Q2 2023 Driven Brands Holdings Inc Earnings Call

Yeah.

Good morning, My name is <unk> and it will be a conference operator today at this time I would like to welcome everyone to the driven branch Q2 20 twenty-three earnings conference.

Cough.

Placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question. During this time Super Star followed by the number one on your telephone keypad. If you would like to withdraw your question Press Star followed by the two thank you I will now turn the call over to Joel.

S V P of finance Joel you may begin your confidence.

Thank you very much and welcome to driven brand second quarter 2000 twenty-three earnings conference call.

But relief released a leverage ratio reconciliation are available for download on our website at <unk> Dot <unk> Dot com.

On the call today with the our Johnathan Fitzpatrick.

And Chief Executive Officer.

Executive Vice President and Chief Financial Officer.

In a moment Jonathan.

Financial and operating performance.

Before we begin our remarks I'd like to remind you that management will refer to certain non-GAAP financial measures.

You can find reconciliation.

Most directly comparable GAAP financial measures upon the company's industrial relations website.

It is filings with the Securities and Exchange Commission.

During the course of his call me also make for Lucas.

In regards to our current plans beliefs and expectations.

Statements are not guarantees for future performance.

Subject to a number of risks and uncertainties.

And other factors that can cause actual results to differ materially from the results and the events contemplated by these forward looking statements.

Please see our earnings release.

Please with the Securities and Exchange Commission.

Nation today.

His prepared remarks will be followed by question and answer session.

Ask you to limit yourself to one question and one follow up with that I'll know I'll turn it over to Jonathan.

Thank you for joining us to discuss our second quarter of 2023 financial results.

Start by welcoming Gerry Ferrara, our new Chief financial officer to the driven brands T.

You're excited to have Gary on board and I've already seen the added value his extensive financial experience and expertise brings to the team since joining in may.

I'll start this morning with a review of our second quarter highlights then touch in our objectives for the remainder of 2023 before turning it over to Gary to discuss our second quarter results in full year 2000 twenty-three outlook in more detail.

As always I want to acknowledge the hard work and strong execution by or more than 11000, driven brands team members and are amazing franchisees for how they have navigated and extremely dynamic macroeconomic environment.

Now, let's discuss our second quarter results compared to Q2 of 2022, we delivered 19% revenue growth supported by 8% same store sales growth and 7% unit growth achieving adjusted diluted EPS of 29 cents per share.

We are pleased by the performance of our quick lube and our franchise businesses across all metrics.

Being key contributors to our overall success this quarter.

Platform that we've intentionally built had positive same store sales in a climate that many consumer businesses did not.

Over the course of ever changing economic cycles, some of our businesses may be challenge and some strength.

The benefit of a platform is that it provides diversification.

Carwash and U S class are challenged currently while all other categories are neutral to up.

The core macro dynamics of our industry, including agent Carpark fragmentation importance of scale.

Little in technology penetration remained tailwinds for driven branch.

We remain bullish on the need space $350 billion auto aftermarket service industry, where we have unique and growing brands, which service differentiation.

Our investment thesis and growth algorithm are working as a reminder, or longterm growth algorithm is same store sales growth plus unit growth plus M&A.

We have a best in class model of attracting franchisees based on our higher returns versus peers.

<unk> Bye are 900, plus unit pipeline for new locations.

Furthermore, we have the ability to reduce our investment capital by a sale and leaseback and capital light franchise growth given our superior economic profile, which in turn will allow deleveraging.

Management is highly incentive with driven stock will.

We continually assessed multiple options for value creation and are fully aligned with shareholders and thinking about the longterm.

Our longterm adjusted EBITDA target of at least 850 million by the end of 2026 remains fully intact.

I will now discuss the three primary growth levers of the business.

We are building national brands with take five both oil change in Carwash and auto glass now.

Take market share positioning us to win longterm.

While our investments and building the U S car washing glass platforms have been capital intensive we.

We believe that diversification is an essential value driver as the car Park evolves.

We have invested significant capital over the last 24 months into glass Carwash and oil change, which we expect to deliver significant EBITDA and cash flow over the next three to five years.

And we will share more details that are upcoming Investor day on September 20th in Charlotte.

We remain very disciplined with our deployment of capital.

Our average invested capital for Carwash locations after sale and leaseback is 500000.

Our average invested capital for take five all change locations is 950000 for least real estate.

200000, when we buy the real estate and do a sale and leaseback.

Finally, our average invested capital for a glass location is 150000.

And we do not deployed capital unless we believe we can generate cash on cash returns of 30% to 40%.

Now, let's discuss each business.

Starting with take five oil change our most mature growth liver.

This quarter take five I'll change both company and franchise locations continued to drive customer acquisition and delivered same store sales of 17%.

We continued to outpace the competition as are differentiated 10 minute stay in your car quickly model bills brand recognition with top quartile NPS scores and increasing repeat rates.

We extended market share gains as customers become aware of take five faster friendlier and simpler alternative for the oil change at a more effective price point then dealerships.

We are particularly pleased with a nice balance of traffic and check <unk>.

