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What changed in Driven Brands Holdings Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Driven Brands Holdings Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+347 added−353 removedSource: 10-K (2024-02-28) vs 10-K (2023-03-01)

Top changes in Driven Brands Holdings Inc.'s 2023 10-K

347 paragraphs added · 353 removed · 270 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

58 edited+10 added−21 removed32 unchanged
Biggest changeOur maintenance services include oil changes and other regularly scheduled or as-needed automotive services, including vehicle component repair and replacement. Founded in 1984, Take 5 Oil specializes in providing efficient drive-thru-style oil changes. Take 5 Oil’s 257 franchised and 593 company-operated locations as of December 31, 2022, primarily offer oil changes to retail and commercial customers.
Biggest changeOur Maintenance brands service a combination of retail and commercial customers, such as fleet operators, through 1,786 total locations as of December 30, 2023. Our maintenance services include oil changes and other regularly scheduled or as-needed automotive services, including vehicle component repair and replacement. Founded in 1984, Take 5 Oil specializes in providing efficient drive-thru-style oil changes.
We believe Take 5 Oil offers a best-in-class operating model through its convenient drive-thru stay-in-your-car format, simple, focused menu, industry-leading speed of service, and low-pressure sales environment, which is designed to generate strong customer satisfaction, high frequency of use, and attractive unit level economics.
We believe Take 5 Oil offers a best-in-class operating model through its convenient drive-thru stay-in-your-car format, simple and focused menu, industry-leading speed of service, and low-pressure sales environment, which is designed to generate strong customer satisfaction, high frequency of use, and attractive unit level economics.
We believe ATI’s leading training program further enhances Driven Brands’ training platform, providing opportunities to improve operational support and increase profitability for both Driven Brands and our franchisees. In addition, ATI’s deep customer database of automotive shops provides us with a pipeline for future franchise development and acquisitions.
We believe ATI’s leading training program further enhances Driven Brands’ training platform, providing opportunities to improve operational support and increase profitability for both Driven Brands and our franchisees. In addition, ATI’s deep customer database of independent automotive shops provides us with a pipeline for future franchise development and acquisitions.
Outside of these standards and policies, we do not control the day-to-day operations, such as hiring and training of employees, of the franchisees. We support our franchisees with brand-specific services (e.g., brand marketing, franchise support, and operations) and comprehensive shared services (e.g., centralized marketing support, consumer insights, procurement program savings, commercial fleet, training, development, finance, and technology services).
Outside of these standards and policies, we do not control the day-to-day operations, such as hiring and training of employees, of the franchisees. We support our franchisees with brand-specific services (e.g., brand marketing, franchise support, and operations) and comprehensive shared services (e.g., consumer insights, procurement program savings, commercial fleet, training, development, finance, and technology services).
Maaco primarily serves retail customers and commercial fleet operators and provides strong retail customer service at a much lower average price point than most collision centers, making it an economical option for minor auto body repair when customers prefer to not file a claim.
Maaco primarily serves retail customers and commercial fleet operators and provides strong retail customer service at a much lower average price point than most collision centers, making it an economical option for minor auto body repair when customers prefer to not file an insurance claim.
For example, customers may purchase fewer undercar services during the winter months, when miles driven tend to be lower. In addition, customers may defer or forego car washes or vehicle maintenance such as oil changes at any time during periods of inclement weather.
For example, customers may purchase fewer undercar services during the winter months, when miles 10 driven tend to be lower. In addition, customers may defer or forego car washes or vehicle maintenance such as oil changes at any time during periods of inclement weather.
Competitors include international, national, regional and local repair and maintenance shops, oil change shops, car washes, paint and collision repair shops, glass repair and replacement shops, automobile dealerships, and suppliers of automotive parts, including online retailers, wholesale distributors, hardware stores, and discount and mass market merchandise stores.
Competitors include international, national, regional, and local repair and maintenance shops, oil change shops, car washes, paint and collision repair shops, glass repair and replacement shops, automobile dealerships, and suppliers of automotive parts, including online retailers, wholesale distributors, hardware stores, and discount and mass market merchandise 9 stores.
Our financial and operational training services are offered through ATI, a leading provider of training services to repair and maintenance, and paint and collision shops. ATI’s core offering is a multi-year training package that is typically paid for through a monthly subscription.
Our financial and operational training services are offered through ATI, a leading provider of training services to independent repair and maintenance, and paint and collision shops. ATI’s core offering is a multi-year training package that is typically paid for through a monthly subscription.
Furthermore, Take 5 Oil’s compact store format and unique shallow pit design are intended to reduce upfront build out costs, increase efficiency, and provide real estate flexibility. Take 5 Oil’s franchising efforts are experiencing strong momentum and are expected to continue to drive long-term unit growth through its robust and growing pipeline of franchise commitments.
Furthermore, Take 5 Oil’s compact store layout and unique shallow pit design reduce upfront build out costs, increase efficiency, and provide real estate flexibility. Take 5 Oil’s franchising efforts are experiencing strong momentum and are expected to continue to drive long-term unit growth through its robust and growing pipeline of franchise commitments.
Our services primarily consist of express-style exterior car wash services that utilize an automated conveyor belt to pull vehicles along a track where they are machine washed. 6 Our car wash services in Europe and Australia are primarily offered through the IMO brand, which has a proud history of over 55-years of providing express-style conveyor car wash services.
Our services primarily consist of express-style exterior car wash services that utilize an automated conveyor belt to pull vehicles along a track where they are machine washed. 5 Our car wash services in Europe and Australia are primarily offered through the IMO brand, which has a history of over 55-years of providing express-style conveyor car wash services.
In order to receive notifications regarding new postings to our website, investors are encouraged to enroll on our website to receive automatic email alerts. The contents of our websites are not incorporated into this Annual Report. 10
In order to receive notifications regarding new postings to our website, investors are encouraged to enroll on our website to receive automatic email alerts. The contents of our websites are not incorporated into this Annual Report. 11
Our distribution services are primarily offered through 1-800 Radiator, which was founded in 2001, and is one of the largest franchised distributors in the automotive parts industry. 1-800 Radiator’s 203 locations, as of December 31, 2022, are almost exclusively franchised and distribute a broad, diverse mix of long-tail automotive parts, including radiators, air conditioning components, and exhaust products to automotive repair shops, auto parts stores, body shops, and other auto repair outlets. 1-800 Radiator’s best-in-class operating model is fueled by proprietary algorithmic sourcing technology that enables franchisees to effectively order inventory, manage pricing, and deliver parts to customers within hours.
Our distribution services are primarily offered through 1-800 Radiator, which was founded in 2001, and is one of the largest franchised distributors in the automotive parts industry. 1-800 Radiator’s 206 locations, as of December 30, 2023, are almost exclusively franchised and distribute a broad, diverse mix of long-tail automotive parts, including radiators, air conditioning components, and exhaust products to automotive repair shops, auto parts stores, body shops, and other auto repair outlets. 1-800 Radiator’s best-in-class operating model is fueled by proprietary algorithmic sourcing technology that enables franchisees to effectively order inventory, manage pricing, and deliver parts to customers within hours.
We believe the core competitive factors in our industry are scale, geographic reach, brand awareness, service pricing, speed and quality, and customer satisfaction. We compete with other franchisors on the basis of the expected return on investment for franchisees and the value propositions that we offer them.
We believe the core competitive factors in our industry are scale, geographic reach, brand awareness, service pricing, speed and quality, and customer satisfaction. We compete with other franchisors based on the expected return on investment for franchisees and the value propositions that we offer them.
Driven Brands has also been increasing margins through technology advancements to enhance in-store operations and deploy best-practice training initiatives across the portfolio. • Utilize Purchasing Strength from Procurement Programs : Driven Brands currently provides our network with lower pricing on supplies than it could otherwise achieve independently, thereby augmenting the value proposition to new and existing franchisees and other network members as well as the earnings of our independently-operated and company-operated locations.
Driven Brands has also been increasing margins through technology advancements to enhance in-store operations and deploy best-practice training initiatives across the portfolio. • Utilize Purchasing Strength from Procurement Programs : Driven Brands currently provides our network with lower costs on supplies and services than it could otherwise achieve independently, thereby augmenting the value proposition to franchisees and other network members as well as improving the earnings of our independently-operated and company-operated locations.
There are also several provinces in Canada that regulate the offer and sale of franchises as well as certain aspects of the franchise relationship. While there are no registration requirements under these provincial franchise laws, they do require pre-sale disclosures similar to those that exist in the U.S.
In addition, most provinces in Canada regulate the offer and sale of franchises as well as certain aspects of the franchise relationship. While there are no registration requirements under these provincial franchise laws, they do require pre-sale disclosures similar to those that exist in the U.S.
The FTC requires that franchisors make extensive disclosure to prospective franchisees before the execution of a franchise agreement.
The FTC requires that franchisors make extensive disclosures to prospective franchisees before the execution of a franchise agreement.
Our collision repair services are primarily offered through CARSTAR, ABRA, and Fix Auto, which were founded in 1989, 1984, and 1997, respectively, and together comprise the largest franchised collision repair network in North America. Our 1,005 collision locations as of December 31, 2022 are 99% franchised and offer full collision repair and refinishing services in addition to other cosmetic repairs.
Our collision repair services are primarily offered through CARSTAR, ABRA, and Fix Auto, which were founded in 1989, 1984, and 1997, respectively, and together comprise the largest franchised collision repair network in North America. Our 1,028 collision locations as of December 30, 2023 are 99% franchised and offer full collision repair and refinishing services in addition to other cosmetic repairs.
Our network generated approximately $2.0 billion in revenue from approximately $5.6 billion in system-wide sales in 2022. The Company operates and reports financial information on a 52 or 53 week year with the fiscal year ending on the last Saturday in December.
Our network generated approximately $2.3 billion in net revenue from approximately $6.3 billion in system-wide sales in 2023. The Company operates and reports financial information on a 52 or 53 week year with the fiscal year ending on the last Saturday in December.
This powerful data gathering capability holds data from more than 30 million unique customers, which we use throughout our platform for improving our marketing and customer prospecting capabilities, measuring location performance, enhancing store-level operations, and optimizing our real estate site selection.
This powerful data gathering capability holds unique customer data, which we use throughout our platform for improving our marketing and customer prospecting capabilities, measuring location performance, enhancing store-level operations, and optimizing our real estate site selection.
We also license or sublicense, as applicable, the Fix Auto USA ® trademark for use in connection with our business in the United States. We also own domain names, including our primary domain “www.drivenbrands.com.” Seasonality Seasonal changes may moderately impact the demand for our automotive repair and maintenance services, car washes, and products.
We also license or sublicense, as applicable, the Fix Auto USA ® trademark for use in connection with our business in the U.S. We also own domain names, including our primary domain “www.drivenbrands.com.” Seasonality Seasonal changes, including inclement weather, impact the demand for our automotive repair and maintenance services, car washes, and products.
Paint, Collision & Glass Our Paint, Collision & Glass segment is primarily composed of the CARSTAR, ABRA, Fix Auto, Maaco, Uniban, and AGN brands and serves both retail and commercial customers through 1,846 total locations as of December 31, 2022.
Paint, Collision & Glass Our Paint, Collision & Glass segment is primarily composed of the CARSTAR, ABRA, Fix Auto, Maaco, Uniban, and AGN brands and serves both retail and commercial customers through 1,888 total locations as of December 30, 2023.
Patent and Trademark Office or other foreign trademark registration offices or exist under common law in the United States or other jurisdictions in which we operate.
Patent and Trademark Office or other foreign trademark registration offices or exist under common law in the U.S. or other jurisdictions in which we operate.
Car Wash We are the world’s largest conveyor car wash company by location count with 1,111 total locations across North America, Europe, and Australia as of December 31, 2022.
Car Wash We are the world’s largest conveyor car wash company by location count with 1,108 total locations across North America, Europe, and Australia as of December 30, 2023.
Leveraging our scale and combined resources, we have invested heavily in the creation of unique and powerful shared services, which we believe provide each brand with more resources and produce better results than any individual brand could achieve on its own.
We continue to leverage our scale and combined resources in the creation of a unique and powerful shared services, which we believe provide each brand with more resources and produce better results than any individual brand could achieve on its own.
Our 219 franchised and 205 company-operated glass services locations across the U.S. and Canada as of December 31, 2022 primarily offer replacement, repair, and calibration services for automotive glass to retail customers as well as commercial fleet operators and insurance carriers.
Our 237 franchised and 231 company-operated glass services locations across the U.S. and Canada as of December 30, 2023 primarily offer replacement, repair, and calibration services for automotive glass to retail customers as well as commercial fleet operators and insurance carriers.
Our other maintenance services offered at 795 locations as of December 31, 2022 are 100% franchised and predominantly operate under the Meineke brand.
Our other maintenance services offered at 779 locations as of December 30, 2023 are 100% franchised and predominantly operate under the Meineke brand.
We have implemented highly professionalized and data-driven marketing practices and have dedicated brand marketing funds supported by contributions from our franchisees. Industry Overview and Competition We compete with a variety of service providers within the highly-fragmented automotive services and parts distribution market.
Our advertising strategy includes CRM, social and digital media as well as television, print, radio, and sponsorships. We have implemented highly professionalized and data-driven marketing practices and have dedicated brand marketing funds supported by contributions from our franchisees. Industry Overview and Competition We compete with a variety of service providers within the highly-fragmented automotive services and parts distribution market.
Employees and Human Capital Resources As of December 31, 2022, we employed approximately 11,000 full-time employees, including approximately 9,200 employees at company-operated locations. None of these employees are covered by a collective bargaining agreement. We 9 consider our relations with our employees to be good.
Employees and Human Capital Resources As of December 30, 2023, we employed approximately 10,600 full-time employees, including approximately 8,800 employees at company-operated locations. None of these employees are covered by a collective bargaining agreement. We consider our relations with our employees to be good.
Our 2022 fiscal year ending December 31, 2022 consisted of 53 weeks and our 2021 and 2020 fiscal years ending December 25, 2021 and December 26, 2020, respectively, consisted of 52 weeks.
Our 2023 and 2021 fiscal years ending December 30, 2023 and December 25, 2021 each consisted of 52 weeks and our 2022 fiscal year ending December 31, 2022 consisted of 53 weeks.
Our collision services include full collision repair and refinishing services; our paint services include full body repainting and touch-up, surface preparation and protection, and refinishing and other cosmetic repairs; and our glass services include replacement, repair, and calibration services for automotive glass.
Our paint services include full body repainting and touch-up, surface preparation and protection, and refinishing and other cosmetic repairs; our collision services include full collision repair and refinishing services; and our glass services include replacement, repair, and calibration services for automotive glass. Our paint services are offered through Maaco, which was founded in 1972.
As of December 31, 2022, we have agreements to open more than 1,200 new franchised units, which provides us with clear visibility into future franchise unit growth.
As of December 30, 2023, we have agreements to open approximately 1,300 new franchised units, which provides us with clear visibility into future franchise unit growth.
Our breadth of services cover a wide variety of automotive needs, including paint, collision, glass, and repair services, as well as a variety of high-frequency services, such as oil changes and car washes. We have generated consistent recurring revenue and strong operating margins, with limited maintenance capital expenditures.
Our breadth of services covers a wide variety of automotive needs, including paint, collision, glass, and repair services, as well as a variety of high-frequency services, such as oil changes and car washes. Our portfolio of brands continues to generate consistent recurring revenue with strong operating margins.
Franchising Strategy Our franchising strategy is to grow certain of our brands’ footprints in a capital efficient manner. Our franchise model leverages our proven brand playbooks, the market planning and site selection capabilities of our best-in-class development team, and the local market expertise of highly-motivated owners.
Our franchise model leverages our proven brand playbooks, the market planning and site selection capabilities of our best-in-class development team, and the local market expertise of highly-motivated owners.
In 2017, we launched Spire Supply, an in-house distributor of consumable products, such as oil filters and wiper blades, which currently serves all Take 5 Oil locations and a portion of our Meineke stores.
In 2017, we launched Spire Supply, an in-house distributor of consumable products such as oil filters and wiper blades, which currently serves all Take 5 Oil locations. In 2023, we launched our Driven Advantage e-commerce platform providing a custom buying experience for our user base.
Spire Supply provides attractive pricing to franchisees relative to other options as well as incremental EBITDA to Driven Brands, by reducing spend that would otherwise be paid to third-party vendors. In addition, Spire Supply simplifies operations for franchisees and company-operated stores by reducing inventory needs and ensuring availability of supplies through automatic replenishment.
Driven Advantage and Spire Supply provide attractive pricing to franchisees relative to other options as well as incremental EBITDA to Driven Brands. In addition, Driven Advantage and Spire Supply 6 simplify operations for franchisees and company-operated stores by reducing inventory needs and ensuring availability of supplies.
We focus our marketing efforts on areas we believe will yield the highest rate of return, including the development of tailored marketing campaigns targeted at specific customers when we know they are in need of one of the services provided by our brands.
Marketing Strategy Our marketing strategy highlights the needs-based service offerings and value propositions of each of our brands. We focus our marketing efforts on areas we believe will yield the highest rate of return, including the development of tailored marketing campaigns targeted at specific customers when we believe they could benefit from services provided by our brands.
Our paint services are offered through Maaco, which was founded in 1972. Our 417 franchised locations, as of December 31, 2022, offer an extensive suite of services including paint services, surface preparation, protection and refinishing, reconditioning, and other cosmetic external and internal repairs.
Our 392 franchised locations, as of December 30, 2023, offer an extensive suite of services including paint services, surface preparation, protection, and refinishing, reconditioning, and other cosmetic external and internal repairs.
Since entering the North American market in 2015, we have grown to become the one of the largest domestic operators of conveyor car wash sites with 390 company-operated locations across the United States as of December 31, 2022.
Since entering the U.S. market in 2015, we have grown to become one of the largest domestic operators of conveyor car wash sites with 391 company-operated locations across the U.S. as of December 30, 2023, predominately under the Take 5 Car Wash brand.
As a result of the investments we have made, we believe our shared services provide substantial operating leverage and can support a much larger business than we are today.
Procurement Initiatives and Strengthening Platform Services We seek to leverage the strength of our platform to enhance margins for franchised, independently-operated, and company-operated locations by: • Leverage Shared Services and Platform Scale : As a result of the investments we have made, we believe our shared services provide substantial operating leverage and can support a much larger business than we are today.
Item 1. Business Overview Driven Brands is the largest automotive services company in North America with a growing and highly-franchised base of more than 4,800 locations across 49 U.S. states and 13 other countries.
Item 1. Business Overview Driven Brands is the largest automotive services company in North America with a growing and highly-franchised base of approximately 5,000 locations across 49 U.S. states and 13 other countries. Our scaled, diversified platform provides high-quality services to an extensive range of retail and commercial customers.
