Q4 2024 Driven Brands Holdings Inc Earnings Call
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Speaker Change: Good morning, ladies and gentlemen, and welcome to the Colorado Diamond Corp.
Year end 2024.
Speaker Change: Results webcast conference call at this time all lines are in listen only mode. Following the presentation there will be a.
Speaker Change: Question and answer session. If at any time during this call you require immediate assistance. Please press star zero for the operator. This call is being recorded on Monday February <unk>.
Speaker Change: Tuesday February 25, 2025, I would now like to the conference over to Joe our nail.
Joe: SVP of finance and Investor Relations. Please go ahead.
Speaker Change: Good morning, and welcome to driven brands fourth quarter and fiscal year 2020 earnings conference call.
Speaker Change: The earnings release, and the net leverage ratio reconciliation are available for download on our website at investors Dot driven brands dotcom.
Johnathan Fitzpatrick: On the call today with me are Johnathan Fitzpatrick, President and Chief Executive Officer.
Speaker Change: Danny Rivera Executive Vice President and Chief operating Officer, 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 and full year.
Speaker Change: Yes.
Speaker Change: Before we begin our remarks I'd like to remind you that management will refer to certain non-GAAP financial measures.
Speaker Change: You can find the reconciliation to the most directly comparable GAAP financial measures on the company's Investor Relations website and in its filings with the Securities and Exchange Commission.
Speaker Change: During the course of this call. We May also make forward looking statements in regards to our current plans beliefs and expectations.
Speaker Change: These statements are not guarantees of future performance and are.
Speaker Change: Subject to a number of risks and uncertainties and other factors that could cause actual results and events to differ materially from the results and events contemplated by these forward looking statements.
Speaker Change: Please see our earnings release, and our filings with the Securities and Exchange Commission.
Speaker Change: More information.
Speaker Change: Today's prepared remarks will be followed by a question and answer session. We ask you to limit yourself to one question and one follow up.
Jonathan Danny: Now I will turn it over to my partner Jonathan.
Jonathan Danny: Good morning, Thank you for joining us today to discuss driven brands fourth quarter and full year 2024 financial results.
Jonathan Danny: First I want to acknowledge the hard work and great execution by the more than 10000, driven brands team members and our amazing franchisees for how they continue to navigate an extremely dynamic macroeconomic environment.
Jonathan Danny: Secondly, I am proud of our collective efforts for 2024. This was not an easy macro environment and we delivered very solid results.
Jonathan Danny: Now our focus for 2025 is on three key priorities number one delivering our 2025 outlook number two utilizing excess free cash flow to reduce debt and number three active portfolio management.
Jonathan Danny: I will begin with a review of our fourth quarter and fiscal year 2024 highlights corporate initiatives and then turn it over to Danny who will discuss some of our operating segments and then Mike who will detail our fourth quarter financial results and full year outlook for 2025.
Jonathan Danny: For Q4, 2024, we delivered revenue of $564 million up 2% versus the prior year supported by 70, net new stores and two 9% same store sales growth.
Jonathan Danny: Our 16th consecutive quarter of positive same store sales growth and adjusted EBITDA of $130 7 million generating diluted adjusted EPS of <unk> 30.
Jonathan Danny: For fiscal year 2024, we delivered revenue of $2 3 billion and adjusted EBITDA of $553 million up, 2% and 7% respectively versus the prior year.
Jonathan Danny: These results were driven by 191, net new stores and one 3% same store sales growth generating diluted adjusted EPS of $1 14.
Jonathan Danny: We continue to be pleased by the performance of our take five oil change and franchise businesses, all being key contributors to a very solid 2024.
Jonathan Danny: As discussed on prior earnings calls, we anticipate that the ongoing inflationary environment will likely continue to pressure consumer spending for 2025.
Jonathan Danny: With lower income households, being the most impacted.
Jonathan Danny: And we expect this pressure to be somewhat mitigated by the strength in our commercial and need space businesses, leading us to remain confident in our ability to navigate this dynamic environment.
Jonathan Danny: Mike will provide more details on our 2025 outlook shortly.
Jonathan Danny: Now I'd like to spend a few minutes on some key corporate initiatives.
Jonathan Danny: Following a very robust sale process, we have entered into a definitive agreement to sell our U S car wash business. This will likely be a Q2 closing and Mike will give more details on the impact of this announcement.
Jonathan Danny: To better reflect how we view the business, we will adopt a more simplified segment structure for reporting starting in Q1 of 2025.
Jonathan Danny: Firstly, our flagship growth driver take five oil change will now be a standalone segment.
Jonathan Danny: This change should enable investors and analysts to more easily understand the performance of take five oil change and the Kpis underpinning this double digit growth business.
Jonathan Danny: Secondly, we are consolidating our stable predictable high margin cash generating franchise businesses into one segment.
Jonathan Danny: This includes our portfolio of needs based franchise brands, such as Meineke, Mako car Star One 800, all scaled players in their respective categories.
Jonathan Danny: This is the core of driven business model growth from take five and cash from our franchise segment.
Jonathan Danny: We will continue to report international Carwash as a Standalone segment.
Jonathan Danny: Finally, we are moving our early stage glass businesses, which operate in the retail commercial and insurance spaces under the auto glass now banner into our corporate and other segment.
Jonathan Danny: We will continue to manage the smaller lines of business until they reach the scale to become a standalone segment.
Jonathan Danny: While we remain very confident in the long term opportunity for this business, we recognize it will take time to deliver growth.
Jonathan Danny: Now the team is continuing to make good progress on divesting our U S. Carwash pipeline properties. As a reminder, for Q3 2024, we had sold approximately $160 million of assets we.
Jonathan Danny: We sold an additional $48 million in Q4, which puts the fiscal year 2024 total at approximately $208 million.
Jonathan Danny: We are now more than 75% through this process and are confident we will complete this initiative in 2025.
