Q3 2023 Driven Brands Holdings Inc Earnings Call

Good morning, My name is Laura and I will be conference operator today at this time I would like to welcome everyone. Today, driven brands Q3 2023 earnings conference.

Call all lines have been placed on mute to prevent any background noise. After this because your remarks, there will be a question and answer session.

I would like to ask a question. During this time simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question. Please press star followed by the number two thank you.

I'd now like to turn the call over to Joel I know SVP of Finance, Joe You May begin your conference.

Good morning, and welcome to <unk> third quarter 2020 earnings Conference call.

The earnings release, and our leverage ratio with Raytheon are available for download on our website at investors, but driven brand dot com.

On the call today with Dr. Jonathan This is patrik creditors and Chief Executive Officer.

Danny Rivera Executive Vice President and Chief operating Officer Andy.

And Gary <unk>, Executive Vice President and Chief Financial Officer.

In a moment Jonathan data in here, we will walk you through our financial and operating performance for the quarter.

Okay.

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

You can find these reconciliations to the most directly comparable GAAP financial measures on the company's Investor Relations website.

And in its filings with the Securities Exchange Commission.

During the course of this call. We May also make forward looking statements in regards to our current plan belief and expectations.

These statements are not guarantees of future performance and are subject to a number of risks and uncertainties and other factors that could cause actual results and events to differ materially.

And events contemplated by these forward looking statements.

Please see our earnings release, and our filings with the Securities Exchange Commission for more information.

Today's prepared remarks will be followed by question and answer session.

Lara: Good morning, my name is Lara and I will be your conference operator today. At this time I would like to welcome everyone to the Driven Brands Q3 2023 earnings conference call. Our lines have been placed on mute to prevent any background noise.

We will ask you to limit yourself to one question and one follow up.

Now I'll turn it over to my partner Jonathan.

Thanks, Joel and we appreciate everyone for joining us to discuss driven brands third quarter 2023 financial results.

Lara: As it is because remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone heat pad. If you would like to avoid a question, please press star followed by the number one. Number two, thank you.

Now as always I want to acknowledge the hard work and strong execution by our more than 11000, driven brands team members and our amazing franchisees for how they continue to navigate an extremely dynamic macroeconomic environment.

Joel Arnao: I would now like to turn the call over to Joel Arnao as VP of finance. Joel, you may begin your conference.

And I'm sure that many of you had a chance to attend our Investor day in September.

I hope the insights we shared were valuable to you and that you left the event with a better understanding of the power of the driven platform and our commitment to unlocking the true value of our business.

Joel Arnao: Good morning and welcome to Driven Brands Q3 2023 earnings conference call. The earnings release and leverage racial reconciliation are available for download on our website at investors dot driven brand dot com. On the call today we see our Jonathan Fitzpatrick, president and chief executive officer, Danny Rivera, executive vice president and chief operating officer and Gary Ferrera, executive vice president and chief financial officer. In a moment, Jonathan, Danny and Gary will walk you through our financial and operating performance for the quarter.

Now our platform creates many benefits such as enhancing our competitive advantages diversification and generating robust cash flow.

We are making progress on the actions we have taken to improve driven performance I continue to act with urgency to accelerate the pace of improvement in our Carwash and U S class businesses.

We outlined a multiyear strategy created a chief operating officer position.

Joel Arnao: Before we begin our remarks, I'd like to remind you that management works with certain non-GAF financial measures. You can find these recommendations to the most directly comparable gap financial measures on the company's investor relations website and its filing the security exchange commission. During the course of this call, we may also make formal statements in regards to our current plans, police and expectations.

Leadership changes within U S glass on U S Carwash and shared our strategic plan to maximize the return on our investments through disciplined capital deployment and portfolio management.

We have a platform that generates high steady state returns with a long runway for reinvestment at exceptional returns.

Joel Arnao: These statements are not guaranteed for future requirements and are subject to a number of risks and uncertainties and other factors that could cause actual results and events differ materially from results and events contemplated by these board with these statements. We see our earnings release and our filing with the security exchange commission for more information. Today, prepared remarks will be followed by questions and the answer session.

We are incredibly motivated to see our valuation mirror our results over time.

Now, let me review some of our third quarter highlights before turning it over to Danny who will discuss take five oil change car wash and glass next Gary will detail, our third quarter results and full year 2023 outlook.

For the quarter, we delivered 12% revenue growth versus prior year <unk>.

Supported by six 4% same store sales growth and 6% net store growth.

Joel Arnao: We'll ask you to leave yourself to one question and one follow up.

<unk> adjusted diluted EPS of <unk> 20 per share.

We continue to be pleased by the performance of our quick lube and our franchise businesses across all metrics all being key contributors to this quarter's growth.

Jonathan Fitzpatrick: Now I'll turn it over to my partner, Jonathan. Thanks, Joel, and we appreciate everyone for joining us to discuss driven brands, third quarter 2023 financial results. Now as always, I want to acknowledge the hard work and strong execution by our more than 11,000 driven brands team members and our amazing franchisees for how they continue to navigate an extremely dynamic macroeconomic environment. Now I'm sure that many of you had a chance to attend our investor day in September.

Now, let me give you an update on our U S car wash business.

Danny Gary Ni has spent a lot of time reviewing all aspects of the U S. Carwash business over the last 90 days.

Jonathan Fitzpatrick: I hope the insights we shared were valuable to you and that you left the event with a better understanding of the power of the driven platform and our commitment to unlocking the true value of our business. Now our platform creates many benefits such as enhancing our competitive advantages, diversification and generating robust cash flow. We are making progress on the actions we have taken to improve driven performance and continue to act with urgency to accelerate the pace of improvement in our car wash and US glass business.

Danny is laser focused on operational opportunities I think we will discuss those in more detail shortly.

Now after our detailed review in Q3, we decided to close 29 U S car wash locations, which began in Q4.

Generally these locations were on average more than 13 years old had suboptimal real estate and had significant competitive intrusion.

On an LTM basis. These locations had negative same store sales and traffic and negative EBITDA contribution.

Jonathan Fitzpatrick: We outlined a multi-year strategy, created a chief operating officer position, made leadership changes within U.S, glass and U.S, car wash and shared a strategic plan to maximize the return in our investments through discipline, capital deployment and portfolio management. We have a platform that generates high steady state returns with a long run way for reinvestment at exceptional returns and we're incredibly motivated to see our valuation mirror our results over time. Now let me review some of our third quarter highlights before turning it over to Danny who will discuss take 5.0 change, car wash and glass.

Consequently, we will see some small benefit in Q4 for closing the 2009 loss making locations. Additionally.

Additionally, we are actively reviewing our pipeline for new car wash locations.

Now this is in line with our commitment to stop all capital and not to open new stores until we determine the base business is performing.

We expect that over the next two to three quarters, we will likely see a return of capital from selling these pipeline sites.

We are making steady progress on the U S carwash business and getting the U S glass integration behind us.

As I have said previously this will likely take several quarters.

Jonathan Fitzpatrick: Next, Gary will detail our third quarter results and full year 2023 outlook. For the quarter, we delivered 12% revenue growth versus prior year, supported by 6.4% same-store sales growth and 6% net store growth, achieving adjusted deluded EPS of 20 cents per share. We continue to be pleased by the performance of our quick loop and our franchise businesses across all metrics, all being key contributors to this quarter's growth. Now let me give you an update on our U.S, car wash business.

Gerry will provide an update on the impact to fiscal 2023 store openings shortly.

As a reminder, our short term focus is to deliver our guidance for 2023.

And set the company up for a strong 2024.

This means improving the U S car wash business.

Hitting the U S glass integration challenges behind us.

A very disciplined strategy for deploying capital, which will primarily be used to open take five oil change company stores.

A focus on free cash flow generation.

Jonathan Fitzpatrick: Danny, Gary and I have spent a lot of time reviewing all aspects of the U.S, car wash business over the last 90 days. Danny is laser focused on operational opportunities and he will discuss those in more details shortly.

Generally using excess free cash flow to pay down debt.

Now I want to reiterate that we have taken several steps to improve driven performance.

Gary and I are responsible for strategy and capital allocation.

