Driven Brands Holdings Inc

NASDAQ:DRVN

Earnings Call Analysis

Operational Improvements Amid Margin Pressure

The company had a strong quarter with a 10% system-wide sales growth reaching $1.6 billion and a 12% increase in reported revenue at $581 million. However, adjusted EBITDA was down to $127 million, with margins declining due to Car Wash and TC&G segments. A pricing strategy will roll out in Q4 to capture value across different service levels, with a loyalty program also in testing. The US Glass business is facing integration challenges, expected to resolve by Q1 of 2024. Impairments of $960 million led to a $799 million net loss. Full-year guidance reaffirmed, expecting revenue of $2.3 billion and adjusted EPS of $0.92.

Striving for Operational Excellence and Prudent Expansion

The company has recognized operational challenges, particularly in integrating its U.S. Glass business, which comprises 12 businesses acquired previously. The focus now is to overcome these hurdles by Q1 of 2024, establishing centralized systems and slowing down new unit growth to ensure existing operations are robust. At the same time, they've embarked on initiatives like improved promotional and pricing strategies aimed for rollout in Q4, signifying a disciplined approach to growth.

Profitability under Pressure Despite Revenue Growth

Top-line growth is robust, with system-wide sales of $1.6 billion marking a 10% increment, yet margins dipped due to challenges in the Car Wash and Paint, Collision & Glass (PC&G) segments. Higher rent expenses from sale leasebacks, increased competition, and costs from new site ramp-ups have strained profitability, leading to underperformance in U.S. operations. Consequently, a strategic decision to close 29 underperforming car wash stores is in place, with the full impact on financials expected to materialize in 2024.

Significant Impairments Reflect Strategic Reassessments

The company reported a substantial net loss of $799 million due to non-cash goodwill and asset impairments in the U.S. Car Wash business, totaling approximately $960 million, highlighting strategic recalibrations and store closures. These actions are part of a broader review aimed at optimizing revenue and expenses for long-term financial health.

Strengthened Liquidity and Shareholder Value Focus

The firm's liquidity improved, standing at $387 million, excluding an additional $135 million from variable funding notes available under certain conditions. Amidst the financial reshuffling, the company has also returned value to shareholders by repurchasing and retiring 3.6 million shares. The emphasis on cash flow, deleveraging by 2024, and over 75% of debt being fixed at around 4.3% interest rates, indicates a fiscally conservative approach going forward.

Moderated Growth Outlook and Future Expectations

For 2023, management reaffirms their revenue outlook at around $2.3 billion and a squeezed new unit growth target of 250 from 365 originally planned, reflecting cautious optimism and a focus on cash flow over aggressive expansion. This stance is supported by the belief in margin improvements, particularly in Car Wash operations, aligning operational efforts with financial prudence.

Future Commitments Despite Current Disappointments

The company maintains a strong belief in the long-term potential of its U.S. Glass business and remains undeterred by integration challenges. The leadership is applying lessons learned to polish operational execution, expecting a solid 2024 for the Glass business. Optimism also prevails for the Car Wash business, essentially undiminished by the goodwill impairment charge, with expectations of growth and adjusted EBITDA more than doubling in 2024.

Passing Challenges and Leveraging the Portfolio

Even with soft spots like U.S. Car Wash and self-inflicted U.S. Glass integration issues, the company's diverse portfolio ensures continued overall growth. There is a clear emphasis on resolving existing challenges in 2024 while continuing to drive gains in sectors not hampered by these issues.

Asset Dispositions and Operational Margin Improvements

Assets earmarked for sale, primarily not opened or operating locations, aim to simplify the company's structure and potentially pay down debt or serve general corporate purposes, without tight covenants restricting use of proceeds. Simultaneously, adjustments to the promotional and pricing strategies at Car Wash locations are intended to improve margins without necessarily affecting top-line sales, underscoring a balanced drive towards profitability.

Earnings Call Transcript 2023-Q3

[Operator]

Good morning. My name is Lara, and I will be your conference operator today. At this time, I would like to welcome everyone to the Driven Brands Q3 2023 Earnings Conference Call. [Operator Instructions] Thank you. I would now like to turn the call over to Joel Arnao, SVP of Finance. Joel, you may begin your conference.

[Joel Arnao, executive]

Good morning, and welcome to Driven Brands' Third Quarter 2023 Earnings Conference Call. The earnings release and the leverage ratio reconciliation are available for download on our website at investors.drivenbrands.com. On the call today with me are Jonathan Fitzpatrick, President and Chief Executive Officer; Danny Rivera, Executive Vice President and Chief Operating Officer; and Gary Ferrera, Executive Vice President and Chief Financial Officer. In a moment, Jonathan, Danny and Gary will walk you through our financial and operating performance for the quarter.

Before we begin our remarks, I'd like to remind you that management will refer to certain non-GAAP financial measures. You can find these 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.