Jonathan Danny: As I have previously mentioned, reducing our overall leverage remains one of our primary objectives. Our goal was to finish the year at four five times net debt to adjusted EBITDA or below which we achieved in Q3 and further improved to four four times in Q4.
Jonathan Danny: For the full year 2020 for Mike and his team successfully paid down approximately $248 million of debt.
Jonathan Danny: Mike will walk you through the details on our focus now shifts to achieving our target of less than three times leverage by year end 2026 or sooner.
Jonathan Danny: Now, let me spend a few minutes on some key drivers of our results, let's start with our biggest and fastest growing business take five oil change the largest piece of our current maintenance segment.
Jonathan Danny: Q4 2024 Mark.
Jonathan Danny: 10th consecutive quarter of positive same store sales growth for take five oil change.
Jonathan Danny: And I'm very pleased with a nine 2% same store sales growth in Q4, which resulted in six 8% same store sales growth for fiscal year 2024.
Jonathan Danny: In Q4, we opened 61, new stores, resulting in 174 net new stores for fiscal year 2024.
Jonathan Danny: Finally, compared to fiscal year 2023 revenue grew by 16% and EBITDA grew by 21%.
Jonathan Danny: As a reminder, driven acquired take five oil change in 2016 with less than 60 company owned locations and less than $10 million of EBITDA at.
Jonathan Danny: At the end of 2024, we had 1181 locations, 40% of which were franchised approximately $1 $4 billion in system sales and approximately $355 million and adjusted EBITDA.
Jonathan Danny: All of this in less than 10 years.
Jonathan Danny: Take five oil change is our number one priority and we are hyper focused on continuing to drive unit growth franchise mix same store sales revenue and profits over the next five years.
Jonathan Danny: Over a two year period, our franchise store count has almost doubled and we anticipate franchisees to account for approximately 50% of total take five locations over time.
Our unit economics continue to attract new franchisees and drive our existing franchisees to sign incremental development agreements.
Jonathan Danny: Today, we have a very robust pipeline of approximately 1000 sites in place one that we built organically over the past five years and will continue to build.
Jonathan Danny: We have direct real estate visibility into more than one third of this pipeline, which provides us with clear line of sight into the next five years of unit growth.
Jonathan Danny: In achieving our target of at least 2000 locations.
Jonathan Danny: Take five oil change performance in growth rates over the past three years are as good or better than any national scaled oil change business.
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 Danny: And over time, we remain optimistic that analysts and investors will come to appreciate the massive value that take five oil change has and will continue to deliver.
Jonathan Danny: Our franchise businesses, which today are spread across our maintenance <unk> and platform services segments.
Jonathan Danny: Represent approximately two thirds of driven system sales with more than 50% of those system sales coming from longstanding sticky predictable commercial partners.
Jonathan Danny: Our scaled franchise businesses are the largest in the industry and asset light, providing driven with consistent predictable growth.
Jonathan Danny: Compelling asset light margins and steady cash flow that will allow us to fund growth and investment in our industry, leading take five oil change brand.
Jonathan Danny: This is a compelling one two punch of growth and cash flow.
Jonathan Danny: In addition to this one two punch we have other levers that we expect to drive growth overtime for driven such as auto glass now and our e-commerce marketplace driven advantage.
Jonathan Danny: Our focus in 2025 is clear <unk>.
Jonathan Danny: <unk> on our outlook, reducing debt and active portfolio management.
Jonathan Danny: We have a platform that generates high steady state returns with a long runway for reinvestment at attractive returns.
Jonathan Danny: We are incredibly motivated to see our valuation mirrored our results overtime.
Speaker Change: Before I hand, it over to Danny I wanted to let people know that after 13 years I will be stepping down as CEO. After our Q1 earnings call in May 2025.
Speaker Change: At that time, Danny will be taking over as CEO and will be joining the board as part of a very robust multiyear succession planning process.
Danny has been my partner for 13 years, and I know he'll be a great CEO.
Speaker Change: I'd also like to acknowledge our terrific CFO, Mike Diamond, who has made such a measurable impact and the time he has been with driven.
Speaker Change: Finally, I am excited to be staying on the board as chair and look forward to continuing to support Donnie and his well deserved new role in the future growth of driven now.
Speaker Change: Now, let me hand, it over to my partner, Danny our Chief operating officer to discuss our key business segments.
Danny: Thank you Jonathan before we begin I would like to take a moment to acknowledge Jonathan for his incredible leadership over the past 13 years. During his tenure driven has grown from just under $40 million and adjusted EBITDA to approximately $550 million a testament to his vision and execution.
Danny: Honored to step into this role and build on the strong foundation. He has created and I want to personally thank him for his support and Mentorship and I look forward to continuing to partner with him on the board.
Danny: Driven brands delivered a strong fourth quarter with financial results in line with our expectations for both the quarter and the full year.
Danny: To extend a sincere thank you to all of our driven brands employees and franchisees, who work tirelessly to keep our customers on the road.
Danny: Our maintenance segment continued to demonstrate consistent growth delivering year over year increases in system wide sales revenue and adjusted EBITDA in the fourth quarter.
Speaker Change: Take five oil change homeless stay in your car 10 minute oil change once again led the segment.
Speaker Change: Q4 marks the 18th consecutive quarter of positive same store sales growth for take five supported by increases in system wide sales revenue EBITDA and EBITDA margins, both year over year and sequentially.
Speaker Change: Same store sales for the quarter were particularly strong at nine 2%.
Speaker Change: And 16, 1% on a two year stack.
Speaker Change: Our strong performance was primarily driven by ticket growth.
Speaker Change: Non oil change services continues to be the largest driver of ticket growth with premium innovation customers opting for higher quality oils, serving as a secondary contributor.
Speaker Change: Non oil change revenue consists of the sale of engine air filters cabin air filters wipers, Coolum exchanges and fuel creator, which represented just under 20% of <unk> total system wide sales were.
Speaker Change: We expect continued growth of non oil change revenue as we continue to improve both the attachment rate on existing services and as we broaden our overall portfolio of services.
