UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 27, 2021July 1, 2023
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 001-39898
Driven Brands Holdings Inc.
(Exact name of Registrant as specified in its charter)
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Delaware |
(State or other jurisdiction of incorporation or organization) |
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47-3595252 |
(I.R.S. Employer Identification No.) |
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440 South Church Street, Suite 700 |
Charlotte, North Carolina |
(Address of principal executive offices) |
Registrant’s telephone number, including area code: (704) 377-8855
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Title of each class |
Common Stock, $0.01 par value |
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Name of each exchange on which registered |
The Nasdaq Global Select Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer ☐☒ |
Non-accelerated filer ☒☐ |
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Accelerated filer ☐ |
Small reporting company ☐ |
Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
As of May 6, 2021,August 4, 2023, the Registrant had 167,411,840167,532,382 shares of Common Stock outstanding.
Driven Brands Holdings Inc.
Table of Contents
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PART I. FINANCIAL INFORMATION | |
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Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are generally identified by the use of forward-looking terminology, including the terms “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “likely,” “may,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “target,” “will,” “would” and, in each case, their negative or other various or comparable terminology. All statements other than statements of historical facts contained in this Quarterly Report, including statements regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans, objectives of management, and expected market growth are forward-looking statements. In particular, forward-looking statements include, among other things, statements relating to: (i) our strategy, outlook and growth prospects; (ii) our operational and financial targets and dividend policy; (iii) general economic trends and trends in the industry and markets; and (iv) the competitive environment in which we operate. Forward-looking statements are not based on historical facts, but instead represent our current expectations and assumptions regarding our business, the economy and other future conditions, and involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements. It is not possible to predict or identify all such risks. These risks include, but are not limited to, the risk factors that are described under the section titled “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 26, 2020, and31, 2022 as well as in our other filings with the Securities and Exchange Commission, which are available on its website at www.sec.gov. Given these uncertainties, you should not place undue reliance on these forward-looking statements.
Forward-looking statements represent our estimates and assumptions only as of the date on which they are made, and we undertake no obligation to update or review publicly any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law.
Part I - Financial Information
Item 1. Financial Statements (Unaudited)
DRIVEN BRANDS HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
| | | Three months ended | | Three Months Ended | | Six Months Ended | |
(in thousands, except per share amounts) | (in thousands, except per share amounts) | | March 27, 2021 | | March 28, 2020 | (in thousands, except per share amounts) | July 1, 2023 | | June 25, 2022 | | July 1, 2023 | | June 25, 2022 | |
Revenue: | Revenue: | | | | | Revenue: | | | | | | | | |
Franchise royalties and fees | Franchise royalties and fees | | $ | 30,414 | | | $ | 29,412 | | Franchise royalties and fees | $ | 49,805 | | | $ | 44,850 | | | $ | 93,320 | | | $ | 82,738 | | |
Company-operated store sales | Company-operated store sales | | 183,855 | | | 94,891 | | Company-operated store sales | 394,578 | | | 323,885 | | | 770,644 | | | 616,276 | | |
Independently-operated store sales | Independently-operated store sales | | 56,163 | | | 0 | | Independently-operated store sales | 61,533 | | | 54,942 | | | 114,065 | | | 118,031 | | |
Advertising contributions | Advertising contributions | | 17,255 | | | 14,883 | | Advertising contributions | 24,749 | | | 22,091 | | | 46,426 | | | 41,789 | | |
Supply and other revenue | Supply and other revenue | | 41,733 | | | 40,921 | | Supply and other revenue | 76,186 | | | 62,856 | | | 144,863 | | | 118,113 | | |
Total revenue | Total revenue | | 329,420 | | | 180,107 | | Total revenue | 606,851 | | | 508,624 | | | 1,169,318 | | | 976,947 | | |
Operating expenses: | | | | | |
Operating Expenses: | | Operating Expenses: | | | | | | | | |
Company-operated store expenses | Company-operated store expenses | | 112,756 | | | 63,292 | | Company-operated store expenses | 257,040 | | | 192,939 | | | 500,449 | | | 370,806 | | |
Independently-operated store expenses | Independently-operated store expenses | | 31,108 | | | 0 | | Independently-operated store expenses | 31,958 | | | 28,843 | | | 61,322 | | | 62,142 | | |
Advertising expenses | Advertising expenses | | 17,255 | | | 14,883 | | Advertising expenses | 24,749 | | | 22,091 | | | 46,426 | | | 41,789 | | |
Supply and other expenses | Supply and other expenses | | 22,489 | | | 23,059 | | Supply and other expenses | 42,106 | | | 35,800 | | | 79,372 | | | 68,574 | | |
Selling, general and administrative expenses | | 69,050 | | | 51,065 | | |
Acquisition costs | | 1,646 | | | 195 | | |
Selling, general, and administrative expenses | | Selling, general, and administrative expenses | 96,815 | | | 97,977 | | | 209,143 | | | 190,197 | | |
Acquisition related costs | | Acquisition related costs | 3,750 | | | 3,338 | | | 5,597 | | | 7,656 | | |
Store opening costs | Store opening costs | | 289 | | | 1,175 | | Store opening costs | 1,377 | | | 666 | | | 2,402 | | | 1,172 | | |
Depreciation and amortization | Depreciation and amortization | | 23,852 | | | 7,799 | | Depreciation and amortization | 45,419 | | | 38,087 | | | 83,617 | | | 71,110 | | |
Asset impairment charges | | 1,253 | | | 2,912 | | |
Trade name impairment | | Trade name impairment | — | | | 125,450 | | | — | | | 125,450 | | |
Asset impairment charges and lease terminations | | Asset impairment charges and lease terminations | 6,044 | | | (882) | | | 6,211 | | | 16 | | |
Total operating expenses | Total operating expenses | | 279,698 | | | 164,380 | | Total operating expenses | 509,258 | | | 544,309 | | | 994,539 | | | 938,912 | | |
Operating income | | 49,722 | | | 15,727 | | |
Operating income (loss) | | Operating income (loss) | 97,593 | | | (35,685) | | | 174,779 | | | 38,035 | | |
Other expenses, net: | Other expenses, net: | | | | | Other expenses, net: | | | | | | | | |
Interest expense, net | Interest expense, net | | 18,091 | | | 17,516 | | Interest expense, net | 40,871 | | | 26,270 | | | 79,012 | | | 51,623 | | |
Loss on foreign currency transactions, net | | 10,511 | | | 3,479 | | |
Loss on debt extinguishment | | 45,498 | | | 0 | | |
Total other expenses, net | | 74,100 | | | 20,995 | | |
Loss before taxes | | (24,378) | | | (5,268) | | |
Income tax benefit | | (4,446) | | | (1,321) | | |
Net loss | | (19,932) | | | (3,947) | | |
Net income (loss) attributable to non-controlling interests | | 7 | | | (99) | | |
Net loss attributable to Driven Brands Holdings Inc. | | $ | (19,939) | | | $ | (3,848) | | |
(Gain) loss on foreign currency transactions | | (Gain) loss on foreign currency transactions | (1,302) | | | 13,937 | | | (2,977) | | | 14,908 | | |
| Loss per share(1): | | |
Basic and diluted | | $ | (0.13) | | | $ | (0.04) | | |
Weighted average shares outstanding(1): | | | | | |
Basic and diluted | | 154,827 | | | 88,990 | | |
Other expense, net | | Other expense, net | 39,569 | | | 40,207 | | | 76,035 | | | 66,531 | | |
Income (loss) before taxes | | Income (loss) before taxes | 58,024 | | | (75,892) | | | 98,744 | | | (28,496) | | |
Income tax expense (benefit) | | Income tax expense (benefit) | 20,275 | | | (18,848) | | | 31,246 | | | (5,880) | | |
Net income (loss) | | Net income (loss) | 37,749 | | | (57,044) | | | 67,498 | | | (22,616) | | |
Net loss attributable to non-controlling interest | | Net loss attributable to non-controlling interest | — | | | — | | | — | | | (15) | | |
Net income (loss) attributable to Driven Brands Holdings Inc. | | Net income (loss) attributable to Driven Brands Holdings Inc. | $ | 37,749 | | | $ | (57,044) | | | $ | 67,498 | | | $ | (22,601) | | |
| Earnings (loss) per share: | | Earnings (loss) per share: | | |
Basic | | Basic | $ | 0.23 | | | $ | (0.34) | | | $ | 0.41 | | | $ | (0.14) | | |
Diluted | | Diluted | $ | 0.22 | | | $ | (0.34) | | | $ | 0.40 | | | $ | (0.14) | | |
Weighted average shares outstanding | | Weighted average shares outstanding | | |
Basic | | Basic | 162,911 | | | 162,781 | | | 162,848 | | | 162,772 | | |
Diluted | | Diluted | 166,888 | | | 162,781 | | | 166,882 | | | 162,772 | | |
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(1) Shares and loss per share for 2020 have been adjusted to reflect an implied 88,990-for-one stock split that became effective on January 14, 2021. See Note 1 for additional information.
The accompanying notes are an integral part of these condensedunaudited consolidated financial statements.
DRIVEN BRANDS HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)
| | | Three months ended | | | Three Months Ended | | Six Months Ended | |
(in thousands) | (in thousands) | March 27, 2021 | | March 28, 2020 | (in thousands) | | July 01, 2023 | | June 25, 2022 | | July 01, 2023 | | June 25, 2022 | |
Net loss | $ | (19,932) | | | $ | (3,947) | | |
Net income (loss) | | Net income (loss) | | $ | 37,749 | | | $ | (57,044) | | | $ | 67,498 | | | $ | (22,616) | | |
Other comprehensive income (loss): | Other comprehensive income (loss): | | | | Other comprehensive income (loss): | | | |
Foreign currency translation adjustment | (9,243) | | | (15,767) | | |
Unrealized gain from cash flow hedges, net of tax | 30 | | | 0 | | |
Actuarial gain of defined benefit pension plan, net of tax | 128 | | | 0 | | |
Foreign currency translation adjustments | | Foreign currency translation adjustments | | 6,165 | | | (42,114) | | | 17,516 | | | (47,688) | | |
Unrealized (loss) gain from cash flow hedges, net of tax benefit of ($19), ($26), ($21), and ($26), respectively | | Unrealized (loss) gain from cash flow hedges, net of tax benefit of ($19), ($26), ($21), and ($26), respectively | | 222 | | | (225) | | | 22 | | | (93) | | |
Actuarial (loss) gain of defined (benefit) expense pension plan, net of tax expense of $0, | | Actuarial (loss) gain of defined (benefit) expense pension plan, net of tax expense of $0, | | (4) | | | 7 | | | 12 | | | 7 | | |
Other comprehensive income (loss), net | Other comprehensive income (loss), net | (9,085) | | | (15,767) | | Other comprehensive income (loss), net | | 6,383 | | | (42,332) | | | 17,550 | | | (47,774) | | |
Total comprehensive income (loss) | Total comprehensive income (loss) | (29,017) | | | (19,714) | | Total comprehensive income (loss) | | 44,132 | | | (99,376) | | | 85,048 | | | (70,390) | | |
Comprehensive income attributable to non-controlling interests | 41 | | 34 | | |
Comprehensive income (loss) attributable to non-controlling interests | | Comprehensive income (loss) attributable to non-controlling interests | | 14 | | | (19) | | | 13 | | | (21) | | |
Comprehensive income (loss) attributable to Driven Brands Holdings Inc. | Comprehensive income (loss) attributable to Driven Brands Holdings Inc. | $ | (29,058) | | | $ | (19,748) | | Comprehensive income (loss) attributable to Driven Brands Holdings Inc. | | $ | 44,118 | | | $ | (99,357) | | | $ | 85,035 | | | $ | (70,369) | | |
The accompanying notes are an integral part of these condensedunaudited consolidated financial statements.
DRIVEN BRANDS HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
| (in thousands, except share and per share amounts) | (in thousands, except share and per share amounts) | March 27, 2021 (Unaudited) | | December 26, 2020 | (in thousands, except share and per share amounts) | July 1, 2023 | | December 31, 2022 |
Assets | Assets | | | | Assets | | | |
Current assets: | Current assets: | | Current assets: | |
Cash and cash equivalents | Cash and cash equivalents | $ | 175,371 | | | $ | 172,611 | | Cash and cash equivalents | $ | 212,123 | | | $ | 227,110 | |
Restricted cash | Restricted cash | 10,133 | | | 15,827 | | Restricted cash | 657 | | | 792 | |
Accounts and notes receivable, net | Accounts and notes receivable, net | 104,215 | | | 84,805 | | Accounts and notes receivable, net | 200,377 | | | 179,888 | |
Inventory | Inventory | 42,913 | | | 43,039 | | Inventory | 83,036 | | | 72,040 | |
Prepaid and other assets | Prepaid and other assets | 45,697 | | | 25,070 | | Prepaid and other assets | 52,353 | | | 40,084 | |
Income tax receivable | Income tax receivable | 2,057 | | | 3,055 | | Income tax receivable | 14,344 | | | 15,075 | |
| Advertising fund assets, restricted | Advertising fund assets, restricted | 31,072 | | | 29,276 | | Advertising fund assets, restricted | 51,210 | | | 36,421 | |
Total current assets | Total current assets | 411,458 | | | 373,683 | | Total current assets | 614,100 | | | 571,410 | |
Notes receivable, net | 3,845 | | | 3,828 | | |
Other assets | | Other assets | 36,923 | | | 30,561 | |
Property and equipment, net | Property and equipment, net | 766,511 | | | 827,392 | | Property and equipment, net | 1,677,804 | | | 1,545,738 | |
Operating lease right-of-use assets | Operating lease right-of-use assets | 910,255 | | | 884,927 | | Operating lease right-of-use assets | 1,449,708 | | | 1,299,189 | |
Deferred commissions | Deferred commissions | 9,253 | | | 8,661 | | Deferred commissions | 6,400 | | | 7,121 | |
Intangibles, net | Intangibles, net | 829,406 | | | 829,308 | | Intangibles, net | 755,990 | | | 765,903 | |
Goodwill | Goodwill | 1,718,249 | | | 1,727,351 | | Goodwill | 2,299,953 | | | 2,277,065 | |
Deferred tax assets | | Deferred tax assets | 3,030 | | | 2,911 | |
Total assets | Total assets | $ | 4,648,977 | | | $ | 4,655,150 | | Total assets | $ | 6,843,908 | | | $ | 6,499,898 | |
Liabilities and shareholders' equity | Liabilities and shareholders' equity | | Liabilities and shareholders' equity | | | |
Current liabilities: | Current liabilities: | | Current liabilities: | |
Accounts payable | Accounts payable | $ | 67,229 | | | $ | 67,802 | | Accounts payable | $ | 81,751 | | | $ | 60,606 | |
Accrued expenses and other liabilities | Accrued expenses and other liabilities | 185,707 | | | 190,867 | | Accrued expenses and other liabilities | 311,352 | | | 317,318 | |
Income tax payable | Income tax payable | 4,388 | | | 3,513 | | Income tax payable | 3,145 | | | 4,454 | |
Current portion of long term debt | 17,142 | | | 22,988 | | |
Current portion of long-term debt | | Current portion of long-term debt | 32,044 | | | 32,986 | |
Income tax receivable liability | | Income tax receivable liability | 53,781 | | | 53,328 | |
Advertising fund liabilities | Advertising fund liabilities | 22,906 | | | 20,276 | | Advertising fund liabilities | 36,910 | | | 36,726 | |
Total current liabilities | Total current liabilities | 297,372 | | | 305,446 | | Total current liabilities | 518,983 | | | 505,418 | |
Long-term debt, net | 1,428,760 | | | 2,102,219 | | |
Deferred tax liability | 241,305 | | | 249,043 | | |
Long-term debt | | Long-term debt | 2,779,511 | | | 2,705,281 | |
Deferred tax liabilities | | Deferred tax liabilities | 297,884 | | | 276,749 | |
Operating lease liabilities | Operating lease liabilities | 846,360 | | | 818,001 | | Operating lease liabilities | 1,320,670 | | | 1,177,501 | |
Income tax receivable liability | Income tax receivable liability | 155,970 | | | 0 | | Income tax receivable liability | 117,915 | | | 117,915 | |
Deferred revenue | Deferred revenue | 22,350 | | | 20,757 | | Deferred revenue | 30,155 | | | 30,046 | |
Long-term accrued expenses and other liabilities | Long-term accrued expenses and other liabilities | 31,551 | | | 53,324 | | Long-term accrued expenses and other liabilities | 31,132 | | | 33,419 | |
Total liabilities | Total liabilities | 3,023,668 | | | 3,548,790 | | Total liabilities | 5,096,250 | | | 4,846,329 | |
Common stock, $0.01 par value, 900 million shares authorized at March 27, 2021 and December 26, 2020, respectively; 167 million and 89 million shares issued and outstanding at March 27, 2021 and December 26, 2020, respectively(1) | 1,674 | | | 565 | | |
| Preferred Stock $0.01 par value; 100,000,000 shares authorized; none issued or outstanding | | Preferred Stock $0.01 par value; 100,000,000 shares authorized; none issued or outstanding | — | | | — | |
Common stock, $0.01 par value, 900,000,000 shares authorized: and 167,366,561 and 167,404,047 shares outstanding; respectively | | Common stock, $0.01 par value, 900,000,000 shares authorized: and 167,366,561 and 167,404,047 shares outstanding; respectively | 1,674 | | | 1,674 | |
Additional paid-in capital | Additional paid-in capital | 1,602,092 | | | 1,055,172 | | Additional paid-in capital | 1,637,945 | | | 1,628,904 | |
Retained earnings | Retained earnings | 12,036 | | | 31,975 | | Retained earnings | 152,293 | | | 84,795 | |
Accumulated other comprehensive income | 7,443 | | | 16,528 | | |
Accumulated other comprehensive loss | | Accumulated other comprehensive loss | (44,898) | | | (62,435) | |
Total shareholders’ equity attributable to Driven Brands Holdings Inc. | Total shareholders’ equity attributable to Driven Brands Holdings Inc. | 1,623,245 | | | 1,104,240 | | Total shareholders’ equity attributable to Driven Brands Holdings Inc. | 1,747,014 | | | 1,652,938 | |
Non-controlling interests | Non-controlling interests | 2,064 | | | 2,120 | | Non-controlling interests | 644 | | | 631 | |
Total shareholders' equity | Total shareholders' equity | 1,625,309 | | | 1,106,360 | | Total shareholders' equity | 1,747,658 | | | 1,653,569 | |
Total liabilities and shareholders' equity | Total liabilities and shareholders' equity | $ | 4,648,977 | | | $ | 4,655,150 | | Total liabilities and shareholders' equity | $ | 6,843,908 | | | $ | 6,499,898 | |
(1) Common stock at December 26, 2020 has been adjusted to reflect an implied 88,990-for-one stock split that became effective on January 14, 2021. See Note 1 for additional information.
The accompanying notes are an integral part of these condensedunaudited consolidated financial statements.
DRIVEN BRANDS HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’/MEMBERS’ EQUITY (Unaudited) | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended |
| July 1, 2023 | | June 25, 2022 |
(in thousands, except share amounts) | Shares | | Amount | | Shares | | Amount |
Preferred stock, $0.01 par value per share | — | | | $ | — | | | — | | | $ | — | |
Common stock, $0.01 par value per share | | | | | | | |
Balance at beginning of period | 167,560,449 | | | $ | 1,675 | | | 167,506,829 | | | $ | 1,675 | |
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Shares issued for exercise/vesting of share-based compensation awards | 48,259 | | | 1 | | | 5,745 | | | — | |
Forfeiture of restricted stock awards | (242,147) | | | (2) | | | (68,466) | | | (1) | |
Balance at end of period | 167,366,561 | | | $ | 1,674 | | | 167,444,108 | | | $ | 1,674 | |
Additional paid-in capital | | | | | | | |
Balance at beginning of period | | | $ | 1,633,460 | | | | | $ | 1,610,585 | |
Equity-based compensation expense | | | 4,485 | | | | | 4,233 | |
Exercise of stock options | | | — | | | | | 109 | |
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Balance at end of period | | | $ | 1,637,945 | | | | | $ | 1,614,927 | |
Retained earnings | | | | | | | |
Balance at beginning of period | | | $ | 114,544 | | | | | $ | 76,050 | |
Net income (loss) | | | 37,749 | | | | | (57,044) | |
Balance at end of period | | | $ | 152,293 | | | | | $ | 19,006 | |
Accumulated other comprehensive income (loss) | | | | | | | |
Balance at beginning of period | | | $ | (51,267) | | | | | $ | (10,483) | |
Other comprehensive income (loss) | | | 6,369 | | | | | (42,313) | |
Balance at end of period | | | $ | (44,898) | | | | | $ | (52,796) | |
Non-controlling interests | | | | | | | |
Balance at beginning of period | | | $ | 630 | | | | | $ | 665 | |
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Other comprehensive income (loss) | | | 14 | | | | | (19) | |
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Balance at end of period | | | $ | 644 | | | | | $ | 646 | |
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Total shareholders’ equity | | | $ | 1,747,658 | | | | | $ | 1,583,457 | |
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in thousands | Common stock | | Additional paid-in capital | | Retained earnings | | Accumulated other comprehensive income (loss) | | Non-controlling interests | | Total shareholders'/members' equity |
Balance as of December 26, 2020 | $ | 565 | | | $ | 1,055,172 | | | $ | 31,975 | | | $ | 16,528 | | | $ | 2,120 | | | $ | 1,106,360 | |
Net income (loss) | — | | | — | | | (19,939) | | | — | | | 7 | | | (19,932) | |
Other comprehensive income (loss) | — | | | — | | | — | | | (9,085) | | | — | | | (9,085) | |
Equity-based compensation expense | — | | | 983 | | | — | | | — | | | — | | | 983 | |
Issuance of common stock upon initial public offering, net of underwriting discounts and commissions | 1,082 | | | 660,418 | | | — | | | — | | | — | | | 661,500 | |
Common stock issued upon underwriter's exercise of over-allotment | 48 | | | 99,177 | | | — | | | — | | | — | | | 99,225 | |
Repurchase of common stock | (21) | | | (42,956) | | | — | | | — | | | — | | | (42,977) | |
Exercise of stock options | — | | | 25 | | | — | | | — | | | — | | | 25 | |
Establishment of income tax receivable liability | — | | | (155,970) | | | — | | | — | | | — | | | (155,970) | |
IPO fees | — | | | (14,757) | | | — | | | — | | | — | | | (14,757) | |
Other | — | | | — | | | — | | | — | | | (63) | | | (63) | |
Balance at March 27, 2021 | $ | 1,674 | | | $ | 1,602,092 | | | $ | 12,036 | | | $ | 7,443 | | | $ | 2,064 | | | $ | 1,625,309 | |
| | | | | | | | | | | |
Balance as of December 28, 2019 | $ | 565 | | | $ | 242,240 | | | $ | 41,983 | | | $ | 3,626 | | | $ | 1,464 | | | $ | 289,878 | |
Net loss | — | | | — | | | (3,848) | | | — | | | (99) | | | (3,947) | |
Other comprehensive income (loss) | — | | | — | | | — | | | (15,767) | | | 0 | | | (15,767) | |
Equity-based compensation expense | — | | | (101) | | | 0 | | | — | | | — | | | (101) | |
Balance at March 28, 2020 | $ | 565 | | | $ | 242,139 | | | $ | 38,135 | | | $ | (12,141) | | | $ | 1,365 | | | $ | 270,063 | |
The accompanying notes are an integral part of these condensedunaudited consolidated financial statements.
