Driven Brands Holdings Inc. (DRVN) Bundle
Understanding Driven Brands Holdings Inc. (DRVN) Revenue Streams
Understanding Driven Brands Holdings Inc.’s Revenue Streams
Driven Brands Holdings Inc. generates its revenue through various streams, primarily from franchise royalties, company-operated store sales, and independently-operated store sales. The revenue breakdown for the third quarter of 2024 is as follows:
| Revenue Source | Q3 2024 Revenue (in thousands) | Q3 2023 Revenue (in thousands) | Year-over-Year Change (%) |
|---|---|---|---|
| Franchise Royalties and Fees | $49,475 | $47,362 | 4.47% |
| Company-operated Store Sales | $388,132 | $389,041 | -0.23% |
| Independently-operated Store Sales | $49,959 | $43,582 | 14.76% |
| Advertising Contributions | $26,823 | $27,121 | -1.10% |
| Supply and Other Revenue | $77,290 | $73,928 | 4.80% |
| Total Net Revenue | $591,679 | $581,034 | 1.12% |
For the nine months ended September 28, 2024, the revenue sources were:
| Revenue Source | 9M 2024 Revenue (in thousands) | 9M 2023 Revenue (in thousands) | Year-over-Year Change (%) |
|---|---|---|---|
| Franchise Royalties and Fees | $144,549 | $140,682 | 2.64% |
| Company-operated Store Sales | $1,157,269 | $1,159,685 | -0.36% |
| Independently-operated Store Sales | $163,286 | $157,647 | 3.57% |
| Advertising Contributions | $75,804 | $73,547 | 3.06% |
| Supply and Other Revenue | $234,563 | $218,791 | 7.22% |
| Total Net Revenue | $1,775,471 | $1,750,352 | 1.44% |
The overall revenue growth for the third quarter of 2024 compared to the previous year is a modest 2%, driven primarily by same-store sales growth of 1.1% across the company's locations. The company reported system-wide sales of $1.6 billion, also reflecting a 2% increase year-over-year.
Significant changes in revenue streams include:
- The Take 5 Oil Change segment reported a 15% revenue growth, highlighting its strong performance.
- The Car Wash segment saw a slight increase in revenue, with system-wide sales totaling $140.4 million.
- Overall, the Maintenance segment contributed the largest share to total revenue with $278.2 million.
As of the third quarter of 2024, the company continues to reaffirm its revenue expectations for the fiscal year, projecting total revenue between $2.33 billion and $2.43 billion, adjusted for the recent disposition of its Canadian distribution business, which is expected to reduce revenue by approximately $18 million.
A Deep Dive into Driven Brands Holdings Inc. (DRVN) Profitability
A Deep Dive into Driven Brands Holdings Inc.'s Profitability
Gross Profit Margin: For the third quarter of 2024, the company reported a gross profit of $39.5 million on revenues of $591.7 million, resulting in a gross profit margin of approximately 6.7%. This is a slight increase from the gross profit margin of 6.4% reported in the same quarter of the previous year.
Operating Profit Margin: The operating income for the third quarter stood at $39.5 million, presenting an operating profit margin of approximately 6.7%. This is a significant improvement compared to the operating loss of $906.9 million in Q3 2023.
Net Profit Margin: The net loss reported for Q3 2024 was $14.9 million, translating to a net profit margin of approximately (2.5%). In comparison, the net margin for the same period in 2023 was (137.5%), reflecting a substantial recovery from the previous year.
Trends in Profitability Over Time
Over the past year, the company has shown signs of recovery in profitability metrics. The adjusted EBITDA for Q3 2024 was $138.8 million, up 14% year-over-year from $122.1 million in Q3 2023. The adjusted EBITDA margin for Q3 2024 is approximately 23.5%, compared to 21.0% in Q3 2023.
| Metric | Q3 2024 | Q3 2023 | Change |
|---|---|---|---|
| Gross Profit Margin | 6.7% | 6.4% | +0.3% |
| Operating Profit Margin | 6.7% | (8.5%) | +15.2% |
| Net Profit Margin | (2.5%) | (137.5%) | +135.0% |
| Adjusted EBITDA | $138.8 million | $122.1 million | +14% |
Comparison of Profitability Ratios with Industry Averages
The profitability ratios for the company indicate an upward trend, although they remain below industry averages. The average gross profit margin for companies in the automotive services sector is around 8.5%, while the average operating profit margin is approximately 10%. The company's net profit margin is also below the industry benchmark of 4%.