Speaker Change: Today premium oils, which we define as semi synthetic and full synthetic oils account for approximately 90% of our oil changes however, advanced for synthetic our most premium oil accounts for approximately 35%.
Speaker Change: We see continued runway to expand advanced full synthetic adoption, which remains a long term tailwind.
Take five also benefited from a sequential acceleration in transactions driven by our strategic marketing initiatives.
Speaker Change: Our combination of broad reach brand campaigns and cost efficient data driven local campaigns continues to deliver strong customer acquisition and retention.
Speaker Change: With an industry, leading net promoter score in the upper seventies, thanks to our fast friendly and simple business model take five maintained high levels of customer loyalty and repeat business.
Speaker Change: Our focus on new unit growth driving transactions enhancing ticket by focusing on non oil change revenue and the organic tailwind with premium oil and optimizing our cost structure resulted in adjusted EBITDA growth of 21% year over year and EBITDA margins of 33, 3%.
Speaker Change: A 144 basis point improvement year over year.
Speaker Change: <unk> experienced strong momentum in Q4, reinforcing its solid positioning in the market.
Speaker Change: We expect this growth to remain healthy we would anticipate a more normalized level of same store sales growth in 2025.
Speaker Change: A solid foundation for sustained long term success.
Speaker Change: Take <unk> success is driven by its people are texts shop managers field leaders and franchisees, who deliver exceptional service every day.
Speaker Change: Investing in our front lines remains a priority and in January we hosted our seventh annual take five rally in Orlando.
Speaker Change: Bringing together over 90% of our franchisees along with all corporate shop managers and field leaders.
Speaker Change: This event was both a celebration of our shared success and a movement to align our priorities for 2025.
Speaker Change: The energy and enthusiasm reinforce our culture and commitment to service positioning take five for even greater success in the year ahead.
Speaker Change: Our paint collision in glass segment delivered revenue of $97 3 million adjusted EBITDA of $33 million and adjusted EBITDA margins of 33, 9% in Q4.
Speaker Change: Despite a 7% decline in industry wide collision repair estimates according to industry sources, our collision business continued to gain market share as evidenced by this segment same store sales increasing 1% for the quarter.
This success is largely due to our expanding direct repair program partnerships across more than 1900 Luke.
Speaker Change: The us and Canada.
Speaker Change: Our company owned U S class businesses under the auto glass now banner made continued progress in their multiyear strategy in.
Speaker Change: In Q4, we delivered sequential growth in same store sales as we remain focused on expanding our relationships with regional insurance carriers and major commercial partners.
Speaker Change: Both of which experienced growth during the quarter.
Speaker Change: We remain optimistic with the momentum in this emerging business.
Speaker Change: Our platform services segment, primarily comprised of one 800 radiator.
Speaker Change: <unk> revenue of $40 2 million adjusted EBITDA of $16 3 million and adjusted EBITDA margins of 44% in Q4.
Speaker Change: In the fourth quarter. The Carwash segment reported revenue of $143 4 million adjusted EBITDA of $28 7 million and same store sales growth of seven 9%.
Speaker Change: As Jonathan mentioned, we have decided to sell the U S car wash business.
Speaker Change: I'd like to thank Tim Austin, and the entire U S. Carwash team for the incredible work they've done in the last year to stabilize the business.
Speaker Change: I'd also like to thank Tracey go and her team for another great quarter and for providing such a solid foundation to the car wash segment.
Speaker Change: As a result of their combined efforts the segment delivered sequential improvements in same store sales system wide sales revenue EBITDA and EBITDA margins.
Speaker Change: Looking at 2024 as a whole I am very proud of the driven brands team.
Speaker Change: Corporate employees and franchisees, who helped to deliver another strong year.
Speaker Change: Take five oil change continues its rapid expansion opening 174, new locations to surpass 1100 total stores all while achieving its 18th consecutive quarter of same store sales growth and surpassing $1 billion in revenue and $350 million in EBITDA.
Speaker Change: Our franchise business has delivered another year of strong profitability with EBITDA margins exceeding 50% continuing to generate substantial cash flow for the company.
Speaker Change: Our international Carwash business delivered another strong and predictable year performance, while our U S car wash business stabilized and grew to over 1 million members.
Speaker Change: Our glass businesses under the auto glass now banner successfully transitioned from an acquisition an integration phase to a growth focused strategy, resulting in year over year improvements in EBITDA and EBITDA margins, all while securing partnerships with most major national rental car companies and landing its first regional.
Speaker Change: <unk> carrier third party administrator deal under the driven brands umbrella.
Speaker Change: We remain confident in our long term strategy and are well positioned for continued profitable growth in 2025.
Speaker Change: With that I'll turn it over to my partner and driven CFO Mike.
Mike Diamond: Thank you Danny and good morning, everyone.
Speaker Change: I want to start by thanking Jonathan for everything he has done for driven brands over his 13 years at the company.
Speaker Change: He and I have only been working together for a short period of time I have enjoyed tremendously working with him and I'm looking forward to maintaining an active dialogue in his new role as chairman of our board I also want to congratulate Danny I'm, becoming CEO I made sure to spend ample time with Danny as I was interviewing for the driven CFO opportunity aware of the succession plan.
Speaker Change: To appoint him as CEO, if and when Jonathan ever decided to step down.
Speaker Change: I am excited to work with Danny on helping further driven growth and I've appreciated his leadership and partnership during my first seven months here driven.
Speaker Change: Turning now to our Q4 results.
Speaker Change: <unk> recorded its 16th consecutive quarter of same store sales growth, increasing two 9% in Q4, our strongest quarter of 2024.
Overall, driven added 70 net additional units this quarter of which 51 were asset light franchise locations.
Speaker Change: Take five oil change led the way with 61 units in Q4.
Speaker Change: System wide sales for the company grew five 5% in Q4 to $1 6 billion.
Speaker Change: Total revenue for Q4 was $564 1 million, an increase of one 9% year over year.