DRIVEN BRANDS HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSSHAREHOLDERS’/MEMBERS’ EQUITY (Unaudited)
| | | | | | | | | | | |
| Three months ended |
(in thousands) | March 27, 2021 | | March 28, 2020 |
Net loss | $ | (19,932) | | | $ | (3,947) | |
Adjustments to reconcile net loss to net cash provided by operating activities: | | | |
Depreciation and amortization | 23,852 | | | 7,799 | |
Noncash lease cost | 20,028 | | | 0 | |
Loss on foreign denominated transactions | 13,000 | | | 3,479 | |
Gain on foreign currency derivative | (2,489) | | | 0 | |
Bad debt expense | 657 | | | 523 | |
Asset impairment costs | 1,253 | | | 2,912 | |
Amortization of deferred financing costs and bond discounts | 2,139 | | | 1,140 | |
Benefit for deferred income taxes | (8,018) | | | (1,345) | |
Loss on extinguishment of debt | 45,498 | | | 0 | |
Other, net | (749) | | | 39 | |
Changes in assets and liabilities: | | | |
Accounts and notes receivable, net | (19,693) | | | (14,067) | |
Inventory | 135 | | | (1,851) | |
Prepaid and other assets | (8,184) | | | 2,435 | |
Advertising fund assets and liabilities, restricted | 2,621 | | | 4,890 | |
Deferred commissions | (573) | | | (428) | |
Deferred revenue | 1,551 | | | (1,173) | |
Accounts payable | 638 | | | 21,404 | |
Accrued expenses and other liabilities | (6,451) | | | (15,920) | |
Income tax receivable | 3,061 | | | (7) | |
Operating lease liabilities | (15,758) | | | 0 | |
Cash provided by operating activities | 32,586 | | | 5,883 | |
Cash flows from investing activities: | | | |
Capital expenditures | (23,280) | | | (16,172) | |
Cash used in business acquisitions, net of cash acquired | (26,732) | | | (975) | |
Proceeds from sale-leaseback transactions | 41,023 | | | 0 | |
Proceeds from sale of company-operated stores | 4,481 | | | 0 | |
Cash used in investing activities | (4,508) | | | (17,147) | |
Cash flows from financing activities: | | | |
Payment of contingent consideration related to acquisitions | 0 | | | (1,783) | |
Payment of debt issuance cost | 0 | | | (104) | |
Repayment of long-term debt | (707,384) | | | (3,263) | |
Proceeds from revolving lines of credit and short-term debt | 114,800 | | | 39,501 | |
Repayments of revolving lines of credit and short-term debt | (132,800) | | | 0 | |
Repayment of principal portion of finance lease liability | (409) | | | 0 | |
Proceeds from initial public offering, net of underwriting discounts | 661,500 | | | — | |
Net proceeds from underwriters' exercise of over-allotment option | 99,225 | | | 0 | |
Repurchases of common stock | (42,977) | | | 0 | |
Payment for termination of interest rate swaps | (21,826) | | | 0 | |
Cash provided by (used in) financing activities | (29,871) | | | 34,351 | |
Effect of exchange rate changes on cash | 650 | | | 3,850 | |
Net change in cash, cash equivalents, restricted cash, and cash included in advertising fund assets, restricted | (1,143) | | | 26,937 | |
7 | | | | | | | | | | | | | | | | | | | | | | | |
| Six months ended |
| July 1, 2023 | | June 25, 2022 |
(in thousands, except share amounts) | Shares | | Amount | | Shares | | Amount |
Preferred stock, $0.01 par value per share | — | | | $ | — | | | — | | | $ | — | |
Common stock, $0.01 par value per share | | | | | | | |
Balance at beginning of period | 167,404,047 | | | $ | 1,674 | | | 167,380,450 | | | $ | 1,674 | |
Stock issued relating to Employee Stock Purchase Plan | 26,358 | | | — | | | 111,924 | | | 1 | |
Shares issued for exercise/vesting of share-based compensation awards | 178,303 | | | 2 | | | 20,200 | | | — | |
Forfeiture of restricted stock awards | (242,147) | | | (2) | | | (68,466) | | | (1) | |
Balance at end of period | 167,366,561 | | | $ | 1,674 | | | 167,444,108 | | | $ | 1,674 | |
Additional paid-in capital | | | | | | | |
Balance at beginning of period | | | $ | 1,628,904 | | | | | $ | 1,605,890 | |
Equity-based compensation expense | | | 7,049 | | | | | 6,851 | |
Exercise of stock options | | | 1,500 | | | | | 2,200 | |
Stock issued relating to Employee Stock Purchase Plan | | | 612 | | | | | — | |
Tax withholding equity-based transactions | | | (120) | | | | | (14) | |
Balance at end of period | | | $ | 1,637,945 | | | | | $ | 1,614,927 | |
Retained earnings | | | | | | | |
Balance at beginning of period | | | $ | 84,795 | | | | | $ | 41,607 | |
Net income (loss) | | | 67,498 | | | | | (22,601) | |
Balance at end of period | | | $ | 152,293 | | | | | $ | 19,006 | |
Accumulated other comprehensive income (loss) | | | | | | | |
Balance at beginning of period | | | $ | (62,435) | | | | | $ | (5,028) | |
Other comprehensive income (loss) | | | 17,537 | | | | | (47,768) | |
Balance at end of period | | | $ | (44,898) | | | | | $ | (52,796) | |
Non-controlling interests | | | | | | | |
Balance at beginning of period | | | $ | 631 | | | | | $ | 1,099 | |
Net loss | | | — | | | | | (15) | |
Other comprehensive income (loss) | | | 13 | | | | | (6) | |
Divestiture of Denmark car wash operations | | | — | | | | | (432) | |
| | | | | | | |
Balance at end of period | | | $ | 644 | | | | | $ | 646 | |
| | | | | | | |
Total shareholders’ equity | | | $ | 1,747,658 | | | | | $ | 1,583,457 | |
| | | | | | | | | | | |
Cash and cash equivalents, beginning of period | 172,611 | | | 34,935 | |
Cash included in advertising fund assets, restricted, beginning of period | 19,369 | | | 23,091 | |
Restricted cash, beginning of period | 15,827 | | | 0 | |
Cash, cash equivalents, restricted cash, and cash included in advertising fund assets, restricted, beginning of period | 207,807 | | | 58,026 | |
Cash and cash equivalents, end of period | 175,371 | | | 60,154 | |
Cash included in advertising fund assets, restricted, end of period | 21,160 | | | 24,809 | |
Restricted cash, end of period | 10,133 | | | 0 | |
Cash, cash equivalents, restricted cash, and cash included in advertising fund assets, restricted, end of period | $ | 206,664 | | | $ | 84,963 | |
| | | | | | | | | | | |
Supplemental cash flow disclosures - non-cash items: | | | |
Accrued capital expenditures | $ | 3,804 | | | $ | 4,283 | |
Supplemental cash flow disclosures - cash paid for: | | | |
Interest | $ | 16,424 | | | $ | 16,020 | |
Income taxes | 1,373 | | | 10 | |
The accompanying notes are an integral part of these condensedunaudited consolidated financial statements.
DRIVEN BRANDS HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
| | | | | | | | | | | |
| Six Months Ended |
(in thousands) | July 01, 2023 | | June 25, 2022 |
Net income (loss) | $ | 67,498 | | | $ | (22,616) | |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | |
Depreciation and amortization | 83,617 | | | 71,110 | |
Trade name impairment | �� | | | 125,450 | |
| | | |
Equity-based compensation expense | 7,049 | | | 6,851 | |
(Gain) loss on foreign denominated transactions | (1,723) | | | 14,908 | |
Gain on foreign currency derivatives | (1,254) | | | — | |
Gain on sale of businesses, fixed assets, and sale-leaseback transactions | (12,230) | | | (9,059) | |
Reclassification of interest rate hedge to income | (1,039) | | | — | |
Bad debt expense | 602 | | | 936 | |
Asset impairment costs | 6,211 | | | 16 | |
Amortization of deferred financing costs and bond discounts | 4,343 | | | 4,565 | |
Provision (benefit) for deferred income taxes | 18,812 | | | (31,908) | |
| | | |
Other, net | 9,641 | | | 9,681 | |
Changes in assets and liabilities, net of acquisitions: | | | |
Accounts and notes receivable, net | (30,373) | | | (59,579) | |
Inventory | (11,108) | | | (6,899) | |
Prepaid and other assets | (7,894) | | | (19,082) | |
Advertising fund assets and liabilities, restricted | (8,768) | | | (1,321) | |
Other Assets | (25,456) | | | (1,882) | |
Deferred commissions | 330 | | | (178) | |
Deferred revenue | 1,585 | | | 497 | |
Accounts payable | 16,231 | | | 20,209 | |
Accrued expenses and other liabilities | (1,171) | | | (45,950) | |
Income tax receivable | (320) | | | 19,640 | |
| | | |
Cash provided by operating activities | 114,583 | | | 75,389 | |
Cash flows from investing activities: | | | |
Capital expenditures | (320,071) | | | (148,763) | |
Cash used in business acquisitions, net of cash acquired | (44,868) | | | (394,388) | |
Proceeds from sale-leaseback transactions | 143,622 | | | 56,083 | |
| | | |
| | | |
| | | |
Proceeds from sale or disposal of businesses and fixed assets | 217 | | | 2,183 | |
Cash used in investing activities | (221,100) | | | (484,885) | |
Cash flows from financing activities: | | | |
| | | |
| | | |
| | | |
| | | |
Repayment of long-term debt | (13,961) | | | (9,682) | |
Proceeds from revolving lines of credit and short-term debt | 230,000 | | | 105,000 | |
Repayments of revolving lines of credit and short-term debt | (120,000) | | | — | |
Repayment of principal portion of finance lease liability | (1,889) | | | (1,156) | |
| | | |
| | | |
| | | |
Purchase of equity securities | (716) | | | — | |
| | | |
Stock option exercises | 1,758 | | | 188 | |
Other, net | (64) | | | (36) | |
Cash provided by financing activities | 95,128 | | | 94,314 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | | | | | | | | | |
Effect of exchange rate changes on cash | 2,087 | | | (4,454) | |
Net change in cash, cash equivalents, restricted cash, and cash included in advertising fund assets, restricted | (9,302) | | | (319,636) | |
Cash and cash equivalents, beginning of period | 227,110 | | | 523,414 | |
Cash included in advertising fund assets, restricted, beginning of period | 32,871 | | | 38,586 | |
Restricted cash, beginning of period | 792 | | | 792 | |
Cash, cash equivalents, restricted cash, and cash included in advertising fund assets, restricted, beginning of period | 260,773 | | | 562,792 | |
Cash and cash equivalents, end of period | 212,123 | | | 197,853 | |
Cash included in advertising fund assets, restricted, end of period | 38,691 | | | 44,511 | |
Restricted cash, end of period | 657 | | | 792 | |
Cash, cash equivalents, restricted cash, and cash included in advertising fund assets, restricted, end of period | $ | 251,471 | | | $ | 243,156 | |
| | | | | | | | | | | |
Supplemental cash flow disclosures - non-cash items: | | | |
Capital expenditures included in accrued expenses and other liabilities | $ | 43,191 | | | $ | 5,464 | |
Deferred consideration included in accrued expenses and other liabilities | 16,129 | | | 14,227 | |
| | | |
Supplemental cash flow disclosures - cash paid for: | | | |
Interest | $ | 78,955 | | | $ | 51,491 | |
Income taxes | 13,614 | | | 5,457 | |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
DRIVEN BRANDS HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 1—Description of Business
Description of Business
Driven Brands Holdings Inc., together with its subsidiaries (collectively, the “Company”), is a Delaware corporation and is the parent holding company of Driven Brands, Inc. and Shine Holdco (UK) Limited (collectively, “Driven Brands”). Driven Brands is the largest automotive services company in North America with a growing and highly-franchised base of more than 4,2004,900 franchised, independently-operated, and company-operated locations across 49 U.S. states and 1413 other countries. The Company has a portfolio of highly recognized brands, including Take 5 Oil Change®Change®, Take 5 Car Wash®, Meineke Car Care Centers®Centers®, MAACO®MAACO®, CARSTAR®CARSTAR®, Auto Glass Now®,and 1-800-Radiator & A/C®C® that compete in the automotive services industry. Approximately 82%74% of the Company’s locations are franchised or independently-operated.
Initial Public Offering
On January 14, 2021, the Company completed an initial public offering (the “IPO”) of approximately 32 million shares of common stock at $22 per share. On February 10, 2021, the Company’s underwriters exercised their over-allotment option to purchase approximately 5 million additional shares of common stock. The Company received total proceeds of $761 million from these transactions, net of the underwriting discounts and commissions.
The Company used the proceeds from the IPO, along with cash on hand, to fully repay the First Lien Term Loan, Second Lien Term Loan, and revolving credit facility assumed as part of the acquisition of International Car Wash Group (“ICWG”) in 2020 (collectively, the “Car Wash Senior Credit Facilities”), which totaled $725 million with interest and fees. The Company recognized a $45 million loss on debt extinguishment related to this settlement, primarily related to the write-off of unamortized discount. The Company cancelled the interest rate and cross currency swaps associated with these debt agreements as part of the settlement. The Company also used $43 million in proceeds to purchase approximately 2 million shares of common stock from certain of our existing shareholders.
Income Tax Receivable Agreement
The Company expects to be able to utilize certain tax benefits which are related to periods prior to the effective date of the Company’s IPO and are attributed to current and former shareholders. The Company previously entered into an incomea tax receivable agreement which provides our pre-IPO shareholders with the right to receive payment of 85% of the amount of cash savings, if any, in U.S. and Canadian federal, state, local, and provincial income tax that the Company will actually realize. The income tax receivable agreement iswas effective as of the date of the Company’s IPO, and theIPO. The Company has recorded a current tax receivable liability of $156$54 million and $53 million as of March 27, 2021, which is recorded under long-term liabilities as the incomeJuly 1, 2023 and December 31, 2022, respectively, and a non-current tax receivable liability of $118 million as of July 1, 2023 and December 31, 2022, on the condensed consolidated balance sheet.
Stock Split
On January 14, 2021, the Company’s shareholders approved an amendment to the Company’s certificate of incorporation (the "Amendment") to effect an implied 88,990-for-one stock split of shares of the Company’s outstanding common stock. In addition, the Amendment increased the number of authorized shares of the Company's stock from 10,000 shares to 1 billion shares (900 million shares of common stock and 100 million shares of preferred stock). All share and per-share data in the condensed consolidated financial statements and footnotes has been retroactively adjusted to reflect the stock split for all periods presented. The Company does not have any shares of preferred stock outstanding.
sheets.
Note 2— Summary of Significant Accounting Policies
Fiscal Year
The Company operates and reports financial information on a 52- or 53-week year with the fiscal year ending on the last Saturday in December and fiscal quarters ending on the 13th Saturday of each quarter (or 14th Saturday when applicable with respect to the fourth fiscal quarter). The three and six months ended March 27, 2021July 1, 2023 and March 28, 2020, respectively, consistJune 25, 2022, each consisted of 13 weeks.
In August 2020, the Company acquired ICWG, whichweeks and 26 weeks, respectively. The Car Wash segment is currently consolidated based on a calendar month that ended on March 31, 2021. See Note 3 for additional discussion regarding the acquisition of ICWG.
end.
Basis of Presentation
The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, the unaudited interim financial data includes all adjustments, (consistingconsisting only of normal recurring adjustments)adjustments, necessary for a fair presentationstatement of the results of operations, balance sheet, cash flows, and shareholders’/members’ equity for the interim periods presented have been reflected.presented. The adjustments include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
Certain amounts in the 2020 condensed consolidated financial statements have been reclassified to conform to the 2021 presentation. In the Company's consolidated statements of operations, $1 million of franchise royalties and fees within the Platform Services segment has been reclassified to supply and other revenue to conform to the current year presentation.
These unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements as of and for the year ended December 26, 2020.31, 2022. Certain information and note disclosures normally included in the unaudited financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. The results of operations for the three and six months ended March 27, 2021July 1, 2023 may not be indicative of the results to be expected for any other interim period or the year ending December 25, 2021.30, 2023.
Certain prior year amounts have been reclassified to conform to current year presentation.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts reported in the unaudited consolidated financial statements and the related notes to the condensedunaudited consolidated financial statements. EstimatesSignificant items that are based upon historical factors, current circumstancessubject to estimates and the experienceassumptions include, but are not limited to, valuation of intangible assets and judgmentgoodwill; income taxes; allowances for credit losses; valuation of the Company’s management.derivatives; self-insurance claims; and stock-based compensation. Management evaluates its estimates and assumptions on an ongoing basis and may employ outside experts to assist in its evaluations. Changes in such estimates, based on more accurate futurehistorical experience, current conditions, and various other additional information, or different assumptions or conditions, may affect amounts reported in future periods. Actual results could differ due to uncertainty inherent in the natures of these estimates.
Deferred IPO costs
Costs incurred that are directly related to the IPO, such as legal and accounting fees, registration fees, printing expenses, and other similar fees and expenses, totaling $9 million were capitalized and included within prepaid and other assets as of December 26, 2020. Upon completion of the IPO, the Company reclassified these costs, as well as an additional $6 million of IPO costs incurred during the three months ended March 27, 2021, to additional paid-in-capital.
Fair Value of Financial Instruments
Financial assets and liabilities are categorized, based on the inputs to the valuation technique, into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to the quoted prices in active markets for identical assets and liabilities and the lowest priority to unobservable inputs. Observable market data, when available, is required to be used in making fair value measurements. When inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement.
The Company classifies and discloses assets and liabilities carried at fair value in one of the following three categories:
•Level 1: Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity ashas the ability to access at the measurement date;
•Level 2: Inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; or
•Level 3: Inputs are unobservable inputs for the asset or liability. Unobservable inputs are used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.
Financial assets and liabilities measured at fair value on a recurring basis as of March 27, 2021July 1, 2023 and December 26, 202031, 2022 are summarized as follows:
| | | | | | | | | | | | | | | | | |
Items Measured at Fair Value at July 1, 2023 |
(in thousands) | Level 1 | | Level 2 | | Total |
Mutual fund investments held in rabbi trust | $ | 207 | | | $ | — | | | $ | 207 | |
| | | | | |
Derivative assets, recorded in other assets | — | | | 560 | | | 560 | |
Derivative liabilities, recorded in accrued expenses and other liabilities | — | | | 494 | | | 494 | |
| | | | | |
| | | | | | | | | | | | | | | | | |
Items Measured at Fair Value at March 27, 2021 |
(in thousands) | Level 1 | | Level 2 | | Total |
Mutual fund investments held in rabbi trust | $ | 941 | | | $ | 0 | | | $ | 941 | |
| | | | | |
Derivative liabilities designated as hedging instruments | $ | 0 | | | $ | (990) | | | $ | (990) | |
| | | | | | | | | | | | | | | | | |
Items Measured at Fair Value at December 26, 2020 |
(in thousands) | Level 1 | | Level 2 | | Total |
Mutual fund investments held in rabbi trust | $ | 704 | | | $ | 0 | | | $ | 704 | |
Derivative assets not designated as hedging instruments | 0 | | | 227 | | | 227 | |
Total assets measured at fair value on a recurring basis | $ | 704 | | | $ | 227 | | | $ | 931 | |
| | | | | |
Derivative liabilities designated as hedging instruments | $ | 0 | | | $ | (9,561) | | | $ | (9,561) | |
Derivative liabilities not designated as hedging instruments | 0 | | | (12,197) | | | (12,197) | |
Total derivative liabilities | $ | 0 | | | $ | (21,758) | | | $ | (21,758) | |
| | | | | | | | | | | | | | | | | |
Items Measured at Fair Value at December 31, 2022 |
(in thousands) | Level 1 | | Level 2 | | Total |
Mutual fund investments held in rabbi trust | $ | 758 | | | $ | — | | | $ | 758 | |
Derivative assets, recorded in prepaid and other assets | — | | | 158 | | | 158 | |
Derivative assets, recorded in other assets | — | | | 2,148 | | | 2,148 | |
Derivative liabilities, recorded in accrued expenses and other liabilities | — | | | 5,005 | | | 5,005 | |
The fair value of the Company’s foreign currency derivative instruments areis derived from valuation models, which use Level 2 observable inputs such as quoted market prices, interest rates, and forward yield curves.
The carrying value and estimated fair value of total long-term debt were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| July 1, 2023 | | December 31, 2022 |
(in thousands) | Carrying value | | Estimated fair value | | Carrying value | | Estimated fair value |
Long-term debt | $ | 2,850,789 | | | $ | 2,592,533 | | | $ | 2,784,175 | | | $ | 2,477,456 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| March 27, 2021 | | December 26, 2020 |
(in thousands) | Carrying value | | Estimated fair value | | Carrying value | | Estimated fair value |
Long-term debt | $ | 1,445,902 | | | $ | 1,499,384 | | | $ | 2,125,207 | | | $ | 2,169,597 | |
Recently Issued Accounting Standards
In March 2020, the FASB issued ASU 2020-04,
Accumulated Other Comprehensive Income (Loss)
Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU provides optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. In response to the concerns about structural risks of interbank offered rates and, particularly, the risk of cessation of LIBOR, regulators in several jurisdictions around the world have undertaken reference rate reform initiatives to identify alternative reference rates that are more observable or transaction based and less susceptible to manipulation. The following tables present changes, net of tax, in each component of accumulated other comprehensive income (loss).
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended March 27, 2021 |
(in thousands) | Foreign currency translation adjustment | | Cash flow hedges | | Defined benefit pension plan | | Accumulated other comprehensive income |
Balance at December 26, 2020 | $ | 16,834 | | | $ | (87) | | | $ | (219) | | | $ | 16,528 | |
Net change | (9,243) | | | 30 | | | 128 | | | (9,085) | |
Balance at March 27, 2021 | $ | 7,591 | | | $ | (57) | | | $ | (91) | | | $ | 7,443 | |
ASU provides companies with optional guidance to ease the potential accounting burden associated with transitioning away from reference rates that are expected to be discontinued. This guidance is effective immediately and the amendments may be applied prospectively through December 31, 2024. On June 2, 2023, the Company entered into a loan amendment to transition our
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended March 28, 2020 |
(in thousands) | Foreign currency translation adjustment | | Cash flow hedges | | Defined benefit pension plan | | Accumulated other comprehensive income (loss) |
Balance at December 28, 2019 | $ | 3,626 | | | $ | 0 | | | $ | 0 | | | $ | 3,626 | |
Net change | (15,767) | | | 0 | | | 0 | | | (15,767) | |
Balance at March 28, 2020 | $ | (12,141) | | | $ | 0 | | | $ | 0 | | | $ | (12,141) | |
Recently Adopted Accounting Standards
In December 2019, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, as part of its initiative to reduce complexity in accounting standards. The amendments in this ASU simplify the accounting for income taxes by removing certain exceptionsLIBOR-based loans to the general principles in Topic 740Secured Overnight Financing Rate (“SOFR”). The amendment went into effect on July 1, 2023 and improve consistency by clarifying and amending existing guidance. The Company adopted the ASU on December 27, 2020, and the adoption did not have a material impact on our consolidated financial statements.the loans affected.
Note 3—Business CombinationsAcquisitions and Dispositions
The Company strategically acquires companies and assets in order to increase its footprint and offer products and services that diversify its existing offerings.offerings, primarily through asset purchase agreements. These acquisitions are accounted for as business combinations using the acquisition method, whereby the purchase price is allocated to the assets acquired and liabilities assumed, based on their estimated fair values atas of the date of the acquisition.acquisition with the remaining amount recorded in goodwill.
20212023 Acquisitions
DuringThe Company completed three acquisitions in the threeMaintenance segment during the six months ended March 27, 2021, the Company completed the acquisition of 4 car wash sites, each individually immaterial, which are included within the Company’s Car Wash segment (the “2021 Car Wash Acquisitions”).July 1, 2023, representingthree sites. The aggregate cash consideration paid for these acquisitions, net of cash acquired and liabilities assumed, was $26approximately $6 million.
The Company completed two acquisitions in the Car Wash segment during the six months ended July 1, 2023, representing three sites. The aggregate cash consideration for these acquisitions, net of cash acquired and liabilities assumed, was approximately $15 million.
The Company completed two acquisitions in the Paint, Collision & Glass segment during the six months ended July 1, 2023, representing two sites. The aggregate cash consideration for these acquisitions, net of cash acquired and liabilities assumed, was approximately $6 million.
A preliminary estimateThe Company estimated the fair value of acquired assets and liabilities as of the date of acquisition based on information currently available. As the Company finalizes the fair value of assets acquired and liabilities assumed, additional purchase price adjustments may be recorded during the measurement period. The provisional amounts for assets acquired and liabilities assumed for the 2021 Car Wash Acquisitions is2023 acquisitions are as follows:
Maintenance Segment
| | | | | | | | |
(in thousands) | | |
Assets: | | |
Cash | | $ | 7 | |
Land and improvements | | 4,065 | |
Building | | 13,445 | |
Equipment | | 2,260 | |
Deferred tax assets | | 67 | |
Assets acquired | | 19,844 | |
Liabilities: | | |
Deferred revenue | | 46 | |
Liabilities assumed | | 46 | |
Net assets acquired | | 19,798 | |
Total consideration | | 25,542 | |
Goodwill | | $ | 5,744 | |
All goodwill was allocated to the Car Wash segment and $6 million is deductible for income tax purposes.
