Driven Brands Holdings Inc

NASDAQ:DRVN

Earnings Call Transcript 2022-Q1

[Operator]

Good morning and welcome to Driven Brand's First Quarter 2022 Earnings Conference Call. My name is Chris, and I will be your conference operator today. As a reminder, this call is being recorded. Joining the call this morning are Jonathan Fitzpatrick, President and Chief Executive Officer; Tiffany Mason, Executive Vice President and Chief Financial Officer; and Rachel Webb, Vice President of Investor Relations. During today's call, management will refer to certain non-GAAP financial measures.

You can find the reconciliations to the most directly comparable GAAP financial measures on the company's Investor Relations website and in its filings with the Securities and Exchange Commission. Please be advised that during the course of this call, management may also look forward-looking statements that reflect expectations for the future. These statements are based on current information, and actual results may differ materially from these expectations. Factors that may cause actual results to differ materially from expectations are detailed in the company's SEC filings, including the Form 8-K filed today containing the company's earnings release.

Information about any non-GAAP financial measures referenced, including a reconciliation of those measures to GAAP measures can also be found in the company's SEC filings and the earnings release available on the Investor Relations website. Today's prepared remarks will be followed by a question-and-answer session. We ask that you limit yourself to one question and one follow-up. [Operator Instructions] I will now turn the call over to Jonathan. Please go ahead, sir.

[Jonathan Fitzpatrick, CEO, President]

Thank you. And good morning. We had another great quarter across the board. Our fifth as a public company, and are excited to share the results over the course of today's call. Driven is the largest automotive services company in North America. Our diversified portfolio of needs-based services provides many levers to grow revenue and profit through same-store sales, new units, and M&A. Our total addressable market is massive. Over $300 billion and growing, and yet we have less than 5% share in this highly fragmented industry.

We will continue to grow and generate cash because of our core competitive advantages. our multiple levers to open new units; we can franchise, build, or buy; our supply chain capabilities that keep us in stock and allow us to take share and price when others cannot; our scale, which is growing, is a sustainable and increasingly significant competitive advantage in our highly fragmented industry. Over the long term Driven has and will consistently deliver organic double-digit revenue growth and double-digit adjusted EBITDA growth.

That together with our asset-light business model, means we generate a ton of cash. And our needs based services and franchise business model help insulate our profit from the impacts of inflation. We then invest that cash to further accelerate our growth by building new units and layering on acquisitions, which as we have proven, adds massive incremental upside to our model. Our Dream Big Plan of at least $850 million of adjusted EBITDA by 2026 is on track. Exceeding that plan is now our primary focus. And we're making great strides already. Driven is growth and cash.

I want to take a moment to highlight our Q1 results. And all credit goes to our team, our amazing franchisees and our loyal and long-term customers. Compared to Q1 of 2021, consolidated same-store sales were positive 16%. Revenue increased 42% to $468 million. Adjusted EBITDA increased 52% to a $119 million. And adjusted EPS increased 47% to $0.28, another top to bottom beat, and our fifth in a row as a public company. The world has changed since our last earnings call on February 16. I'll take a few minutes to address how these factors have had limited impact on Driven, how Driven continue to grow in Q1 and the confidence we have in the balance of 2022. Inflationary pressures have accelerated recently with the War in Ukraine, higher gas prices, rising interest rates and of course the ongoing labor and supply chain challenges.

Let me explain how these macro conditions impact driven in terms of consumer demand and labor, supply chain, and pricing. We have not experienced any material impact to consumer demand in the first quarter and we do not expect any material impact to demand as we look at the balance of 2022. A few reasons for this. Most importantly, Driven provides needs-based services. Our businesses performed well because of the non-discretionary aspect of maintaining an automobile. Our core customer has been driving and will continue to drive even with elevated gas prices. Our core customers are also benefitting from higher wages and recent surveys indicate that customers are adjusting to the rising core living expenses such as gas and groceries. This mirrors what we have seen from history. Q1 of 2020, in 2007 and 2008 that Driven performs well even in the most difficult economic conditions.

Next, labor. We continue to deliver share gains across every segment. One of the contributing factors is our own and our franchise ease ability to staff locations and the quality of our people. As I had mentioned before, we and our franchisees are not immune to the labor challenges but we have several competitive and structure advantages relative to our competition. Variable compensation is a core tenant for Driven and our franchisees. And most employees have variable comp as part of their total comp. Our franchisees are extremely resourceful owner operators and know how to recruit and retain employees for their businesses. We operate better hours of operation compared to other retailers. Most employees have nights and in many cases some days off. Many of our positions don’t require skilled labor and many of our employees like cars and the opportunity to work within automotive, which means it is more than just a job.

Finally, we are growing and that means we have significant advancement opportunities. As an example, more than 70% are above shop leaders in the Take five Quickly Lube business or internally promoted from our shops as we've expanded. This availability of a career path not just a job has a meaningful impact on our ability to recruit and retain.

Next let's talk about supply chain. Scale continues to provide Driven a competitive advantage, particularly when you consider 80% of our competition is small chains and independent operators. This scale allows us to get preferred access to product at the best possible terms. We have multiple strategic supplier relationships in our key businesses. We have dedicated resources whose sole focus is to ensure that we have product in our stores. Our ability to leverage data analytics to order in advance, leverage our scale, our balance sheet, strategic supplier partnerships, and preferred vendor status means that we are taking share when others don’t have product.

The last element of the inflation equation is retail pricing. We offered non-discretionary needs-based services. This means even as prices rise, consumers continue to get their vehicle repaired, maintained, washed and the oil changed and will be very low on the list of services that are downsized when spending has squeezed. We continually evaluate our prices at our company stores to both protect our margins while still providing value to our customers. We have done this strategically over the past 18 months in our company Take five location and we have not seen any material negative impact to traffic or customer satisfaction. We will continue to manage price prudently to protect margins and ensure customers continue visiting our locations. Our franchisees who manage their own pricing are extremely adept at understanding how, when, and where to take price. This is the ownership mentality at work.