Speaker Change: Q4, operating expenses increased $374 $7 million year over year key.
Speaker Change: Key drivers of this increase include.
Speaker Change: A $317 $9 million increase in asset impairments, primarily related to the U S. Carwash segment tied to the completion of our strategic review.
Speaker Change: $21 $7 million year over year rise in company and independently operated store expenses driven by increased marginal variable expenses from higher sales volumes in our take five oil change and international Carwash businesses.
Speaker Change: An increase in SG&A of $43 4 million.
Speaker Change: Driven by higher performance based compensation and losses from the disposal of assets tied to the strategic review of our U S car wash segment.
Speaker Change: Operating income declined $364 3 million to negative $318 8 million for Q4.
Speaker Change: Adjusted EBITDA increased four 6% to $137 million for the quarter.
Speaker Change: As a reminder, Q4 2024 growth came without the benefit of ph vitro, which we divested in August but the results of which are still included in our 2023 results.
Speaker Change: Adjusted EBITDA margin for Q4 was 23, 2% an increase of roughly 60 basis points versus Q4 last year.
Speaker Change: Interest expense for Q4 was $37 7 million $6 $2 million lower than Q4 last year, driven primarily by ongoing debt paydown.
Speaker Change: Income tax benefit for the quarter was $59 million.
Speaker Change: Net loss for the quarter was negative $312 million adjust.
Speaker Change: Adjusted net income for the quarter was $48 4 million.
Adjusted diluted EPS for Q4 was 30.
Speaker Change: Driven by strong operating performance and continued debt paydown.
Speaker Change: Turning to liquidity leverage and cash flow for Q4.
Speaker Change: Net capital expenditures for the quarter were $35 8 million <unk>.
Consisting of $69 $2 million in gross Capex offset by $33 4 million in sale leaseback proceeds.
Speaker Change: Q4 was another strong quarter in our divestiture of assets held for sale in.
Speaker Change: In the quarter, we generated an additional $48 million of cash from divested sites for the full year proceeds from assets held for sale were $208 million.
Speaker Change: We have now sold through more than three quarters of our assets held for sale. So do expect a modest amount of proceeds in 2025 as we complete our divestitures.
Speaker Change: We utilize this cash to continue executing our strategy of systematic deleveraging.
Speaker Change: We ended Q4 with net leverage of four four times net debt to adjusted EBITDA, reflecting a debt paydown of $76 million in the quarter.
Speaker Change: As of today, we have paid down an additional $35 million against the revolver in Q1.
Speaker Change: Turning to our full year results.
Speaker Change: Full year 2024 was a successful year of growth for driven despite the challenging macroeconomic environment.
Financial highlights include.
Speaker Change: System sales growth of three 6% to $6 5 billion.
Speaker Change: Reflecting same store sales growth of one 3% and net unit growth of 191 units or three 8%.
Speaker Change: Revenue grew one 5% reflecting system sales growth offset by four fewer months of ph feature in 2024, and the Refranchising of a small number of stores in our <unk> segment.
Speaker Change: Of the 191 net new units take five oil change added 174 units in 2024 of which 108, where franchise units and 66 were company operated stores.
Speaker Change: Operating expenses declined 17% to $2 5 billion.
Speaker Change: Driven by lower impairments in 2024 versus 2023 offset in part by higher SG&A driven by share based compensation higher performance based compensation and losses from the disposal of fixed assets tied to the strategic review of our U S car wash business.
Speaker Change: Operating income was negative $142 million.
Speaker Change: Adjusted EBITDA grew six 9% to $552 7 million.
Speaker Change: Interest expense was $157 million, a decline of $7 $2 million driven by continued debt paydown.
Speaker Change: Net loss was negative $292 $5 million adjusted.
Speaker Change: Net income was $186 3 million.
Speaker Change: Income tax benefit of $25 $1 million.
Speaker Change: Diluted EPS of negative $1 82.
Speaker Change: Adjusted diluted EPS of $1 14.
Speaker Change: For the full year net capital expenditures were $237 1 million for.
Speaker Change: For the full year, we paid down $248 $6 million of debt.
Speaker Change: I would now like to provide our outlook for the 2025 fiscal year.
Speaker Change: As Jonathan mentioned, we continue to see pressure on consumer spending, especially among our lower income consumers.
Speaker Change: Said as we enter 2025, we anticipate another year of growth across the driven portfolio as we leverage our market leadership position and disciplined cost management.
Speaker Change: With the announcement of the sale of our U S. Carwash business that business will be treated as discontinued operations for 2025 until the transaction closes.
Speaker Change: As such this guidance reflects a full year, excluding our U S car wash business, but assuming no other changes to our portfolio.
Speaker Change: Revenue between 2.05 to $2 <unk> 5 billion.
Speaker Change: Adjusted EBITDA between $520 to $550 million.
Speaker Change: Adjusted diluted EPS of $1 15 to $1 25 per share.
Speaker Change: Same store sales of 1% to 3%.
Speaker Change: We recognize there continues to be a lot of uncertainty related to the macro environment, including ongoing inflationary pressures on consumer spending and the potential impact of tariffs, while we believe the non discretionary nature of our business model and the flexibility of our supply chain provide us with a solid foundation.
Speaker Change: We want to take a prudent approach to our outlook.
Our quarterly distribution of both revenue and adjusted EBITDA will change modestly in 2025 due to the divestiture of ph D. <unk> in the third quarter of 2024, and the sale of our U S car wash business, we expect the first quarter to account for slightly more than 20% of our 2025 full year revenue and adjusted EBITDA.
Speaker Change: And the second half of 2025 to contribute a percentage in the low fifties for our full year revenue and adjusted EBITDA.
Speaker Change: In addition, we wanted to provide additional color on other important operating metrics for FY 2025.
Speaker Change: Net store growth between 175 and 200 units.
Speaker Change: Net capital expenditures between six five and seven 5% of revenue for.
