Driven Brands Holdings Inc. - Quarter Report: 2023 April (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 1, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 001-39898

Driven Brands Holdings Inc.

(Exact name of Registrant as specified in its charter)


Delaware
(State or other jurisdiction of incorporation or organization)


47-3595252
(I.R.S. Employer Identification No.)


440 South Church Street, Suite 700
Charlotte, North Carolina
(Address of principal executive offices)


28202
(Zip Code)

Registrant’s telephone number, including area code: (704) 377-8855


Title of each class
Common Stock, $0.01 par value


Trading Symbol
DRVN


Name of each exchange on which registered
The Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

3Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer ☒
Non-accelerated filer ☐


Accelerated filer ☐
Small reporting company ☐
Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

As of May 4, 2023, the Registrant had 167,560,270 shares of Common Stock outstanding.

Driven Brands Holdings Inc.

Table of Contents


			Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)			3
Consolidated Statements of Operations			3
Consolidated Statements of Comprehensive Income (Loss)			4
Consolidated Balance Sheets			5
Consolidated Statements of Shareholders’/Members' Equity			6
Consolidated Statements of Cash Flows			7
Notes to the Consolidated Financial Statements			9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			18
Item 3. Quantitative and Qualitative Disclosures About Market Risk			31
Item 4. Controls and Procedures			31

PART II. OTHER INFORMATION
Item 1. Legal Proceedings			32
Item 1A. Risk Factors			32
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			32
Item 5. Other Information			32
Item 6. Exhibits			33

Signatures			34

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are generally identified by the use of forward-looking terminology, including the terms “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “likely,” “may,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “target,” “will,” “would” and, in each case, their negative or other various or comparable terminology. All statements other than statements of historical facts contained in this Quarterly Report, including statements regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans, objectives of management, and expected market growth are forward-looking statements. In particular, forward-looking statements include, among other things, statements relating to: (i) our strategy, outlook and growth prospects; (ii) our operational and financial targets and dividend policy; (iii) general economic trends and trends in the industry and markets; and (iv) the competitive environment in which we operate. Forward-looking statements are not based on historical facts, but instead represent our current expectations and assumptions regarding our business, the economy and other future conditions, and involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements. It is not possible to predict or identify all such risks. These risks include, but are not limited to, the risk factors that are described under the section titled “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 as well as in our other filings with the Securities and Exchange Commission, which are available on its website at www.sec.gov. Given these uncertainties, you should not place undue reliance on these forward-looking statements.

Forward-looking statements represent our estimates and assumptions only as of the date on which they are made, and we undertake no obligation to update or review publicly any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law.

Part I - Financial Information

Item 1. Financial Statements (Unaudited)

DRIVEN BRANDS HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)


	Three Months Ended
(in thousands, except per share amounts)	April 1, 2023		March 26, 2022
Revenue:
Franchise royalties and fees	$	43,515	$	37,888
Company-operated store sales	376,066		292,391
Independently-operated store sales	52,532		63,089
Advertising contributions	21,677		19,698
Supply and other revenue	68,677		55,257
Total revenue	562,467		468,323
Operating Expenses:
Company-operated store expenses	243,409		177,867
Independently-operated store expenses	29,364		33,299
Advertising expenses	21,677		19,698
Supply and other expenses	37,266		32,774
Selling, general, and administrative expenses	112,328		92,220
Acquisition costs	1,847		4,318
Store opening costs	1,025		506
Depreciation and amortization	38,198		33,023

Asset impairment charges and lease terminations	167		898
Total operating expenses	485,281		394,603
Operating income	77,186		73,720
Other expenses, net:
Interest expense, net	38,141		25,353
(Gain) loss on foreign currency transactions	(1,675)		971

Other expense, net	36,466		26,324
Income before taxes	40,720		47,396
Income tax expense	10,971		12,968
Net income	29,749		34,428
Net loss attributable to non-controlling interest	—		(15)
Net income attributable to Driven Brands Holdings Inc.	$	29,749	$	34,443

Earnings per share:
Basic	$	0.18	$	0.21
Diluted	$	0.17	$	0.20
Weighted average shares outstanding
Basic	162,784		162,762
Diluted	166,874		166,748

The accompanying notes are an integral part of these unaudited consolidated financial statements.

DRIVEN BRANDS HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)


	Three Months Ended
(in thousands)		April 01, 2023		March 26, 2022
Net income		$	29,749	$	34,428
Other comprehensive income (loss):
Foreign currency translation adjustments		11,351		(5,574)
Unrealized (loss) gain from cash flow hedges, net of tax benefit of ($2) and $0, respectively		(200)		132
Actuarial gain of defined benefit pension plan, net of tax expense of $0 and $0, respectively		16		—
Other comprehensive income (loss), net		11,167		(5,442)
Total comprehensive income		40,916		28,986
Comprehensive loss attributable to non-controlling interests		(1)		(2)
Comprehensive income attributable to Driven Brands Holdings Inc.		$	40,917	$	28,988

The accompanying notes are an integral part of these unaudited consolidated financial statements.

DRIVEN BRANDS HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (Unaudited)


(in thousands, except share and per share amounts)	April 1, 2023		December 31, 2022
Assets
Current assets:
Cash and cash equivalents	$	190,841	$	227,110
Restricted cash	792		792
Accounts and notes receivable, net	216,621		179,888
Inventory	77,848		72,040
Prepaid and other assets	54,149		40,084
Income tax receivable	12,715		15,075

Advertising fund assets, restricted	48,618		36,421
Total current assets	601,584		571,410
Other assets	22,773		30,561
Property and equipment, net	1,710,057		1,545,738
Operating lease right-of-use assets	1,312,568		1,299,189
Deferred commissions	6,691		7,121
Intangibles, net	761,597		765,903
Goodwill	2,287,960		2,277,065
Deferred tax assets	2,925		2,911
Total assets	$	6,706,155	$	6,499,898
Liabilities and shareholders' equity
Current liabilities:
Accounts payable	$	88,862	$	60,606
Accrued expenses and other liabilities	300,813		317,318
Income tax payable	2,617		4,454
Current portion of long-term debt	33,263		32,986
Income tax receivable liability	53,554		53,328
Advertising fund liabilities	47,572		36,726
Total current liabilities	526,681		505,418
Long-term debt	2,816,493		2,705,281
Deferred tax liabilities	282,709		276,749
Operating lease liabilities	1,202,359		1,177,501
Income tax receivable liability	117,915		117,915
Deferred revenue	29,506		30,046
Long-term accrued expenses and other liabilities	31,450		33,419
Total liabilities	5,007,113		4,846,329

Preferred Stock $0.01 par value; 100,000,000 shares authorized; none issued or outstanding	—		—
Common stock, $0.01 par value, 900,000,000 shares authorized: and 167,560,449 and 167,404,047 shares outstanding; respectively	1,675		1,674
Additional paid-in capital	1,633,460		1,628,904
Retained earnings	114,544		84,795
Accumulated other comprehensive loss	(51,267)		(62,435)
Total shareholders’ equity attributable to Driven Brands Holdings Inc.	1,698,412		1,652,938
Non-controlling interests	630		631
Total shareholders' equity	1,699,042		1,653,569
Total liabilities and shareholders' equity	$	6,706,155	$	6,499,898

The accompanying notes are an integral part of these unaudited consolidated financial statements.

