Driven Brands Holdings Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 26, 2022 (13 weeks), compared with the three months ended March 27, 2021. Driven Brands operates more than 4,500 automotive service locations across 49 U.S. states and 14 other countries; approximately 78% are franchised or independently operated.
Financial performance
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $468.3 million | $329.4 million |
| Operating income | $73.7 million | $49.7 million |
| Net income (loss) | $34.4 million | $(19.9) million |
| Diluted EPS | $0.20 | $(0.13) |
| Adjusted EBITDA (non-GAAP) | $118.5 million | $77.9 million |
| Operating cash flow | $9.0 million | $32.6 million |
Revenue increased 42%; operating margin was approximately 15.7%, versus 15.1%. Adjusted EBITDA margin was approximately 25.3%, versus 23.7%. System-wide sales increased 26% to $1.26 billion, and total same-store sales rose 15.6%. Adjusted net income, a non-GAAP measure, was $47.8 million versus $30.4 million.
Revenue growth reflected acquisitions, including Auto Glass Now (AGN), car wash acquisitions, and organic growth. Same-store sales gains included Maintenance 19.2%, Paint, Collision & Glass 13.7%, Platform Services 30.9%, and Car Wash 6.6% (Car Wash comparable data was not available for the prior-year period). Segment Adjusted EBITDA increased across all four segments.
Cash, debt and liquidity
Cash and cash equivalents were $270.7 million at quarter-end, down from $523.4 million at December 25, 2021. Operating cash flow was $9.0 million; investing cash use was $253.3 million, including $224.5 million for acquisitions and $69.0 million of capital expenditures. Financing cash use was $5.7 million. Management attributed the lower operating cash flow in part to $56 million of AGN transaction-cost payments.
Total debt was $2.43 billion, including $2.36 billion of long-term debt, and operating lease liabilities were approximately $1.03 billion. The company reported $668 million of liquidity at March 26, comprising $271 million of cash, $97 million of available securitization capacity, and $300 million available under its revolving credit facility. No revolving-credit borrowings were outstanding at quarter-end; the company reported compliance with debt covenants.
Material changes, outlook and risks
- Net income improved from a loss in the prior-year quarter, partly because Q1 2021 included a $45.5 million loss on debt extinguishment and a larger foreign-currency loss. Q1 2022 interest expense rose 40% to $25.4 million, primarily due to higher average debt outstanding.
- Acquisitions were a significant growth contributor: AGN contributed $20.1 million of revenue from its acquisition date, and the company acquired six car wash sites during the quarter. On April 29, it acquired All Star Glass for approximately $36 million; it also acquired seven car wash sites for approximately $80 million from March 26 through May 6.
- On May 3, the company drew $75 million under its revolving credit facility, primarily to fund acquisitions. Management stated that liquidity should be adequate for operations, acquisitions, store development, and general corporate needs for at least the next 12 months, while noting capital-market access could be affected by credit-rating or financial-ratio deterioration.
- No specific earnings or revenue guidance was provided in the supplied filing text. Management cited operational execution, improving consumer and driving trends, same-store growth, and acquisitions. Risks include acquisition execution and integration, higher operating costs (including oil and freight), interest and foreign-exchange exposure, and ordinary-course litigation; management said it did not currently expect pending legal matters to have a material adverse impact, but gave no assurance.
- The company sold its 75%-owned IMO Denmark subsidiary for $2 million and recorded a $1 million loss. A $156 million income tax receivable agreement liability remained outstanding; pre-IPO shareholders are entitled to 85% of realized tax savings under the agreement.
Key facts for investors to verify
- How much reported growth and margin improvement is organic versus acquisition-driven, and whether same-store trends persist.
- Cash conversion and working-capital trends, given $9 million of operating cash flow alongside substantial acquisition and capital spending.
- Debt, interest expense, lease obligations, and available borrowing capacity after the subsequent $75 million revolver draw and further acquisitions.
- Acquisition returns, integration progress, and the eventual purchase accounting for the post-quarter acquisitions.
- Exposure to foreign currency, input-cost inflation, litigation, and the timing and amount of income tax receivable agreement payments.