We also offer technology-enabled glass claims management services for insurance carriers, which drives incremental business to our glass service locations and our distribution business and are complementary to our paint and collision businesses.
We also offer technology-enabled glass claims management services for insurance carriers, which drives incremental business to our glass service locations and our distribution business and are complementary to our paint and collision businesses. Platform Services Our Platform Services segment is primarily composed of the 1-800 Radiator, PH, Spire Supply, Driven Advantage, and Automotive Training Institute (“ATI”) businesses.
Our locations are strengthened by ongoing training initiatives, targeted marketing enhancements, procurement savings, and cost efficiencies, driving revenue and profitability growth for both Driven Brands and for our franchisees. Our performance is further enhanced by a data analytics engine, which has gathered data points from approximately 30 million unique customers.
Our locations are strengthened by ongoing training initiatives, targeted marketing enhancements, procurement savings, and cost efficiencies, driving revenue and profitability growth for both Driven Brands and for our franchisees.
We believe that we are well positioned to continue benefiting from this momentum by executing on the following growth levers: • Continued Commercial Partnership Expansion : We are proactively growing our commercial partnerships and winning new customers by being a highly convenient and cost effective “one-stop-shop” service provider that caters to the extensive suite of automotive service needs for commercial fleet operators and insurance carriers.
Our ability to drive organic growth focuses on: • Commercial Partnerships : We grow our commercial partnerships and win new customers by being a highly convenient and cost effective “one-stop-shop” service provider that caters to the extensive suite of automotive service needs for commercial customers, such as fleet operators and insurance carriers.
We operate in the auto glass and replacement industry in Canada through Uniban, which was founded in 1977, and is known as a leader in the category. In 2022, we expanded our offerings to the U.S., primarily through the acquisition of AGN, along with several smaller acquisitions, making us the second-largest glass services business in the U.S.
In 2022, we expanded our offerings to the U.S. through the acquisition of AGN and additional smaller acquisitions, making us the second-largest glass services business in the U.S. auto glass servicing category.
Our conversion playbook drives cost savings from procurement savings and general and administrative cost synergies as well as consistent revenue growth following the conversion to our model and implementation of our operational improvements and data-driven marketing programs. 8 Independent Operator Agreements Nearly all of our car wash locations outside of North America operate an independent operator model, where a third party is responsible for site-level labor and receives commissions based on a percentage of site revenue from car washes.
Independent Operator Agreements Nearly all of our car wash locations outside of the U.S. operate an independent operator model, where a third party is responsible for site-level labor and receives commissions based on a percentage of site revenue from car washes.
Our Growth Strategies We plan to continue to grow our business by executing on the following strategies: Grow Our Brands with New Locations We have a proven track record of unit growth and believe our competitive strengths provide us with a solid financial and operational foundation that positions us to deliver sustained and predictable store growth.
New Unit Growth We have a proven track record of unit growth and believe our competitive strengths provide us with a solid financial and operational foundation that positions us to deliver growth. The markets we operate in North America are highly fragmented.
Our 721 international locations as of December 31, 2022 operate an independent operator model, whereby a third-party is responsible for site-level labor and receives commissions based on a percent of site revenue from car washes, resulting in high margins and predictable free cash flow for Driven Brands.
IMO’s operations appeal to a broad consumer base seeking a low-cost and high-speed car wash at easily-accessible locations. Our 717 international locations as of December 30, 2023 operate an independent operator model, whereby a third-party is responsible for site-level labor and receives commissions based on a percent of site revenue from car washes.
We believe there is significant opportunity to continue to grow our subscription program. 5 • Leverage Data Analytics to Optimize Marketing, Product Offerings, and Pricing : We have large, dedicated brand marketing funds supported by contributions from our franchisees, and in 2022 we collected and spent approximately $131 million for marketing across our brands.
In addition to fostering strong customer loyalty to our stores, we believe the subscription program has the potential to generate predictable and recurring revenue and provides incremental data and customer insights, further strengthening our data analytics capabilities. • Leverage Data Analytics to Optimize Marketing, Product Offerings, and Pricing : We have large, dedicated brand marketing funds supported by contributions from our franchisees, and in 2023 we spent approximately $159 million for marketing across our brands.
Building from a 50 year history in the category with some of the most recognizable brands in the industry, our diversified platform caters to almost any automotive service occasion. The network benefits of bringing these offerings together on the Driven Brands platform are tangible.
Building from a 50 year history in the category with some of the most recognizable brands in the industry, our diversified platform caters to almost any automotive service occasion. Our Business Our suite of automotive services includes the following segments: Maintenance Our Maintenance segment is primarily comprised of the Take 5 Oil and Meineke brands.
We believe that we remain optimally positioned to continue our long and successful track record of acquisitions, both in our existing service categories, as well as into new, complementary ones, which will provide us with new organic and acquisition growth opportunities in highly fragmented service categories.
The execution of organic greenfield real estate development and mergers and acquisitions is a core competency and an important shared service capability across the Driven Brands platform. We believe we are well-positioned to continue our long and successful track record of acquisitions, which will provide us with new organic and acquisition growth opportunities in highly fragmented service categories.
We believe that our highly-attractive value proposition, focused on affordability, convenience, and speed of service, resonates with our customers and encourages a high frequency of use in any economic environment. To further strengthen customer loyalty and visit frequency, we also utilize a subscription membership program, which in 2022, accounted for approximately half of our domestic car wash revenue.
We believe that our highly-attractive value proposition, focused on affordability, convenience, and speed of service, resonates with our customers and encourages a high frequency of use.
Our ability to grow through a variety of strategies, including organic franchised and company-operated growth as well as M&A, provides us flexibility to deliver against plans. Our franchise growth is driven both by new store openings as well as through conversions of independent market participants that do not have the benefits of our scaled platform.
In 2023, we launched our U.S. claims management business to expand volume and insurance revenues. Our franchise growth is driven both by new store openings as well as through conversions of independent market participants that do not have the benefits of our scaled platform.
Continue to Drive Same Store Sales Growth We have demonstrated an ability to drive attractive organic growth with positive same store sales performance over 14 of the past 15 years.
As of December 30, 2023, we had agreements to open approximately 1,300 new franchised units, which provides us with visibility into future franchise unit growth. 7 Same Store Sales Growth We have demonstrated an ability to drive attractive organic growth with positive same store sales performance over 15 of the past 16 years.
The oil change, car wash, and glass repair and replacement markets in North America are highly fragmented, providing significant runway for continued growth. The success of our company-operated locations is supported by our deep data analytics capabilities that use proprietary algorithms and insights to enable optimal site identification and selection.
The success of our company-operated locations is supported by our deep data analytics capabilities that use proprietary algorithms and insights to enable optimal site identification and selection. Our franchised and company-operated Take 5 Oil business has grown to 1,007 locations and has provided strong same store sales and margin growth.
We are dedicated to expanding partnerships with existing commercial customers as well as attracting new national and local customers. • Continued Growth of Subscription Car Wash Revenue Model : Since acquiring ICWG in 2020, we have expanded our subscription membership program across our U.S. car wash stores to approximately half of domestic car wash revenue in 2022.
In 2023, our Paint, Collision & Glass segment generated approximately $2.5 billion in system-wide sales from relationships with insurance carriers. • Car Wash Revenue Model : Since acquiring ICWG in 2020, we have expanded our subscription membership program across our U.S. car wash stores to approximately 60% of domestic car wash revenue in 2023.
PH is the main glass distributor to our company-operated and franchised Uniban locations. In addition, PH is the market leader in the province of Quebec and has a growing presence in Ontario.
Founded in 1967, PH distributes windshields and glass accessories through a network of distribution centers across Canada and provides direct installation services. PH is the main glass distributor to our company-operated and franchised Uniban locations.
Our Core Competencies Driven Brands has a long track record of delivering strong growth and market share gain through same store sales performance, organic store count growth, and acquisitions utilizing our proven playbook for growth.
Growing Our Brands We seek to deliver strong growth and market share gain through same store sales performance and new store count growth, both organically and through targeted acquisitions.
We use a variety of marketing techniques to build awareness of, and create demand for, our brands and the products and services they offer. Our advertising strategy includes CRM, social and digital media as well as television, print, radio, and sponsorships.
Within our product offerings, each year, on average, there are opportunities for approximately 14 touchpoints with unique customers annually relating to car wash, oil change, and maintenance and repair services. We use a variety of marketing techniques to build awareness of, and create demand for, our brands and the products and services they offer.
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Our scaled, diversified platform provides high-quality services to an extensive range of consumer and commercial customers who rely on their automobiles in all economic environments to get to work and in many other aspects of their daily lives.
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Take 5 Oil’s 355 franchised and 652 company-operated locations as of December 30, 2023, primarily offer oil changes to retail and commercial customers.
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The execution of organic real estate development and successful mergers and acquisitions is a core competency and an important shared service capability across the Driven Brands platform. We have invested in and built out a dedicated team, and supporting infrastructure to support organic development, including market planning, site selection, engineering and construction, and store openings.
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To further strengthen customer loyalty and visit frequency, we also utilize a subscription membership program, which in 2023, accounted for approximately 60% of our domestic car wash revenue, an increase from approximately 50% in the prior year.
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Similarly, we have also invested in our mergers and acquisitions team and infrastructure processes to systematically source, perform due diligence on, acquire, and integrate acquired locations. Since 2020, we have accelerated our organic openings and completed more than 100 acquisitions.
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Our glass repair services are primarily offered through Uniban in Canada and AGN in the U.S. Uniban was founded in 1977 and is known as a leader in the category.
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Since entering the Car Wash segment in 2020 through our acquisition of International Car Wash Group (“ICWG”) with over 900 locations across 14 countries, we have significantly expanded our Car Wash footprint in the U.S. by completing tuck-in acquisitions of more than 160 tuck-in locations.
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We have a strong pipeline for franchise locations as well as greenfield and tuck-in company-operated stores and plan to continue to expand our market presence and product offerings leveraging our Driven Advantage and Spire Supply buying power. In 2022, we expanded into the U.S. glass market and have grown to 218 company-operated U.S. glass stores.
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Simultaneously, we have continued to invest in our greenfield development pipeline opening 30 locations in 2022 with a pipeline of more than 250 future locations.
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We have gained market share through 12 acquisitions making us the second-largest glass services business in the U.S. During 2023, we focused on business integration and margin expansion. With the low cost of store expansion, we continue to seek opportunities to grow our network and market share.
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In 2022, our expansion into the U.S. glass market allowed us to add 174 locations along with their mobile presence to further complement our broad offering to both consumer and commercial customers, including our existing insurance 4 customers.
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We are dedicated to expanding partnerships with existing commercial customers as well as attracting new national and local customers. • Insurance Partnerships: We have continued to develop relationships with key insurance carriers, predominately within our Paint, Collision & Glass businesses. In 2023, we expanded our technology-enabled glass claims management services for insurance carriers to include both Canada and the U.S.
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Similar to Car Wash, we have ramped up our development pipeline, which will be an important focus of the business in addition to tuck-in acquisitions.
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This service drives incremental business to our glass service locations and our distribution business and is complementary to our paint and collision businesses.
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As of December 31, 2022, we had agreements to open more than 1,200 new franchised units, which provides us with visibility into future franchise unit growth. Additionally, we continue to expand our company-operated Take 5 Oil, Take 5 Car Wash, and Auto Glass Now footprint through new greenfield openings as well as tuck-in acquisitions and conversions.
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In 2023, we launched our Driven Advantage e-commerce platform, which allows network members to take advantage of Driven Brands’ supplier network to improve operating margins through lower prices and incentives. As we continue to grow, we believe we will continue to leverage our size and purchasing power, driving greater value to our overall system.
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With low net start-up costs and strong sales ramp, company-operated locations provide highly attractive returns, and we believe there is ample whitespace in existing and adjacent markets for continued unit growth.
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Company-Operated Store Strategy Our company-operated store strategy involves executing our simple operating model, which allows us to adapt to changing economic conditions. Following the creation of the Chief Operating Officer role, the Company has focused on standardizing practices and operating models across brands at company-operated locations to drive further efficiencies and margin expansion.
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In addition to fostering strong customer loyalty to our stores, we believe the subscription program also generates predictable and recurring revenue and provides incremental data and customer insights, further strengthening our data analytics capabilities.
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We continue to expand our company-operated footprint through a combination of greenfield openings as well as acquiring and converting stores while maintaining a rigorous capital review. Our company-operated stores benefit from the cross-brand procurement strategy resulting in lower operational costs. 8 Franchising Strategy Our franchising strategy is to grow certain of our brands’ footprints in a capital efficient manner.
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We believe that the benefits we receive from this capability will continue to grow as we leverage our data to capture additional share of wallet from our existing customers in addition to growing our customer base.
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Enhance Margins through Procurement Initiatives and Strengthening Platform Services In addition to top-line growth, Driven Brands has also been able to leverage the strength of the platform to enhance margins for franchised, independently-operated, and company-operated locations through the following levers: • Leverage Shared Services and Platform Scale : We expect to continue to benefit from margin improvements associated with our increasing scale and the growing efficiency of our platform.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeThese risks include, among others, the following: • Competition may harm our business and results of operations. • Changes in consumer preferences and perceptions, and in economic, market, and other conditions could adversely affect our business and results of operations. • Our business is affected by the financial results of our franchisees. • Increases in operating costs, including labor and commodity costs and interest rates have, and may again in the future, adversely affect our results of operations. • Our business is affected by advances in automotive technology. • We depend on key suppliers, including international suppliers, to deliver timely high-quality products at quantities and prices similar to historical levels. • We may not be able to execute on our plans to open additional locations and enter new markets. • Our business may be adversely impacted by our indebtedness, including additional leverage in connection with acquisitions and other capital expenditure initiatives. • If franchisees and other licensees do not observe the required quality and trademark usage standards, our brands may suffer reputational damage, which could in turn adversely affect our business. • We are heavily dependent on computer systems and information technology and any material failure, interruption or security breach of our computer systems or technology or failure to effectively implement new systems as a part of our ongoing technology improvements could impair our ability to efficiently operate our business or timely or accurately prepare financial reports. • Our failure or our franchisees and independent operators’ failure to comply with health, employment and other federal, state, local and provincial laws, rules and regulations may lead to losses and harm our brands. • The documents governing our indebtedness have restrictive terms and our failure to comply with any of these terms could put us in default, which would have an adverse effect on our business and prospects. • The Securitization Senior Notes Indenture governing the securitized debt facility may restrict the cash flow from the entities subject to the securitization to us and our subsidiaries and, upon the occurrence of certain events, cash flow would be further restricted. • We are a “controlled company” within the meaning of NASDAQ rules and, as a result, qualify for and intend to rely on exemptions from certain corporate governance requirements. • Future sales of our common stock in the public market, or the perception in the public market that such sales may occur, could reduce our stock price. 11 Risks Relating to Our Business Competition may harm our business and results of operations.
Biggest changeThese risks include, among others, the following: • Competition may harm our business and results of operations. • Changes in consumer preferences and perceptions, and in economic, market, and other conditions could adversely affect our business and results of operations. • Our business is affected by the financial results of our franchisees. • Increases in operating costs, including labor and commodity costs and interest rates have, and may again in the future, adversely affect our results of operations. • Our business is affected by advances in automotive technology. • We depend on key suppliers, including international suppliers, to deliver timely high-quality products at quantities and prices required for our businesses. • We may not be able to execute on our plans to open additional locations and enter new markets. • Our business may be adversely impacted by our indebtedness, including additional leverage in connection with acquisitions and other capital expenditure initiatives. • If franchisees and other licensees do not observe the required quality and trademark usage standards, our brands may suffer reputational damage, which could in turn adversely affect our business. • We are heavily dependent on information systems and technology, and any significant failure, interruption, or security incident could impair our ability to efficiently operate our business or timely or accurately prepare financial reports. • Our failure or our franchisees and independent operators’ failure to comply with health, employment, and other federal, state, local, and provincial laws, rules, and regulations may lead to losses and harm our brands. • The documents governing our indebtedness have restrictive terms and our failure to comply with any of these terms could put us in default, which would have an adverse effect on our business and prospects. • The Securitization Senior Notes Indenture governing the securitized debt facility may restrict the cash flow from the entities subject to the securitization to us and our subsidiaries and, upon the occurrence of certain events, cash flow would be further restricted. • We are a “controlled company” within the meaning of NASDAQ rules and, as a result, qualify for exemptions from certain corporate governance requirements that we have relied on in the past and may do so in the future. • Future sales of our common stock in the public market, or the perception in the public market that such sales may occur, could reduce our stock price. 12 Risks Relating to Our Business Competition may harm our business and results of operations.
If our business does not generate sufficient cash flow from operations, in the amounts projected or at all, or if future borrowings are not available to us under our securitized notes, term loan or revolving credit facility or otherwise in amounts sufficient to fund our other liquidity needs, our financial condition and results of operations may be adversely affected.
If our business does not generate sufficient cash flow from operations, in the amounts projected or at all, or if future borrowings are not available to us under our securitized notes, term loan facility, or revolving credit facility or otherwise in amounts sufficient to fund our other liquidity needs, our financial condition and results of operations may be adversely affected.
These provisions include: • providing that our board of directors will be divided into three classes, with each class of directors serving staggered three-year terms; 33 • providing for the removal of directors only for cause and only upon the affirmative vote of the holders of at least 66 2/3% in voting power of all the then-outstanding shares of stock of the Company entitled to vote thereon, voting together as a single class, if less than 40% of the voting power of our outstanding common stock is beneficially owned by our Principal Stockholders; • empowering only the board to fill any vacancy on our board of directors (other than in respect of our Principal Stockholders’ directors (as defined below)), whether such vacancy occurs as a result of an increase in the number of directors or otherwise, if less than 40% of the voting power of our outstanding common stock is beneficially owned by our Principal Stockholders; • authorizing the issuance of “blank check” preferred stock without any need for action by stockholders; • prohibiting stockholders from acting by written consent if less than 40% of the voting power of our outstanding common stock is beneficially owned by our Principal Stockholders; • to the extent permitted by law, prohibiting stockholders from calling a special meeting of stockholders if less than 40% of the voting power of our outstanding common stock is beneficially owned by our Principal Stockholders; and • establishing advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted on by stockholders at stockholder meetings.