Our average check is $842 across the Driven portfolio, as low as $10 for Car Wash and as high as $3500 for Collision. The ability to pass on small percentage increases has been proven for non-discretionary needs-based services. So in summary, despite multiple inflationary challenges which we are not immune to, Driven brands continues to grow and take share. We remain as confident as ever in our ability to deliver on our short, medium, and long-term goals. This is the power of our growing scale and sophistication and is highly fragmented needs-based industry. It is also important to note that despite these challenges, we have not lost focus on our growth across all our businesses. As a result, growth has continued at Driven. We continue to franchise, build, and buy new stores and we have made significant progress across our three primary growth levers.

Let me spend some time on the three highest growth priorities at Driven. Quick Lube, Car Wash, and Glass. We are growing all three businesses at the same time. This is the power of the Driven model. Multiple complementary levers to grow, company, franchise, and M&A and we have the track record of doing this successfully over time. This is why we are so confident in our 2026 goal of at least $850 million of adjusted EBITDA. These three businesses share several characteristics. Simple operating models, highly fragmented competition, significant life space in terms of unit growth and very strong unit level economics. These highest growth businesses are supported by the rest of our highly cash generative and asset-light businesses, this is what makes Driven such a powerful engine, growth and cash.

Let's start with Take 5 Quick Lube. The stay in your car 10-minute oil change. Our Take 5 Quick Lube business continues to grow revenue, same-store sales, units, and profits. This is a superior operating model with best-in-class unit level economics. That is why we have a pipeline of 750 stores which will open over the next three to four years. Our franchise Quick Lube business is doubling annually. 37 units in Q1, '20; 77 units in Q1 '21; and a 159 units in Q1, '22. We expect to add approximately a 100 new franchise locations in 2022 and our total franchise pipeline now sits at over 600 locations. Our franchisees have secured a 180 sites, and this gives us great visibility into franchise unit growth for the next three to four years.

Our franchisees in Quick Lube are typically larger and well capitalized, many with existing multiunit businesses in other sectors. They were attracted to the Take 5 business because of the superior operating model, unit level economics, and returns. Today, we have 56 franchisees and 30% of those franchisees have already signed a second or third development agreement.

Approximately half of the stores in our current pipeline will come from existing franchisees. These are franchisees who were so pleased with their initial units that they have come back, sometimes repeatedly for the rights to open more. We will continue to open significantly more franchise than company units in the future. Our company stores are generating four-wall EBITDA margins of 40%, and we are on track to open approximately 50 new units in 2022.

In summary, the Quick Lube business is performing extremely well on all fronts. And we expect this to continue to for many years to come. Take 5 Quick Lube is the blueprint we are applying to our newer growth assets, Car Wash and Glass. I find it helpful to remind folks that we have been in the Car Wash business for 18 months and I’m very pleased with our overall progress both domestically and internationally.

Driven has the largest Car Wash footprint in the world with over 1000 locations at the end of Q1, 2022. Q1 same-store sales of 7% was a solid performance. We have 725 stores approximately in our International Car Wash division which operate under the IMO brand predominantly in the U.K. and Germany. And these stores are independently operated which is similar to our franchise model.

I'll mention our Scale's International business because this is a very powerful source of revenue, profits, and best practices for our company-owned business in the United States. Our International Car Wash business is run by Tracy Gehlan based in the U.K. who has decades of experience running large-scaled multi-unit platforms. Tracy and her team have done a terrific job with that business over the last 18 months. In the U.S., John Teddy and his team continue to make great strides. We continue to strengthen this team with great talent from both the Car Wash industry and best-in-class retailers. I'm very pleased with the progress on standardizing operations, merchandizing, labor and margin management.

Here is just some of the highlights from our first 18 months in this business. We have added a 142 locations in the U.S. that represents more than one a week. We have grown our Greenfield pipeline to over a 180 locations and we expect to open approximately 40 to 50 Greenfield locations in 2022, i.e., almost one per week. And we are optimistic that we can significantly accelerate that number in 2023 and beyond. We are actively working on a single national branding strategy in the U.S. and we'll share more details on future calls. We have opened our first co-development sites with our Take 5 Quick Lube business. We continue to be acquisitive that disciplined with the multiples we are willing to pay in this extremely fluffy market.

We have more than doubled Wash club subscribers from 220,000 18 months ago to now over 530,000. And we are leveraging our Driven customer data to drive trial at our U.S. Car Wash locations. We have grown revenue 80% and profits at 130% over the last 18 months. And we have achieved all of this in 18 months, not 20, or 30 years. And as I have said before, we love the car wash business for its simple operating model, efficient labor model, subscription revenue stream, strong returns on capital and life space for unit growth. We are still early in our Car Wash journey and have massive conviction in the future growth and profitability for this business. And our confidence comes from running the proven playbook we leveraged to grow the Quick Lube business. And it is underpinned by very similar strong unit level economics. Car Wash four-wall EBITDA margins are in the high 30% with cash-on-cash returns of approximately 40%.

The future is very promising for our car wash business in terms of same-store sales, units, M&A and profit growth. Similar growth at Quick Lube took us three to four years. So our team is getting faster at executing the Driven Brands playbook and we think we'll have even more rapid progress in our Glass business.

Now, let's turn to our third growth priority at Driven, Glass. A quick refresh on why we are so excited about the opportunity. We completed the acquisition of Auto Glass Now in late December. AGN is a great starting platform for our entry into the U.S. Glass market because just like our Quick Lube and Car Wash businesses, it has a simple and differentiated operating model, a simple menu and simple building. This translates into strong unit level economics, AUDs of a million dollars, mid 20% four-wall EBITDA margins and cash-on-cash returns we are excited about because of the low initial investment.

AGN is a business where we can leverage our growth blueprint, and significantly accelerate our presence in this segment. Our thesis on the Glass opportunity is simple. This is a $5 billion-plus growing market in North America. It's highly fragmented like all parts of automotive aftermarket. There's tailwinds with the increasing need for calibration. Glass repair and replacement is required for all vehicle types. We can leverage our existing same-store sales levers including our 20 million-plus unique retail customers, our deep insurance relationships, and our fleet customers to grow this business.

