Driven Brands (DRVN) - 2023 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION This section provides the unaudited consolidated financial statements, management's discussion, market risk, and controls Item 1. Financial Statements (Unaudited) Presents unaudited consolidated financial statements, including operations, balance sheets, cash flows, and detailed notes Consolidated Statements of Operations This statement details the company's revenues, expenses, and net loss or income over specific periods | Metric (in thousands) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 24, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 24, 2022 | | :---------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Total Revenue | $581,034 | $516,594 | $1,750,352 | $1,493,541 | | Total Operating Expenses| $1,487,891 | $420,826 | $2,482,430 | $1,359,738 | | Operating (Loss) Income | $(906,857) | $95,768 | $(732,078) | $133,803 | | Net (Loss) Income | $(799,311) | $38,391 | $(731,813) | $15,775 | | Basic EPS | $(4.82) | $0.23 | $(4.40) | $0.10 | | Diluted EPS | $(4.83) | $0.23 | $(4.41) | $0.09 | - The company reported a significant net loss of $799.3 million for the three months ended September 30, 2023, compared to a net income of $38.4 million in the prior year, primarily due to a goodwill impairment charge of $851.0 million and asset impairment charges of $111.2 million[12] Consolidated Statements of Comprehensive Income (Loss) This statement presents net income or loss and other comprehensive income or loss components | Metric (in thousands) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 24, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 24, 2022 | | :---------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net (loss) income | $(799,311) | $38,391 | $(731,813) | $15,775 | | Other comprehensive loss, net | $(26,351) | $(62,452) | $(8,801) | $(110,226) | | Total comprehensive loss| $(825,662) | $(24,061) | $(740,614) | $(94,451) | - Total comprehensive loss for the three months ended September 30, 2023, was $-825.7 million, significantly higher than $-24.1 million in the prior year, mainly due to the net loss[13] Consolidated Balance Sheets This statement provides a snapshot of the company's assets, liabilities, and equity at specific points in time | Metric (in thousands) | September 30, 2023 | December 31, 2022 | | :---------------------- | :----------------- | :---------------- | | Total current assets | $857,771 | $571,410 | | Total assets | $5,887,794 | $6,499,898 | | Total current liabilities | $475,334 | $505,418 | | Total liabilities | $5,006,867 | $4,846,329 | | Total shareholders' equity | $880,927 | $1,653,569 | - Total assets decreased from $6.5 billion at December 31, 2022, to $5.9 billion at September 30, 2023, primarily due to a significant reduction in goodwill from $2.3 billion to $1.4 billion[16] - Assets held for sale increased to $271.0 million as of September 30, 2023, from zero at December 31, 2022, reflecting the strategic review of U.S. car wash operations[16] Consolidated Statements of Shareholders'/Members' Equity This statement details changes in equity, including common stock, retained earnings, and comprehensive loss | Metric (in thousands) | Sep 30, 2023 (3 Months) | Sep 24, 2022 (3 Months) | Sep 30, 2023 (9 Months) | Sep 24, 2022 (9 Months) | | :---------------------- | :---------------------- | :---------------------- | :---------------------- | :---------------------- | | Common stock, end of period | $1,639 | $1,674 | $1,639 | $1,674 | | Additional paid-in capital, end of period | $1,646,831 | $1,620,480 | $1,646,831 | $1,620,480 | | Retained (deficit) earnings, end of period | $(696,938) | $57,397 | $(696,938) | $57,397 | | Accumulated other comprehensive loss, end of period | $(71,236) | $(115,233) | $(71,236) | $(115,233) | | Total shareholders' equity, end of period | $880,927 | $1,564,949 | $880,927 | $1,564,949 | - Retained earnings shifted from a positive balance of $84.8 million at the beginning of the nine-month period to a deficit of $-696.9 million by September 30, 2023, primarily due to the net loss incurred[19] - The company repurchased 3,601,694 shares of common stock for approximately $50.0 million during the nine months ended September 30, 2023[19] Consolidated Statements of Cash Flows This statement summarizes cash inflows and outflows from operating, investing, and financing activities | Metric (in thousands) | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 24, 2022 | | :---------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $212,033 | $167,652 | | Net cash used in investing activities | $(361,207) | $(771,768) | | Net cash provided by financing activities | $147,850 | $282,580 | | Net change in cash, cash equivalents, restricted cash, and cash included in advertising fund assets, restricted | $(959) | $(329,241) | - Net cash provided by operating activities increased by $44.4 million to $212.0 million for the nine months ended September 30, 2023, compared to the prior year, despite a net loss, due to non-cash adjustments like goodwill impairment[22] - Net cash used in investing activities significantly decreased by $410.6 million to $361.2 million, primarily due