Driven Brands Holdings Inc. Q4 FY2025 earnings call

Restatement of Prior Period Financials

• Material accounting errors related to lease accounting, cash reporting at AGN, and expense mischaracterization were identified during the 2025 year-end closing process, requiring a comprehensive restatement of prior period financials.
  • Revenue reductions: $12 million in 2023, $4 million in 2024, $5 million in 2025.
  • Adjusted EBITDA reductions: $57 million in 2023, $12 million in 2024, $8 million in 2025.
• Root causes: Rapid acquisition-fueled growth into new verticals (car wash, glass) outpaced the maturity of back office controls, personnel, and processes; legacy fragmented ERP systems could not support the scaled, complex business.
• Remediation actions: Strengthened finance leadership (new CFO, chief accounting officer and key roles across tax, internal audit, treasury), consolidated multiple ERPs to Oracle which went live in mid-2024, completed a broad comprehensive review of all accounts to address all issues at once to avoid future restatements.

Portfolio and Balance Sheet Actions

• Simplified the business through divestitures of US Car Wash, International Car Wash, and PH Vitra, exiting non-core businesses to focus on core North American non-discretionary automotive services.
• Paid down $545 million of debt in 2025, reducing year-end net leverage to 3.7x; after completing the $470 million debt paydown from January 2026 international car wash sale proceeds, pro forma net leverage fell to 3.3x.

Full Year 2025 Company-Wide Performance

• Total full year revenue grew 6.3% to $1.9 billion; adjusted EBITDA grew 1.3% to $449.1 million (3.7% pro forma for 2024 PH Vitra divestiture).
• System-wide sales grew 2.7% to $6.1 billion; same-store sales grew 1%, with 175 net new stores added overall.
• Q4 2025: Total revenue grew 7.7% year-over-year to $460.1 million; adjusted EBITDA grew 7.3% to $111.9 million, with an adjusted EBITDA margin of 24.3%; net income from continuing operations was $40.7 million.
• Full year 2025 free cash flow was $180.9 million, an increase of $174.2 million over 2024.

Driven Brands now reports three core segments after divesting all car wash operations: Take 5 Oil Change, Franchise Brands, and Auto Glass Now (AGN).

1. Take 5 Oil Change:

   • Full year 2025: Revenue grew 13.6% to $1.2 billion (63.2% of total company revenue), same-store sales grew 6.2%, added 161 net new units, adjusted EBITDA grew 10.1% to $418.7 million, with an adjusted EBITDA margin of 34.4%.
   • Q4 2025: Same-store sales grew 3.7%, added 60 net new units, adjusted EBITDA grew 8.4% to $107.3 million.

2. Franchise Brands:

   • Full year 2025: Revenue declined 3.5% year-over-year to $285.2 million (15% of total company revenue), same-store sales declined 1.1% (driven by softness in collision and discretionary MAKO business), added 20 net new units, adjusted EBITDA was $178.8 million, with a high adjusted EBITDA margin of 62.7%.
   • Q4 2025: Same-store sales declined 1%, added 23 net new units, adjusted EBITDA was $42.4 million, a slight $0.2 million decrease year-over-year.

3. Auto Glass Now:

   • Full year 2025: Revenue and adjusted EBITDA improved 9% and 105% year-over-year respectively, same-store sales grew 7.9%, adjusted EBITDA grew by $13.3 million to $12.5 million (6.6% of total adjusted EBITDA), adjusted EBITDA margin improved 470 basis points to 10%.
   • Q4 2025: Same-store sales grew 6.3% across retail, commercial and insurance lines, adjusted EBITDA decreased $0.4 million to $3.2 million due to higher performance-based compensation.