Jonathan Fitzpatrick: Now after our details reviewing Q3, we decided to close 29 U.S, car wash locations, which began in Q4. Generally, these locations were on average more than 13 years old, had suboptimal real estate and had significant competitive intrusion. On an LTM basis, these locations had negative same-store sales and traffic and negative EBITDAQ contribution. Pronsequently, we will see some small benefit in Q4 for closing these 29 lost-making locations. Additionally, we are actively reviewing our pipeline for new car wash locations.

The creation of the Chief operating officer role is an important one as Danny is responsible for all of the operating segments simply put he owns the P&L.

Danny is responsible for the day to day decision, making finding and executing on growth opportunities and ultimately delivering segment level revenue and profits.

Danny has been my partner for 10 years at driven and most recently he served as president of our maintenance segment.

So with that let me hand, it over to Danny our Chief operating officer to discuss our key business segments.

Thanks, Jonathan before I begin, let me introduce myself and met many of you at our Investor day for those of you I've not met.

Jonathan Fitzpatrick: Now this is in line with our commitment to stop all capital and not to open new stores until we determine the base business is performing. We expect that over the next two to three quarters, we will likely see a return of capital from selling these pipeline sites. We are making steady progress on the U.S, car wash business and getting the U.S, glass integration behind us. And as I have said previously, this will likely take several quarters.

A part of the driven leadership team for over a decade throughout that period has been president of Meineke President of take five oil change and group president of our maintenance segment.

While Jonathan and Gary focus on strategy and capital allocation.

My job to ensure that the capital they have allocated realized with the returns we underwrote.

I'm focused on executing our operating playbook, which enables driven overtime to take acquired businesses and turn them into high growth engine to deliver predictable and scalable results.

Jonathan Fitzpatrick: Gary will provide an update on the impact to fiscal 2023 store openings shortly. As a reminder, our short-term focus is to deliver our guidance for 2023 and set the company up for a strong 2024. This being them proving the US car wash business, getting the US blast integration challenges behind us, a very disciplined strategy for deploying capital, which will primarily be used to open take five all-of-the-range company stores, a focus on free cash flow generation, and generally using excess free cash flow to pay down debt.

Driven operating playbook has been developed over the past 10 years we've.

We've implemented it across all of our businesses both company and franchise.

The playbook has several chapters all of which are important and build upon one another.

Those chapters include culture people brand positioning process and continual improvement.

We are repeating the very same playbook that has been successful at our most mature growth business take five volt things with both our take five Carwash and auto glass now.

With that background, let me discuss driven three primary growth levers.

<unk> all change takes about Carwash and auto glass now.

Jonathan Fitzpatrick: Now, I want to reiterate that we have taken several steps to improve Driven's performance. Gary and I are responsible for strategy and capital allocation. The creation of the cheap operating officer role is an important one, as Danny is responsible for all the operating segments. Simply put, he owns the PNLs. Danny is responsible for the day-to-day decision-making, finding and executing on growth opportunities, and ultimately delivering segment level revenue and profits. Danny has been my partner for ten years at Driven, and most recently he served as president of our maintenance segment.

This quarter take five oil change both company and franchise locations continued to drive customer acquisition and delivered strong same store sales of 14%.

We continue to outpace the competition as our differentiated 10 minutes stay in your car or <unk> model builds brand recognition.

Top quartile NPS scores and increasing repeat rates.

Further we grew our footprint over 23% year over year.

Our franchise pipeline remains robust at more than 750 units.

We expect asset light franchise store growth to drive our footprint growth moving forward.

Danny Rivera: So with that, let me hand it over to Danny, our chief operating officer, to discuss our key business segments. Thanks Jonathan.

Our franchisees remain excited about the performance of their stores and of course the returns they are generating.

I'm also excited that in Q4, we will be celebrating our 1000th store opening.

Danny Rivera: Before I begin, let me introduce myself. I met many of you at our investor day, but for those of you I've not met, I've been a part of the Driven leadership team for over a decade. Throughout that period, I've been president of mine, president of take five all change, and group president of our maintenance segment. While Jonathan and Gary focus on strategy and capital allocation, it's my job to ensure that the capital they have allocated realizes the returns we underroads.

And we just recently opened our 300 franchise locations.

Let's now switch over to a carwash business.

We are experiencing softer retail volumes in the U S Karloff segment.

Driven by a challenging macro environment for our most discretionary business and continued competitive intrusion.

However, our international Carwash business continues to perform well despite challenging conditions in Europe.

Danny Rivera: I am focused on executing our operating playbook, which enables Driven, over time, to take acquired businesses and turn them into high growth engines that deliver predictable and scalable results. Driven's operating playbook has been developed over the past ten years. We've implemented it across all of our businesses, both company and franchise. The playbook has several chapters, all of which are important, and build upon one another. Those chapters include culture, people, brand positioning, process, and continual improvement.

As Jonathan mentioned I have been leaning into operational opportunities in the U S car wash business.

Following are some of the actions that we have taken.

First.

I've made a series of leadership changes, including changes in marketing.

Operations and a change in president.

I have also made changes to how our teams are structured their priorities and our management processes against those priorities.

Our immediate priorities are twofold.

What would be the best at the basics and to improve margins.

Danny Rivera: We are repeating the very same playbook that has been successful at our most mature growth business, take five all change, with both our take five car loss and auto glass now. With that background, let me discuss Driven's three primary growth levers, take five all change, take five car loss and auto glass now. This quarter, take five all change, both company and franchise locations, continued to drive customer acquisition and delivered strong, same store sales of 14%.

Regarding being the best at the basics, we're focused on a handful of operational kpis and processes that ensure we are open and operating we're reducing downtime due to equipment failure.

We're winning on must win days and.

And we are delivering our fast friendly and convenient promise in order to delight our customers.

Regarding improving margins, we have implemented a data driven approach to identify opportunities for better operational and financial performance for example.

Danny Rivera: We continue to outpace the competition as our differentiated 10 minutes, stay in your car or change model, build brand recognition, with top portal and PS scores and increasing repeat rates. Further, we grew our footprint over 23% year over year, and our franchise pipeline remains robust at more than 750 units. We expect asset light, franchise store growth to drive our footprint growth moving forward. Our franchisees remain excited about the performance of their stores and, of course, their returns, their generate. I'm also excited that in Q4 we will be celebrating our 1000 store opening and we just recently opened our 300th franchise location.

We are taking a more disciplined approach to our promotional strategy to ensure we are reducing discounting.

Focusing our marketing efforts on attracting long term customers.

We are also implementing an improved pricing strategy that we will begin rolling out in Q4, enabling us to better capture the value that our different levels of walks offer.

Finally from an operational perspective, we are taking a close look at costs, particularly variable costs and identifying outliers and implementing operational guardrails to help obtain proper variable margins.

These actions along with the closing of 29 unprofitable locations.

The confidence that we can improve the business over the next several quarters.

Danny Rivera: Let's now switch over to our car wash business. We are experiencing softer retail volumes in the US car wash segment driven by challenging macro environment for our most discretionary business and continued competitive intrusion. However, our international car wash business continues to perform well, despite challenging conditions in Europe.

As I mentioned at the Investor Day. We are also excited to rollout take fiber awards, our new loyalty program that will initially focus on page five all teams and Carwash.

We will be testing this new program in Q4 of this year, our new platform will offer a <unk> subscription and a combo subscription across both take five openings and carwash.

Danny Rivera: As Jonathan mentioned, I have been leaning into operational opportunities in the US car wash business. The following are some of the actions that we have taken. First, I've made a series of leadership changes, including changes in marketing, operation and a change in president. I have also made changes to how our teams are structured, their priorities and our management processes against those priorities.

Our subscriptions will also be coupled with a loyalty program designed to drive frequency across both businesses.

Lastly, let's cover our U S cluster on.

An important component of our longer term growth.

As Jonathan mentioned on the last earnings call and at our Investor Day, we have encountered a series of challenges integrating the 12 businesses, we acquired that ultimately make up the glass business.

Danny Rivera: Our immediate priorities are twofold, to be the best at the basics and to improve margins. Regarding being the best at the basics, we're focused on a handful of operational KPIs and processes that ensure we're open and operating, we're reducing downtime due to equipment failure, we're winning on must win days, and we're delivering our fast, friendly and convenient promise in order to delight our customers. Regarding improving margins, we have implemented a data-driven approach to identify opportunities for better operational and financial performance.

These integration challenges have resulted in underperformance of our U S cloud business in 2023.