We learned a lot about the Glass operating model since we entered the Canadian market in 2019. And Michael Macaluso and his team are unlocking the opportunity we underwrote with this business. I'm very pleased with our progress over the first 90 days. We have integrated the AGN acquisition into the Driven platform. We have the right team in place to run and grow this business. We have made very good progress in terms of new unit pipeline which is growing [weakly]. We guided to 35 new locations in 2022 and that is very much on track. Our M&A pipeline is developing and we expect 2022 to be robust in terms of bolt-on acquisitions at attractive multiples. We're making good progress with Driven's existing fleet and insurance partners and introducing them to our Glass capabilities. And we're pleased with the 25% plus margins and customer demand. We're repeating our proven growth playbook and getting better each time we do it.

As we generate cash, we continue to reinvest in the business in 2022. Growth capital will be spent on new company units for Quick Lube, Car Wash and now Glass. We have plenty of available capital and look forward to growing all three businesses at the same time. And remember, we are growing franchise stores as well. Between company and franchise stores, our pipeline currently sits at over 1200 units. We have also budgeted capital to invest into the existing U.S. Car Wash store base. We'll be investing in store remodels and upgrades and will continue to invest in having one U.S. brand Take 5 Car Wash. And as always, we will continue to be acquisitive. And you can expect additional growth capital to be deployed into Car Wash and Glass.

Now, pulling everything together into 2022 guidance on our longer-term outlook. Just as a reminder, that as we said on our last call, we will be updating fiscal year 2022 guidance in connection with Q2 earnings. We remain bullish on 2022 and remain confident in the business' performance and our ability to meet or exceed our full-year guidance of at least $465 million of adjusted EBITDA. And we feel good about the momentum in our business because the team and strategy are in place, it's about execution. Every segment is performing well: growing, taking share, and generating cash. Our pipeline for unit growth, franchise, company-owned and M&A is very strong. Our digital and data unlock is underway. Nothing is modeled for 2022 but we expect it will provide upside.

Our Scale gives us a competitive advantage which continues to expand and compound. Our Dream Big Plan of at least $850 million of adjusted EBITDA by the end of 2026 is very much on track. And we're confident in our ability to beat it. On the addition of the U.S. Glass business adds to our conviction. And we're believers in this long-term plan because we are a compound grower. Our growth is low risk because of our current market share. We generate a lot of cash which we reinvest back into growth. Scale is driving even bigger competitive advantages. Our business model works well in all economic cycles.

And finally, we execute and do what we say we're going to do. And you can see this very clearly in our Q1 2022 results and our confidence around 2022. Momentum continues to build. Driven is growth and cash.

I will not turn it over to Tiffany for a deeper dive into the Q1 financials. Tiffany?

[Tiffany Mason, CFO, EVP]

Thanks, Jonathan, and good morning, everyone. Our fiscal 2022 is off to a great start. We've [listed] strong first quarter results despite the numerous macroeconomic factors that Jonathan outlined which impacted the retail industry this quarter. And we've positioned ourselves well to continue to post strong results throughout the remainder of 2022. The entire Driven Brands team has worked diligently to ensure that we have the right service offering, inventory, and marketing strategies to capitalize on consumer demand. Vehicle miles travelled are still expected to increase in 2022 and they will continue to be an influx of demand as consumers look to bring extra miles out of their vehicles.

Driven Brands provides best-in-class services in an efficient manner which should allow us to continue to gain market share. Diving into our first quarter results. System-wide sales for $1.3 billion from which we generated $468 million of revenue. Adjusted EBITDA was $119 million and adjusted EPS with $0.28, another top to bottom beat. System-wide sales growth in the quarter was driven by same-store sales growth as well as the addition of new stores. We have tremendous life space to continue growing our store counts in this $300 billion plus highly fragmented and growing industry. Our franchise company Greenfield and M&A pipelines are all robust and we are aggressively growing our footprint.

In the first quarter, we added 114 net new stores which included 79 AGN sites creating the platform to expand our Glass business into the U.S. And we continue to lean into opportunities in the Quick Lube and Car Wash businesses. Same-store sales growth was 16% for the quarter. We posted double-digit comps each month of the quarter despite the surge of the Omicron variant in January and rising gas prices in March. And we once again outpaced the industry across all business segments. Our same-store sales grew to a combination of car count and average ticket increases. We continued to experience positive car count as a result of our best-in-class marketing and customer experience. And average ticket benefitted from pricing actions as a result of inflation as well as the increase in complexity of vehicles.

Now remember, we are approximately 80% franchised so not all segment contribute to revenue proportionally. For example, PC&G was over half of system-wide sales this quarter but only about 17% of revenue because it's effectively all franchised with lower average royalty rates. Maintenance and Car Wash are a mix of franchised and company operated contributing approximately 40% and 35% of revenue respectively. As always this has provided on our infographics which is posted on our Investor Relations website. When you put unit growth and same-store sales growth in the blender and account for our franchise mix, our reported revenue in the quarter was $468 million, an increase of 42% versus the prior year.

From an expense perspective, we continue to carefully manage site level expenses across the portfolio. In fact, prudent expense management together with its strong sales volumes through forward margins up 39% at company operated stores. And above shop SG&A as a percentage of revenue was 21% in the quarter. Over 150 basis points of improvement versus last year. This resulted in adjusted EBITDA of $119 million for the quarter, an increase of 52% versus the prior year. Adjusted EBITDA margin was 25%, expanding over 160 basis points year-over-year, a testament to the power of the Driven Brands model. Depreciation and amortization expense was $33 million, a $9 million increase versus the prior year was primarily attributable to the growth in company operated stores. And interest expense was $25 million, the $7 million increase versus the prior year was primarily attributable to increased debt levels as we leaned into opportunities across our Quick Lube, Car Wash, and Glass businesses.

For the first quarter, we delivered adjusted net income of $48 million, an adjusted EPS of $0.28. We can find the reconciliation of adjusted net income, adjusted EPS, and adjusted EBITDA in today's release.

