Driven Brands Holdings Inc. Q2 FY2025 earnings call

• Danny Rivera highlighted a strong second quarter with same-store sales, revenue, adjusted EBITDA, and adjusted EPS growth. Take 5 continues to lead with industry-leading growth, including 10% adjusted EBITDA growth year-over-year, 169 net new stores over 12 months, and 41 in the quarter, with same-store sales up 7%. Non-oil change revenue accounted for over 20% of Take 5 sales. The franchise and carwash segments are reliable free cash flow generators. Driven remains on track to reduce leverage to 3x by end of 2026.
• Mike Diamond discussed Q2 results with 18th consecutive quarter of same-store sales growth, 52 net units added, system-wide sales growth, and total revenue increase. Operating expenses increased, with key drivers including store expenses and SG&A. Details on each segment's performance, cash flow, debt paydown, and mention of the divestiture of U.S. Car Wash business in discontinued operations.

Take 5 Oil Change: Adjusted EBITDA of $108.2 million, representing approximately 75% of Driven's overall adjusted EBITDA, with same-store sales increasing 6.6% and revenue growth of 14.7%. Adjusted EBITDA margin was 35.6% and 41 net new units were opened in the quarter. Franchise Brands: Reported adjusted EBITDA of $45.4 million, with a margin of 60.9%. Segment revenue decreased $6.4 million or 7.9% due to same-store sales and lapping onetime fees, but maintained its position as a key cash generator, adding 13 net new units. Car Wash segment (International): Had same-store sales growth of 19.4%, adjusted EBITDA increased to $27.3 million, and adjusted EBITDA margin increased to 37.2%.

• Fiscal 2025 outlook: revenue $2.05 billion to $2.15 billion, adjusted EBITDA $520 million to $550 million, adjusted diluted EPS from continuing operations $1.15 to $1.25, same-store sales 1% to 3%.
• Net store growth between 175 and 200 units, net capital expenditures between 6.5% and 7.5% of revenue. Effective annual tax rate estimated at 28% to 30%. Full year interest expense expected between $130 million to $135 million.
• Anticipates second half to represent approximately 50% of full year revenue and adjusted EBITDA, with a more balanced distribution in the second half.

• Dynamic macro environment posing challenges. Consumer sentiment impacts on performance. Tariff uncertainties and their potential effects. Softness in collision and Maaco segments, with ongoing headwinds in the broader collision industry and pullback in discretionary spending among lower-income consumers for Maaco.

Q: Danny, can you describe some of the findings you learned on your listening tour regarding the Take 5 business? I'm just wondering if there's any opportunities to provide new support or systems to help kind of fuel that growth for franchisees?

A: Danny Rivera states that the listening tour reinforced the strength of the team and the Take 5 business, and they will continue to support and fuel growth for franchisees.

Q: Peter Jacob Keith: I'm just looking at the full company EBITDA. So it was flat to just slightly down on a year-on-year basis. And I was wondering if you could just kind of highlight the headwinds to EBITDA and then looking forward, it looks like the guidance implies for the back half, some EBITDA growth. So maybe what changes in the back half versus those Q2 pressures?

A: Danny Rivera mentions PH Vitres as a headwind in 2024 not present in 2025, and overall feels good about guidance for the rest of the year.

Q: Peter Jacob Keith: Okay. And maybe I hone in on the Franchise Brands EBITDA where the total EBITDA dollars did come down by a decent amount. And I think you had flagged some G&A investments, maybe could you expand upon what that is within the franchise business? And then is that an investment activity that's going to now continue for the next couple of quarters?

A: Michael Diamond explains the delta between same-store sales and revenue growth, and G&A investments in technology and franchisor support, with expectations that some investments will continue but wane over time.

Q: Robert Frederick Ohmes: Danny and Mike, actually, just a quick follow-up on the last question. Should we expect franchise brand comps to remain negative in the back half?

A: Michael Diamond says they were pleased with Q2 performance better than Q1, acknowledges pressure in Maaco and collision, and expects continued work but sees sequential improvement. Danny Rivera adds no tremendously new competitive dynamics in the industries.

Q: Mark David Jordan: Just looking at Take 5 store growth year-to-date, only slightly below the prior year, but the mix is -- it's much more towards company operated. I guess what's driving the slower franchise growth year-to-date? And how should we think about growth and mix for the second half of the year?

A: Michael Diamond says franchise stores typically come later in the year, mix will shift more to franchisees over time, and current skew to corporate is due to calendar in franchise systems.

Q: Mark David Jordan: Okay. Perfect. And then just staying on Take 5, can you talk about how comps kind of progressed through the quarter? And I know you might not get into month-to-month detail, but was performance fairly consistent there? And then maybe quarter-to-date, are you seeing any changes?

A: Danny Rivera says performance was fairly consistent in Q2, with some weather influence in Texas, and general consistency across the quarter.

Q: Michael Albanese: Could you just comment on what your franchisees are seeing in the labor market? I'm just thinking, right, any wage pressures, what are you seeing on retention and then ability to hire, I guess, particularly in Take 5 where you're expecting to grow unit comp pretty significantly?

A: Danny Rivera says Take 5 hires from a broad base and trains, franchise businesses have certified technicians managed by owner-operators, and retention numbers aren't publicly divulged.

Q: William David Malkasian Staudinger: Another strong quarter for Take 5. Can you maybe just talk about the competitive dynamic for that business and any market share gains you've observed?

A: Danny Rivera says Take 5's competitive dynamic is strong due to stay-in-your-car, 10-minute oil change, consumer love for the service, and good financial returns, leading to growth across the country.

Q: William David Malkasian Staudinger: Okay. And then with the 150 annual store opening target, I think you mentioned for Take 5, just what new markets are you targeting for those openings?

A: Danny Rivera says they're growing across the country, with franchisees in most markets, and company-owned in disciplined markets like Texas and Florida.

Q: Christian Justin Carlino: Follow up on an earlier question, could you talk about what we're seeing in terms of consumer behavior? I know you mentioned Quick Lube frequency hasn't changed and the collision softness isn't new, but has there been any notable change in the second quarter, just given all the tariff news and general uncertainty. And just given the full impact of tariffs hasn't hit the consumer as well it yet, does the guide assume any further softening in the consumer backdrop.

A: Danny Rivera says no material changes in consumer behavior, Take 5 continues to grow, and Michael Diamond adds the guide reflects macroeconomic uncertainty, with range capturing possibilities.

Q: Christian Justin Carlino: Got it. That's helpful. And could you talk about the competitive landscape in Take 5? Just given the attractive business model, have you started to see more private equity money flow into the space? And -- if not, how would you diagnose why not? And I guess, similarly, to the extent this occurred over the past few years, are you seeing maybe some platforms starting to bring some assets to market?

A: Danny Rivera says the Quick Lube space has been stable, as running the business at scale is difficult, and there's no remarkable change in entrants.