During the course of this call, we may also make forward-looking statements in regards to our current plans, beliefs and expectations. These statements are not guarantees for future performance and are subject to a number of risks and uncertainties and other factors that could cause actual results and events to differ materially from results and events contemplated by these forward-looking statements. Please see our earnings release and our filings with the Securities and Exchange Commission for more information. Today's prepared remarks will be followed by a question-and-answer session. We will ask you to limit yourself to one question and one follow-up. Now I'll turn it over to my partner, Jonathan.

[Jonathan Fitzpatrick, executive]

Thanks, Joel, and we appreciate everyone for joining us to discuss Driven Brands' Third Quarter 2023 Financial Results. Now as always, I want to acknowledge the hard work and strong execution by our more than 11,000 Driven Brands team members and our amazing franchisees for how they continue to navigate an extremely dynamic macroeconomic environment.

I'm sure that many of you had a chance to attend our Investor Day in September. I hope the insights we shared were valuable to you and that you left the event with a better understanding of the power of the Driven platform and our commitment to unlocking the true value of our business.

Now our platform creates many benefits, such as enhancing our competitive advantages, diversification and generating robust cash flow. We are making progress on the actions we have taken to improve Driven's performance and continue to act with urgency to accelerate the pace of improvement in our Car Wash and U.S. Glass businesses.

We outlined a multiyear strategy, created a Chief Operating Officer position, made leadership changes within U.S. Glass and U.S. Car Wash and shared our strategic plan to maximize the return on our investments through disciplined capital deployment and portfolio management. We have a platform that generates high steady-state returns with a long runway for reinvestment at exceptional returns and we're incredibly motivated to see our valuation mirror our results over time.

Now let me review some of our third quarter highlights before turning it over to Danny, who will discuss Take 5 Oil Change, Car Wash and Glass. Next, Gary will detail our third quarter results and full year 2023 outlook.

For the quarter, we delivered 12% revenue growth versus prior year, supported by 6.4% same-store sales growth and 6% net store growth, achieving adjusted diluted EPS of $0.20 per share.

We continued to be pleased by the performance of our Quick Lube and our franchise businesses across all metrics. All being key contributors to this quarter's growth.

Now let me give you an update on our U.S. carwash business. Danny, Gary and I have spent a lot of time reviewing all aspects of the U.S. Car Wash business over the last 90 days. Danny is laser-focused on operational opportunities and he will discuss those in more detail shortly.

Now after our detailed review in Q3, we decided to close 29 U.S. car wash locations, which began in Q4. Generally, these locations were on average more than 13 years old, had suboptimal real estate and had significant competitive intrusion. On an LTM basis, these locations had negative same-store sales and traffic and negative EBITDA contribution.

Consequently, we will see some small benefit in Q4 for closing these 29 loss-making locations.

Additionally, we are actively reviewing our pipeline for new car wash locations. Now this is in line with our commitment to stop all capital and not to open new stores until we determine the base business is performing.

We expect that over the next 2 to 3 quarters, we will likely see a return of capital from selling these pipeline sites. We are making steady progress on the U.S. Car Wash business and getting the U.S. Glass integration behind us. And as I have said previously, this will likely take several quarters. Gary will provide an update on the impact to fiscal 2023 store openings shortly.

As a reminder, our short-term focus is to deliver our guidance for 2023 and set the company up for a strong 2024. This means improving the U.S. Car Wash business, getting the U.S. Glass integration challenges behind us, a very disciplined strategy for deploying capital, which will primarily be used to open Take 5 Oil Change company stores, a focus on free cash flow generation and generally using excess free cash flow to pay down debt.

Now I want to reiterate that we have taken several steps to improve Driven's performance. Gary and I are responsible for strategy and capital allocation. The creation of the Chief Operating Officer role is an important one as Danny is responsible for all the operating segments.

Simply put, he owns the P&Ls. Danny is responsible for the day-to-day decision making, finding and executing on growth opportunities and ultimately delivering segment-level, revenue and profits. Danny has been my partner for 10 years at Driven. And most recently, he served as President of our Maintenance segment. So with that, let me hand it over to Danny, our Chief Operating Officer, to discuss our key business segments.

[Daniel Rivera, executive]

Thanks, Jonathan. Before I begin, let me introduce myself. I met many of you at our Investor Day. But for those of you I have not met, I've been a part of the Driven leadership team for over a decade. Throughout that period, I've been President of Meineke, President of Take 5 Oil Change and Group President of our Maintenance segment. While Jonathan and Gary focus on strategy and capital allocation, it's my job to ensure that the capital they have allocated realizes the returns we underwrote.

I am focused on executing our operating playbook, which enables Driven over time to take acquired businesses and turn them into high-growth engines that deliver predictable and scalable results.

Driven's operating playbook has been developed over the past 10 years. We've implemented it across all of our businesses, both company and franchise.

