Good morning, everyone. I'm Michael Lasser with the Hardline, Broadline and Food Retail Analyst from UBS. We could not be more excited to have the team from Driven Brands with us, including my longtime friend, Miss Tiffany Mason, who is Driven Brands CFO. She spent some time at Lowe's before she joined Driven Brands. She's a familiar face to many of us in the investment community. To her left is Kristy Moser, who runs the company's investor relations team. Tiffany is gonna give a few opening remarks just to set the stage, and then we're gonna dive into some topics that we think are pertinent for the investment case on Driven Brands. With that, Tiffany, thank you so much.
Thank you, Michael. It's a pleasure to be here. Good to see all of you this morning. Always fantastic to be back in person, thanks for being with us. Let me start by saying that Driven is the largest automotive services company in North America. We do about $5.5 billion in system-wide sales, we service about 70 million vehicles annually
We do that across our 4,800 locations, both in North America and in Europe with our Car Wash business. Our mix of customers is evenly split 50% retail and 50% commercial. I'm sure we'll get into the commercial side of the business over the course of today's conversation. Suffice it to say, it's insurance companies when we think about our collision and glass businesses and fleet management companies across the portfolio.
We operate in what is a $350 billion industry. That industry continues to grow. It's also a very fragmented industry. In fact, 80% of the industry is owned by small chains and independents. Even with Driven scale, we have about 5% market share today. That should signify opportunity. We're gonna talk about that opportunity and what we think we can do and deliver over the next several years. We have a strong track record of growth. We've grown both organically as well as through M&A. The scale of our M&A is typically tuck in. We're talking about 1, 3, 5 shops that we will buy, rebrand, put in our operating playbook, and roll into the existing business.
We have a very broad offering which meets the needs of the consumer across 4 different segments: maintenance, paint, collision and glass, Car Wash, and platform services. That service offering provides some great diversification in our portfolio. You're gonna hear that diversification theme, I'm sure, across the questions that we get asked and answered today. Each brand in our portfolio plays a very important role. We have more mature brands that are slower growing, that generate tremendous cash flow, those brands allow us to reinvest that cash flow in our higher growth brands. Those high-growth brands today are QuikLube, Car Wash, and the glass business in the U.S.
For a quick financial snapshot, just to set the stage as we start into today's discussion, since 2019, we have tripled our revenue growth and quadrupled our EBITDA over that period of time. In last fiscal year, so fiscal 2022, we added 393 units, we posted 14% same-store sales growth, we grew revenue in total by 39% and EBITDA by 42%. In the retail space, we're looking at 25% EBITDA margins, which is pretty phenomenal when you think about the retail landscape and what we've been able to achieve in automotive aftermarket. For 2023, we're guiding to another year of double-digit revenue and EBITDA growth, we continue to be well-positioned. Our services are needs-based, that's a really important part of the investment thesis here.
Our core customer needs their vehicle to take care of their families, to get about their daily lives, and to get to and from their job site. The fact that economic cycles change and ebb and flow over time, that needs-based nature of what we do provides some resilience to our business model. We have a pipeline today of over 1,600 locations, new locations, so we have great visibility into unit count for the next several years. Importantly, our portfolio drives some really important network benefits, one of which is the robust data that we capture from all of our consumers.
We have more data than anyone else in our category today. That data allows us to know more about the consumer, make sure that we're in front of the consumer with marketing material and messaging and reminders when it matters. We also have centralized procurement that allows us to take the power of the platform and leverage our buying scale so that our franchisees and our company-owned stores get input costs, products cheaper than they would by going it alone, right? That's really important to leverage the scale of this platform. Finally, we have a national account strategy that lets us sell those insurance and fleet programs centrally at our corporate office on behalf of the entire portfolio. Simply put, what Driven does is we add new stores, we grow same-store sales, and we deliver stable margins.
All of that generates tremendous cash flow that we put right back into the flywheel of growth and continue to pursue the white space and consolidation opportunities in the market. The last thing I wanna say before we take some questions is we set a target about a year ago of $850 million of EBITDA by 2026, and myself and the rest of the management team have great confidence that we can deliver 850 by that point in time. Thanks for your time today, and I look forward to your questions. Michael Lasser, let's see what we can talk about.
Let's do it. Yeah. Thank you so much for both of you being here.
Absolutely.
Driven is an exciting story. The team should be really proud of what's been accomplished. It seems like there's so much more opportunity from here. Can you just frame, you know, given that this is a consumer conference and the environment is pretty uncertain at this point, who's a typical customer across the different segments that Driven serves?
Mm-hmm.
How does that differ across maintenance, wash, collision, and repair?
