Driven Brands Holdings Inc. — Q1 2021 Form 10-Q
Reporting period: 13 weeks ended March 27, 2021; comparison is the 13 weeks ended March 28, 2020. The company operates automotive service brands across maintenance, car wash, paint/collision/glass, and platform services. Results include ICWG, acquired in August 2020, while the comparable 2020 quarter does not; reported growth therefore includes significant acquisition effects.
Financial performance
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Revenue | $329.4 million | $180.1 million |
| Operating income | $49.7 million | $15.7 million |
| Net loss | $19.9 million | $3.9 million |
| Loss per diluted share | $0.13 | $0.04 |
| Operating cash flow | $32.6 million | $5.9 million |
| Capital expenditures | $23.3 million | $16.2 million |
| Adjusted EBITDA (non-GAAP) | $77.9 million | $30.6 million |
| Adjusted net income attributable to Driven Brands (non-GAAP) | $30.4 million | $7.0 million |
Revenue rose 83%, and operating margin was approximately 15.1%, compared with 8.7%. These comparisons are influenced by acquisitions, particularly ICWG; the company reported total system-wide sales of $1.003 billion, up 28%. Total same-store sales were up 0.5%: Maintenance grew 16.5% and Platform Services 22.0%, while Paint, Collision & Glass declined 9.4%. Car Wash contributed $114.7 million of revenue and $34.2 million of segment Adjusted EBITDA, with no prior-year comparable segment.
GAAP net loss widened primarily due to a $45.5 million debt-extinguishment loss, a $16.1 million increase in depreciation and amortization, and higher foreign-currency transaction losses. The debt charge principally reflected the write-off of unamortized discount. Management reported Adjusted EBITDA of $77.9 million; this non-GAAP measure includes adjustments for, among other items, debt extinguishment and foreign-currency losses.
Liquidity, debt and capital
At March 27, 2021, cash and cash equivalents were $175.4 million, with current assets of $411.5 million and current liabilities of $297.4 million. Total debt was $1.479 billion before unamortized issuance costs and current maturities; reported long-term debt, net, was $1.429 billion. The company reported compliance with debt covenants. Operating cash flow was $32.6 million; investing activities used $4.5 million and financing activities used $29.9 million. Cash, cash equivalents, restricted cash, and restricted advertising-fund cash totaled $206.7 million at quarter-end.
The January IPO and February over-allotment generated approximately $761 million net of underwriting discounts and commissions. The company used proceeds and cash on hand to repay approximately $725 million of ICWG-related senior credit facilities and used $43 million to repurchase approximately 2 million shares from existing shareholders. The balance sheet also includes a $156.0 million income tax receivable agreement liability; pre-IPO shareholders may receive 85% of qualifying realized tax savings.
Changes, outlook and risks
- Revenue increased $149.3 million year over year, primarily from ICWG and Fix Auto acquisitions, store growth, and organic growth. Company-operated store sales increased 94%; independently-operated store sales of $56.2 million were new to the consolidated comparison.
- Management attributed strong system-wide sales partly to pent-up demand, economic stimulus, and improving consumer confidence. It said COVID-19 had not materially adversely affected operations in the quarter, but volatility and uncertainty remained.
- Management stated that current liquidity and capital resources were expected to fund operations, acquisitions, store development, and general corporate needs for at least the next 12 months. The filing provides no specific revenue or earnings guidance.
- COVID-19 restrictions and lower vehicle miles traveled continued to weigh on Paint, Collision & Glass same-store sales, particularly in Canada. Foreign-currency remeasurement of intercompany loans contributed to a $10.5 million net transaction loss.
- The company sold 11 car wash properties for $41 million and leased them back under 17-to-20-year operating leases, increasing lease obligations. It also completed four car wash site acquisitions for approximately $26 million.
- Ordinary-course lawsuits, audits, and claims include matters that may seek substantial damages; management did not believe current proceedings would have a material adverse impact but gave no assurance. The company said there were no material changes to previously disclosed risk factors.
Investor facts to verify
- How much of reported growth and segment profitability is attributable to acquisitions versus organic and same-store performance.
- The sustainability of margins and cash generation after the quarter’s unusual IPO, acquisition, foreign-currency, and debt-extinguishment effects.
- Debt obligations and covenants alongside substantial lease liabilities and the $156 million income tax receivable agreement liability.
- Car Wash performance and the economics of the sale-leaseback properties, including long lease terms and renewal options.
- Future effects of COVID-19, particularly on collision demand and international operations, and any developments in litigation or other contingencies.