We also said that it will take several quarters to get through these challenges.

We're continuing to make progress and our goal is to exit Q1 of 2024 with these integration challenges largely in the rearview mirror.

Some of the progress we've made with the integration include.

We completed the rollout of our new point of sale system.

We completed the rollout of our new centralized call center.

We are in the process of centralizing all product purchasing and plan on being fully rolled out by Q1 of 2024.

Danny Rivera: For example, we are taking a more disciplined approach to our promotional strategy to ensure we are reducing discounting while focusing our marketing efforts on attracting long-term customers. We are also implementing an improved pricing strategy that we will begin rolling out in Q4, enabling us to better capture the value that our different levels of wash offer. Finally, from an operational perspective, we are taking a close look at costs, particularly variable costs, and identifying outliers and implementing operational guardrails to help obtain proper variable margins.

More than 95% of our locations have calibration capabilities and.

And all employees are now on one payroll and benefits platform.

Danny Rivera: These actions, along with the closing of 29 unprofitable locations, give me confidence that we can improve the business over the next several quarters.

We have also made the decision to slow down new unit growth in Q4 and in 2024 to make sure that the base business is performing at the levels we expect.

We remain extremely bullish on our U S glass business and look forward to a strong 2024 as we put the mountains of integration work behind us.

As I mentioned at Investor Day car, Washington Glass has many similarities to our take five oil change business and as such should be performing similarly.

Im confident in the driven playbook as we have successfully proven it with our take five oil change business.

Danny Rivera: As I mentioned at the investor day, we are also excited to roll out take-five rewards, our new loyalty program that will initially focus on take-five oil change and car wash. We will be testing this new program in Q4 of this year. Our new platform will operate take-five oil change subscription and a combo subscription across both take-five oil change and car wash. Our subscriptions will also be coupled with a loyalty program designed to drive frequency across both businesses.

It will not happen overnight.

But the vision is clear our priorities have been cemented and we have the team in place to execute.

Hey, my newly created role as COO.

Look forward to taking the success of our take pipe coating business and methodically spreading those best practices and those results throughout terrific.

And with that I will now turn it over to my partner Gary.

Thanks, Danny and welcome everyone.

Danny Rivera: Lastly, let's cover our U.S, glass business, an important component of our longer-term growth. As Jonathan mentioned on the last earnings call and at our investor day, we have encountered a series of challenges integrating the 12 businesses we acquired that ultimately make up the glass business. These integration challenges have resulted in underperformance of our U.S, glass business in 2023. We also said that it will take several quarters to get through these challenges. We are continuing to make progress and our goal is to exit Q1 of 2024 with these integration challenges largely in the rearview mirror.

Today, I will share with you our third quarter financial performance and outlook for the remainder of the year.

As well as power focus on cash flow disciplined growth and strategic capital allocation and shaping our future.

On a consolidated basis, we had another strong quarter of top line growth versus Q3 2022.

Our system wide sales reached one 6 billion, representing a 10% increase from the prior year period.

This growth was driven by a 6% increase in same store sales and a 6% net store growth.

Danny Rivera: Some of the progress we've made with the integration include. We completed the rollout of our new point of sales system. We completed the rollout of our new centralized cost center. We are in the process of centralizing all product purchasing and plan on being fully rolled out by Q1 of 2024. More than 95% of our locations have calibration capabilities. And all employees are now on one payroll and benefits platform. We have also made the decision to slow down new unit rows in Q4 and in 2024 to make sure that the base business is performing at the levels we expect.

This translated into reported revenue for the quarter of $581 million.

An increase of over 12%.

This growth was primarily led by our maintenance segment, followed by our paint collision in glass segment.

Adjusted EBITDA was $127 million or 22% of revenue versus $129 million or 25% of revenue in the same quarter last year.

This margin decline and the resulting slight decline in adjusted EBITDA is directly attributable to the Carwash and <unk> segment with approximately $7 million of the impact on Carwash being driven by increased rent expense from sale leasebacks.

Danny Rivera: We remain extremely bullish on our U.S, glass business and look forward to a strong 2024 as we put that mountains of integration work behind us. As I mentioned at Investor Day, car washing glass have many similarities to our take five oil change business and as such should be performing similarly. I am confident in the driven playbook as we have successfully proven it with our take five oil change business. It will not happen overnight, but the vision is clear our parties have been cemented and we have the team in place to execute.

Both the maintenance and platform services segments experienced significant growth in adjusted EBITDA as well as margin expansion in the quarter versus the prior year.

I will now focus on our performance by segment.

We are pleased with the positive same store sales growth of 9% and maintenance our largest segment.

Revenue from this segment grew an impressive 22% over the prior year period.

This was primarily driven by our take five oil change business.

Danny Rivera: In my newly created role as COO, I look forward to taking the success of our take five oil change business and methodically spreading those best practices and those results throughout driven.

Which continues to perform strongly across both our franchised and company owned location.

As we mentioned before industry tailwind, including an aging car park and increased vehicle complexity drive average check and a flight to trusted brands.

Gary Ferrera: And with that, I will now turn it over to my partner, Gary. Thanks, Danny, and welcome everyone. Today, I will share with you our third quarter financial performance and outlook for the remainder of the year as well as power focus on cash flow discipline growth and strategic capital allocation is shaping our future. On a consolidated basis, we had another strong quarter of top line growth versus Q3 2022. Our system wide sales reached 1.6 billion representing a 10% increase in the prior year period.

<unk> oil change continues to benefit from these trends as we saw another quarter of positive car count trends.

Maintenance segment, adjusted EBITDA margin increased by over 110 basis points versus Q3 2022.

Due to flow through from strong topline performance as well as the continued focus on operational efficiency.

This drove an increase in segment adjusted EBITDA of over 25% for almost $18 million versus Q3 2022.

Gary Ferrera: This growth was driven by a 6% increase in same source sales and a 6% net store growth. This translated into reported revenue for the quarter of 581 million and increase of over 12%. This growth was primarily led by our maintenance segment followed by our paint collision and glass segment. Just that EBITDA was 127 million or 22% of revenue versus 129 million or 25% of revenue in the same quarter last year. This margin decline and the resulting flight decline in adjusted EBITDA is directly attributable to the car loss in TC and G segment with approximately $7 million of the impact on car loss being driven by increased rent expense from sale east back. Both the maintenance and platform services segments experience significant growth in adjusted EBITDA as well as margin expansion in the quarter versus the prior year.

And our car wash segment, we experienced the same store sales decline of 4% versus the prior year period.

This decline was entirely driven by our U S car wharf's operation.

Total segment revenue, including the international business increased 2%.

The car while segment adjusted EBITDA margin decreased to 17% in the quarter versus 28% in Q3 2022.

Resulting in a decline in adjusted EBITDA of approximately $58 million.

The U S portion of the business experienced higher costs, primarily due to the fixed costs associated with ramping locations, including the 57, new stores opened during the last 12 months.

While experiencing soft retail demand and increased competition.

As I mentioned earlier approximately $7 million of these fixed costs can be attributed to increased rent expense from sale leaseback activity versus Q3 2022.

We are making significant operational improvements and closing underperforming stores to improve the financial performance of our U S Carwash business.

Gary Ferrera: I'll now focus on our performance by segment. We are pleased with the positive same source sales growth of 9% in maintenance, our largest segment. Revenue from the segment grew in impressive 22% over the prior year period. This was primarily driven by our take five oil change systems, which continues to perform strongly across both our franchise and company owned locations. As we mentioned before, industry tailwinds, including an age in car parks, an increased vehicle complexity drive average check, and a flight to trusted brands.

And our paint collision and glass segment, we achieved positive same store sales growth of 9% and segment revenue growth of 14%.

However segment adjusted EBITDA margin decreased to 25% from 34% in Q3 2022, resulting in a $6 million decline in adjusted EBITDA.

The U S glass business drove this decrease as paint and collision delivered increased over the prior year quarter.

Gary Ferrera: Take five oil change continues to benefit from these trends as we start another quarter of positive car count trends. Maintenance segment adjusted to the margin increased by over 110 basis points versus Q3 2022 due to flow through from strong top line performance as well as a continued focus on operational efficiency. This drove an increase in segment adjusted EBITDA of over 25% for almost $18 million versus Q3 2022.

As Danny mentioned previously he and his team are working through the integration issues related to the 12 U S glass acquisition.