Sure. Yeah. It's a great place to start. I mentioned it in my opening remarks, but I'll say it again: Our business is pretty well-balanced, 50/50 between consumer retail customers and commercial customers. Let's zero in on the commercial customers for just a minute. Those customers are insurance companies. When you think about collision claims, whether it's light or heavy collision, also glass in the, in the sense of glass replacement. PC&G, paint, collision, and glass, that segment is the biggest beneficiary of that commercial business. We also do work with fleet management companies. Think about rental car companies, you know, fleet management companies that manage large fleets. Those folks are doing business with Driven for a variety of reasons. They may need glass and paint services. They may need oil change services.
They can use anything in our portfolio, they're able to consolidate their needs in a single service provider. We can also centrally bill, which takes some of the administrative burden out of the process for them, and that creates some stickiness in the channel. Again, PC&G is the biggest beneficiary, but fleet management companies span the entire portfolio. That's on the commercial side of the house. On the retail side of the house, we're talking about a consumer which is about a $70,000 household income. If you think about those consumers, they need their cars. Their cars are one of their largest assets. It's how they navigate their family. It's how they get to and from work and generally manage their livelihood.
Regardless of economic cycle, those consumers know that the longer they put off a maintenance service, if they were to do that, or forego a service, the ultimate cost of that repair is gonna be exponentially more than if they had maintained their vehicle over time. That needs-based nature of what we do is what provides some resilience in the category.
It's an interesting point that talking about how because of the scale of Driven, it makes it easier to do business, especially for the commercial customers.
Mm-hmm.
to do, to work with Driven than some other players in the category.
Absolutely.
With that being said, I think there's a lot of focus and concern around the outlook for the consumer. With that being said, Driven was able to comp positive, during the great re-recession as you rightly pointed out.
Mm-hmm.
It's a needs-based business. Is there anything different about the company, the environment should we go into a downturn, that it would be different this time and, you know, the past is not necessarily a predictor of the future?
Sure. Yeah, it's a great question and obviously very, very timely. A couple of points I'll share with the crowd. I would say, first and foremost, the business, the Driven business in 2008 and 2009 was very different than it is today. I would actually suggest that we're much more diversified today than we were in 2008 and 2009, and yet in that period of time, we comped positively, to Michael's point. In 2008 and 2009, this business was just two brands. It was Maaco and Meineke, so it was general repair and maintenance and paint and light collision. We're much more diversified now. We're in Car Wash, heavy collision, distribution services, and glass.
When you think about the business today, that, you know, benefit of a diversified portfolio really starts to shine through in a more meaningful way. The most important indicator for our business is vehicle miles traveled. Vehicle miles traveled were, over the last 50 years, up about 2% on average. Last year, even with the rise in gas prices in the first half of the year, we still saw positive VMT of about 1% for fiscal 2022, and the forecast for 2023 is for VMT to be up low single digit. If you take that and you think about how VMT reacted, how miles traveled changed during the great recession of 2008 and 2009, we only saw about a 2% decline in VMT.
We're still very optimistic for the reason that we think VMT will continue to expand as consumers continue to drive more. The age of the vehicle continues to increase, so the average age of the car on the road today is about 12 years. As the age increases, the need for service and the scale and breadth of the service increases. We know that, you know, obviously, again, our core customer is thinking about their car as a core part of their daily life.
Tiffany promised me she was gonna tell the crowd exactly what's gonna happen with the consumer in the next six months. Just stay tuned for the rest of the conversation. With that being said, if you wanna include any questions in our conversation, feel free to log on to the website and include them, and we'll weave them into our conversation. Your point is a good one, that this is a needs-based business. It's heavily driven by the usage of a vehicle, and to the extent that people are driving more, it means that the cars get dirty. They need to be maintained, and unfortunately or fortunately, depending on how you look at it, they're gonna get into accidents, and they need to encounter repairs.
How are you thinking about the outlook for VMT over the next few years and the potential economic sensitivity?
Mm-hmm.
-to just folks driving a little bit more? On the one hand, if we start to see losses in the labor market, maybe it means folks don't commute as much. In this weird hybrid world, maybe that's a little less relevant.
Yeah. It's a good question. I You know, look, I think, like I said, the forecast for VMT in 2023 is low single digit. The average growth in VMT over the last 50 years has been 2%. You know, you're talking about low single digit growth for the foreseeable future in VMT, and the age of the car continues to increase. You know, we're in this interesting time right now where the cost of new cars is prohibitive. The inventory of new cars is low. It puts people in their cars longer, which is a good tailwind for our business. I'd also tell you the complexity of the vehicles continue to increase, across the spectrum of price points in the auto industry.
