Driven Brands Holdings Inc. Q1 FY2026 earnings call

Overall Business Performance

• Q1 2026 was a solid quarter with 6% system-wide sales growth, 8% total revenue growth, 2% consolidated same-store sales growth, and 2% adjusted EBITDA growth. The company maintained solid underlying operational performance despite non-recurring restatement costs.
• Net leverage ended the quarter at 3.2x, and the company remains on track to hit its 3x target by end of 2026, which is the top near-term priority. After reaching the target, management will release a clear long-term capital allocation framework for investors.
• The automotive aftermarket remains resilient, supported by long-term secular tailwinds: an aging vehicle fleet, growing total car park, increasing vehicle complexity, and consumers keeping vehicles longer. Overall demand remains healthy across all businesses.

Strategic and Operational Updates

• Added a newly created Chief Marketing Officer role, filled by Bart LeCount (a 20+ year veteran from PepsiCo and Restaurant Brands International), to build an integrated, data-driven, scalable enterprise marketing organization focused on improving customer acquisition efficiency, retention, and brand value.
• Meaningful early progress has been made on remediation of material weaknesses in internal control over financial reporting, a multi-quarter process that management remains committed to completing successfully.
• Full-year 2026 non-recurring restatement costs are still projected to be $35 to $45 million, with some Q1 costs shifted to Q2 versus initial expectations; Q1 restatement costs totaled $9.1 million, below initial projections. Excluding restatement costs, SG&A as a percentage of system-wide sales declined year-over-year to 7.8%, in line with expectations.

Segment-Specific Highlights

• Take 5 Oil Change delivered its 23rd consecutive quarter of same-store sales growth. Its differentiated stay-in-car service model resonates with consumers, and the company continues to see strong average check, healthy premium product mix, and solid service attachment rates. Traffic moderation is limited to newer and value-oriented customers (households earning <$50,000 annually facing inflationary cost pressure), while the core customer base remains resilient. With ~1,400 current locations and a long-term target of 2,500+ locations, Take 5 still has substantial white space growth opportunity, with attractive unit economics for both company and franchise new stores.
• The Franchise segment continues to deliver robust profitability, with 60% adjusted EBITDA margins, and generates strong cash flow for the company. Performance is led by Meineke, with sequential improvement in same-store sales from Q4 2025.
• Auto Glass continues to have significant long-term growth opportunity via expanding carrier relationships, growing market share, and leveraging existing platform scale.

1. Take 5 Oil Change: Same-store sales grew 4.5% (12.5% on a two-year basis), system-wide sales grew 14%, revenue grew 10%, adjusted EBITDA grew 13.6% to $109.5 million (8.5% after adjusting for a $4.5 million 2025 Q1 inventory valuation charge). Adjusted EBITDA margin expanded 120 basis points year-over-year to 33.9%. 29 net new units were added in the quarter. This segment contributes roughly 41.6% of total company adjusted EBITDA.
2. Franchise Brands: Same-store sales grew 0.9% sequentially from Q4 2025. Revenue declined $0.4 million due to the sale of two remaining company-operated collision locations. Adjusted EBITDA was $41.4 million, a decrease of $1.5 million year-over-year driven by increased technology and personnel investments. Adjusted EBITDA margin for the segment is 60%, and it contributes roughly 15.7% of total company adjusted EBITDA.
3. Auto Glass Now: Same-store sales grew 7.2% across retail, commercial, and insurance lines. Revenue grew 6%, adjusted EBITDA increased $0.6 million to $5.9 million. Margins expanded 40 basis points year-over-year to 9.4%. This segment contributes roughly 2.2% of total company adjusted EBITDA.

Consolidated company performance: Total revenue was $484.4 million, up 8.2% year-over-year. System-wide sales grew 5.8% to $1.6 billion. Consolidated same-store sales grew 2.1% overall. Adjusted EBITDA was $104.1 million, up 1.7% year-over-year, with an adjusted EBITDA margin of 21.5%.