These provisions include: • providing that our Board of Directors will be divided into three classes, with each class of directors serving staggered three-year terms; • providing for the removal of directors only for cause and only upon the affirmative vote of the holders of at least 66 2/3% in voting power of all the then-outstanding shares of stock of the Company entitled to vote thereon, voting together as a single class, if less than 40% of the voting power of our outstanding common stock is beneficially owned by our Principal Stockholders; • empowering only the board to fill any vacancy on our Board of Directors (other than in respect of our Principal Stockholders’ directors (as defined below)), whether such vacancy occurs as a result of an increase in the number of directors or otherwise, if less than 40% of the voting power of our outstanding common stock is beneficially owned by our Principal Stockholders; • authorizing the issuance of “blank check” preferred stock without any need for action by stockholders; • prohibiting stockholders from acting by written consent if less than 40% of the voting power of our outstanding common stock is beneficially owned by our Principal Stockholders; • to the extent permitted by law, prohibiting stockholders from calling a special meeting of stockholders if less than 40% of the voting power of our outstanding common stock is beneficially owned by our Principal Stockholders; and • establishing advance notice requirements for nominations for election to our Board of Directors or for proposing matters that can be acted on by stockholders at stockholder meetings.
We and our franchisees face many other challenges in opening additional locations, including: • availability of financing on acceptable terms; • negotiation of acceptable lease terms; • securing required applicable governmental permits and approvals; • impact of natural disasters and other acts of nature and terrorist acts or political instability; • availability of franchise territories not prohibited by the territorial exclusivity provisions of existing franchisees; • diversion of management’s attention to the integration of acquired location operations; 17 • exposure to liabilities arising out of sellers’ prior operations of acquired locations; • incurrence or assumption of debt to finance acquisitions or improvements and/or the assumption of long-term, non-cancelable leases; and • general economic and business conditions.
We and our franchisees face many other challenges in opening additional locations, including: • availability of financing on acceptable terms; • negotiation of acceptable lease terms; • securing required applicable governmental permits and approvals; • impact of natural disasters and other acts of nature and terrorist acts or political instability; • availability of franchise territories not prohibited by the territorial exclusivity provisions of existing franchisees; • diversion of management’s attention to the integration of acquired location operations; • exposure to liabilities arising out of sellers’ prior operations of acquired locations; • incurrence or assumption of debt to finance acquisitions or improvements and/or the assumption of long-term, non-cancelable leases; and • general economic and business conditions.
We are subject to the FLSA, applicable foreign employment standards laws and similar state laws, which govern such matters as time keeping and payroll requirements, minimum wage, overtime, employee and worker classifications and other working conditions, along with the ADA, FMLA and the Immigration Reform and Control Act of 1986, various family leave, 20 sick leave or other paid time off mandates and a variety of other laws enacted, or rules, regulations and decisions promulgated or rendered, by federal, state, local and provincial governmental authorities that govern these and other employment matters, including labor scheduling, meal and rest periods, working conditions and safety standards.
We are subject to the FLSA, applicable foreign employment standards laws and similar state laws, which govern such matters as time keeping and payroll requirements, minimum wage, overtime, employee and worker classifications and other working conditions, along with the ADA, FMLA, and the Immigration Reform and Control Act of 1986, various family leave, sick leave, or other paid time off mandates and a variety of other laws enacted, or rules, regulations and decisions promulgated or rendered, by federal, state, local, and provincial governmental authorities that govern these and other employment matters, including labor scheduling, meal and rest periods, working conditions, and safety standards.
Shortages or interruptions in the supply of automobile products, motor oil, or car wash and other supplies caused by unanticipated demand, problems in production or distribution, acts of terrorism, financial or other difficulties of suppliers, labor actions, inclement weather, natural disasters, such as floods, drought, and hurricanes, outbreak of disease, including coronavirus and pandemics, or other conditions have adversely affected the availability, quality and cost of supplies for such products, and could do so again in the future, which could lower our revenues, increase operating costs, damage brand reputation, and otherwise harm our business and the businesses of our franchisees.
Shortages or interruptions in the supply of automobile products, motor oil, or car wash and other supplies caused by unanticipated demand, problems in production or distribution, acts of terrorism, financial or other difficulties of suppliers, labor actions, inclement weather, natural disasters, such as floods, drought, and hurricanes, outbreak of disease, including pandemics, or other conditions have adversely affected the availability, quality and cost of supplies for such products, and could do so again in the future, which could lower our revenues, increase operating costs, damage brand reputation, and otherwise harm our business and the businesses of our franchisees.
In addition, any testing by us conducted in connection with management’s assessment of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act, or any subsequent testing by our independent registered public accounting firm, may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses or that may require prospective or retroactive changes to our financial statements or identify other areas for further 32 attention or improvement.
In addition, any testing by us conducted in connection with management’s assessment of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act, or any subsequent testing by our independent registered public accounting firm, may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses or that may require prospective or retroactive changes to our financial statements or identify other areas for further attention or improvement.
Although we believe this exclusive forum provision benefits us by providing increased consistency in the application of Delaware law and federal securities laws in the types of lawsuits to which each applies, the choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, other employees or stockholders, which may discourage such lawsuits against us and our directors, officers, 34 other employees or stockholders.
Although we believe this exclusive forum provision benefits us by providing increased consistency in the application of Delaware law and federal securities laws in the types of lawsuits to which each applies, the choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, other employees or stockholders, which may discourage such lawsuits against us and our directors, officers, other employees, or stockholders.
However, our certificate of incorporation includes a provision that restricts us from engaging in any business combination with an interested stockholder for three years following the date that person becomes an interested stockholder, but such restrictions do not apply to any business combination between our Principal Stockholders and any affiliate thereof or their direct and indirect transferees, on the one hand, and us, on the other.
However, our certificate of incorporation includes a provision 34 that restricts us from engaging in any business combination with an interested stockholder for three years following the date that person becomes an interested stockholder, but such restrictions do not apply to any business combination between our Principal Stockholders and any affiliate thereof or their direct and indirect transferees, on the one hand, and us, on the other.
If we are unable to refinance or repay amounts under our debt agreements prior to the expiration of the applicable term or upon rapid amortization occurring as a result of a default, our cash flow would be directed to the repayment of our debt and, 29 other than management fees sufficient to cover minimal selling, general and administrative expenses, would not be available for operating our business.
If we are unable to refinance or repay amounts under our debt agreements prior to the expiration of the applicable term or upon rapid amortization occurring as a result of a default, our cash flow would be directed to the repayment of our debt and, other than management fees sufficient to cover minimal selling, general and administrative expenses, would not be available for operating our business.
If we fail to comply with these rules or requirements, or if our data security systems are breached or compromised, we may be liable for losses incurred by card issuing 22 banks or customers, subject to fines and higher transaction fees, lose our ability to accept credit or debit card payments from our customers, or process electronic fund transfers or facilitate other types of payments.
If we fail to comply with these rules or requirements, or if our data security systems are breached or compromised, we may be liable for losses incurred by card issuing banks or customers, subject to fines and higher transaction fees, lose our ability to accept credit or debit card payments from our customers, or process electronic fund transfers or facilitate other types of payments.
Additionally, depending upon the outcome and application of certain legal proceedings pending or concluded in federal and state courts in California involving the wage and hour laws of California in another franchise system, franchisors may be subject to claims that their franchisees should be treated as employees and not as independent contractors under the wage and hour laws of California and, potentially, certain other states with similar wage and hour laws.
Additionally, depending upon the outcome and application of certain legal proceedings pending or concluded in federal and state courts in California involving the wage and hour laws of California in another franchise system, 21 franchisors may be subject to claims that their franchisees should be treated as employees and not as independent contractors under the wage and hour laws of California and, potentially, certain other states with similar wage and hour laws.
The attendant expenses that we bear could require the expenditure of additional capital, and there would be expenses associated with the defense of any infringement, misappropriation, or other third- party claims, and there could be attendant negative publicity, even if ultimately decided in our favor. In addition, third parties may assert that our intellectual property is invalid or unenforceable.
The attendant expenses that we bear could require the expenditure of additional capital, and there would be expenses associated with the defense of any infringement, misappropriation, or other third- party claims, and there could be attendant negative publicity, even if ultimately decided in our favor. In addition, third parties may assert that our intellectual property is 25 invalid or unenforceable.
These potential conflicts of interest could have a material adverse effect on our business, financial condition, results of operations, or prospects if attractive corporate opportunities are allocated by one of our Principal Stockholders to itself or its affiliated funds, the portfolio companies owned by such funds or any affiliates of a Principal Stockholder instead of to us.
These potential conflicts of interest could 35 have a material adverse effect on our business, financial condition, results of operations, or prospects if attractive corporate opportunities are allocated by one of our Principal Stockholders to itself or its affiliated funds, the portfolio companies owned by such funds, or any affiliates of a Principal Stockholder instead of to us.
Because our locations accept electronic forms of payment from our customers, our business requires the collection and retention of customer data, including credit and debit card numbers and other personally-identifiable information in various information systems that we and our franchisees maintain in conjunction with third parties with whom we contract to provide credit card processing services.
Because our locations accept electronic forms of payment from our customers, our business requires the collection and retention of customer data, including credit and debit card numbers and other personally-identifiable information (“PII”) in various information systems that we and our franchisees maintain in conjunction with third parties with whom we contract to provide credit card processing services.
All 28 obligations under the Term Loan Facility and Revolving Credit Facility are unconditionally guaranteed by Driven Brands Parent LLC, a wholly-owned subsidiary of the Company, which wholly-owns Driven Holdings, LLC (the “Borrower”) and each of the Borrower’s existing and future direct and indirect, wholly-owned material domestic subsidiaries, subject to certain customary exclusions and exceptions.
All obligations under the Term Loan Facility and Revolving Credit Facility are unconditionally guaranteed by Driven Brands Parent LLC, a wholly-owned subsidiary of the Company, which wholly-owns Driven Holdings, LLC (the “Borrower”) and each of the Borrower’s existing and future direct and indirect, wholly-owned material domestic subsidiaries, subject to certain customary exclusions and exceptions.
The success of our business strategy depends, in part, on our continued ability to use our existing trademarks and service marks to increase brand awareness and further develop our branded services and products in both existing and new markets. We have registered certain trademarks and have other trademark applications pending in the U. S. and certain foreign jurisdictions.
The success of our business strategy depends, in part, on our continued ability to use our existing trademarks 24 and service marks to increase brand awareness and further develop our branded services and products in both existing and new markets. We have registered certain trademarks and have other trademark applications pending in the U.S. and certain foreign jurisdictions.
The Tax Receivable Agreement provides that in the event that we breach any of our material obligations, whether as a result of our failure to make any payment when due (subject to a specified cure period), failure to honor any other material obligation under it or by operation of law as a result of the rejection of it in a case commenced under the U.
The Tax Receivable Agreement provides that in the event that we breach any of our material obligations, whether as a result of our failure to make any payment when due (subject to a specified cure period), failure to honor any other material obligation under it or by operation of law as a result of the rejection of it in a case commenced under the U.S.
We do not generally provide our franchisees with direct financing and therefore their ability to access borrowed funds generally depends on their independent relationships with various financial institutions. In addition, labor and material costs expended will vary by geographical location and are subject to general price increases.
We do not generally provide our franchisees with direct financing and therefore their ability to access borrowed funds generally depends on their independent relationships with various financial institutions. In addition, 18 labor and material costs expended will vary by geographical location and are subject to general price increases.
Consequently, franchisees may not successfully operate stores in a manner consistent with our standards and requirements, or may not hire and train qualified managers and other store personnel. If they do not, our image and reputation may suffer, and revenues could decline. Our business is affected by advances in automotive technology .
Consequently, franchisees may not successfully operate stores in a manner consistent with our standards and requirements or may not hire and train qualified managers and other store personnel. If they do not, our image and reputation may suffer, and revenues could decline. 14 Our business is affected by advances in automotive technology .
S. Bankruptcy Code or otherwise, then all of our payment and other obligations under the Tax Receivable Agreement will be accelerated and will become due and payable, and we will be required to make a payment equal to the present value of future payments under the Tax Receivable Agreement, applying assumptions similar to those described above.
Bankruptcy Code or otherwise, then all of our payment and other obligations under the Tax Receivable Agreement will be accelerated and will become due and payable, and we will be required to make a payment equal to the present value of future payments under the Tax Receivable Agreement, applying assumptions similar to those described above.
Also, because many of the franchisees are contractually obligated to pay advertising fees based on a percentage of their gross revenues and because we will deduct a portion of the gross revenues of the company-operated locations to fund their marketing and 19 advertising fees, our advertising budget depends on sales volumes at these locations.
Also, because many of the franchisees are contractually obligated to pay advertising fees based on a percentage of their gross revenues and because we will deduct a portion of the gross revenues of the company-operated locations to fund their marketing and advertising fees, our advertising budget depends on sales volumes at these locations.
There can be no assurance that the insurance held by us, our vendors, or franchisees will be adequate to cover the associated risks of the sale of defective products, or that, we or our franchisee will be able to continue to procure the same amount of insurance or to secure an increase in its insurance coverage.
There can be no assurance that the insurance held by us, our vendors, or franchisees will be adequate to cover the associated risks of the sale of defective products, or that, we or our franchisees will be able to continue to procure the same amount of insurance or to secure an increase in its insurance coverage.
From time to time, we, our franchisees, and independent operators may experience difficulty hiring and maintaining such qualified personnel. Competition for employees and wage inflation may also result in difficulties in hiring and retaining key qualified personnel. In addition, the formation of unions may increase the operating expenses of our locations.
From time to time, we, our franchisees, and independent operators may experience difficulty hiring and retaining such qualified personnel. Competition for employees and wage inflation may also result in difficulties in hiring and retaining key qualified personnel. In addition, the formation of unions may increase the operating expenses of our locations.
There can be no assurance that the franchisees or other licensees will not take actions that could have a material adverse effect on our intellectual property. We may become subject to third-party infringement claims or challenges to IP validity.
There can be no assurance that the franchisees or other licensees will not take actions that could have a material adverse effect on our intellectual property. We may become subject to third-party infringement claims or challenges to intellectual property validity.
We implement new systems, including our continued implementation of a new enterprise resource planning (“ERP”) system, as a part of our ongoing technology and process improvements. The ERP system is designed to provide a standardized 25 method of accounting for the enterprise and enhance our ability to implement strategic initiatives.
We implement new systems, including our continued implementation of a new enterprise resource planning (“ERP”) system, as a part of our ongoing technology and process improvements. The ERP system is designed to provide a standardized method of accounting for the enterprise and enhance our ability to implement strategic initiatives.
In such an environment, our suppliers may seek to change the terms on which they do business with us in order to lessen the impact of any current and future economic challenges on their businesses or may cease or suspend operations.
In such an environment, our suppliers may seek to change the terms on which they do business with us in order to lessen the impact of any current and future economic or regulatory challenges on their businesses or may cease or suspend operations.
Any lack of management continuity could adversely affect our ability to successfully manage our business and execute our growth strategy, as well as 23 result in operational and administrative inefficiencies and added costs, and may make recruiting for future management positions more difficult.
Any lack of management continuity could adversely affect our ability to successfully manage our business and execute our growth strategy, as well as result in operational and administrative inefficiencies and added costs, and may make recruiting for future management positions more difficult.
We may in the future become the subject of claims asserted by third parties for infringement, misappropriation or other violation of their intellectual property rights in areas where we or our franchisees operate or where we intend to conduct 24 operations, including in foreign jurisdictions.
We may in the future become the subject of claims asserted by third parties for infringement, misappropriation, or other violation of their intellectual property rights in areas where we or our franchisees operate or where we intend to conduct operations, including in foreign jurisdictions.
In addition, a variety of risks are associated with the use of social media and digital marketing, including the improper disclosure of proprietary information, negative comments about or negative incidents regarding us, exposure of personally identifiable information, fraud or out-of-date information.
In addition, a variety of risks are associated with the use of social media and digital 20 marketing, including the improper disclosure of proprietary information, negative comments about or negative incidents regarding us, exposure of personally identifiable information, fraud, or out-of-date information.
In certain circumstances, the documents governing our indebtedness also require us to maintain specified financial ratios. Our ability to meet these financial ratios can be affected by events beyond our control, and we may not satisfy such a test.
In certain circumstances, the documents governing our indebtedness also require us to maintain specified financial ratios. Our ability to meet these financial ratios can be affected by events beyond our control, and we may not satisfy such a 30 test.
In addition, litigation against a franchisee, independent operator or their affiliates or against a company-operated location by third parties, whether in the ordinary course of business or otherwise, may include claims against us by virtue of our relationship with the franchisee, independent operator or company-operated location.
In addition, litigation against a franchisee, independent operator, or their affiliates or against a company-operated location by third parties, whether in the ordinary course of business or otherwise, 22 may include claims against us by virtue of our relationship with the franchisee, independent operator or company-operated location.
These implications could adversely affect our revenues, results of operations or business and financial condition. Risks Relating to the Franchisees A majority of our locations are owned and operated by franchisees and, as a result, we are highly dependent upon our franchisees.
These implications could adversely affect our revenues, results of operations, business and financial condition. Risks Relating to the Franchisees A majority of our locations are owned and operated by franchisees and, as a result, we are highly dependent upon our franchisees.
Other events and factors that could affect our results include: • changes in consumer preferences, perceptions, and spending patterns; • demographic trends; • employment levels and wage rates, and their effects on the disposable income and actual or perceived wealth of potential customers and their consumption habits, which may impact traffic and transaction size; • variations in the timing and volume of sales at our locations; • changes in frequency of customer visits; • changes in driving and traffic patterns; • type, number, and location of competitors; • variations in the cost of, availability of and shipping costs of motor oil and automobile supplies, parts, paints, refinish coatings, and car wash supplies; • unexpected slowdowns in business or operational support efforts; • changes in the availability or cost of labor, including health care-related or other costs; • the timing of expenditures in anticipation of future sales at our locations; • an inability to purchase sufficient levels of advertising or increases in the cost of advertising; • increases in national, federal, state, local, and provincial taxes in the countries in which we operate, including income taxes, indirect taxes, non-resident withholding taxes, and other similar taxes, as well as changes in tax guidance and regulations and the impact on our effective tax rate; • factors associated with operating in foreign locations, including repatriation risks, foreign currency risks, and changes in tax treatment; • unreliable or inefficient technology, including point-of-sale and payment systems; • weather, natural disasters, pandemics, military conflicts and other catastrophic events and terrorist activities; • changes in the number of renewals of franchise agreements; and • our ability to maintain direct repair program relationships with insurance partners.
Other events and factors that could affect our results include: • changes in consumer preferences, perceptions, and spending patterns; • demographic trends; • employment levels and wage rates, and their effects on the disposable income and actual or perceived wealth of potential customers and their consumption habits, which may impact traffic and transaction size; • variations in the timing and volume of sales at our locations; • changes in frequency of customer visits; • changes in driving and traffic patterns; • type, number, and location of competitors; • variations in the cost of, availability of and shipping costs of motor oil and automobile supplies, parts, paints, refinish coatings, glass, chemicals, and car wash supplies; • unexpected slowdowns in business or operational support efforts; • changes in the availability or cost of labor, including health care-related or other costs; • the timing of expenditures in anticipation of future sales at our locations; • an inability to purchase sufficient levels of advertising or increases in the cost of advertising; • increases in national, federal, state, local, and provincial taxes in the countries in which we operate, including income taxes, indirect taxes, non-resident withholding taxes, and other similar taxes, as well as changes in tax guidance and regulations and the impact on our effective tax rate; • factors associated with operating in foreign locations, including repatriation risks, foreign currency risks, and changes in tax treatment; • high levels of economic inflation; • unreliable or inefficient technology, including point-of-sale and payment systems; • weather, natural disasters, pandemics, military conflicts and other catastrophic events and terrorist activities; • changes in the number of renewals of franchise agreements; and • our ability to maintain direct repair program and other relationships with insurance partners.