2020 Acquisitions
Acquisition of International Car Wash Group
On August 3, 2020, the Company completed the acquisition of Shine Holdco (UK) Limited, the holding company of ICWG, to expand on its service offerings by entering into the car wash business (the “ICWG Acquisition”). The ICWG Acquisition resulted in the Company acquiring 940 car wash centers in 14 countries across the United States, Europe, and Australia. The following table presents an updated preliminary estimate of the purchase price allocation for the ICWG Acquisition:
| | | | | | | | |
(in thousands, except shares) | | August 3, 2020Maintenance |
Assets: | | |
Cash | | $ | 37,011 | |
Accounts and notes receivable | | 2,591 | |
Inventory | | 12,761 | |
Fixed assets | | 692,486 | |
Operating lease right-of-use assets | | | 479,787$ | 658 | |
Definite-lived intangiblesProperty and equipment, net | | | 5,9723,705 | |
Indefinite-lived intangiblesGoodwill | | | 165,7302,445 | |
Other assets | | 7,476 | |
Total assetsAssets acquired | | | 1,403,8146,808 | |
Liabilities: | | |
Accounts payable | | 13,435 | |
Long-term debtAccrued Expenses and other liabilities | | 656,684 | |
Deferred income tax liability | | 133,77620 | |
Operating lease liabilities | | 476,216 | |
Derivative liabilities | | 12,714 | |
Other liabilities | | 82,394641 | |
Total liabilities assumed | | | 1,375,219661 | |
Net assetsCash consideration, net of cash acquired | | 28,595 | |
Non-controlling interest acquired | | 400 | |
Total consideration paid (39,169,857 common shares)(1)
| | 809,000 | |
Goodwill | | $ | 780,805 | |
(1) Common shares issued as consideration have been adjusted to reflect an implied 88,990-for-one stock split that became effective on January 14, 2021. See Note 1 for additional information.
The preliminary fair value of the equity consideration was determined based on an estimated enterprise value using a market approach and income approach as of the purchase date, reduced by borrowings assumed. The Company updated its purchase accounting estimates during the three months ended March 27, 2021 related to the deferred tax liability and, as a result, reduced goodwill related to the ICWG Acquisition by approximately $1 million.
Acquisition of Fix Auto
On April 20, 2020, the Company acquired 100% of the outstanding equity of Fix Auto USA (“Fix Auto”), a franchisor and operator of collision repair centers, for $29 million, net of cash received of approximately $2 million. This acquisition resulted in the Company acquiring 150 franchised locations and 10 company-operated locations and increased the Company’s collision services footprint.
The assets acquired and liabilities assumed from Fix Auto are as follows:
| | | | | | | | |
(in thousands) | | April 20, 2020 |
Assets: | | |
Cash | | $ | 2,020 | |
Accounts and notes receivable, net | | 2,317 | |
Inventory | | 414 | |
Prepaid and other assets | | 293 | |
Operating lease right-of-use assets | | 7,520 | |
Fixed assets | | 1,023 | |
Definite-lived intangibles | | 15,200 | |
Assets acquired | | 28,787 | |
Liabilities: | | |
Accounts payable | | 1,835 | |
Accrued expenses and other liabilities | | 2,919 | |
Operating lease liability | | 7,520 | |
Income taxes payable | | 6735,862 | |
Deferred income tax liabilityconsideration | | 3,770 | |
Liabilities assumed | | 16,717 | |
Net assets acquired | | 12,070285 | |
Total consideration, net of cash acquired | | 31,460 | |
Goodwill | | $ | 19,3906,147 | |
A summary of total consideration for Fix Auto is as follows:
Car Wash Segment
| | | | | |
(in thousands) | |
Cash | $ | 28,517 | |
Fair value of contingent consideration | 2,943 | |
Total consideration | $ | 31,460 | |
Other Acquisitions
During 2020, the Company completed the acquisition of 17 car wash sites, each individually immaterial, which are included within the Company’s Car Wash segment (the “2020 Car Wash Acquisitions”). The aggregate cash consideration paid for these acquisitions, net of cash acquired and liabilities assumed, was approximately $109 million.
The assets acquired and liabilities assumed for the 2020 Car Wash Acquisitions are as follows:
| | | | | | | | |
(in thousands) | | | Car Wash |
Assets: | | | |
CashProperty and equipment, net | | | $ | 4111,052 | |
Land and improvementsGoodwill | | 18,635 | |
Building | | 42,570 | |
Equipment | | 12,125 | |
Deferred tax assets | | 5,1173,948 | |
Assets acquired | | | 78,48815,000 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
Liabilities:Total consideration, net of cash acquired | | | $ | 15,000 | |
Paint, Collision & Glass Segment
| | | | | | | | |
{in thousands) | | | Paint, Collision & Glass | |
Assets: | | | | |
| | | | |
Inventory | | | $ | 35 | | |
Deferred revenueProperty and equipment, net | | 368 | |
Liabilities assumed | | 368 | |
Net assets acquired | | 78,120 | |
Total consideration | | 108,771 667 | |
Goodwill | | | 4,940 | | |
Assets acquired | | | 5,642 | | |
| | | | |
| | | | |
| | | | |
| | | | |
Cash consideration, net of cash acquired | | | 4,947 | | |
Deferred consideration | | | 695 | | |
Total consideration, net of cash acquired | | | $ | 30,6515,642 | | |
Goodwill represents the excess of the consideration paid over the fair value of net assets acquired and includes the expected benefit of synergies within the existing segments and intangible assets that do not qualify for separate recognition. Goodwill, which was allocated to the Car Wash, Maintenance, and Paint, Collision & Glass segments, is substantially all deductible for income tax purposes.
Deferred Consideration and Transaction Costs
Deferred consideration is typically paid six months to one-year after the acquisition closing date once all conditions under the purchase agreement have been satisfied.
| | | | | | | | | | | | | | | | | |
| Six Months Ended | | | |
(in thousands) | July 1, 2023 | | June 25, 2022 | | | | | | |
Deferred consideration at beginning of period | $ | 35,007 | | | $ | 16,000 | | | | | | | |
Change in accrual | 1,230 | | | 5,552 | | | | | | | |
Payments | (20,108) | | | (7,325) | | | | | | | |
Deferred consideration at end of period | $ | 16,129 | | | $ | 14,227 | | | | | | | |
The valuation for the acquisitions requires significant estimatesCompany incurred less than $1 million and assumptions. The estimates are inherently uncertain and subject to revision as additional information is obtained during the measurement period for the acquisitions. There were no measurement period changes related to Fix Auto and the 2020 Car Wash Acquisitionsapproximately $1 million of transaction costs during the three months ended July 1, 2023 and June 25, 2022, respectively. The Company incurred less than $1 million and approximately $3 million of transaction costs during the six months ended July 1, 2023 and June 25, 2022, respectively.
2022 Disposition
On March 27, 2021.16, 2022, the Company disposed of its 75% owned subsidiary, IMO Denmark ApS, for consideration of $2 million. As a result of the sale, a $1 million loss was recognized within selling, general, and administrative expenses during the three months ended June 25, 2022. Also, a noncontrolling interest of less than $1 million was derecognized. The Company allocated less than $1 million of goodwill as part of the sale.
Note 4— Revenue from Contracts with Customers
The Company records contract assets for the incremental costs of obtaining a contract with a customer if it expects the benefit of those costs to be longer than one year and if such costs are material. Commission expenses, a primary cost associated with the sale of franchise licenses, are amortized to selling, general and administrative expenses in the condensed consolidated statements of operations ratably over the life of the associated franchise agreement.
Capitalized costs to obtain a contract as of March 27, 2021July 1, 2023 and December 26, 202031, 2022 were $9$6 million and $9$7 million, respectively, and are presented within deferred commissions on the condensed consolidated balance sheets. The Company recognized an immaterial amountless than $1 million of costs during the three and six months ended March 27, 2021July 1, 2023 and March 28, 2020, respectively,June 25, 2022 that were recorded as a contract asset at the beginning of the period.periods.
Contract liabilities consist primarily of deferred franchise fees and deferred development fees. The Company had contract liabilities of $22$31 million and $21$29 million as of March 27, 2021July 1, 2023 and December 26, 2020,31, 2022, respectively, which are presented within deferred revenue on the condensed consolidated balance sheets. The Company recorded an immaterial amountrecognized $1 million and less than $1 million of revenue relating to contract liabilities during the three months ended March 27, 2021July 1, 2023 and March 28, 2020, respectively, that was recorded as aJune 25, 2022, respectively. The Company recognized $2 million of revenue relating to contract liability as ofliabilities during the beginning of the period.six months ended July 1, 2023 and June 25, 2022.
Note 5—Segment Information
The Company’s worldwide operations are comprised of the following reportable segments: Maintenance;Maintenance, Car Wash;Wash, Paint, Collision & Glass;Glass, and Platform Services. The Car Wash segment was formed in connection with the acquisition of ICWG in August 2020.
In addition to the reportable segments, the Company’s consolidated financial results include “Corporate and Other” activity. Corporate and Other incurs costs related to advertising fund revenues and expenses and shared service costs, which are related to finance, IT,information technology, human resources, legal, supply chain, and other support services. Corporate and Other activity includes the adjustments necessary to eliminate intercompany transactions, namely sales by the Platform Services segment to the Paint, Collision & Glass and Maintenance segments, respectively.segments.
Segment results for the three and six months ended July 1, 2023 and June 25, 2022 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended July 1, 2023 |
(in thousands) | Maintenance | | Car Wash | | Paint, Collision & Glass | | Platform Services | | Corporate and Other | | Total |
Franchise royalties and fees | $ | 14,215 | | | $ | — | | | $ | 26,530 | | | $ | 9,060 | | | $ | — | | | $ | 49,805 | |
Company-operated store sales | 205,673 | | 101,615 | | | 86,110 | | | 1,180 | | | — | | | 394,578 | |
Independently-operated store sales | — | | | 61,533 | | | — | | | — | | | — | | | 61,533 | |
Advertising fund contributions | — | | | — | | | — | | | — | | | 24,749 | | | 24,749 | |
Supply and other revenue | 22,439 | | | 1,607 | | | 20,518 | | | 47,098 | | | (15,476) | | | 76,186 | |
Total revenue | $ | 242,327 | | | $ | 164,755 | | | $ | 133,158 | | | $ | 57,338 | | | $ | 9,273 | | | $ | 606,851 | |
Segment Adjusted EBITDA | $ | 85,753 | | | $ | 43,263 | | | $ | 41,249 | | | $ | 22,537 | | | $ | (40,417) | | | $ | 152,385 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 25, 2022 |
(in thousands) | Maintenance | | Car Wash | | Paint, Collision & Glass | | Platform Services | | Corporate and Other | | Total |
Franchise royalties and fees | $ | 11,326 | | | $ | — | | | $ | 23,605 | | | $ | 9,919 | | | $ | — | | | $ | 44,850 | |
Company-operated store sales | 168,648 | | | 101,796 | | | 52,049 | | | 1,392 | | | — | | | 323,885 | |
Independently-operated store sales | — | | | 54,942 | | | — | | | — | | | — | | | 54,942 | |
Advertising fund contributions | — | | | — | | | — | | | — | | | 22,091 | | | 22,091 | |
Supply and other revenue | 14,331 | | | 1,841 | | | 19,715 | | | 41,891 | | | (14,922) | | | 62,856 | |
Total revenue | $ | 194,305 | | | $ | 158,579 | | | $ | 95,369 | | | $ | 53,202 | | | $ | 7,169 | | | $ | 508,624 | |
Segment Adjusted EBITDA | $ | 64,076 | | | $ | 53,677 | | | $ | 32,916 | | | $ | 20,541 | | | $ | (35,123) | | | $ | 136,087 | |
Segment results for the three months ended March 27, 2021 and March 28, 2020 are as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six months ended July 1, 2023 |
(in thousands) | Maintenance | | Car Wash | | Paint, Collision & Glass | | Platform Services | | Corporate and Other | | Total |
Franchise royalties and fees | $ | 26,658 | | | $ | — | | | $ | 50,828 | | | $ | 15,834 | | | $ | — | | | $ | 93,320 | |
Company-operated store sales | 400,933 | | | 204,061 | | | 163,589 | | | 2,061 | | | — | | | 770,644 | |
Independently-operated store sales | — | | | 114,065 | | | — | | | — | | | — | | | 114,065 | |
Advertising fund contributions | — | | | — | | | — | | | — | | | 46,426 | | | 46,426 | |
Supply and other revenue | 42,404 | | | 3,609 | | | 39,544 | | | 91,476 | | | (32,170) | | | 144,863 | |
Total revenue | $ | 469,995 | | | $ | 321,735 | | | $ | 253,961 | | | $ | 109,371 | | | $ | 14,256 | | | $ | 1,169,318 | |
Segment Adjusted EBITDA | $ | 158,739 | | | $ | 87,572 | | | $ | 76,961 | | | $ | 39,567 | | | $ | (81,601) | | | $ | 281,238 | |
| | | Three months ended March 27, 2021 | | Six months ended June 25, 2022 |
(in thousands) | (in thousands) | Maintenance | | Car Wash | | Paint, Collision & Glass | | Platform Services | | Corporate and Other | | Total | (in thousands) | Maintenance | | Car Wash | | Paint, Collision & Glass | | Platform Services | | Corporate and Other | | Total |
Franchise fees and royalties | $ | 7,927 | | | $ | 0 | | | $ | 17,309 | | | $ | 5,178 | | | $ | 0 | | | $ | 30,414 | | |
Franchise royalties and fees | | Franchise royalties and fees | $ | 20,961 | | | $ | — | | | $ | 44,970 | | | $ | 16,807 | | | $ | — | | | $ | 82,738 | |
Company-operated store sales | Company-operated store sales | 114,067 | | 57,048 | | | 11,930 | | | 983 | | | (173) | | | 183,855 | | Company-operated store sales | 325,476 | | | 196,291 | | | 91,965 | | | 2,544 | | | — | | | 616,276 | |
Independently-operated store sales | Independently-operated store sales | 0 | | | 56,163 | | | 0 | | | 0 | | | 0 | | | 56,163 | | Independently-operated store sales | — | | | 118,031 | | | — | | | — | | | — | | | 118,031 | |
Advertising | 0 | | | 0 | | | 0 | | | 0 | | | 17,255 | | | 17,255 | | |
Supply and other | 6,157 | | | 1,453 | | | 14,652 | | | 28,435 | | | (8,964) | | | 41,733 | | |
Advertising fund contributions | | Advertising fund contributions | — | | | — | | | — | | | — | | | 41,789 | | | 41,789 | |
Supply and other revenue | | Supply and other revenue | 26,610 | | | 3,532 | | | 37,795 | | | 77,017 | | | (26,841) | | | 118,113 | |
Total revenue | Total revenue | $ | 128,151 | | | $ | 114,664 | | | $ | 43,891 | | | $ | 34,596 | | | $ | 8,118 | | | $ | 329,420 | | Total revenue | $ | 373,047 | | | $ | 317,854 | | | $ | 174,730 | | | $ | 96,368 | | | $ | 14,948 | | | $ | 976,947 | |
Segment Adjusted EBITDA | Segment Adjusted EBITDA | $ | 40,440 | | | $ | 34,155 | | | $ | 17,639 | | | $ | 11,008 | | | $ | (25,019) | | | $ | 78,223 | | Segment Adjusted EBITDA | $ | 116,561 | | | $ | 109,397 | | | $ | 61,928 | | | $ | 34,706 | | | $ | (67,485) | | | $ | 255,107 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 28, 2020 |
(in thousands) | Maintenance | | Paint, Collision & Glass | | Platform Services | | Corporate and Other | | Total |
Franchise fees and royalties | $ | 7,333 | | | $ | 17,746 | | | $ | 4,345 | | | $ | (12) | | | $ | 29,412 | |
Company-operated store sales | 87,740 | | | 5,846 | | | 1,978 | | | (673) | | | 94,891 | |
Advertising | 0 | | | 0 | | | 0 | | | 14,883 | | | 14,883 | |
Supply and other | 4,624 | | | 15,354 | | | 25,835 | | | (4,892) | | | 40,921 | |
Total revenue | $ | 99,697 | | | $ | 38,946 | | | $ | 32,158 | | | $ | 9,306 | | | $ | 180,107 | |
Segment Adjusted EBITDA | $ | 21,466 | | | $ | 15,877 | | | $ | 7,465 | | | $ | (13,047) | | | $ | 31,761 | |
The reconciliations of Income before taxes to Segment Adjusted EBITDA to loss before taxes for the three and six months ended March 27, 2021July 1, 2023 and March 28, 2020June 25, 2022 are as follows:
| | | | | | | | | | | | | | |
| Three months ended |
(in thousands) | March 27, 2021 | | March 28, 2020 | |
Segment Adjusted EBITDA | $ | 78,223 | | | $ | 31,761 | | |
Acquisition related costs(a) | 1,646 | | | 195 | | |
Non-core items and project costs, net(b) | 32 | | | 1,256 | | |
Store opening costs | 289 | | | 1,175 | | |
Sponsor management fees(c) | 0 | | | 539 | | |
Straight-line rent adjustment(d) | 2,485 | | | 850 | | |
Equity-based compensation expense(e) | 983 | | | (101) | | |
Foreign currency transaction loss, net(f) | 10,511 | | | 3,479 | | |
Asset impairment and closed store expenses(g) | (786) | | | 4,321 | | |
Loss on debt extinguishment(h) | 45,498 | | | 0 | | |
Depreciation and amortization | 23,852 | | | 7,799 | | |
Interest expense, net | 18,091 | | | 17,516 | | |
Loss before taxes | $ | (24,378) | | | $ | (5,268) | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended | | |
(in thousands) | July 1, 2023 | | June 25, 2022 | | July 1, 2023 | | June 25, 2022 | | | | |
Income (loss) before taxes | $ | 58,024 | | | $ | (75,892) | | | $ | 98,744 | | | $ | (28,496) | | | | | |
Depreciation and amortization | 45,419 | | | 38,087 | | | 83,617 | | | 71,110 | | | | | |
Interest expense, net | 40,871 | | | 26,270 | | | 79,012 | | | 51,623 | | | | | |
Acquisition related costs(a) | 3,750 | | | 3,338 | | | 5,597 | | | 7,656 | | | | | |
Non-core items and project costs, net(b) | 2,803 | | | 1,719 | | | 4,627 | | | 2,585 | | | | | |
Store opening costs | 1,377 | | | 666 | | | 2,402 | | | 1,172 | | | | | |
| | | | | | | | | | | |
Straight-line rent adjustment(c) | 4,638 | | | 4,217 | | | 9,003 | | | 8,310 | | | | | |
Equity-based compensation expense(d) | 4,485 | | | 4,233 | | | 7,049 | | | 6,851 | | | | | |
Foreign currency transaction (gain) / loss, net(e) | (1,302) | | | 13,937 | | | (2,977) | | | 14,908 | | | | | |
| | | | | | | | | | | |
Trade name impairment(f) | — | | | 125,450 | | | — | | | 125,450 | | | | | |
Asset sale leaseback loss (gain), impairment and closed store expenses(g) | (7,680) | | | (5,938) | | | (5,836) | | | (6,062) | | | | | |
| | | | | | | | | | | |
Segment Adjusted EBITDA | $ | 152,385 | | | $ | 136,087 | | | $ | 281,238 | | | $ | 255,107 | | | | | |
(a)Consists of acquisition costs as reflected within the condensedunaudited consolidated statements of operations, including legal,
consulting and other fees, and expenses incurred in connection with acquisitions completed during the applicable period,
as well as inventory rationalization expenses incurred in connection with acquisitions. We expect to incur similar costs in
connection with other acquisitions in the future and, under U.S. GAAP, such costs relating to acquisitions are expensed as
incurred and not capitalized.
(b)Consists of discrete items and project costs, including (i) third party consulting and professional fees associated with
strategic transformation initiatives and (ii) other miscellaneous expenses, including non-capitalizable expenses relating to the
Company’s initial public offering and other strategic transactions.as well as non-recurring payroll-related costs.
(c)Includes management fees paid to Roark Capital Management, LLC.
(d)Consists of the non-cash portion of rent expense, which reflects the extent to which our straight-line rent expense
recognized under U.S. GAAP exceeds or is less than our cash rent payments.
(e)(d)Represents non-cash equity-based compensation expense.
(f)(e) Represents foreign currency transaction (gains) losses, net lossesthat primarily related to the remeasurement of our intercompany loans. These
lossesloans, which are slightlypartially offset by unrealized gains and losses on remeasurement of cross currency swaps.swaps and forward contracts.
(f) Relates to an impairment of certain Car Wash trade names as the Company elected to discontinue their use.
(g)Represents non-cash charges incurred related Relates to the(gains) losses, net on sale leasebacks, impairment of certain fixed assets and operating lease right-of-use assets related to closed locations, and lease exit costs and other costs
associated with stores that were closed prior to theirthe respective lease terminationstermination dates.
(h)Represents the write-off of unamortized discount associated with the repayment of the Car Wash Senior Credit Facilities.
Note 6—Long-term6 —Other Intangible Assets
The Company has acquired a number of car wash businesses since 2020. As part of those acquisitions, the Company determined a fair value for each of the associated intangible assets including trade names and customer relationships. During the quarter ended June 25 2022, the Company made the strategic decision to rebrand the majority of its U.S. car wash locations to operate under the name “Take 5 Car Wash”, and therefore discontinued the use of certain car wash trade names that were previously determined to have indefinite lives. Using a projected discounted cash flow analysis based on the relief from royalty method, the fair value of the trade names was determined to be $6 million while their carrying value was $131.5 million. As a result, the Company recognized a $125.5 million impairment charge, which is reported as trade name impairment charge in the unaudited consolidated statement of operations. The transition will take approximately two and a half years to complete from the date of impairment, and therefore the remaining carrying value is being amortized over 30 months.
Note 7—Long-Term Debt
OurThe Company’s long-term debt obligations consist of the following:
| (in thousands) | (in thousands) | March 27, 2021 | | December 26, 2020 | (in thousands) | July 1, 2023 | | December 31, 2022 |
Series 2018-1 Securitization Senior Notes, Class A-2 | Series 2018-1 Securitization Senior Notes, Class A-2 | $ | 266,750 | | | $ | 267,438 | | Series 2018-1 Securitization Senior Notes, Class A-2 | $ | 260,563 | | | $ | 261,938 | |
Series 2019-1 Securitization Senior Notes, Class A-2 | Series 2019-1 Securitization Senior Notes, Class A-2 | 293,250 | | | 294,000 | | Series 2019-1 Securitization Senior Notes, Class A-2 | 286,500 | | | 288,000 | |
Series 2019-2 Securitization Senior Notes, Class A-2 | Series 2019-2 Securitization Senior Notes, Class A-2 | 270,875 | | | 271,563 | | Series 2019-2 Securitization Senior Notes, Class A-2 | 264,688 | | | 266,063 | |
Series 2020-1 Securitization Senior Notes, Class A-2 | Series 2020-1 Securitization Senior Notes, Class A-2 | 173,688 | | | 174,125 | | Series 2020-1 Securitization Senior Notes, Class A-2 | 169,750 | | | 170,625 | |
Series 2020-2 Securitization Senior Notes, Class A-2 | Series 2020-2 Securitization Senior Notes, Class A-2 | 448,875 | | | 450,000 | | Series 2020-2 Securitization Senior Notes, Class A-2 | 438,750 | | | 441,000 | |
Car Wash First Lien Term Loan | 0 | | | 528,858 | | |
Car Wash Second Lien Term Loan | 0 | | | 175,000 | | |
Car Wash Revolving Credit Facility | 0 | | | 18,000 | | |
Series 2021-1 Securitization Senior Notes, Class A-2 | | Series 2021-1 Securitization Senior Notes, Class A-2 | 442,125 | | | 444,375 | |
Series 2022-1 Securitization Senior Notes, Class A-2 | | Series 2022-1 Securitization Senior Notes, Class A-2 | 362,263 | | | 364,088 | |
Term Loan Facility | | Term Loan Facility | 493,750 | | | 496,250 | |
Revolving Credit Facility | | Revolving Credit Facility | 110,000 | | | — | |
Other debt (a) | Other debt (a) | 25,729 | | | 26,763 | | Other debt (a) | 22,400 | | | 51,836 | |
Total debt | Total debt | 1,479,167 | | | 2,205,747 | | Total debt | 2,850,789 | | | 2,784,175 | |
Less: unamortized discount | 0 | | | (46,030) | | |
Less: debt issuance costs | (33,265) | | | (34,510) | | |
| Less: unamortized debt issuance costs | | Less: unamortized debt issuance costs | (39,234) | | | (45,908) | |
Less: current portion of long-term debt | Less: current portion of long-term debt | (17,142) | | | (22,988) | | Less: current portion of long-term debt | (32,044) | | | (32,986) | |
Total long-term debt, net | Total long-term debt, net | $ | 1,428,760 | | | $ | 2,102,219 | | Total long-term debt, net | $ | 2,779,511 | | | $ | 2,705,281 | |
(a)AmountConsists primarily consists of finance lease obligations.
