Driven Brands Holdings Inc. Q3 FY2025 earnings call

• Delivered strong third quarter with revenue up 7%, adjusted EBITDA $136 million, system-wide sales up 5%, 167 net new stores in 12 months including 39 this quarter, 19th consecutive quarter of positive same-store sales.
• Take 5 had 21st consecutive quarter of same-store sales growth, system-wide sales up 18% YOY, same-store sales up 7%, adjusted EBITDA growth 15%, adjusted EBITDA margins 35%. Opened 101 net new stores in past 24 months, 38 in third quarter. Non-oil change revenue over 25% of sales, attachment rates of non-oil change services improved. Rolled out differential fluid service system-wide with positive early results.
• Franchise segment same-store sales grew 1%, adjusted EBITDA margins 66%. IMO international car wash business growth solid but moderated due to worse weather in Q3.
• Announced organizational changes: Mo Khalid named COO to lead Take 5 and franchise segments, Tim Austin named President of Take 5. Implemented new media mix model and AI-driven camera technology at shops.
• Reduced net leverage to 3.8x, on track to reach 3x by end of 2026.

Take 5 Oil Change: Same-store sales increased 6.8%, revenue growth of 13.5%, representing more than 75% of Driven's overall adjusted EBITDA. Franchise Brands: Same-store sales grew 1%, adjusted EBITDA margins of 66%, segment revenue declined $1.8 million or 2.3% in the quarter. Car wash segment: Same-store sales grew 3.9%, adjusted EBITDA decreased $1 million to $15 million or 27.8% of sales.

• Full year revenue expected $2.1 billion to $2.12 billion.
• Adjusted EBITDA $525 million to $535 million.
• Adjusted diluted EPS from continuing operations $1.23 to $1.28.
• Same-store sales at low end of original 1% to 3% range.
• Net store growth between 175 and 200 units.
• Net capital expenditures near high end of 6.5% to 7.5% of revenue range.
• Full year interest expense expected approximately $120 million.

• Macro-economic uncertainty including government shutdown and potential disruption of funding for military and social programs affecting consumer, causing uncertainty in Q4 performance.
• Insurance industry trends affecting collision business, with estimates down high single digits in Q1 and Q2, and Q4 expected to be more like Q2, potentially impacting collision demand.

Q: Just was hoping you could share a bit more color on maybe on how the comps progressed across the quarter, what the exit rate looked like? And then Mike, you alluded to the choppy start here in the fourth quarter. Is that fairly broad-based across your business -- your various segments? And then just the math would seem to suggest you could see a negative comp in 4Q. I just want to ask if that's within a reasonable range of outcomes as you sit here today.

A: Yes. So I'll unpack those questions. Justin, good to hear from you. So starting from the top, I would say Q3, in general, performance was consistent within the quarter. Obviously, we're happy with those results that we saw in Q3 and think that it demonstrated broad-based consistency and strength across most of the brands that we have. I think turning to Q4, as Danny and I both mentioned, we did see some choppiness as it relates to really the broader consumer environment, which did impact all of our brands. It's inconsistent, hence the word choppy, right? There are some good days, there are some bad days. And we felt it appropriate to demonstrate an appropriate amount of caution, as we sit here only 1 month into Q4. In terms of your question on negative comp for Q4, I'd answer it a couple of different ways. I think, one, it's important to start with our Take 5 brand, overall continues to be healthy. And so we expect that brand to grow in Q4 kind of -- regardless of where we ultimately end up for the quarter and the full year within that lower end of the range. Mathematically, yes, it is possible if we hit the very low end of that 1%. Given the strength we've seen in Q1 through Q3, it could be a negative Q4 from the consolidated. That will likely largely be driven by Franchise Brands, given the overweighting Collision can play in our same-store sales growth calculation. But I think, in general, the takeaway for Q4 is we're seeing some uncertainty. There is a little bit of choppiness across the entire consumer, as it relates to our brands. But overall, we think Take 5 is healthy. And that despite an incredibly strong Q4 '24, we'll be lapping. We expect that business to grow this quarter.

Q: Just on kind of free cash flow conversion. It looks like you've converted about 70% of your adjusted EBITDA year-to-date in the free cash flow. Is that a good benchmark in terms of how we should think about this business on a go-forward basis? Could it actually get better to the extent CapEx maybe declines in '26? Just would love to hear your perspective on that topic.

A: Yes. I'm not sure I'm going to get into specifics of 2026 yet, as that's something Danny and I are still working through. I think we've demonstrated in all of 2025, our focus on delevering the balance sheet and achieving our commitment of 3x net leverage by the end of 2026. I mean, I think we pair that with the fact that our Take 5 business, because it is so strong, because we have such a good pipeline of both franchise and cost units, those corporate stores give us such an ability for a predictable high rate of return that we want to be opportunistic. Yes, Danny mentioned in his remarks, the 170-ish total units, a little bit more corporate owned this year. That's largely driven by the opportunism we see. When a good location comes about, we want to take advantage of that. So I think at a high level, yes, we will continue to be focused on driving EBITDA to free cash flow, making sure we return that cash to our stakeholders, which right now is focused on debt. But we want to leave ourselves a little bit of flexibility so that as we see good opportunities to build Take 5 corporate stores, we have the ability to do that.