Q3 2024 Driven Brands Holdings Inc Earnings Call
The One
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Speaker Change: Good morning ladies and gentlemen and welcome to the Drurham Branson in Q3 2020 for earnings conference call
Speaker Change: At this time, I'll line through and listen only mode. Following the presentation, we will conduct a question in after session.
Speaker Change: If at any time during this call you required me to the Assistant, please press stars here for the operator. This call has been recorded on Thursday, October 31, 2024. I would not like to turn the conference over to Joel Arnao, SVP of Finance Treasury and Investor Relations. Please go ahead.
Speaker Change: The End
Speaker Change: The End.
Joel Arnao: Good morning and welcome to Driven Brand's third quarter 2020-24 earnings conference call.
Speaker Change: The earnings release and leverage racial reconciliation are available for download at our website at investors.jardenbrands.com
Speaker Change: On the call today with me are Jonathan Fitzpatrick, President and Chief Executive Officer, Danny Rivera, Executive Vice President and Chief Operator and Mike Diamond, Executive Vice President and Chief Financial Officer.
Speaker Change: In a moment, Jonathan, Danny and Mike will walk you through our financial and operating performance for the quarter.
Speaker Change: Before we begin our remarks, I'd like to remind you that management will refer to certain non-gap financial measures.
Speaker Change: You can find these reconciliation to the most directly comparable gap financial measures on the company's investor relations website and in our file, with the Securities and Exchange Commission.
Speaker Change: Join the course of this call, we will also make four looking statements in regards to our current plans, beliefs and expectations.
Speaker Change: The statements are not guarantees for future performance and are subject to a number of risk and uncertainties and other factors that could cause actual results and events to differ materially from the results and events contemplated by these four looking statements.
Speaker Change: Please see our earlier release and our filing with these security is in exchange for more information.
Speaker Change: Today's prepared remarks we followed by a question and answer session.
Speaker Change: We ask you to limit yourself to one question and one follow-up. Now, I'll turn it over to my partner, Jonathan.
Jonathan Fitzpatrick: Good morning. Thank you for joining us today to discuss driven brands third quarter 2024 financial results.
Jonathan Fitzpatrick: First, I want to acknowledge the hard work and great execution by our more than 10,000 driven brand team members and our amazing franchisees for how they continue to navigate an extremely dynamic macroeconomic environment.
Jonathan Fitzpatrick: Now my focus remains steadfast on free key priorities. Firstly, delivering our 2024 outlook. Secondly, utilizing excess free cash flow to reduce debt and thirdly active portfolio management.
Jonathan Fitzpatrick: Now I will begin with the review of our third quarter 2024 highlights and corporate initiatives and then turn it over to Danny who will discuss some of our operating segments and then Mike who will detail our third quarter financial results and full year outlook.
Jonathan Fitzpatrick: I'd like to add that Mike, while only with driven for a quarter, is having a terrific impact.
Jonathan Fitzpatrick: Mike has deep experience with multi-unit businesses, understands the importance of driving cash flow and paying down debt and knows where we should be prioritizing resources to maximize equity value.
Jonathan Fitzpatrick: For Q3 2024, we delivered revenue of $592 million up 2% versus a prior year.
Jonathan Fitzpatrick: Supported by 56 Net News stores and 1.1% same store sales growth are 15th consecutive quarter of positive same store sales growth.
Jonathan Fitzpatrick: and an adjusted EBITDA on 138.8 million generating deluded adjusted EPS of 26 cents per share.
Jonathan Fitzpatrick: Now we continue to be pleased by the performance of our take five all change and franchise businesses.
Jonathan Fitzpatrick: All being key contributors to a solid Q3 2024.
Jonathan Fitzpatrick: Q3 results were good, despite significant weather impacts from four named hurricanes in Q3.
Jonathan Fitzpatrick: On fortunately, whether we'll be another factor in Q4, as we experienced impacts from Hurricane Milton, particularly affecting our take five old chain stores in South Florida.
Jonathan Fitzpatrick: I'm happy to report all stores are back up and running.
Jonathan Fitzpatrick: As discussed in our Q2 earnings call, we anticipate that the ongoing inflationary environment will likely continue to pressure consumer spending for the remainder of 2024 with lower income households being the most impacted.
Jonathan Fitzpatrick: and we expect that this pressure will be somewhat mitigated by strength in our commercial business and our needs-based businesses.
Jonathan Fitzpatrick: We remain focused on delivering our 2024 outlook, even with ongoing consumer uncertainty and major weather events in Q3 and Q4.
Jonathan Fitzpatrick: Michael provides more details on our 2024 outlook shortly.
Jonathan Fitzpatrick: I'd now like to spend a few minutes on some tea corporate initiatives.
Jonathan Fitzpatrick: As previously reported, we closed on the sale of PHVT, our Canadian Distribution Business on August 31st.
Jonathan Fitzpatrick: This strategic decision allowed driven to exudate lower priority, lower growth business, and utilize the proceeds to pay down debt. Michael covered the full year impact to driven shortly.
Jonathan Fitzpatrick: We've received a lot of questions regarding our US car wash asset over the past several quarters.
Jonathan Fitzpatrick: The US car wash business has been under strategic review and I'm confident we'll have a definitive view but the time we announced fiscal 2024 results.
Jonathan Fitzpatrick: Additionally, Mike and I continue to evaluate additional opportunities for portfolio management, which would help simplify our operations by exiting non-core businesses and further reducing debt.
Jonathan Fitzpatrick: Our team is continuing to make good progress on the vesting our US car wash pipeline properties.
Jonathan Fitzpatrick: As a reminder, through Q2, we had sold approximately $100 million of assets.
Jonathan Fitzpatrick: and we sold an additional 60 million in Q3.
Jonathan Fitzpatrick: This puts the year today total at approximately $160 million.
Jonathan Fitzpatrick: As I have previously mentioned, reducing our overall leverage remains one of my primary objectives.