Now, a bit more color on our first quarter results by segment. The maintenance segment posted positive same-store sales of 19%. Maintenance continues to benefit for more targeted digital marketing and we have passed along a series of retail price increases while maintaining our premium oil mix, driving an increase in average ticket. In the first quarter, we also had a 30% attachment rate of ancillary products such as wiper blades, cabin air filter and coolant exchange, also contributing to a higher average ticket. The Car Wash segment posted positive same-store sales of 7%. The number of Wash Club members grew by an additional 100,000 in the first quarter equating to approximately 50% of sales. This is an increase of over 300,000 members since the acquisition in August of 2020. This is a great recurring revenue stream that provides a level of predictability to this business.

Non-Wash Club revenue per wash continues to increase as well, the result of a simplified menu board and the focus that our teams have placed on improved selling techniques. We are actively testing the rebranding of our Car Wash location in Nashville to the trusted Take 5 brand name which will help determine the go-forward brand strategy and operating playbook for our U.S. Car Wash business. The test kicked off in early April and we'll provide an update on our next earnings call. To-date, between the Nashville test, new company operated Greenfield units and emanating versions in other markets, 75 of our U.S. car washes are branded Take 5. So painfully, in the Glass segment posted positive same-store sales of 14%. The additive of 200 direct repair programs with insurance carriers in the first quarter.

That compares to 650 for the entirety of fiscal 2021. Our expanding commercial partnerships are a testament to the strengths and scale of Driven Brands and the ease of working with one large national provider. The recovery in the Collision business continues, in fact, estimate count for the industry continue to grow and are shocked that consistently outpaced the industry. We're also excited to expand our Glass offering into the U.S. with the acquisition of Auto Glass Now. Glass repairs are growing as a percentage of auto repairs and repair complexity is increasing due to the necessary calibration. This provides yet another exciting avenue for growth, leveraging our proven playbook.

And finally, the Platform Services segment posted positive same-store sales of 31%. Platform services is the segment most exposed to supply chain pressures. We have leveraged our scale and leadership in the industry to turn this into a strength and differentiator for Driven. The contract with multiple suppliers, while most of our competitors, 80% of the industry that is independent operators, rely on one primary supplier. We leverage the strength of our balance sheet to place orders earlier and we have the team dedicated to relationship management, and ensuring we keep close watch on every step of the supply chain. This is translated into more inventory in stock at 1-800-Radiator than many of our competitors. And customers have been willing to pay a premium, driving continued record sales levels within the quarter.

We were pleased with our strong operating performance in the quarter, which resulted in significant cash generation that allowed us to further invest in the business. That cash generation, together with our revolving credit facilities and access to the debt capital market is important for our strategic growth plans. And as we've consistently stated, investing in our business and growing our footprint is our number one priority.

We ended the first quarter with $271 million in cash and cash equivalents and we had $397 million of undrawn capacity on our revolving credit facilities, resulting in total liquidity of $668 million. Our net leverage ratio at the end of the first quarter was 4.8 times. You can find a reconciliation of our net leverage ratio posted on our Investor Relations website. We intend to continue using our balance sheet to capitalize on the substantial white space in the $300 plus billion consolidating industry.

Now, looking ahead we continue to be enthusiastic about the balance of the year. We provided guidance for fiscal 2022 on our fourth quarter earnings call which in summary included the expectation for revenue of approximately $1.9 billion, adjusted EBITDA of approximately $465 million and adjusted EPS of approximately $1.04. While we beat our internal expectations by $12 million in the first quarter, as I shared on our last earnings call, we will provide updated guidance in connection with the release of our second quarter results. At that time, we will roll in all M&A activity for the first six months of the year, plus organic performance to-date and we'll share our latest forecast for the second half of the year.

Qualitatively though, let me share a few thoughts. First, while inflationary pressures have accelerated, we do not expect a material impact on consumer demand for our services. We serve both consumer and professional customers and our services are diverse and needs based, largely insulating us from the volatility of any pullback into discretionary spending as consumers navigate the current environment. Second, we don’t expect to see a significant impact from gas prices on VMT as road trip interest is still high. In fact, VMT is still expected to increase in 2022. And lastly, so far in the second quarter, we continue to be pleased with our performance.

Our business is performing well and we are enthusiastic about the balance of the year. In closing, we expect the strengths of this portfolio to continue to deliver best-in-class results. We are focused on our proven formula with a platform that is scaled and diversified as formerly simple, we add new stores, we grow same-store sales and we deliver stable margins. This results in significant cash flow generation that we reinvest in the business. We look forward to speaking with you again in late July when we release our second quarter results.

Operator, we'd now like to open up the call for questions.

[Operator]

Thank you. [Operator Instructions.] Our first question is from Simeon Gutman with Morgan Stanley. Your line is open.

[Unidentified Analyst]

Hey guys, this is Michael Kessler on for Simeon. Thank you for taking our questions. First I wanted to ask about the same-store sales in Q1. If there's any more color you guys can provide on the split between car count and traffic versus inflation and on price increases and then you mentioned as well be underlying ticket tailwinds. And then, looking into the balance of the year, compared it'll get a little bit tougher but if we think about the underlying, I guess comp rate in the business and might kind of high teens rate on a three-year basis, any reason to think that shouldn’t continue and could even accelerate because as you guys were saying inflation is accelerating but demand seems to be holding in pretty well.

[Tiffany Mason, CFO, EVP]

Hey, Michael thanks for your questions. So a couple of thoughts for your specific first of all at Q1. So we saw positive car count as I said in my script -- what positive car count as well as positive ticket overall for the business. Certainly our just given the current environment, our performance is skewed more towards ticket today that it is to car count but we are seeing good momentum in both. The positive ticket is driven by two things. It's driven by inflation and our ability to pass along price to the consumer. I think Jonathan and I both today spoke about the fact that with the our higher average ticket and our need-based services that afford this the ability to pass along any inflation we're seeing and we're doing that as we need to manage our cost as well as continue to drive, balancing that continue to drive traffic.