We rely on these networks and systems to process, transmit and store electronic information that is important to the operation of our business and the services we offer, as well as to manage and support our core business operations.
We rely on these networks and systems to process, transmit, and store electronic information that is important to the 26 operation of our business and the services we offer, as well as to manage and support our core business operations.
Some cars produced by certain automotive manufacturers last longer and require service and maintenance at less frequent intervals, or they may 13 require more specialized service and maintenance than we offer at our locations.
Some cars produced by certain automotive manufacturers last longer and require service and maintenance at less frequent intervals, or they may require more specialized service and maintenance than we offer at our locations.
In the event a franchisee leaves our franchise and a successor franchisee is not found, or a successor 27 franchisee that is approved is not as successful in operating the location as the former franchisee or franchisee principal, the sales of the location may be impacted.
In the event a franchisee leaves our franchise and a successor franchisee is not found, or a successor franchisee that is approved is not as successful in operating the location as the former franchisee or franchisee principal, the sales of the location may be impacted.
If a key supplier or a large number of other suppliers suspend or cease operations, we and our franchisees may have difficulty keeping our respective locations fully supplied.
If a key supplier or a large number of other suppliers suspend, decrease, or cease operations, we and our franchisees may have difficulty keeping our respective locations fully supplied.
Increasing complexity in the systems used in vehicles exacerbates this risk. • Restrictions on access to diagnostic tools and repair information imposed by the original vehicle manufacturers or by governmental regulation, which limits our ability to perform maintenance and repairs. • Negative publicity associated with any of our services and products, or regarding the automotive aftermarket industries generally, whether or not factually accurate, could cause consumers to lose confidence in, or could harm the reputation of our brands. • Changes in travel patterns, which may cause consumers to rely more heavily on mass transportation or to travel less frequently. 12 • Payments for automobile repairs, which may be dependent on insurance programs, and insurance companies may require repair technicians to hold certain certifications that the personnel at our locations do not hold. • Changes in governmental regulations in the automotive sector, including pollution prevention laws, which may affect demand for automotive repair and maintenance services and increase our costs in unknown ways.
Increasing complexity in the systems used in vehicles exacerbates this risk. • Restrictions on access to diagnostic tools and repair information imposed by the original vehicle manufacturers or by governmental regulation, which may limit our ability to perform maintenance and repairs. • Negative publicity associated with any of our services and products, or regarding the automotive aftermarket industries generally, whether or not factually accurate, could cause consumers to lose confidence in, or could harm the reputation of our brands. • Changes in travel patterns, which may cause consumers to rely more heavily on mass transportation or to travel less frequently. 13 • Payments for automobile repairs, which may be dependent on insurance programs, and insurance companies may require repair technicians to hold certain certifications that the personnel at our locations do not hold. • Changes in governmental regulations in the automotive sector, including pollution prevention laws, which may affect demand for automotive repair and maintenance services and increase our costs in unknown ways.
Our failure to maintain our current product sourcing income could have a material adverse effect on our sales and profit margins, which in turn could materially and adversely affect our business and results of operations. 15 We benefit from negotiated discounts with certain large oil and other suppliers based on our scale and ability to meet volume requirements.
Our failure to maintain our current product sourcing income could have a material 16 adverse effect on our sales and profit margins, which in turn could materially and adversely affect our business and results of operations. We benefit from negotiated discounts with certain large oil and other suppliers based on our scale and ability to meet volume requirements.
Further, our ability to continue to grow our business, including opening additional locations to maintain existing business volume and pricing, is related to our ability to maintain and grow our relationships with insurance providers.
Further, our ability to continue to grow our business, including opening 17 additional locations to maintain existing business volume and pricing, is related to our ability to maintain and grow our relationships with insurance providers.
Additionally, a substantial unsatisfied judgment could result in the bankruptcy of one or more of our operating entities, which could have a material adverse effect on our results of operations, business, and financial condition. Increases in supply costs could adversely affect our results of operations. The operation of our locations requires large quantities of automotive and car wash supplies.
Additionally, a substantial unsatisfied judgment could result in the bankruptcy of one or more of our operating entities, which could have a material adverse effect on our results of operations, business, and financial condition. Increases in supply costs could adversely affect our results of operations. The operation of our locations requires large quantities of automotive supplies.
Profitability of franchisees is also typically lower during months in which revenue composition is more heavily weighted toward tires, which is a lower margin category. In addition, profitability in certain areas of North America may be lower in the winter months when certain costs, such as utilities and snow plowing, are typically higher.
Profitability of franchisees is also typically lower during months in which revenue composition is more heavily weighted toward tires, which is a lower margin category. In addition, profitability in certain areas of North 19 America and Europe may be lower in the winter months when certain costs, such as utilities and snow plowing, are typically higher.
Any such future difficulties could result in a decline in the sales and operating results of our locations, which could in turn materially and adversely affect our revenues, results of operations, business, and financial condition. 14 Insurance coverage may not be adequate, and increased self-insurance and other insurance costs could adversely affect our results of operations.
Any such future difficulties could result in a decline in the sales and operating results of our locations, which could in turn materially and adversely affect our revenues, results of operations, business, and financial condition. 15 Insurance coverage may not be adequate, and increased self-insurance and other insurance costs could adversely affect our results of operations.
Recent increases in employee wages, benefits, and insurance and other operating costs such as commodity costs, legal claims, insurance costs, and costs of borrowing have adversely affected our operations and administrative expenses at our locations and may do so again in the future.
Ongoing increases in employee wages, benefits, and insurance and other operating costs such as commodity costs, legal claims, insurance costs, and costs of borrowing have adversely affected our operations and administrative expenses at our locations and may do so again in the future.
Changing regulations relating to privacy, information security and data protection could increase our costs, affect or limit how we collect and use personal information and harm our brands in a manner that adversely affects our business. The U.
Changing regulations relating to privacy, information security and data protection could increase our costs, affect or limit how we collect and use personal information, and harm our brands in a manner that adversely affects our business.
The following factors could affect our stock price: • our operating and financial performance and prospects; • quarterly variations in the rate of growth (if any) of our financial indicators, such as net income per share, net income and revenues; • the public reaction to our press releases, our other public announcements and our filings with the SEC; • strategic actions by our competitors; • changes in operating performance and the stock market valuations of other companies; • overall conditions in our industry and the markets in which we operate; • announcements related to litigation; • our failure to meet revenue or earnings estimates made by research analysts or other investors; • changes in revenue or earnings estimates, or changes in recommendations or withdrawal of research coverage, by equity research analysts; • speculation in the press or investment community; • issuance of new or updated research or reports by securities analysts; • sales of our common stock by us or our stockholders, or the perception that such sales may occur; 30 • changes in accounting principles, policies, guidance, interpretations, or standards; • additions or departures of key management personnel; • actions by our stockholders, including our Principal Stockholders; • general market conditions; • domestic and international economic, legal and regulatory factors unrelated to our performance; • announcement by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments; • security breaches impacting us or other similar companies; • material weakness in our internal control over financial reporting; and • the realization of any risks described under this “Risk Factors” section, or other risks that may materialize in the future.
The following factors could affect our stock price: • our operating and financial performance and prospects; • quarterly variations in the rate of growth (if any) of our financial indicators, such as net income per share, net income, and revenues; • the public reaction to our press releases, our other public announcements, and our filings with the SEC; • strategic actions by our competitors; • changes in operating performance and the stock market valuations of other companies; • overall conditions in our industry and the markets in which we operate; • announcements related to litigation; • our failure to meet revenue or earnings estimates made by research analysts or other investors; • changes in revenue or earnings estimates, or changes in recommendations or withdrawal of research coverage, by equity research analysts; • speculation in the press or investment community; • issuance of new or updated research or reports by securities analysts; • sales of our common stock by us or our stockholders, or the perception that such sales may occur; • changes in accounting principles, policies, guidance, interpretations, or standards; • additions or departures of key management personnel; • actions by our stockholders, including our Principal Stockholders; • general market conditions; • domestic and international economic, legal, and regulatory factors unrelated to our performance; • announcement by us or our competitors of significant acquisitions, strategic partnerships, joint ventures, or capital commitments; • security breaches impacting us or other similar companies; • material weakness in our internal control over financial reporting; and • the realization of any risks described under this “Risk Factors” section, or other risks that may materialize in the future. 31 The stock markets in general have experienced extreme volatility that has often been unrelated to the operating performance of particular companies.
These tax benefits, which we refer to as the Pre-IPO and IPO-Related Tax Benefits, include: (i) all depreciation and amortization deductions, and any offset to taxable income and gain or increase to taxable loss, resulting from the tax basis that we have in our and our subsidiaries’ intangible assets, (ii) the utilization of certain of our and our subsidiaries’ U.S. federal and Canadian federal and provincial net operating losses, capital losses, non-capital losses, disallowed interest expense carryforwards and tax credits, if any, attributable to periods prior to the effective date of the Company’s initial public offering, (iii) deductions in respect of debt issuance costs associated with certain of our and our subsidiaries’ financing arrangements, and (iv) deductions with respect to our and our subsidiaries’ initial public offering-related expenses. 31 These payment obligations are our obligations and not obligations of any of our subsidiaries.
These tax benefits, which we refer to as the Pre-IPO and IPO-Related Tax Benefits, include: (i) all depreciation and amortization deductions, and any offset to taxable income and gain or increase to taxable loss, resulting from the tax basis that we have in our and our subsidiaries’ intangible assets, (ii) the utilization of certain of our and our subsidiaries’ U.S. federal and Canadian federal and provincial net operating losses, capital losses, non-capital losses, disallowed interest expense carryforwards and tax credits, if any, attributable to periods prior to the effective date of the Company’s initial public offering, (iii) deductions in respect of debt issuance costs associated with certain of our and our subsidiaries’ financing arrangements, and (iv) deductions with respect to our and our subsidiaries’ initial public offering-related expenses.
We, our franchisees, and our independent operators may be subject to claims, including class action lawsuits, filed by customers, franchisees, independent operators, employees, suppliers, landlords, governmental authorities and others in the ordinary course of business, including as a result of violations of the laws set forth above under “ Risk Factors — Our failure or 21 our franchisees’ and independent operators’ failure to comply with health, employment and other federal, state, local and provincial laws, rules and regulations may lead to losses and harm our brands ” and “ Risk Factors —Our locations are subject to certain environmental laws and regulations. ” Significant claims may be expensive to defend and may divert time and resources away from our operations, causing adverse impacts to our operating results.
We, our franchisees, and our independent operators may be subject to claims, including class action lawsuits, filed by customers, franchisees, independent operators, employees, stockholders, suppliers, landlords, governmental authorities, and others, including as a result of violations of the laws set forth above under “ Risk Factors — Our failure or our franchisees’ and independent operators’ failure to comply with health, employment, and other federal, state, local, and provincial laws, rules, and regulations may lead to losses and harm our brands ” and “ Risk Factors —Our locations are subject to certain environmental laws and regulations. ” Significant claims may be expensive to defend and may divert time and resources away from our operations, causing adverse impacts to our operating results.
Although we and our service providers continually implement processes, procedures, and controls designed to reduce and mitigate the risk of a cyber incident, such preventative measures may not be sufficient in all circumstances or mitigate all potential risks.
Although we and our service providers continually implement processes, procedures, and controls designed to reduce and mitigate the risk of a cyber incident, such preventative measures may not be sufficient in all circumstances to prevent, mitigate, or timely detect all potential risks.
Our securitized debt facility and our Credit Agreement may restrict the ability of our subsidiaries to make distributions to us, which could affect our ability to make payments under the Tax Receivable Agreement.
The securitized debt facility may restrict the ability of our subsidiaries to make distributions to us, which could affect our ability to make payments under the Tax Receivable Agreement.
The occurrence of cyber incidents, or a deficiency in cybersecurity, could negatively impact our business by causing a disruption to our operations, a compromise or corruption of confidential information, and/or damage to our employee and business relationships, all of which could lead to loss and harm our business.
The occurrence of cyber incidents, or a deficiency in cybersecurity, could negatively impact our business by causing a disruption to our operations, a compromise, corruption, or loss of data, and/or damage to our employee and business relationships, all of which could lead to loss and harm our business.
Accordingly, we may not be able to adequately protect our brands everywhere in the world and use of our brands may result in liability for trademark infringement, trademark dilution or unfair competition. In addition, the laws of some countries do not protect intellectual property to the same extent as the laws of the United States and Canada.
Accordingly, we may not be able to adequately protect our brands everywhere in the world and use of our brands may result in liability for trademark infringement, trademark dilution, or unfair competition. In addition, the laws of some countries do not protect intellectual property to the same extent as the laws of the U.S. and Canada.
Higher supply costs or limited supply availability could reduce our profits, which in turn may materially and adversely affect our business and results of operations. This volatility could also cause us and our franchisees or independent operators to consider changes to our product delivery strategy and result in adverse adjustments to pricing of our services. Tariffs imposed by the U.
Higher supply costs or limited supply availability could reduce our profits, which in turn may materially and adversely affect our business and results of operations. This volatility could also cause us and our franchisees or independent operators to consider changes to our product delivery strategy and result in adverse adjustments to pricing of our services.
Further, governmental authorities in affected cities and regions took actions in an effort to protect people and property while permitting lawful and non- violent protest, including curfews and restrictions on business operations, neither of which was disruptive to our operations nor harmed consumer confidence and perceptions of personal well-being and security.
Further, governmental authorities in affected cities and regions may take action in an effort to protect people and property while permitting lawful and non- violent protest, including curfews and restrictions on business operations, neither of which was disruptive to our operations nor harmed consumer confidence and perceptions of personal well-being and security.
Our Principal Stockholders control a majority of the voting power of our outstanding voting stock, and as a result we will be a controlled company within the meaning of NASDAQ corporate governance standards.
Our Principal Stockholders control a majority of the voting power of our outstanding voting stock, and as a result we are a controlled company within the meaning of NASDAQ corporate governance standards.
All of our brands operating in the United States have had no-poaching clauses in their franchise agreements. In 2018, the Attorney General of the State of Washington issued civil investigative demands to a number of franchisors seeking information concerning no-poaching clauses in their franchise agreements.
All of our brands operating in the U.S. have had no-poaching clauses in their franchise agreements. In 2018, the Attorney General of the State of Washington issued civil investigative demands to a number of franchisors seeking information concerning no-poaching clauses in their franchise agreements.
High levels of economic inflation may increase our operating costs, influence demand for our products, and impact the profitability of our business. The U. S. is experiencing historically high levels of price inflation across a wide variety of economic sectors.
High levels of economic inflation may increase our operating costs, influence demand for our products, and impact the profitability of our business. The U.S. has been experiencing high levels of price inflation across a wide variety of economic sectors.
Our brands operating in 2019 in the United States decided to delete the no- poaching clauses in their franchise agreements. All of our brands have notified franchisees that they do not intend to enforce the no-poaching clauses in their existing franchise agreements.
Our brands operating in 2019 in the U.S. decided to delete the no-poaching clauses in their franchise agreements. All of our brands have notified franchisees that they do not intend to enforce the no-poaching clauses in their existing franchise agreements.
Our brands operating outside of the United States also have decided to delete the no-poaching clauses, if any, contained in their franchise agreements, to the extent they are entering into new franchise agreements.
Our brands operating outside of the U.S. also have decided to delete the no-poaching clauses, if any, contained in their franchise agreements, to the extent they are entering into new franchise agreements.
A successful cyber-attack or other cyber incident experienced by us or our service providers could cause an interruption of our operations, damage our relationship with franchisees and independent operators, result in the exposure of private or confidential data, potentially resulting in litigation, and adversely impact our reputation and financial results.
A successful cyber threat or other cyber incident experienced by us, our service providers, or a company we have acquired could cause an interruption of our operations, damage our relationship with franchisees and independent operators, result in the exposure of private or confidential data, potentially resulting in litigation, and adversely impact our reputation and financial results.
Decreases in the volume of our purchases by or increases in costs of products, labor or shipping could have a material adverse effect on our sales and profit margins. We depend on key suppliers, including international suppliers, to deliver timely high-quality products at quantities and prices similar to historical levels.
Decreases in the volume of our purchases by or increases in costs of products, labor, or shipping could have a material adverse effect on our sales and profit margins. We depend on key suppliers, including international suppliers, to deliver timely high-quality products at quantities and prices required for our businesses.
We are dependent upon our computer systems, including certain of our own proprietary software, and other information technology to properly conduct our business, including, but not limited to, point-of-sale processing in our locations, management of our supply chain, collection of cash, payment of obligations and various other processes and procedures.
We are dependent upon our information systems, including software and platforms provided by third parties, certain of our own proprietary software, and other information technology to properly conduct our business, including, but not limited to, point-of-sale processing in our locations, management of our supply chain, collection of cash, payment of obligations, and various other processes and procedures.
Our Principal Stockholders collectively have significant influence over us, including control over decisions that require the approval of stockholders, which could limit your ability to influence the outcome of matters submitted to stockholders for a vote. As of February 27, 2023, our Principal Stockholders hold approximately 61% of the outstanding shares of our common stock.
Our Principal Stockholders collectively have significant influence over us, including control over decisions that require the approval of stockholders, which could limit your ability to influence the outcome of matters submitted to stockholders for a vote. As of February 26, 2024, our Principal Stockholders hold approximately 62% of the outstanding shares of our common stock.
Our ongoing efforts to 26 ensure our and our affiliated entities’ compliance with the GDPR, the CCPA, CPRA and other existing or future Privacy and Data Protection Laws affecting customer or employee data to which we are subject could result in additional costs and operational disruptions.
Laws and other Privacy and Data Protection Laws becomes available. Our ongoing efforts to ensure our and our affiliated entities’ compliance with the CCPA, GDPR, and U.K Laws and other existing or future Privacy and Data Protection Laws affecting customer or employee data to which we are subject could result in additional costs and operational disruptions.
Our suppliers may be adversely impacted by economic weakness and uncertainty, such as increased commodity prices, increased fuel costs, tight credit markets and various other factors, including transportation interruptions and labor shortages.
Our suppliers may be adversely impacted by economic weakness and uncertainty, such as increased commodity prices, increased fuel costs, tight credit markets, and various other factors, including geopolitical uncertainty, transportation interruptions, import and export regulations, sanctions, and labor shortages.