And our platform services segment revenue increased 8% over the prior year period.

One 800 radiator saw sequential improvement from negative 11% in Q2 to download and 5% in Q3.

As a reminder, when 800 radiator comprises only about 25% of the revenue for this segment.

Platform services, adjusted EBITDA margin increased to 40% from 38% in the prior year period.

Gary Ferrera: In our car wash segment, we experience the same source sales decline of 4% versus the prior year period. This decline was entirely driven by our US car wash operation. Total segment revenue, including the international business, increased 2%. The car wash segment adjusted EBITDA margin decreased to 17% in the quarter versus 28% in Q3 2022, resulting in a decline in adjusted EBITDA of approximately 50 million. The US portion of the business experienced higher costs primarily due to the fixed cost associated with ramping locations, including the 57 new stores opened during the last 12 months, while experiencing soft retail demand and increased competition.

Resulting in segment adjusted EBITDA of $22 million.

Now I will focus on some key components below adjusted EBITDA.

Depreciation and amortization expense totaled $46 million in the quarter, reflecting a $9 million increase from the prior year, mainly due to an increase in company operated store count.

Additionally, interest expense reached $41 million of $14 million increase from Q3 2022, primarily due to an increase in total debt levels driven by a securitization issuance in Q4 2022 as well as by higher interest on our term loan and revolver, which are only.

Outstanding debt prompted with variable rates.

Gary Ferrera: As I mentioned earlier, approximately $7 million of these fixed costs can be attributed to increased rent expense from sale lease back activity versus Q3 2022. We are making significant operational improvement in closing underperforming stores to improve the financial performance of our US car wash business. In our paint, collision and glass segment, we achieved positive same source sales growth of 9% in segment revenue growth of 14%. However, segment adjusted EBITDA margin decreased to 25% from 34% in Q3 2022, resulting in a $6 million decline in adjusted EBITDA.

Net loss for the third quarter was $799 million versus net income of $38 million in Q3 2022.

Due to the noncash goodwill and asset impairments in our U S car wash business of approximately $960 million.

During the quarter ended September 32023, we conducted an in depth review of our U S car wash operator.

This review focused on addressing underperforming stores in their local competitive environment.

Understanding new store growth pattern and identifying opportunities for potential revenue and expense optimization.

As a result of this analysis, we decided to closed 29 stores.

Gary Ferrera: The US glass business drove the decrease as paint and collision delivered increase in its over the prior year quarter. As Danny mentioned previously, he and his team are working through the integration issues related to the 12 US glass acquisition. In our platform services segment, revenue increased 8% over the prior year period. 1,800 radiators saw sequential improvement from negative 11% in Q2 to down less than 5% in Q3. As a reminder, 1,800 radiators comprises only about 25% of the revenues for this segment. Platform Services Adjusted EBITDA Margin increased to 40% from 38% in the prior year periods, resulting in segment adjusted EBITDA of 22 million.

These closures began in Q4.

We've also put a pause on opening new stores and have initiated the process of selling assets, we won't be utilizing.

Due to these actions and in the course of our review of our results during the quarter, we decided to recognize noncash impairment charges totaling $111 million associated with property equipment and right of use asset.

In light of these factors and using current higher interest rates in our discounted cash flow analysis, we determined that the carrying value of our U S car wash reporting unit within the <unk> segment.

Its current market value.

Consequently, we registered a noncash goodwill impairment charge of $851 million.

Gary Ferrera: Now, I will focus on some key components below adjusted EBITDA. Depreciation and amortization expense total 46 million in the quarter, reflecting a $9 million increase from the prior year, mainly due to an increase in company operated store count. Additionally, interest expense reached 41 million, a $14 million increase from Q3 2022, primarily due to an increase in total debt levels driven by our securitization issuance in Q4 2022, as well as by higher interest on our term loan and revolver, which are our only outstanding debt branches with their legal rates.

Adjusted net income was $34 million for the quarter, resulting in adjusted diluted EPS for the quarter of 'twenty.

Versus 32 in the prior year period.

Gary Ferrera: That loss for the third quarter was $799 million versus net income of 38 million in Q3 2022. Due to the non-cast goodwill and asset impairments in our US car wash business of approximately 960 million. During the quarter ended September 30, 2023, we conducted an in-depth review of our assessing underperforming stores and their local competitive environment, understanding new store growth patterns and identifying opportunities for potential revenue and expense optimization. As a result of this analysis, we decided to close 29 stores.

And a quarter.

This impacted our net leverage ratio for the quarter by just under 0.1 times.

Gary Ferrera: These closures began in Q4. We've also put a pause on opening new stores and have initiated the process of selling assets we won't be utilizing. Due to these actions and in the course of our review of our results during the quarter, we decided to recognize non-cast impairment charges totaling 111 million associated with property, equipment, and rights of use asset. In light of these factors, and using current higher interest rates in our discounted cashflow analysis, we determined that the carrying value of our US car wash reporting unit within the car wash segment to pass its current market value.

And it is now four eight times for the quarter versus four seven times in Q3 2022.

As we stated in a recent Investor day, we were extremely focused on generating excess cash flow and deleveraging in 2024.

As a reminder that structure is over 75 per cent fixed with that portion of <unk> at an interest rate of approximately 4.3%.

The remainder is made up of term loan and revolving credit facility with a total blended interest rate of approximately 5.2%.

I will now turn to our fiscal 2023 full year financial outlook.

Gary Ferrera: Constantly, we registered a non-cast goodwill impairment charge of 851 million. Adjusted net income was 34 million for the quarter, resulting in adjusted deluded EPS for the quarter of 20 cents versus 32 cents in the prior year period. Casual from operating activities for the nine months was 212 million, an increase of 26 percent from 158 million from the prior year period. At the end of the third quarter, we had 387 million in liquidity, surprising 211 million in cash and cash equivalent, along with 176 million of underlying capacity on our variable funding, curitization, senior notes, and a revolving credit facility.

We are reaffirming the outlook that we provided on a second quarter earnings call of revenue of approximately 2.3 billion.

Justin EBITDA of approximately $535 million.

And adjusted EPS of approximately 92 cents.

We also continue to expect the same store sales growth of 5% to 7%.

With guidance reflects continued strength in our maintenance paint and collision businesses.

Really upset by weakness in our U S Carwash and U S glass businesses.

As we discussed during our Investor day, we're very focused on discipline growth and driving cash flow.

Therefore, we made the decision slow new unit growth from what was provided earlier in the year.

Gary Ferrera: Our liquidity does not account for the additional 135 million of variable funding notes, which could be utilized to accompany discretion if specific conditions continue to be met. This liquidity, along with our ability to continuously generate strong cash flows from operations, provides a flexibility in executing our long-term growth plan. As you may recall, in August, we announced a $50 million share of purchase authorization, recognizing the opportunity to purchase shares at what we view as an advantageous level.

We are now expecting 2023, new unit growth to approximate 250 units versus our original outlook of 365 unit.

Primarily driven by fewer new units in our U S Carwash and U S glass businesses.

I wanted to wrap up with a couple of accounting related matters first in queue for we converted certain pre I P. O equity the time based besting from best thing that was based on the achievements of certain sponsor returns after the sponsor one less than 50 per cent of our outstanding stock.

This conversion results in a non-cash stock compensation expense charge of approximately $43 million.

Gary Ferrera: We completed the repurchases and retired 3.6 million shares during the quarter. This impact that our net leverage ratio for the quarter by just under 0.1 times, and it is now 4.8 times for the quarter versus 4.7 times in Q3 2022. As we stated in our recent investor day, we were extremely focused on generating excess cash flow and deleveraging in 2024. As a reminder, our debt structure is over 75% fixed, with that portion of the debt at an interest rate of approximately 4.3%. The remainder is made up of term loan and revolving credit facilities with a total blended interest rate of approximately 5.2%.

Which we all recognized ratably over the 18th month dusting period, including approximately $5 million in Q4 2023.

Second related to our review of U S. Carwash business, we transferred assets on our balance sheet amounting to $271 million from property and equipment to assets earmarked for sale.

In closing I, just wanted to take a moment to thank all the teams across the organisation for being laser focused on driving operational efficiencies during the quarter. So that we can deliver on our commitments for the remainder of the year and set ourselves up for a strong 2024.

Thank you all for your time this morning.