As that complexity of cars continues to increase, that's also a natural tailwind for our business. When we think about opportunities, whether it's to change your oil, to do general repair and maintenance, to wash your car, then to your point, Michael, if for whatever reason you happen to have an occurrence, right? Your glass breaks or you're in a collision, we can service that vehicle. That the natural tailwinds in the business mean that those tickets, those checks continue to increase because we're fixing not only the body of the car, or the efficiency of the engine, but we're also fixing the ADAS equipment. Glass is a great example of that.
Our glass business today is a really interesting new entrance for us, and that's because the calibration of the front-facing camera that's a part of the ADAS equipment has to be calibrated once the glass is repaired or replaced to make sure that that ADAS equipment is gonna make sure that you don't have accidents, right? It's lane changing, it's accident avoidant. All of that means that the job that we're doing for you is more complex, the ticket is higher, and our business continues to benefit from those natural tailwinds.
Given the experience that Tiffany and I have had together, first in home improvement and now in auto care services, I have repeatedly told her I'm a do-it-for-me customer. She is surprised by that 'cause I look so handy. With that being said, pricing has been significant across our economy and, you know, especially across needs-based businesses. Can you discuss and provide the group a sense for how influential pricing has been? What do you see as the outlook for pricing across your various banners? How does Driven maintain that balance between wanting to be competitive but also react to the marketplace, especially in this environment where costs are going up?
Sure. Yeah. Well, look, it's no surprise, right? We've all been navigating this inflationary environment for the better part of 2 years now. I would just remind you that, you know, in a needs-based environment where the consumer's only coming to us a couple of times a year, and we'll use QuickLube as our example 'cause that's the easiest one to wrap your heads around. Our QuickLube customers visit 2 to 3 times a year for their oil change. It's a pretty inelastic price environment because, you know, if you're talking about a $75, $80, $90 ticket and you're dealing with high single-digit or low double-digit inflation, a couple of dollars on that ticket when you only shop 2 or 3 times a year is pretty transparent to the consumer.
We've had a reasonably good success of, you know, not only dealing with input cost increases, in this case oil, but passing those input costs along to the consumer through retail price and still being able to manage repeat rates, net promoter scores, and ultimately manage our margin. Again, needs-based is critical in this particular conversation. That's probably one of our businesses that has seen the most inflation over the last 2 years. I think as we see the environment change, right? Whether inflation stabilizes or as we start to see deflation, history would tell us that retail prices are pretty sticky in our category. We also have really good transparency to our cost base.
In fact, if I stay on the QuickLube example, we have a national contract with our primary supplier that price resets, that cost resets every quarter. It's based on an index, so we can track the index, and we can make sure that if we need to take any changes to retail price, we have ample time to leg into that and watch the consumer impact. To Michael's point, we never wanna do anything that's going to, you know, detriment the long-term health and viability of our consumer base. We're, you know, we're playing the long game here, and we're making sure that we take enough price to be able to cover our costs, but not be, you know, not lean in too hard where it has long-term implications to the brand.
across the various segments, have you seen the marketplace be rational? It's been a tough environment.
Mm-hmm
... to manage through all these pricing dynamics.
We have. Yeah. We've not really seen anything outsized in any of the businesses that we operate. I think our, you know, our competitive set continues to be very mindful. That's a, that's a great position to be in for Driven Brands. Again, it all I can't say needs-based enough, right? It all kinda comes back to that same notion. Consumers need what we're offering. We wanna make sure that we're being transparent and competitive in the marketplace. You know, while we've got promotional periods here and there in various businesses, it's not been outsized relative to the norm.
Yeah. The message of needs-based is a good one, and it just reflects how important this is in the mind of the consumer. With that being said, is there a mindset with the consumer that they wanna spend a fixed amount such that gas prices go up, it could influence the degree to which they are maintaining their cars or the frequency with which they change their oil? We saw a big spike in gas prices in the year ago period. It was feels like forever ago.
Mm-hmm.
Now obviously gas prices are at a much more moderate level. How have you seen the dynamics in the marketplace between your segments and gasoline?
Sure
... as one macro factor?
Yeah. Look, I think I would point back to the fact that VMT last year was up 1% despite the fact that we saw pretty significant price increases at the pump in the first half of the year. I think that's a couple things. I think that, you know, coming off a long pandemic period, folks were anxious to get back to normal, however you define that, right? Back to normal, which means whether or not they're commuting to and from their job every day, and our core customer for the most part is, right? We're talking about that $70,000 a year household.
Whether or not you're commuting for work, you wanna get out and about, whether it's vacation, road trips, you know, trips to the grocery store or other errands you're running on the weekends. As we're seeing consumers return to normal, that's good for our business. A couple of dollars at the pump, as long as it's not sustained over a long period of time, usually doesn't have a tremendous impact on VMT.