Series 2019-3 Variable Funding Securitization Senior Notes
As discussedIn December 2019, Driven Brands Funding, LLC (the “Issuer”) issued Series 2019-3 Variable Funding Senior Notes, Class A-1 (the “2019 VFN”) in Note 1,the revolving amount of $115 million. The 2019 VFN have a final legal maturity date in January 2050. The commitment under the 2019 VFN was set to expire in July 2022, with the option of three one-year extensions. In July 2023, the Company usedexercised the proceeds fromoption to extend an additional year. The 2019 VFN are secured by substantially all assets of the IPO, along with cash on hand, to fully repayIssuer and are guaranteed by the Car Wash Senior Credit Facilities, which totaled $725 million withSecuritization Entities. As of July 1, 2023, borrowings will incur interest at the Base Rate plus an applicable margin or Secured Overnight Financing Rate (“SOFR”) plus an applicable term adjustment. No amounts were outstanding under the 2019 VFN as of July 1, 2023 and fees. The Company incurred a $45 million loss on debt extinguishment, related primarily to the write-off of unamortized discount,no borrowings or repayments were made during the threesix months ended March 27,July 1, 2023. As of July 1, 2023, there were $25 million of outstanding letters of credit which reduced the borrowing availability under the 2019 VFN.
Driven Holdings Revolving Credit Facility
In May 2021, relatedDriven Holdings, LLC, (“the Borrower”) a Delaware limited liability company and indirect wholly-owned subsidiary of Driven Brands Holdings Inc., entered into a credit agreement to this settlement.secure a revolving line of credit with a group of financial institutions (“Revolving Credit Facility”), which provides for an aggregate amount of up to $300 million, and has a maturity date in May 2026 (“Credit Agreement”). On June 2, 2023, the Credit Agreement was amended pursuant to which as of July 1, 2023, borrowings will incur interest at the Base Rate plus an applicable margin or SOFR plus an applicable term adjustment. The Revolving Credit Facility also includes periodic commitment fees based on the available unused balance and a quarterly administrative fee.
There was $110 million outstanding on the Revolving Credit Facility as of July 1, 2023 with $230 million of borrowings and $120 million of repayments made during the six months ended July 1, 2023.
The Company’s debt agreements are subject to certain quantitative and qualitative covenants. As of March 27, 2021,July 1, 2023, the Company and its subsidiaries were in compliance with all covenants.
Note 7—8—Leases
The following table details our total investment in operating and finance leases whereDuring the Company is the lessee:
| | | | | | | | | | | |
(in thousands) | March 27, 2021 | | December 26, 2020 |
Right-of-use assets | | | |
Finance leases (a) | $ | 12,235 | | | $ | 14,211 | |
Operating leases | 910,255 | | | 884,927 | |
Total right-of-use assets | $ | 922,490 | | | $ | 899,138 | |
| | | |
Current lease liabilities | | | |
Finance leases (b) | $ | 1,752 | | | $ | 2,149 | |
Operating leases (c) | 59,491 | | | 60,095 | |
Total current lease liabilities | $ | 61,243 | | | $ | 62,244 | |
| | | |
Long-term lease liabilities | | | |
Finance leases (d) | $ | 16,234 | | | $ | 16,726 | |
Operating leases | 846,360 | | | 818,001 | |
Total long-term lease liabilities | $ | 862,594 | | | $ | 834,727 | |
(a)Finance lease right-of-use assets are included in property and equipment, net on the condensed consolidated balance sheet.
(b)Current finance lease liabilities are included in current portion of long-term debt on the condensed consolidated balance sheet.
(c)Current operating lease liabilities are included in accrued expenses and other liabilities on the condensed consolidated balance sheet.
(d)Long-term finance lease liabilities are included in long-term debt on the condensed consolidated balance sheet.
The lease cost for operating and finance leases recognized in the condensed consolidated statement of operations for the threesix months ended March 27, 2021 and March 28, 2020 were as follows:
| | | | | | | | | | | |
| Three months ended |
(in thousands) | March 27, 2021 | | March 28, 2020 |
Finance lease expense: | | | |
Amortization of right-of-use assets | $ | 614 | | | $ | 138 | |
Interest on lease liabilities | 237 | | | 105 | |
Operating lease expense | 27,748 | | | 12,782 | |
Short-term lease expense | 1,314 | | | 66 | |
Variable lease expense | 246 | | | 144 | |
Total lease expense, net | $ | 30,159 | | | $ | 13,235 | |
The Company also subleases certain facilities to franchisees and recognized $2 million in sublease revenue during each of the three months ended March 27, 2021 and March 28, 2020, respectively, as a component of supply and other revenue on the condensed consolidated statements of operations.
In March 2021,July 1, 2023, the Company sold 11four maintenance and 33 car wash properties in various locations throughout the United States for a total of $41$144 million, resulting in a net gain of $2$25 million. ConcurrentlyConcurrent with the closing of these sales, the Company entered into various operating lease agreements pursuant to which the Company leased back the properties. These lease agreements have initial terms ranging from 17of 18 to 20 yearsyears. The Company does not include option periods in its determination of the lease term unless renewals are deemed reasonably certain to be exercised. The Company recorded an
operating lease right-of-use asset and provideoperating lease liability of $112 million and $112 million, respectively, related to these lease arrangements as of July 1, 2023.
During the six months ended June 25, 2022, the Company sold six maintenance and ten car wash properties in various locations throughout the United States for a total of $55 million, resulting in a net gain of $7 million. Concurrent with the optionclosing of these sales, the Company entered into various operating lease agreements pursuant to extendwhich the Company leased back the properties. These lease for upagreements have initial terms of 15 years to 20 additional years. Theyears.The Company does not include option periods in its determination of the lease term unless renewals are deemed reasonably certain to be exercised. The Company recorded an operating lease right-of-use asset and operating lease liability of $40$47 million and $37$47 million, respectively, related to these lease arrangements.
The weighted average remaining lease termarrangements as of March 27, 2021 was 11.0 years for finance leases and 14.9 years for operating leases. The weighted average discount rate as of March 27, 2021 was 5.79% for finance leases and 4.82% for operating leases.June 25, 2022.
Supplemental cash flow information related to the Company’s lease arrangements for the threesix months ended March 27, 2021July 1, 2023 and March 28, 2020,June 25, 2022, respectively, was as follows:
| | | Three months ended | | Six Months Ended |
(in thousands) | (in thousands) | March 27, 2021 | | March 28, 2020 | (in thousands) | July 1, 2023 | | June 25, 2022 |
Cash paid for amounts included in the measurement of lease liabilities: | Cash paid for amounts included in the measurement of lease liabilities: | | | | Cash paid for amounts included in the measurement of lease liabilities: | | | |
Operating cash flows used in operating leases | Operating cash flows used in operating leases | $ | 25,794 | | | $ | 11,390 | | Operating cash flows used in operating leases | $ | 67,107 | | | $ | 57,330 | |
Operating cash flows used in finance leases | Operating cash flows used in finance leases | 216 | | | 102 | | Operating cash flows used in finance leases | 810 | | | 785 | |
Financing cash flows used in (for) finance leases | 317 | | | (13) | | |
Right-of-use assets obtained in exchange for lease obligations: | | |
Operating leases | $ | 6,849 | | | $ | 327,349 | | |
Finance leases | 630 | | | 5,375 | | |
Financing cash flows used in finance leases | | Financing cash flows used in finance leases | 953 | | | 829 | |
|
Note 8—Share-based9 — Equity-based Compensation
On January 6, 2021, the Company’s Board of Directors approved the 2021 Omnibus Incentive Plan (the “Plan”) and effective January 14, 2021, the Company’s shareholders adopted and approved the Plan. The Plan provides for the granting of stock options, stock appreciation rights, restricted stock awards, restricted stock units, other stock-based awards, other cash-based awards or any combination of the foregoing to current and prospective employees and directors of, and consultants and advisors to, the Company and its affiliates. The maximum number of shares of common stock available for issuance under the Plan is 12,533,984 shares. In conjunction with the closing of the IPO, our Board granted awards under the Plan to certain of our employees, representing an aggregate of 5,582,522 shares of common stock. At March 27, 2021, 6,853,489 shares of common stock were reserved for additional grants under the Plan.
Prior to IPO, the Parent’s equity awards included Profits Interest Units. There were two forms of Profits Interest - Time Units and Performance Units. Time Units generally vested in 5 installments of 20% on each of the first five anniversaries of the grant date or vesting date, provided that the employee remained in continuous service on each vesting date. All outstanding Time Units were to vest immediately prior to the effective date of a consummated sale transaction. The Time Units were exchanged for time-based restricted stock awards in connection with the IPO. In addition, the Company granted time-based and performance-based options in connection with the IPO to most employees with Profit Interests (each an “IPO Option”). The time-based restricted stock awards did not require modification accounting.
The Performance Units were to vest immediately prior to the effective date of a consummated sale transaction or qualified public offering, including the IPO (a “Liquidity Event”). The percentage of vesting was based on achieving certain performance criteria. No vesting occurred as a result of the IPO as the minimum performance criteria threshold was not achieved. In connection with the IPO, the Performance Units were exchanged for performance-based restricted stock awards. The vesting conditions of the performance-based restricted stock awards were modified to vest subject to an additional performance condition. Employees who received IPO Options have the same vesting conditions for the performance-based portion of the IPO Options as the performance-based restricted stock awards.
The Company calculated the fair value of these performance-based restricted stockgranted new awards on the modification date and determined the fair value of these awards increased to $66 million as a result of modification. In addition, the grant date fair value of the performance-based IPO Options was $26 million. The fair value of the performance-based restricted stock awards and performance-based IPO Options was determined by using a Monte Carlo simulation, using the following assumptions: (i) an expected term of 2.96 years, (ii) an expected volatility of 40.6%, (iii) a risk-free interest rate of 0.48%, and (iv) no expected dividends.
There was approximately $7 million of unrecognized compensation expense related to the time-based restricted stock awards and time-based IPO Options at March 27, 2021, which is expected to be recognized over a weighted-average vesting period of 4.34 years. Forduring the three months ended March 27, 2021 and March 28, 2020, respectively, less than $1 millionJuly 1, 2023, consisting of compensation expense was recognized in both periods for the time-based restricted stock awards and time-based IPO Options.
There was approximately $92 million of unrecognized compensation expense related to the performance-based restricted stock awards and performance-based IPO Options at March 27, 2021. For the three months ended March 27, 2021 and March 28, 2020, no compensation cost was recognized for the performance-based restricted stock awards and performance-based IPO Options given that none of the performance criteria were met or probable. Once the performance conditions are deemed probable, the Company will recognize compensation cost equal to the portion of the requisite service period that has elapsed. Certain former employees continued to hold performance-based awards after the IPO.
The Company established other new awards in connection with the IPO, including68,119 restricted stock units (“RSUs”) and 72,092 performance stock units (“PSUs”). The Company granted new awards during the six months ended July 1, 2023 consisting of 380,736 RSUs and 647,359 PSUs.
Awards established in connection with the IPO may onlyare eligible to vest provided that the employee remains in continuous service on each vesting date. TheGenerally, the RSUs vest ratably in 3three installments of 33% on each of the first three anniversaries of the grant date. The PSUs may vest after athree-year period and areperformance period. The number of PSUs that vest is contingent on the Company achieving certain performance goals, one being a market condition and the other being a performance condition. The number of PSU shares that vest may range from zero to 200% of the original grant, based upon the level of performance. The awards are considered probable of meeting vesting requirements, or vest upon achieving a market condition, and therefore, havethe Company has started recognizing expense.
The fair value of the total RSUs, performance based PSUs was determined byand market based PSUs granted during the three months ended July 1, 2023 were $2 million, $1 million, and $1 million, respectively. The fair value of the total RSUs, performance based PSUs and market based PSUs granted during the six months ended July 1, 2023 were $11 million,$11 million and$9 million, respectively. The Company based the fair value of the RSUs and performance based PSUs on the Company’s stock price on the grant date.
The range of assumptions used for issued PSUs with a market condition valued using athe Monte Carlo simulation, using the following assumptions: (i) an expected term of 2.96 years, (ii) an expected volatility of 41.16%, (iii) a risk-free interest rate of 0.23%, and (iv) no expected dividend.model were as follows:
At March 27, 2021, there was approximately $1 million of total unrecognized compensation cost related to the unvested RSUs, which is expected to be recognized over a weighted-average vesting period of 2.94 years, and there was approximately $3 million of total unrecognized compensation cost related to the unvested PSUs, which is expected to be recognized through December 30, 2023.
For all of the Company’s awards, excluding RSUs and PSUs, if the grantee’s continuous service terminates for any reason, the grantee shall forfeit all right, title, and interest in and to any unvested units as of the date of such termination, unless the grantee’s continuous service period is terminated by the Company without cause within the six-month period prior to the date of consummation of a Liquidity Event. In addition, the grantee shall forfeit all right, title, and interest in and to any vested units if the grantee resigns, is terminated for cause, breaches any post-termination covenants, or for failing to execute any general release required to be executed. For RSUs and PSUs, if the grantee’s continuous service terminates for any reason, the grantee shall forfeit all right, title, and interest in any unvested units as of the termination date.
On January 6, 2021, the Company’s Board of Directors approved the Employee Stock Purchase Plan (the “ESPP”) and effective January 14, 2021, the Company’s shareholders adopted and approved the ESPP. The ESPP provides employees of the Company with an opportunity to purchase the Company’s common stock at a discount, subject to certain limitations set forth in the ESPP. The ESPP authorized the issuance of 1,790,569 shares of the Company’s common stock. The initial offering period is one year. As of March 27, 2021, there were 0 shares of common stock purchased under the ESPP.
On March 22, 2021, the Company's Board of Directors approved the International Employee Stock Purchase Plan (the "International ESPP") that provides employees of certain designated subsidiaries of the Company with an opportunity to purchase the Company's common stock at a discount, subject to certain limitations set forth in the International ESPP. The shares available under the International ESPP are subject to available shares under the ESPP.
| | | | | | | | | | | |
| Six months ended |
| July 1, 2023 | | June 25, 2022 |
Annual dividend yield | —% | | —% |
Expected term (years) | 2.6 - 2.8 | | 2.7 - 2.8 |
Risk-free interest rate | 3.65% - 4.51% | | 2.32% - 2.76% |
Expected volatility | 37.9% - 38.8% | | 40.9% - 43.9% |
Correlation to the index peer group | 60.2% - 60.3% | | 50.7% - 59.5% |
The Company recorded $1$4 million and $7 million of share-based compensation expense during the three and six months ended March 27, 2021July 1, 2023, respectively, and $4 million and $7 million during the three and six months ended June 25, 2022, respectively, within selling, general and administrative expenses on the condensedunaudited consolidated statements of operations. Share-based compensation expense for the three months ended March 28, 2020 was immaterial.
Note 9—Loss10—Earnings (loss) per share
The Company calculates basic and diluted loss earnings (loss)per share using the two-class method. The following table sets forth the computation of basic and diluted lossearnings per share attributable to common shareholders:
| | | | | | | | | | | |
| Three months ended |
(in thousands, except per share amounts) | March 27, 2021 | | March 28, 2020 |
Basic and diluted loss per share: | | | |
Net loss attributable to Driven Brands Holdings Inc. | $ | (19,939) | | | $ | (3,848) | |
Weighted-average common shares outstanding, basic and diluted | 154,827 | | | 88,990 | |
Loss per share, basic and diluted | $ | (0.13) | | | $ | (0.04) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended | | |
(in thousands, except per share amounts) | July 1, 2023 | | June 25, 2022 | | July 1, 2023 | | June 25, 2022 | | | | |
Basic earnings (loss) per share: | | | | | | | | | | | |
Net income (loss) attributable to Driven Brands Holdings Inc. | $ | 37,749 | | | (57,044) | | | $ | 67,498 | | | (22,601) | | | | | |
Less: Net income (loss) attributable to participating securities, basic | 794 | | | (1,210) | | | 1,420 | | | (481) | | | | | |
Net income (loss) after participating securities, basic | 36,955 | | | (55,834) | | | 66,078 | | | (22,120) | | | | | |
Weighted-average common shares outstanding | 162,911 | | | 162,781 | | | 162,848 | | | 162,772 | | | | | |
Basic earnings (loss) per share | $ | 0.23 | | | $ | (0.34) | | | $ | 0.41 | | | $ | (0.14) | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended | | |
(in thousands, except per share amounts) | July 1, 2023 | | June 25, 2022 | | July 1, 2023 | | June 25, 2022 | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Diluted earnings (loss) per share: | | | | | | | | | | | |
Net income (loss) attributable to Driven Brands Holdings Inc. | $ | 37,749 | | | $ | (57,044) | | | $ | 67,498 | | | $ | (22,601) | | | | | |
Less: Net income (loss) attributable to participating securities, diluted | 708 | | | (1,080) | | | 1,267 | | | (430) | | | | | |
Net income (loss) after participating securities, diluted | $ | 37,041 | | | $ | (55,964) | | | $ | 66,231 | | | $ | (22,171) | | | | | |
Weighted-average common shares outstanding | 162,911 | | | 162,781 | | | 162,848 | | | 162,772 | | | | | |
Dilutive effect of share-based awards | 3,978 | | | — | | | 4,034 | | | — | | | | | |
Weighted-average common shares outstanding, as adjusted | 166,888 | | | 162,781 | | | 166,882 | | | 162,772 | | | | | |
Diluted earnings (loss) per share | $ | 0.22 | | | $ | (0.34) | | | $ | 0.40 | | | $ | (0.14) | | | | | |
| | | | | | | | | | | |
Basic lossearnings (loss) per share is computed by dividing the net lossincome (loss) attributable to Driven Brands Holdings Inc. by the weighted-average number of common shares outstanding for the period. Because the Company reported a net loss for the three months ended March 27, 2021 and March 28, 2020, the number of shares used to calculate diluted loss per share is the same as the number of shares used to calculate basic loss per share because the potentially dilutive shares, if any, would have been antidilutive if included. In addition, the Company hasCompany’s participating securities are related to certain restricted stock awards issued to Section 16 officers which include non-forfeitable dividend rights,rights.
The Company has 4,881,630 shares of performance awards that are contingent on performance conditions which werehave not included inyet been met, and therefore have been excluded from the basic or diluted loss per share calculations givencomputation of weighted average shares for the Section 16 officers do not share in the losses of the Company.
three and six months ended July 1, 2023.
The following securities were not included in the computation of diluted shares outstanding because the effect would be antidilutive:
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended | | |
Number of securities (in thousands) | July 1, 2023 | | June 25, 2022 | | July 1, 2023 | | June 25, 2022 | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Stock Options | 1,703 | | | — | | | 1,703 | | | — | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Total | 1,703 | | | — | | | 1,703 | | | — | | | | | |
Note 11—Income Taxes
The Company’s tax provision (benefit) is comprised of the most recent estimated annual effective tax rate applied to year-to-date ordinary income (loss) before taxes. The tax impacts of unusual or infrequently occurring items, including changes in judgment about valuation allowances and effects of changes in tax laws or rates, are recorded discretely in the interim period in which they occur.
Income tax expense was $20 million for the three months ended March 27, 2021, because the effect would be antidilutive (in thousands):
| | | | | |
Restricted stock awards | 609 | |
Restricted stock units | 67 | |
Performance stock units | 135 | |
IPO options | 1,514 | |
Employee stock purchase plan | 123 | |
Other options | 48 | |
Total | 2,496 | |
Note 10—Related-Party Transactions
The Company had management advisory services agreements with Roark Capital Management, LLC (“Roark”),July 1, 2023 compared to an affiliated entity, which provided that the Company pay an annual advisory services fee to Roark. The Company and Roark terminated all advisory services agreements in January 2021 in connection with the Company’s initial public offering. The Company paid $1income tax benefit of $19 million under these service agreements duringfor the three months ended March 28, 2020.June 25, 2022. The effective income tax rate for the three months ended July 1, 2023 was 34.9% compared to 24.8% for the three months ended June 25, 2022. The net increase in income tax expense and effective tax rate was primarily driven by a non-recurring tax benefit related to a trade name impairment for the three months ended June 25, 2022, partially offset by the inclusion of foreign disregarded entity losses for the three months ended July 1, 2023.
AsIncome tax expense was $31 million for the six months ended July 1, 2023 compared to an income tax benefit of March 27, 2021,$6 million for the Company has made paymentssix months ended June 25, 2022. The effective income tax rate for facilities maintenance servicesthe six months ended July 1, 2023 was 31.6% compared to 20.6% for the six months ended June 25, 2022. The net increase in the aggregate amount of approximately $0.5 million to Divisions Maintenance Group, an entity ownedincome tax expense and effective tax rate was primarily driven by affiliates of Roark Capital Management, LLC, which isa non-recurring tax benefit related to a trade name impairment for the company’s principal stockholders (Driven Equity LLC and RC IV Cayman ICW Holdings LLC). The transactions were reviewed, ratified, and approvedsix months ended June 25, 2022, partially offset by the Audit Committeeinclusion of foreign disregarded entity losses for the Company’s Board of Directors in accordance with the Company’s Related Person Transactions Policy.
Note 11—Commitments and Contingenciessix months ended July 1, 2023.
The Company is subject to various lawsuits, administrative proceedings, audits, and claims arising in the ordinary course of business. Some of these lawsuits purport to be class actions and/or seek substantial damages. The Company is required to record an accrual for litigation loss contingencies that are both probable and reasonably estimable. Legal fees and expenses associated with the defense of litigation are expensed as incurred.
While the Company does not presently believe that any of the legal proceedings to which it is currently a party will ultimately have a material adverse impact, there can be no assurance that the Company will prevail in all of the proceedings or that the Company will not incur material losses from them.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis for Driven Brands Holdings Inc. and Subsidiaries (“Driven Brands”, “the Company”, “we”, “us” or “our”) should be read in conjunction with our condensed consolidated financial statements and the related notes to our condensed consolidated financial statements included elsewhere in this quarterly report. On August 3, 2020, the Company completed the ICWG Acquisition (the “ICWG Acquisition Date”). The Company’s results of operations for the three months ended March 27, 2021 include the operations of ICWG. In this Management’s Discussion and Analysis of Financial Condition and Results of Operations, no comparable information is discussed with respect to ICWG for the three months ended March 28, 2020, which is prior to the ICWG Acquisition Date. We operate on a 52/53-week fiscal year, which ends on the last Saturday in December. The three months ended March 27, 2021July 1, 2023 and March 28, 2020June 25, 2022 were both 13 week periods. The six months ended July 1, 2023 and June 25, 2022 were both 26 week periods.
Overview of Operations
Driven Brands is the largest automotive services company in North America with a growing and highly-franchised base
of more than 4,2004,900 locations across 49 U.S. states and 1413 other countries. Our scaled, diversified platform fulfills an extensive range of core consumer and commercial automotive needs, including paint, collision, glass, and repair car wash, oil change and maintenance. Driven Brands providesservices, as well as a breadthvariety of high-quality and high-frequency services, such as oil changes and car washes. We have continued to a wide range of customers, who rely on their cars in all economic environments to get to work and in many other aspects of their daily lives. Our asset-light business model has generatedgenerate consistent recurringreoccurring revenue expansion and strong operating margins, with limited maintenance capital expenditures, which has resulted in significant cash flow generation and capital-efficient growth.