Jonathan Fitzpatrick: Our goal was to finish the year at 4.5 times or below which I'm pleased to report we achieved into three.
Jonathan Fitzpatrick: Our focus now shifts to achieving our target of less than three times leverage by year and 2026 or sooner.
Jonathan Fitzpatrick: Now let me spend a few minutes on some key drivers of our results.
Jonathan Fitzpatrick: Take 5-0 change and our franchise businesses.
Jonathan Fitzpatrick: Q324 marks the 17th consecutive quarter of positive same store sales growth for take 5-0 change.
Jonathan Fitzpatrick: Revenue grew by 15% even though grew by 14% compared to Q323 and we opened 45 new stores in the quarter.
Jonathan Fitzpatrick: As of 23, approximately 40% of take five stores are franchiseed.
Jonathan Fitzpatrick: Over a two-year period, our franchise store count has almost doubled.
Jonathan Fitzpatrick: and we anticipate franchisees to account for approximately 50% of our total take five locations over time.
Jonathan Fitzpatrick: Our unit economics continue to attract new franchisees and drive our existing franchisees to sign incremental development agreements.
Jonathan Fitzpatrick: Today we have a very robust pipeline of approximately 1,000 sites in place.
Jonathan Fitzpatrick: One that we built organically over the past five years and will continue to build.
Jonathan Fitzpatrick: We have direct real estate visibility into more than a third of this pipeline.
Jonathan Fitzpatrick: which provides us with clear line of sight into the next five years of unit growth and achieving our target of at least 2000 locations.
Jonathan Fitzpatrick: Take five oil change performance and growth rates over the past three years are as good or better than Annie National scaled oil change business.
Jonathan Fitzpatrick: We will continue to prioritize growth for this brand as its competitive positioning and long runway for growth will help drive significant value for driven long term.
Jonathan Fitzpatrick: Over time we remain optimistic that analysts and investors will come to appreciate the massive value that take five all change has and will continue to deliver.
Jonathan Fitzpatrick: i
Jonathan Fitzpatrick: I want to make sure that investors and analysts understand the importance of our franchise businesses.
Jonathan Fitzpatrick: which today are spread across our maintenance, PC and G and platform services segments.
Jonathan Fitzpatrick: and include market leading brands like Mianiki, Maco, Carstar, and 1-800 radiator.
Jonathan Fitzpatrick: Driven was founded on franchise businesses in the needs-based auto services category. And today we are the world's largest franchise ore of auto service brands.
Jonathan Fitzpatrick: We have hundreds of dedicated employees whose soul mission is to help our franchisee be successful and to be in business for themselves but not buy themselves.
Jonathan Fitzpatrick: These businesses, some of which have been around since the early 1970s, are run by long, tenured franchisees who wake up every day focused on delivering great service to their customers.
Jonathan Fitzpatrick: Today we have more than 2600 franchise locations across multiple categories.
Jonathan Fitzpatrick: Combined these businesses generate more than $80 million of advertising funds, which we use to continue to drive sales and traffic.
Jonathan Fitzpatrick: Our franchise businesses represent approximately 2-3rds of driven system sales.
Jonathan Fitzpatrick: With more than 50% of those systems sales coming from long-standing sticky predictable commercial partners.
Jonathan Fitzpatrick: Our scaled franchise businesses are the largest in the industry.
Jonathan Fitzpatrick: and Asset Light, providing driven with consistent, predictable growth, compelling Asset Light margins and steady cash flow.
Jonathan Fitzpatrick: Recurring steady cash flow from our franchise businesses allows us to fund growth and investment in our industry leading take five all change brand.
Jonathan Fitzpatrick: This is the compelling one-two punch of growth and cash flow.
Jonathan Fitzpatrick: In addition to this one-to-punch, we have other levers that we expect to drive growth over time for driven.
Jonathan Fitzpatrick: Revenant Advantage is our online marketplace where our company stores, franchisees and affiliates can purchase over 90,000 skews from more than 50 vendor partners.
Jonathan Fitzpatrick: ranging from office supplies to paint, oil and equipment.
Jonathan Fitzpatrick: Since its launch in Q1223, approximately 80% of eligible locations have already begun purchasing products and services on the platform.
Jonathan Fitzpatrick: This is a uniquely powerful platform we have created that benefits our franchiseeys, company stores, vendor partners and driven.
Jonathan Fitzpatrick: Finally, our glass business, all the glass now, provides a compelling entry point into an attractive and market.
Jonathan Fitzpatrick: And as I mentioned on our Q2 call, earning insurance and commercial business can take time. And we want to do it right because of the importance of long-term sustainable partnerships.
Jonathan Fitzpatrick: We remain very confident in the long-term opportunity for this business.
Jonathan Fitzpatrick: for recognizing it will take time to deliver growth.
Jonathan Fitzpatrick: My focus in 2024 is clear.
Jonathan Fitzpatrick: Delivering on our outlook.
Jonathan Fitzpatrick: Reducing that an active portfolio management.
Jonathan Fitzpatrick: We have a platform that generates high steady state returns with a long runway for reinvestment of attractive returns.
Jonathan Fitzpatrick: and we're incredibly motivated to see our valuation mirror our results over time.
Speaker Change: Now let me hand it over to my partner, Danny, our chief operating officer to discuss our key business segments.
Danny Rivera: Thank you Jonathan. I'd like to start by thanking our drubin employees and French I.V.
Danny Rivera: Whether Rating the Intense Summer Heat, or dealing with the aftermath of devastating hurricanes, their unwavering commitment ensures that our customers can quickly get back on the road to support their families, businesses, and communities.
Danny Rivera: I'd like to begin by restating that my priorities for 2024 remain unchanged.
Danny Rivera: and sure take five continues to deliver against our expectations, improve the trajectory of Autoblast now and our US Car Wash business.
Danny Rivera: Continue to grow German advantage.
Danny Rivera: and makes certain that our legacy franchise brands generate consistent growth with even on margins exceeding 50%.