Our continued big for attachment rate of more than 40% and industry, leading NPS scores.

This quarter, we grew our footprint over 19% year over year.

In our pipeline remains robust at approximately 900 units.

We expect to grow our footprint by Oprah, 13% in 2023, mainly driven by asset light franchise store growth.

And as we look over the medium term the majority of new store growth will be franchised.

Take five oil change is a scaled national and differentiated stay in your car model, which continues to deliver industry, leading same store sales growth unit growth and cash quarter over quarter.

Now moving onto Carwash.

On our first quarter earnings call, we noted software retail volume in U S. Carwash.

We continued to see this softness in Q2.

The U S consumer, particularly at Carwash pulled back more than we anticipated.

Or international Carwash business continues to perform against a backdrop of challenging macroeconomic factors in Europe .

There are a number of challenges that this segment uniquely faces primarily in the U S that the team is working hard to overcome.

We have seen retail traffic softness in the first half and we are expecting that trend to continue for the remainder of 2023.

Retail traffic customers are important both to drive our member flywheel and because they are our highest margin rate customers.

Secondly, the Carwash segment. Unlike any of our other segments has seen significant competitive unit growth in the last two years as the industry has added approximately 1500 locations.

And as consumers are presented with double or triple the options to wash their cars. It is only natural that we will see some temporary market share decline.

32% of our U S. Carwash locations have had a competitor open within 30 miles over the last two years.

And these locations represent some of the oldest sites in our portfolio part of the original acquisition in 2020.

Consequently, these older sites are absorbing an outsized impact.

We expect this impact to moderate as we finish our rebranding and fully activate the power of the take five brand to drive new customers and take share.

We believe there is still significant white space in select markets or express car washes.

We continue to see disciplined short term growth from small change and entrepreneurs.

Large scale single branded well capitalized longterm focused owners like driven brands will win takes share and consolidate over the meeting into longterm.

And this is before you consider the incremental value of approximately 900 and growing take five all change locations, which provides significant opportunities to drive incremental customers and revenue to our take five carwash locations.

Third factor, which has impacted our U S carwash business is whether.

And it doesn't matter how good of an operator you are if it's raining outside most consumers will not wash their cars. When we look at the first half and examined the core selling days Thursday Friday and Saturday, we saw that these days were negatively impacted by weather versus prior year.

And we know is that over time, whether we'll have puts and takes but the first half is definitely being a negative.

When you combine these factors consumer slowdown competitive intrusion and first half whether this is a major driver for updated overall guidance for fiscal 2000 to 23.

We have taken several decisive actions during the quarter and will continue to do so in the second half.

Regarding retail traffic, we have implemented cross brand promotions to drive Carwash customer acquisition.

In Q2, we marketed to 2.5 million existing take five quick lube customers, which resulted in 125000, new customers and 13000, new members at our car wash locations.

90% of our take five all changed locations now have at least one take five carwash in their markets.

This is only the beginning of turning on the full power of the take five brand across both Carwash and oil change. We are reviewing all aspects of our marketing pricing promotion and brand positioning strategies to ensure they align with current market conditions.

We are also focused on optimizing the expense side of the business to enhance operational efficiency.

And finally, we are conducting a thorough review of underperforming locations markets at our pipeline of new locations to identify opportunities for improvement.

On the positive side rebranded take five Carwash stores are outperforming non rebranded locations are core rebranded markets. Those with density continued to generate relatively stronger performance.

Our priority is to build density and brand awareness and key markets with a focus in markets would take five oil change presence.

Overtime scale, and one brand will matter as this market matures and consolidates.

We are making progress towards having a unified text back across all of our car wash locations.

This creates the foundation for our tight five digital platform, which will cover both carwash and quickly.

This platform will enable take five brand level loyalty and membership programs.

We expect to have this and market in late 2023.

This quarter, we have seen both our conversion rates and remember counts continued to rise.

We now have over 700000 monthly members. This will continue to drive brand loyalty and conserve as a hedge to whether volatility.

Lastly, the opening of our Greenfield stores is going well stores are ramping and are in line with our underwriting we are on track to reach our target of approximately 65 greenfield openings in 2023.

Most of these locations included underlying real estate and will be sold in the same leaseback market to make sure that we are recycling dot capital.

In summary, we remain confident in the long term outlook for the sector given its strong profitability cash on cash returns and cash flow generation.

Specifically or scale of one brand will ensure long term success.

Now onto the glass business, one of our biggest growth drivers in our P C and G segment.

We continue to make progress integrating R 12 acquisitions under the auto glass now brand.

Remember our strategy was to build a platform through a significant number of acquisitions in a short period of time to become the clear number two in this industry.

That known risk was the potential level of complexity of integrating numerous acquisitions simultaneously.

As a result, we are currently a few quarters behind where we anticipate.

This is also contributing to our updated guidance for fiscal 2023.

The benefit of our strategy was we paid attractive multiples and significantly reduce the opportunity for other potential consolidators to enter this space.

This was a calculated decision that we believe was the right strategy.

Similar to Carwash, we have taken several decisive actions during the quarter and will continue to do so in the second half.

