Driven Brands (US:DRVN)2022-10-26 18:52Financial Data and Key Metrics Changes - Driven Brands reported a 39% revenue growth in Q3 2022, with adjusted EBITDA increasing by 32% to $129 million, and adjusted EPS at $0.32 [6][23][27] - System-wide sales reached $1.5 billion, driven by a 12% same-store sales growth and the addition of 101 net new stores [23][24] - Adjusted EBITDA margin was 25%, with four-wall margins at company-operated stores reaching 39% [26][27] Business Line Data and Key Metrics Changes - The Maintenance segment saw a 14% same-store sales growth, benefiting from digital marketing and retail pricing increases [29] - The Car Wash segment experienced a 9% decline in same-store sales, impacted by foreign exchange rates and softer retail volumes [31][32] - The Paint, Collision, and Glass segment posted a 16% same-store sales growth, with the glass business generating mid-30% four-wall EBITDA margins [35][36] Market Data and Key Metrics Changes - Driven Brands operates in a $350 billion automotive aftermarket industry, which continues to grow despite economic challenges [7][8] - The company has a customer database of 29 million unique customers, indicating strong market presence [7] - Vehicle miles traveled increased by approximately 1% year-to-date, with a positive forecast for Q4 [42] Company Strategy and Development Direction - The company aims to achieve at least $850 million of adjusted EBITDA by the end of 2026, with a focus on organic growth and acquisitions [9][22] - Driven Brands is expanding its footprint through a robust pipeline of new openings and acquisitions, with over 1,500 locations in development [19][41] - The company is leveraging its scale and shared service capabilities to enhance competitive advantages and drive growth [16][20] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating inflationary impacts and supply chain disruptions, highlighting the resilience of the automotive aftermarket [8][21] - The company remains optimistic about the balance of the year, with expectations for continued growth and market share gains [42][43] - Management noted that the operating environment may differ from initial expectations, but they are pleased with the current performance [21][43] Other Important Information - The company ended Q3 with $190 million in cash and equivalents, and $288 million in total liquidity [38][40] - A $365 million whole business securitization transaction was completed post-Q3, with proceeds used for debt repayment and general corporate purposes [39][41] - The pro forma weighted average interest rate of the debt portfolio is now 4.2%, with a net leverage ratio of 4.7 times [40] Q&A Session Summary Question: Car wash segment EBITDA performance - Management indicated that the contraction in car wash segment adjusted EBITDA was due to foreign exchange impacts, softer retail volumes, and promotional activity [46][47] Question: PC&G business incremental margins - Management explained that the contraction in the PC&G segment was influenced by the acquisition of company-owned stores, but the glass business is generating strong margins [48][49] Question: Impact of inflation on margins - Management noted effective management of inflationary impacts, with successful price increases in the Take 5 quick lube business [51][52] Question: Car wash decline in the U.S. - Management attributed the decline to FX impacts and softer retail volume, but highlighted the growth in the Wash Club program [53][54] Question: Clarification on guidance - Management clarified that the guidance reflects the impact of FX headwinds and includes M&A benefits, with expectations for organic growth to exceed prior guidance [56][57] Question: CapEx spending details - Management provided CapEx guidance of $400 million for the year, with a focus on unit development and corporate projects [61][62] Question: Glass business insurance opportunity - Management discussed the timing of unlocking insurance opportunities and the importance of calibration services in the glass business [64][65] Question: Labor constraints in the industry - Management highlighted structural advantages in labor efficiency and training, allowing the company to navigate hiring challenges effectively [67][70] Question: Commercial opportunity growth - Management expressed optimism about the commercial opportunity, emphasizing the stickiness of commercial customers [73][74] Question: Marketplace test details - Management described the upcoming marketplace test as a way to enhance procurement offerings for franchisees, aiming for increased profitability [75][76]