So we are also thus seeing the increased complexity of vehicles, also to continue to drive ticket up and I gave a statistic in my comments today about 30% attachment rate specifically in our maintenance business which is driving ticket as well. So all of those factors are driving our performance. If you just zero in on ticket for a minute, then I would say it's if you're thinking about mix versus price, it is in Q1 more driven by price than mix. Relative to the comps across the year, I think I said when we gave guidance last quarter, we expect the first half to be stronger than the second half, it's just because compares are easier in the first half than the second but still true today. I think as you think about the landscape over the course of the year, we as we said multiple times today feel really good about the environment that we're operating then and our ability to navigate any supply chain and inflationary pressures.

Certainly first half stronger than second half though we don’t think that there's dramatic difference across the segment as we move through the year. So, not a lot of difference versus what we said 90 days ago. Though we had a great Q1 and we are enthusiastic about the balance of the year.

[Unidentified Analyst]

Okay great, that's helpful. And a quick follow-up on the Car Wash segment. While it’s a significant amount of EBITDA margin expansion one, one we were expecting on I would say constant was above our expectations but not dramatically higher. So, anything to call out there, I think it was the highest margin or at least a couple of years, so we think the onset of COVID, so I don’t think if anything you can speak to what was driving there and the sustainability there. Thank you.

[Tiffany Mason, CFO, EVP]

So Michael, great question. So, specifically in the Car Wash segment. The segment adjusted EBITDA margin that you're seeing, so roughly 35% versus somewhere around 30% Q1 of last year. Very predominantly driven by the international Car Wash business. We saw great volume in the international Car Wash business predominantly driven by dust storms. So, that incremental volume that we saw gave us a great opportunity to leverage fixed expenses and really drive fantastic flow through in the international Car Wash business and that's what driving that segment performance overall. Great question.

[Unidentified Analyst]

Okay, right. Thanks guys, good quarter. Good luck for rest of the year.

[Tiffany Mason, CFO, EVP]

Thank you.

[Operator]

The next question is from Christopher Horvers with JPMorgan. Your line is open.

[Christopher Horvers, JPMorgan]

Thanks, and good morning. Can you talk a little bit about what you're seeing and the converted Take 5 Car Wash brands and the one the Greenfield location openings in terms of cust. Behaviour membership ticket as we think about your opportunity to rebrand the rest of the locations in 2022.

[Jonathan Fitzpatrick, CEO, President]

Hey Chris, Jonathan here. Thanks for the question. Look, I think we mentioned on the call that will give our sort of more fulsome update on the rebranding strategy at the next earnings call. But look, we're really pleased with what we're seeing. So, we got about think Tiffany mentioned about 75 stores that are rebranded. That's part of creating to the network effect in the markets that we have. So, people know we got multiple brands, multiple car washes under one brand in a particular trade area. You saw that we're driving membership subscriptions up. We're very pleased with the growth there. Greenfield stores, we've opened a handful so far in Q1 very early in the ramp of those stores but we're excited about the quality of the real-estate and the early opening trends from those stores.

We've also opened a couple of our co-development sites. We'll we've opened a Car Wash with the Quick Lube on the same piece of real-estate. Pretty excited about the early results in those stores. So, I think as the year progresses, we'll give more information around the ramp of these stores. And I would say that when it comes to the national rebranding strategy, we continue to move forward which by definition means we're pleased with the progress.

[Christopher Horvers, JPMorgan]

Got it. And then, following-up on earlier question just around the unit count in the maintenance segment. It seems like in oil change is the most deferrable sort of service -- sort of necessary maintenance. Are you seeing that and then as a relative question, just as a point of reference, does sort of the late spring have any impact on your business and if it does what divisions would you see that?

[Jonathan Fitzpatrick, CEO, President]

Yes. We're not seeing any demand degradation in our oil change business whatsoever, Chris. I think when we look at various studies that have been published by various banks and other sources recently. What we believe is that consumers when you think about tightening or spending may reduce spending on sort of discretionary items far quicker than they will and so that non-discretionary items like maintaining the automobile. So, we're not seeing any demand in the structure and whatsoever in our Quick Lube business. In terms of a later spring, what I promised investors that when we first came public is that I wouldn’t use weather as a positive or a negative. So, I won't comment on whether it's a positive or a negative for our business.

But what I will tell you is a later spring means that you have a later sort of pollen season when you have more pollen on cars. Typically people want to get the car washed a little bit more. So, I think that's the only sort of a point that I would give you on late spring trading impact.

[Christopher Horvers, JPMorgan]

I'm definitely in that cab. Thank you, very much.

[Jonathan Fitzpatrick, CEO, President]

Okay.

[Operator]

The next question is from Peter Benedict with Baird. Your line is open.

[Peter Benedict, Baird]

Hey guys, good morning. Thanks for taking the question. I guess first question just to -- how does the rising interest rate environment impact your view on the appropriate pace and level of M&A and leverage for the business as you're thinking about the next few years. And if it doesn’t, maybe is there a level of which it maybe does?

[Jonathan Fitzpatrick, CEO, President]

Yes. It's a good question, Peter. When it comes to leverage, Tiffany will talk about that and sort of what we said in the past around our sort of five times debt leverage and sort of the guard rails there. In terms of M&A, the rising interest rate environment does not change our calculus in terms of how we think about M&A, Peter. We ultimately ask ourselves two questions with any transaction that we do: 1) Can we make the acquired asset better and, 2) Can that acquired asset make Driven better. And those are the two primary questions we ask ourselves. We have asked ourselves in the past, we'll continue to ask ourselves in the future. And right now as of today, the rising impact rising interest rate has had no impact in terms of our calculus or underwriting thesis when it comes to M&A.

[Tiffany Mason, CFO, EVP]

Peter, I think just to tag on the Jonathan's question there. I think a couple of things I would share. The number one, I think we've got great liquidity as we sit here today right both in terms of cash on the balance sheet as well as access to our revolving credit facilities. We've talked before about our sale lease act strategy and the ability to and monetize our real-estate portfolio. So, there's still opportunity there should we need it. And then of course, if we think about leaning into opportunity is and certainly in Car Wash and now it's in Glass, and as you will know having talked to us about the Glass opportunity over the last 60 days or so 90 days. The initial investment in the Glass business is quite low for the return that we can see.