to a $598.0 million decrease in cash paid for acquisitions, partially offset by a $206.0 million increase in capital expenditures[22] Notes to the Consolidated Financial Statements This section provides detailed explanations and disclosures for the consolidated financial statements Note 1—Description of Business Describes the company's business operations, brands, and geographic presence in the automotive services industry - Driven Brands Holdings Inc. is North America's largest automotive services company, operating approximately 5,000 franchised, independently-operated, and company-operated locations across 49 U.S. states and 13 other countries[26] - The company's portfolio includes recognized brands such as Take 5 Oil Change, Take 5 Car Wash, Meineke Car Care Centers, MAACO, CARSTAR, Auto Glass Now, and 1-800-Radiator & A/C[26] - Approximately 74% of the company's locations are franchised or independently-operated[26] Note 2— Summary of Significant Accounting Policies Outlines the key accounting principles and methods used in preparing the financial statements - The company operates on a 52- or 53-week fiscal year, with fiscal quarters ending on the 13th or 14th Saturday[28] - Financial statements are prepared in accordance with U.S. GAAP for interim financial information, including normal recurring adjustments[29] - The company transitioned its LIBOR-based loans to the Secured Overnight Financing Rate (SOFR) on July 1, 2023, which did not have a material impact[39] Note 3—Acquisitions and Dispositions Details the company's acquisition activities and any significant dispositions during the reporting period - In the nine months ended September 30, 2023, the company completed ten acquisitions across its Maintenance (5 sites), Car Wash (4 sites), and Paint, Collision & Glass (2 sites) segments[41][42][43] | Segment | Sites Acquired | Aggregate Cash Consideration (in millions) | | :-------- | :------------- | :--------------------------------------- | | Maintenance | 5 | ~$8 | | Car Wash | 4 | ~$15 | | Paint, Collision & Glass | 2 | ~$6 | - Goodwill from these acquisitions was allocated to the Car Wash, Maintenance, and Paint, Collision & Glass segments and is substantially deductible for income tax purposes[48] Note 4— Revenue from Contracts with Customers Explains the company's revenue recognition policies and contract-related balances - Capitalized costs to obtain contracts (deferred commissions) were $6.0 million as of September 30, 2023, down from $7.0 million at December 31, 2022[53] - Contract liabilities (deferred revenue) were $31.0 million as of September 30, 2023, up from $29.0 million at December 31, 2022[54] - The company recognized $4.0 million of revenue relating to contract liabilities during the nine months ended September 30, 2023[54] Note 5—Segment Information Provides financial data and performance metrics for the company's distinct operating segments - The company operates in four reportable segments: Maintenance, Car Wash, Paint, Collision & Glass, and Platform Services[55] | Segment (in thousands) | Total Revenue (3 Months Ended Sep 30, 2023) | Segment Adjusted EBITDA (3 Months Ended Sep 30, 2023) | | :----------------------- | :------------------------------------------ | :---------------------------------------------------- | | Maintenance | $244,359 | $86,493 | | Car Wash | $142,813 | $24,429 | | Paint, Collision & Glass | $129,414 | $32,763 | | Platform Services | $55,934 | $22,417 | | Corporate and Other | $8,514 | $(37,487) | | Total | $581,034 | $128,615 | | Segment (in thousands) | Total Revenue (9 Months Ended Sep 30, 2023) | Segment Adjusted EBITDA (9 Months Ended Sep 30, 2023) | | :----------------------- | :------------------------------------------ | :---------------------------------------------------- | | Maintenance | $714,354 | $245,232 | | Car Wash | $464,548 | $112,001 | | Paint, Collision & Glass | $383,375 | $109,724 | | Platform Services | $165,305 | $61,984 | | Corporate and Other | $22,770 | $(119,088) | | Total | $1,750,352 | $409,853 | Note 6 — Asset Impairment Charges Details significant impairment charges recognized on goodwill and other assets during the period - During Q3 2023, management's strategic review of U.S. car wash operations led to the approval of 29 store closures, halting new company-operated store openings, and marketing property for sale[60] - These actions resulted in $111.0 million in impairment charges for property and equipment and right-of-use assets, and the transfer of $271.0 million of assets to 'assets held for sale'[60] - A full goodwill impairment charge of $851.0 million was recorded for the U.S. Car Wash reporting unit due to its carrying value exceeding fair value, triggered by the strategic review and a decline in stock price[61] Note 7 — Long-Term Debt Provides information on the company's long-term debt obligations, including changes and terms | Debt Type (in thousands) | September 30, 2023 | December 31, 2022 | | :----------------------- | :----------------- | :---------------- | | Total debt | $2,945,675 | $2,784,175 | | Less: unamortized debt issuance costs | $(36,747) | $(45,908) | | Less: current portion of long-term debt | $(31,869) | $(32,986) | | Total