We have seven series of securitization term notes, approximately $2.2 billion of which were outstanding as of December 31, 2022, and one series of variable funding notes, which had no outstanding balance as of December 31, 2022, pursuant to the Securitization Senior Notes Indenture.
We have seven series of securitization term notes, approximately $2.2 billion of which were outstanding as of December 30, 2023, and one series of variable funding notes, which had no outstanding 29 balance as of December 30, 2023, pursuant to the Securitization Senior Notes Indenture.
Any deterioration of economic conditions in Europe, the United States, or Canada could have a material adverse impact on financial markets and economic conditions in the United States and throughout the world.
Any deterioration of economic conditions in Europe, the U.S., or Canada could have a material adverse impact on financial markets and economic conditions in the U.S. and throughout the world.
Our board of directors consists of eight members, three of whom are our Principal Stockholders’ directors.
Our Board of Directors consists of ten members, three of whom are our Principal Stockholders’ directors.
Moreover, the new tariffs could also make our products more expensive for customers, potentially suppressing customer demand. We may not be able to offset the financial impact of tariffs through price increases to customers. There could be additional tariffs or other regulatory changes in the future. There is also a concern that the trade policies of the U.
Moreover, the new tariffs could also make our products more expensive for customers, potentially suppressing customer demand. We may not be able to offset the financial impact of tariffs through price increases to customers. There could be additional tariffs or other regulatory changes in the future.
Our obligations under the Securitized Term Notes are secured by substantially all of our and our subsidiaries’ North American revenue- generating assets other than the assets in our Car Wash segment and recent glass acquisitions.
Our obligations under the Securitized Term Notes are secured by substantially all of our and our subsidiaries’ North American revenue-generating assets other than the assets in our Car Wash segment and U.S. glass business.
In addition, our growth strategy may take longer to implement and may not be as successful as expected. Both of these factors could reduce our competitiveness and future sales and profit margins, which in turn could materially and adversely affect our business and results of operations. Certain acquisitions could adversely affect our financial results.
In addition, our growth strategy may take longer to implement and may not be as successful as expected. Both of these factors could reduce our competitiveness and future sales and profit margins, which in turn could materially and adversely affect our business and results of operations. Our acquisitions, dispositions, and strategic investments involve risks.
S. and other nations could result in the adoption of additional tariffs and other trade restrictions by various nations, leading to a global trade war and making our products uncompetitive in certain markets. Any of the foregoing could materially and adversely affect our business and results of operations.
There is also a concern that the trade policies of the U.S. and other nations could result in the adoption of additional tariffs and other trade restrictions by various nations, leading to a global trade war and making our products uncompetitive in certain markets. Any of the foregoing could materially and adversely affect our business and results of operations.
To the extent that we are unable to make payments under the Tax Receivable Agreement for any other reason, such payments will generally accrue interest at a rate of LIBOR plus 5.00% per annum until paid.
To the extent that we are unable to make payments under the Tax Receivable Agreement for any other reason, such payments will generally accrue interest at a rate of SOFR plus an applicable term adjustment plus 5% per annum until paid.
S., Canada, and other jurisdictions in which we operate are increasingly adopting or revising privacy, information security and data protection laws and regulations (“Privacy and Data Protection Laws”) that could have a significant impact on our current and planned privacy, data protection and information security related practices, including our collection, use, sharing, retention and safeguarding of consumer and/or employee information, and some of our current or planned business activities.
The U.S., Canada, and other jurisdictions in which we operate have adopted, and continue to revise, privacy, information security and data protection laws and regulations (“Privacy and Data Protection Laws”) that could have a significant impact on our current and planned privacy, data protection and information security related practices, including our collection, use, sharing, retention, and safeguarding of consumer and/or employee information, and some of our current or planned business activities.
S. government and other governments in jurisdictions in which we operate have imposed severe sanctions and export controls against Russia and Russian interests and threatened additional sanctions and controls. The impact of these measures, as well as potential responses to them by Russia, is currently unknown and they could adversely affect our business, supply chain, partners, or customers.
For example, the U.S. government and other governments in jurisdictions in which we operate have imposed severe sanctions and export controls against Russia and Russian interests and threatened additional sanctions and controls. The impact of current and potential measures, as well as potential responses to them could adversely affect our business, supply chain, partners, or customers.
If we are unable to successfully enter new markets and select appropriate sites for our locations, and if we and our franchisees are unable to construct new locations, complete remodels of our existing locations, or convert non-Driven Brands locations into our locations, our growth strategy may not succeed.
If we are unable to successfully enter new markets, including selecting appropriate sites for our locations, and if we and our franchisees are unable to construct new locations, complete remodels of our existing locations, or convert non-Driven Brands locations, or if we are unable to maintain and/or deepen our penetration in existing markets, our growth strategy may not succeed.
Conversely, demand for collision repair and services is lower outside of winter months, when collisions are typically less common due to improved driving conditions. Our 1-800 Radiator brand experiences seasonal fluctuations related to the sale of air conditioning and heating parts.
Customers may purchase fewer under car services during the winter months, when miles driven tend to be lower. Conversely, demand for collision repair and services is lower outside of winter months, when collisions are typically less common due to improved driving conditions. Our 1-800 Radiator brand experiences seasonal fluctuations related to the sale of air conditioning and heating parts.
We pursue strategic acquisitions as part of our business strategy. There is no assurance that we will continue to be able to find suitable acquisition candidates or be able to complete acquisitions on favorable terms, if at all.
We have made and may continue to pursue acquisitions and strategic investments as part of our business strategy. For example, there is no assurance that we will find suitable acquisition or investment candidates or be able to complete these transactions on favorable terms, if at all.
In addition, some of our key suppliers have significant operations outside of the markets in which we operate, which could expose us to events in the countries of those suppliers’ operations, including government intervention and foreign currency fluctuation.
In addition, some of our key suppliers have significant operations outside of the markets in which we operate, which could expose us to events in the countries of those suppliers’ operations, including government intervention and foreign currency fluctuation. Additionally, the ability of our suppliers to timely deliver products is subject to cyber-related risks.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeWe held leases covering the building and/or land for 1,117 of our company-operated locations, 605 of our independently-operated locations, 23 distribution centers and 17 offices and training centers in the U. S., Canada, and Europe, including our corporate headquarters located in Charlotte, North Carolina.
Biggest changeWe held leases covering the building and/or land for 1,110 of our company-operated locations, 618 of our independently-operated locations, 22 distribution centers and 15 offices and training centers in the U.S., Canada, and Europe, including our corporate headquarters located in Charlotte, North Carolina.
The leases generally have initial expiration dates ranging from 10 and 15 years, with certain renewal options available. We also leased 52 properties that were either leased or subleased principally to franchisees as of December 31, 2022. We believe that the properties are suitable and adequate for the Company’s business.
The leases generally have initial expiration dates ranging from 5 and 20 years, with certain renewal options available. We also leased 44 properties that were either leased or subleased principally to franchisees as of December 30, 2023. We believe that the properties are suitable and adequate for the Company’s business.
Item 2. Properties As of December 31, 2022, we had 4,805 company-operated, franchised, and independently-operated locations, and of these we owned 85 company-operated store locations and 116 independently-operated store locations.
Item 2. Properties As of December 30, 2023, we had 4,988 company-operated, franchised, and independently-operated locations, and of these we owned 175 company-operated store locations and 99 independently-operated store locations.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe graph is not, and is not intended to be, indicative of future performance of our Common Stock. 1/15/21 3/27/21 6/26/21 9/25/21 12/25/21 3/26/22 6/25/22 9/24/22 12/31/22 Driven Brands Holdings Inc. $ 100.00 $ 88.35 $ 115.58 $ 112.13 $ 124.75 $ 101.78 $ 109.98 $ 111.78 $ 102.30 S&P Midcap 400 Index $ 100.00 $ 108.61 $ 113.08 $ 112.30 $ 116.70 $ 113.63 $ 98.20 $ 94.58 $ 103.18 S&P Retailing Industry Group Index $ 100.00 $ 102.88 $ 111.78 $ 115.15 $ 119.94 $ 110.35 $ 87.03 $ 85.35 $ 79.10 Dividend policy We currently do not intend to pay cash dividends on our common stock in the foreseeable future.
Biggest changeThe graph is not, and is not intended to be, indicative of future performance of our common stock. 1/15/21 6/26/21 12/25/21 6/25/22 12/31/22 7/1/23 12/30/23 Driven Brands Holdings Inc. $ 100.00 $ 115.58 $ 124.75 $ 109.98 $ 102.30 $ 101.35 $ 53.41 S&P Midcap 400 Index $ 100.00 $ 113.08 $ 116.70 $ 98.20 $ 103.18 $ 112.30 $ 120.14 S&P Retailing Industry Group Index $ 100.00 $ 111.78 $ 119.94 $ 87.03 $ 79.10 $ 100.29 $ 112.64 38 Dividend policy We currently do not intend to pay cash dividends on our common stock in the foreseeable future.
Any declaration and payment of cash dividends in the future, if any, 37 will be at the discretion of our board of directors and will depend upon such factors as earnings levels, cash flows, capital requirements, levels of indebtedness, restrictions imposed by applicable law, our overall financial condition, restrictions in our debt agreements, and any other factors deemed relevant by our board of directors.
Any declaration and payment of cash dividends in the future, if any, will be at the discretion of our Board of Directors and will depend upon such factors as earnings levels, cash flows, capital requirements, levels of indebtedness, restrictions imposed by applicable law, our overall financial condition, restrictions in our debt agreements, and any other factors deemed relevant by our Board of Directors.
Stock Performance Graph The following graph and table provide a comparison of the cumulative total stockholder return on our Common Stock from January 15, 2021 (first day of trading following the effective date of our IPO) through December 31, 2022 to the returns of the Standard & Poor's (“S&P”) MidCap 400 Index, and the S&P Retailing Industry Group Index, a peer group.
Stock Performance Graph The following graph and table provide a comparison of the cumulative total stockholder return on our common stock from January 15, 2021 (first day of trading following the effective date of our IPO) through December 30, 2023 to the returns of the Standard & Poor's (“S&P”) MidCap 400 Index, and the S&P Retailing Industry Group Index, a peer group.
Holders On February 27, 2023, we had 64 holders of record of our common stock.
Holders On February 26, 2024, we had 53 holders of record of our common stock.

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

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Biggest changeItem 6. Reserved 38 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 39 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 57 Item 8. Financial Statements, Supplementary Data, and Reports of Independent Registered Public Accounting Firms (PCAOB ID Number 238 and 248 ) 59
Biggest changeItem 6. Reserved 39 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 40 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 60 Item 8. Financial Statements, Supplementary Data, and Reports of Independent Registered Public Accounting Firms (PCAOB ID Number 238 and 248 ) 61

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeMaintenance Segment Adjusted EBITDA increased $84 million, or 47%, for the year ended December 31, 2022, as compared to the year ended December 25, 2021, primarily due to revenue growth as well as cost management and operational leverage. 49 Car Wash Year Ended 2022 2021 (in thousands) December 31, 2022 December 25, 2021 % Net Revenue For Segment % Net Revenue For Segment Company-operated store sales $ 390,502 $ 277,118 65.9 % 56.9 % Independently-operated store sales 195,157 204,246 32.9 % 41.9 % Supply and other revenue 7,061 6,071 1.2 % 1.2 % Total revenue $ 592,720 $ 487,435 100.0 % 100.0 % Segment Adjusted EBITDA $ 184,717 $ 153,065 31.2 % 31.4 % System-Wide Sales Change Company-operated stores $ 390,502 $ 277,118 $ 113,384 40.9 % Independently-operated stores 195,157 204,246 (9,089) (4.5) % Total System-Wide Sales $ 585,659 $ 481,364 $ 104,295 21.7 % Store Count Change Company-operated stores 390 330 60 18.2 % Independently-operated stores 721 728 (7) (1.0) % Total Store Count 1,111 1,058 53 5.0 % Same Store Sales % (3.9) % 6.0 % Car Wash segment revenue increased $105 million, or 22%, for the year ended December 31, 2022, compared to the year ended December 25, 2021.
Biggest changeMaintenance Segment Adjusted EBITDA increased $71 million, or 27%, primarily due to revenue growth, cost management, and operational leverage utilizing our efficient labor model at company-operated locations. 51 Car Wash Year Ended 2023 2022 (in thousands, unless otherwise noted) December 30, 2023 December 31, 2022 % Net Revenue For Segment % Net Revenue For Segment Company-operated store sales 395,357 390,502 66.1 % 65.9 % Independently-operated store sales 196,395 195,157 32.9 % 32.9 % Supply and other revenue 5,992 7,061 1.0 % 1.2 % Total net revenue $ 597,744 $ 592,720 100.0 % 100.0 % Segment Adjusted EBITDA $ 128,996 $ 175,326 21.6 % 29.6 % System-Wide Sales Change Company-operated stores $ 395,357 390,502 $ 4,855 1.2 % Independently-operated stores 196,395 195,157 1,238 0.6 % Total System-Wide Sales $ 591,752 $ 585,659 $ 6,093 1.0 % Store Count (in whole numbers) Change Company-operated stores 391 390 1 0.3 % Independently-operated stores 717 721 (4) (0.6 %) Total Store Count 1,108 1,111 (3) (0.3) % Same Store Sales % (5.6 %) (3.9 %) Car Wash segment net revenue increased $5 million, or 1%, driven primarily by a $5 million increase in company-operated store sales from the addition of 32 new company-operated stores in the current year and continued ramp for stores acquired or opened in the prior year, which was partially offset by a decrease in same store sales and store closures predominately in the fourth quarter of 2023.
Such indicators include, but are not limited to, events or circumstances such as a significant adverse change in our business, in the business overall climate, unanticipated competition, a loss of key personnel, adverse legal or regulatory developments, or a significant decline in the market price of our common stock.
Such indicators include, but are not limited to, events or circumstances such as a significant adverse change in our business, in the overall business climate, unanticipated competition, a loss of key personnel, adverse legal or regulatory developments, or a significant decline in the market price of our common stock.
The effects on deferred tax assets and liabilities of subsequent changes in the tax laws and rates are recognized in income during the year the changes are enacted. In assessing the realizability of deferred tax assets, we consider whether it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized.
The effects on deferred tax assets and liabilities of subsequent changes in the tax laws and rates are recognized in income during the year the changes are enacted. 58 In assessing the realizability of deferred tax assets, we consider whether it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized.
Volatility is based on the historical volatility of several public entities that are similar to the Company, as the Company does not have sufficient historical transactions of its own units on which to base expected volatility. 56 We engage third-party valuation experts to assist in the valuation of our incentive units.
Volatility is based on the historical volatility of several public entities that are similar to the Company, as the Company does not have sufficient historical transactions of its own units on which to base expected volatility. We engage third-party valuation experts to assist in the valuation of our incentive units.
We adjust our annual effective 55 income tax rate as additional information on outcomes or events becomes available. Further, our assessment of uncertain tax positions requires judgments relating to the amounts, timing, and likelihood of resolution.
We adjust our annual effective income tax rate as additional information on outcomes or events becomes available. Further, our assessment of uncertain tax positions requires judgments relating to the amounts, timing, and likelihood of resolution.
If no indicators of impairment have been noted during these preliminary assessments, we perform an assessment of goodwill and intangible assets annually as of the first day of our fourth fiscal quarter. We first assess qualitatively whether it is more-likely-than-not that an impairment does not exist.
If no indicators of impairment have been noted during these preliminary assessments, we perform an assessment of goodwill and indefinite-lived intangible assets annually as of the first day of our fourth fiscal quarter. We first assess qualitatively whether it is more-likely-than-not that an impairment does not exist.
We have entered into an Tax Receivable Agreement which provides our Pre-IPO stockholders with the right to receive payment by us of 85% of the amount of cash savings, if any, in U.S. and Canadian federal, state, local and provincial income tax that we and our subsidiaries actually realize as a result of the utilization of the Pre-IPO and IPO-Related Tax Benefits.
We have entered into a Tax Receivable Agreement which provides our Pre-IPO shareholders with the right to receive payment by us of 85% of the amount of cash savings, if any, in U.S. and Canadian federal, state, local, and provincial income tax that we and our subsidiaries actually realize as a result of the utilization of the Pre-IPO and IPO-Related Tax Benefits.
Assumptions utilized in the determination of fair value include forecasted sales, discount rates, and royalty rates. While we believe the expectations and assumptions about the future are reasonable, they are inherently uncertain. Unanticipated market or macroeconomic events and circumstances, like the COVID-19 pandemic, may occur, which could affect the accuracy or validity of the estimates and assumptions.
Assumptions utilized in the determination of fair value include forecasted sales, discount rates, and royalty rates. While we believe the expectations and assumptions about the future are reasonable, they are inherently uncertain. Unanticipated market or macroeconomic events and circumstances, like a pandemic, may occur, which could affect the accuracy or validity of the estimates and assumptions.
We define Adjusted EBITDA as earnings before interest expense, net, income tax expense, and depreciation and amortization, with further adjustments for acquisition-related costs, straight-line rent, equity compensation, loss on debt extinguishment and certain non-recurring, non-core, infrequent or unusual charges. Adjusted EBITDA may not be comparable to similarly titled metrics of other companies due to differences in methods of calculation.
We define Adjusted EBITDA as earnings before interest expense, net, income tax expense, and depreciation and amortization, with further adjustments for acquisition-related costs, equity compensation, loss on debt extinguishment, cloud computing amortization, and certain non-recurring, non-core, infrequent or unusual charges. Adjusted EBITDA may not be comparable to similarly titled metrics of other companies due to differences in methods of calculation.
We define Segment Adjusted EBITDA as earnings before interest expense, net, income tax expense, and depreciation and amortization, with further adjustments for acquisition-related costs, straight-line rent, equity compensation, loss on debt extinguishment, foreign currency transaction related gains or losses, store opening costs, and certain non-recurring and non-core, infrequent or unusual charges.
We define Segment Adjusted EBITDA as earnings before interest expense, net, income tax expense, and depreciation and amortization, with further adjustments for acquisition-related costs, equity compensation, loss on debt extinguishment, foreign currency transaction related gains or losses, store opening costs, cloud computing amortization, and certain non-recurring and non-core, infrequent or unusual charges.
We define adjusted net income as net income calculated in accordance with GAAP, adjusted for acquisition-related costs, straight-line rent, equity compensation, loss on debt extinguishment and certain non-recurring, non-core, infrequent or unusual charges, amortization related to acquired intangible assets, and the tax effect of the adjustments.
We define Adjusted Net Income as net income calculated in accordance with GAAP, adjusted for acquisition-related costs, equity compensation, loss on debt extinguishment, cloud computing amortization, and certain non-recurring, non-core, infrequent or unusual charges, amortization related to acquired intangible assets and the tax effect of the adjustments.