Speaker Change: The largest driver of net capital expenditures as our take five oil change business, where we will continue to invest in high return company operated locations in targeted markets.
Speaker Change: Interest expense of 125 million to 130 million.
Speaker Change: <unk>, both lower interest expense from debt Paydown tied to the sale of our U S car wash business.
Speaker Change: And the interest income received from that transaction seller note.
Speaker Change: An effective annual tax rate of 26% to 27%.
Speaker Change: We maintain our commitment to achieve our net leverage target of three times by the end of 2026 free cash flow in 2025, which will be positive given EBITDA generation and our lower Capex and interest expense will primarily be used to pay down outstanding debt on both the revolver and term loan.
Speaker Change: As Jonathan mentioned, we will change our operating segments in 2025 to better highlight the growth drivers of this business moving forward our segments will be as follows.
Speaker Change: Take five comprising both our company operated and franchise take five oil change stores. We view this business as the growth engine of driven supported with the majority of our capital expenditures going forward.
Speaker Change: Franchise brands, comprising the wide portfolio of automotive brands, including Meineke, Mako car Star, One 800 radiator and others. This segment is over 99% franchised the stable business will provide strong free cash flow with de Minimis capex needs.
Speaker Change: Carwash internationally are remaining Carwash business is based outside of North America. This business features an independent operator model that as many of the same benefits as a franchise model and is stable with modest amounts of maintenance level capex.
Speaker Change: Corporate and other.
Speaker Change: Our glass businesses, including the retail and commercial components of this business as well as the insurance business under the AGM banner, and our corporate G&A, including functions such as.
Speaker Change: Finance legal and HR are housed in our corporate and other segment.
Speaker Change: We believe that glass is a long term growth driver for driven then given its current size and profile. We will let these businesses incubated within the broader corporate and other segment.
Speaker Change: Yeah.
Speaker Change: We will begin reporting these new segments as part of our Q1 2025 quarterly reports to.
Speaker Change: To aid in modeling, we plan to circulate quarterly unaudited pro forma results for FY 2024 in the new go forward segments.
Speaker Change: This disclosure will be posted on our Investor Relations page in mid March before we complete Q1.
As we enter 2025, we are well positioned within the broader automotive services industry and confident in our ability to drive growth.
Speaker Change: With that I will now turn it over to the operator, and we're happy to take your questions.
Speaker Change: Thank you ladies and gentlemen, we will now begin the question and answer session. Thank you have a question. Please press star followed by the one on your Touchtone phone, you'll hear a prompt that your hand, that's been raised should you wish to decline from the polling process. Please press star followed by the two <unk>.
Speaker Change: If you are using a speaker phone please lift the handset before pressing entities.
Speaker Change: One moment. Please for your first question.
Speaker Change: Your first question comes from Simon Gutman with Morgan Stanley. Your line is now open.
Pedro Gil: Good morning, This is Pedro Gil filling in for Simeon.
Speaker Change: My question is about your 2025 outlook you are guiding to an adjusted EBITDA of $535 million at the midpoint.
Speaker Change: Which is $100 million increase relative to your adjusted EBITDA, excluding Carwash and 2024.
Speaker Change: Could you please give us some color how you expect to generate so much growth and what the competition is going to be by segment.
Mike Diamond: Yes. Good morning. This is this is Mike.
Mike Diamond: I'll answer that one I'm not sure I follow your math exactly but I would I would highlight a couple of different points that I think are important as you think through our 25 outlook I think first for context, it's probably helpful to know that our U S. Carwash business comprised approximately $50 million of adjusted EBITDA.
Mike Diamond: And so as you're as you're thinking through kind of the apples to apples comparison thats, probably a helpful Guide point in terms of relative to the performance. We had in 2024. It's also worth acknowledging that 2024 as mentioned still has roughly eight months of ph vitra in it which we won't have in 2025, given we divest.
Mike Diamond: Did that in September.
Mike Diamond: Other than that when you think about growth first and foremost it comes down to take five hopefully that came out in the remarks, we believe take five is our growth engine we have.
Speaker Change: Very strong results in Q4 as Danny mentioned, we continue to see strong momentum, albeit at a normalized growth rate for 2025 strong unit pipeline great engagement from franchisees good customer reaction.
Speaker Change: Some upside even as we talk about the premium position of oil as well as some of our other add ons. There. So that's not to say that the other parts of the business, we don't see opportunity, but I think when you when you look at the pro forma apples to apples.
Speaker Change: And just combined with the with the growth rates, we're trying to be prudent in our numbers, but feel very comfortable about our opportunity to grow next year.
Speaker Change: Got it so just to be clear off the $117 million for.
Speaker Change: For the full year and the car wash segment and adjusted EBITDA that we see in 2024.
Speaker Change: <unk> $50 million are allocated to the U S car wash, which is the business that you're selling and the remainder I E $67 million or originated from the international car wash business is that correct correct, Yes, and you can tell from the revenue and the disclosures correct. The company owned stores are our U S business and the independently.
Speaker Change: And stores on the sales line or our franchise business our international business.
Speaker Change: You're effectively selling a business that.
Speaker Change: Eight times EBITDA valuation again, all these numbers are approximately yes.
Speaker Change: The U S Carwash business does roughly $50 million of EBITDA.
Speaker Change: Got it thank you.
Speaker Change: Welcome.
Speaker Change: Your next question comes from Justin <unk> with Baird. Your line is now open.
Speaker Change: Hey, good morning, everyone and Jonathan investments surges in the future and congrats Dan on your new role.
Speaker Change: Just a.
Speaker Change: A few questions as it relates to the guidance, Mike a follow up there.
Speaker Change: Maybe for you if I go back to the analyst day, which was obviously before your time, but just thinking about what the company outlined for take five oil it.
Speaker Change: It seems like that business could be generating at least.
Speaker Change: An incremental $50 million of EBITDA this year, if not more.
Speaker Change: Number one is that fair and then as a follow up you mentioned in the script more normalized same store sales growth and 25 could you maybe put a finer point on that just as it relates to take five.