What about the relationship between your segments and new and lightly used vehicles? you know, prior to the pandemic, used, light, new vehicle sales were in this $16 million-$17 million range. 16 million-17 million unit range. It's dropped quite significantly given the supply chain challenges. Presumably, folks have been holding onto their vehicle, maintaining their cars a little bit more. Do you think that's been a benefit to the business where to the extent that the supply of available automobiles improves, that would be a potential headwind?
Yeah. It's a really good question. I think let's start with there are 285 million vehicles in the car park today. It's a very large car park, we're talking about what has been a phenomenon, excuse me, in a relatively short period of time. It's true, new car affordability is low. Availability of inventory is limited because of the supply chain challenges and part shortage. People are staying in their cars longer. We've seen the average age of the car continue to lengthen, not just in the near term, but over the last decade or two. Again, the average age of the car is 12 years today. The more that car ages, the more opportunity we have for service and the higher the ticket typically with that older vehicle.
With 285 million vehicles on the road today, this would have to be a multiyear phenomenon to have any real meaningful impact. We're certainly benefiting, but I wouldn't say it's, you know, an outsized or significant benefit.
maybe this is an important opportunity to contrast the cars that Driven are working on are across the age demographic, whereas maybe other players in auto care service are working on-
Yeah.
older vehicles, and so to some of the ebbs and flows of the cohorts can matter a little bit more and maybe a little bit less for Driven.
It's a great point, Michael. I would say, you know, typically our customer, again, 70,000 household income, but also typically driving a car that's on its second ownership cycle. This is a car that's past its manufacturer's warranty, so it's more than, say, 5 years of age, and they're driving it its entire lifespan, the average of which is 12, but, you know, obviously until that car is no longer drivable or serviceable. That's our core customer. That's a very long period of time over which we have an opportunity to connect with the consumer and service their needs. I think that is different than when we think about original equipment manufacturers, and they're thinking about that 5-year period from new car sale to end of manufacturer's warranty.
Those dealers are usually getting that service occasion in those first five years, but that's usually, you know, the less costly if you're a consumer, the less profitable part of the chain when you think about auto care.
I was just gonna add, if you look into the last recession as well, you know, while you saw some elongation of the life, you didn't see a reversion as things got back to normal either because people began to realize with the increasing quality of vehicles that that was a sustainable change and that they could hold onto their cars for longer and nothing bad would happen. You know, that was very sticky. We'll see if that were to be the case if you saw a further elongation this time. To Tiffany's point earlier, it was it's been a, you know, multi-decade trend at this point. You know, I think the expectation is that will continue over the at least the next decade.
People are holding onto their jalopies for a longer period of time. I wanna drill into the maintenance segment.
Sure.
It's about 40% of the company's revenue. Driven's clearly been a share gainer.
Mm-hmm.
When you're gaining copious amounts of market shares, it can create a powerful element of the story. What has enabled the share gains, and how are you thinking about further share gains in what's still a pretty fragmented market from here?
Yeah, absolutely. We're very proud of the Quick Lube business. It's one of our fastest-growing businesses, which is what makes up the majority of the maintenance segment.
Five. You can get your oil changed in five minutes.
Oh, is it? 5 minutes.
Yeah.
I couldn't get a cup of coffee in five minutes.
Right? It's a phenomenal model. You've got Meineke and Take 5 Oil Change that are part of the maintenance segment, but again, Take 5 Oil Change is the anchor. We've been in the Quick Lube business since 2016. You can see very clearly our growth playbook come to life in the Quick Lube evolution. We bought a platform in the New Orleans area that was about 30 or so stores in 2015. We used our M&A muscle to be able to quickly gobble up, tuck in, acquisition targets to be able to create a platform for continued growth.
Then we pivoted from M&A into greenfield expansion, and we've got an internal development team that's very well adept at, you know, securing real estate, working through zoning issues, constructing the building, and ultimately turning it over to operations to operate. We've taken what was a 35-ish store chain in 2015, and it's now 850 stores, a mix of franchised and company-owned. To Michael's point, what we're talking about in Quick Lube is a actually 10 minute, but 10-minute stay in your car...
10-minute thing.
Still short, right?
Yeah.
10-minute stay in your car oil change. It's a very curated offering. If you think about other competitors in the space, you may have to make an appointment, you may have to get out of your car, you may have to sit in a waiting room, and they might do other diagnostics and come back and tell you that what you came in for, which was probably a, you know, $80-$90 ticket, is now hundreds of dollars in what they've identified as needs.