So, and I'm not sure that I think the rising rate environment changes our outlook dramatically. Right. We feel really good about where we're positioned today.

[Peter Benedict, Baird]

Okay, that's helpful. And just one follow-up on if could on the Car Wash business. Have you taken any price in U.S. Car Wash, I know you didn't and Take 5 you've done some but not sure if you've done that in U.S. Car Wash. And it doesn’t sound like it but or I mean you're not -- I'm assuming you're not seeing any uptick in subscription attrition, I mean the subscription numbers were really good. But just curious on that or any trade down into lower cost washes, that kind of thing. Any color there would be great, thank you.

[Jonathan Fitzpatrick, CEO, President]

Yes. And -- no, we haven’t sort of systematically taken price in the Car Wash business, Peter. I mean we've got sort of a range of different prices for our car wash customers both in terms of the A la carte and also the subscription model. So, we've not sort of taken price there. Again I go back to it's such an unbelievably accretive business model with super little labor. So, that feels like no need to take aggressive price there. I think its menu management and making sure that we're getting customers into the right A la carte wash or sort of making sure we've got the right subscription model options for customers. So, that is where we stand today in terms of attrition with Wash Club subscribers, no, nothing has changed or we see no change in sort of attrition rates in terms of those that membership base.

[Peter Benedict, Baird]

Thanks, very much.

[Operator]

The next question is from Liz Suzuki with Bank of America. Your line is open.

[Liz Suzuki, Bank of America]

Great, thank you. So, based on your comment about the full-year guidance and Tiffany particularly your comments about how much shift first quarter performance be your internal expectations and the plans update the guidance in the second quarter release. Should we expect the cadence of guidance that dates to be every two quarters on a go-forward basis or was there any other factor that caused that gave you pause on raising the guidance this quarter?

[Tiffany Mason, CFO, EVP]

Well, that's awesome. Thanks for asking the question, it gives me an opportunity to clarify our guidance philosophies. So, thanks for opening the door, I appreciate that. So, look I think obviously the IPO didn’t in January of 2021. And I think it was certainly important over the quarters of 2021 to make sure that we were crystal clear and very transparent with straight about our performance quarter-to-quarter as we were a new public company and everybody was getting used to who we were and what our story was and how we how our business model works and how we make money.

And we took that to heart, and we made sure that we were providing those updates regularly last year. I think as we came into 2022 and we're starting to mature, although we're still relatively new on the scene, we're taking the opportunity to set a very specific guidance philosophy and the guidance philosophy, we said and I think we were very clear about it last quarter was to say, we're going to provide annual guidance at the start of a fiscal year, we're going to let the first six months of the year play out the way that they they should, and they will, including M&A because we are a very acquisitive company. And then as we get to the middle part of the year, we're going to provide you an update. And we're going to provide you an update on performance organically as well as our M&A activity and give you insight into our forecast for the back half of the year.

So our -- it was no new decision today, we're coming into the release today to decide not to update guidance that was simply sticking with that guiding philosophy that we shared on February 16. We think it's the right thing to do to keep folks focused on the long term, frankly. And we were transparent today and telling you that we beat our internal forecasts by $12 million. So we're here to build shareholder value over the long term. And we're going to continue to operate our playbook and to continue to execute and continue to exceed expectations to the best of our ability. So thanks for the question, as I appreciate it.

[Liz Suzuki, Bank of America]

Great, thank you for clarifying that. And then just a follow up on some of some of your segment growth year, which was very impressive across the board. I guess the only segment that came in a little lower than our EBITDA -- platform services, which it sounds like was constrained by supply chain pressures event. So how should we think about those headwinds as we adjust our models for the segment going through the rest of the year?

[Tiffany Mason, CFO, EVP]

Yes, that's great. So first, I would say remember platform services is 10% or less, depending on the quarter of total EBITDA so as a contributing factor, relatively insignificant but -- it certainly platform services is where we're seeing the most significant supply chain pressure, right. That's the business that is on the frontline as it relates to navigating supply chain challenges, making sure we're moving products across the ocean, getting it to the right locations and making sure we have products in the right position and navigating any price challenges. So they're doing a fantastic job. We've got a dedicated team, certainly top notch in the industry and we're managing that better than 80% of the industry that's fragmented. But certainly that's where you're seeing the most significant source of that pressure.

[Liz Suzuki, Bank of America]

Great. Thank you.

[Tiffany Mason, CFO, EVP]

Thank you.

[Operator]

The next question is from Kate McShane, with Goldman Sachs, your line is open.

[Kate McShane]

Hi, good morning. Thanks for taking our question. Thank you for all the additional details around AGN. We're just curious given the amount of time you now have had this business, but the biggest surprise about the business, maybe is that you didn't appreciate before, during the due diligence. And I also think you mentioned that glass repairs are growing as a percentage of total auto repairs in the industry. And we were curious what was driving that?

[Jonathan Fitzpatrick, CEO, President]

Yes. Hey, Kate, Jonathan, here, thanks for the question. I think there's no real big surprise because we've done 80 M&A deals over the last seven or eight years, so our diligence team and underwriting team is pretty solid. So we have a good ability to actually underwrite what we're buying. So I'd say the only surprise we have is upside surprise, in terms of how great and big the opportunity is to grow in glass. Right. So I'm even more enthusiastic about the space than when we did the deal in late December. So that's number one.

Number two, in terms of growth, I think what we said was the glass space is sort of a $5 billion plus space and growing. So I think there's a couple of things happening there Kate, one is the calibration services required with glass replacement. So most vehicles since about 2015 have a forward facing camera, mounted on that front windshield. And if you replace that windshield, you have to recalibrate that forward facing camera, because that really is sort of the central nervous system associated with all the eight African components on the vehicle. So that's driving sort of price or the size of the size of the repair check.

I think what we're also pretty bullish about is as we continue to sort of look at massive infrastructure building in the United States and all the roadworks and all the construction that's going to come with that. We do think that there will be some nice incremental tailwinds from that in terms of glass repair.