Gary Ferrera: I will now turn to our fiscal 2023 full-year financial outlook. We are reaffirming the outlook that we provided on our second quarter earnings call of revenue of approximately 2.3 billion, adjusted either of approximately 535 million, and adjusted EPS of approximately 92 cents. We also continue to expect same-source sale growth of 5 to 7%. This guidance reflects continued strength in our maintenance, paint, and collision businesses, partially upset by weakness in our U.S, car wash and U.S, glass businesses.

Concludes our prepared remarks, I will now I'll turn it back over to the operator for Q&A.

Thank you, ladies and gentlemen, and I began to question and answer session. So do you have a question for this pastime followed by the number one.

<unk> should the rest of the <unk>.

If you're using a speaker sign that police left hand slapped me for passing any cheese <unk>.

<unk> are requesting I interested in it yourselves to one question.

<unk>.

Our first question comes from the law.

<unk>. Please go ahead.

Gary Ferrera: As we discussed during our investor day, we are very focused on discipline growth and driving cash flow. Therefore, we made the decision slow new unit growth from what was provided earlier in the year. We are now expecting 2023 new unit growth to approximate 250 units versus our original outlook of 365 units. Primarily driven by fewer new units in our U.S, car wash and U.S, glass businesses.

Oh, Hey, guys. Good morning. Thanks, Thanks for taking the question Uhm first one was just around around the Carwash business you talked about a new pricing structure. You mentioned that you maybe expand on that maybe number.

Number of tears, you're thinking about any clarity there and related to that new leadership in US Carwash is that is that internally source folks anybody from the outside just curious kind of your views on on how it's different to operate a carwash than than than an oil change business. That's my first question.

Gary Ferrera: I wanted to wrap up with a couple of accounting related matters. First, in Q4, we converted certain pre-IPO equity, the time-based vesting, from vesting that was based on the achievement of certain sponsor returns after the sponsor owned less than 50% of our outstanding stock. This conversion results in a non-cash stock compensation expense charge of approximately 43 million, which we will recognize radically over the 18th month vesting period, including approximately 5 million in Q4 2023. Second, related to our review of U.S, car wash business, we transferred assets on our balance sheet, amounting to 271 million from property and equipment to assets earmarked for sale.

Hey, Peter Thank you for the question I appreciate that so yeah related to the first question around pricing look ultimately the team and I are super focused on operations in improving margins part of both of those as focus on pricing.

And our changes, we think will lead to improve margins as we capture kind of more value from across all of our packages and are washed packages visa VR consumers.

As far as leadership changes operationally our leadership changes we did bring it on over an individual from our quick lube business, who was a seller operator for us there and brought him over to our car wash business ultimately the two businesses.

Gary Ferrera: In closing, I just wanted to take a moment to thank all the teams across the organization for being laser-focused on driving operational efficiencies during the quarter, so that we can deliver on our commitments to the remainder of the year and set ourselves up for a strong 2024. Thank you all for your time this morning.

Different but but ultimately they are also retail businesses and when it comes to people in leadership and operations. There's certainly a lot, but we believe there's a lot of similarities that we think that that individual is gonna be very helpful to us and our carwash business.

Unknown Executive: That concludes our prepared remarks.

Okay. Thank you and then may be Gary just on the car wash it and P. C. G segment margins obviously.

Unknown Executive: I will now turn it back over to the operators for Q&A. Thank you.

Operator: Ladies and gentlemen, it will now begin the question and answer session. Should you have a question, please press star followed by the number one on your touchstone phone. Should we stick on from the polling process, please press star followed by the number two.

Down a lot and three Q, how should we think about in the fourth quarter is three to the bottom in terms of those segment margins should you should you.

Get some improvement at least sequentially.

There and and then just on the Carwash openings for next year I mean, I think you were saying maybe 20 is that now zero just so we level set for next year on the on the new car washing it. Thank you.

Operator: If you are using a speaker phone, please lift your hands up before pressing any key. Kindly note that we are requesting our analysts to limit yourselves to one question and one follow-up.

Yeah, Let me let me answer the first part of the question is which I've already forgotten because I'm over 60, but [laughter] the margins. When you go into the next quarter, obviously never never say bottom right cause the drinks with us, but the plan as as you can see from from the numbers, we've put out if we hit our guidance means.

Peter Benedict: Our first question comes from the line of Peter Benedict from Beard. Please go ahead. Okay, guys, good morning. Thanks. Thanks for taking the question. First one just around around the car wash business. You talked about a new pricing structure. Dan, if you mentioned that, you may be expand on that. Maybe number of, number of tiers you're thinking about any clarity there and related to that. The new leadership in U.S, car wash, is that internally sourced folks? Anybody from the outside? Just curious kind of your views on how it's different to operate a car wash than an oil change business. That's my first question.

Have a slight margin improvement in Q4.

And so.

Wow, that's got a mix between the segments. Obviously, we don't we don't guy to that but danny's doing a lot of work with his team to try to get margins short up there. So I think it will more translate into where we come out of the top line.

Gentlemen, yes.

Pete Jonathan here on the openings, yeah, we're sort of actively working through what what locations in our pipeline we cannot exit ourselves. So I think the 20 number that we gave at the Investor day will likely be lower.

Danny Rivera: Peter, thank you for the question. Appreciate that. So, yeah, related to the first question around pricing. Look, ultimately the team and I are super focused on operations and improving margins. Part of those is focused on pricing. And our changes, we think will lead to improved margins as we capture kind of more value from across all of our packages and our wash packages, these are VR consumers. As far as leadership changes, operationally our leadership changes, we did bring it over an individual from our quick-loop business who was a stellar operator for us there and brought them over to our car wash business.

Sort of a work in progress here, but we'll update throughout the year, but definitely lower than the 20, we gain.

Understood. Thanks, guys. Good luck.

Thank you.

Your next question comes from your line of <unk> from <unk>. Please go ahead.

Good morning, everyone I wanted to focus on the maintenance business. I think you gave us a quick lube to 14 per cent comes very strong what's happening in the rest of the maintenance business I know there have been some mixed messages out there across the industry, but it does seem like you're outperforming pretty nicely here. So if there's any more perspective on the rest of maintenance and what you're seeing from a <unk>.

Danny Rivera: Ultimately, the two businesses are different, but ultimately they're also retail businesses. And when it comes to people and leadership and operations, there's certainly a lot of, we believe there's a lot of similarities that we think that that individual is going to be very helpful to us in our car wash business. So, okay, thank you.

<unk> perspective, and then I have one follow up thank you.

Hey, SaaS is Jonathan Yeah look.

Take five oil change represents over 90% of our maintenance segment.

Gary Ferrera: And then maybe Gary, just on the car wash and PC and G segment margins, obviously down a lot in 3Q. I actually think about in the fourth quarter, I mean, is 3Q the bottom in terms of those segment margins should you should you get some improvement, at least sequentially there.

Balances are meineke business, which is a pure franchise business and continues to perform very steady and.

We're not seeing any sort of major trend changes in that meineke business, but again take five all changes is more than 90% of that segment. So that's the that's the key driver.

Gary Ferrera: And then just on the car wash openings for next year, I mean, I think you were saying maybe 20, is that now zero? Just so we level for next year on the new car wash unit. Thank you. Yeah, let me answer the first part of the question is to have already forgotten because I'm over 60, but the margins when you go into the next quarter, obviously never never say bottom right because it jinxed with us.

Perfect and then just from a margin perspective, both quarter over quarter and year over year Nice improvement here and in fact, the last couple of quarters, you've seen a big step up in the profitability of the maintenance segment can you just talk about the drivers there and maybe some perspective on whether that starting to reach a ceiling or do you feel like you're still more.

Room to go thanks.

Yes.

Gary Ferrera: But the plan is, as you can see from the numbers, we've put out if we hit our guidance means, you know, you'd have a slight margin improvement in Q4. And so, you know, how that's going to mix between the segments, obviously we don't we don't guide to that. But Danny's doing a lot of work with his team to try to get margins short up there. So I think it will more translate into, you know, where we come out, of Top Line, Jonathan.

We talked about at the Investor Day. This this take five oil change business as one of the greatest multi unit businesses that I've ever been involved with we've got significant same store sales growth positive traffic.

We've also got natural ARMA, <unk> or check growth in that business. The team is executed phenomenally well with our.