long-term debt, net | $2,877,059 | $2,705,281 | - Total debt increased by $161.5 million to $2.9 billion as of September 30, 2023, compared to December 31, 2022[64] - The company exercised the first of three one-year extension options for the 2019 VFN in July 2023, with no amounts outstanding as of September 30, 2023, but $25.0 million in outstanding letters of credit[65] Note 8 — Leases Details the company's lease arrangements, including right-of-use assets, liabilities, and related transactions - During the nine months ended September 30, 2023, the company sold 48 properties (10 maintenance, 38 car wash) for $171.0 million, resulting in a $25.0 million net gain, and leased them back with initial terms of 16-20 years[68] - Operating lease right-of-use assets and liabilities of $132.0 million were recorded for these new lease arrangements[69] - The company impaired $62.0 million of right-of-use assets related to 28 leased stores approved for closure or underperforming during Q3 2023[71] Note 9 — Shareholders' Equity Describes changes in shareholders' equity, including share repurchases and capital transactions - In August 2023, the Board authorized a $50.0 million share repurchase program, which was completed by September 30, 2023[72] - The company repurchased 3,601,694 shares of common stock at an average price of $13.87 per share[72] Note 10 — Equity-based Compensation Details the company's equity-based compensation plans, grants, and related expenses - During the nine months ended September 30, 2023, the company granted 388,878 Restricted Stock Units (RSUs) and 647,359 Performance Stock Units (PSUs)[73] - Equity-based compensation expense was $3.0 million for the three months and $10.0 million for the nine months ended September 30, 2023[76] Note 11—(Loss) Earnings Per Share Presents the calculation of basic and diluted earnings per share, including factors affecting dilution | Metric (in thousands, except per share) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 24, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 24, 2022 | | :-------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Basic (loss) earnings per share | $(4.82) | $0.23 | $(4.40) | $0.10 | | Diluted (loss) earnings per share | $(4.83) | $0.23 | $(4.41) | $0.09 | | Weighted-average common shares outstanding (Basic) | 162,398 | 162,760 | 162,698 | 162,768 | | Weighted-average common shares outstanding (Diluted) | 162,398 | 166,831 | 162,698 | 166,663 | - Due to net losses from operations for the three and nine months ended September 30, 2023, no potentially dilutive securities were included in the diluted EPS computation as their inclusion would be antidilutive[79] Note 12—Income Taxes Provides information on income tax expense or benefit, effective tax rates, and deferred tax balances | Metric (in thousands) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 24, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 24, 2022 | | :---------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Income tax (benefit) expense | $(151,818) | $14,472 | $(120,572) | $8,592 | | Effective income tax rate | 16.0% | 27.4% | 14.1% | 35.3% | - The company recorded an income tax benefit of $151.8 million for the three months and $120.6 million for the nine months ended September 30, 2023, primarily driven by the significant impairment charges[81][82] Note 13—Subsequent Events Discloses significant events that occurred after the balance sheet date but before financial statement issuance - On October 30, 2023, the company converted 2,438,643 options and 2,963,829 restricted stock awards, originally tied to sponsor returns, into time-based awards vesting on April 30, 2025[83] - The fair value of these modified options and restricted stock awards was approximately $10.0 million and $33.0 million, respectively, with compensation expense to be recognized ratably over the vesting period[83] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion and analysis of financial condition, results of operations, and key performance indicators Overview Provides a high-level summary of the company's business, market position, and strategic initiatives - Driven Brands is the largest automotive services company in North America with approximately 5,000 locations, offering a wide range of consumer and commercial automotive needs[86] | Metric (in millions) | 3 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2023 | | :--------------------- | :-------------------------- | :-------------------------- | | Revenue | $581.0 million (Up 12% YoY) | $1.8 billion (Up 17% YoY) | | System-wide sales | $1.6 billion (Up 10% YoY) | $4.8 billion (Up 15% YoY) | - A strategic review of U.S. car wash operations led to the closure of 29 stores, a halt in new company-operated store openings, and $111.0 million in asset impairment charges, along with an $851.0 million goodwill impairment charge for the U.S. Car Wash reporting unit[87][88] Q3 2023 Three Months Ended Highlights and Key Performance Indicators Summarizes key financial highlights and performance indicators for the three months ended September 30, 2023 | Metric | Q3 2023 (YoY Change) | | :------- | :------------------- | | Revenue | +12% to $581 million | | Consolidated Same-Store Sales | +6% | | Net New Stores | +55 | | Net Loss | $799 million (vs. $38 million Net Income prior year) | | Adjusted Net Income (non-GAAP) | -39% to $34 million | | Adjusted EBITDA (non-GAAP) | -2% to $127 million | - The net loss was primarily due to impairment charges, while Adjusted Net Income and Adjusted EBITDA decreased due to reduced margins in Car Wash and Paint, Collision & Glass segments, partially offset by improvements in Maintenance and Platform Services[89] Q3 2023 Nine Months Ended Highlights and Key Performance Indicators Summarizes key financial highlights and performance indicators for the nine months ended September 30, 2023 | Metric | 9 Months Ended Sep 30, 2023 (YoY Change) | | :------- | :--------------------------------------- | | Revenue | +17% to $1,750 million | | Consolidated Same-Store Sales | +9% | | Net New Stores | +188 | | Net Loss | $732 million (vs. $16 million Net Income prior year) | | Adjusted Net Income (non-GAAP) | -23% to $125 million | | Adjusted EBITDA (non-GAAP) | +6% to $406 million | - The net loss for the nine-month period was primarily driven by impairment charges. Adjusted EBITDA increased due to improved margins in Maintenance and Platform Services, despite decreased margins in Car Wash and Paint, Collision & Glass[94] Key Performance Indicators Presents key metrics used to evaluate the company's operational and financial performance - Key measures include System-wide sales, Store count, Same store sales, and Segment Adjusted EBITDA, used to assess business health and segment performance[90][91][92][93] | KPI | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 24, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 24, 2022 | | :---------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total System-Wide Sales | $1,609,039 | $1,462,106 | $4,771,016 | $4,138,357 | | Total Store Count | 4,993 | 4,707 | 4,993 | 4,707 | | Total Same Store Sales % | 6.4% | 11.9% | 8.6% | 14.7% | | Total Segment Adjusted EBITDA | $128,615 | $130,108 | $409,853 | $385,215 | - Car Wash segment experienced negative same store sales of (4.0%) for the three months and (6.7%) for the nine months ended September 30, 2023, a significant decline from the prior year[95] Reconciliation of Non-GAAP Financial Information Reconciles non-GAAP financial measures to their most directly comparable GAAP financial measures - Non-GAAP financial measures like Adjusted Net Income and Adjusted EBITDA are used to provide additional insights into financial performance, excluding certain non-recurring or non-cash items[96][98][100] | Metric (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 24, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 24, 2022 | | :---------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net (loss) income | $(799,311) | $38,391 | $(731,813) | $15,775 | | Adjusted net income | $33,720 | $54,964 | $125,203 | $162,413 | | Adjusted EBITDA | $127,243 | $129,355 | $406,079 | $383,290 | - Adjusted Net Income decreased by 39% for the three months and 23% for the nine months ended September 30, 2023, primarily due to decreased margins in Car Wash and Paint, Collision & Glass, and increased interest and depreciation expenses[89][94] Results of Operations for the Three Months Ended September 30, 2023 Compared to the Three Months Ended September 24, 2022 Net loss of $799 million due to impairment charges, with decreased Adjusted Net Income and EBITDA from reduced margins and higher expenses - Net loss of $799.3 million (or $4.83 diluted EPS) in Q3 2023, compared to net income of $38.4 million (or $0.23 diluted EPS) in Q3 2022, driven by $851.0 million goodwill impairment and $111.2 million asset impairment charges[105] - Adjusted net income decreased by $21.0 million to $33.7 million, and Adjusted EBITDA decreased by $2.0 million to $127.2 million, mainly due to reduced operating margins in Car Wash and Paint, Collision & Glass, and higher interest and depreciation expenses[106][107] Revenue Analyzes revenue streams, growth drivers, and changes in sales composition | Revenue Type (in thousands) | Sep 30, 2023 | % of Net Revenues | Sep 24, 2022 | % of Net Revenues | | :-------------------------- | :----------- | :---------------- | :----------- | :---------------- | | Franchise royalties and fees | $47,362 | 8.1% | $45,562 | 8.8% | | Company-operated store sales | $389,041 | 67.0% | $341,211 | 66.1% | | Independently-operated store sales | $43,582 | 7.5% | $40,469 | 7.8% | | Advertising fund contributions | $27,121 | 4.7% | $22,018 | 4.3% | | Supply and other revenue | $73,928 | 12.7% | $67,334 | 13.0% | | Total revenue | $581,034 | 100.0% | $516,594 | 100.0% | - Total revenue increased by $64.0 million (12%) to $581.0 million, driven by a 14% increase in company-operated store sales and a 4% increase in franchise royalties and fees[109][110][111] - Company-operated store sales increased by $48.0 million, with Maintenance and Paint, Collision & Glass segments contributing $32.0 million and $16.0 million, respectively, while Car Wash sales remained flat despite new store additions due to decreased same-store sales[111] Operating Expenses Details the components of operating expenses and