Good morning and welcome to the Driven Brands Third Quarter 2021 Earnings Conference Call. My name is Tamiya, and I will be your operator today. As a reminder, this call is being recorded. Joining the call this morning are Jonathan Fitzpatrick, President and Chief Executive Officer; Tiffany Mason, Executive Vice President and Chief Financial Officer; and Rachel Webb, Vice President of Investor Relations. During today’s call, management will refer to certain non-GAAP financial measures. You can find the reconciliations to the most directly comparable GAAP financial measures on the company’s Investor Relations website and in its filings with the Securities and Exchange Commission. Please be advised that during the course of this call, management may also make forward-looking statements that reflect expectations for the future. These statements are based on current information and actual results may differ materially from these expectations. Factors that may cause actual results to differ materially from expectations are detailed in the company’s SEC filings including the Form 8-K filed today containing the company’s earnings release. Information about any non-GAAP financial measures referenced including a reconciliation of those measures to GAAP measures can also be found in the company SEC filings and the earnings release available on the Investor Relations website. Today’s prepared remarks will be followed by a question-and-answer session. We ask that you limit yourself to one question and one follow-up. I’ll now turn the call over to Jonathan. Please go ahead.

Thank you, and good morning. We had another great quarter across the board our third as a public company, and are excited to the share results over the course of today’s call. Driven Brands is the largest automotive services company in North America And our diversified portfolio of services gives us many levers to grow same store sales and units which ultimately drive profit growth. We've consistently taken share for the past decade, and yet we are less than 5% of this massive and growing fragmented market. We will continue to take share and win in this industry because of our core competitive advantages, our sheer scale, our ability to collect and then use our customer data to drive higher frequency and deeper penetration. Our ability to open new units, either franchise or company. Now, over the long term, Driven has and will consistently deliver organic double digit revenue growth and double digit adjusted EBITDA growth. And because of our asset light business model, we generate a ton of cash. We then use that cash to further accelerate our growth by layering on acquisitions, which, as we have proven, has massive incremental upside to our model. Said simply Driven is growth and cash. And we're pleased with our Q3 results that we released this morning, and all credit goes to our team and our amazing franchisees. Compared to Q3 of 2020, consolidated same store sales were positive 13%. Revenue increased 39% to $371 million. Adjusted EBITDA increased 42% to $98 million and adjusted EPS increased 30% to $0.26 a share. Another top to bottom beat, and we are very proud of these results and remain optimistic about the remainder of this year and more importantly, about 2022 and beyond. Now in Q3 we gained market share across all segments, we…

Thanks, Jonathan, and good morning, everyone. We've now delivered three consecutive quarters of strong performance since our IPO in January. We are proud of our entire team from franchisees to store level employees, brand support teams and corporate office personnel. Everyone has shown tremendous flexibility and a relentless focus on operational excellence, which has produced great results year-to-date, and we expect to end fiscal 2021 strong. For the third quarter, system wide sales of $1.2 billion from which we generated revenue of $371 million, adjusted EBITDA was $98 million. And as a percentage of revenue, adjusted EBITDA margin was 26%. Adjusted EPS was $0.26 for the third quarter, exceeding our expectation as a result of strong sales volume which allowed us to leverage our expense days driving significant flow through. This is the power of the Driven Brands platform a scaled, growing, highly franchised business with a diverse, needs based service offerings that delivers very attractive margin. Now, let me break things down a bit more. System-wide sales growth in the quarter was driven by same-store sales growth as well as the addition of new stores. We have tremendous white space to continue growing our store account in its $300-plus-billion, highly fragmented industry. And as Jonathan discussed, our franchise company, Greenfield and M&A pipelines are all robust and we are aggressively growing our footprint. In the quarter, we added 53 net new stores. Same-store sales growth was 13% for the quarter, with consistent performance across the three months. Now that we have celebrated the anniversary of the ICWG acquisition in early August, Car Wash was included in our consolidated same-store sales calculation on a pro-rated basis for the third quarter. We once again outpaced the industry across all business segments, continuing to gain market share, and our same-store sales were…

Your first question comes from the line of Liz Suzuki with Bank of America. Your line is open.