Analysis of Operational Efficiency
Operational efficiency is illustrated by the company's ability to manage costs effectively. The total operating expenses for Q3 2024 were $552.2 million, compared to $1.49 billion in Q3 2023. This reflects a significant reduction in expenses, contributing to improved operating income. The company has also achieved a reduction in selling, general, and administrative expenses, which totaled $149.8 million in Q3 2024, down from $123.0 million in Q3 2023.
Furthermore, the adjusted EBITDA reflects the company's strong operational performance, with an adjusted EBITDA margin of approximately 23.5% compared to the industry average of 20%.
| Expense Type | Q3 2024 | Q3 2023 | Change |
|---|---|---|---|
| Total Operating Expenses | $552.2 million | $1.49 billion | -63% |
| SG&A Expenses | $149.8 million | $123.0 million | +21.8% |
| Adjusted EBITDA Margin | 23.5% | 21.0% | +2.5% |
Debt vs. Equity: How Driven Brands Holdings Inc. (DRVN) Finances Its Growth
Debt vs. Equity: How Driven Brands Holdings Inc. Finances Its Growth
Driven Brands Holdings Inc. has a significant debt profile, comprising both long-term and short-term obligations. As of September 28, 2024, the company reported total long-term debt of $2.73 billion, a decrease from $2.91 billion in December 2023. The current portion of long-term debt stands at $32.87 million, indicating a manageable short-term obligation.
The company’s total liabilities were $4.80 billion as of the end of Q3 2024, reflecting a slight reduction from $5.00 billion at the end of the previous fiscal year. The balance sheet shows a total equity of $962.81 million, which supports a debt-to-equity ratio of approximately 2.85. This ratio is notably higher than the industry average of around 1.5, suggesting a greater reliance on debt financing compared to its peers.
Recent debt activity includes the issuance of $274.79 million in long-term debt during Q3 2024, while the company repaid $422.49 million of long-term debt within the same period. The interest expense for the quarter was reported at $43.68 million, contributing to an annualized interest expense of approximately $119.25 million.
Driven Brands has achieved a net leverage target of 4.5x ahead of schedule, which indicates effective management of its debt levels relative to EBITDA. The company is focused on deleveraging further, with plans to balance its capital structure through both debt and equity financing. As of Q3 2024, total cash and cash equivalents amounted to $204.18 million, providing liquidity to manage operational needs and future investments.
| Metric | Value |
|---|---|
| Total Long-term Debt | $2.73 billion |
| Current Portion of Long-term Debt | $32.87 million |
| Total Liabilities | $4.80 billion |
| Total Equity | $962.81 million |
| Debt-to-Equity Ratio | 2.85 |
| Industry Average Debt-to-Equity Ratio | 1.5 |
| Recent Long-term Debt Issuance | $274.79 million |
| Long-term Debt Repayment | $422.49 million |
| Quarterly Interest Expense | $43.68 million |
| Annualized Interest Expense | $119.25 million |
| Cash and Cash Equivalents | $204.18 million |
Through this debt-equity structure, Driven Brands Holdings Inc. is positioned to finance its growth while navigating the challenges of a capital-intensive industry.
Assessing Driven Brands Holdings Inc. (DRVN) Liquidity
Assessing Driven Brands Holdings Inc. Liquidity
Current and Quick Ratios
The current ratio for Driven Brands Holdings Inc. as of September 28, 2024, stands at 1.90, calculated by dividing total current assets of $747.2 million by total current liabilities of $393.7 million. The quick ratio, which excludes inventory from current assets, is 1.38 based on current assets of $747.2 million, accounts receivable of $171.9 million, and current liabilities of $393.7 million.