Comparative results for the years ending December 25, 2021 and December 26, 2020 are included in “Item 7- Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our previously filed 2021 Annual Report on Form 10-K.
Comparative results for the years ending December 31, 2022 and December 25, 2021 are included in “Item 7- Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our previously filed 2022 Annual Report on Form 10-K.
See Note 8 to our consolidated financial statements for additional details regarding the timing of expected future principal payments. Interest on long-term debt is calculated based on debt outstanding and interest rates in effect on December 31, 2022, taking into account scheduled maturities and amortization payments.
See Note 9 to our consolidated financial statements for additional details regarding the timing of expected future principal payments. Interest on long-term debt is calculated based on debt outstanding and interest rates in effect on December 30, 2023, taking into account scheduled maturities and amortization payments.
To the extent that we are unable to make payments under the Tax Receivable Agreement for any other reason, such payments will generally accrue interest at a rate of LIBOR plus 5.00% per annum until paid. Critical Accounting Policies and Estimates Our significant accounting policies are more fully described in Note 2 to the consolidated financial statements.
To the extent that we are unable to make payments under the Tax Receivable Agreement for any other reason, such payments will generally accrue interest at a rate of SOFR plus an applicable term adjustment plus 5.0% per annum until paid. 56 Critical Accounting Policies and Estimates Our significant accounting policies are more fully described in Note 2 to the consolidated financial statements.
As of December 31, 2022, our remaining contractual commitments for operating leases were $1,942 million. See Note 10 to our consolidated financial statements regarding the timing of expected future payments. • Sublease rental - The Company’s subsidiaries enter into certain lease agreements with owners of real property to sublet the leased premises to its franchisees.
As of December 30, 2023, our remaining contractual commitments for operating leases were $2.2 billion. See Note 11 to our consolidated financial statements regarding the timing of expected future payments. • Sublease rental - The Company’s subsidiaries enter into certain lease agreements with owners of real property to sublet the leased premises to its franchisees.
As of December 31, 2022, our remaining contractual commitments for sublease rentals were $32 million. See Note 10 to our consolidated financial statements regarding the timing of expected future payments.
As of December 30, 2023, our remaining contractual commitments for sublease rentals were $41 million. See Note 11 to our consolidated financial statements regarding the timing of expected future payments.
This could reduce the profitability of franchise locations, potentially impacting the ability of franchisees to make royalty payments owed to us when due, which could adversely impact our current cash flow from franchise operations), and company-operated sites. Business combinations We use the acquisition method in accounting for acquired businesses.
This could reduce the profitability of franchise locations, potentially impacting the ability of franchisees to make royalty payments owed to us when due, which could adversely impact our current cash flow from franchise operations, and company-operated sites.
Represents the tax impact of adjustments associated with the reconciling items between net income and Adjusted Net Income, excluding the provision for uncertain tax positions and valuation allowance for certain deferred tax assets.
(m) Represents the tax impact of adjustments associated with the reconciling items between Net Loss (Income) and Adjusted Net Income, excluding the provision for uncertain tax positions.
The Plan provides for the granting of stock options, stock appreciation rights, restricted stock awards, restricted stock units, other stock-based awards, other cash-based awards, or any combination of the foregoing to current and prospective employees and directors of, and consultants and advisors to, the Company and its affiliates.
Equity-based Compensation We have an equity-based compensation plan that provides compensation to employees through various grants of stock options, stock appreciation rights, restricted stock awards, restricted stock units, other stock-based awards, other cash-based awards, or any combination of the foregoing to current and prospective employees and directors of, and consultants and advisors to, the Company and its affiliates.
Any excess of the purchase price over the estimated fair values of the identifiable net assets acquired is recorded as goodwill. Significant judgment is often required in estimating the fair value of assets acquired, particularly intangible assets, including trade names, franchise agreements, license agreements, customer relationships, real property and market adjustments for in-place lease agreements.
Significant judgment is often required in estimating the fair value of assets acquired, particularly intangible assets, including trade names, franchise agreements, license agreements, customer relationships, real property and market adjustments for in-place lease agreements.
For purposes of the Tax Receivable Agreement, cash savings in income tax will be computed by reference to the reduction in the liability for income taxes resulting from the utilization of the Pre-IPO and IPO-Related Tax Benefits.
We made an initial payment of approximately $25 million under the Tax Receivable Agreement in January 2024. For purposes of the Tax Receivable Agreement, cash savings in income tax will be computed by reference to the reduction in the liability for income taxes resulting from the utilization of the Pre-IPO and IPO-Related Tax Benefits.
Cash Flows The following table illustrates the main components of our cash flows: Year Ended (in thousands) December 31, 2022 December 25, 2021 Net cash provided by operating activities $ 197,176 $ 283,827 Net cash used in investing activities (840,280) (814,936) Net cash provided by financing activities 343,368 885,536 Effect of exchange rate changes on cash (2,283) 558 Net change in cash, cash equivalents, restricted cash, and restricted cash included in advertising fund assets $ (302,019) $ 354,985 Operating Activities Net cash provided by operating activities was $197 million for the year ended December 31, 2022 compared to net cash provided by operating activities of $284 million for the year ended December 25, 2021.
The following table illustrates the main components of our cash flows for the year ended December 30, 2023 and December 31, 2022: Year Ended (in thousands) December 30, 2023 December 31, 2022 Net cash provided by operating activities $ 235,167 $ 197,176 Net cash used in investing activities (451,407) (840,280) Net cash provided by financing activities 170,699 343,368 Effect of exchange rate changes on cash 484 (2,283) Net change in cash, cash equivalents, restricted cash, and restricted cash included in advertising fund assets $ (45,057) $ (302,019) Operating Activities Net cash provided by operating activities was $235 million for the year ended December 30, 2023 compared to $197 million for the year ended December 31, 2022.
Relates to net (gain) loss on sale leasebacks, impairment of certain fixed assets and operating lease right-of-use assets related to closed locations, and lease exit costs and other costs associated with stores that were closed prior to the respective lease termination dates. i. Represents the write-off of debt issuance costs associated with early termination of debt. j.
(i) Relates to (gains) losses, net on sale leasebacks, impairment of certain fixed assets and operating lease right-of-use assets related to closed and underperforming locations, assets held for sale, and lease exit costs and other costs associated with stores that were closed prior to the respective lease termination dates.
During 2022, the Company made the strategic decision to rebrand the majority of its U.S. car wash locations to operate under the brand name “Take 5 Car Wash”, and therefore discontinue the use of certain car wash trade names that had indefinite lives. As a result, the Company recognized a $125 million non-cash impairment charge.
Trade Name Impairment Charges During the year ended December 31, 2022, the Company made the strategic decision to rebrand the majority of its U.S. car wash locations to operate under the name “Take 5 Car Wash”, and therefore discontinuing the use of certain Car Wash trade names that had indefinite lives.
As of December 31, 2022, we estimate interest payment of $134 million due in 2023 and $488 million due in 2024 and thereafter. • Operating lease commitments - The company and its subsidiaries have non-cancelable operating lease agreements for the rental of office space, company-operated shops, and office equipment.
As of December 30, 2023, we estimate interest payments of $149 million due in 2024 and $369 million due in 2025 and thereafter. • Operating lease commitments - The company and its subsidiaries have operating lease agreements for the rental of office space, company-operated stores, and office equipment.
The Company has recorded a total liability of $171 million as of December 31, 2022 of which $53 million and $118 million are recorded under current and non-current tax receivable agreement liabilities on our consolidated balance sheets, respectively.
The Company recorded a current tax receivable liability of $56 million and $53 million as of December 30, 2023 and December 31, 2022, respectively, and a non-current tax receivable liability of $118 million as of December 30, 2023 and December 31, 2022, respectively, on the consolidated balance sheets.
The decrease in the income tax expense from 2021 to 2022 was primarily driven by non-recurring unfavorable transaction costs in 2021, partially offset by an increase in pretax income and the impact of Global Intangible Low-Taxed Income (“GILTI”) in the current year. 48 Segment Results of Operations for the Year Ended December 31, 2022 Compared to the Year Ended December 25, 2021 We assess the performance of our segments based on Segment Adjusted EBITDA, which is defined as earnings before interest expense, net, income tax expense, and depreciation and amortization, with further adjustments for acquisition-related costs, straight-line rent, equity compensation, store opening costs, loss on debt extinguishment and certain non-recurring, non-core, infrequent or unusual charges.
Segment Results of Operations for the Year Ended December 30, 2023 Compared to the Year Ended December 31, 2022 We assess the performance of our segments based on Segment Adjusted EBITDA, which is defined as earnings before interest expense, net, income tax expense, and depreciation and amortization, with further adjustments for acquisition-related costs, store opening and closure costs, equity compensation, loss on debt extinguishment, cloud computing amortization, and certain non-recurring, non-core, infrequent or unusual charges.
Loss on Foreign Currency Transactions, Net Year Ended (in thousands) December 31, 2022 % of Net Revenues December 25, 2021 % of Net Revenues Loss on foreign currency transactions, net $ 17,168 0.8 % $ 20,683 1.4 % The loss on foreign currency transactions for the year ended December 31, 2022 was primarily comprised of a $16 million net remeasurement loss on our non-U.S. dollar entities, including third party long-term debt and intercompany notes.
The loss on foreign currency transactions for the year ended December 31, 2022 was comprised of a $16 million net remeasurement loss on our non U.S. dollar entities, including third party long-term debt and intercompany notes. 50 Income Tax (Benefit) Expense Year Ended (in thousands) December 30, 2023 % of Net Revenues December 31, 2022 % of Net Revenues Income tax (benefit) expense $ (102,689) (4.5 %) $ 25,167 1.2 % Income tax benefit was $103 million for the year ended December 30, 2023 compared to an income tax expense of $25 million for the year ended December 31, 2022.
Financial Condition, Liquidity and Capital Resources Sources of Liquidity and Capital Resources Cash flow from operations, supplemented with our long-term borrowings and revolving credit facilities, have been sufficient to fund our operations while allowing us to make strategic investments to grow our business.
Platform Services Segment Adjusted EBITDA increased $8 million, or 11%, primarily driven by a combination of revenue growth and cost management. 54 Financial Condition, Liquidity and Capital Resources Sources of Liquidity and Capital Resources Cash flow from operations, supplemented with our long-term borrowings and revolving credit facilities, have been sufficient to fund our operations while allowing us to make strategic investments to grow our business.
Consists of amortization related to acquired intangible assets as reflected within depreciation and amortization in the consolidated statements of operations. k. Represents uncertain tax positions recorded for tax positions, inclusive of interest and penalties. 44 l. Represents valuation allowances on income tax carryforwards in certain foreign jurisdictions that are not more likely than not to be realized. m.
(k) Represents amounts recorded for uncertain tax positions, inclusive of interest and penalties. 45 (l) Represents valuation allowances on income tax carryforwards in certain domestic and foreign jurisdictions that are not more likely than not to be realized.
Management believes this non-GAAP financial measure is useful because it is a key measure used by our management team to evaluate our operating performance, generate future operating plans, and make strategic decisions. 42 The following table provides a reconciliation of Adjusted Net Income to Net Income as defined by GAAP: Adjusted Net Income/Adjusted Earnings per Share Year Ended (in thousands, except per share data) December 31, 2022 December 25, 2021 Net income $ 43,173 $ 9,536 Acquisition related costs (a) 15,304 62,386 Non-core items and project costs, net (b) 20,241 5,656 Straight-line rent adjustment (c) 14,965 11,619 Equity-based compensation expense (d) 20,583 4,301 Foreign currency transaction loss, net (e) 17,168 20,683 Bad debt recovery (f) (449) (3,183) Trade name impairment (g) 125,450 — Asset sale leaseback (gain) loss, impairment and closed store expenses (h) (29,083) (8,935) Loss on debt extinguishment (i) — 45,576 Amortization related to acquired intangible assets (j) 27,059 18,551 Provision (benefit) for uncertain tax positions (k) (148) (313) Valuation allowance for deferred tax asset (l) 3,051 4,400 Adjusted net income before tax impact of adjustments 257,314 170,277 Tax impact of adjustments (m) (49,437) (23,282) Adjusted net income 207,877 146,995 Net loss attributable to non-controlling interest (15) (96) Adjusted net income attributable to Driven Brands Holdings Inc. $ 207,892 $ 147,091 Weighted average shares outstanding Basic 162,762 160,684 Diluted 166,743 164,644 Earnings per share Basic $ 0.26 $ 0.06 Diluted $ 0.25 $ 0.06 Adjusted earnings per share Basic $ 1.25 $ 0.90 Diluted $ 1.22 $ 0.88 43 Adjusted EBITDA.
Management believes this non-GAAP financial measure is useful because it is a key measure used by our management team to evaluate our operating performance, generate future operating plans, and make strategic decisions. 43 The following table provides a reconciliation of Net (Loss) Income to Adjusted Net Income and Adjusted Earnings per Share: Adjusted Net Income /Adjusted Earnings per Share Year Ended (in thousands, except per share data) December 30, 2023 December 31, 2022 Net (loss) income $ (744,962) $ 43,173 Acquisition related costs (a) 13,174 15,304 Non-core items and project costs, net (b) 7,343 20,241 Cloud computing amortization (c) 1,923 — Equity-based compensation expense (d) 15,300 20,583 Foreign currency transaction (gain) loss, net (e) (3,078) 17,168 Bad debt recovery (f) — (449) Goodwill impairment (g) 850,970 — Trade name impairment (h) — 125,450 Asset sale leaseback (gain) loss, impairment and closed store expenses (i) 139,414 (29,083) Amortization related to acquired intangible assets (j) 28,756 27,059 Provision for uncertain tax positions (k) (354) (148) Valuation allowance for deferred tax asset (l) 17,729 3,051 Adjusted net income before tax impact of adjustments 326,215 242,349 Tax impact of adjustments (m) (183,754) (45,567) Adjusted net income 142,461 196,782 Net loss attributable to non-controlling interest — (15) Adjusted net income attributable to Driven Brands Holdings Inc. $ 142,461 $ 196,797 Earnings per share Basic $ (4.50) $ 0.26 Diluted $ (4.53) $ 0.25 Weighted average shares outstanding for Net Income Basic $ 161,917 $ 162,762 Diluted $ 161,917 $ 166,743 Adjusted earnings per share Basic $ 0.86 $ 1.18 Diluted $ 0.85 $ 1.16 Weighted average shares outstanding for Adjusted Net Income Basic 161,917 162,762 Diluted 164,100 166,743 Adjusted EBITDA.
As a result, if factors or expected outcomes change and we use significantly different assumptions or estimates, our equity-based compensation expense could be materially different. Following the closing of the initial public offering, the fair value of our common stock was determined based on the quoted market price of our common stock.
As a result, if factors or expected outcomes change and we use significantly different assumptions or estimates, our equity-based compensation expense could be materially different.
Refer to Note 9 in our consolidated financial statements for a reconciliation of Segment Adjusted EBITDA to income before taxes for the years ended December 31, 2022 and December 25, 2021, respectively. 40 The following table sets forth our key performance indicators for fiscal years ended December 31, 2022 and December 25, 2021: Year Ended (in thousands, except store count or as otherwise noted) December 31, 2022 December 25, 2021 System-Wide Sales System-Wide Sales by Segment: Maintenance $ 1,616,100 $ 1,263,659 Car Wash 585,659 481,364 Paint, Collision & Glass 2,958,971 2,403,232 Platform Services 445,726 391,168 Total $ 5,606,456 $ 4,539,423 System-Wide Sales by Business Model: Franchised Stores $ 4,086,891 $ 3,491,531 Company-Operated Stores 1,324,408 843,646 Independently-Operated Stores 195,157 204,246 Total $ 5,606,456 $ 4,539,423 Store Count Store Count by Segment: Maintenance 1,645 1,505 Car Wash 1,111 1,058 Paint, Collision & Glass 1,846 1,648 Platform Services 203 201 Total 4,805 4,412 Store Count by Business Model: Franchised Stores 2,882 2,770 Company-Operated Stores 1,202 914 Independently-Operated Stores 721 728 Total 4,805 4,412 Same Store Sales % Maintenance 16.1 % 24.8 % Car Wash (3.9 %) 6.0 % Paint, Collision & Glass 17.1 % 12.6 % Platform Services 12.6 % 26.8 % Total consolidated 14.1 % 17.1 % Segment Adjusted EBITDA Maintenance $ 262,608 $ 179,073 Car Wash 184,717 153,065 Paint, Collision & Glass 135,447 82,731 Platform Services 72,538 56,954 Adjusted EBITDA as a percentage of net revenue by segment Maintenance 32.8 % 31.0 % Car Wash 31.2 % 31.4 % Paint, Collision & Glass 33.0 % 40.5 % Platform Services 36.9 % 35.2 % Total consolidated 25.3 % 24.8 % 41 Reconciliation of Non-GAAP Financial Information To supplement our consolidated financial statements prepared and presented in accordance with GAAP, we use certain non-GAAP financial measures throughout this Annual Report, as described further below, to provide investors with additional useful information about our financial performance, to enhance the overall understanding of our past performance and future prospects and to allow for greater transparency with respect to important metrics used by our management for financial and operational decision-making.
Refer to Note 10 in our consolidated financial statements for a reconciliation of income before taxes to Segment Adjusted EBITDA for the years ended December 30, 2023 and December 31, 2022. 41 The following table sets forth our key performance indicators for the year ended December 30, 2023 and December 31, 2022: Year Ended (in thousands, except store count or as otherwise noted) December 30, 2023 December 31, 2022 System-Wide Sales System-Wide Sales by Segment: Maintenance $ 1,899,813 $ 1,616,100 Car Wash 591,752 585,659 Paint, Collision & Glass 3,389,565 2,958,971 Platform Services 402,598 445,726 Total $ 6,283,728 $ 5,606,456 System-Wide Sales by Business Model: Franchised Stores $ 4,560,980 $ 4,086,891 Company-Operated Stores 1,526,353 1,324,408 Independently-Operated Stores 196,395 195,157 Total $ 6,283,728 $ 5,606,456 Store Count Store Count by Segment: Maintenance 1,786 1,645 Car Wash 1,108 1,111 Paint, Collision & Glass 1,888 1,846 Platform Services 206 203 Total 4,988 4,805 Store Count by Business Model: Franchised Stores 2,986 2,882 Company-Operated Stores 1,285 1,202 Independently-Operated Stores 717 721 Total 4,988 4,805 Same Store Sales % (1) Maintenance 9.2 % 16.1 % Car Wash (5.6 %) (3.9 %) Paint, Collision & Glass 11.4 % 17.1 % Total consolidated 7.4 % 14.1 % Segment Adjusted EBITDA Maintenance $ 329,498 $ 258,470 Car Wash 128,996 175,326 Paint, Collision & Glass 140,569 134,818 Platform Services 80,492 72,383 Adjusted EBITDA as a percentage of net revenue by segment Maintenance 34.3 % 32.3 % Car Wash 21.6 % 29.6 % Paint, Collision & Glass 28.1 % 32.8 % Platform Services 37.3 % 36.9 % Total consolidated 22.4 % 24.5 % (1) Platform Services same store sales metrics were removed as a Key Performance Indicator as sales included within the calculation represented an insignificant portion of Platform Services total sales. 42 Reconciliation of Non-GAAP Financial Information To supplement our consolidated financial statements prepared and presented in accordance with GAAP, we use certain non-GAAP financial measures throughout this Annual Report, as described further below, to provide investors with additional useful information about our financial performance, to enhance the overall understanding of our past performance and future prospects and to allow for greater transparency with respect to important metrics used by our management for financial and operational decision-making.