The playbook has several chapters, all of which are important and build upon one another. Those chapters include culture, people, brand positioning, process and continual improvement. We are repeating the very same playbook that has been successful at our most mature growth business, Take 5 Oil Change change, with both our Take 5 Car Wash and Auto Glass Now.

With that background, let me discuss Driven's 3 primary growth levers: Take 5 Oil Change, Take 5 Car Wash and Auto Glass Now.

This quarter, Take 5 Oil Change, both company and franchise locations, continued to drive customer acquisition and delivered strong same-store sales of 14%. We continue to outpace the competition as our differentiated 10 minute stay in your car oil change model builds brand recognition with top quartile NPS scores and increasing repeat rates.

Further, we grew our footprint over 23% year-over-year, and our franchise pipeline remains robust at more than 750 units. We expect asset-light franchise store growth to drive our footprint growth moving forward. Our franchisees remain excited about the performance of their stores and, of course, the returns they're generating.

I'm also excited that in Q4, we will be celebrating our 1,000 store openings and we just recently opened our 300th franchise locations.

Let's now switch over to our Car Wash business. We are experiencing softer retail volumes in the U.S. Car Wash segment, driven by a challenging macro environment for our most discretionary business and continued competitive intrusion. However, our International Car Wash business continues to perform well despite challenging conditions in Europe. As Jonathan mentioned, I have been leaning into operational opportunities in the U.S. Car Wash business.

The following are some of the actions that we have taken.

First, I've made a series of leadership changes, including changes in marketing, operations and a change in President.

I have also made changes to how our teams are structured, their priorities and our management processes against those priorities.

Our immediate priorities are twofolds: to be the best at the basics and to improve margins.

Regarding being the best of the basics, we're focused on a handful of operational KPIs and processes that ensure we're open and operating, we're reducing downtime due to equipment failure, we're winning on must-win days and we're delivering our fast, friendly and convenient promise in order to delight our customers.

Regarding improving margins, we have implemented a data-driven approach to identify opportunities for better operational and financial performance. For example, we are taking a more disciplined approach to our promotional strategy, to ensure we are reducing discounting while focusing our marketing efforts on attracting long-term customers.

We are also implementing an improved pricing strategy that we will begin rolling out in Q4, enabling us to better capture the value that are different levels of wash offer.

Finally, from an operational perspective, we are taking a close look at costs, particularly variable costs and identifying outliers and implementing operational guardrails to help obtain proper variable margins.

These actions, along with the closing of 29 unprofitable locations, gives me confidence that we can improve the business over the next several quarters. As I mentioned at the Investor Day, we are also excited to roll out Take 5 Rewards, our new loyalty program that will initially focus on Take 5 Oil Change and Car Wash. We will be testing this new program in Q4 of this year.

Our new platform will offer a Take 5 Oil Change subscription and a combo subscription across both Take 5 Oil Change and Car Wash. Our subscriptions will also be coupled with a loyalty program designed to drive frequency across both businesses.

Lastly, let's cover our U.S. Glass business, an important component of our longer-term growth. As Jonathan mentioned on the last earnings call and at our Investor Day, we have encountered a series of challenges integrating the 12 businesses we acquired that ultimately make up the Glass business. These integration challenges have resulted in underperformance of our U.S. Glass business in 2023.

We also said that it will take several quarters to get through these challenges. We are continuing to make progress, and our goal is to exit Q1 of 2024 with these integration challenges largely in the rearview mirror.

Some of the progress we've made with the integration include: we completed the rollout of our new point-of-sale system, we completed the rollout of our new centralized call center, we are in the process of centralizing all product purchasing and plan on being fully rolled out by Q1 of 2024.

More than 95% of our locations have calibration capabilities and all employees are now on one payroll and benefits platform.

We have also made the decision to slow down new unit growth in Q4 and in 2024 to make sure that the base business is performing at the levels we expect.

We remain extremely bullish on our U.S. Glass business and look forward to a strong 2024 as we put up mountains of integration work behind us.

As I mentioned at Investor Day, Car Wash and Glass have many similarities to our Take 5 Oil Change business, and as such, should be performing similarly. I am confident in the driven playbook as we have successfully proven it with our Take 5 Oil Change business. It will not happen overnight, but the vision is clear, our priorities have been cemented, and we have the team in place to execute.

In my newly created role as COO, I look forward to taking the success of our Take 5 Oil Change business and methodically spreading those best practices and those results throughout Driven. And with that, I will now turn it over to my partner, Gary.

[Gary Ferrera, executive]

Thanks, Danny, and welcome, everyone. Today, I will share with you our third quarter financial performance and outlook for the remainder of the year as well as how our focus on cash flow, disciplined growth and strategic capital allocation is shaping our future.

On a consolidated basis, we had another strong quarter of top line growth versus Q3 2022. Our system-wide sales reached $1.6 billion, representing a 10% increase from the prior year period. This growth was driven by a 6% increase in same-store sales and a 6% net store growth.