DRIVEN BRANDS HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’/MEMBERS’ EQUITY (Unaudited)


	Three Months Ended
	April 1, 2023			March 26, 2022
in thousands, except share amounts	Shares	Amount		Shares	Amount
Preferred stock, $0.01 par value per share	—	$	—	—	$	—
Common stock, $0.01 par value per share
Balance at beginning of period	167,404,047	$	1,674	167,380,450	$	1,674
Stock issued relating to Employee Stock Purchase Plan	26,358	—		111,924	1
Shares issued for exercise/vesting of share-based compensation awards	130,044	1		14,455	—

Balance at end of period	167,560,449	$	1,675	167,506,829	$	1,675
Additional paid-in capital
Balance at beginning of period		$	1,628,904		$	1,605,890
Equity-based compensation expense		2,564			2,618
Exercise of stock options		1,500			—
Stock issued relating to Employee Stock Purchase Plan		612			2,091
Tax withholding on stock option exercises		(120)			(14)
Balance at end of period		$	1,633,460		$	1,610,585
Retained earnings
Balance at beginning of period		$	84,795		$	41,607
Net income		29,749			34,443
Balance at end of period		$	114,544		$	76,050
Accumulated other comprehensive income (loss)
Balance at beginning of period		$	(62,435)		$	(5,028)
Other comprehensive income (loss)		11,168			(5,455)
Balance at end of period		$	(51,267)		$	(10,483)
Non-controlling interests
Balance at beginning of period		$	631		$	1,099
Net loss		—			(15)
Other comprehensive income		(1)			13
Divestiture of Denmark car wash operations		—			(432)

Balance at end of period		$	630		$	665

Total shareholders’ equity		$	1,699,042		$	1,678,492

The accompanying notes are an integral part of these unaudited consolidated financial statements.

DRIVEN BRANDS HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)


	Three Months Ended
(in thousands)	April 01, 2023		March 26, 2022
Net income	$	29,749	$	34,428
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	38,198		33,023


Equity-based compensation expense	2,564		2,618
Loss on foreign denominated transactions	161		970
(Gain) loss on foreign currency derivatives	(1,836)		2,702
Loss (gain) on sale of businesses, fixed assets, and sale-leaseback transactions	1,671		(618)
Reclassification of interest rate hedge to income	(519)		—
Bad debt expense	82		372
Asset impairment costs	167		898
Amortization of deferred financing costs and bond discounts	1,850		2,224
Provision for deferred income taxes	4,650		132

Other, net	4,043		5,231
Changes in assets and liabilities, net of acquisitions:
Accounts and notes receivable, net	(44,084)		(21,123)
Inventory	(5,473)		(1,787)
Prepaid and other assets	(13,867)		6,133
Advertising fund assets and liabilities, restricted	906		(1,204)
Other Assets	(7,382)		(5,736)
Deferred commissions	455		(39)
Deferred revenue	161		455
Accounts payable	25,597		509
Accrued expenses and other liabilities	(960)		(61,624)
Income tax receivable	659		11,476

Cash provided by operating activities	36,792		9,040
Cash flows from investing activities:
Capital expenditures	(169,155)		(68,967)
Cash used in business acquisitions, net of cash acquired	(29,307)		(224,526)
Proceeds from sale-leaseback transactions	16,772		37,781



Proceeds from sale or disposal of businesses and fixed assets	—		2,380
Cash used in investing activities	(181,690)		(253,332)
Cash flows from financing activities:




Repayment of long-term debt	(7,002)		(4,820)
Proceeds from revolving lines of credit and short-term debt	140,000		—
Repayments of revolving lines of credit and short-term debt	(25,000)		—
Repayment of principal portion of finance lease liability	(854)		(879)





Stock option exercises	1,380		—
Other, net	(32)		(20)
Cash provided by (used in) financing activities	108,492		(5,719)


Effect of exchange rate changes on cash	2,392		(592)
Net change in cash, cash equivalents, restricted cash, and cash included in advertising fund assets, restricted	(34,014)		(250,603)
Cash and cash equivalents, beginning of period	227,110		523,414
Cash included in advertising fund assets, restricted, beginning of period	32,871		38,586
Restricted cash, beginning of period	792		792
Cash, cash equivalents, restricted cash, and cash included in advertising fund assets, restricted, beginning of period	260,773		562,792
Cash and cash equivalents, end of period	190,841		270,681
Cash included in advertising fund assets, restricted, end of period	35,126		40,716
Restricted cash, end of period	792		792
Cash, cash equivalents, restricted cash, and cash included in advertising fund assets, restricted, end of period	$	226,759	$	312,189


Supplemental cash flow disclosures - non-cash items:
Capital expenditures included in accrued expenses and other liabilities	$	39,534	$	2,940
Deferred consideration included in accrued expenses and other liabilities	19,069		14,617

Supplemental cash flow disclosures - cash paid for:
Interest	$	37,942	$	24,238
Income taxes	5,671		321

The accompanying notes are an integral part of these unaudited consolidated financial statements.

DRIVEN BRANDS HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 1—Description of Business

Description of Business

Driven Brands Holdings Inc. together with its subsidiaries (collectively, the “Company”) is a Delaware corporation and is the parent holding company of Driven Brands, Inc. and Shine Holdco (UK) Limited (collectively, “Driven Brands”). Driven Brands is the largest automotive services company in North America with a growing and highly-franchised base of more than 4,800 franchised, independently-operated, and company-operated locations across 49 U.S. states and 13 other countries. The Company has a portfolio of highly recognized brands, including Take 5 Oil Change®, Take 5 Car Wash®, Meineke Car Care Centers®, MAACO®, CARSTAR®, Auto Glass Now®, and 1-800-Radiator & A/C® that compete in the automotive services industry. Approximately 75% of the Company’s locations are franchised or independently-operated.

Tax Receivable Agreement

The Company expects to be able to utilize certain tax benefits which are related to periods prior to the effective date of the Company’s IPO and are attributed to current and former shareholders. The Company previously entered into a tax receivable agreement which provides our pre-IPO shareholders with the right to receive payment of 85% of the amount of cash savings, if any, in U.S. and Canadian federal, state, local, and provincial income tax that the Company will actually realize. The tax receivable agreement is effective as of the date of the Company’s IPO. The Company recorded a current tax receivable liability of $54 million and $53 million as of April 1, 2023 and December 31, 2022, respectively, and a non-current tax receivable liability of $118 million as of April 1, 2023 and December 31, 2022, on the unaudited consolidated balance sheets.

Note 2— Summary of Significant Accounting Policies

Fiscal Year

The Company operates and reports financial information on a 52- or 53-week year with the fiscal year ending on the last Saturday in December and fiscal quarters ending on the 13th Saturday of each quarter (or 14th Saturday when applicable with respect to the fourth fiscal quarter). The three months ended April 1, 2023 and March 26, 2022, each consisted of 13 weeks, respectively. The Car Wash segment is currently consolidated based on a calendar month end.

Basis of Presentation

The unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, the unaudited interim financial data includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results of operations, balance sheet, cash flows, and shareholders’/members’ equity for the interim periods presented. The adjustments include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

These unaudited interim consolidated financial statements should be read in conjunction with the consolidated financial statements as of and for the year ended December 31, 2022. Certain information and note disclosures normally included in the unaudited financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. The results of operations for the three months ended April 1, 2023 may not be indicative of the results to be expected for any other interim period or the year ending December 30, 2023.

Certain prior year amounts have been reclassified to conform to current year presentation.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts in the unaudited consolidated financial statements and the related notes to the unaudited consolidated financial statements. Significant items that are subject to estimates and assumptions include, but are not limited to, valuation of intangible assets and goodwill; income taxes; allowances for credit losses; valuation of derivatives; self-insurance claims; and stock-based compensation. Management evaluates its estimates on an ongoing basis and may employ outside experts to assist in its evaluations. Changes in such estimates, based on historical experience, current conditions, and various other additional information, may affect amounts reported in future periods. Actual results could differ due to uncertainty inherent in the natures of these estimates.