Speaker Change: Yes, I'd say a couple of different things.
Speaker Change: Start with the boiler plate, we're not going to provide specific sub segment guidance for 25, Although obviously, if you think about overall sales growth the mix of corporate owned stores and franchise stores in the pipeline, we see for 2025 and beyond we continue to believe that that.
<unk> business is an incredibly powerful platform with high growth potential that we think that we think has some good runway for future growth both on the top line and on the on the EBITDA line.
Speaker Change: As it comes to our normalization comment related to take five I think thats as much just a recognition that this quarter was particularly strong for take five this quarter being Q4.
Speaker Change: And over 9%.
Speaker Change: As we think through 'twenty five we wanted to be.
Speaker Change: Truthful and appropriate that I don't think it is fair to model that going forward, we still see growth Danny highlighted I think some of the really key levers, we see and our ability to continue to drive that business related to increased premium position and the ability to add additional services, but as you think about a growing business that is starting to reach critical mass a norm.
Speaker Change: <unk> below 9% is probably more realistic.
Speaker Change: Alright.
Speaker Change: Very helpful. Thank you for that and just one follow up looking back to <unk> can you just expand a bit on what drove the modest looks like 30 basis point decline in maintenance segment EBITDA margin does that does that meinecke and some of the other brands within maintenance just curious.
Speaker Change: Maybe how take five EBITDA margins looked specifically in <unk> relative to last year.
Speaker Change: Yes, no I mean, I think in general, we're very pleased with where the.
Speaker Change: Where the margin profile of our overall businesses and especially our our take five business as a reminder to our audience. Obviously theres. Some in our current segmentation, which will go away with our re segmentation we.
Speaker Change: We do have some franchise businesses related to.
Speaker Change: Related to that maintenance segment that can sometimes obfuscate the margin, but I think in general for take five we feel we feel very good about that margin profile and our ability to continue that going forward.
Speaker Change: Alright, guys. Thanks, so much best of luck.
Speaker Change: Your next question comes from Brian Mcnamara with Canaccord Genuity. Your line is now open.
Speaker Change: Good morning, Russell lasting Harman on for Brian Thanks for taking our questions.
Speaker Change: Could you give a little more color on the maintenance capex for the Ross Carcinomas.
Speaker Change: Thanks.
Speaker Change: Okay.
Speaker Change: Well I mean I think so.
Speaker Change: A couple of comments right the maintenance Capex on the U S car wash business going forward will be treated as discontinued operations given our decision to sell the business and so at least on a go forward perspective.
Speaker Change: In theory, those numbers really won't run through the quote unquote go forward financial statements to the extent there would be maintenance capex. It would be a modest amount used for upkeep of the tunnels and the sites. We have capex for the U S car wash business in 2024 was still high part.
Speaker Change: Because we had a lot of assets held for sale and as Jonathan and I. Both mentioned, we did I think a pretty good job of getting through a lot of that this year generating a lot of incremental proceeds for the business, but that does in some kinston says require some capex to get those ready for sale, but in no way is the number we had in 2024 representative of what we would expect to spend going forward.
Speaker Change: Great and then just one question.
Speaker Change: Comps are outperforming the industry.
Speaker Change: Is there anything youre seeing there in terms of trends.
Speaker Change: Yes, Madison, it's Jonathan here, our franchisees the approximately 900 stores, we have have been growing direct repair programs are drp's for many many years, we grow those programs because the trust that our insurance partners have in our franchisees to deliver great service to our customers.
Speaker Change: I think we're outpacing the industry because of the execution from our franchise franchisees across both the U S and Canada. We also we also believe that some of the overall industry claims being down probably macro driven we've got some pressure on the lower end consumer certainly ensure.
Speaker Change: <unk> insurance premiums have more than doubled over the last four to five years. So I think we see some reticence from our customers to actually file claims, but we're incredibly pleased with our franchise performance and expect that trend to continue.
Speaker Change: Great and if I could just a quick one in there.
Speaker Change: Corporate costs were up a bit in Q4 any color on what drove that.
Speaker Change: Yes, I think Theres a couple of the big drivers one is performance based compensation, which look we're always we're always happy to pay what because it means we did good performance.
Speaker Change: There is also some share based compensation noise related to the IPO grants.
From from late last year that we lap so.
Speaker Change: I'd say in general it's.
Speaker Change: It's good news in that when you have performance and you pay performance based comp that is what it is therefore it helps reward our hard working employees for the efforts they did.
Speaker Change: But in general we are focused on making sure as much of the dollars we generate on the top line flows through to the bottom line.
Speaker Change: Great. Thank you so much guys.
Speaker Change: Your next question comes from Chris <unk> with Stifel. Your line is now open.
Speaker Change: Can you help us understand the breakdown of the unit guidance between the take five system and the rest of the segment and maybe between company operated versus franchise stores and then I believe the unit growth guidance implies net unit growth of roughly three 5% to 4%, which.
Speaker Change: Flat to down I guess over 24, when you exclude the U S car wash business. So can you provide some color on the strength of the pipeline, particularly it take five.
Speaker Change: Yes ill give you several different answers here that hopefully get to your question I think first and foremost it's the line youre going to continue to hear me say around really any sort of guidance related metric. Our goal with this guidance was to make sure we were.
Speaker Change: Honest and prudent in our perspective going forward given the uncertainty in the macroeconomic environment.
Speaker Change: And just a desire to make sure that we set off the year on the right foot from a units specifically if you look at our range of $1 75 to 200 I think.
Speaker Change: The significant majority of that will come from the <unk> pipeline, which is strong we continue to feel very good about our pipeline both company owned and franchisee not just on a year to year basis, but as Jonathan mentioned with over 1000 sites.
Speaker Change: The pipeline, we feel really good about that.
Speaker Change: Given year to year basis, the number of corporate owned or franchise owned will vary a little bit but as we've mentioned historically, we've typically opened two thirds of our take five stores as as franchised with about a third company owned and would expect roughly over the next several years that is a hold.