their impact on profitability | Expense Type (in thousands) | Sep 30, 2023 | % of Net Revenues | Sep 24, 2022 | % of Net Revenues | | :-------------------------- | :----------- | :---------------- | :----------- | :---------------- | | Company-operated store expenses | $262,282 | 45.1% | $209,562 | 40.6% | | Selling, general, and administrative expenses | $123,012 | 21.2% | $82,460 | 16.0% | | Depreciation and amortization | $45,639 | 7.9% | $36,518 | 7.1% | | Goodwill impairment | $850,970 | 146.5% | $0 | 0.0% | | Asset impairment charges and lease terminations | $111,239 | 19.1% | $2,894 | 0.6% | | Total operating expenses | $1,487,891 | 256.1% | $420,826 | 81.5% | - Total operating expenses surged by $1.1 billion, primarily due to the $851.0 million goodwill impairment and $108.0 million increase in asset impairment charges related to the Car Wash segment[116][125][126] - Selling, general and administrative expenses increased by $41.0 million (49%), partly due to a $14.0 million loss on sale/disposal of fixed assets in the current period versus a $17.0 million gain in the prior year[121] Interest Expense, Net Discusses net interest expense, including factors influencing its changes | Metric (in thousands) | Sep 30, 2023 | % of Net Revenues | Sep 24, 2022 | % of Net Revenues | | :---------------------- | :----------- | :---------------- | :----------- | :---------------- | | Interest expense, net | $41,292 | 7.1% | $27,323 | 5.3% | - Net interest expense increased by $14.0 million (51%) to $41.3 million, driven by higher variable interest rates on the Term Loan Facility and borrowings under the Series 2022-1 Class A-2 Securitization Senior Notes[127] Loss on Foreign Currency Transactions, Net Reports net gains or losses from foreign currency transactions and hedging activities | Metric (in thousands) | Sep 30, 2023 | % of Net Revenues | Sep 24, 2022 | % of Net Revenues | | :---------------------- | :----------- | :---------------- | :----------- | :---------------- | | Loss on foreign currency transactions, net | $2,980 | 0.5% | $15,582 | 3.0% | - Net loss on foreign currency transactions decreased by $12.6 million to $3.0 million, primarily due to lower transaction losses in foreign operations and gains on foreign currency hedges[128] Income Tax (Benefit) Expense Analyzes income tax expense or benefit and the effective tax rate | Metric (in thousands) | Sep 30, 2023 | % of Net Revenues | Sep 24, 2022 | % of Net Revenues | | :---------------------- | :----------- | :---------------- | :----------- | :---------------- | | Income tax (benefit) expense | $(151,818) | (26.1%) | $14,472 | 2.8% | - The company recorded an income tax benefit of $151.8 million, a decrease of $166.0 million from the prior year's expense, with the effective tax rate falling to 16.0% from 27.4%, primarily due to the impairment charges[129] Results of Operations for the Nine Months Ended September 30, 2023 Compared to the Nine Months Ended September 24, 2022 Net loss of $732 million driven by impairment charges, with decreased Adjusted Net Income and increased Adjusted EBITDA from mixed segment performance - Net loss of $731.8 million (or $4.41 diluted EPS) for the nine months ended September 30, 2023, compared to net income of $15.8 million (or $0.09 diluted EPS) in the prior year, primarily due to $851.0 million goodwill impairment and $117.5 million asset impairment charges[130] - Adjusted net income decreased by $37.0 million to $125.2 million, while Adjusted EBITDA increased by $23.0 million to $406.1 million, driven by revenue growth and improved margins in Maintenance and Platform Services, partially offset by declines in Car Wash and Paint, Collision & Glass[131][132] Revenue Analyzes revenue streams, growth drivers, and changes in sales composition | Revenue Type (in thousands) | Sep 30, 2023 | % of Net Revenues | Sep 24, 2022 | % of Net Revenues | | :-------------------------- | :----------- | :---------------- | :----------- | :---------------- | | Franchise royalties and fees | $140,682 | 8.0% | $128,300 | 8.6% | | Company-operated store sales | $1,159,685 | 66.3% | $957,487 | 64.1% | | Independently-operated store sales | $157,647 | 9.0% | $158,500 | 10.6% | | Advertising fund contributions | $73,547 | 4.2% | $63,807 | 4.3% | | Supply and other revenue | $218,791 | 12.5% | $185,447 | 12.4% | | Total revenue | $1,750,352 | 100.0% | $1,493,541 | 100.0% | - Total revenue increased by $257.0 million (17%) to $1.8 billion, driven by a $202.0 million (21%) increase in company-operated store sales and a $12.0 million (10%) increase in franchise royalties and fees[134][135][136] - Company-operated store sales growth was led by Maintenance ($108.0 million) and Paint, Collision & Glass ($87.0 million), while Car Wash sales increased by $8.0 million despite a decrease in same-store sales[136][137] Operating Expenses Details the components of operating expenses and their impact on profitability | Expense Type (in thousands) | Sep 30, 2023 | % of Net Revenues | Sep 24, 2022 | % of Net Revenues | | :-------------------------- | :----------- | :---------------- | :----------- | :---------------- | | Company-operated store expenses | $762,731 | 43.6% | $580,368 | 