Fair Value of Financial Instruments

Financial assets and liabilities are categorized, based on the inputs to the valuation technique, into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to the quoted prices in active markets for identical assets and liabilities and the lowest priority to unobservable inputs. Observable market data, when available, is required to be used in making fair value measurements. When inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement.

The Company classifies and discloses assets and liabilities carried at fair value in one of the following three categories:

Level 1: Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date;

Level 2: Inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; or

Level 3: Inputs are unobservable inputs for the asset or liability. Unobservable inputs are used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.

Financial assets and liabilities measured at fair value on a recurring basis as of April 1, 2023 and December 31, 2022 are summarized as follows:


Items Measured at Fair Value at April 1, 2023
(in thousands)	Level 1		Level 2		Total
Mutual fund investments held in rabbi trust	$	577	$	—	$	577

Derivative assets, recorded in other assets	—		2,116		2,116
Derivative liabilities, recorded in accrued expenses and other liabilities	—		2,336		2,336


Items Measured at Fair Value at December 31, 2022
(in thousands)	Level 1		Level 2		Total
Mutual fund investments held in rabbi trust	$	758	$	—	$	758
Derivative assets, recorded in prepaid and other assets	—		158		158
Derivative assets, recorded in other assets	—		2,148		2,148
Derivative liabilities, recorded in accrued expenses and other liabilities	—		5,005		5,005

The fair value of the Company’s foreign currency derivative instruments are derived from valuation models, which use Level 2 observable inputs such as quoted market prices, interest rates, and forward yield curves.

The carrying value and estimated fair value of total long-term debt were as follows:


	April 1, 2023				December 31, 2022
(in thousands)	Carrying value		Estimated fair value		Carrying value		Estimated fair value
Long-term debt	$	2,891,763	$	2,662,415	$	2,784,175	$	2,477,456

Recently Issued Accounting Standards

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU provides optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. In response to the concerns about structural risks of interbank offered rates and, particularly, the risk of cessation of LIBOR, regulators in several jurisdictions around the world have undertaken reference rate reform initiatives to identify alternative reference rates that are more observable or transaction based and less susceptible to manipulation. The ASU provides companies with optional guidance to ease the potential accounting burden associated with transitioning away from reference rates that are expected to be discontinued. This guidance is effective immediately and the amendments may be applied

prospectively through December 31, 2024. The Company is evaluating the impact of adopting this new accounting guidance and does not believe it will have a material impact on the Company’s consolidated financial statements.

Note 3—Acquisitions and Dispositions

The Company strategically acquires companies and assets in order to increase its footprint and offer products and services that diversify its existing offerings, primarily through asset purchase agreements. These acquisitions are accounted for as business combinations using the acquisition method, whereby the purchase price is allocated to the assets acquired and liabilities assumed, based on their fair values as of the date of the acquisition with the remaining amount recorded in goodwill.

2023 Acquisitions

The Company completed two acquisitions in the Maintenance segment during the three months ended April 1, 2023, representing two sites. The aggregate cash consideration for these acquisitions, net of cash acquired and liabilities assumed, was approximately $2 million.

The Company completed one acquisition in the Car Wash segment during the three months ended April 1, 2023, representing one site. The aggregate cash consideration for this acquisition, net of cash acquired and liabilities assumed, was approximately $11 million.

The Company estimated the fair value of acquired assets and liabilities as of the date of acquisition based on information currently available. As the Company finalizes the fair value of assets acquired and liabilities assumed, additional purchase price adjustments may be recorded during the measurement period. The provisional amounts for assets acquired and liabilities assumed for the 2023 acquisitions are as follows:

Maintenance Segment


(in thousands)	Maintenance
Assets:
Operating lease right-of-use assets	$	658
Property and equipment, net	1,655
Goodwill	695
Assets acquired	3,008
Liabilities:
Accrued Expenses and other liabilities	17
Operating lease liabilities	641
Total liabilities assumed	658
Cash consideration, net of cash acquired	2,255
Deferred consideration	95
Total consideration, net of cash acquired	$	2,350

Car Wash Segment


(in thousands)	Car Wash
Assets:
Property and equipment, net	$	8,270
Goodwill	2,724
Assets acquired	10,994



Total consideration, net of cash acquired	$	10,994

Goodwill represents the excess of the consideration paid over the fair value of net assets acquired and includes the expected benefit of synergies within the existing segments and intangible assets that do not qualify for separate recognition. Goodwill, which was allocated to the Car Wash and Maintenance segments, is substantially all deductible for income tax purposes.

Deferred Consideration and Transaction Costs

Deferred consideration is typically paid six months to one-year after the acquisition closing date once all conditions under the purchase agreement have been satisfied.


	Three Months Ended
(in thousands)	April 1, 2023		March 26, 2022
Deferred consideration at beginning of period	$	35,007	$	16,000
Change in accrual	95		1,673
Payments	(16,033)		(3,056)
Deferred consideration at end of period	$	19,069	$	14,617

The Company incurred less than $1 million and approximately $2 million of transaction costs during the three months ended April 1, 2023 and March 26, 2022.

2022 Disposition

On March 16, 2022, the Company disposed of its 75% owned subsidiary, IMO Denmark ApS, for consideration of $2 million. As a result of the sale, a $1 million loss was recognized within selling, general, and administrative expenses during the three months ended March 26, 2022. Also, a noncontrolling interest of less than $1 million was derecognized. The Company allocated less than $1 million of goodwill as part of the sale.

Note 4— Revenue from Contracts with Customers

The Company records contract assets for the incremental costs of obtaining a contract with a customer if it expects the benefit of those costs to be longer than one year and if such costs are material. Commission expenses, a primary cost associated with the sale of franchise licenses, are amortized to selling, general and administrative expenses in the consolidated statements of operations ratably over the life of the associated franchise agreement.

Capitalized costs to obtain a contract as of April 1, 2023 and December 31, 2022 were $7 million and $7 million, respectively, and are presented within deferred commissions on the consolidated balance sheets. The Company recognized less than $1 million of costs during the three months ended April 1, 2023 and March 26, 2022 that were recorded as a contract asset at the beginning of the periods.

Contract liabilities consist primarily of deferred franchise fees and deferred development fees. The Company had contract liabilities of $30 million and $29 million as of April 1, 2023 and December 31, 2022, respectively, which are presented within deferred revenue on the unaudited consolidated balance sheets. The Company recognized $1 million and less than $1 million of revenue relating to contract liabilities during the three months ended April 1, 2023 and March 26, 2022, respectively.

Note 5—Segment Information

The Company’s worldwide operations are comprised of the following reportable segments: Maintenance, Car Wash, Paint, Collision & Glass, and Platform Services.

In addition to the reportable segments, the Company’s consolidated financial results include “Corporate and Other” activity. Corporate and Other incurs costs related to advertising fund revenues and expenses and shared service costs, which are related to finance, information technology, human resources, legal, supply chain, and other support services. Corporate and Other activity includes the adjustments necessary to eliminate intercompany transactions, namely sales by the Platform Services segment to the Paint, Collision & Glass and Maintenance segments.