• Management reaffirms its full-year 2026 guidance, with no upward or downward revision from prior targets:
  • Total revenue: $1.95 to $2.05 billion
  • Adjusted EBITDA: $430 to $460 million (includes the full $35 to $45 million in non-recurring restatement costs, which will not be added back to adjusted EBITDA)
  • Adjusted diluted EPS: $1.15 to $1.25
  • Same-store sales: flat to 2% growth
  • Net new store units: 160 to 190
  • Net capital expenditures: ~6.5% of total revenue
  • Free cash flow: $125 to $145 million
• Management expects Q2 2026 performance moderation across all brands:
  • Take 5 same-store sales growth projected to be in the mid-3% range (~10% on a two-year stack), reflecting ongoing traffic moderation among the two specific customer segments
  • Franchise segment same-store sales are expected to moderate further from Q1's 0.9% growth, due to uneven recovery across MAKO and Collision sub-segments
  • Restatement costs are expected to exceed $15 million in Q2 (higher than Q1) due to a full quarter of work, including 10-K and Q1 10-Q filings, restatement work for the whole business securitization, internal control remediation, and associated legal costs
  • Adjusted EBITDA margins are expected to be pressured in Q2 relative to Q1's 21.5% margin
• The full-year 2026 guidance was constructed to accommodate a broad range of macroeconomic scenarios, and management remains confident it will deliver on the full-year outlook.

• Macroeconomic pressure from inflation and higher living costs is impacting traffic and driving higher churn among newer and lower-income (under $50,000 annual household income) customers at Take 5, with ongoing moderation in demand from these groups expected in the second quarter.
• The collision industry is expected to stabilize rather than bounce back in 2026, with moderation projected for the second half of the year, creating continued top-line pressure for the Franchise segment.
• Non-recurring restatement and internal control remediation costs will pressure adjusted EBITDA margins through 2026, with higher-than-Q1 costs expected in Q2.
• Remediation of material weaknesses in internal control over financial reporting is a multi-quarter process, with ongoing work required to strengthen the company's control environment.
• Forward-looking performance and targets are subject to risks and uncertainties that could cause actual results to differ materially from current projections, particularly related to macroeconomic conditions impacting consumer demand.

Q: What is the trend of customer traffic moderation, and how are core, higher-income customers performing? How did Take 5's same-store sales trend through Q1, and what drove growth?

A: Traffic moderation is limited to just two specific customer groups (new customers and lower-income, value-oriented customers), and trends have remained stable with no material change since the prior earnings call. All other customer groups, including the core higher-income customer base, remain resilient, with rising average checks, higher attachment rates, and growing premium mix. Take 5 delivered solid 4.5% Q1 same-store sales growth (12.5% two-year), with growth driven primarily by higher average ticket rather than traffic, and customer NPS scores remain in the high 70s.

Q: Is the positive inflection in Franchise segment same-store sales sustainable? What are your collision industry outlook, and how do you plan to capitalize on customer pay opportunities?

A: Sequential same-store sales improvement in Q1 was led by strength in Meineke and a modest industry pickup in collision from Q4 2025. Management expects the overall segment to moderate in the second half of 2026, as MAKO remains soft and the collision industry is projected to stabilize rather than rebound this year. Driven outperforms the collision industry by 100-300 basis points, and it is uniquely positioned to capture growing customer pay demand via its MAKO brand, which serves customers who prefer to pay out of pocket rather than file insurance claims. The Franchise segment will maintain 60% adjusted EBITDA margins regardless of top-line moderation, continuing to generate strong cash flow for the company.

Q: After you reach the 3x net leverage target by year end, what are your plans for free cash flow allocation?

A: The immediate near-term priority remains hitting the 3x leverage target, and management is still developing the formal long-term capital allocation framework to be released later this year. There is no deferred CapEx that requires immediate catch-up investment. High-return, predictable growth investment in Take 5's store expansion is a clear opportunity, returning cash to shareholders is also an option, and management has no current plan to delever significantly below 3x, as existing debt is fixed rate and reasonably priced.

Q: Given traffic softness at Take 5, how are you thinking about pricing and promotional flexibility to support demand without eroding margins?

A: There is no planned broad shift in overall pricing strategy, as Take 5 does not position itself as a low-cost provider. Management plans to use surgical, targeted promotions focused specifically on the two customer segments seeing moderation, which is a standard tool the brand has used historically for specific use cases. This targeted approach avoids broad margin erosion while addressing the limited softness in demand.