Analysis of Working Capital Trends
Working capital is calculated as current assets minus current liabilities. As of September 28, 2024, working capital is $353.5 million ($747.2 million - $393.7 million). This represents a decrease from the previous year, indicating potential liquidity concerns.
Cash Flow Statements Overview
In the nine months ended September 28, 2024, the cash flow from operating activities was $174.7 million. The cash flows from investing activities reflected a net cash provided of $85.3 million, while cash flows from financing activities showed a net cash used of $226.7 million.
| Cash Flow Type | Q3 2024 (in millions) | Q3 2023 (in millions) |
|---|---|---|
| Operating Cash Flow | $174.7 | $212.0 |
| Investing Cash Flow | $85.3 | ($361.2) |
| Financing Cash Flow | ($226.7) | $147.9 |
Potential Liquidity Concerns or Strengths
As of September 28, 2024, total liquidity amounts to $655.3 million, comprising $204.2 million in cash and cash equivalents and $451.1 million of undrawn capacity on its revolving credit facility. The company also holds $135.0 million in Series 2022 Class A-1 Notes, which could further enhance liquidity if exercised under certain conditions.
Is Driven Brands Holdings Inc. (DRVN) Overvalued or Undervalued?
Valuation Analysis
To determine whether Driven Brands Holdings Inc. is overvalued or undervalued, we will analyze key valuation metrics including the price-to-earnings (P/E) ratio, price-to-book (P/B) ratio, and the enterprise value-to-EBITDA (EV/EBITDA) ratio.
Price-to-Earnings (P/E) Ratio
The current P/E ratio stands at 29.2, based on a stock price of approximately $7.87 and earnings per share (EPS) of $0.27 for the most recent quarter.
Price-to-Book (P/B) Ratio
The P/B ratio is calculated at 1.0, with a book value per share of $7.87.
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
The EV/EBITDA ratio is reported at 12.7, calculated using an enterprise value of approximately $2.64 billion and an EBITDA of $207 million.
Stock Price Trends Over the Last 12 Months
Over the past 12 months, the stock price has fluctuated between a low of $5.64 and a high of $10.75. Currently, the stock trades at $7.87, indicating a decrease of approximately 27% from its peak.
Dividend Yield and Payout Ratios
The company does not currently pay dividends, resulting in a dividend yield of 0%. The payout ratio is also 0% as no dividends are distributed.
Analyst Consensus on Stock Valuation
Analyst consensus indicates a hold rating, with a mean price target of $9.50, suggesting potential upside from the current trading price.
| Valuation Metric | Value |
|---|---|
| P/E Ratio | 29.2 |
| P/B Ratio | 1.0 |
| EV/EBITDA Ratio | 12.7 |
| Stock Price (Current) | $7.87 |
| 52-Week Low | $5.64 |
| 52-Week High | $10.75 |
| Dividend Yield | 0% |
| Payout Ratio | 0% |
| Analyst Consensus | Hold |
| Mean Price Target | $9.50 |
Key Risks Facing Driven Brands Holdings Inc. (DRVN)
Key Risks Facing Driven Brands Holdings Inc.
The financial health of Driven Brands is influenced by several internal and external risk factors that can significantly impact its performance and stability.
Industry Competition
Driven Brands operates in a highly competitive automotive services industry. Competitors include both national chains and local operators, which can lead to pricing pressures and reduced market share. In the third quarter of 2024, the company reported total revenue of $592 million, a modest increase of 2% year-over-year, indicating the challenges faced in maintaining growth amid competitive pressures.
Regulatory Changes
Changes in regulations, particularly regarding environmental standards and labor laws, can impose additional costs or operational constraints. The company must stay compliant with varying regulations across its locations, which can lead to increased operational costs. In the most recent earnings report, the company reaffirmed its full-year revenue expectations of $2.33 - $2.43 billion despite potential regulatory impacts.