We appointed <unk> to leave the U S glass business about 100 days ago.

Nick previously held the number two position it take five O will change and we believe his experience and success. It take five all change will transfer to the glass business.

Under Nick's leadership, we are actively investing in people process and systems as we are building a scalable platform for long term growth.

There are several positive aspects of the U S glass business to highlight.

We have made significant progress in rolling out a standard text stack insuring uniformity and efficiency across our operations.

Approximately 25% of our stores have completed the auto glass now rebranding process are lining them with our won national brands strategy.

In 2023, we have opened 39 Greenfield stores at an average capital investment of 150000 in sales or in line with our underwriting.

At the end of Q2, we had 780 mobile units expanding our reach beyond our brick and mortar stores.

Demand from commercial insurance and retail customers remains strong.

We are now averaging more than 10000 inbound calls a week.

And finally, our calibration rates continue to grow which is a longterm tailwind.

We are pleased with the scales glass business that we are building and remain excited with a compelling economics capitalized investment and long term vision.

And with that I will now turn it over to Gary to discuss the second quarter financial results and provide additional detail on our 2023 outlook Gary.

Thanks, Jonathan and welcome everyone.

I've been on board for just under three months now and have been busy getting to know the teams in our businesses.

I want to take a moment to think the entire driven team for their support and especially the Charlotte based team for helping me settle into my New home City.

As Jonathan mentioned previously we've experienced in recent headwinds in parts of the business, but based on what I've witnessed so far I'm optimistic that this results focused in action oriented team will deliver on our long term plan.

Now, we will discuss our second quarter results before moving on to full year guidance.

On a consolidated basis, we had another strong quarter of growth versus Q2 2022.

Our system wide sales reached 1.7 billion representing.

Representing an 18% increase from the previous year.

This growth was driven by an 8% increase in same store sales and by 7% net store growth.

This translated into reported revenue for the quarter of $606 9 million a 19% increase.

It just it EBITDA of $151 million increased 12% versus the same quarter last year.

Adjusted EBITDA margin for the quarter was 24.9% a decrease of approximately 170 basis points versus the same quarter last year.

This decrease is primarily related to a margin decline in the Carwash segment, and the pink collision and glass segment, partially offset by increases in both the larger maintenance segment as well as the platform segment.

I'll know I'll focus on our performance by segments.

We are pleased with the positive same store sales growth of 10.2% and the maintenance segment, our largest segment.

This was primarily driven by the success of our take five quickly locations.

These locations have continued to deliver remarkable performance by increasing car count an average ticket during the quarter as they have in the last few years.

The boost an average ticket is attributed to price increases and improved attachment rates have been sillery products, including the launch of our new fuel system cleaner.

Maintenance segment adjusted EBITDA margin increased by 240 basis points versus Q2 2022 due to flow through from strong top line performance as well as continued operational efficiency activity.

And our car was segment, we experienced negative same store sales of 4%.

While this is an improvement compared to a double digit decline. We saw in Q1. It is far from where we want to be performing.

As Jonathan mentioned previously we've seen some weakness in a retail customer demand continued unfavourable weather conditions and we're also seeing an increase in competitive intensity.

We are actively addressing these issues by continuing to consolidate under our take five Carwash brand and operating standards in the U S.

By the end of the second quarter over 75% of our U S. Carwash business was operating under the take five banner and these rebranded locations have outperformed the rest of the Carwash locations.

Additionally, we are making significant progress in growing our subscription program and subscription revenue.

Has increased as a percentage of total carwash revenue.

Currently we have over 700000 take five unlimited subscribers.

Carwash segment adjusted EBITDA margin decreased by approximately 750 basis points versus Q2 last year, primarily due to the flow through of the decline in same store sales experience during the quarter as well as an increase in rent expense due.

Due to store count growth and fell back please back activity.

And our paint collision in glass segment, we achieved positive same store sales growth of 12%.

We entered the us auto glass market, a little over a year ago, and we focused on integration under the auto glass now branding. However, our integration of these 12 businesses have taken longer than expected.

Segment, adjusted EBITDA increased year over year by $8 million, but margins declined by approximately 350 basis points, primarily due to ongoing integration of the multiple glass brands as well as the increase in company owned stores in the segment.

Remaining excited about the sector and more importantly remain excited about required businesses and strategy for long term growth.

And our platform services segment, we had negative same store sales of 11%.

Please remember that this metric only reflects the one 800 radiator units, which represent less than 50% of the segment.

We actually had high single digit revenue and EBITDA growth for the entire segment during the quarter versus the same quarter last year.

Now I will focus on key components below adjusted EBITDA.

Depreciation and amortization expense totaled $45 million in the quarter, reflecting a 7 million dollar increase from the prior year, mainly due to an increase in store counts.

Additionally, interest expense reached $41 million with a $15 million increase from Q2 of 2022, primarily due to higher interest on our variable rate debt and an increase in total debt levels, driven primarily by our securitization issuance in Q4 2022.

Net income for the second quarter was $37.7 million versus a net loss of $57 million in Q2 2022.