Attachment rate of our big four items.

NPS scores are still in the high seventies, which is top two box and likelihood to refer and then obviously, we've got a significant amount of new stores that are ramping contributing to same store sales growth obviously, when they hit sort of month 13. So we we're incredibly proud of the team that Mo Mo.

Jonathan Fitzpatrick: Yeah, Pete Jonathan here on the openings. Yeah, we're sort of actively working through, you know, what locations in our pipeline we can exit or sell. So I think the 20 number that we gave at the investor day will likely be lower, sort of a work in progress here, but, you know, we'll update throughout the year, but definitely lower than the 20 we gave. I understand. Thanks guys. Good luck. Thank you.

<unk> and the team and all the efforts that doing there. So we expect to see continued growth in that maintenance segment, specifically would take five I'll change.

Okay, Thanks for that and congrats on the progress.

Seth Sigman: Your next question comes from the line of Seth Sigman from Barthlee. Please go ahead. Great.

Thanks.

Your next question comes from your line of <unk> from Logan Stanley. Please go ahead.

Jonathan Fitzpatrick: Good morning, everyone. I wanted to focus on the maintenance business. I think you gave us a quick loop. The 14% comes very strong. What's happening in the rest of the maintenance business? I know there have been some mixed messages out there across the industry, but it does seem like you're outperforming pretty nicely here. So there's any more perspective on the rest of maintenance and what you're seeing from a consumer perspective, and then I won't follow up.

Hey, good morning, everyone I wanted to focus on car lunch for a minute so margins are a bit lower.

Where we are today, obviously versus prior can you talk about your confidence in the time frame in which margin stabilize and it feels like it's a little bit beyond even sales deleverage I think we have 10 to 15 points of lower margins. So how do you separate that out between weaker sales.

Jonathan Fitzpatrick: Thank you. Hey, Seth, it's Jonathan. Yeah, look, take five all change represents over 90% of our maintenance segment. The balance is our minicky business, which is a pure franchise business and continues to perform very steady. And, you know, we're not seeing any sort of major trend changes in that minicky business. But again, take five all changes is more than 90% of that segment. So that's the key driver in it.

Higher rent or other miscellaneous things in within the margin.

Good morning Simian.

Look I think nothing has dramatically changed from what we talked about it investor day, we do have headwinds and the the U S. Carwash business in terms of macro consumer demand along with the competitive intrusion that we've spoken about before we've also seen incremental margin pressure from.

Jonathan Fitzpatrick: Perfect. And then just from a margin perspective, you know, both quarter over quarter and year over year, nice improvement here. And in fact, the last couple of quarters, you've seen a big step up in the profitability of the maintenance segment. Can you just talk about the drivers there and maybe some perspective on whether that's starting to reach a ceiling or do you feel like you're still more room to go? Thanks. Yes, Seth, look, you know, like we talked about at the investor day, this take five all change business is one of the greatest multi-unit businesses that I've ever been involved with.

Approximately seven plus million dollars, a sale and leaseback expanse. That's on the business. This year. We've also got 57 stores that are less than one year olds, which are ramping and therefore, they tend to be sort of margin dilutive as they get to their ramp cycle.

Danny has been really focused on sort of that middle part of the P&L to make sure that we're managing margins on a go forward basis. So.

Jonathan Fitzpatrick: We've got, you know, significant same-store sales growth, positive traffic. You know, we've also got natural ARO or check growth in that business. The team has executed phenomenally well with our attachment rate of our big four items. You know, our NPS scores are still in the high 70s, which is, you know, top two bucks and likelihood to refer. And then obviously we've got, you know, significant amount of new stores that are ramping contributing to, you know, same-store sales growth, obviously, when they hit sort of month 13.

I think we are really working hard on the things that we can control and we are optimistic that we will see margin improvement over the next several quarters in that Carwash business again on the things that we can control.

And May I ask on the glass business I think Danny mentioned a couple of things.

Both in terms of revenue outlooks and then in terms of I don't know, if it's profit normalization or the streamlining of somebody's acquisitions.

Jonathan Fitzpatrick: So we are incredibly proud of the team that Moe and the team and all the efforts that doing there. So we expect to see continued growth in that maintenance segment, specifically, would take five all change. Okay, thanks for that and congrats on the progress. Thanks, Seth.

Respecting could take some time, but curious what the timeframe.

The pace of progress and again not getting ahead of yourself, but just what what's what's a realistic timeframe for the margin rate of that business to ramp and then move up into the right.

We are dealing with self-inflicted execution issues on the integration Symbian and we hold ourselves fully accountable for that but.

Simeon Gutman: Your next question comes from the line, FCM and Gutman from Morgan Stanley. Please go ahead. Hey, good morning, everyone.

But stepping back when I look at the underwriting thesis for driven Brian is getting into the glass business in the United States Nothing I repeat nothing has changed in our conviction around the long term opportunity. There. There is an opportunity for us to be a really large scale player. We've got the ability to.

Simeon Gutman: I wanted to focus on car wash for a minute. So margins are a bit lower where we are today, obviously, versus prior. Can you talk about your confidence in a timeframe in which margins stabilize? And it feels like it's a little bit beyond even sales-deliverage. I think we have 10 to 15 points of lower margins. So how do you separate that out between weaker sales, you know, higher rent or other miscellaneous things and within the margins?

To execute on retail customers commercial customers and grow our insurance business. The unit economics will be very powerful in this business the capital required to open new stores will be very attractive.

Simeon Gutman: Morgan. Morning, Simeon. Look, I think nothing's dramatically changed from what we talked about at, you know, investor day. We do have headwinds in the US car wash business in terms of, you know, macro consumer demand, along with the competitive intrusion that we've spoken about before. You know, we've also seen incremental margin pressure from, you know, the approximately seven plus million of sale lease back expense that's on the business this year. We've also got, you know, 57 stores that are less than one year old, which are ramping and therefore, you know, they tend to be sort of margin dilutive as they get to their ramp cycle.

So nothing has changed in terms of our long term optimism around this business and as Danny said, we hope to have the majority of these integration challenges behind us as we exit Q1 of next year. So we remain really really bullish on the long term opportunities for this class business.

Okay. Thanks, guys. Good luck.

Your next question comes from the line.

Vicki from Bank of America. Please go ahead.

Great. Thank you I just to follow up on the Carwash business that you mentioned that the international operations are performing a little better than the U S. Can you help us quantify that in terms of comp growth in the U S vs International and then additionally, what the U S. Carwash comp would've looked like excluding the 29 underperforming stores at your club.

Simeon Gutman: Danny's been really focused on sort of that middle part of the P&L to make sure that we're managing margins, you know, on a go forward basis. So, you know, I think we are really working hard on the things that we can control. And, you know, we're optimistic that we'll see margin improvement, you know, over the next several quarters in that car wash business, again, on the things that we can control.

Housing.

He lives, it's Jonathan Yeah look I'll I'll first of all I just.

Congratulate Tracy and the European team for just continuing to deliver really solid results and fairly challenging economic conditions in Europe.

Jonathan Fitzpatrick: May I ask on the glass business, I think Danny mentioned a couple of things. Both in terms of revenue outlook and then in terms of, I don't know, profit normalization or the streamlining of some exact positions, you know, respecting, you know, could take some time, but curious what the timeframe, the pace of progress, and again, not getting ahead of yourselves, but just what's the realistic timeframe for, you know, the margin rate of that business to ramp and then, you know, move up into the right.

European team is really delivered a really good sort of first three quarters of the year and expect them to sort of finish the year strong.

We don't dissect instead of the comps within within the sub segments within Carwash I will tell you that.

Proud of the European business, but the the landscape there is generally different and doesn't have some sort of competitive nature.

Jonathan Fitzpatrick: You know, we are dealing with self-inflicted, you know, execution issues on the integration, semi and then, you know, we hold ourselves fully accountable for that. You know, but stepping back, when I look at the underwriting thesis for driven brands getting into the glass business in the United States, nothing, and I repeat, nothing has changed in our conviction around the long-term opportunity there. There is an opportunity for us to be a really large-scale player.

And forces that the us business has.

In terms of.

So I would stop there, but we're not and in terms of the store closures Les we're going to close 29 stores use carwash stores in.