We have a diversified portfoliocontinued to drive sustained predictable growth and share gain through our robust pipeline of highly-recognized brands, including Take 5 Oil Change®, Meineke Car Care Centers®, MAACO®, CARSTAR®, and 1-800-Radiator & A/C® that compete in the large, growing, recession-resistant and highly-fragmented automotive care industry. Our U.S. industry is underpinned by a large, growing population of more than 275 million vehicles in operation, and is expected to continue its long-term growth trajectory given (i) long-term increases in annual miles traveled; (ii) consumers more frequently outsourcing automotive services due to vehicle complexity; (iii) increases in average repair costs and (iv) average age of the car on the road getting older. During the three months ended March 27, 2021, our network generated $329 million in revenue from $1 billion in system-wide sales. We serve a diverse mix of customers, with sales coming from retail customers and commercial customers such as fleet operators and insurance carriers. Our success is driven in large part by our mutually beneficial relationships with more than 2,500 individual franchisees and independent operators.
Our organic growth is complemented by a consistentadding 133 new stores during 2023, primarily through greenfield openings to drive density in key target locations.
Q2 2023 Three Months Ended Highlights and repeatable M&A strategy, having completed more than 50 acquisitions since 2015. Notably, in August 2020 we acquired ICWG, the world’s largest conveyor car wash company by location count with more than 900 locations across 14 countries, demonstrating our continued ability to pursue and execute upon scalable and highly strategic acquisitions.Key Performance Indicators
Significant Factors Impacting Financial Results
During the second half of fiscal year 2020, we completed the acquisition of ICWG and several other independently-owned car wash sites, which launched our entry into the car wash market and created a new operating and reportable segment. During the second quarter of fiscal year 2020, we completed the acquisition of Fix Auto, which is included in our Paint, Collision & Glass segment, and we also completed acquisitions of several independently-owned oil change shops, which are included in our Maintenance segment. These acquisitions were a core driver of growth in our key performance indicators and our financial results for the three months ended March 27, 2021, (as compared to same period in the three months ended March 28, 2020. For additional information on our acquisitions, see Note 3 to the condensed consolidated financial statements.prior year, unless otherwise noted)
•Revenue increased 19% to $607 million, driven by same-store sales and net store growth.
•Consolidated same-store sales increased 8%.
•The Company added 74 net new stores during the quarter.
•Net Income increased to $38 million or $0.22 per diluted share in the current quarter compared to a Net Loss of $57 million or ($0.34) per diluted share in the prior year period.
•Adjusted Net Income “(non-GAAP)” decreased 18% to $49 million or $0.29 per diluted share.
•Adjusted EBITDA “(non-GAAP)” increased 12% to $151 million.
Q2 2023 Six Months Ended Highlights and Key Performance Indicators
(as compared to same period in the prior year, unless otherwise noted)
•Revenue increased 20% to $1,169 million, driven by same-store sales and net store growth.
•Consolidated same-store sales increased 10%.
•The Company added 133 net new stores during the first six months of 2023.
•Net Income increased to $67 million or $0.40 per diluted share in the current year compared to a Net Loss of $23 million or ($0.14) per diluted share in the prior year period.
•Adjusted Net Income “(non-GAAP)” decreased 15% to $91 million or 0.54 per diluted share.
•Adjusted EBITDA “(non-GAAP)” increased 10% to $279 million.
For the three months ended March 27, 2021, we recognized a net loss of $20 million, or $(0.13) per diluted share, compared to a net loss of $4 million, or $(0.04) per diluted share, for the three months ended March 28, 2020. This decrease was primarily due to a $45 million loss on debt extinguishment related to the write-off of unamortized discount associated with the early termination of the Car Wash Senior Credit Facilities, $16 million increase in depreciation and amortization expense related to acquisitions, and a $7 million increase in net loss on foreign currency transactions. These additional charges were offset by a $149 million increase in revenue, primarily related to the acquisition of ICWG and Fix Auto, as well as continued organic store growth, offset by a corresponding increase in operating expenses related to this growth. Adjusted Net Income increased $23 million for the three months ended March 27, 2021 to $30 million, compared to $7 million for the three months ended March 28, 2020. The increase in Adjusted Net Income was primarily due to increased store count and associated system-wide sales, driven by a combination of organic growth and acquisitions, particularly the acquisition of ICWG. See Note 3 to our condensed consolidated financial statements for additional information about acquisitions. Adjusted EBITDA was $78 million for the three months ended March 27, 2021, an increase of $47 million compared to Adjusted EBITDA of $31 million for the three months ended March 28, 2020. Adjusted Net Income and Adjusted EBITDA are non-GAAP financial measures of performance. For a discussion of our use of these non-GAAP measures and a reconciliation from net loss to Adjusted Net Income and Adjusted EBITDA, see “Reconciliation of Non-GAAP Financial Information”.
As a result of pent-up demand, the economic stimulus package, and rising consumer confidence, total system-wide sales were over $1 billion during the three months ended March 27, 2021, an increase of 28% from the three months ended March 28, 2020. The current outbreak of COVID-19 led to adverse impacts on global economies, including the U.S., Canada and Europe during fiscal year 2020 and into fiscal year 2021. While COVID-19 did not have a material adverse effect on our business operations for the three months ended March 27, 2021, an increased level of volatility and uncertainty still exists, and we are continuing to monitor any potential impact to our business.
Key Performance Indicators
Key measures that we use in assessing our business and evaluating our segments include the following:
System-wide sales. System-wide sales represent the total of net sales for our franchised, independently-operated, and company-operated stores. This measure allows management to better assess the total size and health of each segment, our overall store performance, and the strength of our market position relative to competitors. Sales at franchised stores are not included as revenue in our results from operations, but rather, we include franchise royalties and fees that are derived from sales at franchised stores. Franchise royalties and fees revenue represented 9% and 16%, respectively, of our total revenue for the three months ended March 27, 2021 and March 28, 2020, respectively. For the three months ended March 27, 2021 and March 28, 2020, approximately 97% and 88%, respectively, of franchise royalties and fees revenue is attributable to royalties, with the remaining balance attributable to license and development fees. Revenue from company-operated stores represented 56% and 53% of our total revenue for the three months ended March 27, 2021 and March 28, 2020, respectively. Revenue from independently-operated stores represented 17% of our total revenue for the three months ended March 27, 2021.
Store count. Store count reflects the number of franchised, independently-operated, and company-operated stores open at the end of the reporting period. Management reviews the number of new, closed, acquired, and divested stores to assess net unit growth and drivers of trends in system-wide sales, franchise royalties and fees revenue, company-operated store sales, and independently-operated store sales.
Same store sales. Same store sales reflect the change in sales year-over-year for the same store base. We define the same store base to include all franchised, independently-operated, and company-operated stores open for comparable weeks during the given fiscal period in both the current and prior year.year, which may be different from how others define similar terms. This measure highlights the performance of existing stores, while excluding the impact of new store openings and closures and acquisitions and divestitures.
Segment Adjusted EBITDA. We define Segment Adjusted EBITDA as earnings before interest expense, net, income tax expense, and depreciation and amortization, with further adjustments for acquisition-related costs, straight-line rent, equity compensation, loss on debt extinguishment, foreign currency transaction related gains or losses, store opening costs, and certain non-recurring and non-core, infrequent or unusual charges. Segment Adjusted EBITDA is a supplemental measure of operating performance of our segments and may not be comparable to similar measures reported by other companies. Segment Adjusted EBITDA is a performance metric utilized by our Chief Operating Decision Maker to allocate resources to and assess performance of our segments. Refer to Note 5 in our condensed consolidated financial statements for a reconciliation of income before taxes to Segment Adjusted EBITDA to income before taxes for the three and six months ended March 27, 2021July 1, 2023 and March 28, 2020.June 25, 2022.
The following table sets forth our key performance indicators for the three and six months ended March 27, 2021July 1, 2023 and March 28, 2020:June 25, 2022: | | | Three months ended | | Three Months Ended | | Six months ended |
(in thousands, except store count or as otherwise noted) | (in thousands, except store count or as otherwise noted) | | March 27, 2021 | | March 28, 2020 | (in thousands, except store count or as otherwise noted) | | July 1, 2023 | | June 25, 2022 | | July 1, 2023 | | June 25, 2022 |
System-Wide Sales | System-Wide Sales | | | | | System-Wide Sales | | | | | | | | |
System-Wide Sales by Segment: | System-Wide Sales by Segment: | | System-Wide Sales by Segment: | |
Maintenance | Maintenance | | $ | 277,884 | | | $ | 230,500 | | Maintenance | | $ | 484,624 | | | $ | 399,153 | | | $ | 926,567 | | | $ | 756,265 | |
Car Wash | Car Wash | | 113,211 | | | — | | Car Wash | | 163,148 | | | 156,738 | | | 318,126 | | | 314,322 | |
Paint, Collision & Glass | Paint, Collision & Glass | | 542,433 | | | 495,635 | | Paint, Collision & Glass | | 892,530 | | | 724,665 | | | 1,708,572 | | | 1,383,550 | |
Platform Services | Platform Services | | 69,356 | | | 56,848 | | Platform Services | | 118,728 | | | 131,320 | | | 208,712 | | | 222,114 | |
Total | Total | | $ | 1,002,884 | | | $ | 782,983 | | Total | | $ | 1,659,030 | | | $ | 1,411,876 | | | $ | 3,161,977 | | | $ | 2,676,251 | |
System-Wide Sales by Business Model: | System-Wide Sales by Business Model: | | | | | System-Wide Sales by Business Model: | | | | | | | | |
Franchised Stores | Franchised Stores | | $ | 762,693 | | | $ | 688,092 | | Franchised Stores | | $ | 1,202,919 | | | $ | 1,033,049 | | | $ | 2,277,268 | | | $ | 1,941,944 | |
Company-Operated Stores | Company-Operated Stores | | 184,028 | | | 94,891 | | Company-Operated Stores | | 394,578 | | | 323,885 | | | 770,644 | | | 616,276 | |
Independently-Operated Stores | Independently-Operated Stores | | 56,163 | | | — | | Independently-Operated Stores | | 61,533 | | | 54,942 | | | 114,065 | | | 118,031 | |
Total | Total | | $ | 1,002,884 | | | $ | 782,983 | | Total | | $ | 1,659,030 | | | $ | 1,411,876 | | | $ | 3,161,977 | | | $ | 2,676,251 | |
Store Count | Store Count | | | | | Store Count | | | | | | | | |
Store Count by Segment: | Store Count by Segment: | | Store Count by Segment: | |
Maintenance | Maintenance | | 1,470 | | | 1,431 | | Maintenance | | 1,694 | | | 1,559 | | | 1,694 | | | 1,559 | |
Car Wash | Car Wash | | 954 | | | — | | Car Wash | | 1,131 | | | 1,074 | | | 1,131 | | | 1,074 | |
Paint, Collision & Glass | Paint, Collision & Glass | | 1,627 | | | 1,463 | | Paint, Collision & Glass | | 1,905 | | | 1,771 | | | 1,905 | | | 1,771 | |
Platform Services | Platform Services | | 198 | | | 198 | | Platform Services | | 208 | | | 202 | | | 208 | | | 202 | |
Total | Total | | 4,249 | | | 3,092 | | Total | | 4,938 | | | 4,606 | | | 4,938 | | | 4,606 | |
Store Count by Business Model: | Store Count by Business Model: | | | | | Store Count by Business Model: | | | | | | | | |
Franchised Stores | Franchised Stores | | 2,766 | | | 2,598 | | Franchised Stores | | 2,948 | | | 2,813 | | | 2,948 | | | 2,813 | |
Company-Operated Stores | Company-Operated Stores | | 749 | | | 494 | | Company-Operated Stores | | 1,274 | | | 1,075 | | | 1,274 | | | 1,075 | |
Independently-Operated Stores | Independently-Operated Stores | | 734 | | | — | | Independently-Operated Stores | | 716 | | | 718 | | | 716 | | | 718 | |
Total | Total | | 4,249 | | | 3,092 | | Total | | 4,938 | | | 4,606 | | | 4,938 | | | 4,606 | |
Same Store Sales % | Same Store Sales % | | | | | Same Store Sales % | | | | | | | | |
Maintenance | Maintenance | | 16.5 | % | | (2.8 | %) | Maintenance | | 10.2 | % | | 15.0 | % | | 11.6 | % | | 16.9 | % |
Car Wash | | Car Wash | | (4.0 | %) | | (2.7%) | | (7.7 | %) | | 1.8 | % |
Paint, Collision & Glass | Paint, Collision & Glass | | (9.4 | %) | | 4.6 | % | Paint, Collision & Glass | | 12.2 | % | | 16.1 | % | | 15.8 | % | | 16.6 | % |
Platform Services | Platform Services | | 22.0 | % | | 2.2 | % | Platform Services | | (11.3 | %) | | 11.8 | % | | (8.7 | %) | | 18.9 | % |
Total | Total | | 0.5 | % | | 2.2 | % | Total | | 7.6 | % | | 13.2 | % | | 9.7 | % | | 15.2 | % |
Segment Adjusted EBITDA | Segment Adjusted EBITDA | | | | | Segment Adjusted EBITDA | | | | | | | | |
Maintenance | Maintenance | | $ | 40,440 | | | $ | 21,466 | | Maintenance | | $ | 85,753 | | | $ | 64,076 | | | $ | 158,739 | | | $ | 116,561 | |
Car Wash | Car Wash | | 34,155 | | | — | | Car Wash | | 43,263 | | | 53,677 | | | 87,572 | | | 109,397 | |
Paint, Collision & Glass | Paint, Collision & Glass | | 17,639 | | | 15,877 | | Paint, Collision & Glass | | 41,249 | | | 32,916 | | | 76,961 | | | 61,928 | |
Platform Services | Platform Services | | 11,008 | | | 7,465 | | Platform Services | | 22,537 | | | 20,541 | | | 39,567 | | | 34,706 | |
Adjusted EBITDA as a percentage of net revenue by segment | | Adjusted EBITDA as a percentage of net revenue by segment | |
Maintenance | | Maintenance | | 35.4 | % | | 33.0 | % | | 33.8 | % | | 31.2 | % |
Car Wash | | Car Wash | | 26.3 | % | | 33.8 | % | | 27.2 | % | | 34.4 | % |
Paint, Collision & Glass | | Paint, Collision & Glass | | 31.0 | % | | 34.5 | % | | 30.3 | % | | 35.4 | % |
Platform Services | | Platform Services | | 39.3 | % | | 38.6 | % | | 36.2 | % | | 36.0 | % |
Total consolidated | | Total consolidated | | 24.9 | % | | 26.6 | % | | 23.8 | % | | 26.0 | % |
Reconciliation of Non-GAAP Financial Information
To supplement our consolidated financial statements prepared and presented in accordance with GAAP, we use certain non-GAAP financial measures throughout this quarterly report, as described further below, to provide investors with additional useful information about our financial performance, to enhance the overall understanding of our past performance and future prospects and to allow for greater transparency with respect to important metrics used by our management for financial and operational decision-making.
Non-GAAP financial measures have limitations in their usefulness to investors because they have no standardized meaning prescribed by GAAP and are not prepared under any comprehensive set of accounting rules or principles. In addition, non-GAAP financial measures may be calculated differently from, and therefore may not be directly comparable to, similarly titled measures used by other companies. As a result, non-GAAP financial measures should be viewed as supplementing, and not as an alternative or substitute for, our consolidated financial statements prepared and presented in accordance with GAAP.
Adjusted Net Income/Adjusted Earnings per Share. We define adjusted net incomeAdjusted Net Income as net income calculated in accordance with GAAP, adjusted for acquisition-related costs, straight-line rent, equity compensation, loss on debt extinguishment and certain non-recurring, non-core, infrequent or unusual charges, amortization related to acquired intangible assets and the tax effect of the adjustments. Adjusted Earnings Per Share is calculated by dividing Adjusted Net Income by the weighted average shares outstanding. Management believes this non-GAAP financial measure is useful because it is a key measure used by our management team to evaluate our operating performance, generate future operating plans, and make strategic decisions.
The following table provides a reconciliation of Net Income (Loss) to Adjusted Net Income and Adjusted Earnings per Share to net loss as defined by GAAP:
Share:
Adjusted Net Income/AdjustedIncome /Adjusted Earnings per Share
| | | | | | | | | | | | | | | | | |
| | Three months ended |
(in thousands, except per share data) | | March 27, 2021 | | March 28, 2020 | |
Net loss | | $ | (19,932) | | | $ | (3,947) | | |
Acquisition related costs(a) | | 1,646 | | | 195 | | |
Non-core items and project costs, net(b) | | 32 | | | 1,256 | | |
Sponsor management fees(c) | | — | | | 539 | | |
Straight-line rent adjustment(d) | | 2,485 | | | 850 | | |
Equity-based compensation expense(e) | | 983 | | | (101) | | |
Foreign currency transaction loss, net(f) | | 10,511 | | | 3,479 | | |
Asset impairment and closed store expenses(g) | | (786) | | | 4,321 | | |
Loss on debt extinguishment(h) | | 45,498 | | | — | | |
Amortization related to acquired intangible assets(i) | | 3,652 | | | 3,965 | | |
Adjusted net income before tax impact of adjustments | | 44,089 | | | 10,557 | | |
Tax impact of adjustments(j) | | (13,641) | | | (3,626) | | |
Adjusted net income | | 30,448 | | | 6,931 | | |
Net income (loss) attributable to non-controlling interest | | 7 | | | (99) | | |
Adjusted net income attributable to Driven Brands Holdings Inc. | | $ | 30,441 | | | $ | 7,030 | | |
| | | | | |
Weighted average shares outstanding(k) | | | | | |
Basic | | 154,827 | | | 88,990 | | |
Diluted | | 158,761 | | | 88,990 | | |
Adjusted earnings per share(k) | | | | | |
Basic | | $ | 0.19 | | | $ | 0.08 | | |
Diluted | | $ | 0.19 | | | $ | 0.08 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended | | |
(in thousands, except per share data) | July 1, 2023 | | June 25, 2022 | | July 1, 2023 | | June 25, 2022 | | | | |
Net income (loss) | $ | 37,749 | | | $ | (57,044) | | | $ | 67,498 | | | $ | (22,616) | | | | | |
Acquisition related costs(a) | 3,750 | | | 3,338 | | | 5,597 | | | 7,656 | | | | | |
Non-core items and project costs, net(b) | 2,803 | | | 1,719 | | | 4,627 | | | 2,585 | | | | | |
| | | | | | | | | | | |
Straight-line rent adjustment(c) | 4,638 | | | 4,217 | | | 9,003 | | | 8,310 | | | | | |
Equity-based compensation expense(d) | 4,485 | | | 4,233 | | | 7,049 | | | 6,851 | | | | | |
Foreign currency transaction (gain) loss, net(e) | (1,302) | | | 13,937 | | | (2,977) | | | 14,908 | | | | | |
| | | | | | | | | | | |
Trade name impairment(f) | — | | | 125,450 | | | — | | | 125,450 | | | | | |
Asset sale leaseback loss (gain), impairment and closed store expenses(g) | (7,680) | | | (5,938) | | | (5,836) | | | (6,062) | | | | | |
| | | | | | | | | | | |
Amortization related to acquired intangible assets(h) | 8,276 | | | 5,930 | | | 14,312 | | | 11,072 | | | | | |
Provision for uncertain tax positions(i) | — | | | — | | | — | | | 76 | | | | | |
Adjusted net income before tax impact of adjustments | 52,719 | | | 95,842 | | | 99,273 | | | 148,230 | | | | | |
Tax impact of adjustments(j) | (3,577) | | | (36,184) | | | (7,790) | | | (40,796) | | | | | |
Adjusted net income | 49,142 | | | 59,658 | | | 91,483 | | | 107,434 | | | | | |
Net loss attributable to non-controlling interest | — | | | — | | | — | | | (15) | | | | | |
Adjusted net income attributable to Driven Brands Holdings Inc. | $ | 49,142 | | | $ | 59,658 | | | $ | 91,483 | | | $ | 107,449 | | | | | |
| | | | | | | | | | | |
Adjusted earnings per share | | | | | | | | | | | |
Basic | $ | 0.30 | | | $ | 0.36 | | | $ | 0.55 | | | $ | 0.65 | | | | | |
Diluted | $ | 0.29 | | | $ | 0.35 | | | $ | 0.54 | | | $ | 0.63 | | | | | |
| | | | | | | | | | | |
Weighted average shares outstanding | | | | | | | | | | | |
Basic | 162,911 | | | 162,781 | | | 162,848 | | | 162,772 | | | | | |
Diluted | 166,888 | | | 166,659 | | | 166,882 | | | 166,692 | | | | | |
| | | | | | | | | | | |
Adjusted EBITDA. We define Adjusted EBITDA as earnings before interest expense, net, income tax expense, and depreciation and amortization, with further adjustments for acquisition-related costs, straight-line rent, equity compensation, loss on debt extinguishment and certain non-recurring, non-core, infrequent or unusual charges. Adjusted EBITDA may not be comparable to similarly titled metrics of other companies due to differences in methods of calculation. Management believes this non-GAAP financial measure is useful because it is a key measure used by our management team to evaluate our operating performance, generate future operating plans and make strategic decisions.
The following table provides a reconciliation of Net Income (Loss) to Adjusted EBITDA to net loss:EBITDA:
| Adjusted EBITDA | Adjusted EBITDA | Adjusted EBITDA |
| | | Three months ended | | Three Months Ended | | Six months ended |
| | March 27, 2021 | | March 28, 2020 | | | July 1, 2023 | | June 25, 2022 | | July 1, 2023 | | June 25, 2022 |
Net loss | | $ | (19,932) | | | $ | (3,947) | | | |
Income tax benefit | | (4,446) | | | (1,321) | | | |
Net income (loss) | | Net income (loss) | $ | 37,749 | | | $ | (57,044) | | | $ | 67,498 | | | $ | (22,616) | |
Income tax expense (benefit) | | Income tax expense (benefit) | 20,275 | | | (18,848) | | | 31,246 | | | (5,880) | |
Interest expense, net | Interest expense, net | | 18,091 | | | 17,516 | | | Interest expense, net | 40,871 | | | 26,270 | | | 79,012 | | | 51,623 | |
Depreciation and amortization | Depreciation and amortization | | 23,852 | | | 7,799 | | | Depreciation and amortization | 45,419 | | | 38,087 | | | 83,617 | | | 71,110 | |
EBITDA | EBITDA | | 17,565 | | | 20,047 | | | EBITDA | 144,314 | | | (11,535) | | | 261,373 | | | 94,237 | |
Acquisition related costs(a) | Acquisition related costs(a) | | 1,646 | | | 195 | | | Acquisition related costs(a) | 3,750 | | | 3,338 | | | 5,597 | | | 7,656 | |
Non-core items and project costs, net(b) | Non-core items and project costs, net(b) | | 32 | | | 1,256 | | | Non-core items and project costs, net(b) | 2,803 | | | 1,719 | | | 4,627 | | | 2,585 | |
Sponsor management fees(c) | | — | | | 539 | | | |
| Straight-line rent adjustment(d)(c) | Straight-line rent adjustment(d)(c) | | 2,485 | | | 850 | | | Straight-line rent adjustment(d)(c) | 4,638 | | | 4,217 | | | 9,003 | | | 8,310 | |
Equity-based compensation expense(e)(d) | Equity-based compensation expense(e)(d) | | 983 | | | (101) | | | Equity-based compensation expense(e)(d) | 4,485 | | | 4,233 | | | 7,049 | | | 6,851 | |
Foreign currency transaction loss, net(f) | | 10,511 | | | 3,479 | | | |
Foreign currency transaction (gain) loss, net(e) | | Foreign currency transaction (gain) loss, net(e) | (1,302) | | | 13,937 | | | (2,977) | | | 14,908 | |
| Trade name impairment(f) | | Trade name impairment(f) | — | | | 125,450 | | | — | | | 125,450 | |
Asset impairment and closed store expenses(g) | Asset impairment and closed store expenses(g) | | (786) | | | 4,321 | | | Asset impairment and closed store expenses(g) | (7,680) | | | (5,938) | | | (5,836) | | | (6,062) | |
Loss on debt extinguishment(h) | | 45,498 | | | — | | | |
| Adjusted EBITDA | Adjusted EBITDA | | $ | 77,934 | | | $ | 30,586 | | | Adjusted EBITDA | $ | 151,008 | | | $ | 135,421 | | | $ | 278,836 | | | $ | 253,935 | |
|
a.(a)Consists of acquisition costs as reflected within the condensedunaudited consolidated statements of operations, including legal, consulting and other fees, and expenses incurred in connection with acquisitions completed during the applicable period, as well as inventory rationalization expenses incurred in connection with acquisitions. We expect to incur similar costs in connection with other acquisitions in the future and, under U.S. GAAP, such costs relating to acquisitions are expensed as incurred and not capitalized.
b.(b)Consists of discrete items and project costs, including (i) third-partythird party consulting and professional fees associated with strategic transformation initiatives and (ii) other miscellaneous expenses, including non-capitalizable expenses relating to the Company’s initial public offering and other strategic transactions.as well as non-recurring payroll-related costs.
c.(c)Includes management fees paid to Roark Capital Management, LLC.
d.Consists of the non-cash portion of rent expense, which reflects the extent to which our straight-line rent expense recognized under U.S. GAAP exceeds or is less than our cash rent payments.
e.(d)Represents non-cash equity-based compensation expense.
f.(e) Represents foreign currency transaction (gains) losses, net lossesthat primarily related to the remeasurement of our intercompany loans. These lossesloans, which are slightlypartially offset by unrealized gains and losses on remeasurement of cross currency swaps.swaps and forward contracts.
g.(f)Relates to an impairment of certain Car Wash trade names as the Company elected to discontinue their use.