This translated into reported revenue for the quarter of $581 million, an increase of over 12%. This growth was primarily led by our Maintenance segment followed by our Paint Collision & Glass segment.

Adjusted EBITDA was $127 million or 22% of revenue versus $129 million or 25% of revenue in the same quarter last year. This margin decline and the resulting slight decline in adjusted EBITDA is directly attributable to the Car Wash and PC&G segment with approximately $7 million of the impact on Car Wash being driven by increased rent expense from sale leasebacks.

Both the Maintenance and Platform Services segment experienced significant growth in adjusted EBITDA as well as margin expansion in the quarter versus the prior year.

I'll now focus on our performance by segment. We are pleased with the positive same-store sales growth of 9% in Maintenance, our largest segment.

Revenue from this segment grew an impressive 22% over the prior year period. This was primarily driven by our Take 5 Oil Change business which continues to perform strongly across both our franchise and company-owned locations. As we've mentioned before, industry tailwinds, including an aging car park and increased vehicle complexity drive average tech and a flight to trusted brands.

Take 5 Oil Change continues to benefit from these trends as we saw another quarter of positive car count trends.

Maintenance segment adjusted EBITDA margin increased by over 110 basis points versus Q3 2022 due to flow-through from strong top line performance as well as a continued focus on operational efficiency. This drove an increase in segment adjusted EBITDA of over 25% for almost $18 million versus Q3 2022.

In our Car Wash segment, we experienced a same-store sales decline of 4% versus the prior year period. This decline was entirely driven by our U.S. Car Wash operation. Total segment revenue, including the international business increased 2%. The Car Wash segment adjusted EBITDA margin decreased to 17% in the quarter versus 28% in Q3 2022, resulting in a decline in adjusted EBITDA of approximately $15 million.

The U.S. portion of the business experienced higher costs primarily due to the fixed costs associated with ramping locations, including the 57 new stores opened during the last 12 months, while experiencing soft retail demand and increased competition. As I mentioned earlier, approximately $7 million of these fixed costs can be attributed to increased rent expense from sale-leaseback activity versus Q3 2022.

We are making significant operational improvements and closing underperforming stores to improve the financial performance of our U.S. Car Wash business. In our Paint, Collision & Glass segment, we achieved positive same-store sales growth of 9% and and segment revenue growth of 14%. However, segment adjusted EBITDA margin decreased to 25% from 34% in Q3 2022, resulting in a $6 million decline in adjusted EBITDA.

The U.S. Glass business drove this decrease as Paint & Collision delivered increases over the prior year quarter. As Danny mentioned previously, he and his team are working through the integration issues related to the 12 U.S. Glass acquisition.

In our Platform Services segment, Revenue increased 8% over the prior year period. 1-800-Radiator saw sequential improvement from negative 11% in Q2 to down less than 5% in Q3. As a reminder, 1-800-Radiator comprises only about 25% of the revenue for this segment.

Platform Services adjusted EBITDA margin increased to 40% from 38% in the prior year period, resulting in segment adjusted EBITDA of $22 million.

Now I will focus on some key components below adjusted EBITDA.

Depreciation and amortization expense totaled $46 million in the quarter, reflecting a $9 million increase from the prior year, mainly due to an increase in company-operated store count.

Additionally, interest expense reached $41 million, a $14 million increase from Q3 2022, primarily due to an increase in total debt levels, driven by our securitization issuance in Q4 2022 as well as by higher interest on our term loan and revolver, which are our only outstanding debt tranches with variable rates.

Net loss for the third quarter was $799 million versus net income of $38 million in Q3 2022. Due to the noncash goodwill and asset impairments in our U.S. Car Wash business of approximately $960 million. During the quarter ended September 30, 2023, we conducted an in-depth review of our U.S. Car Wash operations.

This review focused on assessing underperforming stores in their local competitive environment, understanding new store growth patterns and identifying opportunities for potential revenue and expense optimization. As a result of this analysis, we decided to close 29 stores.

These closures began in Q4. We've also put a pause on opening new stores and have initiated the process of selling assets we won't be utilizing. Due to these actions and in the course of our review of our results during the quarter, we decided to recognize noncash impairment charges totaling $111 million associated with property, equipment and right-of-use assets.

In light of these factors and using current higher interest rates in our discounted cash flow analysis, we determined that the carrying value of our U.S. Car Wash reporting unit within the Car Wash segment surpassed its current market value.

Consequently, we registered a noncash goodwill impairment charge of $851 million.

Adjusted net income was $34 million for the quarter, resulting in adjusted diluted EPS for the quarter of $0.20 versus $0.32 in the prior year period. Cash flow from operating activities for the 9 months was $212 million, an increase of 26% from $168 million from the prior year period.

At the end of the third quarter, we had $387 million in liquidity, comprising $211 million in cash and cash equivalents, along with $176 million of undrawn capacity on our variable funding securitization senior notes and our revolving credit facility. Our liquidity does not account for the additional $135 million of variable funding notes, which could be utilized at the company's discretion if specific conditions continue to be met.

