Driven Brands Holdings Inc. (NASDAQ:DRVN) is the largest automotive services company in North America, boasting a growing and highly-franchised base of over 5,000 locations across 49 U.S. states and 13 other countries. The company's portfolio of highly recognized brands, including Take 5 Oil Change®, Meineke Car Care Centers®, MAACO®, CARSTAR®, and 1-800-Radiator & A/C®, compete in the automotive services industry, providing a diverse range of core retail and commercial automotive needs.

Financials

In the fiscal year ended December 30, 2023, Driven Brands generated annual revenue of $2,304,029,000 and reported a net loss of $729,289,000. The company's annual operating cash flow was $235,167,000, while its annual free cash flow was -$361,311,000. These financial results demonstrated the company's scale and the challenges it faced in recent years.

For the first quarter of 2024, Driven Brands reported net revenue of $572,226,000, a 1.7% increase compared to the prior-year period. The company's adjusted EBITDA for the quarter was $131,018,000, up 6.1% year-over-year, with an adjusted EBITDA margin of 22.9%, representing a 95-basis point improvement. Net income for the quarter was $4,261,000, a significant decrease from the $29,749,000 reported in the same period of the prior year.

Risks and Challenges

The company's performance in the first quarter of 2024 was impacted by several factors, including extreme weather conditions in January, which affected most of its businesses, and generally poor weekend weather that impacted the Car Wash segment. Additionally, the company experienced some moderate softness in consumer demand, particularly from lower-income households, due to the ongoing inflationary environment.

Segment Performance

Despite these headwinds, Driven Brands' diversified platform and focus on needs-based businesses helped the company navigate the challenging environment. The company's Maintenance segment, led by the strong performance of Take 5 Oil Change, delivered revenue growth of 15% and adjusted EBITDA growth of 26.6% in the first quarter. The franchise businesses, including Meineke, MAACO, CARSTAR, and 1-800, continued to generate steady results, with adjusted EBITDA margins exceeding 50%.

The company's Car Wash segment, however, faced more significant challenges, with revenue declining 8% and adjusted EBITDA decreasing 29% in the first quarter. The softness in the U.S. Car Wash business was primarily driven by unfavorable weather conditions, lower volume, and continued competitive intrusion. In response, the company stopped all new growth capital investments in this business and focused on preserving variable cost improvements and growing its membership revenue.

Driven Brands' Paint, Collision & Glass (PC&G) segment also experienced declines, with revenue and adjusted EBITDA decreasing 11.9% and 13.1%, respectively. This was largely due to the refranchising of nine company-owned collision centers and the performance of the Auto Glass Now business, which the company viewed as a strategic growth area. The team focused on improving the cost structure and growing revenue, particularly with a focus on regional insurance carriers.

On a more positive note, the company's Platform Services segment delivered strong results, with revenue and adjusted EBITDA increasing 3.4% and 16.8%, respectively, driven by the continued growth of Take 5 Oil Change and the performance of 1-800 and Spire.

Outlook

Looking ahead, Driven Brands reaffirmed its fiscal 2024 guidance, which includes revenue between $2.35 billion and $2.45 billion, adjusted EBITDA of $535 million to $565 million, and adjusted diluted EPS of $0.88 to $1.00. The company expected the majority of the year-over-year adjusted EBITDA growth to come in the second half of the year, as it laps weaker comparables and sees continued improvement in its U.S. Car Wash and U.S. Glass businesses.

Driven Brands' management team remained focused on delivering on its 2024 guidance, reducing debt, and actively managing the portfolio to ensure the company has the right assets to execute on its short-, medium-, and longer-term goals. The company's diversified platform, needs-based businesses, and strong franchise model provide a solid foundation for navigating the current macroeconomic environment.

Conclusion

Despite the challenges faced in the first quarter, Driven Brands' long-term growth prospects remained promising. The company's focus on expanding its Maintenance segment, particularly through the continued success of Take 5 Oil Change, and its efforts to turnaround the Car Wash and Glass businesses, positioned Driven Brands for future success. Additionally, the company's Driven Advantage platform, which provides a unique purchasing and supply chain solution for its franchisees and company-operated stores, was expected to contribute incremental adjusted EBITDA of $35 million by 2026.

Driven Brands' first-quarter results demonstrated the company's resilience and the strength of its diversified platform. While facing headwinds in certain segments, the company's focus on needs-based businesses, franchise model, and strategic initiatives provided a solid foundation for navigating the current environment and delivering on its long-term growth objectives.