Speaker Change: Andy mentioned the take five rally, we had which was not only a company.
Speaker Change: Attended event the franchise very well attended I would say growth outside of take five will largely come.
Speaker Change: From our portfolio of franchise brands going forward.
Speaker Change: In the collision and some of the glass space that are franchised, but in general we feel good about the pipeline.
Speaker Change: Want to be prudent.
Speaker Change: We also recognize that we have a much higher base every year as we continue to grow more and more stores and so that may make the percentage moderate a little bit just given the higher base every year.
Speaker Change: Okay. That's helpful and then Mike just given some of the given the structure of the Carwash transaction can you help level set us back.
Speaker Change: Letting us know where you expect leverage to fall initially and then maybe the glide path over the rest of the year as the company works towards.
Speaker Change: Its leverage target by the end of 'twenty six.
Speaker Change: Yes, so I mean, I would say a couple of things to your point.
Speaker Change: With the existence of the seller note expect leverage to be largely neutral with net proceeds from the transaction.
Speaker Change: That said, we continue to see strong free cash flow this year.
Speaker Change: As we mentioned with some of our EBIT sorry, our capex.
Speaker Change: Outlook from six 5% to seven 5% that gives us the ability to generate some meaningful free cash flow, we will use the proceeds.
Speaker Change: We will use the proceeds of the deal to pay down some debt that's on top of the over $30 million. We've already paid down in Q1. This year. We also mentioned we had some additional assets held for sale that we expect to be able to transact.
Speaker Change: Through this year as well so.
Speaker Change: It's going to continue to be a drumbeat of deleverage as we move through the year.
Speaker Change: Not going to provide specific quarter by quarter numbers other than we still feel comfortable on our path to three times net leverage by the end of 2026.
Speaker Change: I think youll continue to see us methodically move through the deleverage is as we generate free cash flow.
Speaker Change: Great. Thanks, guys.
Speaker Change: Your next question comes from Robbie <unk> with Bank of America. Your line is now open.
Speaker Change: Hi, Good morning. This is sticky Neil on for Bobby Jones, Thank you for taking our questions.
Speaker Change: We started seeing the benefit from TBA materialize into revenue for auto glass now and then could you speak to what drove the margin improvement in PCT. Thank you.
Speaker Change: Hey, there Vicki this is Danny so to the first part of your question. So we the Tpa deal that you're alluding to we landed that deal back in Q4 or Q3 of 2020 for that contract actually became active in Q1. So signed the deal last year, but obviously there is an incumbent that we took over the business.
Speaker Change: And the contract became active in Q1, so literally as we speak we're activating that account and operationalize it and you should see those numbers start to flow through into Q1 and Q2 of this year in the business.
Speaker Change: I'd say from a broader perspective on auto glass now the focus really hasnt changed. So we are very focused on growing top line. We've said that we want to focus in on really growing our regional and national insurance and commercial we grew both of those sides every quarter last year and that continues into this year and so the team remains very focused on landing the accounts and then obviously once the <unk>.
Speaker Change: Counts the contracts become active operationally of operationalize those at the ground level.
Speaker Change: Thank you and then for take five.
Speaker Change: Where do you see the attachment rate go and I guess, what other services would you consider adding.
Speaker Change: Sure.
Speaker Change: As it as it relates to attachment rates. So I've mentioned this before so we have five non oil change services. Today had you asked me. This question a couple of years ago would have been four so we have been growing the number of services as far as ceiling is concerned I look at it two ways attachment rates are in the high 40 is for us on our existing five services.
Speaker Change: That's been growing for some time now we have both corporate and franchise locations to have attachment rates into the sixties. So I don't see any short term ceiling with the existing services that we provide.
Speaker Change: To your point, we can and we have in the past added services will continue to add services over time, I'm not going to get into what specific services. We're looking at but suffice it to say, we know that we can grow the portfolio of services here and we plan to do so.
Speaker Change: Thank you.
Speaker Change: Thanks Ricky.
Speaker Change: Your next question comes from Philip <unk> with William Blair. Your line is now open.
Philip: Hey, good morning, guys I appreciate the question.
Philip: Can you talk a bit more about what the separation of the car wash business will look like is there an opportunity for labor it will be funneled through into some of the remaining business is there any other cross functional efficiencies and then what's your plan for the European Carwash segment longer term.
Speaker Change: Hey, Phil Jonathan here, Yes look when we sell the are consummate the transaction probably likely in Q2, there wont be really any sort of.
Speaker Change: Overlap with existing car wash employees with other opportunities within the business. So I think look ultimately Mike will probably drive some SG&A synergies out of that business over time.
Speaker Change: But we're not modeling that in right now and then secondly on the international car wash business as Danny mentioned Tracy gallon and the team in Europe have been doing a phenomenal job the last three to four years.
Speaker Change: It's an independently operated business, which is similar to franchise very stable and consistent performance and very stable margins. So we will continue to own and operate that business all with the umbrella within driven that we will remain active portfolio managers. So we will continue to assess various components.
Speaker Change: The of the organization and.
Speaker Change: The international car wash business, certainly would fall under that umbrella.
Speaker Change: Okay, Great and then I guess any renewed appetite for M&A as part of this.
Speaker Change: Okay.
Speaker Change: Asking.
Speaker Change: <unk> strategic portfolio review largely still fill an active.
Speaker Change: Part of your strategy going forward.
Speaker Change: Okay.
Speaker Change: Yes, I mean, we.
Speaker Change: We have historically been highly acquisitive I think we've now got our brands and segments to the right scale. So we're more focused on organic growth that being said, we look at all assets that sort of trade in the automotive aftermarket space.
Speaker Change: And if something appears accretive and an opportunity for us, we'll certainly take a look at it but as we look at 2025 and beyond we're not modeling in any significant M&A activity.
Speaker Change: Alright, great. Thank you.
Speaker Change: Your next question comes from Christian Carlino with Jpmorgan. Your line is now open.
