Executive Summary / Key Takeaways

• Driven Brands has strategically refocused its portfolio by divesting the U.S. Car Wash business, aiming to accelerate debt reduction and simplify operations around its core strengths.
• The Take 5 Oil Change segment continues to be the primary growth engine, demonstrating robust unit expansion and strong same-store sales performance, fueled by operational efficiency and a compelling customer value proposition.
• The Franchise Brands segment provides a stable, high-margin, cash-generating foundation, leveraging iconic brands and sticky commercial partnerships to support overall financial health and investment in growth initiatives.
• Significant debt reduction has been achieved following the Car Wash sale, with a clear target to reach less than 3x net leverage by the end of 2026, which is expected to enhance financial flexibility and boost earnings per share.
• While macroeconomic uncertainty and specific segment softness (like Maaco) present headwinds, the company's diversified, needs-based service model and operational improvements, including its unique Driven Advantage platform, are key differentiators supporting its reiterated 2025 outlook.

The Pivot to a Sharper Focus

Driven Brands Holdings Inc., a prominent force in the North American automotive services sector, is undergoing a significant strategic evolution. Founded in 1972 with roots in needs-based auto services and built upon a foundation of established franchise brands like Meineke and Maaco, the company has historically leveraged a diversified portfolio to serve both retail and commercial customers. A pivotal moment in its history was the 2016 acquisition of Take 5 Oil Change, which rapidly transformed into the company's primary growth engine, expanding from fewer than 60 locations to over 1,100 in less than a decade. This dual structure – high-growth Take 5 and stable franchise brands – forms the core of Driven's "growth and cash playbook."

The most recent and impactful strategic move is the divestiture of the U.S. Car Wash business, finalized on April 10, 2025. This decision, following a period of strategic review, was driven by a clear mandate: accelerate debt reduction, manage capital expenditures more effectively, and simplify the business by exiting its most discretionary segment. This pivot sharpens Driven's focus on its most compelling opportunities and leverages its foundational strengths in franchised and company-operated service models.

In the competitive landscape, Driven Brands operates across multiple verticals, facing rivals ranging from large parts retailers like AutoZone (AZO) and O'Reilly Automotive (ORLY) to specialized repair chains like Monro (MNRO) and quick-lube focused players like Valvoline (VVV). While retailers like AZO and ORLY boast extensive distribution networks and strong retail parts sales, Driven's strength lies in its comprehensive service offerings and its largely franchised, asset-light model (excluding company-owned Take 5 and AutoGlassNow locations). This model, particularly in the Franchise Brands segment, provides a stable, high-margin revenue stream that contrasts with the potentially more volatile retail parts market. In the quick-lube space, Take 5 competes directly with players like Valvoline, differentiating itself through speed, customer experience (evidenced by high NPS scores), and a growing focus on ancillary services and premium oils. The collision business, anchored by brands like CARSTAR and Maaco, competes with a fragmented market and other large networks, where Driven's scale and direct repair program (DRP) partnerships provide a competitive edge, allowing it to gain market share even when industry-wide claims are down.

A key differentiator underpinning Driven's operational efficiency and competitive positioning is its proprietary Driven Advantage platform. This online marketplace serves as a centralized procurement hub, allowing company stores, franchisees, and affiliates to purchase over 90,000 SKUs from a wide network of vendor partners. This technology streamlines the supply chain, facilitates centralized purchasing, and enables features like automatic reordering and vendor promotions. Specific, quantifiable cost savings or margin benefits directly attributable to Driven Advantage are not detailed, but the platform's strategic intent is clear: enhance operational efficiency across the network, improve supply chain management, and potentially drive better purchasing economics through scale. It also creates a new revenue stream through advertising from vendor partners. For franchisees, it simplifies procurement and offers access to a broad range of products, enhancing the value proposition of being part of the Driven network. This integrated approach to supply chain and network support provides a tangible operational advantage over less integrated competitors, contributing to the overall competitive moat.

Performance Reflecting Strategic Focus and Market Dynamics

The first quarter of 2025 provides the initial look at Driven Brands under its new reporting structure, offering clearer insight into the performance of its core segments. Total net revenue increased 7.0% year-over-year to $516.2 million, driven primarily by growth in company-operated stores within the Take 5 segment and strong same-store sales performance in both Take 5 and the International Car Wash business. Consolidated same store sales grew 0.7%, marking the 17th consecutive quarter of positive growth, a testament to the resilience of its needs-based services despite a dynamic macroeconomic backdrop.

The Take 5 segment continues to be the standout performer and the engine of growth. Net revenue surged 15% to $293.4 million, and Adjusted EBITDA grew 14% to $100.9 million. This performance was fueled by robust 8.0% same store sales growth and the addition of 168 net new units over the past year, bringing the total count to 1,203. Management highlights that growth is coming from both increased volume and a higher average ticket, driven by the adoption of non-oil change services (now over 20% of system sales) and premium oils. The segment maintained a healthy Adjusted EBITDA margin of 34.4%. The strong unit growth, supported by a pipeline of approximately 1,000 sites, provides clear visibility towards the target of 2,000+ locations in the next five years.

The Franchise Brands segment, the cash flow cornerstone, saw net revenue decrease 6% to $71.7 million and Adjusted EBITDA decline 7% to $44.4 million. Same store sales for the segment were down 2.9%. Management attributed this softness primarily to lower volume in the most discretionary business, Maaco. Despite the top-line pressure, the segment maintained a solid Adjusted EBITDA margin of 61.9%, underscoring the asset-light, high-margin nature of the franchise model. While facing headwinds in discretionary areas, this segment's stability and predictable cash generation remain crucial to the overall strategy.