What we do is have you stay in your car, pull through the bay, and we have a very simple menu construct. We scan your VIN, we tell you exactly what your OE recommends in terms of oil grade for your car to keep it as efficient as it needs to be, and then we offer you only four other attachments.
We can change your wiper blades, we can change your cabin or engine air filters, and we can flush your coolant if you need that while you're with us today. All of that in 10 minutes. It's a very simple menu construct, simple pricing strategy, and the whole idea is speed of service, friendly service, and transparency and trust in the, in the equation. You know, we've seen phenomenal results, not only in terms of store growth, but in terms of organic same-store sales performance. In fact, in Q4, our Quick Lube business comped 25%. We have a fantastic marketing engine, as I mentioned in my opening remarks. We gather a lot of data for the consumer.
We append additional information so that we know exactly what we need to know about the consumer and be in front of you timely from a marketing perspective. Certainly playing up that stay in your car contact, contactless experience during the pandemic has been a real benefit. We've seen increased new customers, increased repeat rates, and just feel like this is certainly a model that's differentiated in the space and creating a different experience for quick lube customers.
Presumably, the maintenance category was not up 25% in total on a same store basis.
Right.
Was there something unique about the fourth quarter? A lot to be, you know, a lot to be proud of. As part of that, how much share does Take 5 have of, I guess, the whole segment have of the market today, and what's a realistic expectation for how much share there can be over the long run?
Yeah. Yeah, Michael, it's a good question. I mean, obviously the Take 5 business, as I've talked about, a very differentiated service offering. We're driving great increases in car count, but we're also seeing a nice increase in average ticket. That's coming from two things. One is the inflation that we've seen in the space, as well as the complexity of vehicles that are requiring premium oil to keep the car running for the length of its life at optimum performance. All of those things are factoring into the comps that we posted in Q4, but we're quite proud of this business. I think in terms of market share, it's as fragmented as the rest of the automotive aftermarket.
you know, I mentioned at the, in the opening remarks that we have about 5% share across our entire portfolio. Maintenance is really no different. There's tremendous opportunity here to consolidate the industry as well as continue to penetrate new markets with our differentiated quick lube concept.
Yeah. Speaking of fragmentation and market share opportunities, in the Collision, Paint, and Glass. I know I said that out of order, you'll have to forgive me. Paint, Collision, and Glass.
Mm-hmm.
That seems to be a little bit less fragmented, maybe a little bit more consolidated with the benefit of being the industry leader. What do the competitive dynamics look like in this marketplace, and where could share go for Driven in this segment?
Sure, yeah. Let's take PC&G or paint, collision, and glass apart for just a minute. There's a part of that segment that is entirely franchised, and that's the paint. Maaco would be the brand that you know, the paint segment and the collision business. The collision business is highly focused on those insurance relationships and making sure that we're driving those relationships and bringing car count in through heavy collision repair occasions with our insurance partners. Those two businesses, paint and collision, are entirely franchised. Great businesses, long history, very sticky relationships, and they produce, you know, nice growth and cash flow for the business. The new part of that segment is glass. We've been in the glass market in Canada since 2019.
We just entered the US glass market at the beginning of fiscal 2022. Glass is a $5 billion total addressable market. It is as fragmented as anything else we're talking about in the aftermarket. In fact, about half of that TAM is independents, and there's a real opportunity for us to become a large, formidable player. In fact, we've become the number two player in the US glass market since our entrance just 14 months ago. Glass is really interesting because glass is engine agnostic, right? It doesn't matter if it's an internal combustion engine or an electric vehicle. All those cars need glass. All the glass in those vehicles can break for whatever reason. Could be collision, could be theft or what have you.
It's an opportunity for us to, again, change the dynamic in the industry to, similar to Quick Lube and Car Wash, provide a very simple, convenient experience for the consumer, and make sure that we're taking care of their needs, and importantly, calibrating that ADAS equipment like I talked about earlier, which is an opportunity that we have as a scaled provider in the glass space versus the independents. That requires some equipment, it requires some training, and frankly, independents, in some cases, just don't have the, you know, either the bandwidth or the capital required to be able to create that service occasion. Glass is the newest piece of the PC&G segment, but that entire segment just has tremendous opportunity.
We're seeing, you know, collision estimates continue to rebound post the pandemic, and we've positioned ourselves well enough in the collision space, that our estimate counts are up you know, in excess of the industry average. Obviously the introduction of the new U.S. glass business is a, is a place that we're spending a lot of time and focus and certainly putting a lot of capital today.
Even George Jetson hasn't figured out how to prevent rocks from breaking windshields.
That's true.
That is good news for the long term of this business. If you were to look under the hood, to your point about the EMAS?