Christian Carlino: Hi, good morning, Thanks for taking my questions and congratulations to Daniel Jonathan.
Speaker Change: First.
Speaker Change: Auto glass now is the second growth lever after take five so could you just expand on why it's not growing at broken out and sort of what's the plan. There is there a timeline for when you will break it out and then just stepping back could you could you help us bridge the gap between the.
Speaker Change: Prior 850 target and what the business looks like now and Youre using losing $50 million per car wash. So is the rest of the shortfall AGN or is it.
Speaker Change: It takes <unk>.
Speaker Change: You thought it would be and just help us understand the puts and takes there. Thanks.
Speaker Change: Hey, Christian I'll start with the <unk> hundred 50 and.
Speaker Change: Certainly some of the baloney that we've had to deal with this with this over the last couple of years.
Speaker Change: We gave that target for 2026, a couple of years ago at our Investor day, and really the business has changed.
Speaker Change: Fundamentally since we gave that target. So one of the things that we've entered into now as this period of active portfolio management and we started that with the exit of <unk> last year. We've now just announced the car wash divestiture, which will happen at some point in Q2, So I think fundamentally the <unk> hundred 50 has.
Speaker Change: <unk> has been removed from our.
Internal strategy and goals, while we are absolutely focused on is continuing to pay down debt to get to that three <unk> leverage to grow our flagship take five brand.
Speaker Change: We'll show that with the segmentation this year and really focus on hitting in delivering our 2025 outlook. So I would say that the <unk> hundred 50 is no longer relevant and we look forward to executing on all our plans for 2025, and then I'll, let Mike maybe are Danny talk about the AGM question, Yes, I'll just I'll answer that.
Speaker Change: Much just given the overall size of the portfolio, where it is today. The fact that it's under one banner, but a couple of different businesses, one that services insurance customers, which has a longer different sales cycle than some of the retail and commercial.
Speaker Change: We thought it best to incubated within corporate and other it's obviously an important part of the business, we still spend some time talking about it but believe it's most important to.
Speaker Change: Our focus on growing that business and getting it to a point, where it's where it's pretty to shine and then we'll evaluate that then but it's largely a size based determination given the the sales of the various components there and the size of the EBITDA.
Speaker Change: Thought it more appropriate to fit in with the corporate and other given given some of the other support it requires across our corporate business.
Got it that's all really helpful and it seems like excluding the car wash business youre, implying roughly flat margins this year on a like for like business.
Speaker Change: With positive comps and unit growth can you help us.
Speaker Change: Thank you the puts and takes there or is it just prudence and is there anything embedded into sales or margins for tariffs.
Speaker Change: Yes, I mean, I would say first of all.
Speaker Change: Thank you you hit at the bingo appropriately, which was prudence, we're trying to be appropriately prudent as we as we lay out our perspective for for 2025.
Speaker Change: Obviously, it's a dynamic macroeconomic environment, we've tried to reflect the current operating environment as we see it today.
Given we're in a non discretionary category.
Speaker Change: Tariffs have an interesting little wrinkle in our ability to potentially.
Speaker Change: Prices, we need to for some of those increases as we see it.
Speaker Change: I think in general we do expect to have same store sales growth between 1% to 3%, we expect to manage our business.
Speaker Change: As tightly as possible and I made a previous comment around being able to to flow as much down to the bottom line. So we're really just focused on operating these businesses as best we can and making sure we continue to drive growth.
Speaker Change: Got it and then I guess, one clarifying point, just given the franchise mix of the business and where potential tariffs would impact to you is it fair to say it.
Speaker Change: Net benefit given your past.
Speaker Change: The franchisees are pass along that.
Speaker Change: To the extent, they can higher prices and sales, but they would face the incremental costs from that.
Speaker Change: Which wouldn't flow through to the broader business.
Speaker Change: Christian we don't think of it like that our franchisees expect it to pick up the burden. While we think about is that we operate in needs based services, where we have arguably some pricing power that in the event, we need to pass onto our customers. We will but we're also very conscious that there's been a lot of.
Speaker Change: <unk>, taking over the last three years to four years. So again I think mikes commentary is really just a a potential thing that we need to deal with but certainly we wouldn't be looking for our franchisees to absorb all of that.
Speaker Change: Got it thank you very much.
Speaker Change: Ladies and gentlemen, as a reminder, should you have a question. Please press star one on your next question comes from Tristan Thomas Martin with BMO capital markets. Your line is now open.
Speaker Change: Hey, good morning.
Speaker Change: Just one kind of clarification question I think you had called out AGN insurance partnerships grew year over year does that mean, you captured more insurance partnerships of the partnership's themselves extended.
Speaker Change: Both I think the answer to both of those questions is yes, we grew overall insurance.
Speaker Change: <unk> over 2024, and the individual partnerships that we've had historically have also seen some growth.
Speaker Change: Okay.
Speaker Change: And then just can you maybe talk a bit more about some of the take five marketing initiatives and kind of what your plans are for 2025.
Speaker Change: Sure happy to answer that so take five from a marketing perspective, we've been deploying the same strategy here for some time, but we really I mentioned in my prepared remarks, we saw pay some dividends in Q4 as we saw some nice sequential growth quarter over quarter. So it's kind of a two part strategy I'm not going to get into a lot of competitive specifics, but we do a.
Speaker Change: Broad reach brand strategy across all of our <unk>, we want to be always on and we want to be top of mind for our consumers. So that when that all change light pops on they immediately think it will take five and then we've got a second lever, which is this data driven local campaign approach. So that is a more refined.
We look at specific <unk> specific cohorts of customers, where we see unique opportunities and we deploy some some investment to go capture those eyeballs. So that one two punch we've been deploying for some time now and it paid some dividends in Q4.
Speaker Change: Thank you.
Speaker Change: There are no further questions at this time, ladies and gentlemen. This concludes your conference call for today, we thank you for participating and ask that you. Please disconnect your lines.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Okay.