And the last thing I would say glass replacement, I should say. And the last thing I would say is when you think about this major acquisition, plus our carwash acquisition from a few years ago these are both car agnostic, right? So we're going to be fixing glass and replacing glass on all vehicle types. And obviously, in our carwash business we're going to be washing all vehicle types as well. So strategically, these are two really important things that we did and sort of set driven up for the next 20 years. Thank you.

[Kate McShane]

And if I could just ask a follow up question to the platform services questions answered before, do you have any visibility into the supply chain between now and the end of the year? How much improvement you expect to see and how you're managing inventory as a result?

[Jonathan Fitzpatrick, CEO, President]

Look, Kate it's kind of like asking how long is a piece of string in terms of the supply chain? Because, it almost changes weekly. But look, there's a bunch of things that we know, one is that there's continued pressure on sort of the production supply chain, particularly if you've got overseas suppliers, we know that, the cost of containers, when we look at the cost of containers, shipping containers pre-COVID versus now it's up 300% in many cases.

We have a dedicated team that are focused on, multiple supply sources, moving some of those supply sources from overseas to domestic or in Latin America, our team is working and pulling all the levers and leveraging our scale, which is obviously hugely important in this space. But our internal view on this Kate is that, we're going to continue with, I think sort of the current operating environment or supply chain challenges, minimally through the balance of 2022. Minimally through the balance of 2022. And quite frankly for us, this is now our normal operating conditions. So we're learning to, to live and work and thrive in this challenging environment but we don't see any major reduction in the challenges, certainly as we look at the balance of this calendar year. Thank you.

[Kate McShane]

The next question is from Sharon Zackfia with William Blair. Your line is open.

[Sharon Zackfia]

Hi, good morning. I guess I want to talk about, the nice EBITDA margin expansion that you had in the quarter I recall, if I'm not mistaken that originally you were expecting flattish EBITDA margins for the year. And I understand you're not updating your full year guidance. But I'm just wondering, are there implicit pressures that you're expecting, the remaining three quarters of this year that didn't occur in the first quarter? And then secondarily, in the maintenance segment? I know there was there was some margin compression in that segment. Tiffany, I don't know if that was, mix of company owned growing routes or their franchise? Or if there's something else you're seeing in that business, but it'd be it would be helpful to get some clarity there.

[Tiffany Mason, CFO, EVP]

Sure, Sharon, thanks for the questions. So let me actually start with your second one. And we'll work back to total company during the maintenance segment specifically, so maintenance segment, adjusted EBITDA margin was 29.4%. It's about 40 basis points better sequentially, from Q4, but down about 200 basis points year-over-year.

So if you remember back to what we talked about in Q4, on the Q4 call, so February 16. We talked about some products cost increases in excess of retail price increases. So that's specific to oil. And we also talked about the fact that we in some cases, were paying some alternative supply costs, right to be able to make sure we had product availability at all of our shops, through some pretty significant supply chain challenges.

Those challenges persisted in Q1, but not to the same degree that we saw in Q4. So of the 200 basis points of contraction year-over-year, I would say about 50% of that was related to oil costs. And that's about half of the impact that we experienced in Q4. So it is getting better, but it does still persist. The other half of that pressure year-over-year has to do frankly with being able to have a rally or a Take five convention this year that we couldn't frankly have last year as a result of COVID. That's a good thing, right? We're able to get back in front of our franchisees back in front of them to motivate and to celebrate together and to make sure that we're all aligned in terms of what the priorities are for the brand and the franchise going forward.

So there's some incremental SG&A as a result of that. So that's what you're seeing in the maintenance segments specifically, earlier in the call. We talked about Carwash you didn't ask me about that, but as we get to this company overall margin, Carwash margin was up year-over-year, predominantly because of great flow through on the Carwash international business as a result of some dust storms that allowed them to really leverage fixed expenses.

So all of that -- those are really the two primary drivers, they're the biggest contributors to company margin. So, company EBITDA margins in the quarter were 25%. That's basically the same rate that we ended full-year 2021 and we expect 2022 to be flat to that 25% rate. So we're probably, in all honesty a little bit ahead in Q1 because of that fact to this factor but obviously on the right trajectory and feel good about where 2022 is trending and again updating guidance in another 90 days.

[Sharon Zackfia]

Thank you.

[Tiffany Mason, CFO, EVP]

Thank you.

[Operator]

The next question is from Chris O’Cull with Stiefel. Your line is open.

[Chris O’Cull, Stiefel]

Thank you. I had a follow-up question about the rising interest rate environment. And Jonathan or Tiffany, I'm wondering if there's any risk that we are nearing a point where higher rates make the returns less attractive for Take 5 franchisees?

[Jonathan Fitzpatrick, CEO, President]

Chris, the answer is "no." We are growing that Quick Lube franchise pipeline, weekly. As I mentioned in my comments, existing franchisees are coming back for expanded or new territory agreements. We're seeing zero impact to rising interest rates in terms of franchisee interest in expanding that business. Quite frankly, we're seeing accelerated performance from our franchisees as they open new doors. The return profile is phenomenal on that business. So, that's resulting in even more incremental demand. So, it is having zero impact in terms of franchisee demand or ability to open new stores.

[Chris O’Cull, Stiefel]

Good to hear. And then a question on the Car Wash segment. As more platforms have entered the car wash space as consolidators, how has your acquisition strategy or the maybe the profile or targets change with that increased competition?

[Jonathan Fitzpatrick, CEO, President]

Yes, it's pretty simple. Chris, we're not going to pay ridiculously high multiples for mediocre assets or maybe that's the basic comment, right. There is a lot of institutional capital has flowed into this space. People need to pay I think exorbitant multiples to create initial entry points or platform. We have a massive platform globally, a massive platform in the United States with about 350 locations. So, we don't have to buy a platform because we have arguably one of the biggest platforms already. So, we can be very laser-focused and surgical on buying smaller assets that fit our needs both geographically and other and pay the right multiples that are highly accretive from day one.