• Full Year 2026 Financial Outlook: Revenue is expected to be between $1.95 billion and $2.05 billion; adjusted EBITDA is expected to be between $430 million and $460 million. This range includes $35 million to $45 million of non-recurring restatement-related costs that will not be added back to adjusted EBITDA, which are not expected to recur in 2027.
• Operating Metrics Guidance: Same-store sales growth is expected to be in the range of flat to 2%; net new store growth is expected to be between 160 and 190 net new units; net capital expenditures are expected to equal approximately 6.5% of total revenue, with 60% allocated to Take 5 company-operated unit growth.
• Other Financial Guidance: Interest expense is expected to be roughly $90 million (down from prior years due to debt paydown); the effective annual tax rate is expected to be between 26% and 27%; adjusted diluted EPS is expected to be between $1.15 and $1.25; free cash flow is expected to be between $125 million and $145 million.
• Leverage Target: Management maintains its target of reducing net leverage to 3.0x by the end of 2026, with all excess free cash flow directed toward debt paydown.
• Preliminary Q1 2026 Results: Consolidated same-store sales are expected to be between 1.9% and 2.1%, with Take 5 same-store sales between 4.3% and 4.5%; revenue is expected to be between $475 million and $485 million; adjusted EBITDA is expected to be moderately lower year-over-year due to elevated restatement-related corporate expenses.

• Prior period accounting failures stemming from unaddressed control gaps and under-resourced back office functions during a period of rapid acquisition growth, which required a material restatement that eroded investor confidence and incurred significant one-time remediation costs.
• Ongoing softness in the broader collision repair industry and continued pressure on the discretionary MAKO business, which creates downside risk to meeting the upper end of the 2026 same-store sales and adjusted EBITDA outlook.
• Moderation in traffic for Take 5 Oil Change among newer and value-oriented customer cohorts entering 2026, which could pressure near-term same-store sales growth if not offset by average check growth and ancillary sales.
• Potential volatility in base oil input costs, which could pressure margins if pricing actions are not implemented to offset cost increases.
• Remaining work to fully embed new finance personnel, the Oracle ERP system, and strengthened internal controls, with lingering execution risk during the transition period.

Q: The full-year 2026 same-store sales guidance midpoint implies deceleration after a strong Q1. Is this driven by tougher comparisons, macro factors, or underlying business issues? / A: The deceleration is primarily due to ongoing softness in collision, which has an outsized impact on consolidated same-store sales given its large system sales weighting. Take 5 saw solid Q1 results that are in line with two-year stacked growth expectations despite a tough year-ago comparison, but has seen slight moderation in traffic entering Q2 2026, concentrated among newer and value-oriented customers. Management is focused on reinforcing Take 5's value proposition of fast, friendly service to retain these customers. /

Q: Adjusted EBITDA guidance for 2026 is lower year-over-year. Is this driven by one-time costs or permanent structural changes, and will margins return to prior levels after 2026? / A: The entire year-over-year decline is attributable to $35 to $45 million of non-recurring restatement and remediation costs that management has chosen to include in 2026 adjusted EBITDA for transparency. While some permanent increases in overhead from additional finance personnel are expected, these are small relative to the one-time costs, and management expects the extra costs will not recur after 2026, so margins will return to normal levels. /

Q: Take 5 has seen recent performance moderation relative to its larger public peer. Is this because management took its eye off the ball while addressing the restatement, or is it a macro issue? / A: On a two-year stacked basis, Take 5's Q1 2026 performance of ~4.4% same-store growth remains solid at ~12.5% cumulative growth. The slight moderation in traffic is a recent macro-related trend concentrated among newer and value-oriented customers, not a result of lost operational focus. Net promoter scores remain in the high 70s, and management is doubling down on its core value proposition to drive long-term growth. /

Q: What is the current strategy for M&A and additional divestitures after the recent portfolio simplification? / A: Management will continue to be active portfolio managers, a strategy it has already executed on via three divestitures in 18 months to drive long-term shareholder value. Core strategic priorities remain unchanged: focus on growth from Take 5, generate strong cash flow from the franchise segment, pay down debt to hit the 3.0x net leverage target, and remain focused exclusively on non-discretionary North American automotive services. M&A will only be pursued consistent with this disciplined capital allocation framework. /

Q: What are your expectations for collision industry trends in 2026, and how is Driven performing relative to the industry? / A: Collision industry volumes declined high single digits in 2025 but improved progressively throughout the year, and this normalization trend has continued into 2026 Q1. Driven continues to outperform the broader industry by 100 to 300 basis points, and management expects this outperformance to continue for the full year 2026.