Jonathan Fitzpatrick: We've got the ability to execute on retail customers, commercial customers, and grow our insurance business. The unit economics will be very powerful in this business. The capital required to open new stores will be very attractive. So nothing has changed in terms of our long-term optimism around this business. And as Danny said, you know, we hope to have the majority of these integration challenges behind us as we exit Q1 of next year. So we remain really, really bullish on the long-term opportunities for this glass business.

Q for.

Those stores, where 13 years of age on average.

The vast majority of them had competitors open up within a close proximity to those stores every one of them on on LTN basis had negative same store sales negative traffic and therefore also negative EBITDA.

As I mentioned, we will have a nominal benefit small benefit in queue for and will reap the full benefit of those those closures on the financials in 2024, but we're not disclosing the specific amount, but it's.

Again nominal in queue for almost see some fulfill your benefit next year.

I understood and just on the competitive environment and Carwash. What do you think has really changed in the last couple of quarters as you've been talking about it more and are you seeing irrational competitive behavior coming from any of the larger chains smaller competitors like where are you seeing the bad actors in that sector.

Unknown Executive: Okay. Thank you guys. Good luck.

Liz Suzuki: Your next question comes from the line of Liz Suzuki from Bank of America. Please go ahead. Great. Thank you. I'd just to follow up on the car wash business a bit. You mentioned that the international operations are performing a little better than the U.S.

Sector.

Yeah like I I wouldn't call any of my competitors bad actors. We're all we're all fighting for our share in the market I think Liz what's happened is we've been in this industry now for over three years.

Jonathan Fitzpatrick: Can you help us quantify that in terms of comp growth in the U.S, versus international, and then additionally what the U.S, car wash comp would have looked like excluding the 29 underperforming stores that you're closing? Hey, Liz. It's Jonathan. Yeah. Look, first of all, I just congratulate Tracy and the European team for just continuing to deliver really solid results in fairly challenging economic conditions in Europe. That European team has really delivered a really good sort of first three quarters of the year, and expect them to sort of finish the year strong.

It has at least from our perspective changed from a competitive dynamic when we first got into this industry back in that late 2020, I think I've mentioned before that we now have.

Almost 20, I think the exact number we've reported as 19.

Quote unquote platform platforms in Carwash with sort of institutional capital behind them. So what we've seen is Justin.

Pretty seismic shift and the number of new units that have opened over the last three years, we do think that that's likely to continue although moderate as we look into 2000 2425. So I think we've just got a lot more competition.

Jonathan Fitzpatrick: Liz, we don't dissect the comps within the sub-sextmins within car wash. I will tell you that very proud of the European business, but the landscape there is generally different and doesn't have some of the competitive natures and forces that the U.S, business has. In terms of So, I would stop there, but we're not, in terms of the store closures, Liz, you know, we're going to close 29 stores, US car wash stores in Q4, those stores were 13 years of age, on average, the vast majority of them had competitors open up within a close proximity to those stores.

Within the U S carwash space than.

Then we did three or four years ago, So I don't see that dramatically changing but.

But I wouldn't call any of my competitors bad actors.

Okay. Thank you.

And next question comes from the line F K Mccain from gardens. Please [noise].

Hi, Good morning, Thanks for taking my question Uhm at the Investor Day, you outlined expectations for adjusted EBITDA can more than double in 2024.

Jonathan Fitzpatrick: Every one of them on an LTM bases had negative same store sales, negative traffic, and therefore also negative EBITDA. As I mentioned, we'll have a nominal benefit, small benefiting Q4, and we'll reap the full benefit of those, you know, those closures on the financials in 2024. But we, we're not disclosing this specific amount, but it's, you know, again, nominal in Q4 and we'll see some full, full year benefit next year.

Is that still how you're thinking about the business next year, especially in the context of the Carwash.

Carwash asset sales.

Hey, Jonathan Yeah look, we're obviously not going to get 2024 guidance at this point, but nothing has changed in our narrative from the Investor day. So I can reaffirm what we said an investor day, but when we're.

We're not going to give 2024 guidance just yet.

Okay, and then if we could just ask a follow up question also on Carwash.

Jonathan Fitzpatrick: Understood, and just on the competitive environment in Carwash, what do you think has really changed in the last couple of quarters has been talking about it more, and are you seeing irrational competitive behavior coming from any of the larger chains, is it smaller competitors like where are you seeing the bad actors in that sector. Yeah, look, I wouldn't call any of my competitors bad actors, you know, we're all, we're all fighting for our share in the market.

We just wondered if you could talk about what you're seeing in the subscription growth or what you saw in the third quarter for subscription growth with Carwash.

Yeah trends have been pretty similar there Kate we've seen that net membership growth in in.

In Q3, very similar to what we've seen over the past I think what danny's doing and appropriately. So is looking at you know the discounting and promotional activity that has been used in the past to drive some of those new members and really looking at the economic lifetime value of what the what those <unk>.

Jonathan Fitzpatrick: I think Liz, what's happened as we've been in this industry now for, you know, over three years, you know, it has at least from our perspective changed from a competitive dynamic when we first got into this industry back in that late 2020. I think I've mentioned before that we now have almost 20, I think the exact number we've reported is 19, quote unquote platform platforms in Carwash with sort of institutional capital behind them.

Memberships are based on discount levels. So we have seen still net net member growth in Q3, but I think one of the things that we're working through us.

What is the right pricing promotion discounting strategy, both for retail customers and on the membership side some more to come on that but we did see net growth and members.

Jonathan Fitzpatrick: So what we've seen is just an, a pretty seismic shift in the number of new units that have opened over the last three years. We do think that that's likely to continue although moderate as we look into 2024 and 25, so I think we've just got a lot more competition, you know, within the US carwash space. Then we did, you know, three, four years ago, so I don't see that dramatically changing, but I wouldn't call any of my competitors bad actors. Okay, thank you.

Thank you.

Okay. Our next question comes from the line as Christopher Jose J P. Marketing. Please go ahead.

Hi, Good morning, It's Christian currently now on for Chris.

We were just wondering are there are there any particular markets, where the carwash closings are concentrated in and any early read from the cross marketing the car wash locations at the equipment.

Hey, Chris It's Jonathan Yeah, there's no one market, where we're over concentrated.

Kate Mcshane: In the next question, come from the line of Kate McChain, some goblins, please go ahead. Hi, good morning. Thanks for taking our question. At the investor day, you outlined expectations for adjusted eaves of degrees to more than double in 2024. Is that still how you're thinking about the business next year, especially in the context of the carwash asset sales? Hey, Kate Jonathan, yeah, look, we're obviously not going to give 2024 guidance at this point, but nothing has changed in our narrative from the investor day, so I can reaffirm what we said in investor day, but we're not going to give 2024 guidance just yet.

Some of our as I mentioned some of those assets for 13 years old. They were typically some of the legacy assets that we purchased.

Back in August of 2020, so you see probably a little over indexing and some of the alcohol at the southeast markets, but there is not one market in particular, so thats data point number one data point number two on the the loyalty platform that dining in team will be rolling out that test will start in queue for we're excited about.

Getting that up and running and look forward to reporting on that as we sort of progress the hopefully tests into full rollout and we will certainly be updating as we go through the quarters next year.

Kate Mcshane: Okay, and then if we could just ask a follow question also on carwash. We just wondered if you could talk about what you're seeing in the subscription growth or what you saw in the third quarter versus subscription growth with carwash. Yeah, trends have been pretty similar to their Kate, we've seen that net membership growth in Q3, you know, very similar to what we've seen over the past. I think what Danny's doing and appropriately so is looking at, you know, the discounting and promotional activity that has been used in the past to drive some of those new members and really looking at the economic lifetime value of what those membership are based on discount levels.

Got it that's helpful and and just to clarify on an earlier question.

The parts retailers are talking about deferred maintenance.

The macro is.

Pressure and even Nondiscretionary services see different went to a recession for you see things snap back.

You are clearly gaining share but are there any signs of this any reason to the consumer.

While the other than our sort of less discretionary carwash business in the U S. Chris.

As Gary mentioned earlier, obviously, the maintenance business is performing exceptionally well and the rest of our franchise businesses are continuing to generate very good returns. So I would say at this point in time outside of us Carwash and self inflicted integration challenges what use glass we are not seeing.

Kate Mcshane: So, you know, we have seen still net member growth in Q3, but I think one of the things that we're working through is, you know, what is the right pricing promotion discounting strategy, both for retail customers and on the membership side, so more to come on that, but we did see net growth in members.