Danny Rivera: In the third quarter, we encountered significant challenges from four major hurricanes.
Danny Rivera: Barrel, Debbie Francine and Helen.
Danny Rivera: which impacted several key markets across the southern and eastern United States.
Danny Rivera: While all locations are back open and operational, these storms affected both consumer behavior and our operations, from the day leading up to the hurricanes through the extended aftermath.
Danny Rivera: Pre-Hurricane, we saw decline in demand as customers postpone non-essential services like car washes and oil changes.
Danny Rivera: Post-furcane are business continues to face disruptions as consumers prioritized immediate recovery efforts, while infrastructure issues such as power outages, road closures and flooding impacted our ability to operate.
Danny Rivera: While we were still evaluating the full financial impact, we estimate that more than 500 locations were affected, resulting in over 1,500 loss retail days, and a system-wide sales loss of up to $10 million, which resulted in a same store sales impact of approximately 70 basis points.
Danny Rivera: Turning Nose to our meetman segment, which once again saw year-over-year growth in system-wide sales, revenue and adjusted even though.
Danny Rivera: Our strong performance was largely driven by take five oil change. The crown jewel of the driven portfolio and home of the ten-minute Stain Your Car Oil Change.
Speaker Change: As Jonathan mentions, take five continues to deliver exceptional results marked by 17 consecutive quarter of positive same source sales and a 14.6% revenue increase compared to the same quarter prior year.
Speaker Change: St. Stor sales for 5.4% for the quarter, primarily fueled by ticket growth, with non-oil change revenue being the largest driver and pre-immigration being a secondary driver.
Speaker Change: Take five all-chains also delivered adjusted EVID Dog Growth of 14.4% compared to Q3 of 2023 and EVID Dog Margins of 32.9% for the quarter.
Speaker Change: Despite the tougher environment for consumers, we've continued to see no material change in overall demand and strong trends with our non-oil revenue and premiumization.
Speaker Change: are strudging with take five old changes simple to have the best fastest growing multi-channel business in quick loot.
Speaker Change: To be the best retailer in the quick loop industry, consistently acquiring and retaining customers is crucial.
Speaker Change: Take five excelsin both areas. We effectively acquire customers by executing a balanced marketing strategy that combines broad, rich brand campaigns with cost-efficient data-driven local campaigns.
Speaker Change: Take five also enjoys strong repeat business by delivering an exceptional customer experience.
Speaker Change: Our fast-friendly and simple framework delivers 10 minutes, menu-based oil changes with no high pressure selling tactics.
Speaker Change: This customer-centric approach has earned us world-class and at promoters scores in the upper 70s.
Speaker Change: Our comprehensive strategy positions us well to capitalize on new opportunities and drive long-term growth.
Speaker Change: Finally, the Executive Management of the Middle Depyrentel is essential to sustaining our success.
Speaker Change: The team has maintained margins of approximately 33% by focusing on driving cog deficiencies through centralized purchasing and optimizing labor at the store level.
Speaker Change: We are committed to making take five old change, the fastest growing business in the industry.
Speaker Change: For the quarter, take five open 45 new units, bring our total network to 1,120 stores.
Speaker Change: We are on track to open approximately 170 new units in 2024, with around 110 of those locations being franchise-owned and arrest company-owned.
Speaker Change: Our goal of opening a 150 plus new locations per year remains intact for the foreseeable future.
Speaker Change: Supportive by a robust pipeline of over 700 franchise licenses sold and over 400 locations in our development pipeline.
Speaker Change: The key strength of take five growth strategy is our ability to expand through both franchise and company on locations.
Speaker Change: The man from French Disease to open new locations remains high and many of our existing French Disease have well developed real estate pipelines in place.
Speaker Change: At the same time, our company on locations continue to deliver impressive results, providing strong returns on capital and maintaining four-wall EBITDA margins in the low 40s.
Speaker Change: Finally, we want to have a diversified multi-channel business that can grow in various economic environments.
Speaker Change: We have developed a significant fleet business, serving customers across national rental, fleet management, and government sectors, as well as local fleet accounts from small businesses nationwide.
Speaker Change: Our fleet businesses outpacing our overall company growth, driven by both ticket growth and transaction growth. Thanks to new customer acquisitions and expanded business with existing customers.
Speaker Change: Turning to our PC and G-Signate.
Speaker Change: Q3 delivered revenue of $109 million, adjusted EBITDA of $34.7 million, and adjusted EBITDA margin of 31.9%.
Speaker Change: 2-3 same source sales were up 1.3% is the quant to improvement of 180 basis points over the prior quarter.
Speaker Change: The old days in the quarter were primarily driven by ticket growth across our paint and collision businesses.
Speaker Change: In our Collision business, we continue to steadily add direct repair programs throughout the quarter. Our U.S. Collision Business continues to outperform the industry as we gain market share with national claims.
Speaker Change: Auto Glass now, our company owned US Glass Business, continues its multi-year journey. In Q3, we sequentially improve same store sales, adjusted EFIDDA and adjusted EFIDDA margins.
Speaker Change: As part of our growth strategy, we remain focused on expanding relationships with regional insurance carriers and major commercial partners.
Speaker Change: K3 was particularly notable as we secured our first regional insurance account, where we were not only chosen as a partner, but also pointed as their third party administrator.
Speaker Change: This win reinforces our ability to provide competitive alternatives for regional glass needs and positions us to attract more partners across the country.
Speaker Change: Additionally, and Q3, we signed agreements with two additional national rental car companies further strengthening our presence in that market.
Speaker Change: Our platform services segment primarily comprise of 1,800 radiator to deliver segment revenue of 52.2 million, adjusted even doll of 22.5 million and adjusted even at margins of 43%.
Speaker Change: Now I'd like to turn our attention to our car wash segment.
Speaker Change: This quarter, Karl Watch delivered $142.2 million in revenue, $25.6 million in adjusted EBITDA and adjusted EBITDA margins of 18%.