A just a net income was $49 1 million for the quarter, resulting in adjusted diluted EPS for the quarter of 29.

Both are down from the prior year's quarter due to the previously mentioned factors.

Cash flow from operating activities for the six months was $114 $6 million, an increase of 52% versus the first half of 2022.

As of the end of the second quarter, we had $493 million in liquidity comprising $212 million in cash and cash equivalents, along with $281 million of Undrawn capacity on our variable funding securitization senior notes.

And our revolving credit facility.

Our liquidity does not account for the additional $135 million a variable funding notes, which could be utilized that the company's discretion if specific conditions continue to be mad.

Our ability to continuously generate strong cash flows from operations along with their significant liquidity provides us flexibility and executing our long term growth plans.

Our net leverage ratio improved to four six times for the quarter versus four seven times in both Q2 of the prior year and in Q1 2023.

We don't anticipate incurring any incremental longterm that in fiscal 2023.

For additional information on our leverage ratio. Please visit our Investor Relations website.

I will now turn to our fiscal 2023 full year guidance.

This update is based on significant analysis and discussion since my arrival.

A revised guidance is as follows revenue at approximately $2.3 billion down, 2% or $50 million from our previous guidance.

Adopted EBITDA at approximately $535 million down, 9% or $55 million.

And adjusted EPS is now 92 cents or down 24%.

We currently anticipate no material change in the same store sales growth or net store growth that was provided by the company in late February .

EBITDA guidance change is larger than the revenue guidance change.

This is due to a few items that are not directly tied to the lowered revenue guidance for.

For example in order to free up capital and drive down net leverage we have accelerated sale leaseback activity, which will result in additional rent expense.

Jonathan previously mentioned, we have had and continue to plan for weakness in the Carwash segment.

We were negatively impacted by weather in the first half and this is also the most consumer discretionary of our segments.

We felt these factors are more directly in our retail or non subscription customer base, which also happens to be our highest margin customer.

The U S market has also been impacted by intensified competitive intrusion, which we expect to continue in the near term.

Additionally, while we continue to make progress integrating the 12 acquisitions in our glass business. It is not going as quickly as planned.

We've taken several decisive actions and will continue to drive towards improved results, but this is another factor weighing on our second half.

Are adjusted EPS guidance is additionally impacted by higher interest expense in the second half due to higher than anticipated leverage levels, primarily related to the lower than originally projected adjusted EBITDA.

As well as slightly higher depreciation expense.

With our current net leverage multiple at four six times versus four seven times in Q1, we will focus on actions that will assist in further driving leverage lower in the second half of the year, while continuing to grow the business.

To wrap up while we've had to revise our outlook, we're still guiding the full year towards double digit revenue growth in mid single digit adjusted EBITDA growth.

With that I will now turn the call back over to Jonathan.

Gary and in closing we remain confident in driven strategy and see this earnings update as a short term adjustment caused by specific macroeconomic conditions and slower integration that should improve over time.

Most importantly, our longterm adjusted EBITDA target of at least $850 million by the end of 2026 remains fully intact.

We look forward to sharing more details that are upcoming investor day.

In Charlotte on September 20th.

Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press star followed by the one on your Touchtone phone, you'll hear a three Tom prompt acknowledging your request and your questions will be put in the order. They are received should you wish to decline from the polling process. Please press star followed by the two.

If you are using a speakerphone please lift the handset before pressing any keys.

Your first question comes from Simon Goodman with Morgan Stanley . Please go ahead.

Good morning, it semi of government my.

My first question, it's on the profit.

Rebounding and these two businesses that are causing the issue.

First in glass, which I think there may be a like a more call. It <unk>.

Reasonable path to improving Jonathan I don't think we heard exactly what steps or what caused some of the integration Snafu and then I guess I'll follow up on the Carwash business.

Yeah, and thanks, Simeon just to make sure everyone gets that right I appreciate the question.

On glass I think Simeon like what I said in my prepared remarks is that we love. This industry. We've been in it since 2019, we made a conscious decision to go fast in acquiring these 12 acquisitions and knew that there was potential sort of complexity of integration.

Nothing has changed whatsoever in terms of our longterm conviction on outlook for this business the capital light investment the opportunity to grow and three consumer segments retail commercial and insurance. So it's simply just a couple of quarters are several quarters behind where we want to be.

We will get that fixed and our goal is to make sure that whereas in as good a shape as possible by the end of this calendar year. So.

I would say nothing has changed their on the glass and I'm sure you have a follow up on Carwash.

Yeah, and so on I'm also on glass it sounds like then the economic the underlying economic model.

When this process is complete.

Should be as lucrative as either the way you drew it up or even better because of the synergy or scale that you have.

Yes, exactly right. So I mean, nothing has changed in our sort of underwriting theses of the business and again, if you think about.

12 acquisitions.

Different business models, some more in store base, some more mold based 12 different operating systems, a lot of entrepreneurial back businesses. So consolidating all those people process and systems and technology until one standard platform and one national brand again is simply taking several quarters longer than.

We thought but nothing has changed in our long term conviction around the returns in this business and the profitability overtime.