(g) Relates to (gains) losses, net on sale leasebacks, impairment of certain fixed assets and operating lease right-of-use assets related to closed locations. Also representslocations, and lease exit costs and other costs associated with stores that were closed prior to theirthe respective lease termination dates.
h.Represents the write-off of unamortized discount associated with early termination of debt.
i.(h) Consists of amortization related to acquired intangible assets as reflected within depreciation and amortization in the condensedunaudited consolidated statements of operations.
j.(i) Represents uncertain tax positions recorded for tax positions, inclusive of interest and penalties.
(j) Represents the tax impact of adjustments associated with the reconciling items between net income and Adjusted Net Income, excluding the provision for uncertain tax positions and valuation allowance for certain deferred taxes.positions. To determine the tax impact of the deductible reconciling items, we utilized statutory income tax rates ranging from 9% to 38%,36% depending upon the tax attributes of each adjustment and the applicable jurisdiction.
k.Share and per share amounts have been adjusted to reflect an implied 88,990-for-one stock split that became effective on January 14, 2021. See Note 1 in the accompanying condensed consolidated financial statements for additional information.
Results of Operations for the three months ended March 27, 2021 comparedThree Months Ended July 1, 2023 Compared to the Three Months Ended June 25, 2022
We recognized net income of $38 million, or $0.22 per diluted share, for the three months ended March 28, 2020July 1, 2023, compared to a net loss of $57 million, or ($0.34) per diluted share, for the three months ended June 25, 2022. This increase was primarily due to the non-recurrence of a $125 million non-cash impairment charge in the three months ended June 25, 2022 related to the change in intended use of certain existing Car Wash trade names migrating to the Take 5 Car Wash brand as well as a benefit from foreign exchange of $15 million, and an increase in gains from sale leaseback transactions. This increase in income was partially offset by reduced operating margins for company-operated stores, primarily within the Car Wash and Paint, Collision & Glass segments, higher interest expense, primarily relating to a higher variable interest rate on the Term Loan Facility in the current period as well as interest relating to borrowings under the Series 2022-1 Class A-2 Securitization Senior Notes issued in the fourth quarter of 2022, and increased depreciation and amortization relating to capital expenditures and business acquisitions over the prior 12 months.
Adjusted net income was $49 million for the three months ended July 1, 2023, a decrease of $11 million, compared to $60 million for the three months ended June 25, 2022. This decrease was primarily due to reduced operating margins for company-operated stores, primarily within the Car Wash and Paint, Collision & Glass segments, higher interest expense, relating to a higher variable interest rate on the Term Loan Facility in the current period as well as interest relating to borrowings under the Series 2022-1 Class A-2 Securitization Senior Notes issued in the fourth quarter of 2022, and increased depreciation relating to capital expenditures and business acquisitions over the prior 12 months.
Adjusted EBITDA was $151 million for the three months ended July 1, 2023, an increase of $16 million, compared to $135 million for the three months ended June 25, 2022. The increase in Adjusted EBITDA was primarily due to an increase in revenue related to same store sales growth, unit growth from the U.S. glass and car wash acquisitions in the trailing twelve month period, and organic store count growth, partially offset by reduced operating margins for company-operated stores, primarily within the Car Wash and Paint, Collision & Glass segments.
To facilitate the review of our results of operations, the following tables set forth our financial results for the periods indicated. All information is derived from the condensed consolidated statementsunaudited Consolidated Statements of operations. Independently-operated store sales and expenses are derived from our acquisitionOperations. Certain percentages presented in this section have been rounded, therefore, totals may not equal the sum of ICWG and are only reflectedthe line items in the results of operations from the August 3, 2020 acquisition date through the end of our current period, and, as such, it is not meaningful to compare to prior period results.tables below.
Revenue
| | | Three months ended | | | Three Months Ended | |
(in thousands) | (in thousands) | | March 27, 2021 | | March 28, 2020 | | Change | (in thousands) | July 1, 2023 | | % of Net Revenues | | June 25, 2022 | | % of Net Revenues | |
Franchise royalties and fees | Franchise royalties and fees | | $ | 30,414 | | | $ | 29,412 | | | $ | 1,002 | | | 3 | % | Franchise royalties and fees | $ | 49,805 | | | 8.2 | % | | $ | 44,850 | | | 8.8 | % | |
Company-operated store sales | Company-operated store sales | | 183,855 | | | 94,891 | | | 88,964 | | | 94 | % | Company-operated store sales | 394,578 | | | 65.0 | % | | 323,885 | | | 63.7 | % | |
Independently-operated store sales | Independently-operated store sales | | 56,163 | | | — | | | 56,163 | | | N/M | Independently-operated store sales | 61,533 | | | 10.1 | % | | 54,942 | | | 10.8 | % | |
Advertising contributions | | 17,255 | | | 14,883 | | | 2,372 | | | 16 | % | |
Advertising fund contributions | | Advertising fund contributions | 24,749 | | | 4.1 | % | | 22,091 | | | 4.3 | % | |
Supply and other revenue | Supply and other revenue | | 41,733 | | | 40,921 | | | 812 | | | 2 | % | Supply and other revenue | 76,186 | | | 12.6 | % | | 62,856 | | | 12.4 | % | |
Total revenue | Total revenue | | $ | 329,420 | | | $ | 180,107 | | | $ | 149,313 | | | 83 | % | Total revenue | $ | 606,851 | | | 100.0 | % | | $ | 508,624 | | | 100.0 | % | |
Franchise Royalties and Fees
Franchise royalties and fees increased $1$5 million, for the three months ended March 27, 2021 as compared to the three months ended March 28, 2020. This wasor 11%, primarily due to the addition of 168 franchised stores and a corresponding $75 million increase in franchised system-wide sales as compared to the three months ended March 28, 2020. The increase in franchise system-wide sales was primarily due to the acquisition of Fix Auto in April 2020, which contributed $84 million of system-wide sales during the three months ended March 27, 2021.
Company-Operated Store Sales
Company-operated store sales increased $89 million for the three months ended March 27, 2021 as compared to the three months ended March 28, 2020. This increase was due to same store sales growth and a net increase of 135 franchise stores. Franchise system-wide sales increased by$170 million or16%.
Company-operated Store Sales
Company-operated store sales increased $71 million, or 22%, of which$37 million and$34 million related to the addition of 255Maintenance and Paint, Collision & Glass segments, respectively. The sales increase in the Maintenance segment was primarily due to same store sales growth and52 net new company-operated stores year-over-year, including 220 car wash company-operated stores from the acquisition of ICWG and additional tuck-in acquisitions, as well as additional company-operated storesstores. The sales increase in the Paint, Collision & Glass segment was primarily due to same store sales growth as well as net store growth from the acquisition2022 U.S. glass acquisitions. Car Wash sales were flat year over year as a result of Fix Auto duringsales from 59 net new company-operated stores offset by decreased same store sales. In aggregate, the second quarter of 2020. Acquisitions contributed an incremental $64 million ofCompany added 199 company-operated store sales during the three months ended March stores year-over-year.
27 2021, and the remaining $25 million was due to the impact of organic growth in our Maintenance segment.
Advertising Contributions
Advertising contributionsIndependently-operated Store Sales
Independently-operated store sales (comprised entirely of sales from the international car wash locations) increased by $2$7 million, for the three months ended March 27, 2021, as compared to the three months ended March 28, 2020,or 12%, primarily due to an increase in franchisedsame store sales as a result of improved product mix and price as well as a favorable impact from foreign exchange.
Advertising Fund Contributions
Advertising fund contributions increased by$3 million, or 12%, primarily due to an increase in franchise system-wide sales of approximately $75 million.$170 million, or 16%, from same store sales growth and additional net new franchise stores. Our franchise agreements typically require the franchisee to pay continuing advertising fund fees based on a percentage of franchisee gross sales.
Supply and Other Revenue
Supply and other revenue increased $1$13 million, foror 21%, primarily from growth in product and service revenue within the three months ended March 27, 2021 as compared to the three months ended March 28, 2020. This increase wasPlatform Services segment primarily due to an increase in system-wide sales growth and 135 net new stores within the 2020 acquisitions of ICWG and Fix Auto. Maintenance segment.These acquisitions generated approximately $2 million of incremental revenue for the three months ended March 27, 2021.
Operating Expenses
| | | Three months ended | | | Three Months Ended | |
(in thousands) | (in thousands) | | March 27, 2021 | | March 28, 2020 | | Change | (in thousands) | July 1, 2023 | | % of Net Revenues | | June 25, 2022 | | % of Net Revenues | |
Company-operated store expenses | Company-operated store expenses | | $ | 112,756 | | | $ | 63,292 | | | $ | 49,464 | | | 78 | % | Company-operated store expenses | $ | 257,040 | | | 42.4 | % | | $ | 192,939 | | | 37.9 | % | |
Independently-operated store expenses | Independently-operated store expenses | | 31,108 | | | — | | | 31,108 | | | N/M | Independently-operated store expenses | 31,958 | | | 5.3 | % | | 28,843 | | | 5.7 | % | |
Advertising expenses | | 17,255 | | | 14,883 | | | 2,372 | | | 16 | % | |
Advertising fund expenses | | Advertising fund expenses | 24,749 | | | 4.1 | % | | 22,091 | | | 4.3 | % | |
Supply and other expenses | Supply and other expenses | | 22,489 | | | 23,059 | | | (570) | | | (2) | % | Supply and other expenses | 42,106 | | | 6.9 | % | | 35,800 | | | 7.0 | % | |
Selling, general, and administrative expenses | Selling, general, and administrative expenses | | 69,050 | | | 51,065 | | | 17,985 | | | 35 | % | Selling, general, and administrative expenses | 96,815 | | | 16.0 | % | | 97,977 | | | 19.3 | % | |
Acquisition costs | | 1,646 | | | 195 | | | 1,451 | | | 744 | % | |
Acquisition related costs | | Acquisition related costs | 3,750 | | | 0.6 | % | | 3,338 | | | 0.7 | % | |
Store opening costs | Store opening costs | | 289 | | | 1,175 | | | (886) | | | (75) | % | Store opening costs | 1,377 | | | 0.2 | % | | 666 | | | 0.1 | % | |
Depreciation and amortization | Depreciation and amortization | | 23,852 | | | 7,799 | | | 16,053 | | | 206 | % | Depreciation and amortization | 45,419 | | | 7.5 | % | | 38,087 | | | 7.5 | % | |
Asset impairment charges | | 1,253 | | | 2,912 | | | (1,659) | | | (57) | % | |
Trade name impairment | | Trade name impairment | — | | | — | % | | 125,450 | | | 24.7 | % | |
Asset impairment charges and lease terminations | | Asset impairment charges and lease terminations | 6,044 | | | 1.0 | % | | (882) | | | (0.2) | % | |
Total operating expenses | Total operating expenses | | $ | 279,698 | | | $ | 164,380 | | | $ | 115,318 | | | 70 | % | Total operating expenses | $ | 509,258 | | | 83.9 | % | | $ | 544,309 | | | 107.0 | % | |
Company-OperatedCompany-operated Store Expenses
Company-operated store expenses increased $49$64 million, or 33%, primarily due to increased operations relating to 199 company-operated stores added in the trailing twelve months as well as increased operating costs for the three months ended March 27, 2021 as comparedrent expense at properties converted to leases through prior year sale leasebacks and increased labor costs.
Independently-operated Store Expenses
Independently-operated store expenses, which are entirely related to the three months ended March 28, 2020. ThisCar Wash segment, increased $3 million, or 11%, due primarily to an increase in same store sales and an increase in utilities and rent expenses as well as an unfavorable impact from foreign exchange.
Advertising Fund Expenses
Advertising fund expenses increased $3 million, or 12%, which is commensurate with the addition of 255 company-operated stores since March 28, 2020. Company-operated store expenses continue to increase at a slower rate than company-operated store sales due to our continued use of a leaner and more efficient staffing model.
Advertising Expenses
The $2 million increase in advertising expenses for the three months ended March 27, 2021, as compared to the three months ended March 28, 2020, represents a commensurate increase toin advertising fund contributions during the period. Advertising fund expenses generally trend consistent with advertising fund contributions.
Supply and Other Expenses
Supply and other expenses decreased $1increased $6 million, foror 18%, due to increased freight costs in the three months ended March 27, 2021Platform Services as compared to the three months ended March 28, 2020, resulting from efficient cost management at Automotive Training Institute (“ATI”)well as an increase in supply and PH Vitres D’Autos.other revenue.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $18decreased$1 million, for the three months ended March 27, 2021 as compared to the three months ended March 28, 2020. This increase isor 1%, primarily due to $17 million of increaseda decrease in employee compensation and other employee-related expenses resulting from the acquisitions of ICWG and Fix Auto, a $1 millionan increase in equity-based compensation, and a $1 million increase in rent expense. These increases weregains from sale leaseback transactions, partially offset by a $1 million decrease in non-core projectinfrastructure costs, marketing expenses, and a $1 million decrease in sponsor management fees which were eliminated in connection with the Company’s IPO.
professional fees.
Acquisition Related Costs
Acquisition related costs increased $1 million for the three months ended March 27, 2021, comparedremained flat period over period primarily due to the three months ended March 28, 2020, as a resulttiming of the acquisition of four car wash sites during the three months ended March 27, 2021. There were no acquisitions during the three months ended March 28, 2020.legal and due diligence procedures for acquisitions.
Store Opening Costs
Store opening costs decreasedincreased by less than $1 million, or 107%, primarily due to costs associated with converting stores from U.S. glass acquisitions to the Auto Glass Now (“AGN”) brand.
Depreciation and Amortization
Depreciation and amortization expense increased$7 million, or 19%, due to additional fixed assets and finite-lived intangible assets recognized in conjunction with recent acquisitions and higher capital expenditures, primarily related to car wash site development.
Trade Name Impairment Charges
During the three months ended June 25, 2022, the Company made the strategic decision to rebrand the majority of its U.S. car wash locations to operate under the name “Take 5 Car Wash”, and therefore are discontinuing the use of certain Car Wash trade names that had indefinite lives. As a result, the Company recognized a $125 million non-cash impairment charge.
Asset Impairment Charges and Lease Terminations
Asset impairment charges and lease terminations increased $7 million for the three months ended March 27, 2021, asJuly 1, 2023 compared to thea benefit of $1 million for three months ended March 28, 2020, due to a decrease in conversions of acquired stores to the Take 5 brand and new company-operated store openings. There were four new company-operated store openingsJune 25, 2022. Impairments in the three months ended March 27, 2021, compared to 11 Take 5 store conversions and 13 company-operated store openings during the three months ended March 28, 2020.
Depreciation and Amortization
Depreciation and amortization expense increased $16 million for the three months ended March 27, 2021, as compared to the three months ended March 28, 2020, due to additional fixed assets and definite-lived intangible assets recognized in recent acquisitions.
Asset Impairment Charges
We incurred $1 million in asset impairment charges during the three months ended March 27, 2021, which consisted of impairmentcurrent period related to certain fixed assetsproperty and equipment and operating lease right-of-use assets at closed and underperforming locations.
The prior period benefit consisted of a favorable lease settlement.
Interest Expense, Net
| | | Three months ended | | | Three Months Ended | |
(in thousands) | (in thousands) | | March 27, 2021 | | March 28, 2020 | | Change | (in thousands) | July 1, 2023 | | % of Net Revenues | June 25, 2022 | | % of Net Revenues | |
Interest expense, net | Interest expense, net | | $ | 18,091 | | | $ | 17,516 | | | $ | 575 | | | 3 | % | Interest expense, net | $ | 40,871 | | | 6.7 | % | $ | 26,270 | | | 5.2 | % | |
Interest expense, net increased $1$15 million, for the three months ended March 27, 2021, as compared to the three months ended March 28, 2020,or 56%, primarily as a result of increased interest rates on the Term Loan Facility in the current period as well as interest relating to borrowings under the Series 2020-1 Securitization Senior Notes and Series 2020-22022-1 Class A-2 Securitization Senior Notes issued in 2020, which was offset by the pay downfourth quarter of 2022 and increased borrowings and interest rates on the Series 2015-1 Senior Notes,Revolving Credit Facility in the Series 2016-1 Senior Notes, and the Series 2019-3 Variable Funding Senior Notes. The increase in total long-term debt year-over-year was partially offset by our more favorable interest rates.current period.
(Gain) Loss on Foreign Currency Transactions, Net | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | | | |
(in thousands) | | March 27, 2021 | | March 28, 2020 | | Change |
Loss on foreign currency transactions, net | | $ | 10,511 | | | $ | 3,479 | | | $ | 7,032 | | | 202 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | |
| July 1, 2023 | | % of Net Revenues | June 25, 2022 | | % of Net Revenues | |
(Gain) loss on foreign currency transactions, net | $ | (1,302) | | | (0.2) | % | $ | 13,937 | | | 2.7 | % | | | |
The gain on foreign currency transactions for the three months ended July 1, 2023 was primarily comprised of translation gains in our foreign operations of $2 million and gains of $2 million on foreign currency hedges that are not designated as hedging instruments, partially offset by losses on foreign currency hedges that are designated as hedging instruments of $2 million. The loss on foreign currency transactions is comprisedfor the three months ended June 25, 2022 was comprised of a $13$16 million net remeasurement loss on our foreign third party long-term debt and foreign intercompany notes, partially offset by $2$2 million of unrealizedtranslation gains incurred on crossforeign currency swaps associated with these instrumentshedges that are not designated as hedging instruments.
Loss on Debt Extinguishment | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | | | |
(in thousands) | | March 27, 2021 | | March 28, 2020 | | Change |
Loss on debt extinguishment | | $ | 45,498 | | | $ | — | | | $ | 45,498 | | | 100 | % |
The loss on debt extinguishment of $45 million for the three months ended March 27, 2021 is due to the write-off of unamortized discount associated with the settlement of the Car Wash Senior Credit Facilities, which were repaid during the three months ended March 27, 2021 with proceeds from the IPO and cash on hand.
Income Tax BenefitExpense (Benefit) | | | Three months ended | | | Three Months Ended | |
(in thousands) | (in thousands) | | March 27, 2021 | | March 28, 2020 | | Change | (in thousands) | July 1, 2023 | | % of Net Revenues | June 25, 2022 | | % of Net Revenues | |
Income tax benefit | | $ | (4,446) | | | $ | (1,321) | | | $ | (3,125) | | | 237 | % | |
Income tax expense (benefit) | | Income tax expense (benefit) | $ | 20,275 | | | 3.3 | % | $ | (18,848) | | | (3.7) | % | |
Income tax benefit increased by $3expense was $20 million for the three months ended March 27, 2021 asJuly 1, 2023 compared to income tax benefit of $19 million for the three months ended March 28, 2020.June 25, 2022. The effective income tax rate for the three months ended March 27, 2021July 1, 2023 was 18.2%34.9% compared to 25.1%24.8% for the three months ended March 28, 2020.June 25, 2022. The decreasenet increase in income tax expense and effective tax rate was primarily driven by favorable discretea non-recurring tax adjustmentsbenefit related to a non-taxabletrade name impairment for the three months ended June 25, 2022, partially offset by the inclusion of foreign disregarded entity losses for the three months ended July 1, 2023.
Results of Operations for the Six Months Ended July 1, 2023 Compared to the Six Months Ended June 25, 2022
We recognized net income of $67 million, or $0.40 per diluted share for the six months ended July 1, 2023, compared to a net loss of $23 million, or ($0.14) per diluted share, for the six months ended June 25, 2022. This increase was primarily due to the non-recurrence of a $125 million non-cash impairment charge in the six months ended June 25, 2022 related to the change in intended use of certain existing Car Wash trade names migrating to the Take 5 Car Wash brand, a positive benefit from foreign exchange of $18 million, and an increase in gains from sale leaseback transactions. The increase in net income was partially offset by reduced operating margins and increased marketing expenditures for company-operated stores, primarily within the Car Wash and Paint, Collision & Glass segments, higher interest expense, primarily relating to a higher variable interest rate on debt extinguishmentthe Term Loan Facility in the current period as well as tax deductible costs incurredinterest relating to borrowings under the Series 2022-1 Class A-2 Securitization Senior Notes issued in the fourth quarter of 2022, and increased depreciation and amortization relating to capital expenditures and business acquisitions over the prior 12 months.
Adjusted net income was $91 million for the six months ended July 1, 2023, a decrease of $16 million, compared to $107 million for the six months ended June 25, 2022. This decrease was primarily due to reduced operating margins and increased marketing expenditures for company-operated stores, primarily within the Car Wash and Paint, Collision & Glass segments, higher interest expense, relating to a higher variable interest rate on the Term Loan Facility in the current period as well as interest relating to borrowings under the Series 2022-1 Class A-2 Securitization Senior Notes issued in the fourth quarter of 2022, and increased depreciation relating to capital expenditures and business acquisitions over the prior 12 months.
Adjusted EBITDA was $279 million for the six months ended July 1, 2023, an increase of $25 million, compared to $254 million for the six months ended June 25, 2022. The increase in Adjusted EBITDA was primarily due to an increase in revenue related to same store sales growth, unit growth from the U.S. glass and car wash acquisitions in the trailing twelve month period, and organic store count growth, partially offset by reduced operating margins and increased marketing expenditures for company-operated stores, primarily within the Car Wash and Paint, Collision & Glass segments.
To facilitate the review of our results of operations, the following tables set forth our financial results for the periods indicated. All information is derived from the consolidated statements of operations.
Revenue
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Six months ended | | | |
(in thousands) | | July 1, 2023 | | % of Net Revenues | | June 25, 2022 | | % of Net Revenues | |
Franchise royalties and fees | | $ | 93,320 | | | 7.9 | % | | $ | 82,738 | | | 8.4 | % | | | |
Company-operated store sales | | 770,644 | | | 65.9 | % | | 616,276 | | | 63.1 | % | | | |
Independently-operated store sales | | 114,065 | | | 9.8 | % | | 118,031 | | | 12.1 | % | | | |
Advertising fund contributions | | 46,426 | | | 4.0 | % | | 41,789 | | | 4.3 | % | | | |
Supply and other revenue | | 144,863 | | | 12.4 | % | | 118,113 | | | 12.1 | % | | | |
Total revenue | | $ | 1,169,318 | | | 100.0 | % | | $ | 976,947 | | | 100.0 | % | | | |
Franchise Royalties and Fees
Franchise royalties and fees increased $11 million, or 13%, primarily due to same store sales growth as well as a net increase of 135 franchised stores. Franchised system-wide sales increased$335 million, or17%.
Company-operated Store Sales
Company-operated store sales increased$154 million, or 25%, of which $75 million, $72 million, and $8 million related to the initial public offering,Maintenance, Paint, Collision & Glass, and Car Wash segments, respectively. The sales increase in the Maintenance segment was primarily due to same store sales growth and52 net new company-operated stores. The sales increase in the Paint, Collision & Glass segment was primarily due to same store sales growth as well as net store growth from the 2022 U.S. glass acquisitions. The sales increase in the Car Wash segment was primarily driven by the addition of 59 net new company-operated stores primarily due to acquisitions and greenfield openings in the trailing twelve months, which was partially offset by a decrease in same store sales. In aggregate, the Company added 199 company-operated stores year-over-year.
Independently-Operated Store Sales
Independently-operated store sales (comprised entirely of sales from the international car wash locations) decreased$4 million, or3%, primarily due to a decrease in same store sales.