To the extent that we are unable to make payments under the Tax Receivable Agreement because of restrictions under our outstanding indebtedness, such payments will be deferred and will generally accrue interest at a rate of LIBOR plus 1.00% per annum until paid.
To the extent that we are unable to make payments under the Tax Receivable Agreement because of restrictions under our outstanding indebtedness, such payments will be deferred and will generally accrue interest. As of July 1, 2023, interest accrues at the Base Rate plus an applicable margin or Secured Overnight Financing Rate (“SOFR”) plus an applicable term adjustment plus 1.0%.
Long-lived assets On a regular basis, we assess whether events or changes in circumstances have occurred that potentially indicate the carrying value of long-lived assets (primarily real property and equipment) may not be recoverable. We test impairment using historical cash flows and other relevant facts and circumstances as the primary basis for our estimates of future cash flows.
Long-lived assets On a regular basis, we assess whether events or changes in circumstances have occurred that potentially indicate the carrying value of long-lived assets may not be recoverable. We test impairment at the individual store asset group level, which includes property and equipment and operating lease assets.
Significant assumptions used to determine 54 fair value under the guideline public company method include the selection of guideline companies and the valuation multiples applied. In the process of a quantitative test of our trade name intangible assets, we primarily use the relief of royalty method under the income approach method of valuation.
In the process of performing a quantitative test of our trade name intangible assets, we primarily use the relief of royalty method under the income approach method of valuation.
This does not include the additional $135 million Series 2022 Class A-1 Notes that expand our variable funding note borrowing capacity when the company elects to exercise it, assuming certain conditions continue to be met. 52 Contractual Obligations In addition to our liquidity and capital resources, we have significant contractual obligations and commitments as December 31, 2022 relating to the following: • Long-term debt and interest obligations - As of December 31, 2022 our outstanding debt balance was $2,784 million.
This does not include the additional $135 million Series 2022-1 Class A-1 Notes that expand our variable funding note borrowing capacity when the company elects to exercise it, assuming certain conditions continue to be met.
Franchise royalties and fees increased by $9 million, or 25%, primarily due to the $163 million increase in franchise system-wide sales driven by same store sales growth and an increase of 90 franchised stores.
Supply and other revenue increased by $33 million, or 53%, primarily due to higher system-wide sales from franchised stores. Franchise royalties and fees increased by $11 million, or 25%, primarily due to the $167 million, or 18%, increase in franchised system-wide sales from same store sales growth and 82 net new franchise stores.
Revenue Year Ended (in thousands) December 31, 2022 % of Net Revenues December 25, 2021 % of Net Revenues Franchise royalties and fees $ 171,734 8.4 % $ 144,413 9.8 % Company-operated store sales 1,324,408 65.1 % 843,646 57.5 % Independently-operated store sales 195,157 9.6 % 204,246 13.9 % Advertising contributions 87,750 4.3 % 75,599 5.2 % Supply and other revenue 254,145 12.5 % 199,376 13.6 % Total revenue $ 2,033,194 100.0 % $ 1,467,280 100.0 % Franchise Royalties and Fees Franchise royalties and fees increased $27 million, or 19%, for the year ended December 31, 2022, compared to the year ended December 25, 2021.
Net Revenue Year Ended (in thousands) December 30, 2023 % of Net Revenues December 31, 2022 % of Net Revenues Franchise royalties and fees $ 190,367 8.3 % $ 171,734 8.5 % Company-operated store sales 1,526,353 66.2 % 1,324,408 65.1 % Independently-operated store sales 196,395 8.5 % 195,157 9.6 % Advertising fund contributions 98,850 4.3 % 87,750 4.3 % Supply and other revenue 292,064 12.7 % 254,145 12.5 % Total net revenue $ 2,304,029 100.0 % $ 2,033,194 100.0 % Franchise Royalties and Fees Franchise royalties and fees increased $19 million, or 11%, primarily due to same store sales growth and net increase of 104 franchised stores.
Results of Operations for the Year Ended December 31, 2022 Compared to the Year Ended December 25, 2021 To facilitate review of our results of operations, the following tables set forth our financial results for the periods indicated. All information is derived from the consolidated statements of operations.
The increases were partially offset by: • decreased operating margins within the Car Wash segment. 47 To facilitate the review of our results of operations, the following tables set forth our financial results for the periods indicated. All information is derived from the consolidated statements of operations.
Significant assumptions made by management in estimating fair value under the discounted cash flow model include future trends in sales and terminal growth rates, operating expenses, overhead expenses, tax depreciation, capital expenditures, and changes in working capital, along with an appropriate discount rate based on our estimated cost of equity capital and after-tax cost of debt.
Significant assumptions used by management in estimating fair value under the discounted cash flow model include revenue growth rates, terminal growth rates, discount rates, and EBITDA margins. Other assumptions include operating expenses, overhead expenses, tax depreciation, and capital expenditures.
We define the same store base to include all franchised, independently-operated, and company-operated stores open for comparable weeks during the given fiscal period in both the current and prior year. This measure highlights the performance of existing stores, while excluding the impact of new store openings and closures and acquisitions and divestitures. Segment Adjusted EBITDA.
We define the same store base to include all franchised, independently-operated, and company-operated stores open for comparable weeks during the given fiscal period in both the current and prior year, which may be different from how others define similar terms.
Financing activities for the year ended December 31, 2022 primarily related to $341 million for net debt proceeds and debt related activity.
Net cash provided by financing activities was $343 million for the year ended December 31, 2022 primarily related to net debt proceeds and debt related activity. See Note 7 to our consolidated financial statements for additional information regarding the Company’s debt.
However, this could be adversely affected by many factors including macroeconomic factors, a downgrade of our credit rating, or a deterioration of certain financial ratios. Driven Brands Funding, LLC (the “Issuer”), a wholly owned subsidiary of the Company, is subject to certain quantitative covenants related to debt service coverage and leverage ratios in connection with the Securitization Senior Notes.
Driven Brands Funding, LLC (the “Issuer”), a wholly-owned subsidiary of the Company, and Driven Brands Canada Funding Corporation (along with the Issuer, the “Co-Issuers”) are subject to certain quantitative covenants related to debt service coverage and leverage ratios in connection with our securitization senior notes. Our Term Loan Facility and Revolving Credit Facility also have certain qualitative covenants.
Overview Driven Brands is the largest automotive services company in North America with a growing and highly-franchised base of more than 4,800 locations across 49 U.S. states and 13 other countries. Our scaled, diversified platform fulfills an extensive range of core consumer and commercial automotive needs, including paint, collision, glass, repair, car wash, oil change, and maintenance.
Overview Driven Brands is the largest automotive services company in North America with a growing and highly-franchised base of approximately 5,000 locations across 49 U.S. states and 13 other countries.
As of December 31, 2022, the Company had total liquidity of $618 million, which included $227 million in cash and cash equivalents and $391 million of undrawn capacity on its variable funding securitization senior notes and revolving credit facility.
At December 30, 2023, the Company had total liquidity of $319 million, which included $177 million in cash and cash equivalents and $91 million and $52 million of undrawn capacity on its 2019 VFN and Revolving Credit Facility, respectively.
These losses are partially offset by unrealized gains/losses on remeasurement of cross currency swaps and forward contracts. f. Represents the recovery of previously uncollectible receivables outside of normal operations. g. Relates to an impairment of certain Car Wash trade names as the Company elected to discontinue their use. h.
(e) Represents foreign currency transaction (gains) losses, net that primarily related to the remeasurement of our intercompany loans as well as unrealized gains and losses on remeasurement of cross currency swaps and forward contracts. (f) Represents the recovery of previously uncollectible receivables outside of normal operations. (g) Relates to goodwill impairment charges within the Car Wash segment.
To determine the tax impact of the deductible reconciling items, we utilized statutory income tax rates ranging from 9% to 36%, depending upon the tax attributes of each adjustment and the applicable jurisdiction.
To determine the tax impact of the deductible reconciling items, we utilized statutory income tax rates ranging from 9% to 36% depending upon the tax attributes of each adjustment and the applicable jurisdiction. 46 Results of Operations for the Year Ended December 30, 2023 Compared to the Year Ended December 31, 2022 Net Income We recognized a net loss of $745 million, or $4.53 loss per diluted share for the year ended December 30, 2023, compared to a net income of $43 million, or $0.25 earnings per diluted share for the year ended December 31, 2022.
Financing activities for the year ended December 25, 2021 primarily related to $761 million in proceeds from our initial public offering, net of underwriting discounts and $167 million for net debt proceeds and debt related activity, partially offset by $43 million in repurchases of common stock. 53 Tax Receivable Agreement We expect to be able to utilize certain tax benefits which are related to periods prior to the effective date of the Company’s initial public offering, which we therefore attribute to our existing stockholders.
Tax Receivable Agreement We expect to be able to utilize certain tax benefits which are related to periods prior to the effective date of the Company’s initial public offering, which we therefore attribute to our existing shareholders.
Car Wash segment Adjusted EBITDA increased by $32 million, or 21%, for the year ended December 31, 2022, compared to the year ended December 25, 2021, primarily driven by increased revenue from acquisitions and new store openings in the year, partially offset by increased operating costs, primarily relating to compensation, rent, and utilities as well as decreased same store sales due to unfavorable impact to foreign exchange. 50 Paint, Collision & Glass Year Ended 2022 2021 (in thousands) December 31, 2022 December 25, 2021 % Net Revenue For Segment % Net Revenue For Segment Franchise royalties and fees $ 93,026 $ 79,125 22.7 % 38.8 % Company-operated store sales 235,924 57,804 57.4 % 28.3 % Supply and other revenue 81,714 67,272 19.9 % 32.9 % Total revenue $ 410,664 $ 204,201 100.0 % 100.0 % Segment Adjusted EBITDA $ 135,447 $ 82,731 33.0 % 40.5 % System-Wide Sales Change Franchised stores $ 2,723,047 $ 2,345,428 $ 377,619 16.1 % Company-operated stores 235,924 57,804 178,120 308.1 % Total System-Wide Sales $ 2,958,971 $ 2,403,232 $ 555,739 23.1 % Store Count Change Franchised stores 1,628 1,608 20 1.2 % Company-operated stores 218 40 178 445.0 % Total Store Count 1,846 1,648 198 12.0 % Same Store Sales % 17.1 % 12.6 % Paint, Collision & Glass revenue increased $206 million, or 101%, for the year ended December 31, 2022, compared to the year ended December 25, 2021.
Car Wash Segment Adjusted EBITDA decreased by $46 million, or 26%, primarily driven by increased rent as a result of sale-leaseback transactions, decreased same store sales within company-operated store sales, and increased company-operated store costs primarily relating to employee compensation, property taxes, insurance, supplies and utilities. 52 Paint, Collision & Glass Year Ended 2023 2022 (in thousands, unless otherwise noted) December 30, 2023 December 31, 2022 % Net Revenue For Segment % Net Revenue For Segment Franchise royalties and fees $ 103,604 $ 93,026 20.7 % 22.7 % Company-operated store sales 317,428 235,924 63.4 % 57.4 % Supply and other revenue 79,342 81,714 15.9 % 19.9 % Total net revenue $ 500,374 $ 410,664 100.0 % 100.0 % Segment Adjusted EBITDA $ 140,569 $ 134,818 28.1 % 32.8 % System-Wide Sales Change Franchised stores $ 3,072,137 $ 2,723,047 $ 349,090 12.8 % Company-operated stores 317,428 235,924 81,504 34.5 % Total System-Wide Sales $ 3,389,565 $ 2,958,971 $ 430,594 14.6 % Store Count (in whole numbers) Change Franchised stores 1,647 1,628 19 1.2 % Company-operated stores 241 218 23 10.6 % Total Store Count 1,888 1,846 42 2.3 % Same Store Sales % 11.4 % 17.1 % Paint, Collision & Glass net revenue increased $90 million, or 22%, for the year ended December 30, 2023, as compared to the year ended December 31, 2022.
Franchised royalties and fees increased $14 million , or 18%, due to the $378 million increase in franchise system-wide sales from same store sales growth and an increase of 20 franchised stores.
Franchise royalties and fees revenue increased $11 million, or 11%, primarily due to a $349 million, or 13%, increase in franchised system-wide sales from same store sales growth. Supply and other revenue decreased $2 million, or 3%, due to reduced incentive payments in the current period.
The effective income tax rate for the year ended December 31, 2022 was 36.8% compared to 72.7% for the year ended December 25, 2021.
The effective income tax rate for the year ended December 30, 2023 was 12.1% compared to 36.8% for the year ended December 31, 2022. The net decrease in income tax expense and effective tax rate was primarily driven by impairments recorded during the year ended December 30, 2023.
Operating Expenses Year Ended (in thousands) December 31, 2022 % of Net Revenues December 25, 2021 % of Net Revenues Company-operated store expenses $ 812,262 40.0 % $ 515,837 35.2 % Independently-operated store expenses 107,940 5.3 % 114,115 7.8 % Advertising expenses 87,986 4.3 % 74,765 5.1 % Supply and other expenses 145,481 7.2 % 112,318 7.7 % Selling, general, and administrative expenses 383,478 18.9 % 292,263 19.9 % Acquisition costs 15,304 0.8 % 62,386 4.3 % Store opening costs 2,878 0.1 % 2,497 0.2 % Depreciation and amortization 147,156 7.2 % 112,777 7.7 % Trade name impairment charge 125,450 6.2 % — — % Asset impairment charges 5,655 0.3 % 3,257 0.2 % Total operating expenses $ 1,833,590 90.2 % $ 1,290,215 87.9 % Company-Operated Store Expenses Company-operated store expenses increased $296 million, or 57%, for the year ended December 31, 2022, compared to the year ended December 25, 2021.
Supply and Other Revenue Supply and other revenue increased $38 million, or 15%, primarily due to growth in product and service revenue within the Maintenance and Platform Services segments as a result of an increase in system-wide sales. 48 Operating Expenses Year Ended (in thousands) December 30, 2023 % of Net Revenues December 31, 2022 % of Net Revenues Company-operated store expenses $ 1,004,472 43.6 % $ 812,262 40.0 % Independently-operated store expenses 109,078 4.7 % 107,940 5.3 % Advertising fund expenses 97,290 4.2 % 87,986 4.3 % Supply and other expenses 158,436 6.9 % 145,481 7.2 % Selling, general, and administrative expenses 443,112 19.2 % 383,478 18.9 % Acquisition related costs 13,174 0.6 % 15,304 0.8 % Store opening costs 5,831 0.3 % 2,878 0.1 % Depreciation and amortization 175,296 7.6 % 147,156 7.2 % Goodwill impairment 850,970 850,970 36.9 % — — — % Trade name impairment charges — — % 125,450 6.2 % Asset impairment charges and lease terminations 132,903 5.8 % 5,655 0.3 % Total operating expenses $ 2,990,562 129.8 % $ 1,833,590 90.2 % Company-Operated Store Expenses Company-operated store expenses increased $192 million, or 24%, primarily due to increased operations relating to 83 net company-operated stores added during 2023 as well as increased operating costs primarily relating to increased labor costs and rent expense at properties converted to leases through sale leasebacks in the prior year.
Application of New Accounting Standards See Note 2 of the consolidated financial statements for a discussion of recently issued accounting standards.
Following the closing of the initial public offering, the fair value of our common stock was determined based on the quoted market price of our common stock. 59 Application of New Accounting Standards See Note 2 of the consolidated financial statements for a discussion of recently issued accounting standards applicable to the Company.
Paint, Collision & Glass Segment Adjusted EBITDA increased $53 million, or 64%, for the year ended December 31, 2022, as compared to the year ended December 25, 2021, mainly due to revenue growth from acquisitions and same store sales growth as well as cost management and operational leverage, partially offset by sales mix between franchise and company-operated stores. 51 Platform Services Year Ended 2022 2021 (in thousands) December 31, 2022 December 25, 2021 % Net Revenue For Segment % Net Revenue For Segment Franchise royalties and fees $ 33,662 $ 29,356 17.1 % 18.1 % Company-operated store sales 5,035 5,005 2.6 % 3.1 % Supply and other revenue 157,676 127,413 80.3 % 78.8 % Total revenue $ 196,373 $ 161,774 100.0 % 100.0 % Segment Adjusted EBITDA $ 72,538 $ 56,954 36.9 % 35.2 % System-Wide Sales Change Franchised stores $ 440,691 $ 386,163 $ 54,528 14.1 % Company-operated stores 5,035 5,005 30 0.6 % Total System-Wide Sales $ 445,726 $ 391,168 $ 54,558 13.9 % Store Count Change Franchised stores 202 200 2 1.0 % Company-operated stores 1 1 — — % Total Store Count 203 201 2 1.0 % Same Store Sales % 12.6 % 26.8 % Platform Services revenue increased $35 million, or 21%, for the year ended December 31, 2022, compared to the year ended December 25, 2021.
Paint, Collision & Glass Segment Adjusted EBITDA increased $6 million, or 4%, primarily due to revenue growth from acquisitions, including full year operations of prior year acquisitions, same store sales growth, and a one-time franchise licensee termination fee of $5 million, partially offset by higher employee-related costs and reduced volume associated with company-operated stores. 53 Platform Services Year Ended 2023 2022 (in thousands, unless otherwise noted) December 30, 2023 December 31, 2022 % Net Revenue For Segment % Net Revenue For Segment Franchise royalties and fees $ 30,465 $ 33,662 14.1 % 17.1 % Company-operated store sales 4,212 5,035 1.9 % 2.6 % Supply and other revenue 181,327 157,676 84.0 % 80.3 % Total net revenue $ 216,004 $ 196,373 100.0 % 100.0 % Segment Adjusted EBITDA $ 80,492 $ 72,383 37.3 % 36.9 % System-Wide Sales Change Franchised stores $ 398,386 $ 440,691 $ (42,305) (9.6 %) Company-operated stores 4,212 5,035 (823) (16.3 %) Total System-Wide Sales $ 402,598 $ 445,726 $ (43,128) (9.7 %) Store Count (in whole numbers) Change Franchised stores 205 202 3 1.5 % Company-operated stores 1 1 — — % Total Store Count 206 203 3 1.5 % Platform Services net revenue increased $20 million, or 10%, driven primarily by an increase in total system-wide sales of $6.3 billion in the current year compared to $5.6 billion in the prior year, which resulted in increased product purchases from franchisees and company-operated stores.