Speaker Change: Stainstore sales increased 1.8% showing sequential improvement as well.
Speaker Change: Our International Car Wash Business had another solid quarter, helping to offset whether headwinds face fire US car wash business.
Speaker Change: which was significantly impacted by four hurricanes in core markets.
Speaker Change: While Hurricane's affected all of Driven's businesses, their impact on our U.S. car wash business was particularly pronounced because these are ultimately lost occasions.
Speaker Change: Even with less than ideal washing conditions, the demand for membership remains resilient, and we remain committed to growing our membership base.
Speaker Change: Our Recurrent Membership Program continues to experience conversion rates, steady at about three times the levels we observed at the beginning of the calendar year.
Speaker Change: To that end, I am thrilled to share that as of today, we have surpassed the remarkable milestone of 1 million members in the United States.
Speaker Change: This achievement is a testament to the exceptional dedication and hard work of our talented team members throughout the country over the last 10 months.
Speaker Change: Lastly, I'd like to highlight through the advantage, our online marketplace.
Speaker Change: or Company-owned stores, French-Azis and Affilients, can purchase over 90,000 skews to meet their business needs.
Speaker Change: Thurvin advantage continues to grow. We've added approximately 1,600 customers this year, primarily from our French as the youth and affiliates, and added features like automatic reordering and vendor promotions.
Speaker Change: Driven Advantage is a uniquely powerful platform created by Driven. That benefits our French-Revise company stores vendor partners and Driven as a whole.
Speaker Change: Overall, the third quarter represents another solid quarter for driven.
Speaker Change: Take five all-teens, continues to deliver best in class results.
Speaker Change: We generated significant improvement in same source sales and our collision business compared to the previous quarter. Additionally, we achieved positive compounds in our car wash segment, despite the challenges posed by four major hurricanes.
Speaker Change: Our legacy franchise businesses continue to generate adjusted EBITDA margins exceeding 50%.
Speaker Change: I want to extend my gratitude to the thousands of employees and franchisees whose hard work made this strong quarter possible.
Speaker Change: With that, I will turn it over to my partner Mike.
Mike Diamond: Thank you, Danny. Thank you for joining us.
Mike Diamond: I'd like to thank Jonathan Danny and the rest of the driven leadership team for such a warm welcome during my first three months of the company.
Mike Diamond: I joined Revan because I'm genuinely excited about the company's potential.
Mike Diamond: Portfolio of well-known, profitable and growing brands, underpinned by favorable industry dynamics, impressive of uniteconomics and strong free cash flow profiles.
Mike Diamond: I look forward to working with the team here at Grivind, a further-our-leadership in the automotive services category, and drive free cash flow generation to support the leveraging and profitable growth.
Speaker Change: I'd also like to take a moment to thank Joel Arnao for his leadership as interim chief financial officer prior to my arrival.
Speaker Change: Joel is a strong leader and I'm appreciative of his ongoing leadership of the finance function, as well as the partnership we've developed during my short time here at the company.
Speaker Change: Turning the Outwork 2-3 results.
Speaker Change: Driven recorded 15 consecutive court of positive-same store sales growth, increasing 1.1% in Q3.
Speaker Change: As Danny mentioned earlier, this includes a headwind of approximately 70 basis points from the hurricanes that impacted our business during the quarter.
Speaker Change: We saw strong comp growth in our meet-in segment led by our Take 5 World Change Business.
Speaker Change: with the Crusade Store sales by 5.4%.
Speaker Change: Our PCNG segment returned to growth in Q3.
Speaker Change: and Groen seems to force sales by 1.3%.
Speaker Change: Overall, driven added 56 net additional units this quarter.
Speaker Change: of which 14 are company owned.
Speaker Change: Take five oil change, lead the way with 45 net additional units in Q3.
Speaker Change: System wide sales for the company, root 2.1% in Q3 to $1.6 billion.
Speaker Change: Total revenue for Q3 was $591.7 million.
Speaker Change: and increase of 1.8% year over year.
Speaker Change: Q3 operating expenses decreased $936 million a year.
Speaker Change: He drivers of this decrease include
Speaker Change: A $938 million decrease in impairments related to the lapping of both goodwill and asset and lease impairments from Q3 of last year.
Speaker Change: which primarily related to our US Car Wash Operations.
Speaker Change: A decrease in company operated independently operated store expenses by approximately $17 million year.
Speaker Change: This decreased occurred with overall sales growth as the team demonstrated better operating efficiency and tighter spending discipline during the quarter.
Speaker Change: Partially offset by a $27 million increase in SGNA driven primarily by a decrease in gains from sale leaseback transactions and higher share-based compensation expense.
Speaker Change: and the United States, related to the modification of Pripyo Awards, which we communicated in Q4 of 2023.
Speaker Change: Operating income was $40 million for Q3. Adjust the EBITDA increased 13.7% to $138 million for the quarter.
Speaker Change: The Justice Evid Dom Margin grew approximately 250 basis points to 23.5% for Q3.
Speaker Change: Interest expense for Q3 was $43.7 million. $2.4 million higher than Q3 last year, driven by transaction costs from our WBS refinancing in July of this year, offset and part by ongoing debt paydown and increased interest income.
Speaker Change: Income tax expense for the quarter was approximately $9.8 million.
Speaker Change: Net loss for the quarter was $14.9 million.
Speaker Change: adjusted net income for the quarter was $41.8 million.
Speaker Change: and Justin Deluded EPS for Q3 was 26 cents, driven by strong operating performance and continued debt pay down.
Speaker Change: Turning to liquidity, leverage and cash flow year to date through Q3.
Speaker Change: Net Capital expenditures were $168 million, consisting of $185 million in gross CapEx offset by $18 million in sale lease bet proceeds.
Speaker Change: As Jonathan highlighted, we continue to make progress to vesting our assets held for sale, generating an additional $60 million of sales from divested sites in Q3.