Segment results for the three months ended April 1, 2023 and March 26, 2022 are as follows:


	Three months ended April 1, 2023
(in thousands)	Maintenance		Car Wash		Paint, Collision & Glass		Platform Services		Corporate and Other		Total
Franchise royalties and fees	$	12,443	$	—	$	24,298	$	6,774	$	—	$	43,515
Company-operated store sales	195,260		102,446		77,479		881		—		376,066
Independently-operated store sales	—		52,532		—		—		—		52,532
Advertising fund contributions	—		—		—		—		21,677		21,677
Supply and other revenue	19,965		2,002		19,026		44,378		(16,694)		68,677
Total revenue	$	227,668	$	156,980	$	120,803	$	52,033	$	4,983	$	562,467
Segment Adjusted EBITDA	$	72,986	$	44,309	$	35,712	$	17,030	$	(41,184)	$	128,853


	Three months ended March 26, 2022
(in thousands)	Maintenance		Car Wash		Paint, Collision & Glass		Platform Services		Corporate and Other		Total
Franchise royalties and fees	$	9,635	$	—	$	21,365	$	6,888	$	—	$	37,888
Company-operated store sales	156,828		94,495		39,916		1,152		—		292,391
Independently-operated store sales	—		63,089		—		—		—		63,089
Advertising fund contributions	—		—		—		—		19,698		19,698
Supply and other revenue	12,279		1,691		18,080		35,126		(11,919)		55,257
Total revenue	$	178,742	$	159,275	$	79,361	$	43,166	$	7,779	$	468,323
Segment Adjusted EBITDA	$	52,485	$	55,720	$	28,930	$	14,165	$	(32,280)	$	119,020

The reconciliations of Income before taxes to Segment Adjusted EBITDA for the three months ended April 1, 2023 and March 26, 2022 are as follows:


	Three months ended
(in thousands)	April 1, 2023		March 26, 2022
Income before taxes	$	40,720	$	47,396
Depreciation and amortization	38,198		33,023
Interest expense, net	38,141		25,353
Acquisition related costs(a)	1,847		4,318
Non-core items and project costs, net(b)	1,824		866
Store opening costs	1,025		506

Straight-line rent adjustment(c)	4,365		4,093
Equity-based compensation expense(d)	2,564		2,618
Foreign currency transaction (gain) / loss, net(e)	(1,675)		971


Asset sale leaseback loss (gain), impairment and closed store expenses(f)	1,844		(124)

Segment Adjusted EBITDA	$	128,853	$	119,020

(a) Consists of acquisition costs as reflected within the unaudited consolidated statements of operations, including legal, consulting and other fees, and expenses incurred in connection with acquisitions completed during the applicable period, as well as inventory rationalization expenses incurred in connection with acquisitions. We expect to incur similar costs in

connection with other acquisitions in the future and, under U.S. GAAP, such costs relating to acquisitions are expensed as incurred and not capitalized.

(b) Consists of discrete items and project costs, including third party consulting and professional fees associated with strategic transformation initiatives.

(c) Consists of the non-cash portion of rent expense, which reflects the extent to which our straight-line rent expense recognized under U.S. GAAP exceeds or is less than our cash rent payments.

(d) Represents non-cash equity-based compensation expense.

(e) Represents foreign currency transaction (gains) losses, net that primarily related to the remeasurement of our intercompany loans, which are partially offset by unrealized gains and losses on remeasurement of cross currency swaps and forward contracts.

(f) Relates to (gains) losses, net on sale leasebacks, impairment of certain fixed assets and operating lease right-of-use assets related to closed locations, and lease exit costs and other costs associated with stores that were closed prior to the respective lease termination dates.

Note 6—Long-Term Debt

The Company’s long-term debt obligations consist of the following:


(in thousands)	April 1, 2023		December 31, 2022
Series 2018-1 Securitization Senior Notes, Class A-2	$	261,250	$	261,938
Series 2019-1 Securitization Senior Notes, Class A-2	287,250		288,000
Series 2019-2 Securitization Senior Notes, Class A-2	265,375		266,063

Series 2020-1 Securitization Senior Notes, Class A-2	170,188		170,625
Series 2020-2 Securitization Senior Notes, Class A-2	439,875		441,000
Series 2021-1 Securitization Senior Notes, Class A-2	443,250		444,375
Series 2022-1 Securitization Senior Notes, Class A-2	363,175		364,088
Term Loan Facility	495,000		496,250
Revolving Credit Facility	115,000		—
Other debt (a)	51,400		51,836
Total debt	2,891,763		2,784,175

Less: unamortized debt issuance costs	(42,007)		(45,908)
Less: current portion of long-term debt	(33,263)		(32,986)
Total long-term debt, net	$	2,816,493	$	2,705,281

(a) Consists primarily of finance lease obligations.

Series 2019-3 Variable Funding Securitization Senior Notes

In December 2019, Driven Brands Funding, LLC (the “Issuer”) issued Series 2019-3 Variable Funding Senior Notes, Class A-1 (the “2019 VFN”) in the revolving amount of $115 million. The 2019 VFN have a final legal maturity date in January 2050. The commitment under the 2019 VFN was set to expire in July 2022, with the option of three one-year extensions. In July 2022, the Company exercised the option to extend an additional year. The 2019 VFN are secured by substantially all assets of the Issuer and are guaranteed by the Securitization Entities. The Issuer may elect interest at the Base Rate plus an applicable margin or London Interbank Offered Rate (“LIBOR”) plus an applicable margin (the LIBOR rate as the applicable interest rate). No amounts were outstanding under the 2019 VFN as of April 1, 2023 and no borrowings or repayments were made during the three months ended April 1, 2023. As of April 1, 2023, there were $25 million of outstanding letters of credit which reduced the borrowing availability under the 2019 VFN.

Driven Holdings Revolving Credit Facility

In May 2021, Driven Holdings, LLC, (“the Borrower”) a Delaware limited liability company and indirect wholly-owned subsidiary of Driven Brands Holdings Inc., entered into a credit agreement to secure a revolving line of credit with a group of financial institutions (“Revolving Credit Facility”), which provides for an aggregate amount of up to $300 million, and has a maturity date in May 2026 (“Credit Agreement”). Adjusted Base Rate (“ABR”) borrowings incur interest at the highest of (i) the federal funds rate plus 0.50% per annum, (ii) the U.S. prime rate, and (iii) the one-month adjusted LIBOR plus 1.00% per annum, in each case, plus an applicable margin of 0.50%, which may increase to 0.75% based on the Net First Lien Leverage Ratio under the Revolving Credit Facility. Eurocurrency borrowings incur interest at an adjusted LIBOR plus an applicable margin of 1.50%, which may increase to 1.75% based on the Net First Lien Leverage Ratio under the Revolving Credit Facility. The Revolving Credit Facility also includes periodic commitment fees based on the available unused balance and a quarterly administrative fee.

There was $115 million outstanding on the Revolving Credit Facility as of April 1, 2023 with $140 million of borrowings and $25 million of repayments made during the three months ended April 1, 2023.

The Company’s debt agreements are subject to certain quantitative and qualitative covenants. As of April 1, 2023, the Company and its subsidiaries were in compliance with all covenants.

Note 7—Leases

During the three months ended April 1, 2023, the Company sold one maintenance and five car wash properties in various locations throughout the United States for a total of $17 million, resulting in a net gain of $3 million. Concurrent with the closing of these sales, the Company entered into various operating lease agreements pursuant to which the Company leased back the properties. These lease agreements have terms of 20 years. The Company does not include option periods in its determination of the lease term unless renewals are deemed reasonably certain to be exercised. The Company recorded an operating lease right-of-use asset and operating lease liability of $10 million and $10 million, respectively, related to these lease arrangements as of April 1, 2023.

Supplemental cash flow information related to the Company’s lease arrangements for the three months ended April 1, 2023 and March 26, 2022, respectively, was as follows:


	Three Months Ended
(in thousands)	April 1, 2023		March 26, 2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows used in operating leases	$	29,558	$	28,073
Operating cash flows used in finance leases	475		370
Financing cash flows used in finance leases	529		414

Note 8 — Equity-based Compensation

The Company granted new awards during the three months ended April 1, 2023, consisting of 312,617 restricted stock units (“RSUs”) and 575,267 performance stock units (“PSUs”).