Advertising Fund Contributions
Advertising fund contributions increased by $5 million, or 11%, primarily due to an increase in unfavorable adjustmentsfranchise system-wide sales of approximately $335 million, or 17%, from same store sales growth and an additional 135 net new franchise stores. Our franchise agreements typically require the franchisee to pay continuing advertising fund fees based on a percentage of franchisee gross sales.
Supply and Other Revenue
Supply and other revenue increased$27 million, or 23%, primarily due to growth in product and service revenue within the Platform Services, Paint, Collision & Glass, and Maintenance segments due to an increase in system-wide sales.
Operating Expenses
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Six months ended | | | |
(in thousands) | | July 1, 2023 | | % of Net Revenues | | June 25, 2022 | | % of Net Revenues | |
Company-operated store expenses | | $ | 500,449 | | | 42.8 | % | | $ | 370,806 | | | 38.0 | % | | | |
Independently-operated store expenses | | 61,322 | | | 5.2 | % | | 62,142 | | | 6.4 | % | | | |
Advertising fund expenses | | 46,426 | | | 4.0 | % | | 41,789 | | | 4.3 | % | | | |
Supply and other expenses | | 79,372 | | | 6.8 | % | | 68,574 | | | 7.0 | % | | | |
Selling, general, and administrative expenses | | 209,143 | | | 17.9 | % | | 190,197 | | | 19.5 | % | | | |
Acquisition related costs | | 5,597 | | | 0.5 | % | | 7,656 | | | 0.8 | % | | | |
Store opening costs | | 2,402 | | | 0.2 | % | | 1,172 | | | 0.1 | % | | | |
Depreciation and amortization | | 83,617 | | | 7.2 | % | | 71,110 | | | 7.3 | % | | | |
Trade name impairment charges | | — | | | — | | | 125,450 | | | 12.8 | % | | | |
Asset impairment charges | | 6,211 | | | 0.5 | % | | 16 | | | — | % | | | |
Total operating expenses | | $ | 994,539 | | | 85.1 | % | | $ | 938,912 | | | 96.1 | % | | | |
Company-Operated Store Expenses
Company-operated store expenses increased $130 million, or 35%, primarily due to increased operations relating to 199 company-operated stores added in the trailing twelve months as well as increased operating costs for rent expense at properties converted to leases through prior year sale leasebacks and increased labor costs.
Independently-Operated Store Expenses
Independently-operated store expenses, which are entirely related to stock-based compensation.the Car Wash segment, decreased $1 million, or 1%, primarily due to a decrease in Independently-operated store sales.
Advertising Fund Expenses
Advertising fund expenses increased $5 million, or 11%, which is commensurate with the increase to advertising fund contributions during the period. Advertising fund expenses generally trend consistent with advertising fund contributions.
Supply and Other Expenses
Supply and other expenses increased $11 million, or 16%, due to an increase in supply and other revenue as well as higher freight costs incurred in the Platform Services segment.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $19 million, or 10%, due to an increase in employee compensation and other employee-related expense from increased headcount and acquisitions, infrastructure costs, travel costs, professional fees, andmarketing expenses.
Acquisition Related Costs
Acquisition related costs decreased $2 million, or 27% due to decreased acquisition activity in the current year compared to the prior year.
Store Opening Costs
Store opening costs increased by less than $1 million, or 105%, primarily due to costs associated with converting stores from U.S. glass acquisitions to the AGN brand.
Depreciation and Amortization
Depreciation and amortization expense increased $13 million, or 18%, due to additional fixed assets and finite-lived intangible assets recognized in conjunction with recent acquisitions and higher capital expenditures, primarily related to car wash site development.
Trade Name Impairment Charges
During the six months ended June 25, 2022, the Company made the strategic decision to rebrand the majority of its U.S. car wash locations to operate under the name “Take 5 Car Wash”, and therefore are discontinuing the use of certain Car Wash trade names that had indefinite lives. As a result, the Company recognized a $125 million non-cash impairment charge.
Asset Impairment Charges
Asset impairment charges increased $6 million, due to certain property and equipment and operating lease right-of-use assets at closed and underperforming locations.
Interest Expense, Net
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Six months ended | | | |
(in thousands) | | July 1, 2023 | | % of Net Revenues | | June 25, 2022 | | % of Net Revenues | |
Interest expense, net | | $ | 79,012 | | | 6.8 | % | | $ | 51,623 | | | 5.3 | % | | | |
Interest expense, net increased $27 million, or 53%, primarily as a result of increased interest rates on the Term Loan Facility in the current period as well as interest relating to borrowings under the Series 2022-1 Class A-2 Securitization Senior Notes issued in the fourth quarter of 2022 and increased borrowings and interest rates on the Revolving Credit Facility in the current period.
(Gain) Loss on Foreign Currency Transactions, Net | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Six months ended | | | |
(in thousands) | | July 1, 2023 | | % of Net Revenues | | June 25, 2022 | | % of Net Revenues | |
(Gain) loss on foreign currency transactions, net | | $ | (2,977) | | | (0.3) | % | | $ | 14,908 | | | 1.5 | % | | | |
The gain on foreign currency transactions for the six months ended July 1, 2023 was primarily comprised of gains of $4 million on foreign currency hedges that are not designated as hedging instruments and translation gains in our foreign operations of $2 million, partially offset by losses on foreign currency hedges that are designated as hedging instruments of $3 million. The loss on foreign currency transactions for the six months ended June 25, 2022 is comprised of a $14 million remeasurement loss on our foreign third party long-term debt and intercompany notes and a loss of $1 million incurred on foreign currency hedges that are not designated as hedging instruments.
Income Tax Expense (Benefit) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Six months ended | | | | |
(in thousands) | | July 1, 2023 | | % of Net Revenues | | June 25, 2022 | % of Net Revenues | | |
Income tax expense (benefit) | | $ | 31,246 | | | 2.7 | % | | $ | (5,880) | | (0.6) | % | | | | |
Income tax expense was $31 million for the six months ended July 1, 2023 compared to an income tax benefit of $6 million for the six months ended June 25, 2022. The effective income tax rate for the six months ended July 1, 2023 was 31.6% compared to 20.6% for the six months ended June 25, 2022. The net increase in income tax expense and effective tax rate was primarily driven by a non-recurring tax benefit related to a trade name impairment for the six months ended June 25, 2022, partially offset by the inclusion of foreign disregarded entity losses for the six months ended July 1, 2023.
Segment Results of Operations for the Three Months Ended July 1, 2023 Compared to the Three Months Ended June 25, 2022
We assess the performance of our segments based on Segment Adjusted EBITDA, which is defined as earnings before interest expense, net, income tax expense, and depreciation and amortization, with further adjustments for acquisition-related costs, store opening and closure costs, straight-line rent, equity compensation, loss on debt extinguishment and certain non-recurring, non-core, infrequent or unusual charges. In addition, shared services costs are not allocated to these segments and are included in Corporate and Other. Segment Adjusted EBITDA is a supplemental measure of the operating performance of our segments and may not be comparable to similar measures reported by other companies.
Maintenance
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | 2023 | | 2022 | | | |
(in thousands, unless otherwise noted) | July 1, 2023 | | June 25, 2022 | | % Net Revenue For Segment | | % Net Revenue For Segment | |
Franchise royalties and fees | $ | 14,215 | | | $ | 11,326 | | | 5.9 | % | | 5.8 | % | | | |
Company-operated store sales | 205,673 | | | 168,648 | | | 84.8 | % | | 86.8 | % | | | |
Supply and other revenue | 22,439 | | | 14,331 | | | 9.3 | % | | 7.4 | % | | | |
Total revenue | $ | 242,327 | | | $ | 194,305 | | | 100.0 | % | | 100.0 | % | | | |
Segment Adjusted EBITDA | $ | 85,753 | | | $ | 64,076 | | | 35.4 | % | | 33.0 | % | | | |
| | | | | | | | | | |
System-Wide Sales | | | | | Change | | | |
Franchised stores | $ | 278,951 | | | $ | 230,505 | | | $ | 48,446 | | | 21.0 | % | | | |
Company-operated stores | 205,673 | | | 168,648 | | | 37,025 | | | 22.0 | % | | | |
Total System-Wide Sales | $ | 484,624 | | | $ | 399,153 | | | $ | 85,471 | | | 21.4 | % | | | |
| | | | | | | | | | |
Store Count (in whole numbers) | | | | | Change | | | |
Franchised stores | 1,084 | | | 1,001 | | | 83 | | | 8.3 | % | | | |
Company-operated stores | 610 | | | 558 | | | 52 | | | 9.3 | % | | | |
Total Store Count | 1,694 | | | 1,559 | | | 135 | | | 8.7 | % | | | |
Same Store Sales % | 10.2 | % | | 15.0 | % | | | | | | | |
Maintenance revenue increased $48 million, or 25%, for the three months ended March 27, 2021July 1, 2023, as compared to the three months ended March 28, 2020June 25, 2022. Franchise royalties and fees increased by $3 million primarily due to a $48 million, or 21%, increase in franchised system-wide sales from same store sales growth and 83 net new franchise stores. Company-operated store sales increased by $37 million, or 22%, primarily due to same store sales growth and 52 net new company-operated stores. Supply and other revenue increased by $8 million, or 57%, primarily due to higher system-wide sales from franchised stores.
Maintenance Segment Adjusted EBITDA increased $22 million, or 34%, primarily due to revenue growth, cost management, and operational leverage. We continue to utilize an efficient labor model at company-operated locations.
Car Wash
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | 2023 | | 2022 | | | |
(in thousands, unless otherwise noted) | July 1, 2023 | | June 25, 2022 | | % Net Revenue For Segment | | % Net Revenue For Segment | |
Company-operated store sales | $ | 101,615 | | | $ | 101,796 | | | 61.7 | % | | 64.2 | % | | | |
Independently-operated store sales | 61,533 | | | 54,942 | | | 37.3 | % | | 34.6 | % | | | |
Supply and other revenue | 1,607 | | | 1,841 | | | 1.0 | % | | 1.2 | % | | | |
Total revenue | $ | 164,755 | | | $ | 158,579 | | | 100.0 | % | | 100.0 | % | | | |
Segment Adjusted EBITDA | $ | 43,263 | | | $ | 53,677 | | | 26.3 | % | | 33.8 | % | | | |
| | | | | | | | | | |
System-Wide Sales | | | | | Change | | | |
Company-operated stores | 101,615 | | | 101,796 | | | $ | (181) | | | (0.2) | % | | | |
Independently-operated stores | 61,533 | | | 54,942 | | | 6,591 | | | 12.0 | % | | | |
Total System-Wide Sales | $ | 163,148 | | | $ | 156,738 | | | $ | 6,410 | | | 4.1 | % | | | |
| | | | | | | | | | |
Store Count (in whole numbers) | | | | | Change | | | |
Company-operated stores | 415 | | | 356 | | | 59 | | | 16.6 | % | | | |
Independently-operated stores | 716 | | | 718 | | | (2) | | | (0.3) | % | | | |
Total Store Count | 1,131 | | | 1,074 | | | 57 | | | 5.3 | % | | | |
Same Store Sales % | (4.0) | % | | (2.7) | % | | | | | | | |
| | | | | | | | | | |
Car Wash Segment revenue increased by $6 million, or 4%, driven by an increase in same store sales within independently-operated store sales, the addition of 59 net new company-operated stores primarily due to acquisitions and greenfield openings in the trailing twelve months, and a favorable impact from foreign exchange, partially offset by decreased same store sales within company-operated store sales.
Car Wash is comprised of car wash sites throughout the United States, Europe, and Australia with varying geographical, economical, and political factors, which could impact the results of the business. Car Wash has experienced increased competitive pressures and negative weather patterns, which have contributed to negative same store sales, as well as political disruptions in our international locations resulting in increased costs and reduced operational results. We perform site reviews, as needed, to evaluate operational efficiencies and these reviews could result in future impairment charges.
Car Wash Segment Adjusted EBITDA decreased by $10 million, or 19%, primarily driven by decreased same store sales within company-operated store sales and increased company-operated store costs primarily relating to employee compensation and rent expense for properties included in sale-leaseback transactions in the trailing twelve months, partially offset by a favorable impact from foreign exchange.
Paint, Collision & Glass
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | 2023 | | 2022 | | | |
(in thousands, unless otherwise noted) | July 1, 2023 | | June 25, 2022 | | % Net Revenue For Segment | | % Net Revenue For Segment | |
Franchise royalties and fees | $ | 26,530 | | | $ | 23,605 | | | 19.9 | % | | 24.8 | % | | | |
Company-operated store sales | 86,110 | | | 52,049 | | | 64.7 | % | | 54.6 | % | | | |
Supply and other revenue | 20,518 | | | 19,715 | | | 15.4 | % | | 20.6 | % | | | |
Total revenue | $ | 133,158 | | | $ | 95,369 | | | 100.0 | % | | 100.0 | % | | | |
Segment Adjusted EBITDA | $ | 41,249 | | | $ | 32,916 | | | 31.0 | % | | 34.5 | % | | | |
| | | | | | | | | | |
System-Wide Sales | | | | | Change | | | |
Franchised stores | $ | 806,420 | | | $ | 672,616 | | | $ | 133,804 | | | 19.9 | % | | | |
Company-operated stores | 86,110 | | | 52,049 | | | 34,061 | | | 65.4 | % | | | |
Total System-Wide Sales | $ | 892,530 | | | $ | 724,665 | | | $ | 167,865 | | | 23.2 | % | | | |
| | | | | | | | | | |
Store Count (in whole numbers) | | | | | Change | | | |
Franchised stores | 1,657 | | | 1,611 | | | 46 | | | 2.9 | % | | | |
Company-operated stores | 248 | | | 160 | | | 88 | | | 55.0 | % | | | |
Total Store Count | 1,905 | | | 1,771 | | | 134 | | | 7.6 | % | | | |
Same Store Sales % | 12.2 | % | | 16.1 | % | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Paint, Collision & Glass revenue increased $38 million, or 40%, for the three months ended July 1, 2023, as compared to the three months ended June 25, 2022. The company-operated store sales increased $34 million, or 65%, as a result of U.S. glass acquisitions in the trailing twelve months. Franchise royalties and fees increased by $3 million, or 12%, primarily due to a $134 million, or 20%, increase in franchise system-wide sales generated by same store sales growth and 46 net new franchise stores. Supply and other revenue increased by less than $1 million, or 4%, due to higher product sales resulting from an increase in system-wide sales.
We entered the U.S. glass market in the first quarter of 2022 through the acquisition of Auto Glass Now and have quickly become the second largest player in the auto glass servicing category. Since entering the market, we have completed 12 acquisitions and as of July 1, 2023 we have 222 glass stores. We have continued to integrate these acquisitions, standardize operations, and rebrand to the Auto Glass Now brand name throughout the first half of 2023. Due to the size and complexity of these acquisitions, the integrations have taken longer than planned resulting in less cost efficiencies in the current period.
Paint, Collision & Glass Segment Adjusted EBITDA increased $8 million, or 25%, primarily due to revenue growth from acquisitions and same store sales growth. Company-operated stores comprise 13% of the Paint, Collision & Glass store count in the current period compared to 9% in the prior year, which resulted in lower margins in the current period, primarily due to higher inventory costs and employee related costs.
Platform Services
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | 2023 | | 2022 | | | |
(in thousands, unless otherwise noted) | July 1, 2023 | | June 25, 2022 | | % Net Revenue For Segment | | % Net Revenue For Segment | |
Franchise royalties and fees | $ | 9,060 | | | $ | 9,919 | | | 15.8 | % | | 18.6 | % | | | |
Company-operated store sales | 1,180 | | | 1,392 | | | 2.1 | % | | 2.6 | % | | | |
Supply and other revenue | 47,098 | | | 41,891 | | | 82.1 | % | | 78.8 | % | | | |
Total revenue | $ | 57,338 | | | $ | 53,202 | | | 100.0 | % | | 100.0 | % | | | |
Segment Adjusted EBITDA | $ | 22,537 | | | $ | 20,541 | | | 39.3 | % | | 38.6 | % | | | |
| | | | | | | | | | |
System-Wide Sales | | | | | Change | | | |
Franchised stores | $ | 117,548 | | | $ | 129,928 | | | $ | (12,380) | | | (9.5) | % | | | |
Company-operated stores | 1,180 | | | 1,392 | | | (212) | | | (15.2) | % | | | |
Total System-Wide Sales | $ | 118,728 | | | $ | 131,320 | | | $ | (12,592) | | | (9.6) | % | | | |
| | | | | | | | | | |
Store Count (in whole numbers) | | | | | Change | | | |
Franchised stores | 207 | | | 201 | | | 6 | | | 3.0 | % | | | |
Company-operated stores | 1 | | | 1 | | | — | | | — | % | | | |
Total Store Count | 208 | | | 202 | | | 6 | | | 3.0 | % | | | |
Same Store Sales % | (11.3) | % | | 11.8 | % | | | | | | | |
Platform Services revenue increased $4 million, or 8%, driven by an increase in total company system-wide sales that resulted in increased product purchases.
Platform Services Segment Adjusted EBITDA increased $2 million, or 10%, primarily driven by revenue growth, cost management, and operational leverage.
Segment Results of Operations for the Six Months Ended July 1, 2023 Compared to the Six Months Ended June 25, 2022
We assess the performance of our segments based on Segment Adjusted EBITDA, which is defined as earnings before interest expense, net, income tax expense, and depreciation and amortization, with further adjustments for acquisition-related costs, store opening and closure costs, straight-line rent, equity compensation, loss on debt extinguishment and certain non-recurring, non-core, infrequent or unusual charges. Additionally, shared services costs are not allocated to these segments and are included in Corporate and Other. Segment Adjusted EBITDA may not be comparable to similarly titled metrics of other companies due to differences in methods of calculation.
Maintenance
| | | Three months ended | | | Six months ended | | 2023 | | 2022 | |
(in thousands) | | March 27, 2021 | | March 28, 2020 | | Change | |
(in thousands, unless otherwise noted) | | (in thousands, unless otherwise noted) | | July 1, 2023 | | June 25, 2022 | | % Net Revenue For Segment | | % Net Revenue For Segment | |
Franchise royalties and fees | Franchise royalties and fees | | $ | 7,927 | | | $ | 7,333 | | | $ | 594 | | | 8 | % | Franchise royalties and fees | | $ | 26,658 | | | $ | 20,961 | | | 5.7 | % | | 5.7 | % | |
Company-operated store sales | Company-operated store sales | | 114,067 | | | 87,740 | | | 26,327 | | | 30 | % | Company-operated store sales | | 400,933 | | | 325,476 | | | 85.3 | % | | 87.2 | % | |
Supply and other revenue | Supply and other revenue | | 6,157 | | | 4,624 | | | 1,533 | | | 33 | % | Supply and other revenue | | 42,404 | | | 26,610 | | | 9.0 | % | | 7.1 | % | |
Total revenue | Total revenue | | $ | 128,151 | | | $ | 99,697 | | | $ | 28,454 | | | 29 | % | Total revenue | | $ | 469,995 | | | $ | 373,047 | | | 100.0 | % | | 100.0 | % | |
Segment Adjusted EBITDA | Segment Adjusted EBITDA | | $ | 40,440 | | | $ | 21,466 | | | $ | 18,974 | | | 88 | % | Segment Adjusted EBITDA | | $ | 158,739 | | | $ | 116,561 | | | 33.8 | % | | 31.2 | % | |
| System-Wide Sales | System-Wide Sales | | System-Wide Sales | | Change | |
Franchised stores | Franchised stores | | $ | 163,817 | | | $ | 142,760 | | | $ | 21,057 | | | 15 | % | Franchised stores | | $ | 525,634 | | | $ | 430,789 | | | $ | 94,845 | | | 22.0 | % | |
Company-operated stores | Company-operated stores | | 114,067 | | | 87,740 | | | 26,327 | | | 30 | % | Company-operated stores | | 400,933 | | | 325,476 | | | 75,457 | | | 23.2 | % | |
Total System-Wide Sales | Total System-Wide Sales | | $ | 277,884 | | | $ | 230,500 | | | $ | 47,384 | | | 21 | % | Total System-Wide Sales | | $ | 926,567 | | | $ | 756,265 | | | $ | 170,302 | | | 22.5 | % | |
Store Count | | | | | | | | | |
| Store Count (in whole numbers) | | Store Count (in whole numbers) | | Change | |
Franchised stores | Franchised stores | | 975 | | | 963 | | | 12 | | | 1 | % | Franchised stores | | 1,084 | | | 1,001 | | | 83 | | | 8.3 | % | |
Company-operated stores | Company-operated stores | | 495 | | | 468 | | | 27 | | | 6 | % | Company-operated stores | | 610 | | | 558 | | | 52 | | | 9.3 | % | |
Total Store Count | Total Store Count | | 1,470 | | | 1,431 | | | 39 | | | 3 | % | Total Store Count | | 1,694 | | | 1,559 | | | 135 | | | 8.7 | % | |
Same Store Sales % | Same Store Sales % | | 16.5 | % | | (2.8) | % | | N/A | | N/A | Same Store Sales % | | 11.6 | % | | 16.9 | % | | | | |
Maintenance revenue increased $28$97 million, for the three months ended March 27, 2021, as compared to the three months ended March 28, 2020or 26%, driven primarily by ana $75 million increase in company-operated store sales from new store development and same store sales growth.growth and 52 net new company-operated stores. Franchise royalties and fees increased by $1$6 million, or 27%, primarily due to the $21$95 million, or 22%, increase in franchised system-wide sales year-over-year.
from same store sales growth and 83 net new franchise stores. Supply and other revenue increased by $16 million, or 59%, primarily due to higher system-wide sales from franchised stores.
Maintenance Segment Adjusted EBITDA increased $19$42 million, for the three months ended March 27, 2021, as compared to the three months ended March 28, 2020,or 36%, primarily due to revenue growth, from increases in store countcost management, and same store sales. We have continued to utilize a moreoperational leverage utilizing our efficient labor model at company-operated locations, which continues to provide positive operating results despite the growth in company-operated store expenses from the additional locations.
Car Wash
| | | | | | | | |
(in thousands) | | Three months ended March 27, 2021 |
Company-operated store sales | | $ | 57,048 | |
Independently-operated store sales | | 56,163 | |
Supply and other revenue | | 1,453 | |
Total revenue | | $ | 114,664 | |
Segment Adjusted EBITDA | | $ | 34,155 | |
| | |
System-Wide Sales | | |
Company-operated stores | | $ | 57,048 | |
Independently-operated stores | | 56,163 | |
Total System-Wide Sales | | $ | 113,211 | |
Store Count | | |
Company-operated stores | | 220 | |
Independently-operated stores | | 734 | |
Total Store Count | | 954 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Six months ended | | 2023 | | 2022 | | | |
(in thousands, unless otherwise noted) | | July 1, 2023 | | June 25, 2022 | | % Net Revenue For Segment | | % Net Revenue For Segment | |
Company-operated store sales | | 204,061 | | | 196,291 | | | 63.4 | % | | 61.8 | % | | | |
Independently-operated store sales | | 114,065 | | | 118,031 | | | 35.5 | % | | 37.1 | % | | | |
Supply and other revenue | | 3,609 | | | 3,532 | | | 1.1 | % | | 1.1 | % | | | |
Total revenue | | $ | 321,735 | | | $ | 317,854 | | | 100.0 | % | | 100.0 | % | | | |
Segment Adjusted EBITDA | | $ | 87,572 | | | $ | 109,397 | | | 27.2 | % | | 34.4 | % | | | |
| | | | | | | | | | | |
System-Wide Sales | | | | | | Change | | | |
Company-operated stores | | $ | 204,061 | | | 196,291 | | | $ | 7,770 | | | 4.0 | % | | | |
Independently-operated stores | | 114,065 | | | 118,031 | | | (3,966) | | | (3.4) | % | | | |
Total System-Wide Sales | | $ | 318,126 | | | $ | 314,322 | | | $ | 3,804 | | | 1.2 | % | | | |
| | | | | | | | | | | |
Store Count (in whole numbers) | | | | | | Change | | | |
Company-operated stores | | 415 | | | 356 | | | 59 | | | 16.6 | % | | | |
Independently-operated stores | | 716 | | | 718 | | | (2) | | | (0.3) | % | | | |
Total Store Count | | 1,131 | | | 1,074 | | | 57 | | | 5.3 | % | | | |
Same Store Sales % | | (7.7) | % | | 1.8 | % | | | | | | | |
| | | | | | | | | | | |
The Car Wash segment revenue increased $4 million, or 1%, driven by the addition of 59 net new company-operated stores primarily due to acquisitions and greenfield openings in the trailing twelve months, which was partially offset by a 7.7% decrease in same store sales.
