Driven Brands Holdings Inc. Q2 FY2026 earnings call

• Core Business Strategy

  • Maintain a consistent growth-and-cash framework: drive high growth through Take 5, and generate reliable high-margin free cash flow from mature Franchise Brands to fund growth opportunities and deleveraging
  • Reached 3.1x net leverage in Q2, on track to hit the 3.0x target by the end of 2026, and completed divestiture of all car wash businesses, with those results now classified as discontinued operations
  • The board unanimously rejected an activist acquisition proposal, determining it significantly undervalued the company and was not in the best interest of shareholders

• Operational Highlights

  • Take 5 delivered its 24th consecutive quarter of positive same-store sales growth, with a robust development pipeline of ~800 potential locations (over one-third site-secured), on track to hit the long-term target of 2,500 total locations via 150+ annual net new openings
  • Non-oil change services now represent 30% of Take 5 sales, with net promoter scores holding in the mid-70s, reflecting strong customer satisfaction
  • Franchise Brands continues to outperform in collision repair, gaining share against a softer overall industry, and maintains near-60% EBITDA margins aligned with its role as a stable cash generator
  • Auto Glass Now has built a strong foundation as the second largest operator in the large, fragmented U.S. glass market, with a long runway for future share growth across retail, commercial, and insurance channels
  • The company's scale and long-standing supplier relationships mitigate near-term supply chain risks from Middle East energy market volatility, with healthy product availability across segments

• Capital & Financial Position

  • Q2 free cash flow increased 13.2% year-over-year to $44.7 million, as net capital expenditures fell to $31 million following car wash divestitures
  • Non-recurring restatement costs for Q2 2026 totaled $11.8 million, $3 million below initial expectations, with full-year restatement costs expected to land at the top end of the original $35 million to $45 million range

Driven Brands operates three core business segments, with the following Q2 2026 performance:

1. Take 5 (quick oil change): Delivered 3.6% same-store sales growth and 13% system-wide sales growth. Added 50 net new locations in the quarter, ending with 1,400 total locations. Adjusted EBITDA grew 7.8% year-over-year to $114.9 million, with an adjusted EBITDA margin of 34%. Non-oil change services represented 30% of segment sales. This segment contributed roughly 45% of total company adjusted EBITDA for the quarter.
2. Franchise Brands (Meineke, Mako, Carstar): Reported 0.5% same-store sales growth. Revenue declined $3.4 million year-over-year, driven primarily by the sale of two remaining company-operated collision locations. Adjusted EBITDA was $41.2 million for the quarter, a $2.4 million year-over-year decrease, with a strong 59% adjusted EBITDA margin. Meineke continued to outperform, Carstar outperformed the broader collision industry by ~200 basis points, while the more discretionary Mako brand remained under pressure. This segment contributed roughly 36% of total company adjusted EBITDA for the quarter.
3. Auto Glass Now: Delivered 2.6% same-store sales growth. Adjusted EBITDA decreased $6.6 million year-over-year to $3.5 million, almost entirely due to a one-time $4 million out-of-period balance sheet cleanup charge for prior years. This segment is still in its incubation period as the second largest automotive glass operator in the U.S., contributing roughly 3% of total company adjusted EBITDA for the quarter.

Consolidated company results: System-wide sales grew 5% year-over-year to $1.6 billion, total revenue grew 7% to $507.4 million, and consolidated adjusted EBITDA was $107 million. Net leverage fell to 3.1x, total company footprint grew 5% to over 4,300 locations, with 192 net new stores added in the last 12 months.