Okay, and then yeah and then on Carwash.

The question is how does how do you think about longterm profitability, because you mentioned there's more competitors.

Competitors that are overlapping you in a high percentage of stores.

You mentioned promotions you are also doing membership I guess that could help offset some of the profit hit but why.

Why should why should the profit here be fully recovered, but why isn't the incremental margin of this business lower and then and how should we think about it.

Yeah, I think there's a couple of things there one and we talked about sort of three contributing factors to this year on a revised guidance for this year <unk>.

Competitive intrusion is definitely one and I mentioned that.

That is over index towards some of our older stores and some of those all the stores had I would say.

Suboptimal real estate because they were built 10 12 15 years ago. So one of the things that we're doing swimming is sort of a <unk>.

Setting the bottom 10% of our system like every large scale multi unit business. There's a bottom 10%. So we're assessor is there an opportunity there to to clean up the portfolio in terms of underperforming stores. So that's number one number two is the brand positioning.

<unk> the marketing the promotional activity, we have to make sure that we get that right given sort of the consumer slowdown in consumer slowdown in spending and obviously the competitive intrusions. So we think there's probably some tweaks to both brand positioning pricing promotion activities and the balance of this year and as we look into next do not in further.

That as incremental discounting.

But that could be brand positioning and how we attract new customers.

The third element that we have Simeon, which I don't think anyone else in this space has as we sort of have this X factor of the take five brand.

And the customers from our take five quick lube business that as I mentioned in Q2, we marketed to $2.5 million of those and saw some nice uptake in terms of shifting them from quick lube to Carwash. We're also excited about sort of integrating the take five brand on a digital platform, which I talked about which will be out.

End of this year, and that's pretty exciting around creating a loyalty and membership platform for both Carwash and quick loop coming through the take five take five brands. So look I think carwash is still a phenomenal business. If we look at the <unk> net capital invested after we do a sale leaseback you know worried about.

500000, and we still feel very good about sort of the long term prospects. It in cash generation from this business. So nothing has changed on our thesis there.

Think we're just going through some challenging times sort of first half second half of this year.

Thank you.

Your next question comes from Peter Benedict with Bird. Please go ahead.

Oh, Hey, guys Uhm, thanks for questions a thoughtful of it's just on the on the gas the glass sorry.

Integration.

Delays.

When did you realize this it's just.

You're saying you're kind of several quarters behind.

That would suggest that.

It's kind of been emerging here just trying to understand the timing of when this kind of became clear and what is it preventing you from doing in these businesses.

That's my first question.

Yeah, I think Peter having spent.

10, plus years doing multiple acquisitions, there's no cliff moment for you suddenly realize Oh my God, we're behind I think it's a series of things that build.

Obviously, we made a change in leadership about 100 days ago with Nick Wilmette in there who is a fabulous leader in great success from the take five all change business and I think when Gary came on board 60, or so days ago. It was a chance for gallery with a fresh set of eyes to look at the business to look at the assumptions. So I think it was dose.

No cliff moment, but I think really Gary coming on board and having a look at the business and the assumption sort of said, okay, we're probably a little bit behind where we want to be.

We just reiterate that it is a temporary.

Is that a slowdown in that business. It doesn't change any of our views around the longterm profitability and prospects for that business. When you think about Peter the second part of your question, which is what specifically was it impacting when you think about integrating 12 businesses with different operating models different cultures. It really is all the.

Pieces around creating uniformity from Ah people process and systems perspective is just taking a little bit longer so when you're implementing all these programs again around people process and systems. It does take away from sort of the.

The focus on growing new stores and driving incremental revenue, which again is just a couple of several quarters behind.

Sure. Thanks shop, that's helpful. I guess my fault would be just maybe a broader view of systems throughout.

Out the business.

What.

What's the view there how I'm, Gary now had a chance to take a look at things how do you feel about just the system's underline the broader business and then Gary just if you can.

Give us a little more detail, maybe what you're assuming for DNA an interest expense. This year would that would be helpful. Thanks guys.

Yeah, Peter I'll I'll answer the first question on Gary will jump on the broader systems I think we have very solid sort of tech stack across the rest of our mature businesses.

So I would say that's not an issue in any of the other business segments. Again. This is 12 acquisitions in a relatively short period of time, which is driving this.

Integration delay and then I'll pass it over to Gary to answer your second question Hi, Peter Yeah, No. So on on DNA earns interest expense, we're thinking interest expenses <unk> going to be.

Around 160 may be a little bit higher than that.

Think that's a little bit higher than obviously when it was guidance was first given and then.

Depreciation is probably about 183 or DNA, but the depreciation part being like around 150 151.

Okay.

Your next question comes from Christopher.

Well versed with J P. Morgan. Please go ahead.

Thanks, Good morning, guys. So maybe I think it would be helpful. If you could diagnosed at $50 million cut the EBITDA it a little bit closer I mean, you mentioned rent expense.

But it also seems like you were expecting the EBITDA of the Carwash.

<unk>.

Transition to take five and then the integration.