Great thanks very much. So you've added 145 stores year-to-date and the new guidances for 200 total for the year. I think previously you'd broken it out by 80 to 90 in maintenance, which you've already exceeded 20 to 30 in carwash, which you've exceeded and 60 to 70 net in PCG it looks like there's been a net reduction in PCG ;year-to-date so where there's some stores reclassified into maintenance and how should we think about that net store growth by segment now? You know, for the next quarter?

Hey, Liz, it’s Jonathan, good morning. You know, look, I think you've got a generally right, I'll tell you that. The good news is we have all these different levers to grow unit count. We actually took it upon ourselves to, let's say, prune some underperforming operators in our coalition business in Q3. We get the importance of our large insurance carriers and performance of our franchisees. So once in a while, we need to send a message to the system when we took out some underperforming operators. So I think that was something that happened in Q3. I think it's a onetime event. It sends a little message to the rest of the system. The other thing I would remind you Liz is, like when you think about the collision units from an economic contribution perspective, they're massively lower than, let's say, our car wash, our maintenance businesses. So I think you'll see a little bit of softness there self-composed in terms of the collision. Just because we're making sure that our franchisees understand the importance of delivering for our insurance partners.

Okay, great, that's helpful. And then you took up the full year EBITDA estimate by the amount of the beat in 3Q versus your internal estimates. You know, in your 4Q outlook hasn't really changed. Do you think you're baking in a, you know, decent buffer of conservatism, just given all the unknowns with regard to the trajectory of miles driven, labor shortages, other headwinds that pop up?

Hey, Liz, I'll take this one. Sorry, let me start, and then if you want to answer, that's great. So listen Liz, we've continued to provide a measure of being a conservative approach to our guidance. As you said, we raised our fiscal 2021 guidance by the $5 million beat to our internal forecast in Q3, and we held our 4Q forecast. That brought fiscal 2021 adjusted EBITDA to 350, which frankly implies for Q4 that we'll do same store sales somewhere in the 10% range with adjusted EBITDA $73 million. Frankly we're pleased with key – with October performance and we continue to see strength across all segments. So October is off to a great start. Q4 pulled off to a great start, I should say. We expect solid demand for our services this holiday season. However, as you call out we're not yet out of the woods on inflation and supply chain disruption and now we're excited to welcome John Teddy back to driven brand to lead our US car wash business, changes inevitably disruption disruptive in the short term. For those reasons we're holding our Q4 guidance and that's consistent with our conservative approach to guidance over the course of the year. But I do want to be very clear that we did not lower our 4Q guide today. Hope that answers your question Liz.

Your next question comes from the line of Simeon Gutman with Morgan Stanley. Your line is open.

Hi guys. This is Michael Kessler on for Simeon. Thank you for taking our questions. I want to ask about the car wash segment if we looked at the – the same sort of sales on two year and geometric stack. It looks like there was a bit of a slowdown that – to that 10 point slowdown versus Q2 off a very strong Q2 and Q3. I just want to ask, what did you -- what do you see in that business to the extent that there was a slowdown driven by anything in particular when it was dealt an immediate miles driven in the quarter slow down any commentary there would be great.

Hey, Michael Jonathan here. Look, we posted 6% percent in Q3. There's always a bit of noise with the consumer right now whether there's, you know, funky things happening with Delta, you know, different things you know there was some sort of crazy weather stuff going on this summer, but we don't ever talk about that, but the business is in great shape, Michael. We have you know owned it for 14 months. We're even more bullish about it than we ever have before. We've got you know a bunch of new stores that we've added a bunch of stores in both our M&A and Greenfield pipeline. So there's nothing that concerns us whatsoever about the long-term potential for this business. This remains an incredible asset with incredible white space in front of it. So nothing whatsoever concerns us.

Okay. Okay, great. And my follow up on our maintenance segment, it was another I guess called out a little bit of a benefit from the understaffing, the grand scheme of things, it sounds pretty minor relative to the level of margin expansion that we've seen in that segment, especially versus a year and especially two years ago. So, I'm just wondering how we should be thinking about the margin here I would anticipate our expected could maybe continue to expand as the business shifts more franchise and that might eventually be looking at, I would say, both maintenance and the whole company's EBITDA margin is potentially replacing on this new higher level, and we're likely going to end 2021 with.

