is leveraging direct to consumer digital marketing to drive incremental sales and profits to our company and franchise locations.

This is enabled by the investment we have made in people process and systems over the last three plus years as.

As well as our $27 million plus unique customers in our data Lake, which has increased by 20% over the last 12 months.

In the first half of 2022.

BTC digital marketing delivered $36 million highly personalized customer contacts and the resulting in 545000 transactions across our business segments, which generated $76 million in systemwide sales.

$37 million in revenue and an ROI of 12 X.

To put this in context, it generated approximately 4% of driven revenue in the first half and we expect this to continue to grow over time.

This is a growing strategic capability, which will compound over time.

Three great examples of how the derivatives shared service platform enables growth and market share gains.

This is the power of our growing scale and sophistication in this highly fragmented needs based industry and.

It adds to our confidence in our ability to deliver on our short medium and long term goals.

As I mentioned on our last call, we are not immune to the inflationary challenges.

To date, we have not seen any material change in consumer engagement, our spending habits. Nevertheless, we continue to monitor all of our businesses very closely and have levers to mitigate potential impacts.

In the meantime growth has continued at driven.

We continue to franchise build and buy new stores and we've made significant progress across our three priority growth levers quick lube carwash and glass.

We are growing all three businesses at the same time.

Just 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 end of 2026th goal of at least $850 million of adjusted EBITDA.

Now these businesses share several characteristic.

Simple operating models 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 and cash.

Let's start with Carwash as a reminder, we have approximately 1100 locations globally with about 350 company owned locations in the U S and the U S business has nearly doubled in size over the past 18 months.

Our carwash teams are focused on direct digital to consumer marketing subscription revenue pricing and labor management, and we continue to grow our unit count through Greenfield openings as well as M&A.

We're playing to win over the long term and that means more units and more customers.

When we acquired IC WG in August of 2020, we had multiple brands in the U S and <unk>.

That brand proliferation has increased with acquisitions.

We have recently made the strategic decision to migrate our U S. Carwash assets. So the tape five Carwash brand.

We've been working on this effort for more than six months. So let me share our thought process.

Our 700, plus take find quick lube locations sure a lot of the same markets as our car wash business.

<unk> has strong brand equity awareness and high NPS scores, so leveraging that take five brands for our U S. Carwash business makes a lot of sense.

And we validated that with consumer research.

But take five brand name for our car wash customers stands for fast friendly and convenient.

In Nashville, we tested the rebranding of our 15 car wash locations to take five.

We're about 90 days into that test and we like what we see.

On average, we expect to spend approximately $185000 per location across technology exterior, new branding and deferred maintenance.

Our Nashville test locations are delivering strong performance roughly in line with our expectations.

Tearing the Nashville locations versus a control set of stores we delivered the following.

Volume increase of 12%.

Revenue lift of 11%.

Membership conversion more than doubled.

Now if you set aside deferred maintenance spend this implies an approximate IRR of 30% and a payback of about three five years.

And our guidance has already contemplated the capital for transitioning approximately half of our locations to the take five brands.

We expect that it will take.