This liquidity, along with our ability to continuously generate strong cash flows from operations, provides us flexibility in executing our long-term growth plan. As you may recall, in August, we announced a $50 million share repurchase authorization, recognizing the opportunity to purchase shares at what we view as an advantageous level.

We completed the repurchases and retired 3.6 million shares during the quarter. This impacted our net leverage ratio for the quarter by just under 0.1x and it is now 4.8x for the quarter versus 4.7x in Q3 2022. As we stated in our recent Investor Day, we are extremely focused on generating excess cash flow and deleveraging in 2024.

As a reminder, our debt structure is over 75% fixed with that portion of the debt at an interest rate of approximately 4.3%. The remainder is made up of term loan and revolving credit facility with a total blended interest rate of approximately 5.2%.

I will now turn to our fiscal 2023 full year financial outlook. We are reaffirming the outlook that we provided on our second quarter earnings call of revenue of approximately $2.3 billion, adjusted EBITDA of approximately $535 million and adjusted EPS of approximately $0.92.

We also continue to expect same-store sales growth of 5% to 7%. This guidance reflects continued strength in our Maintenance, Paint & Collision businesses, partially offset by weakness in our U.S. Car Wash and U.S. Glass businesses. As we discussed during our Investor Day, we are very focused on disciplined growth and driving cash flow. Therefore, we made the decision to slow new unit growth from what was provided earlier in the year. We are now expecting 2023 new unit growth to approximate 250 units versus our original outlook of 365 units, primarily driven by fewer new units in our U.S. Car Wash and U.S. Glass businesses.

I wanted to wrap up with a couple of accounting-related matters.

First, in Q4, we converted certain pre-IPO equity the time-based vesting from vesting that was based on the achievement of certain sponsor returns after the sponsor owned less than 50% of our outstanding stock.

This conversion results in a noncash stock compensation expense charge of approximately $43 million, which we will recognize ratably over the 18th month vesting period. including approximately $5 million in Q4 2023.

Second, related to our review of the U.S. Car Wash business, we transferred assets on our balance sheet amounting to $271 million from property and equipment to assets earmarked for sale.

In closing, I just wanted to take a moment to thank all the teams across the organization for being laser-focused on driving operational efficiencies during the quarter so that we can deliver on our commitments for the remainder of the year and set ourselves up for a strong 2024. Thank you all for your time this morning. That concludes our prepared remarks. I will now turn it back over to the operator for Q&A.

[Operator]

[Operator Instructions] Our first question comes from the line of Peter Benedict from Baird.

[Peter Benedict, analyst]

First one, just around the Car Wash business, you talked about a new pricing structure, Dan, I think you mentioned that. Can you maybe expand on that, maybe a number of number of tiers you're thinking about? Any clarity there? And related to that, the new leadership in U.S. Car Wash, is that internally sourced folks? Anybody from the outside? Just curious kind of your views on how it's different to operate a car wash than an oil change business. That's my first question.

[Daniel Rivera, executive]

Peter, thank you for the question. Appreciate that. So yes, related to the first question around pricing, look, ultimately, the team and I are super focused on operations and improving margins. Part of both of those is a focus on pricing. And our changes, we think will lead to improved margins as we capture kind of more value from across all of our packages and our wash packages, vis-a-vis, our consumers.

As far as leadership changes -- operationally, our leadership changes, we did bring it over an individual from our Quick Lube business, who is a seller operator for us there and brought them over to our Car Wash business. Ultimately, the 2 businesses are different, but ultimately, they're also retail businesses. And when it comes to people and leadership and operations, there's certainly a lot of -- we believe there's a lot of similarities, and we think that, that individual is going to be very helpful to us, in our Car Wash business.

[Peter Benedict, analyst]

Okay. And then maybe, Gary, just on the Car Wash and PC&G segment margins, obviously down a lot in 3Q. How should we think about in the fourth quarter? I mean, is 3Q the bottom in terms of those segment margins should you get some improvement at least sequentially there? And then just on the Car Wash openings for next year, I mean, I think you were saying maybe 20 -- is that now 0, just so we level set for next year on the new Car Wash units.

[Gary Ferrera, executive]

Yes. Let me answer the first part of the question is -- which I've already forgotten because I'm over 60, but the margins when you go into the next quarter, obviously, never say bottom, right, because it jinx with us. But the plan is, as you can see from the numbers we've put out, if we hit our guidance means you'd have a slight margin improvement in Q4. And so how that's going to mix between the segments, obviously, we don't guide to that. But Danny is doing a lot of work with his team to try to get margins short up there. So I think it will more translate into where we come out on the top line.