Speaker Change: This brings our year to date proceeds from assets held for sale to $160 million, surpassing our previous full year estimate of $150 million.
Speaker Change: We utilize this cash, along with the proceeds from our divestiture of PHB and free cash flow to continue executing our strategy of systematic delivery.
Speaker Change: Networked for the quarter ended at 4.5 times net debt to adjust the EBITDA. Reflecting the debt paid out of $14 million in the quarter.
Speaker Change: As of today, we have paid down an additional $36 million against the terminal in Q4.
Speaker Change: We are pleased to have achieved our year end objective of net leverage for 0.5 times or below, a quarter early and continue our focus on driving net leverage below 3 times by the end of 2026.
Speaker Change: As a reminder, our debt stack is comprised of approximately 80% whole business secure desation notes for the blended fixed rate of 4.5% and awaited average maturity of 3.3 years.
Speaker Change: Both our turmoil and revolver have a floating rate, a decrease of 100 basis points on the borrowing rate would reduce annual interest expense by approximately $6 million.
Speaker Change: are ERP implementation went live in July. This implementation is an important step in the modernization of driven underline infrastructure and is progressing as anticipated.
Speaker Change: Turning now to the remainder of 2024.
Speaker Change: Business Trends remain largely consistent from where we ended Q2 as Strengthen Take 5 Oil Change and Sequential Improvement in our P.C. and P.C. segment, offset the headwinds we faced from four named hurricanes during Q3.
Speaker Change: While there are puts in takes, the strength of the driven portfolio gives us confidence in reiterating guidance for the rest of the year, excluding the impact of the recently completed sale of our Canadian distribution business, PHV-trip.
Speaker Change: Previous guidance provided on August 1, 2024, included a full year of our PHB-tribusus, instead of the eight months that will actually flow through these numbers.
Speaker Change: We expect these four fewer months to impact 2024 sales by approximately $18 million and adjusted EBITDA by approximately $6 million.
Speaker Change: updated ranges incorporating only these adjustments are as follows.
Speaker Change: for revenue $2.33 to $2.43 billion.
Speaker Change: We still expect to come in at the low end of our range.
Speaker Change: For adjusted EBITDA, 529 to $559 million.
Speaker Change: Samoard EQ2, we still expect to come in at the mid to upper end of this range.
Speaker Change: Despite these adjustments, we still expect our adjusted diluted earnings per share to come in towards the higher end of our original range of 88 cents to a dollar per share.
Speaker Change: Given the distribution like nature of PHV, it's failed to not contribute to same source sales.
Speaker Change: We reiterate the range of 1 to 3% be communicated during our Q2 call.
Speaker Change: We reiterate our original outlook of NetStore Group that have approximately 250-220 stores during the year.
Speaker Change: The success of our assets held for sale benefited in parts from a small amount of incremental spending capital expenditures.
Speaker Change: As such, we expect net capital expenditures to be modestly above the $220 million previously articulated.
Speaker Change: I'm excited about the future and you're to help the company execute its strategy of driving growth for our best in class take five oil change brands while effectively managing the stable high cash flow portfolio of franchise brands.
Speaker Change: and with that I will now turn it over to the operator and we are happy to take your questions.
Speaker Change: Thank you ladies and gentlemen, we will now begin the question and answer session.
Speaker Change: Should you have a question, please press star, follow by the one on your touch phone. You were here. A prompt that your hand has been raised. Should you wish to decline from the polling process, please press star, follow by the two.
Speaker Change: If you are using a speaker phone, please refer to have some info pressing and a key.
Speaker Change: We request that our callers will give their questions to one main question and one follow-up. Your first question comes from Simon Gutman with Morgan Stanley. Your line is now open.
Speaker Change: Hi, this is Zach on For Simian. Thanks for taking your questions.
Speaker Change: Can you speak to ticket versus traffic and car wash specifically and with Inticket, how is pricing trending there?
Speaker Change: Hey Zach, this is Daniel Rivera. Thanks for the question appreciate it. So we don't actually break out traffic versus ticket. What I would say is the five senses they were happy with both. Take five continues to perform exceptionally well. We're really happy with the business.
Speaker Change: Delivered 5.4% cost for the quarter. I mentioned in my prepare-der-marks, a lot of the growth this quarter came from ticket growth, growth from non-alternance revenue and from pre-memization and we continue to see those trends throughout the year. So, very happy to take five in the performance.
Speaker Change: Got it and just as a quick follow-up, can you speak to whether the inflection in the comp and car wash was, you know, barely balanced between international and US markets or was one region more, you know, driving more of the upside there.
Speaker Change: Yeah, happy to. So if we look at the car wash comp, so two primary drivers of the growth there. So number one, the car wash international team led by Tracy Gellon has been doing a great job for a long time. They continued to do a great job. They put up a great quarter. That helped with some of the headwinds that we faced in the states with the four hurricanes. So number one is Kudos to that team and the performance there.
Speaker Change: Number 2 in the US Car Wash business, we continue to see membership growth. So we implemented our strategy if you remember back in January of this year.
Speaker Change: And that's where I've used been working really well for us. Ever since we implemented in January, we've tripled our conversion rates.
Speaker Change: We've seen our turn rates go down. We've been able to hold both of those trends for 10 months now and all of that is culminating and I was really excited to announce that we have sitting here today over a million members in the U.S.
Speaker Change: So, you know, the Concro for the quarter really just great job by the Carl Washington National team and then continue to success with our membership strategy here in the states.
Speaker Change: Got it, thank you.
Speaker Change: Your next question comes from Peter Bena Dickwood's beard, your line is now open.
Speaker Change: Hello, guys. Thanks for taking the question for the questions. Just taking the car wash business. Can you talk a little bit about maybe the retail flow that you've seen? You know, the poster-cane comments or...
Speaker Change: Really most interesting to us. Sounds like there's still challenge a bit, but some others have been saying things are picking up a bit. So just curious what you're seeing just kind of post-touricane within the US car wash business.