ADAS.
ADAS.
ADAS, yeah.
It's a good reflection of what's happening across-
Yeah
...the vehicle, where as cars get more complex, there's more sensors, everything just gets a little bit more expensive.
Yeah
...to fix. Given that glass is a good representation of that, what other lessons are you learning from this segment or others that you can cross-pollinate across the different segments or banners?
Sure, yeah. Look, I, you know, I've spoken to complexity, but I mean, I can't, you know, again, I can't say enough about the complexity that comes from that sort of central nervous system of the car. If you think about the number of cameras that are on any vehicle today, and it's not just luxury vehicles anymore, right? It's, it's mass produced across the car park. Any time that there's damage, it could be a minor fender bender, it could be a major collision, it could be that you need to have your glass repaired and that forward-facing camera that's above your rearview mirror, may need to be recalibrated. That's what that natural. When I talk about the natural tailwind from the increasing complexity of vehicles, that's primarily where that's coming from.
All of that technology needs to be replaced, it's expensive technology, it needs to be reconnected to the, you know, sort of the central nervous system to make sure it's operating effectively. You know, certainly glass is an opportunity, and I mentioned the engine agnostic nature of the glass business. Car Wash, which is another business that we're in for the same reason. It doesn't make any difference whether your car is internal combustion engine or electric vehicle, you wanna get your car washed. It's an opportunity for us to help you feel good about your vehicle, one of your largest assets. It's a way for us to help you maintain that vehicle and the paint and sheen on your car.
You wanna get the dirt and grime from snowy winter weather, whether it's salt or cinders off your car. You wanna get pollen off in the spring. It's hygiene for the consumer, much like cleaning your home is, right? Consumers tend to think of that more akin to maintenance, less discretionary, despite what it might look like on the surface. You know, what we're doing as we grow into these new verticals is think about how the car park is going to change over the next number of decades, and making sure that our service occasions are relevant and that we're good students of retail and following what the consumers' needs are.
That being said, you do plan to accelerate the unit expansion this year across most of the segments. Why is now the right time to do that? Is this a land grab within the auto services business because there's so much fragmentation and white space out there?
Yeah. I mean, without a doubt, it's a $350 billion industry that continues to grow. It's highly fragmented, as we've talked about. There's tremendous white space. We typically talk about 12,000 units of white space across the service occasions that we have today. We certainly see that opportunity. We are, you know, presenting to the consumer very differentiated concepts that have fantastic unit-level economics and therefore great returns for Driven Brands. Taking advantage of the opportunity that we see to, you know, further the evolution of the space and consolidate the auto aftermarket is important. We wanna take that opportunity as quickly as possible. We do wanna make sure that we're balancing our capital allocation decisions with our with a risk profile that's appropriate for the current environment.
If you were to look at the guidance that we gave for 2023, we are talking about self-funding the growth in this current year. We don't expect to take any additional raise any additional capital in the debt capital markets to be able to fund it. Our leverage ratio, which today is about 4.5 times net debt to EBITDA, will naturally deleverage with the growth in EBITDA over the course of the year to somewhere around that 4 times level.
To throw a little wild card in.
Sure.
given the recent events.
Yep.
Would you expect if we do start to see some freezing of the credit markets, that opportunities for M&A would only accelerate as some underfunded competitors might need to, you know, find a partner?
Potentially. I think, you know, we think about M&A definitely as opportunistic, especially as we get further in the evolution of any given concept. You know, I sort of laid out how we grew the Quick Lube business, starting with a platform acquisition, layering in tuck-in M&A, and then turning on our greenfield pipeline to be able to develop our own sites, whether it was company-owned or franchise through the franchise pipeline. That playbook is sort of our. That's our standard play. You're gonna see us do the same thing in the Car Wash business. In fact, if you think about where we are with Car Wash, bought the platform acquisition in August of 2020, spent about a year building out that platform nationally, and then started to shift last year and certainly in 2023 to greenfield.
You know, we'll do the same thing in glass. It's just the most nascent of the three. I think, Michael, to your point, we always look at M&A as opportunistic, and if there's a place for us to take market share at a very reasonable price in the market, we'll certainly do that. M&A is a means for us early in an evolution of a concept to build scale.
Yeah. One of the critical discussions, conversations in the economy today is just what's happening with the labor market. Driven employs a lot of people and has been at the intersection of some of these, you know, labor market dynamics. How is Driven planning labor investments for this year? What are you seeing from a labor cost perspective? Will you have to continue to raise wages in 2023? Say that three times fast.
Sure. Better you than me, right?
Sure.