[Jonathan Fitzpatrick, executive]

Yes, Pete, Jonathan here on the openings. Yes, we're sort of actively working through what locations in our pipeline we can exit or sell. So, I think the 20% number that we gave at the Investor Day will likely be lower, sort of a work in progress here, but we'll update throughout the year, but definitely lower than the 20% we gave.

[Operator]

Your next question comes from the line of Seth Sigman from Barclays.

[Seth Sigman, analyst]

I wanted to focus on the Maintenance business. I think you gave us the Quick Lube, the 14% comp is very strong. What's happening in the rest of the maintenance business? I know there have been some mixed messages out there across the industry. but it does seem like you're outperforming pretty nicely here. So just any more perspective on the rest of maintenance and what you're seeing from a consumer perspective? And then I have one follow-up.

[Jonathan Fitzpatrick, executive]

Seth, it's Jonathan. Yes, look, Take 5 Oil Change represents over 90% of our maintenance segment. The balance is our Meineke business, which is a pure franchise business and continues to perform very steady, and we're not seeing any sort of major trend changes in that Meineke business. But again, Take 5 Oil Change is more than 90% of that segment. So that's the key driver in it.

[Seth Sigman, analyst]

Perfect. And then just from a margin perspective, both quarter-over-quarter and year-over-year, nice improvement here. And in fact, the last couple of quarters, you've seen a big step-up in the profitability of the Maintenance segment. Can you just talk about the drivers there and maybe some perspective on whether that's starting to reach a ceiling? Or do you feel like there's still more room to go?

[Jonathan Fitzpatrick, executive]

Yes, Seth, look, like we talked about at the Investor Day, this Take 5 Oil Change business is one of the greatest multiunit businesses that I've ever been involved with. We've got significant same-store sales growth, positive traffic. We've also got natural [ ARR ] or check growth in that business. The team has executed phenomenally well with our attachment rate of our big 4 items.

Our NPS scores are still in the high 70s, which is top 2 box and likelihood to refer. And then obviously, we've got a significant amount of new stores that are ramping contributing to same-store sales growth, obviously, when they hit sort of [ 113. ] So we're incredibly proud of the team that Mo and the team and all the efforts that they are doing there. So we expect to see continued growth in that maintenance segment, specifically with Take 5 Oil Change.

[Seth Sigman, analyst]

And congrats on the progress.

[Operator]

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

[Simeon Gutman, analyst]

I wanted to focus on Car Wash for a minute. So margins are a bit lower where we are today, obviously, versus prior. Can you talk about your confidence in the time frame in which margins stabilize. And it feels like it's a little bit beyond even sales deleverage. I think we have 10 to 15 points of lower margins. So how do you separate that out between weaker sales, higher rent or other miscellaneous things and within the margin?

[Jonathan Fitzpatrick, executive]

Simeon. Look, I think nothing has dramatically changed from what we talked about at Investor Day. We do have headwinds in the U.S. Car Wash business in terms of macro consumer demand along with the competitive intrusion that we've spoken about before. We've also seen incremental margin pressure from the approximately $7-plus million of sale and leaseback expense that's on the business this year. We've also got 57 stores that are less than 1 year old, which are ramping and therefore, they tend to be sort of margin dilutive as they get to their ramp cycle. Danny has been really focused on sort of that middle part of the P&L to make sure that we're managing margins on a go-forward basis. So I think we are really working hard on the things that we can control, and we're optimistic that we'll see margin improvement over the next several quarters in that Car Wash business, again on the things that we can control.

[Simeon Gutman, analyst]

And may I ask on the Glass business, I think Danny mentioned a couple of things, both in terms of revenue outlook and then in terms of, I don't know, profit normalization or the streamlining of some of these acquisitions, respecting it could take some time, but curious what the time frame, the pace of progress, and again, not getting ahead of yourselves, but just what's a realistic time frame for the margin rate of that business to ramp and then move up into the right.

[Jonathan Fitzpatrick, executive]

We are dealing with self-inflicted execution issues on the integration, Simeon and we hold ourselves fully accountable for that. But stepping back, when I look at the underwriting thesis for Driven Brands getting into the Glass business in the United States, nothing, and I repeat, nothing has changed in our conviction around the long-term opportunity there. There is an opportunity for us to be a really large-scale player. We've got the ability to execute on retail customers, commercial customers and grow our insurance business. The unit economics will be very powerful in this business. The capital required to open new stores will be very attractive. So nothing has changed in terms of our long-term optimism around this business. And as Danny said, we hope to have the majority of these integration challenges behind us as we exit Q1 of next year. So we remain really, really bullish on the long-term opportunities for this Glass business.

[Operator]

Your next question comes from the line of Liz Suzuki from Bank of America.

[Elizabeth Lane, analyst]

Just a follow-up on the Car Wash business. You mentioned that the international operations are performing a little better than the U.S. Can you help us quantify that in terms of comp growth in the U.S. versus international? And then additionally, what the U.S. Car Wash comp would have looked like, excluding the 29 underperforming stores that you're closing?