Market Conditions
The overall economic environment affects consumer spending habits, which in turn impacts the automotive service industry. Economic downturns can lead to decreased vehicle maintenance and repair spending. Driven Brands reported a system-wide sales increase of 2% to $1.6 billion, driven by a 1.1% same-store sales growth.
Operational Risks
Operational risks include supply chain disruptions, labor shortages, and technology failures. The company noted a net loss of $14.9 million for the third quarter of 2024. Such losses could be attributed to rising operational costs and challenges in maintaining service quality across its expansive network of over 5,100 locations.
Financial Risks
Financial risks encompass fluctuations in interest rates and foreign currency exchange rates, which could affect profitability. The reported interest expense for the quarter was $43.7 million, highlighting the impact of debt on financial performance. The company’s long-term debt stood at $2.73 billion as of September 28, 2024.
Strategic Risks
Strategic risks involve the company's growth strategy, including acquisitions and market expansions. Any missteps in these areas could lead to significant financial losses. Driven Brands continues to focus on its acquisition strategy, which has historically contributed to its growth, but also introduces execution risks.
Mitigation Strategies
To mitigate these risks, Driven Brands focuses on financial discipline, operational efficiency, and strategic planning. The company achieved a net leverage target of 4.5x, ahead of schedule, aiming for further deleveraging. Additionally, Driven Brands has maintained a liquidity position of $655.3 million, consisting of $204.2 million in cash and equivalents.
| Risk Factor | Description | Impact on Financials |
|---|---|---|
| Industry Competition | High competition from national and local players | Pressure on pricing and market share |
| Regulatory Changes | Changes in environmental and labor laws | Increased operational costs |
| Market Conditions | Economic downturn affecting consumer spending | Potential decrease in service demand |
| Operational Risks | Supply chain disruptions and labor shortages | Impact on service quality and costs |
| Financial Risks | Fluctuations in interest rates and currency | Increased interest expenses affecting profitability |
| Strategic Risks | Risks associated with acquisitions and expansions | Potential for significant financial losses |
Future Growth Prospects for Driven Brands Holdings Inc. (DRVN)
Future Growth Prospects for Driven Brands Holdings Inc.
Analysis of Key Growth Drivers
The company is poised for growth through various avenues including product innovations, market expansions, and strategic acquisitions. The introduction of new services and enhancements to existing offerings is expected to attract a broader customer base.
Future Revenue Growth Projections and Earnings Estimates
For the fiscal year 2024, the company anticipates revenue in the range of $2.33 billion to $2.43 billion, a slight decrease from previous estimates due to the sale of its Canadian distribution business, which is projected to reduce revenue by approximately $18 million. Adjusted EBITDA is expected to be between $529 million and $559 million.
Strategic Initiatives or Partnerships that May Drive Future Growth
The company has reaffirmed a target for same-store sales growth of 1% to 3% and plans to open approximately 205 to 220 new stores. These initiatives are complemented by the company's focus on strengthening its franchise operations and expanding its service offerings.
Competitive Advantages that Position the Company for Growth
Driven Brands holds a significant market position as the largest automotive services company in North America, with over 5,100 locations across 14 countries. This extensive network allows for economies of scale and increased brand recognition. The company services approximately 70 million vehicles annually, generating around $2.3 billion in revenue from $6.4 billion in system-wide sales.
| Metric | Q3 2024 | Q3 2023 |
|---|---|---|
| Net Revenue | $591.7 million | $581.0 million |
| Adjusted EBITDA | $138.8 million | $122.0 million |
| Net Loss | ($14.9 million) | ($799.3 million) |
| Adjusted Net Income | $41.8 million | $29.9 million |
| Same-Store Sales Growth | 1.1% | 1.3% |
| Total Store Count | 5,109 | 4,993 |
Conclusion
The company's strategic planning and operational efficiencies are expected to yield continued growth, supported by a solid foundation in the automotive service industry and proactive management of resources.
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Article updated on 8 Nov 2024
Resources:
- Driven Brands Holdings Inc. (DRVN) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Driven Brands Holdings Inc. (DRVN)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View Driven Brands Holdings Inc. (DRVN)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.