Of the glass business to lead to some improve EBITDA margins. So can you take that $50 million apart and secondly, as you think about the carwash growth opportunity to longterm is it more that you want to just look at the existing base and you're not changing the longterm growth potential.

For new units or do you also are you are also concerned about.

Revisiting how many new units you can actually open there.

Yeah I'll I'll go ahead and start on the 50, so it's 55 million on EBITDA $50 million in revenue.

Obviously big flow through on the $50 million revenue part the remainder is things as you mentioned like sale leasebacks, we accelerated those so there's just under $150 million done in the first half obviously, we're expecting to do even more than that hopefully in the second half so that drives up that.

Some other rent factors that went in there. So that's that's close to $10 million right there.

Then when you when you think of margins any where things are going from at least how we looked at it internally was.

On the on the full year basis, Carwash, obviously is underperforming and if you think about Glastonbury, we talked about a glass is that's more underperforming in the second half of the year and it is underperforming for all the reasons Jonathan mentioned, but also because we're investing in that business right. I mean, we want that business to come out of the blocks.

Going really well, so we're making investments in personnel et cetera. So that brings the margins down. So when you look at it purely for the rest of the year. The underperformance is probably a little bit more waited to that side of the business versus carwash. If that's helpful. Hogan.

And Chris just to follow up on the Carwash growth question, you had no we're not changing our long term view in terms of store growth or same store sales growth within the Carwash segment I think the.

We're still on track to open about 65 Greenfield locations. This year, we've got a very robust pipelines for the out years I think the only difference. We have now is making sure that we continue to build stores and markets, where we have a defensible position and density and obviously leveraging the take five <unk>.

Quickly, but in terms of our long term plans for unit store growth for car washes Norfolk exchanged.

And then just follow up on that first point with Gary. So just so we're clear so $55 million cut $10 million is Rand.

As you do accelerate the sale leaseback side and relatively existing plan. Your is I guess, how much of that 55 in totality is it's carwash versus glass.

Well it on a full year basis, I'd say, it's 50 50 give or take a couple of million dollars on the rest.

That was my point and put it in just looking at the second half, it's a little bit more waited to glass.

Got it and then my last one is just in terms of I guess, where did the EBITDA shakeout relative to internal plans just to get a sense of again, how much how about $55 million breaks down and set in the second quarter EBITDA dollars.

Yeah, I mean, I I don't think it's appropriate for us to comment versus our internal plans.

Again, and I wasn't here when the internal plans were made.

But Chris safe to say that it's obviously disappointing from an internal plan perspective as well.

I understood. Thank you.

Thanks.

Next question comes from Liz Suzuki with Bank of America. Please go ahead.

Great. Thank you I'm, sorry, I, just wanted to clarify a bit on the future as store count expansion plans, because they think previously and outside of Carwash you talked about 170 at net new stores in maintenance is that are you still on track for that and then same with them paint personable and glass.

It is 130 before we announce swelling that down a bit to kind of get the integration stuff in check.

Yeah, Liz good morning, no change on quick Lube no change in Carwash like I, just mentioned glass will come down a little bit Liz as we slowed down to sort of get the integration.

Completed there I think our new number on glass has gone from 130 to about 90 on glass for this year.

But that's the only that's the only change to the net store growth.

Yeah. We kept what was originally provided I mentioned my script is basically in line. When you look at total <unk> and things like that they shouldn't change all that much nor the same store growth number.

Great and then just a quick follow up on the on the platform services business. I mean, you had mentioned the headwind from one 800 radiator can you just give a little bit more detail on that and then when that is expected taper off.

Yeah, I think a couple of things lose it.

Gary mentioned it but the same store sales number just relates to one 800, which is less than 50 per cent of that segment of the year on year revenue and profits are up for that entire segment that dynamic with one 800 lives was we did an exceptional job during COVID-19. When there was supply chain constraints. So we had sort of preordered.

Pre stocked up on parts and and.

So had availability and then obviously, we're able to take price given the the supply chain pressures that supply chain is essentially cleared up right now so we've seen Damon.

Demand.

And pricing.

Come back in line to pre Covid, 11th levels. So I think that businesses sort of back to what I would say it was normal pre COVID-19 levels, but again when we look at the overall segment.

Revenue and profits are up year over year.

Alright, thanks very much.

Your next question comes from Kate and exchange with Goldman Sachs. Please go ahead.

Hi, Good morning, Thanks for taking my question at Jonathan I think he said that the longterm guide through fiscal year 26 remains intact. Despite that guy down for the year. This year, but just how do you envision a recovering some of this EBITA over the next couple of years.

Yeah. Thanks, Kate Good morning, I did reiterate that multiple times and I'm glad you picked up on it.

I think a couple of things to think about one is we do see this as a short term revision.

Number two is that we are significantly ahead of our long term plan and we'll get into sort of will bridge that long term plan from where we estimate this year to be through the end of 2026 on September 20th with all the details so.

I think.

Again, we've remained very bullish and Gary sort of gone through the long range plan and we're excited to talk about what those numbers looked like and and a couple of weeks in Charlotte.

Okay. Thank you and then just a second follow up question for Us.