[Jonathan Fitzpatrick, executive]

Liz, it's Jonathan. Yes. Look, first of all, I'll just congratulate Tracy and the European team for just continuing to deliver really solid results in fairly challenging economic conditions in Europe. That European team has really delivered a really good sort of first 3 quarters of the year and expect them to sort of finish the year strong. Liz, we don't dissect sort of the comps within the subsegments within Car Wash. I will tell you that, very proud of the European business, but the landscape there is generally different and doesn't have some of the sort of competitive natures and forces that the U.S. business has.

In terms of -- so I would stop there, but we're not -- and in terms of the store closures, Liz, we're going to close 29 stores, U.S. Car Wash stores in Q4, those stores were 13 years of age on average, the vast majority of them had competitors open up within a close proximity to those stores. Every one of them on an LTM basis had negative same-store sales, negative traffic and therefore, also negative EBITDA.

As I mentioned, we'll have a nominal benefit, small benefit in Q4, and we'll reap the full benefit of those closures on the financials in 2024. But we're not disclosing this specific amount. But it's, again, nominal in Q4 and we'll see some full year benefit next year.

[Elizabeth Lane, analyst]

Understood. And just on the competitive environment in Car Wash, what do you think has really changed in the last couple of quarters as you've been talking about it more? And are you seeing irrational competitive behavior coming from any of the larger chains? Is it smaller competitors? Like where are you seeing the bad actors in that sector?

[Jonathan Fitzpatrick, executive]

Yes. Look, I wouldn't call any of my competitors' bad actors. We're all fighting for our share in the market. I think Liz what's happened as we've been in this industry now for over 3 years, it has, at least from our perspective, changed from a competitive dynamic when we first got into this industry back in late 2020. I think I've mentioned before that we now have almost 20. I think the exact number we've reported is 19 "platform" -- platforms in Car Wash with sort of institutional capital behind them. So what we've seen is just a pretty seismic shift in the number of new units that have opened over the last 3 years. We do think that that's likely to continue, although moderate as we look into 2024 and '25. So I think we've just got a lot more competition within the U.S. Car Wash space than we did 3, 4 years ago. So I don't see that dramatically changing, but I wouldn't call any of my competitors' bad actors.

[Operator]

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

[Katharine McShane, analyst]

At the Investor Day, you outlined expectations for adjusted EBITDA growth to more than double in 2024. Is that still how you're thinking about the business next year, especially in the context of the Car Wash asset sales?

[Jonathan Fitzpatrick, executive]

Kate, Jonathan. Yes, look, we're obviously not going to give 2024 guidance at this point, but nothing has changed in our narrative from the Investor Day. So I can reaffirm what we said at Investor Day, but we're not going to give 2024 guidance just yet.

[Katharine McShane, analyst]

Okay. And then if we could just ask a follow-up question also on Car Wash. We just wondered if you could talk about what you're seeing in the subscription growth or what you saw in the third quarter for subscription growth with car wash.

[Jonathan Fitzpatrick, executive]

Yes. Trends have been pretty similar there, Kate. We've seen net membership growth in Q3, very similar to what we've seen over the past. I think what Danny is doing and appropriately so is looking at the discounting and promotional activity that has been used in the past to drive some of those new members and really looking at the economic lifetime value of what those memberships are based on discount levels. So we have seen still net member growth in Q3. But I think one of the things that we're working through is what is the right pricing promotion discounting strategy? Both for retail customers and on the membership side. So more to come on that, but we did see net growth in members.

[Operator]

Your next question comes from the line of Christopher Horvers from JPMorgan.

[Christian Carlino, analyst]

It's Christian Carlino on for Chris. We were just wondering, are there any particular markets where the Car Wash closings are concentrated in? And any early reads from the cross marketing -- the Car Wash locations at the Quick Lube?

[Jonathan Fitzpatrick, executive]

Chris, it's Jonathan. Yes, well there's no one market where we're over-concentrated. Some of our -- as I mentioned, some of those assets were 13 years old. They were typically some of the legacy assets that we purchased back in August of 2020. So you see probably a little over-indexing in some of the -- I'll call it, the Southeast markets, but there's not one market in particular. So that's data point number one. Data point # 2 on the loyalty platform that Danny and team will be rolling out. That test will start in Q4. We're excited about getting that up and running. And look forward to reporting on that as we sort of progress the hopefully, test and to full rollout, and we'll certainly be updating as we go through the quarters next year.

[Christian Carlino, analyst]

Got it. That's helpful. And then just to clarify on an earlier question, some of the parts retailers are talking about deferred maintenance. The macro is -- it's a pressure and even nondiscretionary services, you see deferral into a recession before you see things snap back. You're clearly gaining share, but are there any signs of this? Any reads into the consumer?