38.9% | | Selling, general, and administrative expenses | $332,155 | 19.0% | $272,657 | 18.3% | | Depreciation and amortization | $129,256 | 7.4% | $107,628 | 7.2% | | Goodwill impairment | $850,970 | 48.6% | $0 | 0.0% | | Trade name impairment charges | $0 | 0.0% | $125,450 | 8.4% | | Asset impairment charges | $117,450 | 6.7% | $2,910 | 0.2% | | Total operating expenses | $2,482,430 | 141.8% | $1,359,738 | 91.0% | - Total operating expenses increased by $1.1 billion, primarily due to the $851.0 million goodwill impairment and $115.0 million increase in asset impairment charges, partially offset by the absence of the $125.0 million trade name impairment from the prior year[141][150][151][152] - Selling, general and administrative expenses increased by $59.0 million (22%), partly due to a $2.0 million loss on sale/disposal of fixed assets in the current period versus a $23.0 million gain in the prior year[146] Interest Expense, Net Discusses net interest expense, including factors influencing its changes | Metric (in thousands) | Sep 30, 2023 | % of Net Revenues | Sep 24, 2022 | % of Net Revenues | | :---------------------- | :----------- | :---------------- | :----------- | :---------------- | | Interest expense, net | $120,304 | 6.9% | $78,946 | 5.3% | - Net interest expense increased by $41.0 million (52%) to $120.3 million, driven by higher variable interest rates on the Term Loan Facility and borrowings under the Series 2022-1 Class A-2 Securitization Senior Notes[153] Loss on Foreign Currency Transactions, Net Reports net gains or losses from foreign currency transactions and hedging activities | Metric (in thousands) | Sep 30, 2023 | % of Net Revenues | Sep 24, 2022 | % of Net Revenues | | :---------------------- | :----------- | :---------------- | :----------- | :---------------- | | Loss on foreign currency transactions, net | $3 | 0.0% | $30,490 | 2.0% | - Net loss on foreign currency transactions significantly decreased by $30.5 million to $3.0 thousand, primarily due to lower net remeasurement losses on non-U.S. dollar entities and gains on foreign currency hedges[154] Income Tax (Benefit) Expense Analyzes income tax expense or benefit and the effective tax rate | Metric (in thousands) | Sep 30, 2023 | % of Net Revenues | Sep 24, 2022 | % of Net Revenues | | :---------------------- | :----------- | :---------------- | :----------- | :---------------- | | Income tax (benefit) expense | $(120,572) | (6.9%) | $8,592 | 0.6% | - The company recorded an income tax benefit of $120.6 million, a decrease of $129.0 million from the prior year's expense, with the effective tax rate falling to 14.1% from 35.3%, primarily due to the increased impairment charges[155] Segment Results of Operations for the Three Months Ended September 30, 2023 Compared to the Three Months Ended September 24, 2022 Segment performance analysis for Q3 2023, highlighting mixed results with growth in Maintenance and Platform Services, and declines in Car Wash and PC&G Maintenance Details the financial performance of the Maintenance segment, including revenue and Adjusted EBITDA | Metric (in thousands) | Sep 30, 2023 | Sep 24, 2022 | Change (YoY) | | :---------------------- | :----------- | :----------- | :----------- | | Total revenue | $244,359 | $200,822 | +22% | | Segment Adjusted EBITDA | $86,493 | $68,763 | +26% | | System-Wide Sales | $502,482 | $411,452 | +22.1% | | Same Store Sales % | 9.1% | 14.4% | -5.3 pp | - Maintenance segment revenue increased by $44.0 million (22%), driven by a 25% increase in franchised system-wide sales and a 19% increase in company-operated store sales, both benefiting from same-store sales growth and new store additions[158] - Segment Adjusted EBITDA increased by $18.0 million (26%), attributed to revenue growth, cost management, and operational leverage from an efficient labor model[159] Car Wash Details the financial performance of the Car Wash segment, including revenue and Adjusted EBITDA | Metric (in thousands) | Sep 30, 2023 | Sep 24, 2022 | Change (YoY) | | :---------------------- | :----------- | :----------- | :----------- | | Total revenue | $142,813 | $140,303 | +2% | | Segment Adjusted EBITDA | $24,429 | $39,098 | -38% | | System-Wide Sales | $141,714 | $138,704 | +2.2% | | Same Store Sales % | (4.0%) | (9.0%) | +5.0 pp | - Car Wash segment revenue increased by $3.0 million (2%), driven by new company-operated stores and favorable foreign exchange, but partially offset by decreased same-store sales in company-operated stores[161] - Segment Adjusted EBITDA decreased by $15.0 million (38%), primarily due to decreased same-store sales, increased operating costs (rent, supplies, utilities), and higher labor costs for new stores[164] - U.S. Car Wash locations faced softening retail demand, increased competitive pressures, and negative weather patterns, contributing to negative same-store sales[162] Paint, Collision & Glass Details the financial performance of the Paint, Collision & Glass segment, including revenue and Adjusted EBITDA | Metric (in thousands) | Sep 30, 2023 | Sep 24, 2022 | Change (YoY) | | :---------------------- | :----------- | :----------- | :----------- | | Total revenue | $129,414 | $113,220 | +14% | | Segment