Under the acquisition method, our financial statements reflect the operations of an acquired business starting from the completion of the acquisition. The assets acquired and liabilities assumed are recorded at their respective estimated fair values at the date of the acquisition.
The assets acquired and liabilities assumed are recorded at their respective estimated fair values at the date of the acquisition. Any excess of the purchase price over the estimated fair values of the identifiable net assets acquired is recorded as goodwill.
Adjusted Net Income increased $61 million, or 41%, for the year ended December 31, 2022 to $208 million, compared to $147 million for the year ended December 25, 2021.
Adjusted Net Income Adjusted net income was $142 million for the year ended December 30, 2023, a decrease of $54 million, compared to $197 million for the year ended December 31, 2022.
Consists of discrete items and project costs, including third-party consulting and professional fees associated with strategic transformation initiatives, as well as a $15 million change in estimate related to the Tax Receivable Agreement that we entered into at the IPO related to the filing of our 2021 tax returns in the fourth quarter of 2022. c.
A $15 million change in estimate related to the Tax Receivable Agreement that we entered into at the IPO related to the filing of our 2021 tax returns was recorded in the fourth quarter of 2022. (c) Includes non-cash amortization expenses relating to cloud computing arrangements. (d) Represents non-cash equity-based compensation expense.
Advertising fund expenses generally trend consistent with advertising fund contributions. Supply and Other Expenses Supply and other expenses increased $33 million, or 30%, for the year ended December 31, 2022, compared to the year ended December 25, 2021. This increase was primarily due to an increase in franchise system-wide sales that resulted in increased product purchases.
Advertising fund expenses generally trend consistent with advertising fund contributions. Supply and Other Expenses Supply and other expenses increased $13 million, or 9%, due to an increase in supply and other revenue.
The decrease was primarily due to a $56 million payment of transaction costs associated with the AGN acquisition paid in 2022 and $37 million of additional interest expense paid in the current year, partially offset by an increase in operating income.
The increase was due to a $56 million payment for transaction costs associated with the AGN acquisition during the year ended December 31, 2022, partially offset by decreased earnings in the current period. 55 Investing Activities Net cash used in investing activities was $451 million for the year ended December 30, 2023 compared to $840 million for the year ended December 31, 2022.
Advertising Contributions Advertising contributions increased by $12 million, or 16%, for the year ended December 31, 2022, compared to the year ended December 25, 2021, due to an increase in franchised system-wide sales of approximately $595 million, or 17%. Our franchise agreements typically require the franchisee to pay continuing advertising fees based on a percentage of franchisee gross sales.
Our franchise agreements typically require the franchisee to pay continuing advertising fund fees based on a percentage of franchisee gross sales.
The following table provides a reconciliation of Net Income to Adjusted EBITDA: Adjusted EBITDA Year Ended December 31, 2022 December 25, 2021 Net income $ 43,173 $ 9,536 Income tax expense 25,167 25,356 Interest expense, net 114,096 75,914 Depreciation and amortization 147,156 112,777 EBITDA 329,592 223,583 Acquisition related costs (a) 15,304 62,386 Non-core items and project costs, net (b) 20,241 5,656 Straight-line rent adjustment (c) 14,965 11,619 Equity-based compensation expense (d) 20,583 4,301 Foreign currency transaction loss, net (e) 17,168 20,683 Bad debt recovery (f) (449) (3,183) Trade name impairment (g) 125,450 — Asset sale leaseback (gain) loss, impairment and closed store expenses (h) (29,083) (8,935) Loss on debt extinguishment (i) — 45,576 Adjusted EBITDA $ 513,771 $ 361,686 a.
Management believes this non-GAAP financial measure is useful because it is a key measure used by our management team to evaluate our operating performance, generate future operating plans, and make strategic decisions. 44 The following table provides a reconciliation of Net (Loss) Income to Adjusted EBITDA: Adjusted EBITDA Year Ended December 30, 2023 December 31, 2022 Net (loss) income $ (744,962) $ 43,173 Income tax (benefit) expense (102,689) 25,167 Interest expense, net 164,196 114,096 Depreciation and amortization 175,296 147,156 EBITDA (508,159) 329,592 Acquisition related costs (a) 13,174 15,304 Non-core items and project costs, net (b) 7,343 20,241 Cloud computing amortization (c) 1,923 — Equity-based compensation expense (d) 15,300 20,583 Foreign currency transaction (gain) loss, net (e) (3,078) 17,168 Bad debt recovery (f) — (449) Goodwill impairment (g) 850,970 — Trade name impairment (h) — 125,450 Asset sale leaseback (gain) loss, impairment and closed store expenses (i) 139,414 (29,083) Adjusted EBITDA $ 516,887 $ 498,806 (a) Consists of acquisition costs as reflected within the consolidated statements of operations, including legal, consulting and other fees, and expenses incurred in connection with acquisitions completed during the applicable period, as well as inventory rationalization expenses incurred in connection with acquisitions.
Maintenance Year Ended 2022 2021 (in thousands) December 31, 2022 December 25, 2021 % Net Revenue For Segment % Net Revenue For Segment Franchise royalties and fees $ 45,046 $ 35,932 5.6 % 6.2 % Company-operated store sales 692,947 503,719 86.7 % 87.3 % Supply and other revenue 61,869 37,425 7.7 % 6.5 % Total revenue $ 799,862 $ 577,076 100.0 % 100.0 % Segment Adjusted EBITDA $ 262,608 $ 179,073 32.8 % 31.0 % System-Wide Sales Change Franchised stores $ 923,153 $ 759,940 $ 163,213 21.5 % Company-operated stores 692,947 503,719 189,228 37.6 % Total System-Wide Sales $ 1,616,100 $ 1,263,659 352,441 27.9 % Store Count Change Franchised stores 1,052 962 90 9.4 % Company-operated stores 593 543 50 9.2 % Total Store Count 1,645 1,505 140 9.3 % Same Store Sales % 16.1 % 24.8 % Maintenance revenue increased $223 million, or 39%, for the year ended December 31, 2022, compared to the year ended December 25, 2021.
Maintenance Year Ended 2023 2022 (in thousands, unless otherwise noted) December 30, 2023 December 31, 2022 % Net Revenue For Segment % Net Revenue For Segment Franchise royalties and fees $ 56,298 $ 45,046 5.8 % 5.6 % Company-operated store sales 809,356 692,947 84.3 % 86.7 % Supply and other revenue 94,746 61,869 9.9 % 7.7 % Total net revenue $ 960,400 $ 799,862 100.0 % 100.0 % Segment Adjusted EBITDA $ 329,498 $ 258,470 34.3 % 32.3 % System-Wide Sales Change Franchised stores $ 1,090,457 $ 923,153 $ 167,304 18.1 % Company-operated stores 809,356 692,947 116,409 16.8 % Total System-Wide Sales $ 1,899,813 $ 1,616,100 $ 283,713 17.6 % Store Count (in whole numbers) Change Franchised stores 1,134 1,052 82 7.8 % Company-operated stores 652 593 59 9.9 % Total Store Count 1,786 1,645 141 8.6 % Same Store Sales % 9.2 % 16.1 % Maintenance net revenue increased $161 million, or 20%, driven primarily by a $116 million increase in company-operated store sales from same store sales growth and 59 net new company-operated stores.
Consists of acquisition costs as reflected within the consolidated statement of operations, including legal, consulting and other fees, and expenses incurred in connection with acquisitions completed during the applicable period, as well as inventory rationalization expenses incurred in connection with acquisitions. We expect to incur similar costs in connection with other acquisitions in the future and, under U.S.
We expect to incur similar costs in connection with other acquisitions in the future and, under U.S. GAAP, such costs relating to acquisitions are expensed as incurred and not capitalized. (b) Consists of discrete items and project costs, including third party consulting and professional fees associated with strategic transformation initiatives as well as non-recurring payroll-related costs.
Independently-Operated Store Sales Independently-operated store sales (comprised entirely of the international car wash locations) decreased $9 million, or 4%, for the year ended December 31, 2022, compared to the year ended December 25, 2021, primarily as a result of store closures and a decrease in same store sales due to unfavorable currency translation.
In aggregate, the Company added 83 company-operated stores year-over-year. Independently-Operated Store Sales Independently-operated store sales (comprised entirely of sales from the international car wash locations) increased $1 million, or 1%, primarily due to an increase in same store sales and a positive impact from foreign exchange.
Segment Adjusted EBITDA is a supplemental measure of the operating performance of our segments and may not be comparable to similar measures reported by other companies. Also, shared services costs are not allocated to these segments, as further described in Note 9 to the consolidated financial statements.
Shared services costs are not allocated to these segments and are included in Corporate and Other. Segment Adjusted EBITDA may not be comparable to similarly titled metrics of other companies due to differences in methods of calculation.
Supply and other revenue increased by $24 million, or 65%, primarily due to an increase in franchise store system wide sales related to Take 5 Oil driven by same store sales growth, an increase in franchise store count, and an increase in oil prices.
Advertising Fund Contributions Advertising fund contributions increased by $11 million, or 13%, primarily due to an increase in franchise system-wide sales of approximately $474 million, or 12%, from same store sales growth and an additional 104 net new franchise stores.
Investing Activities Net cash used in investing activities was $840 million for the year ended December 31, 2022 compared to $815 million for the year ended December 25, 2021, primarily resulting from an increase in capital expenditures of $275 million, partially offset by an increase in proceeds from sale-leaseback transactions of $190 million, an increase in proceeds received from disposal of businesses and fixed assets of $23 million, and a decrease in cash paid for acquisitions of $38 million.
The decrease was due to a $703 million decrease in net cash paid for acquisitions, partially offset by a $160 million increase in capital expenditures, primarily relating to building new company-operated stores and remodeling and improving existing stores and a $139 million decrease in proceeds from sale-leaseback transactions.
The Company operates and reports financial information on a 52 or 53 week year with the fiscal year ending on the last Saturday in December. Our 2022 fiscal year ending December 31, 2022 consisted of 53 weeks and our fiscal year ending December 25, 2021 consisted of 52 weeks.
We operate on a 52 or 53-week fiscal year, which ends on the last Saturday in December. The twelve months ended December 30, 2023 and December 31, 2022 were 52 and 53 week periods, respectively.
Maintenance, Car Wash, and Paint, Collision & Glass company-operated store sales increased by $189 million, $113 million, and $178 million, respectively. Company operated store sales increased due to the addition of 288 company-operated stores year-over-year and same store sales growth.
Franchised system-wide sales increased $474 million, or 12%. Company-operated Store Sales Company-operated store sales increased $202 million, or 15%, of which approximately $116 million, $82 million, and $5 million related to the Maintenance, Paint, Collision & Glass, and Car Wash segments, respectively.
Company-operated store sales increased $189 million, or 38%, due to an increase in same store sales growth and an increase of 50 company-operated stores at Take 5 Oil .
The sales increase in the Maintenance segment was primarily due to same store sales growth and 59 net new company-operated stores.
These increases were partially offset by a $125 million non-cash impairment charge related to the change in intended use of certain existing Car Wash trade names migrating to the Take 5 Car Wash brand, a $91 million increase in selling, general and administrative expenses related to higher professional fees, infrastructure, and other operating costs, including $15 million relating to the Tax Receivable Agreement, a $38 million increase in interest expense related to a higher average balance outstanding and an increased weighted average interest rate due to interest rate increases throughout 2022.
These decreases were partially offset by: • a $125 million non-cash intangible impairment charge related to the change in intended use of certain existing Car Wash trade names migrating to the Take 5 Car Wash brand in the prior period; • a decrease in tax expense of $128 million; • reduced losses for foreign exchange of $20 million; and • increases related to same store sales growth, primarily within the Maintenance segment, organic store count growth, and unit growth from acquisitions during 2023.
Acquisition costs decreased primarily due to the non-recurrence of $56 million in transaction costs related to the acquisition of AGN on December 30, 2021 (See Note 3 ), which were incurred in 2021, partially offset by increased acquisition activity in the current year compared to the prior year.
Acquisition Related Costs Acquisition related costs decreased $2 million, or 14%, due to decreased acquisition activity in the current year compared to the prior year.
Supply and other revenue increased $14 million , or 21%, primarily due t o same store sales growth and higher franchise income resulting from an increase in system wide sales.
Independently-operated store sales increased $1 million due to an increase in same store sales for independently-operated stores and positive impacts from foreign exchange. Supply and other revenue decreased $1 million due to decreased vending sales.
The increase in Adjusted Net Income was primarily due to an increase in revenue related to same store sales and organic growth and increased unit growth from the U.S. glass business acquisitions and continued car wash acquisitions in 2022, partially offset by higher operating, interest, and income tax expenses associated with growth.
The increase in Adjusted EBITDA was primarily due to: • increases related to same store sales growth, primarily within the Maintenance segment, organic store count growth, and unit growth from acquisitions in the trailing twelve month period.
The Term Loan Facility and Revolving Credit Facility also have certain qualitative covenants. As of December 31, 2022 and December 25, 2021, the Company and its issuing subsidiaries were in compliance with all covenants under its agreements.
As of December 30, 2023, the Co-Issuers and Driven Holdings were in material compliance with all such covenants under their respective credit agreements.
Removed
We have generated consistent recurring revenue and strong operating margins with limited maintenance capital expenditures, which has resulted in significant cash flow generation and capital-efficient growth. We have driven sustained predictable growth and share gain through our robust pipeline of organic growth complemented by a consistent and repeatable M&A strategy, having completed over 100 acquisitions since 2020.
Added
Our scaled, diversified platform fulfills an extensive range of core retail and commercial automotive needs, including paint, collision, glass, and repair services, as well as a variety of high-frequency services, such as oil changes and car washes. We have continued to grow our base of consistent recurring revenue by adding new franchised and company-operated stores and same store sales growth.
Removed
During 2022, we continued to invest in our M&A strategy primarily across our Paint, Collision & Glass, Car Wash and Maintenance segments completing the acquisition of more than 200 locations. Notably, in 2022 we entered the U.S. glass market through our acquisition of AGN and have become the second largest player in the auto glass servicing category.
Added
Driven Brands generated net revenue of approximately $2.3 billion during the year ended December 30, 2023, an increase of 13% compared to the prior year, and system wide sales of approximately $6.3 billion during the year ended December 30, 2023, an increase of 12% from the prior year.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

9 edited+1 added−0 removed4 unchanged
Biggest changeHowever, our variable funding notes, Term Loan Facility, and Revolving Credit Facility are variable rate, and therefore our interest costs are subject to change based on movement in interest rates. A hypothetical rate increase or decrease of 1% for variable debt held as of December 31, 2022, would result in an increase or decrease of interest expense of $5 million.
Biggest changeWe have attempted to manage this risk by issuing fixed rate debt instruments on the majority of our securitization senior notes. However, our variable funding notes, Term Loan Facility, and Revolving Credit Facility are variable rate, and therefore our interest costs are subject to change based on movement in interest rates.
We have attempted to minimize this risk on certain securitization debt and inter-company loans with a cross-currency interest rate swap agreement and foreign currency forward 57 contracts to hedge our risk to changes between the U.S. Dollar and Canadian Dollar as well as a forward contract between the British Pound and Euro, respectively.
We have attempted to minimize this risk on certain securitization debt and inter-company loans with a cross-currency interest rate swap agreement and foreign currency forward contracts to hedge our risk to changes between the U.S. Dollar and Canadian Dollar as well as a forward contract between the British Pound and Euro, respectively.
Severe increases in inflation, however, could affect the global and U.S. economies and could have an adverse impact on our business, financial condition, and results of operations. 58
Severe increases in inflation, however, could affect the global and U.S. economies and could have an adverse impact on our business, financial condition, and results of operations. 60
See Note 11 to the consolidated financial statements for additional details. Impact of Inflation Inflation did not have a significant overall effect on our annual results of operations during 2022, 2021 or 2020.
See Note 12 to the consolidated financial statements for additional details. Impact of Inflation Inflation did not have a significant overall effect on our annual results of operations during 2023, 2022 or 2021.
As a policy, we do not engage in speculative transactions, nor do we hold or issue financial instruments for trading purposes. Interest Rate Risk We are exposed to changes in interest rates as a result of our financing activities used to fund business operations. Primary exposures include movements in London Interbank Offered Rate (“LIBOR”).
As a policy, we do not engage in speculative transactions, nor do we hold or issue financial instruments for trading purposes. Interest Rate Risk We are exposed to changes in interest rates as a result of our financing activities used to fund business operations. Primary exposures include movements in the Secured Overnight Financing Rate (“SOFR”).
To the extent that we are unable to make payments under the Tax Receivable Agreement for any other reason, such payments will generally accrue interest at a rate of LIBOR plus 5.00% per annum until paid.
To the extent that we are unable to make payments under the Tax Receivable Agreement for any other reason, such payments will generally accrue interest at a rate of SOFR plus an applicable term adjustment plus 5.0% per annum until paid.
As discussed in “Risk Factors - We are required to make payments under a Tax Receivable Agreement for certain tax benefits, which amounts are expected to be material ” to the extent that we are unable to make payments under the Tax Receivable Agreement because of restrictions under our outstanding indebtedness, such payments will be deferred and will generally accrue interest at a rate of LIBOR plus 1.00% per annum until paid.
As discussed in “Risk Factors - We are required to make payments under a Tax Receivable Agreement for certain tax benefits, which amounts are expected to be material ” to the extent that we are unable to make payments under the Tax Receivable Agreement because of restrictions under our outstanding indebtedness.
We also have exposure to variable interest rates in the Tax Receivable Agreement. See Note 2 to the consolidated financial statements for additional details.
A hypothetical rate increase or decrease of 1% for variable debt held as of December 30, 2023, would result in an increase or decrease of interest expense of $7 million. We also have exposure to variable interest rates in the Tax Receivable Agreement. See Note 2 to the consolidated financial statements for additional details.
The nature and amount of our long-term debt can be expected to vary as a result of future business requirements, market conditions, and other factors. We have attempted to manage this risk by issuing fixed rate debt instruments on the majority of our securitization senior notes.
The nature and amount of our long-term debt can be expected to vary as a result of future business requirements, market conditions, and other factors. Over the past several years, the U.S. Federal Reserve Board and European Central Bank have changed certain benchmark interest rates, which has resulted in fluctuations within our variable rate debt instruments.
Added
As of July 1, 2023, interest accrues at the Base Rate plus an applicable margin or SOFR plus an applicable term adjustment plus 1.0%.

Other DRVN 10-K year-over-year comparisons