So, I think that this institutional capital flow will continue for some time. I think its folks are having to pay multiples that just make no sense, we don't have to do it because we're in great shape. And then secondly, we have developed a Greenfield pipeline for this business in incredibly short timeframe. We bought this business 18 months ago. We will open between 40 and 50 Greenfield locations this year, Chris. Right, that's within 18 months of buying this business. The Greenfield returns are even better than the M&A returns. And then as I mentioned, our pipeline for Greenfield growth is expanding pretty rapidly and we feel very confident about being able to open significantly more Greenfield units than 40 to 50 in 2023. So, people need to do what they need to do but because of our position, our size, our scale, our experience, we don't need to pay those ridiculous multiples.

[Chris O’Cull, Stiefel]

Thank you.

[Operator]

The next question is from Karen Short with Barclays. Your line is open.

[Karen Short, Barclays]

Hi, thanks very much. Apologies for a little bit of background noise. But I wanted to just ask a couple questions. One is, can you actually give us provide us with inflation in the quarter and the way your inflation expectations are in the quarter to date? And then I have one other question -- sorry, in the year for the full-year inflation.

[Tiffany Mason, CFO, EVP]

Hey, Karen. So, in the quarter itself, so if we think about Q1 and we look at Q1 year-over-year, we saw within our company owned businesses, double -- approaching double-digit cost inflation year-over-year predominantly when you think about oil and wages. That's probably the highest if you're sort of tracking quarters, each quarter and our commentary over the last few quarters that's probably the highest we've seen so far just because it's been sort of an upward trajectory. I think, certainly this has been a peak inflationary cycle because obviously we were battling supply chain challenges and inflation last year but the heightened challenges with the situation in Ukraine has certainly brought everything to a head.

I don't know that we have a crystal ball for the balance of the year but we certainly think that at least for the time being we're going to continue to operate in this current environment. But as you've heard today, we're navigating it to the best of our ability and aren't giving up any new car countering the opportunity to drive ticket as a result.

[Karen Short, Barclays]

Okay, thanks. And then my second question is just thinking about VMT, you made a comment that VMT expectations for '22 are still expected to be up. It looks like so far they're obviously down at least for January and February of this year. But my question is, when you think about the puts and takes on travel specifically airline versus driving, like is there a way to think about at what point the customers or consumers' indifferent because obviously airline cost are going up and so are gas prices. So, how do you think about the possibility that VMT is actually down for the year versus M&A you said 6% on your original call or your perky call but it seems like that would be a high estimate.

[Jonathan Fitzpatrick, CEO, President]

Karen, I'll answer this. Good morning. I think Tiffany mentioned that VMT would still be up for the year, she didn't actually mention a percentage, right. So, we still think it's going to be positive for the year. In terms of a family of four people looking to do a summer vacation and if you think of a round trip in a car 300 miles or 400 miles, the incremental cost of that trip can be $100 plus, something like that when you think about the incremental cost of gas. When you look at that family of four getting on an airplane, if anyone's traveled recently, they know that airplane travel is almost double the cost of what it was pre-pandemic, not to mention the absolute miserable experience of traveling through the airports today.

So, we see in our data that there were strong demand as Tiffany mentioned for vehicle travel this summer and we feel very good about the consumers will continue to drive throughout the summer and for vacation. So, can't tell you exactly what they're going to do but I think the calculus is pretty clear when you do some of the basic math.

[Karen Short, Barclays]

Great, thank you.

[Operator]

Our final question is from Peter Keith, with Piper Sandler. Your line is open.

[Peter Keith, Piper Sandler]

Hey, good morning and nice results, everyone. I wanted to ask about your digital marketing efforts. Jonathan, I know I asked you about this last quarter and you've commented there'll be more details on the data and digital unlock to come. But my specific question is just around the maintenance segment. You've talked about digital marketing working very well with maintenance. The comp there is spectacular but you're not mentioning with Car Wash. That seems like a much more logical option but why aren't the digital marketing efforts working in Car Wash to-date?

[Jonathan Fitzpatrick, CEO, President]

Well, I think you're inferring they're not working, Peter, I never said they're not working. Look, I tell you what, we've got this massive growth in unique customers. I think we're growing unique customers that almost a million new customers a quarter. I think we're up to 22 plus million new unique customers in our sort of data lake. As we build out the Car Wash network as we think about the Car Wash rebranding exercise, we are very actively sort of cross promoting our brands with exist with customers of Take 5 Quick Lube and inviting them to Take 5 Car Wash or Car Wash business. So, I think we're just a bit earlier in the Car Wash journey when it comes to the digital and data unlock.

We're very pleased with the progress we're making. And so, I don't think it's not working, I think it's just a couple of quarters or a couple of years behind what we've been doing at the Quick Lube space. So, we still feel incredibly bullish about the unmodelled upside when it comes to that core asset that literally none of our competitors have in this space. So, I'll commit to you Peter, that we'll certainly spend more time and on some of the numbers and behind-the-scenes improvements when we talk to you after Q2 results.

[Peter Keith, Piper Sandler]

Okay, I look forward to that. Second question, maybe more for Tiffany. I know last quarter you talked about the comp dynamics by segment should be in a pretty tight band, kind of plus or minus 200 basis points. It really wide band obviously with Q1 and now you've got more inflationary pressures. Fair to assume that it's no longer going to be so tight and maybe anywhere, would you expect our performance by particular segments?

[Tiffany Mason, CFO, EVP]

So Peter, I think it's a fair question. I have no change to my thesis today, right. We're going to provide updated guidance in 90 days. I think Q1 was stronger than what our internal plan was, we knew Q1 was going to be the outsides competent easiest to compare versus the prior year. So, I don't know that I would take Q1 as the benchmark or the blueprint for the way that the segments are going to shake out for the balance of the year but more to come in 90 days.

[Peter Keith, Piper Sandler]

Okay, now fair enough. Thanks a lot, good luck.

[Tiffany Mason, CFO, EVP]

Thank you.

[Operator]

I'll now turn the call back over to Mr. Fitzpatrick.

[Jonathan Fitzpatrick, CEO, President]

Yes. Thanks, all. I appreciate all the questions. We're delighted with the Q1 results. And just to reiterate, we will give full-year updated guidance at the in connection with the Q2 earnings and we're very pleased with the momentum of the business. So, thank you all, we'll speak to you all soon.

[Operator]

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