• Management reaffirms all full-year 2026 guidance ranges, with the expectation that actual results will land near the lower end of the adjusted EBITDA range given current macro uncertainty
  • Full-year 2026 revenue guidance maintained at $1.95 billion to $2.05 billion
  • Full-year same-store sales guidance maintained at flat to 2%
  • Full-year net new unit growth guidance maintained at 160 to 190 units
  • Full-year adjusted EBITDA guidance maintained at $430 million to $460 million
  • Full-year adjusted diluted EPS guidance maintained at $1.15 to $1.25
  • Full-year net capital expenditures expected to be approximately 6.5% of revenue, with full-year free cash flow projected between $125 million and $145 million
  • The 3.0x net leverage target by end of 2026 remains reaffirmed
• For the second half of 2026, management expects ongoing trends: continued softness in Take 5 sales from lower-income consumers, and flat to modest same-store sales growth for Franchise Brands, with Mako remaining soft and collision continuing to stabilize while Driven outperforms the broader industry

• Sustained pressure on lower-income consumer spending continues to moderate demand at Take 5 and the discretionary Mako brand within Franchise Brands
• Renewed conflict in the Middle East has created volatility in global oil markets, driving upward pressure on base oil input costs and higher gas prices that weigh on consumer disposable income
• Restatement costs are expected to come in at the top end of the initial $35 million to $45 million full-year range, dragging down full-year adjusted EBITDA results
• Auto Glass Now is still in its incubation period, so quarterly performance will remain uneven as the business scales
• While current supply availability is stable, a significant worsening of Middle East conflict could create unforeseen supply chain disruptions

Q: What inflationary pressure is the company seeing on base oil costs, and how is this impacting traffic from lower-income consumers?

A: Middle East conflict has driven industry-wide base oil cost increases, which began impacting results in Q2 and will continue into the second half. Driven’s scale and strong supplier relationships leave it well-positioned to avoid supply disruptions barring a major escalation. The company has already implemented modest, disciplined price increases in line with historical practice to offset higher costs, and limited product elasticity allows it to pass through these increases while preserving gross margin dollars. Regarding traffic, moderation among lower-income consumers that began in Q1 continued into Q2, but has not worsened, and the company has maintained stable demand across all other customer cohorts, with solid premium attachment rates holding.

Q: After rejecting the activist acquisition proposal, what is management’s plan to close the gap between the company’s current stock price and its intrinsic value? What changes to capital allocation will occur once the 3.0x net leverage target is hit?

A: Management outlines three core steps to deliver shareholder value: 1) Execute the existing growth-and-cash strategy by growing Take 5 to 2,500 locations with mid-single-digit comps and mid-30% margins, and maintain near-60% margins at mature Franchise Brands; 2) Maintain disciplined capital allocation focused on funding Take 5 growth and hitting the 3.0x leverage target; 3) Deliver consistent results with no surprises. Once 3.0x leverage is reached, management will work with the board to evaluate all capital allocation options, including additional internal investment, return of capital to shareholders, and strategic transactions, and will outline a formal plan once the target is achieved.

Q: What is driving lower-than-expected EBITDA at Auto Glass Now, and how should investors think about its long-term margin and growth trajectory?

A: Q2 2026 adjusted EBITDA of $3.5 million is not representative of the segment’s run rate, as it includes a $4 million one-time out-of-period charge for 2024 and prior balance sheet cleanup. The segment is still in incubation, so growth will not be linear, with potential step changes in revenue as new insurance and commercial contracts are won. The current baseline long-term margin target is low double-digits, with higher marginal profit flowthrough as volume grows, so margins will expand gradually as the business scales.

Q: What is Take 5’s current promotion strategy, particularly for lower-income consumers? What is the priority for margin management: gross margin dollars or percentage margin?

A: Promotion activity in Q2 was in line with historical seasonal trends, as the second quarter typically includes elevated promotions around peak summer driving. Take 5 is not a fundamentally promotional brand, but the company is using targeted promotions to attract price-sensitive lower-income consumers to drive top-of-funnel demand amid current pressure. In the short term, management prioritizes preserving gross margin dollars when passing through input cost increases, to protect both profitability and consumer value. Over time, most price increases are retained after costs moderate, leading to long-term margin expansion.