Yeah. You know, from a wage perspective, certainly not immune. We compete for talent across the retail landscape. In our three highest growth businesses that are, you know, that have a company-owned element, which is where this is most appropriate, those are, low labor models, first of all. We're talking about three to five people at any given location, so, you know, far less people than it takes to run other retail concepts. We're also talking about unskilled labor, so we don't necessarily need ASE-certified technicians to be Quick Lube techs or Car Wash attendants or glass employees. That means we compete across the retail landscape for that labor. We need to be competitive on price.
There are a couple of things in our model that make us unique and a little bit more competitive when we think about the talent pool. Number one is the operating hours. Our businesses typically operate from 8 to 6 days a week. That's very different than other concepts that might have round-the-clock needs for staffing, or staffing in the evenings and on the weekends. A little bit more flexibility for the workforce. Second thing is we provide variable comp at all levels of our shop locations. You have an opportunity, whether you work in Quick Lube, Car Wash, Glass, to earn additional compensation over your base wage, based on certain metrics, and it's different by vertical.
If you just think about Quick Lube for a minute, to the extent you attach wiper blades or you attach some of the other ancillary services, or you can maintain your less than 10-minute service level, you can get comped from a variable comp perspective for that. We also have fantastic career advancement programs in our shops. We tend to talk about pit tech to president. That's taking somebody who's unskilled, looking for a career path, bringing them in, training them, in this case, as a Quick Lube technician, and then showing them the path and the skills required to get, you know, up through the ranks, whether it's site manager, district manager, regional vice president, et cetera. The last thing I'll say is people that tend to work in automotive have a passion for automotive.
You know, I think the passion that's akin to the automotive industry is different than, you know, any passion somebody might have to work in QSR or elsewhere, and that's certainly a selling point for us as well. You know, again, not immune to the challenges in the labor market, and we do have some wage inflation built into our guidance and our plans for 2023, but we have a reasonably good time competing in the market for the talent, broadly.
It's fair to think that some of the pricing that's being passed along is covering the wage inflation that you're experiencing.
It is. We've had great experience managing our margins, both at a four-wall level as well as the overall corporate margin. In fact, since 2019 we have extended margin, you know, corporate margin over 300 basis points. You know, this is definitely a concept where the more volume we can get at the top line, the more flow-through potential there is overall. Again, with that needs-based nature of the service and the infrequency of the visit, the inelasticity is real.
About a quarter of the business is the Car Wash segment.
Mm-hmm.
A little less than a quarter of the profitability. What have you been seeing from a competitive dynamic standpoint?
Yeah.
There's been a lot of money that's poured into.
Sure.
car wash space in the last few years. The perception is maybe this is changing some of the competitive dynamics. What has been the experience for Driven?
Without a doubt, we've seen a lot of new interest flow in from private equity and otherwise. You know, the car wash, I would say, is definitely a race for market share. If you look back at multiples that were being paid by folks that were coming into the space over the last couple of years, it's gotten pretty frothy. We have been able, through our standard playbook, to keep our wits about us and make sure that we're paying a very reasonable multiple versus some of the things that you can see in the marketplace, and that's because of those legs of the stool that I talked about, right?
Starting with the platform acquisition, spending a year really cultivating M&A while we build the greenfield pipeline, and then shifting into greenfield building, which is, you know, certainly more economical for us. You know, it's interesting. I think as we enter into 2023, and as the consumer environment, you know, might be a little bit more volatile than we've seen in the past, certainly as the debt capital markets and rates have gotten increasingly more expensive, I think there's an opportunity to, you know, to stabilize the car wash market in terms of not only rationalizing competitors, but rationalizing prices paid for assets. You know, I think give it a year, and I think we'll see things start to settle out.
We're, you know, one of the largest players now, so, we are here to stay.
Oh, yeah.
We certainly know as much about investing in car wash as we do about operating and running the car wash over the long term. We'll see how 23 plays out, and then there might be some interesting opportunities for us to, you know, to gain some additional share from players that just weren't able to make it.
Is it fair to think this would be the most economically sensitive segment of the business, such that if there was softness, it may be an opportunity to gain increasing amounts of market share to the extent that some of the other players in the industry encountered even greater softness?
Yeah, I think that's a fair statement. Again, you know, I hesitate to say that Car Wash is entirely discretionary. I think, you know, a lot of the folks outside looking in may take that point of view. I would suggest that's not the case for all the reasons I said before, right? You've got a need to get, you know, pollen off your car or
Snow.
snow and cinders and salt. It's just a sort of a personal hygiene regimen that consumers start to adopt. The most important part of the Car Wash business is driving that subscription revenue component. We're at about 55% penetration on our Wash Club subscription program today. That's up about 10-15 points since the acquisition in August 2020. We know best in class is somewhere around that 65%-70% range. We have tremendous opportunity to continue to drive that subscription program, which gives a nice sort of shield or limits the volatility in this segment over various seasons or economic times.