Awards are eligible to vest provided that the employee remains in continuous service on each vesting date. The RSUs vest ratably in three installments on each of the first three anniversaries of the grant date. The PSUs vest after a three-year performance period. The number of PSUs that vest is contingent on the Company achieving certain performance goals, one being a market condition and the other being a performance condition. The number of PSU shares that vest may range from zero to 200% of the original grant, based upon the level of performance. The awards are considered probable of meeting vesting requirements, and therefore, the Company has started recognizing expense.

The fair value of the total RSUs, performance based PSUs and market based PSUs granted during the three months ended April 1, 2023 were $9 million, $10 million and $8 million, respectively. The Company based the fair value of the RSUs and performance based PSUs on the Company’s stock price on the grant date. The Company determined the fair value of the market based PSUs granted during the three months ended April 1, 2023 by using a Monte Carlo simulation, using the following assumptions: (i) an expected term of 2.8 years, (ii) an expected volatility of 38.80%, (iii) a correlation of the S&P Mid-cap Index peer group of 60.20%, and (iv) no expected dividend. The Company determined the fair value of the market based PSUs granted during the three months ended March 26, 2022 by using a Monte Carlo simulation, using the following assumptions: (i) an expected term of 3 years, (ii) an expected volatility of 40.90%, (iii) a correlation of the S&P Mid-cap Index peer group of 50.70%, and (iv) no expected dividend.

The Company recorded $3 million and $3 million of share-based compensation expense during the three months ended April 1, 2023 and March 26, 2022, respectively, within selling, general and administrative expenses on the unaudited consolidated statements of operations.

Note 9—Earnings per share

The Company calculates basic and diluted earnings per share using the two-class method. The following table sets forth the computation of basic and diluted earnings per share attributable to common shareholders:


	Three Months Ended
(in thousands, except per share amounts)	April 1, 2023		March 26, 2022
Basic earnings per share:
Net income attributable to Driven Brands Holdings Inc.	$	29,749	34,443
Less: Net income attributable to participating securities, basic	626		735
Net income after participating securities, basic	29,123		33,708
Weighted-average common shares outstanding	162,784		162,762
Basic earnings per share	$	0.18	$	0.21


	Three Months Ended
(in thousands, except per share amounts)	April 1, 2023		March 26, 2022







Diluted earnings per share:
Net income attributable to Driven Brands Holdings Inc.	$	29,749	$	34,443
Less: Net income attributable to participating securities, diluted	559		657
Net income after participating securities, diluted	$	29,190	$	33,786
Weighted-average common shares outstanding	162,784		162,762
Dilutive effect of share-based awards	4,090		3,986
Weighted-average common shares outstanding, as adjusted	166,874		166,748
Diluted earnings per share	$	0.17	$	0.20

Basic earnings per share is computed by dividing the net income attributable to Driven Brands Holdings Inc. by the weighted-average number of common shares outstanding for the period. In addition, the Company’s participating securities are related to certain restricted stock awards issued to Section 16 officers which include non-forfeitable dividend rights.

The Company has 5,351,252 shares of performance awards that are contingent on performance conditions which have not yet been met, and therefore have been excluded from the computation of weighted average shares for the three months ended April 1, 2023.

The following securities were not included in the computation of diluted shares outstanding because the effect would be antidilutive:


	Three Months Ended
Number of securities (in thousands)	April 1, 2023	March 26, 2022
Restricted stock units	41	—

Performance stock units	—	—
Stock Options	2,003	—



Total	2,044	—

Note 10—Income Taxes

The Company’s tax provision is comprised of the most recent estimated annual effective tax rate applied to year-to-date ordinary income before taxes. The tax impacts of unusual or infrequently occurring items, including changes in judgment about valuation allowances and effects of changes in tax laws or rates, are recorded discretely in the interim period in which they occur.

Income tax expense was $11 million and $13 million for the three months ended April 1, 2023 and March 26, 2022, respectively. The effective income tax rate for the three months ended April 1, 2023 was 26.9% compared to 27.4% for the three months ended March 26, 2022. The decrease in income tax expense and tax rate was primarily driven by the inclusion of foreign disregarded entity losses for the three months ended April 1, 2023.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

The following discussion and analysis for Driven Brands Holdings Inc. and Subsidiaries (“Driven Brands”, “the Company”, “we”, “us” or “our”) should be read in conjunction with our consolidated financial statements and the related notes to our consolidated financial statements included elsewhere in this quarterly report. We operate on a 52/53-week fiscal year, which ends on the last Saturday in December. The three months ended April 1, 2023 and March 26, 2022 were both 13 week periods.

Overview

Driven Brands is the largest automotive services company in North America with a growing and highly-franchised base of more than 4,800 locations across 49 U.S. states and 13 other countries. Our scaled, diversified platform fulfills an extensive range of core consumer and commercial automotive needs, including paint, collision, glass, and repair services, as well as a variety of high-frequency services, such as oil changes and car washes. We have continued to generate consistent reoccurring revenue and strong operating margins, which has resulted in significant cash flow generation and capital-efficient growth.

We have continued to drive sustained predictable growth and share gain through our robust pipeline of organic growth in the quarter adding 59 new stores in 2023, primarily through greenfield openings to drive density in key target locations.

Q1 2023 Highlights and Key Performance Indicators

•Revenue increased 20% to $562 million, driven by same-store sales and net store growth.

•Consolidated same-store sales increased 9%.

•The Company added 59 net new stores during the quarter.

•Net Income attributable to Driven Brands Holdings Inc. decreased 14% to $30 million or $0.17 per diluted share.

•Adjusted Net Income “(non-GAAP)” attributable to Driven Brands Holdings Inc. decreased 11% to $42 million or $0.25 per diluted share.

•Adjusted EBITDA “(non-GAAP)” increased 8% to $128 million.

Key Performance Indicators

Key measures that we use in assessing our business and evaluating our segments include the following:

System-wide sales. System-wide sales represent the total of net sales for our franchised, independently-operated, and company-operated stores. This measure allows management to better assess the total size and health of each segment, our overall store performance, and the strength of our market position relative to competitors. Sales at franchised stores are not included as revenue in our results from operations, but rather, we include franchise royalties and fees that are derived from sales at franchised stores.

Store count. Store count reflects the number of franchised, independently-operated, and company-operated stores open at the end of the reporting period. Management reviews the number of new, closed, acquired, and divested stores to assess net unit growth and drivers of trends in system-wide sales, franchise royalties and fees revenue, company-operated store sales, and independently-operated store sales.

Same store sales. Same store sales reflect the change in sales year-over-year for the same store base. We define the same store base to include all franchised, independently-operated, and company-operated stores open for comparable weeks during the given fiscal period in both the current and prior year, which may be different from how others define similar terms. This measure highlights the performance of existing stores, while excluding the impact of new store openings and closures and acquisitions and divestitures.

Segment Adjusted EBITDA. We define Segment Adjusted EBITDA as earnings before interest expense, net, income tax expense, and depreciation and amortization, with further adjustments for acquisition-related costs, straight-line rent, equity compensation, loss on debt extinguishment, foreign currency transaction related gains or losses, store opening costs, and certain non-recurring and non-core, infrequent or unusual charges. Segment Adjusted EBITDA is a supplemental measure of operating performance of our segments and may not be comparable to similar measures reported by other companies. Segment Adjusted EBITDA is a performance metric utilized by our Chief Operating Decision Maker to allocate resources to and assess performance of our segments. Refer to Note 5 in our consolidated financial statements for a reconciliation of income before taxes to Segment Adjusted EBITDA for the three months ended April 1, 2023 and March 26, 2022.