Speaker Change: Hey, dear, this is Danny again. We don't really break out the retail versus membership traffic. What I would say is look, we remain laser focused on membership at the end of the day the way that we get out of talking about weather is by having a significant membership base.
Speaker Change: So we continue really focused on the membership base. We've crossed the million member threshold, like I said. And what's most exciting to me is again, tripled conversion rates, turn rates are down. And that trend has been going on going on 10 months now. So the longer we continue to deliver on that strategy, the more members per location we have, we'll find ourselves over time in a position where we're not going to have to talk about weather.
Speaker Change: Gotcha. And then just my fault would be around the maintenance segment. Just if you can talk a little more about, you know, the margins were lower year of year there. Just what was the driver was there the outlook.
Speaker Change: for margins within maintenance and on the take five oil business. Just curious how the mature store comps are doing. I mean, you're growing your units here, but just curious the trends around the Turc comps and take five oil. Thank you.
Speaker Change: Yeah, thank you. So first up on the margin side of things for the quarter. So two things that I'd say about margins for take five to your point. We saw a little bit of degradation in the quarter. I'd say number one that's historically in the range. It's in line with what we've seen before. Number two, I keep in mind, you know, we did have four hurricanes in the quarter. So the degradation is primarily due to just some inefficiencies in four-wall labor that's directly related to the fact that we had four hurricanes and it creates some problems from a scheduling and from a labor perspective.
Speaker Change: As far as mature stores, again, we don't really break out mature versus new stores and how they're performing. What I would say is we're quite happy with both our mature stores and our new ventages are performing quite well. If we look at our new ventages, we've said that strategically we want to open about 150 locations per year. We want two franchise locations for everyone company location or they're about and that continues to be a nice tailwind into the concept for take five.
Speaker Change: and our mature businesses are also doing quite well.
Speaker Change: God, you're thanks, thanks.
Speaker Change: Your next question comes from Seth Fickman with Bartley. Your line is now open.
Seth Fickman: and I wanted to focus on take five and thinking about more of the medium to longer-term opportunity to drive that business beyond just unit growth. How do you think about ticket and an opportunity to maybe add more services? Is there a timeline that we should be thinking about the map perspective? And then my second question I'll just ask it up front, please, let's go ahead. On the glass business, real life, that it does take some time to ramp that up, ramp up that pipeline. Is there any way to frame that give us some context on how to think about when that contribution should really start to ramp? Thanks a much.
Danny Rivera: Yeah, thank you, Seth, this is Danny again. So starting with Take 5, as we think about that business and your question was specific to take it.
Danny Rivera: Look, I say number one, we're really happy with the growth of that business overall, 5.4% constant for the quarter. We're happy with the ticket growth, we're happy with the balling growth.
Danny Rivera: As far as ticket growth, I don't see any near-term ceilings there. We talked about the fact that non-Oltrain's revenue was up. It continues to be a strong part of the business.
Danny Rivera: We've talked about in the past, non-Oltanger revenue for us. We sell five-ancillary services.
Danny Rivera: are attachment rate on those services in the mid 40s.
Danny Rivera: Frankly, we have franchisee and company stores that have attachment rates north of 50 into the 60s.
Danny Rivera: So we feel like we have plenty of runway to grow just with the five services that we provide today.
Danny Rivera: We can provide more services in the future and that's something that certainly on the road map.
Danny Rivera: We've also talked about premiumization and that continues to grow for us. We've said historically that our premium oil rates are in the 90-ish percent. For us, premium oil is both fully synthetic and aesthetic blends products.
Danny Rivera: Within that mix we know that we can continue to move customers up to the fully synthetic product which would also be a nice tailwind to the business. So from a ticket perspective we think that we have plenty of ceiling to continue to grow that business.
Danny Rivera: from a glass perspective.
Speaker Change: You know, Jonathan mentioned in his remarks it's a multi-year journey for us. We stay really focused on putting the right foundation in place and growing that business.
Speaker Change: We saw some exciting things in the quarter. We landed two more national rental car companies this quarter.
Speaker Change: that you see us.
Speaker Change: Activate an operationalized those accounts in the next 30 to 90 days and you see the revenue flow in starting mostly end of Q4 into Q1.
Speaker Change: We also landed a regional insurance account in the quarter. That's a two-part win. Number one is we get to do the fulfillment now in terms of where part of their network and we get those transactions. But more excited is the fact that we were brought on to be their third party administrator.
Speaker Change: So that is a really nice win for Agent. That work will begin in Q1 of next year, and it's continued momentum in that business.
Speaker Change: Your next question comes from Brian McNamara with Canna Cordy-Newdy. Your line is now open.
Speaker Change: Good morning, this is Matt's Encounment on Fograin. Thanks for taking your question. So with that macro environment and consumers wall stretched.
Speaker Change: Are you seeing any evidence of consumer saline oil changes outside of these hurricane-cited areas? And are you confident that you can continue to drive this ticket? Or will Compros be driven more by increased car counts and a relatively young store-based maturing? Thanks.
Speaker Change: In Madison, it's Jonathan, I would say that we're not seeing any major trajectory changes with consumer behavior, you know, in Q4 from Q3, we're really thrilled with our full year reiteration of guidance, you know, considering all the, you know,
Speaker Change: The noise we had in 2, 3 with the weather, so we're really pleased with that.
Speaker Change: Our take-five business medicine continues to be a juggernaut. We are 1100 stores and growing, you know, 150 plus stores a year, about a 40% franchise base.
Speaker Change: We have a pipeline today of over a thousand locations with great visibility into about a third of that from a real estate perspective. So our March would take five as towards two thousand units and continue to grow sales and traffic across all stores.
Speaker Change: Thanks very much.
Speaker Change: Your next question comes from Chris Carylino with JP Morgan. Your line is now open.
Speaker Change: Hi, good morning. Thanks for taking our question.