You know, I think one of the things that, for those who may not know, is we're rebranding our car wash business with the Take 5 brand name. We were about 50% complete through that rebranding exercise in 2022. We'll finish the estate in 2023, and that's really important to driving this Wash Club subscription. The reason it's important is with 8-10 different brands in the portfolio that we bought in 2020, consumers didn't realize the network impact or the network value that was afforded them in their local market, and our, and our experience frankly wasn't very consistent.
By taking the Take 5 name, applying it to the Car Wash business, we've now created a standard playbook, and we've unlocked for the consumer just how many of the Take 5 Car Washes are in your network. If you have a Wash Club subscription and you were washing at one Car Wash, you may have 10 or 15 different opportunities throughout your market today, which is a much better value proposition to consumer than just a single location. You know, Wash Club subscription is kind of the holy grail as you think about Car Wash, and we're certainly excited about the opportunity to continue to penetrate there.
Do you wanna remind us what type of lift you're seeing when you?
Sure.
do make that conversion? 'Cause it does seem quite powerful.
Yeah, absolutely. We started it with a pilot in Nashville, Tennessee, early last year, early of 2022, and we read out at the end of the second quarter, we said we were seeing about a 10% revenue lift for rebranded locations, and we were seeing 2x the amount of Wash Club conversions. We've continued to roll the rebranding to the other 50% so far of the chain, we're seeing very similar results. We're very excited about what this rebranding exercise could be. Rebranding almost undercuts it, right? It's not just the name on the store or the color of the building, it's about the point-of-sale signage. It's about the way that we use labor efficiently. It's about the quality of the wash, the number of vacuum stations in the free vacuum lot.
It's the full experience in addition to unlocking for the consumer the opportunities for them to shop in multiple locations in any given market.
I think one of the takeaways from this is gonna be that getting your car washed is as much of a personal hygiene habit as brushing your teeth.
Important.
Very important. I wanna end our conversation, which, is a longer-term topic, I'm sure you increasingly get it.
Yeah.
It's on a topic of EVs. You very well pointed out that replacing your windshield is agnostic to the engine. Getting your Car Wash is agnostic to the engine. There's probably more focus on the maintenance categories, maybe the collision area to the extent that autonomous becomes more of a more in focus. How does Driven think about the impact of the changing vehicle population?
Yeah.
over a long-term outlook for the sector?
Yeah. Let me start by saying that we pride ourselves on being good students of retail, and we wanna make sure that we continue to be relevant to the consumer. The fact that the introduction of electric vehicles into the car park, and again, the car park is 285 million vehicles today, still vast majority is internal combustion. That introduction of EV into that car park is a really interesting opportunity for Driven. It's the most change we've seen in a century in the automotive landscape. The only part of our business that is wholly susceptible to that change is our Quick Lube business. Obviously, if you have an electric vehicle, you don't need an oil change. You don't have an internal combustion engine.
When we decide where to put our Quick Lube shops, myself and our CEO, Jonathan Fitzpatrick, we chair a capital committee. We meet weekly. When we think about planting a new box for a Quick Lube shop, we think about it real estate first. We make sure that we're getting great locations on main and main that have great visibility, great traffic. We plant a box that is effectively, you know, three bays in a great market. There's very little stationary equipment, right? Sort of wiring equipment that's in a given shop. As the car park changes, we can turn the dial on the services that we offer in those bays from what we do today, which is purely Quick Lube, to other service occasions that are relevant to the EV consumer.
The challenge right now is there's no standardization in the EV market. Identifying what those longer-term service occasions are is still on the come. Again, we're good students of retail. We did some modeling a little over a year ago where we said, "Let's just take a very extreme case, and if we were to say that every car that came off the manufacturing line today was an electric vehicle, how long would it take for that car park to shift?" 285 million vehicles that have to be beyond their manufacturer's warranty, so older than five years, for them to end up in our, you know, addressable occasions. We were talking about 15 years, and that's the extreme version, 15 years to see the tipping point in the car park. You know, we're excited about the opportunity.
We continue to study the opportunity and look for standardization and therefore new service occasions. We know we've got great real estate that we can use to address the needs of the consumer, but we also know this is a very long tail.
Well, the great news is you can come back to the UBS Consumer Conference for the next 15 years, and each year.
That's right.
we're gonna ask you about it.
Awesome.
Please join me in thanking Tiffany and Kristy for telling a great story and our time together today. Thank you.
Thanks, Andrew.