The following table sets forth our key performance indicators for the three months ended April 1, 2023 and March 26, 2022:


	Three months ended
(in thousands, except store count or as otherwise noted)	April 1, 2023			March 26, 2022
System-Wide Sales
System-Wide Sales by Segment:
Maintenance	$	441,943		$	357,112
Car Wash	154,978			157,584
Paint, Collision & Glass	816,042			658,885
Platform Services	89,984			90,794
Total	$	1,502,947		$	1,264,375
System-Wide Sales by Business Model:
Franchised Stores	$	1,074,349		$	908,895
Company-Operated Stores	376,066			292,391
Independently-Operated Stores	52,532			63,089
Total	$	1,502,947		$	1,264,375
Store Count
Store Count by Segment:
Maintenance	1,666			1,531
Car Wash	1,116			1,063
Paint, Collision & Glass	1,877			1,730
Platform Services	205			202
Total	4,864			4,526
Store Count by Business Model:
Franchised Stores	2,913			2,794
Company-Operated Stores	1,235			1,010
Independently-Operated Stores	716			722
Total	4,864			4,526
Same Store Sales %
Maintenance	12.6		%	19.2		%
Car Wash	(11.3		%)	6.6%
Paint, Collision & Glass	14.1		%	13.7		%
Platform Services	(5.0		%)	30.9		%
Total	9.0		%	15.6		%
Segment Adjusted EBITDA
Maintenance	$	72,986		$	52,485
Car Wash	44,309			55,720
Paint, Collision & Glass	35,712			28,930
Platform Services	17,030			14,165
Adjusted EBITDA as a percentage of net revenue by segment
Maintenance	32.1		%	29.4		%
Car Wash	28.2		%	35.0		%
Paint, Collision & Glass	29.6		%	36.5		%
Platform Services	32.7		%	32.8		%
Total consolidated	22.7		%	25.3		%

Reconciliation of Non-GAAP Financial Information

To supplement our consolidated financial statements prepared and presented in accordance with GAAP, we use certain non-GAAP financial measures throughout this quarterly report, as described further below, to provide investors with additional useful information about our financial performance, to enhance the overall understanding of our past performance and future prospects and to allow for greater transparency with respect to important metrics used by our management for financial and operational decision-making.

Non-GAAP financial measures have limitations in their usefulness to investors because they have no standardized meaning prescribed by GAAP and are not prepared under any comprehensive set of accounting rules or principles. In addition, non-GAAP financial measures may be calculated differently from, and therefore may not be directly comparable to, similarly titled measures used by other companies. As a result, non-GAAP financial measures should be viewed as supplementing, and not as an alternative or substitute for, our consolidated financial statements prepared and presented in accordance with GAAP.

Adjusted Net Income/Adjusted Earnings per Share. We define Adjusted Net Income as net income calculated in accordance with GAAP, adjusted for acquisition-related costs, straight-line rent, equity compensation, loss on debt extinguishment and certain non-recurring, non-core, infrequent or unusual charges, amortization related to acquired intangible assets and the tax effect of the adjustments. Adjusted Earnings Per Share is calculated by dividing Adjusted Net Income by the weighted average shares outstanding. Management believes this non-GAAP financial measure is useful because it is a key measure used by our management team to evaluate our operating performance, generate future operating plans, and make strategic decisions.

The following table provides a reconciliation of Net Income to Adjusted Net Income and Adjusted Earnings per Share:

Adjusted Net Income/Adjusted Earnings per Share


	Three months ended
(in thousands, except per share data)	April 1, 2023		March 26, 2022
Net income	$	29,749	$	34,428
Acquisition related costs(a)	1,847		4,318
Non-core items and project costs, net(b)	1,824		866

Straight-line rent adjustment(c)	4,365		4,093
Equity-based compensation expense(d)	2,564		2,618
Foreign currency transaction loss, net(e)	(1,675)		971


Asset sale leaseback loss (gain), impairment and closed store expenses(f)	1,844		(124)

Amortization related to acquired intangible assets(g)	6,036		5,142
Provision for uncertain tax positions(h)	—		76
Adjusted net income before tax impact of adjustments	46,554		52,388
Tax impact of adjustments(i)	(4,213)		(4,612)
Adjusted net income	42,341		47,776
Net income loss attributable to non-controlling interest	—		(15)
Adjusted net income attributable to Driven Brands Holdings Inc.	$	42,341	$	47,791

Adjusted earnings per share
Basic	$	0.25	$	0.29
Diluted	$	0.25	$	0.28

Weighted average shares outstanding
Basic	162,784		162,762
Diluted	166,874		166,748

Adjusted EBITDA. We define Adjusted EBITDA as earnings before interest expense, net, income tax expense, and depreciation and amortization, with further adjustments for acquisition-related costs, straight-line rent, equity compensation, loss on debt extinguishment and certain non-recurring, non-core, infrequent or unusual charges. Adjusted EBITDA may not be comparable to similarly titled metrics of other companies due to differences in methods of calculation. Management believes this non-GAAP financial measure is useful because it is a key measure used by our management team to evaluate our operating performance, generate future operating plans and make strategic decisions.

The following table provides a reconciliation of Net income to Adjusted EBITDA:


Adjusted EBITDA

	Three months ended
	April 1, 2023		March 26, 2022
Net income	$	29,749	$	34,428
Income tax expense	10,971		12,968
Interest expense, net	38,141		25,353
Depreciation and amortization	38,198		33,023
EBITDA	117,059		105,772
Acquisition related costs(a)	1,847		4,318
Non-core items and project costs, net(b)	1,824		866

Straight-line rent adjustment(c)	4,365		4,093
Equity-based compensation expense(d)	2,564		2,618
Foreign currency transaction (gain) loss, net(e)	(1,675)		971


Asset impairment and closed store expenses(f)	1,844		(124)

Adjusted EBITDA	$	127,828	$	118,514

(b) Consists of discrete items and project costs, including third party consulting and professional fees associated with strategic transformation initiatives.

(c) Consists of the non-cash portion of rent expense, which reflects the extent to which our straight-line rent expense recognized under U.S. GAAP exceeds or is less than our cash rent payments.

(d) Represents non-cash equity-based compensation expense.

(g) Consists of amortization related to acquired intangible assets as reflected within depreciation and amortization in the consolidated statements of operations.

(h) Represents uncertain tax positions recorded for tax positions, inclusive of interest and penalties.

(i) Represents the tax impact of adjustments associated with the reconciling items between net income and Adjusted Net Income, excluding the provision for uncertain tax positions. To determine the tax impact of the deductible reconciling items, we utilized statutory income tax rates ranging from 9% to 36% depending upon the tax attributes of each adjustment and the applicable jurisdiction.

Results of Operations for the three months ended April 1, 2023 compared to the three months ended March 26, 2022

We recognized net income of $30 million, or $0.17 per diluted share, for the three months ended April 1, 2023, compared to net income of $34 million, or $0.20 per diluted share, for the three months ended March 26, 2022. This decrease was primarily due to reduced operating margins for company-operated stores, primarily within the Car Wash segment, higher interest expense, primarily relating to a higher variable interest rate on the Term Loan Facility in the current period as well as interest relating to borrowings under the Series 2022-1 Class A-2 Securitization Senior notes issued in the fourth quarter of 2022, and increased depreciation and amortization relating to capital expenditures and business acquisitions over the prior 12 months.

Adjusted Net Income was $42 million for the three months ended April 1, 2023, a decrease of $5 million, compared to $48 million for the three months ended March 26, 2022. This decrease was primarily due to reduced operating margins for company-operated stores, primarily within the Car Wash segment, and higher interest expense, primarily relating to a higher variable interest rate on the Term Loan Facility in the current period as well as interest relating to borrowings under the Series 2022-1 Class A-2 Securitization Senior notes issued in the fourth quarter of 2022.