Speaker Change: On the maintenance segment, I think franchise AUSVs were down around mid-Single Digital, September at the growing in the first half, so to just be too, to what extent is this a function of store-opening timing, the hurricanes, or just the symptoms of the software consumer backdrop?
Speaker Change: Yeah, hey Christian. So two parts to that answer. Number one, if you look at the franchise cohort compared to the company cohort, it is just a smaller number of stores. So number one, you have a smaller base.
Speaker Change: and then number two, if you look at the growth as we've mentioned before over the last three years, we've been growing about two franchise locations for everyone company location. So you have a combination of a smaller base of stores and then more new stores, which means more ramping stores.
Speaker Change: So basically if you just, it's a math thing, you've got stores that are still ramping over a smaller base. That's why the numbers kind of shake out that way.
Speaker Change: I'd answer the question maybe slightly differently. We're quite happy with all of our advantages for the last three years, both company and franchise, both are growing exceedingly well and we're very happy with the performance.
Speaker Change: and got it this vegetable helpful. And can you speak to the progress on the glass turn around, maybe, you know, what aiming over you in and what is left to address it in terms of, you know, the operational changes you've been making to what extent is it really just talking to grow a U.B.s and expand the insurance and commercial partnerships from here.
Speaker Change: Christian, you know, I don't believe we are in a turnaround situation with our glass business as we've mentioned before we've...
Speaker Change: Bill to an irreledibly short period, the number two glass business in the United States.
Speaker Change: It's an incredibly attractive end market. We are now focused on driving top line sales and building that business over time. So we are well beyond integration or turnaround challenges. It's all hands on deck now to grow that business in a really attractive end market.
Speaker Change: Got it, thank you very much.
Speaker Change: Your next question comes from Peter Keith with Piper Sandler. Your line is now open.
Speaker Change: Hi, good morning everyone. I was going to stick on glass and so congratulations on the being named a third party administrator on that topic. Is this the first TPA when that you've gotten and regarding so that does this now as there are proof point that you can potentially get more TPA agreements in the future.
Morning Peter. Yeah, it's not the first TPA we have, but it's the first we've won in 2024.
Speaker Change: It's one part of a multi-part strategy to grow that business.
Speaker Change: As I've mentioned before, there's a retail component.
There's a very large commercial component which Danny talked about before and then obviously within insurance, there's multiple levels within that.
Speaker Change: It is a nice proof point. It's a good win for us in 2024 and again our focus is on building a really large profitable sustainable business for many many years to come. But we're very pleased with the progress so far.
Speaker Change: yeah
Speaker Change: Okay, very good. And then maybe just pivot to Hurricane Impact, so 70 basis points to comp 10 million dollars to revenue.
Speaker Change: Was there one segment where it was most impactful, I would think, the car wash segment, but hopefully you can lay that out. And then, are there any businesses like maintenance where there's some deferral could shift sales into later quarters?
Speaker Change: Yeah, here this is Mike, you know, in general, we're not breaking out the impact sub-segment. I think you're right if you think about it. Car Wash, just from a consumer behavior, tends to be a little bit more of a lost occasion where some of the other occasions you may get a little bit of a back, although we did see...
Speaker Change: Impact across.
Speaker Change: All of our segments.
I think it's Danny kind of alluded to not just necessarily on the days specifically where you know
that weather hits, but in the days coming in and after as people focus more importantly on other things. So, you know, we feel, we feel good about the business. From the deferred perspective, I think the more natural point is...
Speaker Change: If you look at the overall miles, driven the overall age of vehicles on the road, there's a lot of maintenance that needs to happen and we look forward to serving those customers in the quarters to come.
Okay, very good, thanks so much.
Speaker Change: Your next question comes from Robby Holmes with Bank of America. Your line is now open.
Speaker Change: Hi, this is Pekki on Ferra Navi. Thank you for taking a question and I want to ask about PCG. Last quarter you said industry-wide collision claims are down. Can you give some color on how collision claims are trending and where you see it go for the next few quarters?
The thanks Vicki for the question we're pleased with our PC and G segment returning to positive comps this year.
As you probably know our collision...
Business is the largest in the world in terms of franchise collision locations. We continue to grow DRPs in that segment as we've done for the last decade.
We're definitely in an environment where we're seeing claims are down year over year, broadly in the mid-single digit range, maybe a little bit higher. We talked about some of the contributing factors for that. We've not seen a masher.
Changing trajectory from the last time we spoke, but testament to our franchise and our team for continuing to win the RP accounts, which is why we saw the nice bounce back in Q3.
Speaker Change: Thank you, as helpful and then for a car wash, longer term, how do you want to position your membership pricing level compared to the industry? And then in the current competitive competitive environment, what trend are you seeing in terms of pricing and level of promotion? Thank you.
Yeah, hey, Vicki. Look, all I would say is I'd reiterate we're really happy with our membership strategy right now.
We think the price point is the right price point for us. We rolled it out in January. We continue to see very predictable and good results out of that. And we're not seeing any pressure internally or externally to make a change to that strategy right now. So we're going to stay the course for the foreseeable future.
Thank you.
Speaker Change: Your next question comes from Phil Blewood William Blair. Your line is now open.
Hi, this is Sabrina on for Philip, thanks for taking your questions. What's your view on the current competitive landscape and broader consolidation or evolution in the space over the past quarter and any comments by segment or location?
So, Brianna, are you talking about one particular segment, is your question directed at one segment?
Speaker Change: I'm a boulder and out, however you guys feel.
Yeah, look, I've been in this category for 13 years now. We continue to see consolidation across the world history. The reason we see consolidation and influx of capital into the industry is because
This is a massive total addressable market. There are really great macro tailwinds in auto, where we've got vehicles that are over 12 years of age. Therefore we've got older cars that need maintenance.
We've got mild-driven continuing to grow so I think you will likely over the next decade continue to see an influx of capital into this incredibly attractive space and I would imagine that you will continue to see consolidation.
Scott, that's all. Thank you. And then what are you seeing on the commercial side? You touched on new partnerships, but any major differences in sentiment or purchasing behavior between your D to C and B to V channels?