A business in which you are accelerating your sale leaseback activity or is it really across the board.

And is there a plan to reduce the amount of company owned auto glass locations that's changed.

Yeah, I think primarily.

The same leaseback is coming from our Carwash new stores. We are this year, we've done more owned property with our quick lube businesses, but still pretty <unk>. So the majority of those suddenly smacks are coming from the Carwash side.

And I think as we look forward to that 65 stores that will open this year I would say the majority of those stores include underlying real estate, obviously, depending on when they open will drive sort of the same leaseback proceeds but nothing.

Nothing has really changed there in terms of the auto glass now.

And for an franchise right now that is a company store platform. Obviously, we're busy integrating that in building at one national brand. So no plans to franchise that business in the U S. In the foreseeable future. The focus is on obviously completed integration and building that building that base.

To where we want it to be over time, so no plans to franchise that for now.

Thank you.

The next question comes from Cake exchange with Goldman Sachs. Please go ahead.

I think we just had cake.

I'm sorry. Your next question comes from Karen Karen short with credits Us.

Hi, Thank you a couple of questions I just wanted to go back to the overall algorithm as it relates to top line versus you know growth versus EBIT grows so.

If you look at what your second half implied.

Sales girl to is 9.6.

Keep it.

Diagrams is.

Barely a per cent. So I understand there are some things that are factoring in carwash.

Others, maybe you can talk about that relationship.

Then I'm wondering if he can talk about how you think about inflation going forward and then the third question would just be about.

Sensitivity.

Just.

Questionary in general.

Okay. Three questions. Thank you Karen first one I would just remind people that are a long term growth algorithm, which has not changed since we went public.

Is organic low double digit revenue growth flat margins and low double digit EBITDA growth and then that supplemented by M&A overtime. So nothing has changed with our long term growth algorithm and obviously if you look at where we've been since we went public I think if you look at the full body of work you'll see that we are absolutely hitting that.

Long term growth algorithm as I also mentioned, we are very comfortable with the 850 target at least 850 by the end of 2026, and we'll bridge all that at the Investor day coming up on September 20th. So that's I would just say on the on the longterm Algo question in terms of inflation.

Still seeing inflation across our businesses.

It's definitely moderated from a labour perspective, but it has not gone away and I think generally our supply chain has I would say some puts and takes but we're still seeing sort of.

Nominal inflation and sort of the supply chain again, given the needs based services of our businesses and the effect of pricing power, we're still able to pass on a lot of those inflationary costs to our end and consumer remember that our franchisees determined their own pricing in our franchisees are exceptional entrepreneurs, who will understand sort.

The cash implications of inflation pressures. So they are very good at managing sort of price and.

In terms of consumer spending our consumer slowdown, which I think was the third part to your question. We've definitely seen that show up in our most discretionary business, which is R. Carwash business and if you think about the.

The rest of our businesses. They are very much need space. So I think Gary mentioned that we're seeing.

Strong demand in our collision space, obviously are quickly business, which is needs based take five oil change delivered I think 17% same store sales in this quarter. So I think right now what we're saying is that we are seeing the consumer slowdown show up in our most discretionary business carwash. The rest of the businesses are performing very well.

Okay. Thank you I'll take it up I don't follow it. Thank you.

Your next question comes from Chris Oh Cool with Stifel. Please go ahead.

Yeah. Thanks.

Jonathan part of the attractiveness of the driven business as the durability of the cash flows and the growth prospects, but.

It sounds like the Carwash segment is dealing with saturation in several markets. It's a high company ownership segment with high fixed costs business structure, which means changes in the comp sales can obviously have an impact on EBITDA in cash flows. We're seeing this quarter. So I'm just wondering if the Carwash segment.

How it fits in the driven portfolio and whether or not it's still an area that deserves a lot of capital allocation.

Yeah, Chris.

Great question and easy to sort of second guess ourselves based on I would call that a short short term challenges with the business I would go back to a comment I made.

And my earnings and my prepared remarks, which is.

Strategically when we looked at the business 345 years ago, we were very conscious that this car park. The overall car park globally and domestically is going to change and is slowly changing and strategically, adding carwash and glass were both sort of EV neutral businesses and.

I think it's important for people to understand that that's still a a very rational strategic imperative to have those other businesses, which are going to perform for many many years. Despite a likely change in the in the car Park. So that's number one strategically I still believe absolutely the carwash and glass or the right businesses for us to begin.

In terms of your second question, which is deployment of capital into the Carwash space I think a couple of things that I would say and arguably you could you could have this for glasses well we have deployed capital into both of these segments. We have opened thus far.

Between last year and this year about 60, new car wash locations. Those are still ramping those will generate significant returns over the next three to five to seven years.

So we have not seen the fruits of that investment yet and the same on the glass business. I mean, obviously, we're we've got some bumps in terms of the integration, but the capital that but we've invested there will continue to generate really significant cash flow returns for many many years to come. So I think we've got some short term challenges with with Carwash at.

We still have massive conviction longterm about the profitability and growth prospects for that business.