Adjusted EBITDA was $128 million for the three months ended April 1, 2023, an increase of $9 million, compared to $119 million for the three months ended March 26, 2022. The increase in Adjusted EBITDA was primarily due to an increase in revenue related to same store sales growth, unit growth from the U.S. glass and car wash acquisitions in the trailing twelve month period, and organic store count growth, partially offset by higher operating and SG&A expenditures.

To facilitate the review of our results of operations, the following tables set forth our financial results for the periods indicated. All information is derived from the unaudited Consolidated Statements of Operations.

Revenue


	Three months ended
(in thousands)	April 1, 2023		% of Net Revenues		March 26, 2022		% of Net Revenues
Franchise royalties and fees	$	43,515	7.7	%	$	37,888	8.1	%
Company-operated store sales	376,066		66.9	%	292,391		62.4	%
Independently-operated store sales	52,532		9.3	%	63,089		13.5	%
Advertising fund contributions	21,677		3.9	%	19,698		4.2	%
Supply and other revenue	68,677		12.2	%	55,257		11.8	%
Total revenue	$	562,467	100.0	%	$	468,323	100.0	%

Franchise Royalties and Fees

Franchise royalties and fees increased $6 million, or 15%, primarily due to same store sales growth and a net increase of 119 franchise stores. Franchise system-wide sales increased by $165 million or 18%.

Company-operated Store Sales

Company-operated store sales increased $84 million, or 29%, of which $38 million, $8 million, and $38 million related to the Maintenance, Car Wash, and Paint, Collision and Glass segments, respectively. The sales increase in the Maintenance segment was primarily due to same store sales growth and 50 net new company-operated stores. The sales increase in the Paint, Collision and Glass segment was primarily due to same store sales growth as well as net store growth of 116 primarily from the 2022 U.S. glass acquisitions. The sales increase in the Car Wash segment was primarily due to the addition of 59 net new company-operated stores, which was partially offset by a decrease in same store sales. In aggregate, the Company added 225 company-operated stores year-over-year.

Independently-operated Store Sales

Independently-operated store sales (comprised entirely of sales from the international car wash locations) decreased by $11 million, or 17%, primarily due to a decrease in same store sales as well as unfavorable currency translation.

Advertising Fund Contributions

Advertising fund contributions increased by $2 million, or 10%, primarily due to an increase in franchise system-wide sales of approximately $165 million, or 18%, from same store sales growth and additional net new franchise stores. Our

franchise agreements typically require the franchisee to pay continuing advertising fund fees based on a percentage of franchisee gross sales.

Supply and Other Revenue

Supply and other revenue increased $13 million, or 24%, primarily from growth in product and service revenue within the Platform Services segment due to an increase in system wide sales within the Maintenance segment.

Operating Expenses


	Three months ended
(in thousands)	April 1, 2023		% of Net Revenues		March 26, 2022		% of Net Revenues
Company-operated store expenses	$	243,409	43.3	%	$	177,867	38.0	%
Independently-operated store expenses	29,364		5.2	%	33,299		7.1	%
Advertising fund expenses	21,677		3.9	%	19,698		4.2	%
Supply and other expenses	37,266		6.6	%	32,774		7.0	%
Selling, general, and administrative expenses	112,328		20.0	%	92,220		19.7	%
Acquisition costs	1,847		0.3	%	4,318		0.9	%
Store opening costs	1,025		0.2	%	506		0.1	%
Depreciation and amortization	38,198		6.8	%	33,023		7.1	%

Asset impairment charges and lease terminations	167		—	%	898		0.2	%
Total operating expenses	$	485,281	86.3	%	$	394,603	84.3	%

Company-operated Store Expenses

Company-operated store expenses increased $66 million, or 37%, primarily due to the increase in Company-operated store sales as well as rent expense for properties converted to leases through prior year sale leasebacks and increased labor costs.

Independently-operated Store Expenses

Independently-operated store expenses, which are entirely related to the Car Wash segment, decreased $4 million, or 12%, due primarily to a decrease in same store sales as well as the impact from foreign currency.

Advertising Fund Expenses

Advertising fund expenses increased $2 million, or 10%, which is commensurate to the increase in advertising fund contributions during the period. Advertising fund expenses generally trend consistent with advertising fund contributions.

Supply and Other Expenses

Supply and other expenses increased $4 million, or 14%, due to an increase in Supply and other revenue, partially offset by decreased freight costs in the Platform Services segment.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $20 million, or 22%, primarily due to an increase in employee compensation and other employee-related expenses resulting from increased headcount and acquisitions, infrastructure costs, marketing costs, and legal and professional fees.

Acquisition Costs

Acquisition costs decreased by $2 million, or 57% due to decreased acquisition activity in the current year compared to the prior year.

Store Opening Costs

Store opening costs increased by less than $1 million, or 103%, due to an increase in company-operated new store openings and conversions of acquired stores to the Take 5 Quick Lube brand. There were nine new company-operated store

openings and two Take 5 store conversions in the three months ended April 1, 2023, compared to seven company-operated store openings and one Take 5 store conversion during the three months ended March 26, 2022.

Depreciation and Amortization

Depreciation and amortization expense increased $5 million, or 16%, due to additional fixed assets and finite-lived intangible assets recognized in conjunction with recent acquisitions and higher capital expenditures, primarily related to car wash site development.

Asset Impairment Charges and Lease Terminations

Asset impairment charges were immaterial for the three months ended April 1, 2023 compared to $0.9 million for three months ended March 26, 2022, which consisted of impairments related to certain property and equipment and operating lease right-of-use assets.

Interest Expense, Net


	Three months ended
(in thousands)	April 1, 2023		% of Net Revenues		March 26, 2022		% of Net Revenues
Interest expense, net	$	38,141	6.8	%	$	25,353	5.4	%

Interest expense, net increased $13 million, or 50%, primarily as a result of increased interest rates on the Term Loan Facility in the current period as well as interest relating to borrowings under the Series 2022-1 Class A-2 Securitization Senior notes issued in the fourth quarter of 2022.

(Gain) Loss on Foreign Currency Transactions, Net


	Three months ended
	April 1, 2023		% of Net Revenues		March 26, 2022		% of Net Revenues
(Gain) loss on foreign currency transactions, net	$	(1,675)	(0.3)	%	$	971	0.2	%

The gain on foreign currency transactions for the three months ended April 1, 2023 was primarily comprised of a $2 million unrealized gain on foreign currency hedges that are not designated as hedging instruments. The loss on foreign currency transactions for the three months ended March 26, 2022 was comprised of a $3 million net remeasurement loss on our foreign third party long-term debt and foreign intercompany notes, partially offset by $2 million of unrealized translation gains on other foreign currency hedges.

Income Tax Expense


	Three months ended
(in thousands)	April 1, 2023		% of Net Revenues		March 26, 2022		% of Net Revenues
Income tax expense	$	10,971	2.0	%	$	12,968	2.8	%

Income tax expense decreased by $2 million, or 15%. The effective income tax rate for the three months ended April 1, 2023 was 26.9% compared to 27.4% for the three months ended March 26, 2022. The decrease in income tax expense and effective tax rate was primarily driven by the inclusion of foreign disregarded entity losses for the three months ended April 1, 2023.

Segment Results of Operations for the three months ended April 1, 2023 compared to the three months ended March 26, 2022

We assess the performance of our segments based on Segment Adjusted EBITDA, which is defined as earnings before interest expense, net, income tax expense, and depreciation and amortization, with further adjustments for acquisition-related costs, store opening and closure costs, straight-line rent, equity compensation, loss on debt extinguishment and certain non-recurring, non-core, infrequent or unusual charges. In addition, shared services costs are not allocated to these segments and are included in Corporate and Other. Segment Adjusted EBITDA is a supplemental measure of the operating performance of our segments and may not be comparable to similar measures reported by other companies.