Yeah, Michael, great question. So on the point about the labor piece, I’ll tell you’re right, we're seeing improvement in in labor trends, right? So we call that 50 basis points of benefit in Q2 where we're seeing 11 basis points of benefit from the labor shortage in Q3. So definitely seeing improvement while we're still seeing a tight labor market, as we think about a greater mix of franchise in the maintenance space you're absolutely right we should continue to see that margin expand. And then you know if you just look at the trend, the end of 2020, with overall consolidated margins of 23%, we’re forecasting overall margins of 25% for Driven this year, based on our guide. And as we continue to increase the amount of traffic to our sites and increase the benefit of the top line flywheel, we should drop more profitability to the bottom line of the variable model, the margin should expand over time.

Okay. Thank you, guys. Good luck for Q4.

Your next question comes from the line of Chris Horvers with JPMorgan. Your line is open.

Thanks. Good morning. So, my first question just following up on the fourth quarter guide, I guess two parts to it. On the second quarter, you talked about sort of mid-single digits-ish comps in the back half with 4Q slightly better. And now you're talking about 10. So it feels like you did raise the sales outlook, but then didn't really flow that through to the EBITDA line. So is there something – is there something changing on the cost side? And there – is there something unique about 4Q EBITDA margins and seasonality?

Hi, Chris. Back to what I said to Lavesh a few minutes ago, nothing is fundamentally changing, other than we're taking a conservative stance because there are some moving pieces as it relates to inflation and supply chain. So we're just giving ourselves a bit of wiggle room and staying consistent with our conservative approach to guidance, but nothing to be alarmed about. And we expect Q4 to be strong.

Okay. And then on the long term, quick math suggest you – you just raised the – you know, the algorithm to the high teens from low double digits. So is that accurate? And then, as you think about what's on top of that, does that assume any EBITDA margin expansion in core business? And can you talk about typically what sort of margin synergies you could extract from that $250 million of a presynergy acquisition?

So first three questions so a couple of points to make there, so when we’re talking about long term at least $859 million of EBITDA by 2026, basically what we're doing there is keeping our long-term algorithm intact. So we're saying double digit revenue and adjusted EBITDA growth with $350 million EBITDA as a jumping off point coming out of 2021. We're suggesting that if you wanted to build in a layer of M&A $50 million a year that compound that that same long-term algo with the appropriate based on history. And then Jonathan's giving you a bit of insight today into the pipeline right. So that's effectively how we’ve built it. Now, if you remember back when we talked about the algorithm earlier this year heading into the IPO, that algorithm was based on pretty conservative assumptions around same-store sales, which were 2% and a very conservative assumption around EBITDA margin, which was essentially holding it flat. As we talked about before, the whole purpose of that long-term algorithm was to show the power of the drone portfolio and the fact that we could be a double digit grower with conservative assumptions. We certainly and that’s the purpose, frankly, of Jonathan's statement around at least $850 million, right ? So again, the point is with conservative assumptions, we could get at least $850 million and there's plenty of upside there. As you know, we get synergies on the acquisitions as we expand margins. And as you know, we expect things for sales to be somewhere above 2% just based on history.

And then on the synergies that you've experienced historically is that 400 basis points or 500 basis points of potential margin benefit there?

Yeah, we should get about two to three turns of synergy improvement on the acquisitions that we acquire Chris.

Your next question comes from the line of Peter Benedict with Baird. Your line is open.

Hi, thanks. Thanks, guys. Two questions first, just back on kind of inflation, is there any way to quantify the impact it had? You think you move across the top line and how you're thinking about that 4Q and then on the 570 DRPs you added year-to-date. How many do you have currently in total and just kind of curious where you think you can get that maybe over the next few years? Thank you.

Jonathan, why don't I take the first part and you take the second. So on inflation, Peter, thanks for the question. So what I would say is we've experienced mid-single-digit cost inflation year-to-date between oil and wages. Those are the two big categories. We’ve successfully passed that through to date to the consumer, you know, obviously we provide needs based essential services and our average ticket, particularly in the maintenance business, which is where we're seeing most of that inflation from a company and store perspective is $78. So, we're having pretty good success year-to-date. I would say if you think about the average ticket of the maintenance division, though, and just what that means from an average ticket increase still, 80% of the average ticket is coming from mix. So prices, you know, price increases that we've been able to take as a result of our pricing power. It's still a relatively small percentage of the average, the average increase in ticket. Jonathan do you want to address DRP?