Trajectory change in terms of the consumer deferring service.

Got it thank you very much.

Yeah next question, Kansas Underline S. P O T. Some papers Tingly. Please go ahead.

Kate Mcshane: Thank you.

Christopher Horvers: Here next question comes from the line as Christopher Horvers from JP Morgan, please go ahead. Hi, good morning, it's Christian Carlino on secret. You were just wondering, are there any particular markets where the car wash closings are concentrated in and is any early read from the cross marketing, the car wash location at the equipment.

Hi, Thanks for good morning, guys.

I just was trying to think more about that 850 million goodwill charge on Carwash and.

Talking about year round your DCF, but it certainly seems like you've taken down a long term value of that segment. So.

I guess there is investors how should we think about the real opportunity to drive growth there with with that type of breakdown.

Jonathan Fitzpatrick: Hey, Chris, it's Jonathan. Yeah, there's no one market where we're over concentrated. You know, some of our, as I mentioned, some of those assets were 13 years old. They were typically some of the legacy assets that we purchased, you know, back in August of 2020. So you see probably a little over indexing in some of the, I'll call it the southeast markets, but there's not one market in particular. So that's paid a point number one.

Yes, Peter So as we said an investor day, and we gave our long long term guidance for the entire company, including U S. Carwash and said on that call that we did not expect much of that to be driven.

By U S Carwash and so when you take that model and put a higher interest rates on it and.

Multiples coming down in the sector. When you Gotta do your impairment analysis that that's what it kicks out I don't think we said anything about not believing in this space over the longer term. It's just when we when we do the math, that's that's where we come out to.

Jonathan Fitzpatrick: Data point number two on the loyalty platform that Danny and team will be rolling out. You know, that test will start in Q4 where excited about, you know, getting that up and running and look forward to reporting on that as we sort of progress the, you know, hopefully test into full rollout and we'll certainly be updating as we go through the quarters next year. Got it, that's helpful.

Hi, I'm Peter is Jonathan I would just follow up and say nothing has changed in terms of our multiyear strategy with us Carwash. We still think it's a very very good sector to be and however, what we stated that investor day, and I'll say that again today as we will not be deploying incremental capital into that business until we've got the base business performing to a level.

Jonathan Fitzpatrick: And then just to clarify on an earlier question, you know, some of the parts retailers are talking about deferred maintenance. The macro is, you know, it's a pressure and even non discretionary services will see deferral and do a recession for you see, you know, thanks snap back. You're clearly gaining share, but are there any signs of this, you know, any read into the consumer? Other than our sort of less discretionary car wash business in the US, Chris, you know, as Gary mentioned earlier, obviously the maintenance businesses performing exceptionally well.

That we believe it deserves incremental capital so.

To come there and obviously, we are working incredibly hard Danny.

Danny and his team.

To control the things that we can control and that U S. Carwash business and we're optimistic that we can get it back to the point that it deserves incremental capital.

Okay very good and then.

Jonathan Fitzpatrick: And the rest of our franchise businesses are continuing to generate very good returns. So I would say at this point in time outside of US car wash and self-inflicted integration challenges with US glass, we are not seeing trajectory change in terms of the consumer deferring service. Got it, thank you very much.

I want to pay that over to the <unk> segment.

So.

Growth is strong, but but did step down sequentially nearly by four points.

I was wondering if you could help unpack that a little bit because we do hear about very strong trends in collision.

Particularly with ticket growth and I'm guessing now you have some your glass <unk> can't base.

So is it the glass businesses that you require to accompany negative or what's what's driven the slowdown overall.

Peter Tiss: Your next question comes from the line of Peter Tiss from Piper Sandler. Please go ahead. Hey, thanks. Good morning, guys. I just was trying to think more about that, 850 million good will charge and car wash. You're talking about your annual ECF, but it certainly seems like you take it down along term value of that excitement. So I guess here is investors, especially we think about there's a real opportunity to drive growth there with that type of breakdown.

Yeah.

I think the theme is very similar to what Gary said at the start of the call Peter is that R. P and see.

Excuse me <unk>.

<unk> segments are performing very well.

Very pleased with our collision business and you mentioned, we're seeing strong demand.

From our insurance partners in that in that space.

The only negative in the P. C and G segment is the U S class business, which you're right. Some of those businesses are coming into the comm set right now our focus is getting that integration challenges behind us primarily in the rear view mirror by the end of Q1. So I think we're very pleased.

Gary Ferrera: Yeah, Peter, so as we said in investor day, you know, we gave our long term guidance for the entire company, including US car wash, and said on that call that we did not expect much of that to be driven by US car wash. And so when you take that model and put higher interest rates on it and, you know, multiple coming down in the sector, when you got to do your impairment analysis, that's what kicks out. I don't think we said anything about, you know, not believing in the space over the longer term. It's just, you know, when we do the math, that's what we come out to.

With many parts of our business, but we've got to solve spots right now, which is kind of the beauty of driven brands is that we're still able to deliver top line revenue EBITDA growth. Despite not having all all parts of the business working at one point. So we're excited about 2024.

And getting the U S glass challenges behind us.

Jonathan Fitzpatrick: Hey, and Peter, it's Jonathan, I would just follow up and say, nothing has changed in terms of our multi-year strategy with US car wash. We still think it's a very, very good sector to be in. However, what we stated at investor day and I'll state it again today is we will not be deploying incremental capital into that business, until we've got the base business performing to a level that we believe it deserves incremental capital.

Okay very good thanks, so much guys.

Thank you.

Your next question comes from your line of credit darker from Stifel. Please go ahead.

Yeah. Thanks for scary is that.

The company's sales assets what are the requirements under.

Dead agreements to use the proceeds and maybe how many locations are included in that $271 million of assets held for sale.

Jonathan Fitzpatrick: So, you know, more to come there and obviously we're working incredibly hard, you know, Danny and his team, you know, to control the things that we can control in that US car wash business. And we're optimistic that we can get it back to the point that it deserves incremental.

Yeah. So obviously you know our debt structure is multifaceted so different things of all the different bucket use carwash is very much.

Tied to the the term loan so I mean, the thought process here.

Will either use it to pay down debt or general corporate purposes, but it's not overly specific depending like.

Every every sale we make so it's very covenant light on that terminal and I would just follow up Chris none of those the vast majority of that pipeline are not open and operating stores. So there is no.

[noise] obligations in terms of where the proceeds would have to go from the sale of pipeline. So just to confirm that.

Okay, and then how many locations where they are and that 271.

It's over 130.

Okay and then thanks.

Danny you mentioned focusing on improving margin at the carwash with fewer promotions and pricing changes, which which seemed to create some problems for the top line.

Are you expecting the comp trend to weaken as you reduce promotions and and try to improve the margin.

So Chris.

Thanks for the question, but ultimately when it comes to the Carwash business I'll, just reiterate where focus on on operations in improving margins. We discuss the series of things that were focused on I mentioned in my prepared remarks, and don't see don't see that being tied to declining sales were just focus on.

Like I said, improving the operations in improving the margins of the business of making sure that we drive both of those.

Okay, great. Thanks, guys.

Yeah No further questions at this time I have now like I tend to call back or that I can say.

Fitzpatrick C L signing accordingly.

Thanks, everyone and I appreciate you joining us today and just a reminder that are short term focuses on delivering.

Twenty-three guidance.

And then obviously setting driven up for I really strong 2024. So thank you all we look forward to talking to you on our queue for earnings call.

Thank you ladies and gentlemen does conclude your conference call for today <unk>. Thank you for participating and ask that you. Please disconnect your lines how about everything.

[music].

Unknown Executive: There are no further questions at this time.

Jonathan Fitzpatrick: I'd now like to turn the call back over to Mr. Jonathan Fitzpatrick, CEO, finally closing remarks. Thanks everyone and appreciate you joining us today and just a reminder that our short-term focus is on delivering, you know, 2023 guidance and then obviously setting driven up for a really strong 2024. So thank you all.

Jonathan Fitzpatrick: We look forward to talking to you on our Q4 and eSchool. Thank you, sir.

Operator: Ladies and gentlemen, this concludes your conference call for today.

Operator: We thank you for participating and ask, but you please disconnect your lines. Have a lovely day.