Driven Brands Holdings Inc. — Q1 2024 10-Q
Business context and period. Driven Brands operates more than 5,000 automotive-service locations across 49 U.S. states and 13 other countries. This report covers the 13 weeks ended March 30, 2024; the comparable period ended April 1, 2023. Amounts are U.S. dollars.
Financial and operating performance
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Revenue | $572.2 million | $562.5 million | +2% |
| Operating income | $58.5 million | $77.2 million | -24% |
| Operating margin | 10.2% | 13.7% | -3.5 percentage points |
| Net income | $4.3 million | $29.7 million | -86% |
| Diluted EPS | $0.03 | $0.17 | Down |
| Adjusted EBITDA (non-GAAP) | $131.0 million | $123.5 million | +6% |
| Adjusted net income (non-GAAP) | $38.1 million | $39.1 million | -3% |
| Cash from operations | $60.3 million | $36.8 million | +64% |
System-wide sales rose 7% to $1.60 billion, while consolidated same-store sales increased 0.7%. The company added 20 net stores during the quarter. Revenue growth reflected higher franchise royalties, advertising contributions, and supply and other revenue; company-operated store sales were essentially flat.
Segment trends: Maintenance revenue increased 15% and Segment Adjusted EBITDA rose 27% to $91.4 million, supported by same-store sales, store growth, and operating leverage. Car Wash revenue declined 8% and Segment Adjusted EBITDA fell 29% to $29.1 million; same-store sales were down 7.4%. Paint, Collision & Glass revenue declined 12% and Segment Adjusted EBITDA fell 13% to $30.8 million. Platform Services revenue grew 3% and Segment Adjusted EBITDA rose 17% to $19.9 million.
Cash, debt and liquidity
- Cash and cash equivalents were $165.5 million at quarter-end, versus $176.5 million at fiscal year-end 2023. Cash, restricted cash, and cash held in restricted advertising funds totaled $209.6 million.
- Operating cash flow was $60.3 million. Capital expenditures were $89.5 million; operating cash flow less capital expenditures was therefore negative $29.2 million, calculated from the reported figures.
- Total debt was $2.97 billion, including $248 million outstanding on the revolving credit facility. Long-term debt, net of issuance costs and current maturities, was $2.91 billion. Operating lease liabilities were a further $1.32 billion.
- Reported liquidity was $308 million, including $166 million cash and $142 million of undrawn capacity under the variable funding and revolving facilities. An additional $135 million of potential variable funding capacity was excluded and is subject to conditions.
- The company reported material compliance with debt covenants. Management said available liquidity and resources should be adequate for operations and expected needs for at least the next 12 months.
Material changes, outlook and risks
- GAAP earnings were pressured by $19.3 million of asset impairment and lease-termination charges, higher interest expense ($43.8 million, up 15%), higher depreciation and amortization, and a $4.3 million foreign-currency transaction loss versus a $1.7 million gain in the prior year. The effective tax rate was 59.1%, primarily reflecting impairment charges and non-deductible equity compensation.
- Impairments primarily related to assets held for sale. The company continued its strategic review of U.S. Car Wash operations, including previously approved closure of 29 stores and a halt to new company-operated store openings. Assets held for sale totaled $290.8 million at quarter-end; further impairments may occur.
- Positive offsets included approximately $13 million of gains related to business and asset sales and favorable lease terminations. The company sold nine company-operated Paint, Collision & Glass stores to a franchisee for $18 million.
- Management gave no quantified full-year financial guidance in the provided filing text. It cited ongoing Car Wash softness, competitive pressure and unfavorable weather; variable-rate borrowing costs; foreign-exchange exposure; and the possibility of further held-for-sale impairments. It also noted that access to capital markets could be affected by macroeconomic conditions, credit-rating changes, or weaker financial ratios.
- The company paid approximately $25 million under its Tax Receivable Agreement in January. It owed $41 million current and $108 million non-current under that agreement at quarter-end; deferred payments may accrue interest if debt restrictions or other factors prevent payment.
- A putative securities class action alleges violations of federal securities laws relating to purchases between October 2021 and August 2023. The company disputes the allegations and intends to defend the case; it had not assessed the likelihood or range of a potential adverse outcome.
- The filing records a $3.7 million prior-year-originating adjustment that reduced current-period assets and selling, general and administrative expense; management concluded it was immaterial to both periods.
Most important facts for investors to verify
- Whether Car Wash same-store sales and margins stabilize, and whether the held-for-sale portfolio requires additional impairments or store closures.
- Whether Maintenance growth and cost leverage can offset continued weakness in Car Wash and Paint, Collision & Glass.
- Debt costs, revolving-facility usage, covenant headroom, and cash generation relative to capital spending and lease obligations.
- The timing and amount of future Tax Receivable Agreement payments, and developments in the securities litigation.
- The basis and comparability of non-GAAP Adjusted EBITDA and Adjusted Net Income, including the substantial adjustments used to reconcile them to GAAP results.