[Jonathan Fitzpatrick, executive]

Other than our sort of less discretionary Car Wash business in the U.S., Chris. As Gary mentioned earlier, obviously, the maintenance business is performing exceptionally well. And the rest of our franchise businesses are continuing to generate very good returns. So I would say, at this point in time, outside of U.S. car wash and self-inflicted integration challenges with U.S. Glass, we are not seeing a trajectory change in terms of the consumer deferring service.

[Operator]

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

[Peter Keith, analyst]

I just was trying to think more about that $850 million goodwill charge on Car Wash. And you were talking about [ your DCF ], but it certainly seems like you've taken down the long-term value of that segment. So I guess here as investors, how should we think about the real opportunity to drive growth there with that type of write-down?

[Gary Ferrera, executive]

Yes, Peter. So as we said at Investor Day, we gave our long-term guidance for the entire company, including U.S. Car Wash and said on that call that we did not expect much of that to be driven by U.S. Car Wash. And so when you take that model and put higher interest rates on it and multiples coming down in the sector when you got to do your impairment analysis, that's what kicks out. I don't think we said anything about not believing in the space over the longer term. It's just when we do the math, that's where we come out to.

[Jonathan Fitzpatrick, executive]

And Peter, it's Jonathan. I would just follow up and say nothing has changed in terms of our multiyear strategy with U.S. Car Wash. We still think it's a very very good sector to be in. However, what we stated at Investor Day, and I'll state it again today, is we will not be deploying incremental capital into that business until we've got the base business performing to a level that we believe it deserves incremental capital. So more to come there. And obviously, we're working incredibly hard Danny and his team to control the things that we can control in that U.S. Car Wash business, and we're optimistic that we can get it back to the point that it deserves incremental capital.

[Peter Keith, analyst]

Okay. Very good. And then I want to pivot over to the PC&G segment. So the comp growth is strong, but did step down sequentially nearly by 4 points. So I was wondering if you could help unpack that a little bit because we do hear about very strong trends in collision, particularly with ticket growth. And I'm guessing now you have some of your Glass business that's rolled into the comp base. So is it the Glass businesses that you've acquired that are comping negative? Or what's driven the slowdown overall?

[Jonathan Fitzpatrick, executive]

Yes. Look, I think the theme is very similar to what Gary said at the start of the call, Peter, is that our P&C (sic) [ PC&G ] set subsegments are performing very well. We're very pleased with our collision business. And you mentioned we're seeing strong demand from our insurance partners in that space. The only negative in the PC&G segment is the U.S. Glass business, which you're right, some of those businesses are coming into the comp set right now. Our focus is getting that integration challenges behind us primarily in the rearview mirror by the end of Q1. So I think we're very pleased with many parts of our business, but we've got 2 soft spots right now, which is kind of the beauty of Driven Brands is that we're still able to deliver top line revenue, EBITDA growth despite not having all parts of the business working at one point. So we're excited about 2024 and getting the U.S. Glass challenges behind us.

[Operator]

Your next question comes from the line of Chris O'Cull from Stifel.

[Christopher O'Cull, analyst]

First, Gary, if the company sells assets, what are the requirements under its debt agreements to use the proceeds? And maybe how many locations are included in that $271 million of assets held for sale?

[Gary Ferrera, executive]

Yes. So obviously, our debt structure is multifaceted. So different things fall in different buckets. U.S. Car Wash is very much tied to the term loan. So I mean, the thought process here is we'll either use it to pay down debt or general corporate purposes, but it's not overly specific, depending like every sale we make. So it's very covenant light on that term loan.

[Jonathan Fitzpatrick, executive]

And I would just follow up, Chris. None of those -- the vast majority of that pipeline are not open and operating stores. So there is no debt obligations in terms of where the proceeds would have to go from the sale of pipeline. So just to confirm that.

[Christopher O'Cull, analyst]

Okay. And then how many locations were there in that $271 million?

[Gary Ferrera, executive]

Over 130.

[Christopher O'Cull, analyst]

Okay. And then Danny, you mentioned focusing on improving margin at the Car Wash with fewer promotions and pricing changes, which would seem to create some problems for the top line. Are you expecting the comp trend to weaken as you reduce promotions and try to improve the margin?

[Daniel Rivera, executive]

So Chris, thanks for the question. Look, ultimately, when it comes to the Car Wash business, I'll just reiterate, we're focused on operations and improving margins. We discussed a series of things that we're focused on. I mentioned in my prepared remarks. And don't see that being tied to declining sales. We're just focused on like I said, improving the operations and improving the margins of the business and making sure that we drive both of those.

[Operator]

There are no further questions at this time. I would now like to turn the call back over to Mr. Jonathan Fitzpatrick, CEO, for any closing remarks.

[Jonathan Fitzpatrick, executive]

Thanks, everyone, and I appreciate you joining us today. And just a reminder that our short-term focus is on delivering 2023 guidance and then obviously setting Driven up for a really strong 2024. So thank you all. We look forward to talking to you on our Q4 earnings call.

[Operator]

Thank you, sir. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a lovely day.