We have approximately more than 50% of our system sales come from our commercial partnerships. Those commercial partnerships have been built over decades.
We value those commercial partnerships because they are hard to win. You have to earn the trust of those commercial partners, but when you can win them and service those accounts, they become very loyal.
Sticky predictable partnerships. So we continue to grow our B2B focus and that we're very pleased with the efforts across all of our categories in driving that B2B sector.
Speaker Change: Great, thank you.
Speaker Change: Your next question comes from Kate McShane with Goldman Sachs. Your line is no.
Hi, good morning. Thanks for taking our question. We wanted to ask about the strategy to get three times leverage by 2026. How much of this is debt paid down versus your expectation for Eva Doggroath and how much of that debt paid down is dependent on future decisions?
Hey, I think I mean, for me, the short answer is both, right? We will get there both by growing EBITDA in part on the backs of just the fantastic asset that is take five in addition to the rest of our business and then benefit from...
the strong free cash flow profile of the rest of our businesses. I think you've seen over this quarter and quite frankly through the rest of this year our demonstration and a commitment to paying down debt.
Speaker Change: You know.
Jonathan mentioned in his comments portfolio management and obviously we will use that as an opportunity.
If it arises...
to help handle the Death Stack that'll be more of a strategic decision.
but we feel comfortable given the strong growth trajectory of this business.
It's a cashflow of characteristics and our ability to be disciplined on capital allocation and for cashflow usage to make good progress over the next 9-4 hours to get the work out.
Speaker Change: Thank you.
Speaker Change: Ladies and gentlemen, as a reminder, should you have a question please for a star one. Your next question comes from Chris O'Kool with people. Your line is now open.
Chris O'Kool: Great, thanks, good morning, guys. Jonathan, I have followed up to you that question. I know you said you were looking at additional opportunities for portfolio management beyond the car wash segment or at least evaluating that. I really want to get into specific businesses you might be considering, but...
Can you give us a sense of how meaningful the potential proceeds from some of these non-court businesses might be? I mean, is it safe to assume that that's a smaller opportunity than say the potential sale of the car wash that's kind of wanted to confirm that was maybe the right way to think about that?
Two leading the question, two leading the witness questions Chris, well done. We will continue to look at...
You know what businesses are in lower priority?
That can help us simplify the story, the operations of the business. PHVT is a great example. This was a distribution business in Canada, not a focus for us geographically or from a category perspective, and it made the ton of sense for us to exit that business.
So we're going to do this more from a simplicity and focus perspective. The buy product will be proceeds we'll be used to pay down debt.
Got it, makes sense, thanks.
And then Danny, can you elaborate a bit more on the strategies you've employed to grow membership as quickly as you have in the car wash segment and achieve that step changing growth? I know you mentioned the price points that were rolled out in January, but is there anything else that you've done on the operational front in terms of how you're presenting it to the consumer or other changes that have helped you gain that traction?
Chris, happy to. I mean, look, it starts with the price point, but obviously that price point has to be communicated effectively, right? So you take a new price point, which we think makes sense, given where we were in terms of our membership rates, vis-a-vis the rest of the industry. So we thought that made sense.
Chris O'Kool: Then you have to train all the different team members out there at the point of sale, how did the liver on that promise? And how to deliver on the offer, so to speak. So there's a body of work that happens there. And then look at the end of the day,
The offer is great and we've seen a lot of success with it, but you have to deliver a great product. You have to deliver great service. So there's a series of things operationally we've done to prove the business to make sure that we're delivering a great customer experience, everything from the scripts to how we handle things in the back lots.
So there's a variety of strategic and tactical things that we've done. The net result is we continue to grow membership, we continue to have conversion rates three times where they were in January and we cross the million member mark. So I think it's all coming together nicely.
Speaker Change: Chris, I would just add to that, sort of coming over the top, great leadership from Tim Austin who runs our US car wash business, combined with a very robust
CRM Engine. You put all those things together and that has led to the execution on this great one million member mark.
Thanks, guys.
Your next question comes from John Lawrence with benchmark. Your line is now open.
John Lawrence: Thanks, guys.
Just quickly, Daniel, can you talk a little bit about when you look at the top four tile, eggs singing...
leaving off the storm-related far-washed businesses, sort of a best quartile. How high did you talk about? How high did those come? Get it?
Talking about that operations, how much better of those operations gotten in the best score-time.
Yeah, hey, John. We don't really break out quartile analysis and subsegment analysis.
I would probably just reiterate what we've been talking about in the car wash business, like we delivered positive costs for the quarter that's fantastic.
John Lawrence: Pat's off to the car wash international team for doing a great job and then Pat's off Jonathan mentioned him and the leadership team there in the US car wash business I was only continuing to execute our strategy
As we continue to grow members, you're going to see that business be less dependent on whether which is strategically what we wanted to accomplish. So can't get into top quarter-thalse, but I'd say I'm happy with the trajectory of the car wash business.
Speaker Change: Thanks, and this last question, the system improvements and the glass business talk a little bit about how the system is performing and how that's allowing you, I just to get these contracts.
Speaker Change: Yeah, I mean, so Jonathan mentioned, you know, the system, the integration work we mentioned, Q1 is behind this, right? So this is all, all about growing this business. We've now got two quarters with some momentum that we've been building. We've landed some big commercial accounts, I've mentioned, I think four or five rental national car rental agencies over the last two quarters. We've had some regional insurance wins culminating in winning on a count where we're now going to be the third party administrator in Q1.
Speaker Change: So you don't win accounts like that, you don't become somebody's third party administrator without putting the right people, processes and systems in place. So I think you're seeing the fruit of our labor, right? We spent the majority of last year talking about integrating and putting the right people processes in place and now we're benefiting from that.
Speaker Change: Thanks for watching.
There are no further questions at this time. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating in FAU Police Disconnect Your Lines.
The End.
Speaker Change: The End.