The Car Wash segment, now representing only the International (IMO) business, delivered a very strong quarter. Net revenue increased 25% to $68.0 million, and Adjusted EBITDA jumped 36% to $24.4 million, resulting in a notable margin improvement to 35.9%. This performance was driven by exceptional 26.2% same store sales growth, attributed to improved operations, expanded service offerings, and favorable weather compared to the prior year. Management expects this growth rate to normalize going forward, but the segment provides a solid, profitable international footprint.

The Corporate and Other segment, which includes the early-stage AutoGlassNow business and corporate overhead, showed a loss of $44.6 million in Q1 2025. AutoGlassNow is viewed as a multi-year growth initiative, currently being incubated. Management is seeing growth materialize in 2025 from securing insurance carrier and commercial accounts in the latter half of 2024, signaling progress in building this business. Increased selling, general, and administrative expenses across the company, reflecting investments in growth initiatives and higher asset sale/impairment losses, contributed to the overall operating expense increase.

Financially, the company's liquidity position appears sound. As of March 29, 2025, total liquidity was $641 million, including $152 million in cash and cash equivalents and $489 million in undrawn capacity. Operating cash flow saw a significant increase to $75 million in Q1 2025, up from $60 million in the prior year, driven by improved net income and working capital management. Net cash used in investing activities increased, primarily due to reduced proceeds from asset sales compared to the prior year, despite a decrease in capital expenditures. Net cash used in financing activities increased due to higher debt repayments.

Deleveraging and Outlook

A central pillar of Driven Brands' current strategy is aggressive debt reduction. The sale of the U.S. Car Wash business for $385 million (including $255 million in cash and a $130 million seller note) provides significant firepower for this initiative. Following the close of the transaction on April 10, 2025, the company used the majority of the net cash proceeds to pay down the Term Loan Facility. As of May 5, 2025, approximately $246 million had been repaid against the Term Loan in Q2, reducing its outstanding balance to roughly $81 million. This substantial paydown is expected to result in over $15 million in annualized interest expense savings, directly benefiting future earnings.

The company's net leverage ratio improved sequentially from 4.4x at the end of 2024 to 4.3x at the end of Q1 2025. The stated goal is to reach less than 3x net leverage by the end of 2026 or sooner. Management is committed to directing positive free cash flow in 2025 primarily towards further debt reduction. The lower projected net capital expenditures for 2025 (6.5% to 7.5% of revenue), partly a benefit of the Car Wash divestiture, are expected to enhance free cash flow generation.

For fiscal year 2025, Driven Brands is reiterating its outlook, reflecting confidence in its refocused strategy despite acknowledging ongoing macroeconomic uncertainty and specific segment pressures. The guidance ranges are:

• Revenue: $2.05 billion to $2.15 billion
• Adjusted EBITDA: $520 million to $550 million
• Adjusted Diluted EPS: $1.15 to $1.25 per share
• Same Store Sales: 1% to 3%
• Net Store Growth: 175 to 200 units
• Net Capital Expenditures: 6.5% to 7.5% of revenue
• Interest Expense: $125 million to $130 million
• Effective Annual Tax Rate: 26% to 27%

Management expects the second half of 2025 to contribute slightly more than half (low 50s percentage) of the full year's revenue and Adjusted EBITDA. Key assumptions underpinning this outlook include continued moderation in Take 5's growth rate as it scales, more moderate growth from the International Car Wash business following a strong Q1, and ongoing softness in the more discretionary Maaco business. The outlook factors in performance observed through Q2 2025 and assumes a prudent approach given potential macroeconomic headwinds, including the impact of tariffs. Management believes its diversified supply chain and pricing power in needs-based services will help mitigate potential tariff impacts on margins.

Risks and Considerations

While the strategic pivot and deleveraging efforts are positive, investors should be mindful of potential risks. The macroeconomic environment remains dynamic, with inflationary pressures potentially continuing to impact consumer spending, particularly for lower-income households, which could affect demand across certain segments, especially the more discretionary ones like Maaco. Increased competition across its various segments could also pressure pricing or market share.

Specific risks include the potential impact of tariffs on supply chain costs, although management is actively managing this and believes pricing power offers mitigation. Legal proceedings, including ongoing class action and derivative lawsuits related to past disclosures, pose potential liabilities, though the company intends to vigorously defend against these. The ability to realize the full value of the seller note received in the U.S. Car Wash sale is also a factor to monitor. Furthermore, negative weather patterns, as experienced in prior periods, can still impact performance, particularly in the Car Wash segment, although growing membership aims to mitigate this over time.

Conclusion

Driven Brands is at a pivotal juncture, having executed a significant portfolio simplification by divesting its U.S. Car Wash business. This strategic move is designed to accelerate deleveraging, streamline operations, and sharpen focus on its core strengths: the high-growth Take 5 Oil Change segment and the stable, cash-generating Franchise Brands portfolio. The substantial debt paydown post-Q1 2025, funded by the divestiture proceeds, is a clear step towards achieving the crucial less than 3x net leverage target by 2026, promising enhanced financial flexibility and future EPS accretion.

While macroeconomic uncertainty and specific segment softness present challenges, the company's diversified, needs-based service model, operational efficiencies supported by platforms like Driven Advantage, and competitive positioning in key verticals provide a resilient foundation. The reiterated 2025 outlook reflects management's confidence in the underlying business momentum and the benefits of its refocused strategy. For investors, the story is now centered on the execution of the growth and cash playbook, the successful deleveraging path, and the potential for the market to increasingly value a more focused, less discretionary business model, underpinned by the continued expansion of its flagship Take 5 brand and the steady performance of its iconic franchise network.