Car Wash is comprised of our car wash sites throughout the United States, Europe, and Australia. We established this operating segment in August 2020 from our acquisitionAustralia with varying geographical, economical, and political factors, which could impact the results of ICWG, which served as our entry point into the car wash market.business. Car Wash revenuehas experienced increased competitive pressures and negative weather patterns, which have contributed to negative same store sales, as well as political disruptions in our international locations resulting in increased costs and reduced operational results. We perform site reviews, as needed, to evaluate operational efficiencies and these reviews could result in future impairment charges.
Car Wash Segment Adjusted EBITDA were $115decreased by $22 million, or 20%, primarily driven by decreased same store sales within company-operated store sales, increased company-operated store costs primarily relating to employee compensation and $34 million, respectively,rent expense for properties included in sale-leaseback transactions in the threetrailing twelve months ended March 27, 2021. See Note 3 to the consolidated financial statements for additional information on these acquisitions.
Paint, Collision & Glass
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | | | |
(in thousands) | | March 27, 2021 | | March 28, 2020 | | Change |
Franchise royalties and fees | | $ | 17,309 | | | $ | 17,746 | | | $ | (437) | | | (2) | % |
Company-operated store sales | | 11,930 | | | 5,846 | | | 6,084 | | | 104 | % |
Supply and other revenue | | 14,652 | | | 15,354 | | | (702) | | | (5) | % |
Total revenue | | $ | 43,891 | | | $ | 38,946 | | | $ | 4,945 | | | 13 | % |
Segment Adjusted EBITDA | | $ | 17,639 | | | $ | 15,877 | | | $ | 1,762 | | | 11 | % |
| | | | | | | | |
System-Wide Sales | | | | | | | | |
Franchised stores | | $ | 530,503 | | | $ | 489,789 | | | $ | 40,714 | | | 8 | % |
Company-operated stores | | 11,930 | | | 5,846 | | | 6,084 | | | 104 | % |
Total System-Wide Sales | | $ | 542,433 | | | $ | 495,635 | | | $ | 46,798 | | | 9 | % |
Store Count | | | | | | | | |
Franchised stores | | 1,594 | | | 1,438 | | | 156 | | | 11 | % |
Company-operated stores | | 33 | | | 25 | | | 8 | | | 32 | % |
Total Store Count | | 1,627 | | | 1,463 | | | 164 | | | 11 | % |
Same Store Sales % | | (9.4) | % | | 4.6 | % | | N/A | | N/A |
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| | | | | | | | |
as well as an unfavorable impact from foreign exchange.
Paint, Collision & Glass
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Six months ended | | 2023 | | 2022 | | | |
(in thousands, unless otherwise noted) | | July 1, 2023 | | June 25, 2022 | | % Net Revenue For Segment | | % Net Revenue For Segment | |
Franchise royalties and fees | | $ | 50,828 | | | $ | 44,970 | | | 20.0 | % | | 25.7 | % | | | |
Company-operated store sales | | 163,589 | | | 91,965 | | | 64.4 | % | | 52.6 | % | | | |
Supply and other revenue | | 39,544 | | | 37,795 | | | 15.6 | % | | 21.7 | % | | | |
Total revenue | | $ | 253,961 | | | $ | 174,730 | | | 100.0 | % | | 100.0 | % | | | |
Segment Adjusted EBITDA | | $ | 76,961 | | | $ | 61,928 | | | 30.3 | % | | 35.4 | % | | | |
| | | | | | | | | | | |
System-Wide Sales | | | | | | Change | | | |
Franchised stores | | $ | 1,544,983 | | | $ | 1,291,585 | | | $ | 253,398 | | | 19.6 | % | | | |
Company-operated stores | | 163,589 | | | 91,965 | | | 71,624 | | | 77.9 | % | | | |
Total System-Wide Sales | | $ | 1,708,572 | | | $ | 1,383,550 | | | $ | 325,022 | | | 23.5 | % | | | |
| | | | | | | | | | | |
Store Count (in whole numbers) | | | | | | Change | | | |
Franchised stores | | 1,657 | | | 1,611 | | | 46 | | | 2.9 | % | | | |
Company-operated stores | | 248 | | | 160 | | | 88 | | | 55.0 | % | | | |
Total Store Count | | 1,905 | | | 1,771 | | | 134 | | | 7.6 | % | | | |
Same Store Sales % | | 15.8 | % | | 16.6 | % | | | | | | | |
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Paint, Collision & Glass revenue increased $5$79 million, or 45%, for the threesix months ended March 27, 2021,July 1, 2023, as compared to the threesix months ended March 28, 2020. This increase was driven byJune 25, 2022. Company-operated store revenue increased $72 million, or 78%, primarily as a result of U.S. glass acquisitions in the addition of 156 franchised storestrailing twelve months. Franchise royalties and fees revenue increased $6 million, or 13%, due to a $41$253 million, or 20%, increase in franchised system-wide sales from same store sales growth. Supply and other revenue increased $2 million, or 5%, due to same store sales growth and higher franchise income resulting from an increase in system-wide sales. While
We entered the U.S. glass market in the first quarter of 2022 through the acquisition of Fix Auto contributed $91 millionGlass Now and $9 millionhave quickly become the second largest player in the auto glass servicing category. Since entering the market, we have completed 12 acquisitions and as of system-sales and revenue, respectively, during the three months ended March 27, 2021, total revenue was adversely impacted by a (9.4)% decline in same store sales. This decline in same store sales was primarily due to fewer collisions, as the COVID-19 pandemicJuly 1, 2023 we have 222 glass stores. We have continued to suppress vehicle miles traveled, particularlyintegrate these acquisitions, standardize operations, and rebrand to the Auto Glass Now brand name throughout the first half of 2023. Due to the size and complexity of these acquisitions, the integrations have taken longer than planned resulting in Canada where additional lockdown requirements have been issued.
less cost efficiencies in the current period.
Paint, Collision & Glass Segment Adjusted EBITDA increased $2$15 million, for the three months ended March 27, 2021, as comparedor 24%, primarily due to the three months ended March 28, 2020, as a result of additional Segment Adjusted EBITDArevenue growth from the Fix Auto acquisition, partially offset by the decline inacquisitions and same store sales growth. Company-operated stores comprise 13% of the Paint, Collision & Glass store count in the current period compared to 9% in the prior year, which resulted in lower margins in the current period, primarily due to the impact of the COVID-19 pandemic.higher inventory costs and employee related costs.
Platform Services
| | | Three months ended | | | Six months ended | | 2023 | | 2022 | |
(in thousands) | | March 27, 2021 | | March 28, 2020 | | Change | |
(in thousands, unless otherwise noted) | | (in thousands, unless otherwise noted) | | July 1, 2023 | | June 25, 2022 | | % Net Revenue For Segment | | % Net Revenue For Segment | |
Franchise royalties and fees | Franchise royalties and fees | | $ | 5,178 | | | $ | 4,345 | | | $ | 833 | | | 19 | % | Franchise royalties and fees | | $ | 15,834 | | | $ | 16,807 | | | 14.5 | % | | 17.4 | % | |
Company-operated store sales | Company-operated store sales | | 983 | | | 1,978 | | | (995) | | | (50) | % | Company-operated store sales | | 2,061 | | | 2,544 | | | 1.9 | % | | 2.6 | % | |
Supply and other revenue | Supply and other revenue | | 28,435 | | | 25,835 | | | 2,600 | | | 10 | % | Supply and other revenue | | 91,476 | | | 77,017 | | | 83.6 | % | | 80.0 | % | |
Total revenue | Total revenue | | $ | 34,596 | | | $ | 32,158 | | | $ | 2,438 | | | 8 | % | Total revenue | | $ | 109,371 | | | $ | 96,368 | | | 100.0 | % | | 100.0 | % | |
Segment Adjusted EBITDA | Segment Adjusted EBITDA | | $ | 11,008 | | | $ | 7,465 | | | $ | 3,543 | | | 47 | % | Segment Adjusted EBITDA | | $ | 39,567 | | | $ | 34,706 | | | 36.2 | % | | 36.0 | % | |
| System-Wide Sales | System-Wide Sales | | System-Wide Sales | | Change | |
Franchised stores | Franchised stores | | $ | 68,373 | | | $ | 54,870 | | | $ | 13,503 | | | 25 | % | Franchised stores | | $ | 206,651 | | | $ | 219,570 | | | $ | (12,919) | | | (5.9) | % | |
Company-operated stores | Company-operated stores | | 983 | | | 1,978 | | | (995) | | | (50) | % | Company-operated stores | | 2,061 | | | 2,544 | | | (483) | | | (19.0) | % | |
Total System-Wide Sales | Total System-Wide Sales | | $ | 69,356 | | | $ | 56,848 | | | $ | 12,508 | | | 22 | % | Total System-Wide Sales | | $ | 208,712 | | | $ | 222,114 | | | $ | (13,402) | | | (6.0) | % | |
Store Count | | | | | | | | | |
| Store Count (in whole numbers) | | Store Count (in whole numbers) | | Change | |
Franchised stores | Franchised stores | | 197 | | | 197 | | | — | | | — | % | Franchised stores | | 207 | | | 201 | | | 6 | | | 3.0 | % | |
Company-operated stores | Company-operated stores | | 1 | | | 1 | | | — | | | — | % | Company-operated stores | | 1 | | | 1 | | | — | | | — | % | |
Total Store Count | Total Store Count | | 198 | | | 198 | | | — | | | — | % | Total Store Count | | 208 | | | 202 | | | 6 | | | 3.0 | % | |
Same Store Sales % | Same Store Sales % | | 22.0 | % | | 2.2 | % | | N/A | | N/A | Same Store Sales % | | (8.7) | % | | 18.9 | % | | | | |
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Platform Services revenue increased $2$13 million, for the three months ended March 27, 2021, as compared to the three months ended March 28, 2020, due to same storeor 13%, driven primarily by an increase in total company system-wide sales growth at 1-800 Radiator andthat resulted in increased distribution volume growth from Spire Supply driven by continued Maintenance store count growth.product purchases.
Platform Services Segment Adjusted EBITDA increased $4$5 million, for the three months ended March 27, 2021, as compared to the three months ended March 28, 2020,or 14%, primarily driven by a combination of revenue growth, and efficient cost management, in connection with additional lockdowns in Canada.and operational leverage.
Financial Condition, Liquidity and Capital Resources
Sources of Liquidity and Capital Resources
Cash flow from operations, supplemented with our long-term borrowings and revolving credit facilities, have been sufficient to fund our operations while allowing us to make strategic investments to grow our business. We believe that our current sources of liquidity and capital resources will be adequate to fund our operations, acquisitions, company-operated store development, other general corporate needs, and the additional expenses we expect to incur for at least the next twelve months. We expect to continue to have access to the capital markets at acceptable terms. However, this could be adversely affected by many factors including macroeconomic factors, a downgrade of our credit rating, or a deterioration of certain financial ratios.
On January 14, 2021, we completed our IPO through which we issued and sold approximately 32 million shares of common stock at a price per share of $22. On February 10, 2021, we sold an additional 5 million shares pursuant to the underwriters’ exercise of their option to purchase additional shares. We received total proceeds of approximately $761 million from these transactions, net of the underwriting discounts and commissions. Upon closing of the IPO, we fully repaid $725 million related to the First Lien Term Loan, Second Lien Term Loan and the Revolving Debt Facility assumed in the ICWG Acquisition, including the related interest and fees. In addition, we recorded a $45 million loss on debt extinguishment primarily driven by the write off of unamortized discount. We also used $43 million in proceeds to purchase approximately 2 million shares of common stock from certain of our existing shareholders.
Driven Brands Funding, LLC (the “Master Issuer”“Issuer”), a wholly ownedwholly-owned subsidiary of the Company, and Driven Brands Canada Funding Funding Corporation (along with the Master Issuer, the “Co-Issuers”) are subject to certain quantitative covenants related to debt service coverage and leverage ratios in connection with the Securitization Senior Notes.our securitization senior notes. Our term loan facility and Revolving Credit Facility also have certain qualitative covenants. As of March 27, 2021July 1, 2023, the Co-Issuers and December 26, 2020, the Co-IssuersDriven Holdings were in compliance with all covenants under their respective credit agreements.
At July 1, 2023, the Company had total liquidity of $493 million, which included$212 million in cash, and cash equivalents, and$91 million and $190 million of undrawn capacity on its agreements.2019 VFN and Revolving Credit Facility, respectively. This does not include the additional $135 million Series 2022-1 Class A-1 Notes that expand our variable funding note borrowing capacity when the company elects to exercise it, assuming certain conditions continue to be met.
The following table illustrates the main components of our cash flows:flows for the six months ended July 1, 2023 and June 25, 2022:
| | | Three months ended | | Six Months Ended |
(in thousands) | (in thousands) | | March 27, 2021 | | March 28, 2020 | (in thousands) | July 1, 2023 | | June 25, 2022 |
Net cash provided by operating activities | Net cash provided by operating activities | | $ | 32,586 | | | $ | 5,883 | | Net cash provided by operating activities | $ | 114,583 | | | $ | 75,389 | |
Net cash used in investing activities | Net cash used in investing activities | | (4,508) | | | (17,147) | | Net cash used in investing activities | (221,100) | | | (484,885) | |
Net cash provided by (used in) financing activities | | (29,871) | | | 34,351 | | |
Net cash provided by financing activities | | Net cash provided by financing activities | 95,128 | | | 94,314 | |
Effect of exchange rate changes on cash | Effect of exchange rate changes on cash | | 650 | | | 3,850 | | Effect of exchange rate changes on cash | 2,087 | | | (4,454) | |
Net change in cash, cash equivalents, restricted cash, and restricted cash included in advertising fund assets | Net change in cash, cash equivalents, restricted cash, and restricted cash included in advertising fund assets | | $ | (1,143) | | | $ | 26,937 | | Net change in cash, cash equivalents, restricted cash, and restricted cash included in advertising fund assets | $ | (9,302) | | | $ | (319,636) | |
Operating Activities
Net cash provided by operating activities was $33$115 million for the threesix months ended March 27, 2021July 1, 2023 compared to $6$75 million for the threesix months ended March 28, 2020, primarily resulting from anJune 25, 2022. The increase in operating income that was due to a $56 million payment for transaction costs associated with the AGN acquisition during the six months ended June 25, 2022, partially offset by an increase inhigher net working capital requirements.
in the current period.
Investing Activities
Net cash used in investing activities was $5$221 million for the threesix months ended March 27, 2021July 1, 2023 compared to $17$485 million for the threesix months ended March 28, 2020. During the three months ended March 27, 2021, the Company received proceeds of $41June 25, 2022. The decrease was due to a $350 million from sale-leaseback transactions and proceeds of $4 million from the sale of company-operated stores. Proceeds from sale-leaseback transactions and from the sale of company-operated stores were offset by an increasedecrease in net cash paid for acquisitions and capital expenditures during the three months ended March 27, 2021 as compared to the three months ended March 28, 2020. For the three months ended March 27, 2021, we invested $27an $88 million increase in acquisitions, net of cash acquired, compared to $1proceeds from sale-leaseback transactions, partially offset by a $171 million for the three months ended March 28, 2020.
For the three months ended March 27, 2021, we invested $23 millionincrease in capital expenditures, comparedprimarily relating to $16 million for the three months ended March 28, 2020. This increase is mostly due to planned expansionbuilding new company-operated stores and growth of our Car Washremodeling and Maintenance segments, as well as expenditures related to the maintenance of ourimproving existing store base and technology initiatives. Capital expenditures related to the maintenance of existing locations represented $4 million of the $23 million in total capital expenditures for the three months ended March 27, 2021, as compared to $1 million of the $16 million in total capital expenditures for the three months ended March 28, 2020.stores.
Financing Activities
Net cash used in financing activities was $30 million for the three months ended March 27, 2021 compared to net cash provided by financing activities of $34was $95 million for the threesix months ended March 28, 2020,July 1, 2023 primarily resulting from our repaymentrelated to net borrowings on the revolving credit facility of the Car Wash Senior Credit Facilities, repurchases of our common stock, and the termination of our interest rate swaps. These were$110 million, partially offset by repayments of long-term debt of $14 million. Net cash provided by financing activities was $94 million for the proceeds from our IPO andsix months ended June 25, 2022 primarily related to net borrowings on the underwriters’ exerciserevolving credit facility of their over-allotment option, net$105 million, partially offset by repayments of underwriting discounts.long-term debt of $10 million. See Note 17 to our condensed consolidated financial statements for additional information regarding our IPO.
Long-term Debt
the Company’s debt.
Our long-term debt obligations consist of the following:
| | | | | | | | | | | | | | |
(in thousands) | | March 27, 2021 | | December 26, 2020 |
Series 2018-1 Securitization Senior Notes, Class A-2 | | $ | 266,750 | | | $ | 267,438 | |
Series 2019-1 Securitization Senior Notes, Class A-2 | | 293,250 | | | 294,000 | |
Series 2019-2 Securitization Senior Notes, Class A-2 | | 270,875 | | | 271,563 | |
Series 2020-1 Securitization Senior Notes, Class A-2 | | 173,688 | | | 174,125 | |
Series 2020-2 Securitization Senior Notes, Class A-2 | | 448,875 | | | 450,000 | |
Car Wash First Lien Term Loan | | — | | | 528,858 | |
Car Wash Second Lien Term Loan | | — | | | 175,000 | |
Car Wash Revolving Credit Facility | | — | | | 18,000 | |
Other debt (1) | | 25,729 | | | 26,763 | |
Total debt | | 1,479,167 | | | 2,205,747 | |
Less: unamortized discount | | — | | | (46,030) | |
Less: debt issuance costs | | (33,265) | | | (34,510) | |
Less: current portion of long-term debt | | (17,142) | | | (22,988) | |
Total long-term debt, net | | $ | 1,428,760 | | | $ | 2,102,219 | |
(1) Amount primarily consists of finance lease obligations.On January 14, 2021, we completed an initial public offering and used the proceeds to fully repay the Car Wash Senior Credit Facilities. For further information about our long-term debt obligations, see Note 6 to the condensed consolidated financial statements.
Income Tax Receivable Agreement
We expect to be able to utilize certain tax benefits which are related to periods prior to the effective date of the Company’s initial public offering, which we therefore attribute to our existing shareholders. We expect that these tax benefits (i.e., the Pre-IPO and IPO-Related Tax Benefits) will reduce the amount of tax that we and our subsidiaries would otherwise be required to pay in the future. We have entered into an incomea tax receivable agreement which provides our Pre-IPO shareholders with the right to receive payment by us of 85% of the amount of cash savings, if any, in U.S. and Canadian federal, state, local, and provincial income tax that we and our subsidiaries actually realize as a result of the utilization of the Pre-IPO and IPO-Related Tax Benefits.
For purposes of the income tax receivable agreement, cash savings in income tax will be computed by reference to the reduction in the liability for income taxes resulting from the utilization of the Pre-IPO and IPO-Related Tax Benefits. The term of the income tax receivable agreement commenced upon the effective date of the Company’s initial public offering and will continue until the Pre-IPO and IPO-Related Tax Benefits have been utilized, accelerated or expired.
Because we are a holding company with no operations of our own, our ability to make payments under the income tax receivable agreement is dependent on the ability of our subsidiaries to make distributions to us. The securitized debt facility may restrict the ability of our subsidiaries to make distributions to us, which could affect our ability to make payments under the income tax receivable agreement. To the extent that we are unable to make payments under the income tax receivable agreement because of restrictions under our outstanding indebtedness, such payments will be deferred and will generally accrue interest. As of July 1, 2023, interest will accrue at a rate of LIBORthe Base Rate plus 1.00% per annum until paid.an applicable margin or Secured Overnight Financing Rate (“SOFR”) plus an applicable term adjustment plus 1.0%. To the extent that we are unable to make payments under the income tax receivable agreement for any other reason, such payments will generally accrue interest at a rate of LIBORSOFR plus 5.00%an applicable term adjustment plus 5.0% per annum until paid.
Critical Accounting Policies and Estimates
Our significant accounting policies are more fully described in Note 2 of the condensed consolidated financial statements. Refer tostatements presented in our annual reportForm 10-K for the year ended December 26, 2020 for a full discussion of our critical accounting policies.31, 2022. There have been no material changes to our critical accounting policies from those disclosed in our Form 10-K for the year ended December 26, 2020.31, 2022.
Application of New Accounting Standards
See Note 2 of the condensed consolidated unaudited financial statements for a discussion of recently issued accounting standards.standards applicable to the Company. Item 3. Quantitative and Qualitative Disclosures About Market Risk
Refer to the Company’s annual report for the year ended December 27, 202031, 2022 for a complete discussion of the Company’s market risk. There have been no material changes in the Company’s market risk from those disclosed in the Company’s Form 10-K for the year ended December 27, 2020, other than the Company’s repayment of the Car Wash Senior Credit Facilities in January 2021 as well as the Company’s execution of the income tax receivable agreement in connection with the IPO. The repayment of debt and income tax receivable agreement impacted both the Company’s interest rate risk and foreign exchange risk. See Notes 1 and 6 to the condensed consolidated financial statements for additional details.31, 2022.
Item 4. Controls and Procedures
a) Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our CEO and CFO, has evaluated the design effectiveness of our disclosure controls and procedures (as defined in Rules 13a- 15(e) and 15d- 15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act,Act), as of March 27, 2021.July 1, 2023. The term “disclosure controls and procedures,” means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on evaluation of the design of our disclosure controls and procedures as of March 27, 2021,July 1, 2023, our CEO and CFO have concluded that as of such date, our disclosure controls and procedures were designed effectively and will provide a reasonable level of assurance.
b) Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the most recently completed quarter ended March 27, 2021July 1, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Part II. Other Information
Item 1. Legal Proceedings.Proceedings
We are subject to various lawsuits, administrative proceedings, audits, and claims arising in the ordinary course of business. Some of these lawsuits purport to be class actions and/or seek substantial damages. We are required to record an accrual for litigation loss contingencies that are both probable and reasonably estimable. Legal fees and expenses associated with the defense of all of our litigation are expensed as such fees and expenses are incurred. Management regularly assesses our insurance deductibles, analyzes litigation information with our attorneys and evaluates our loss experience in connection with pending legal proceedings. While we do not presently believe that any of the legal proceedings to which we are currently a party will ultimately have a material adverse impact on us, there can be no assurance that we will prevail in all the proceedings we are party to, or that we will not incur material losses from them.
Item 1A. Risk Factors
There have been no material changes from theFor a discussion of risk factors disclosed inthat could adversely affect our results of operations, financial condition, business reputation or business prospects, we refer you to Part I, Item 1A "Risk Factors" included in our Annual Report on Form 10-K for the fiscal year ended December 26, 2020.31, 2022.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities.Securities
None.
Item 5. Other Information.Information
None.(c) Trading Plans
During the three months ended July 1, 2023, no director or Section 16 officer adopted or terminated any Rule 10b5-1 trading arrangements or non-Rule 10b5-1 trading arrangements (in each case, as defined in Item 408(a) of Regulation S-K).
Item 6. Exhibits.
| | | | | | | | |
Exhibit Number | | Exhibit Description |
3.110.1* | | |
10.2† | | |
3.210.3†* | | |
10.4†* | | |
31.110.5†* | | |
31.1* | | |
31.231.2* | | |
32.132.1* | | |
32.232.2* | | |
101.INS101.INS* | | XBRL Instance Document |
101.SCH101.SCH* | | XBRL Schema Document |
101.CAL101.CAL* | | XBRL Calculation Linkbase Document |
101.DEF101.DEF* | | XBRL Definition Linkbase Document |
101.LAB101.LAB* | | XBRL Label Linkbase Document |
101.PRE101.PRE* | | XBRL Presentation Linkbase Document |
104 | | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
* | | Filed herewith. |
† | | Indicates management contract or compensatory plan. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: May 11, 2021August 9, 2023
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DRIVEN BRANDS HOLDINGS INC. |
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By: | | /s/ Jonathan Fitzpatrick |
Name: | | Jonathan Fitzpatrick |
Title: | | President and Chief Executive Officer |
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By: | | /s/ Tiffany MasonMichael Beland |
Name: | | Tiffany MasonMichael Beland |
Title: | | ExecutiveSenior Vice President and Chief FinancialAccounting Officer |