Yeah. Hi, Peter, good morning. Yeah, the DRP as Peter is really coming from, you know, as our large insurance partners want to do more business with, you know, fewer large scale providers. So as we bring on stores or add stores to, you know, to one of our insurance partners programs, you know, they get added to that, that DRP. So we think there's a great sort of long-term growth here for additional insurance work with our great insurance partners for our franchisees. So we'll get back here. Rachel, we’ll get back to you with the total number of DRPs that we have. Peter, I don't have it on hand, but you know, we see sort of this continual addition of DRPs to new stores that we add and existing stores that are expanding their insurance relationships.

Okay, great. Thank you.

Your next question comes from the line of Kate McShane with Goldman Sachs. Your line is open.

Hi, good morning. Thanks for taking my question. I wondered if you could help us with quantifying some of the market share gains, was there a particular business where you saw more market share gains than not and any quantification around that? And then my second unrelated question was with regards to supply chain disruption that we're seeing. I know and your platform services are in a much better position than peers, but just curious what inventories look like right now and if there's anywhere you'd like to see more?

Okay. So I'll take the first part of market share, and maybe Jonathan you can address the second part. So in terms of market share, we're actually seeing great performance across all of our segments. We're taking share across four. Obviously our higher growth segment is – higher growth segments I should say are Car Wash and Maintenance. Maintenance is performing quite well. We're seeing fantastic results there. So we're seeing outsized performance. We're doing quite well in Car Wash as well. So we're leaning into both of those segments, but again, seeing performance across all four.

Yeah. And just building on that, Kate. Hi, good morning. By the way, it’s Jonathan. If you look at sort of Maintenance, you know, close to that sort of 20% same-store sales, you know, you know, that we have a look at sort of maintenance you know close to that sort of 20% same store sales, you know you know that we have we have one great competitor in that space, I don't know what our numbers are, but obviously, you know, when we look at some of the smaller independents or small chains, we know they're not delivering those numbers, so we're taking share from them. Same in car wash, like 6% same store sales comp is terrific, probably ahead of the overall industry. But then if you look at the unit count growth that we're experiencing car wash, that's obviously leading to share gains through you know incremental units. In terms of supply chain, I mean, I think it's amazing. What's happening right now is that if you look sort of at the entire supply chain, it's this advantage that every level, whether it's at the production level, whether it's at the transportation level and then whether it's at sort of the last mile level. So you know that is affecting literally every aspect of people's lives, I think, all over the world. We see patches of that in various parts of our business. But again, I go back to our scale, allows us to have really great contracts and be very important to our suppliers. So we're going to get sort of put into the front of the line when there is supply shortages or distribution shortages. We've got contracts in place, multi-unit contracts that cover some of the pricing pressure that may exist in the market. And again, I go back to what Tiffany said earlier. We provide, for the most part, needs based services, so our ability to pass on price through both our company stores and our franchisees as evidenced in this sort of same store sales 13% that we delivered. So I think what I would say is that you know supply chain is definitely disadvantaged haven't seen any green shoots of improvement yet. We think it's going to last for some time. But when you're one of the biggest and most sophisticated in the market, generally, you can leverage that supply chain advantage over sort of the fragment – fragment of the industry that we operate in.

Your next question comes from the line of Sharon Zackfia with William Blair. Your line is open.

Hi. Good morning. Thanks for the detail on the development pipeline and your expectations for next year. I was wondering if you could talk about what your expectations are for maintenance in in 2022. I know you have talked about safety for car wash. And then just to clarify I think there's some confusion as to whether or not you're falling short of your organic growth plans for 2021. Maybe if you could clarify how that's kind of shaping up relative to your initial expectation.