Adjusted EBITDA | $32,763 | $38,919 | -16% | | System-Wide Sales | $845,644 | $781,199 | +8.2% | | Same Store Sales % | 8.6% | 15.7% | -7.1 pp | - Paint, Collision & Glass revenue increased by $16.0 million (14%), primarily from U.S. glass acquisitions, despite flat franchise royalties and fees[166] - Segment Adjusted EBITDA decreased by $6.0 million (16%), mainly due to higher employee-related costs and reduced volume in company-operated stores, despite revenue growth[168] - Integration of U.S. glass acquisitions has taken longer than planned, resulting in lower-than-expected revenue and cost efficiencies[167] Platform Services Details the financial performance of the Platform Services segment, including revenue and Adjusted EBITDA | Metric (in thousands) | Sep 30, 2023 | Sep 24, 2022 | Change (YoY) | | :---------------------- | :----------- | :----------- | :----------- | | Total revenue | $55,934 | $51,999 | +8% | | Segment Adjusted EBITDA | $22,417 | $19,765 | +13% | | System-Wide Sales | $119,199 | $130,751 | -8.8% | | Same Store Sales % | (4.6%) | 8.7% | -13.3 pp | - Platform Services revenue increased by $4.0 million (8%), driven by increased total company system-wide sales and new product offerings[170] - Segment Adjusted EBITDA increased by $3.0 million (13%), primarily due to revenue growth, cost management, and operational leverage[171] Segment Results of Operations for the Nine Months Ended September 30, 2023 Compared to the Nine Months Ended September 24, 2022 Segment performance analysis for the nine months ended September 30, 2023, showing varied results across Maintenance, Car Wash, PC&G, and Platform Services Maintenance Details the financial performance of the Maintenance segment, including revenue and Adjusted EBITDA | Metric (in thousands) | Sep 30, 2023 | Sep 24, 2022 | Change (YoY) | | :---------------------- | :----------- | :----------- | :----------- | | Total revenue | $714,354 | $573,869 | +24% | | Segment Adjusted EBITDA | $245,232 | $185,324 | +32% | | System-Wide Sales | $1,429,049 | $1,167,717 | +22.4% | | Same Store Sales % | 10.8% | 16.0% | -5.2 pp | - Maintenance segment revenue increased by $140.0 million (24%), driven by a $108.0 million increase in company-operated store sales and a $24.0 million increase in supply and other revenue[174] - Segment Adjusted EBITDA increased by $60.0 million (32%), primarily due to revenue growth, cost management, and operational leverage from an efficient labor model[175] Car Wash Details the financial performance of the Car Wash segment, including revenue and Adjusted EBITDA | Metric (in thousands) | Sep 30, 2023 | Sep 24, 2022 | Change (YoY) | | :---------------------- | :----------- | :----------- | :----------- | | Total revenue | $464,548 | $458,157 | +1% | | Segment Adjusted EBITDA | $112,001 | $148,495 | -25% | | System-Wide Sales | $459,840 | $453,026 | +1.5% | | Same Store Sales % | (6.7%) | (1.8%) | -4.9 pp | - Car Wash segment revenue increased by $6.0 million (1%), driven by 49 net new company-operated stores, but partially offset by a 6.7% decrease in same-store sales[176] - Segment Adjusted EBITDA decreased by $36.0 million (25%), primarily due to decreased same-store sales, increased company-operated store costs (employee compensation, rent, supplies, utilities)[179] - U.S. Car Wash locations continued to face softening retail demand, increased competitive pressures, and negative weather patterns, contributing to negative same-store sales[177] Paint, Collision & Glass Details the financial performance of the Paint, Collision & Glass segment, including revenue and Adjusted EBITDA | Metric (in thousands) | Sep 30, 2023 | Sep 24, 2022 | Change (YoY) | | :---------------------- | :----------- | :----------- | :----------- | | Total revenue | $383,375 | $287,950 | +33% | | Segment Adjusted EBITDA | $109,724 | $100,847 | +9% | | System-Wide Sales | $2,554,216 | $2,164,749 | +18.0% | | Same Store Sales % | 13.3% | 17.5% | -4.2 pp | - Paint, Collision & Glass revenue increased by $95.0 million (33%), primarily from a $87.0 million (54%) increase in company-operated store revenue due to U.S. glass acquisitions[180] - Segment Adjusted EBITDA increased by $9.0 million (9%), driven by revenue growth from acquisitions and same-store sales, despite higher employee-related costs and reduced volume[182] - Integration of U.S. glass acquisitions continued to take longer than planned, resulting in lower-than-expected revenue and cost efficiencies[181] Platform Services Details the financial performance of the Platform Services segment, including revenue and Adjusted EBITDA | Metric (in thousands) | Sep 30, 2023 | Sep 24, 2022 | Change (YoY) | | :---------------------- | :----------- | :----------- | :----------- | | Total revenue | $165,305 | $148,368 | +11% | | Segment Adjusted EBITDA | $61,984 | $54,471 | +14% | | System-Wide Sales | $327,911 | $352,865 | -7.1% | | Same Store Sales % | (7.2%) | 14.9% | -22.1 pp | - Platform Services revenue increased by $17.0 million (11%), primarily due to an increase in total company system-wide sales and increased product purchases[184] - Segment Adjusted EBITDA increased by $8.0 million (14%), primarily due to revenue growth, cost management, and