Will it determined capital into that Carwash face, obviously, we will remain very disciplined in any and all capital deployment at driven brands and again when you think about the net cash flow from Carwash after a sale and leaseback, which 90 per cent of our stores have underlying real estate. The net invested capital is about 500.

So the returns are very attractive on that.

Okay, and then just one last one Gary I believe you mentioned the incremental rent was $10 million from the sale leaseback transaction was that driven by the amount of transactions that you expect to complete this year or cap rate.

Cap rates going higher and then I'm also curious why there's a need to complete a large number of sale leaseback this year to pay down funded debt.

So a couple of things there it wasn't the full 10, but it was pretty close to $10 million.

And that is.

Just.

Having those brought forward a little bit so it wasn't a matter of it being higher cap rates or something like that.

And then I believe that was part of the plan. The entire time was to to do this in order to to get.

The cash flows back in and so you can reinvest again I mean, that's part of the capital light strategy.

Yeah, Chris I think just just following up on that.

The ability to recycle this capital from those carwash locations versus sitting on.

Total deployed capital of whatever it is $4 million to $5 million. We think there is a more efficient use of that by putting it back into the growth levers of the business. So that was really the primary driver on that accelerated suddenly specs.

Okay. Thanks.

Your next question comes from Seth Sigmund with Barclays. Please go ahead.

Hey, good morning, everyone I wanted to follow up on the revenue guidance and the change for this year. It sounds like it's pretty isolated but maybe you could just give us a little bit more context about what you're seeing so far in Q3 across the different businesses and then just back on that consumer question more specifically I'm curious.

If you are seeing any signs of trading down within the business.

There was a comment about attachments earlier being healthy, but maybe if you can just elaborate on what you are actually seeing in terms of ticket attachments services portrait any metrics like that that could be helpful. Thank you.

So I'll I'll start with your second question like Gary talk about the revenue question as I mentioned before the rest of our businesses are performing well outside of the Carwash, which is very discretionary of the U S. We're not seeing any indications of trade down or delay.

If you look at our quickly business, 17% same store sales in queue to an attachment rates have held very firm that's sort of north of 40%. So when we're not seeing it at this point Seth outside of the the Carwash space.

So I don't I don't really have any more detailed to give you on the revenue side. I mean, we are not really commenting on Q3 at this point in time.

Okay Fair enough and then maybe Gary I'm, just curious over the last couple of months any incremental insights are learning from your experience. So far I'm thinking more from a cost perspective Ah you think about cost or operating efficiency opportunities and then also sort of the the investment strategy.

Here more P&L related investments thinking about customer acquisition or anything else to drive the platform. How do you think about balancing those factors. Thank you.

Yeah.

So I mean, one of the things I get great comfort from was when the cost side one of the reasons I joined was the team were just great operators right. So it's not like I'm coming in saying that costs are out of control or something like that will always look at all of that and now that we're sort of getting through this I I plan on spending more time focused on.

Cash flow and and driving efficiencies, where we where we find that there's opportunities. There. So that's the main part on systems. I mean, there are have been a lot of acquisition. So that's something that we need to focus on also.

This year is just getting all the systems under one banner overtime, that's not a quick fix but that's something we'll be we'll be focused on.

Please limit your questions to one question per analysts. Thank you. Your next question comes from <unk>.

Sharon Zackfia with William Blair. Please go ahead.

Hi, good morning.

I just wanted to follow up on the competitive intrusion for Carwash in this market that.

You said a deal with America tour. Your scene, you know <unk> competitors I think it was 30 odd.

<unk> new entrants.

In the past year.

Have you had any strategies yielded I'm kind of a recovery that.

Would point to kind of what to do from here.

And then I'm curious what the take five cross branding initiative that you <unk>.

Did you did you use any discount to get those customers to come in and try carwash for the first time.

Yeah. Thanks for the questions Sharon I think as I mentioned in my prepared remarks.

About 32% of our stores have had a competitor open up in the last couple of years and that overindexes towards some of the older sites in our portfolio.

<unk>, we're not sitting back and just allowing these competitors too.

To come in and take market share. However.

There is a sort of a bright shiny newness to some of these locations and people are certainly trying them out one of the things that we have to focus on is continued to grow our overall membership count.

Which obviously drives improvement and whether volatility because you've got that sort of guaranteed revenue stream and then secondly that drives brand loyalty and stickiness to our consumer base. So that's one thing that were heavily focused on the second thing Sharon is actually I talked about is leveraging this take five brand platform that we're building between.

Both car washing quick lube and using that to drive incremental quickly customers through our carwash business and vice versa.

Wash customers to quickly business. So those those are some of the things that we're we're working on very quickly and.

In terms of the cross branded promotion that I talked about earlier with 2.5 million quickly if customers, yes, there was.

Some promotional activity, there, which would be very normal when you are looking for customer acquisition. I think we're still very pleased that we drove 125000 customers in north of 10000, new members, but.

Initial customer acquisition offers are very very normal and quite frankly, any multi unit retail business.

Ladies and gentlemen, does conclude your conference call for today, we thank you for participating and ask that you. Please disconnect your lines.