Driven Brands Holdings Inc. — FY2021 Form 10-K
Reporting period: 52 weeks ended December 25, 2021. This filing reports annual results, not standalone fourth-quarter results; the supplied filing text does not provide a clear standalone Q4 financial summary. Amounts below are in U.S. dollars unless noted.
Business context
Driven Brands operates automotive maintenance, car wash, paint, collision, glass and platform services through franchised, company-operated and independently operated locations. At year-end it had 4,412 locations across 49 U.S. states and 14 other countries. Its network generated approximately $4.54 billion in system-wide sales; this includes franchisee sales and is not the same as company revenue.
Key financial metrics
| Metric | FY2021 | FY2020 | Change / context |
|---|---|---|---|
| Revenue | $1,467.3 million | $904.2 million | Up 62% |
| Operating income | $177.1 million | $94.7 million | Operating margin about 12.1%, versus 10.5% |
| Net income (loss) attributable to Driven Brands | $9.6 million; $0.06 diluted EPS | $(4.2) million; $(0.04) diluted EPS | Returned to GAAP profitability |
| Adjusted EBITDA | $361.7 million | $205.4 million | Up 76%; margin about 24.7% versus 22.7% |
| Adjusted net income / diluted EPS | $147.1 million / $0.88 | $43.4 million / $0.42 | Non-GAAP measures |
| Cash from operating activities | $283.8 million | $84.0 million | Increase reflected higher operating results and favorable working-capital changes |
| Capital expenditures | $160.8 million | $52.5 million | Higher store-development, maintenance and technology spending |
| Cash and cash equivalents | $523.4 million | $172.6 million | Year-end balance |
| Debt | $2,430.3 million gross contractual principal; $2,382.4 million carrying value before current/non-current presentation | $2,205.7 million gross contractual principal | Includes securitization notes and a $500 million term loan; $300 million revolving facility had no balance |
Year-end total liquidity was reported as $921 million, including $523 million cash and $398 million of undrawn variable-funding securitization and revolving-credit capacity. Current assets were $768.9 million and current liabilities $468.4 million. Long-term operating lease liabilities were $931.6 million; undiscounted operating lease commitments totaled $1,494.2 million.
Material changes versus the prior year
- Revenue growth reflected acquisitions and a strong recovery in same-store sales. Total same-store sales rose 17.1%, compared with a 5.6% decline in FY2020.
- Growth was substantially affected by the full-year inclusion of ICWG, acquired in August 2020, versus only about five months in FY2020, as well as 2021 acquisitions. The Car Wash segment added 110 sites through acquisitions; the company completed 38 car wash acquisitions during the year.
- Segment same-store sales were up 24.8% in Maintenance, 6.0% in Car Wash, 12.6% in Paint, Collision & Glass, and 26.8% in Platform Services.
- Interest expense fell $19.7 million to $75.9 million, but the company recorded a $45.6 million debt-extinguishment loss, principally from settling the Car Wash Senior Credit Facilities. Foreign-currency transaction losses were $20.7 million, versus a $13.6 million gain in FY2020.
- Acquisition costs increased to $62.4 million, including $56 million related to Auto Glass Now. SG&A rose 34% to $292.3 million, partly due to IPO-related costs, public-company infrastructure and increased staffing.
- Investing cash outflow increased to $814.9 million, including $800.8 million spent on acquisitions, net of acquired cash. Financing cash flow included $761 million of net IPO and over-allotment proceeds; proceeds were used in part to repay ICWG-related debt and repurchase shares.
Outlook, commentary and risks
- No quantified forward-year earnings or revenue guidance is provided in the supplied filing text. Management describes continued growth through new locations, same-store sales, shared services and acquisitions. At year-end, the company had agreements to open more than 900 franchised units.
- Management said COVID-19 did not have a material adverse effect on FY2021 operations, while noting ongoing uncertainty and potential effects on demand, staffing and supply chains. Most locations had remained open as automotive services were generally considered essential.
- Management stated that inflation did not significantly affect annual results in 2019–2021, but identified inflation, labor and commodity costs, interest rates, supply availability, foreign exchange, weather and competition as risks.
- Debt is significant, secured by substantial revenue-generating assets and subject to restrictive covenants and cash-flow priorities. The company reported covenant compliance at year-end; a default or rapid-amortization event could restrict cash available to the parent and operations.
- The Income Tax Receivable Agreement requires payment to eligible former stockholders of 85% of realized tax savings. The company recorded a $156 million liability at year-end and estimated total future payments of $145–$165 million, subject to assumptions and realization of tax benefits.
- On December 30, 2021, after fiscal year-end, the company acquired Auto Glass Now for approximately $170 million. The filing records $56 million of related transaction expense in FY2021; purchase accounting was incomplete when the filing was prepared.
- Management did not believe pending ordinary-course legal matters would have a material adverse impact, but gave no assurance of outcomes. The company identified risks involving franchisee performance, insurance-partner relationships, automotive technology, cyber and privacy matters, environmental regulation, and acquisition integration.
Most important facts for investors to verify
- Separate organic growth from acquisition and consolidation effects, particularly ICWG’s first full year and the 2021 car wash acquisitions.
- Review the quality and sustainability of reported earnings: FY2021 GAAP net income was $9.6 million versus Adjusted EBITDA of $361.7 million, with substantial acquisition and debt-extinguishment adjustments.
- Confirm the company’s debt measures and available liquidity against the debt agreements, including collateral, covenant tests, maturities and restrictions on subsidiary distributions.
- Assess the Auto Glass Now acquisition’s final purchase-price allocation, integration costs and contribution after the reporting date.
- Evaluate the $156 million tax-receivable liability and the assumptions underlying expected payments and tax savings.
- Note that the filing reports a 2021 effective tax rate of 72.5% in MD&A and 72.7% in the tax-rate reconciliation; also, segment Adjusted EBITDA and company-wide Adjusted EBITDA are differently defined and should not be conflated.