operational leverage[185] Financial Condition, Liquidity and Capital Resources Discusses the company's financial position, liquidity, and capital management strategies - The company had total liquidity of $387.0 million as of September 30, 2023, including $211.0 million in cash and cash equivalents, and $91.0 million and $85.0 million of undrawn capacity on its 2019 VFN and Revolving Credit Facility, respectively[189] - Net cash provided by operating activities increased to $212.0 million for the nine months ended September 30, 2023, from $167.7 million in the prior year, despite higher net working capital[191] - Net cash used in investing activities decreased significantly to $361.2 million from $771.8 million, primarily due to a $598.0 million decrease in cash paid for acquisitions, partially offset by a $206.0 million increase in capital expenditures[192] Critical Accounting Policies and Estimates Highlights key accounting policies and estimates requiring significant management judgment - The company's critical accounting policies include the impairment of goodwill and other indefinite-lived intangible assets, which are evaluated throughout the year for impairment indicators[198] - An interim quantitative assessment of goodwill as of September 30, 2023, resulted in a full impairment charge to the U.S. Car Wash reporting unit[201] - The fair value of International Car Wash and Maintenance-Repair reporting units exceeded their carrying amounts by approximately 6% each, with sensitivity to a 1% increase in discount rate potentially causing impairments of $19.0 million and $11.0 million, respectively[201][202] Application of New Accounting Standards Summarizes the impact and application of recently issued accounting standards - The company refers to Note 2 of the consolidated unaudited financial statements for a discussion of recently issued accounting standards applicable to the Company[206] Item 3. Quantitative and Qualitative Disclosures About Market Risk No material changes in market risk were reported compared to the prior fiscal year's Annual Report on Form 10-K - No material changes in the company's market risk were reported compared to the disclosures in the Annual Report on Form 10-K for the fiscal year ended December 31, 2022[207] Item 4. Controls and Procedures Management concluded disclosure controls were effective, with no material changes in internal control over financial reporting during the quarter - Management, with CEO and CFO participation, concluded that disclosure controls and procedures were designed effectively as of September 30, 2023, providing reasonable assurance[209] - No material changes in internal control over financial reporting occurred during the quarter ended September 30, 2023[210] PART II. OTHER INFORMATION This section provides additional disclosures on legal proceedings, risk factors, equity sales, and other relevant information Item 1. Legal Proceedings The company faces various legal proceedings in the ordinary course of business, with no current expectation of material adverse impact - The company is subject to various lawsuits, administrative proceedings, audits, and claims, including potential class actions, arising in the ordinary course of business[212] - Management accrues for probable and reasonably estimable litigation loss contingencies and does not currently believe any existing legal proceedings will have a no material adverse impact[212] Item 1A. Risk Factors Refers to the Annual Report on Form 10-K for a comprehensive discussion of risk factors that could adversely affect the company - For a discussion of risk factors, readers are referred to Part I, Item 1A 'Risk Factors' in the Annual Report on Form 10-K for the fiscal year ended December 31, 2022[213] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company completed its $50 million share repurchase program, repurchasing 3.6 million shares at an average price of $13.87 | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :-------------------------- | :----------------------------- | :--------------------------- | | August 6, 2023-September 2, 2023 | 1,004,836 | $14.76 | | September 3, 2023-September 30, 2023 | 2,596,858 | $13.53 | | Total | 3,601,694 | $13.87 | - The company completed its $50.0 million share repurchase program, authorized in August 2023, by September 30, 2023[214] Item 3. Defaults Upon Senior Securities No defaults upon senior securities were reported during the reporting period - No defaults upon senior securities were reported[215] Item 5. Other Information No director or Section 16 officer adopted or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements - No director or Section 16 officer adopted or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the three months ended September 30, 2023[216] Item 6. Exhibits Lists exhibits filed with Form 10-Q, including CEO/CFO certifications and XBRL documents - Exhibits include certifications from the Chief Executive Officer and Chief Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[217] - XBRL Instance, Schema, Calculation, Definition, Label, and Presentation Linkbase Documents, along with the Cover Page Interactive Data File, are also filed as exhibits[217]