Yeah. Hey, good morning, Sharon. Relative to 2022 I think we will give sort of a breakdown by segment, you know, in the -- they call it in February but you know I think you'll see growth, you know, for all the segments as you sort of look back to that 250 -- 250 unit that I referenced in my remarks earlier. In terms of the organic pipeline, I think I mentioned it -- I think it was to, you know, maybe Peter earlier. But you know, we definitely took the time to I would say send the message to some of our coalition franchisees with sort of pulling some underperforming stores. So that's intentional. We have the ability to do that because we've got so many levers to grow the business. So we took the time to actually get some underperforming franchisees out of that business that will obviously have a -- I suppose short term negative impact on unit growth. However the economic contribution from franchise coalition stores is a lot less than some of our other stores. In terms of the other greenfield components, I think car wash greenfield, you know, we sort of guided to 20% to 30% I think it'll be slightly less than that just because of if you like sort of the – that the labor and supply chain issues in terms of getting those stores open We feel really good about those stores that are under construction, but we're seeing a little bit of delay just in construction time frame. So that'll just bleed into Q1. So overall, two things are happening a little bit slower opening on the carwash because of permitting inspections, some equipment supply chain issues within that industry. And then secondly, proactively, you know, sending a message to some of our coalition franchisees. So those are the two things. Again, what I would say, Sharon, though, is, you know, we look at this bolt-on acquisition machine that we've built. It's really interchangeable, right? We don't at the end of the year say how many stores came from this, how many stores came from that. We're looking to grow units and we look at bolt-on M&A as simply another way to add new units to our portfolio. So I think over time, you know, that's something that we'll be talking more about is just the total unit count, including what we think of as bolt-on and, you know, traditional greenfield in that in that calculus.

Your next question comes from the line of Peter Keith with Piper Sandler. Your line is open.

Hi, thanks, good morning, everyone. Jonathan, I was hoping you could provide a historic perspective on rising gas prices. They seem to be moving in that type of environment. Has that impacted demand for your services with your core middle income customer historically?

Hey, Peter, great question. I think look, I think we're all sort of dealing with that, pretty dramatic interest. Sort of increase in gas prices. So, you know, it definitely probably impacts people a little bit. I think it's offset by a couple of things, though, Peter. One is I think consumers have a lot more money in their pockets now than they did when there was the last massive, you know, rise in gas prices. So I think that's sort of an offset. I think the second thing that's pretty interesting in our space is if you look at what's happening with new car sales and new used car sales, right? So to make a decision before deciding to convert all the locations and maybe start a plane to rebrand new locations once you acquire them.

Yeah, I think it's like anything, Chris, it's, you know, the implementation of the signage, the implementation of the merchandising, possibly retraining some of the crew members, right, seeing what the consumer reaction is, making sure that when these stores are rebranded, it's not just the resignage, but there's other things for the consumers. So I think it's not really questioning the validity of the hypothesis. It's making sure that we're nailing all the little things that go into a rebranding, which is not as simple as just putting a sign on a building. There's lots of sort of people process and systems that go along with that. So look, I think you can infer pretty easily that we've gone from five to 25 stores. So, you know, we like what we're seeing and really we're trying to find is there, is there a reason not to do this? And to date, we have not seen a reason why we wouldn't continue this.

Our next question comes from the line of Lavesh Hemnani with Credit Suisse. Your line is open.

Hey guys, thank you for squeezing me. I had a quick follow up question on M&A, especially related to the $250 million in committed EBITDA, over the next five years. And is it safe to assume that most of it is going to be car wash related or just can you give us a sense of some of the you near term pipeline that you're seeing regarding M&A? Thank you.

Yeah, it's a good question. Look, we're not, we're not going to break down, because we don’t want to give guidance on where that M&A is going to come from, but I think it's a fair assumption that, you know a good portion of that could come from car wash. We certainly don't talk about other potential platforms are additional M&A targets that we may be looking at, but I think it's fair to assume that a good chunk of it could come from car wash.

Got it. And just a quick follow up, especially on the labor piece, we’ve spent some time looking at the maintenance business on the call today. But if I look at the collusion side of the business, there have been some of your competitors out there talking about technician availability issues. I'm just trying to think about how is that impacting driven specifically in tese franchise locations? Thank you.

Yeah. I go back to what I said to – I think it was Karen asked about labor. Look, our franchisees are amazing individuals, they’re owner operators, they've had a team of people for in many cases our average franchisees tenure is 17 years. So they've had teams together for a long, long time. They take care of those employees. So look, we talked to our franchisees every day. There's no question that there's some challenges out there, but I think franchise locations are inherently very well equipped to deal with labor because of their embeddedness in the in the both the store, the community and the relationships with people. So, I would say our franchisees are dealing with it in a very positive way.

Okay, thank you.

I will now turn the call back over to Mr. Fitzpatrick. End of Q&A

Thank you all. We appreciate it. And we’re very happy with Q3, and you know again reiterating the conservatism of our Q4 guidance. So anyway, thanks, I'll look forward to speaking to you in the future. Bye-bye.

This concludes today's conference call. You may now disconnect.