Maintenance


	Three months ended						2023			2022
(in thousands, unless otherwise noted)	April 1, 2023			March 26, 2022			% Net Revenue For Segment			% Net Revenue For Segment
Franchise royalties and fees	$	12,443		$	9,635		5.5		%	5.4	%
Company-operated store sales	195,260			156,828			85.7		%	87.7	%
Supply and other revenue	19,965			12,279			8.8		%	6.9	%
Total revenue	$	227,668		$	178,742		100.0		%	100.0	%
Segment Adjusted EBITDA	$	72,986		$	52,485		32.1		%	29.4	%

System-Wide Sales							Change
Franchised stores	$	246,683		$	200,284		$	46,399		23.2	%
Company-operated stores	195,260			156,828			38,432			24.5	%
Total System-Wide Sales	$	441,943		$	357,112		$	84,831		23.8	%

Store Count (in whole numbers)							Change
Franchised stores	1,067			982			85			8.7	%
Company-operated stores	599			549			50			9.1	%
Total Store Count	1,666			1,531			135			8.8	%
Same Store Sales %	12.6		%	19.2		%

Maintenance revenue increased $49 million, or 27%, for the three months ended April 1, 2023, as compared to the three months ended March 26, 2022. Franchise royalties and fees increased by $3 million primarily due to a $46 million, or 23%, increase in franchised system-wide sales from same store sales growth and 85 net new franchise stores. Company-operated store sales increased by $38 million, or 25%, primarily due to same store sales growth and 50 net new company-operated stores. Supply and other revenue increased by $8 million, or 63%, primarily due to higher system-wide sales from franchised stores.

Maintenance Segment Adjusted EBITDA increased $21 million, or 39%, primarily due to revenue growth, cost management and operational leverage. We continue to utilize an efficient labor model at company-operated locations.

Car Wash


	Three months ended						2023			2022
(in thousands, unless otherwise noted)	April 1, 2023			March 26, 2022			% Net Revenue For Segment			% Net Revenue For Segment
Company-operated store sales	$	102,446		$	94,495		65.3		%	59.3	%
Independently-operated store sales	52,532			63,089			33.4		%	39.6	%
Supply and other revenue	2,002			1,691			1.3		%	1.1	%
Total revenue	$	156,980		$	159,275		100.0		%	100.0	%
Segment Adjusted EBITDA	$	44,309		$	55,720		28.2		%	35.0	%

System-Wide Sales							Change
Company-operated stores	102,446			94,495			$	7,951		8.4	%
Independently-operated stores	52,532			63,089			(10,557)			(16.7)	%
Total System-Wide Sales	$	154,978		$	157,584		$	(2,606)		(1.7)	%

Store Count (in whole numbers)							Change
Company-operated stores	400			341			59			17.3	%
Independently-operated stores	716			722			(6)			(0.8)	%
Total Store Count	1,116			1,063			53			5.0	%
Same Store Sales %	(11.3)		%	6.6		%

The Car Wash segment is comprised of our car wash sites throughout the United States, Europe, and Australia.

Car Wash Segment revenue decreased by $2 million, or 1%, driven by a decrease in same store sales within independently-operated store sales as well as unfavorable currency translations, partially offset by the addition of 59 company-operated stores, primarily from acquisitions throughout 2022 as well as greenfield openings.

Car Wash Segment Adjusted EBITDA decreased by $11 million, primarily driven by decreased same store sales within independently-operated store sales and increased company-operated store costs primarily relating to increased operating costs including compensation and rent expense for properties included in sale-leaseback transactions in the trailing twelve months, partially offset by increased company-operated store sales.

Paint, Collision & Glass


	Three months ended						2023			2022
(in thousands, unless otherwise noted)	April 1, 2023			March 26, 2022			% Net Revenue For Segment			% Net Revenue For Segment
Franchise royalties and fees	$	24,298		$	21,365		20.1		%	26.9	%
Company-operated store sales	77,479			39,916			64.1		%	50.3	%
Supply and other revenue	19,026			18,080			15.8		%	22.8	%
Total revenue	$	120,803		$	79,361		100.0		%	100.0	%
Segment Adjusted EBITDA	$	35,712		$	28,930		29.6		%	36.5	%

System-Wide Sales							Change
Franchised stores	$	738,563		$	618,969		$	119,594		19.3	%
Company-operated stores	77,479			39,916			37,563			94.1	%
Total System-Wide Sales	$	816,042		$	658,885		$	157,157		23.9	%

Store Count (in whole numbers)							Change
Franchised stores	1,642			1,611			31			1.9	%
Company-operated stores	235			119			116			97.5	%
Total Store Count	1,877			1,730			147			8.5	%
Same Store Sales %	14.1		%	13.7		%

Paint, Collision & Glass revenue increased $41 million, or 52%, for the three months ended April 1, 2023, as compared to the three months ended March 26, 2022. The Company-operated store sales increased $38 million, or 94%, as a result of U.S. glass acquisitions in the trailing twelve months. Franchise royalties and fees, which were impacted by differences in the revenue mix by brand, increased by $3 million, or 14%, primarily due to a $120 million, or 19%, increase in franchise system-wide sales generated by same store sales growth and 31 net new franchise stores. Supply and other revenue increased by $1 million, or 5%, due to higher vendor rebates resulting from an increase in system wide sales.

Paint, Collision & Glass Segment Adjusted EBITDA increased $7 million, or 23%, primarily due to higher revenue from acquisitions and same store sales growth, partially offset by higher costs associated with the increase of 116 company-operated stores.

Platform Services


	Three months ended						2023			2022
(in thousands, unless otherwise noted)	April 1, 2023			March 26, 2022			% Net Revenue For Segment			% Net Revenue For Segment
Franchise royalties and fees	$	6,774		$	6,888		13.0		%	16.0	%
Company-operated store sales	881			1,152			1.7		%	2.7	%
Supply and other revenue	44,378			35,126			85.3		%	81.3	%
Total revenue	$	52,033		$	43,166		100.0		%	100.0	%
Segment Adjusted EBITDA	$	17,030		$	14,165		32.7		%	32.8	%

System-Wide Sales							Change
Franchised stores	$	89,103		$	89,642		$	(539)		(0.6)	%
Company-operated stores	881			1,152			(271)			(23.5)	%
Total System-Wide Sales	$	89,984		$	90,794		$	(810)		(0.9)	%

Store Count (in whole numbers)							Change
Franchised stores	204			201			3			1.5	%
Company-operated stores	1			1			—			—	%
Total Store Count	205			202			3			1.5	%
Same Store Sales %	(5.0)		%	30.9		%

Platform Services revenue increased $9 million, or 21%, driven by an increase in total company system-wide sales that resulted in increased product purchases.

Platform Services Segment Adjusted EBITDA increased $3 million, or 20%, primarily driven by revenue growth, cost management, and operational leverage.

Financial Condition, Liquidity and Capital Resources

Sources of Liquidity and Capital Resources

Cash flow from operations, supplemented with long-term borrowings and revolving credit facilities, have been sufficient to fund our operations while allowing us to make strategic investments to grow our business. We believe that our sources of liquidity and capital resources will be adequate to fund our operations, acquisitions, company-operated store development, other general corporate needs, and the additional expenses we expect to incur for at least the next twelve months. We expect to continue to have access to the capital markets at acceptable terms. However, this could be adversely affected by many factors including macroeconomic factors, a downgrade of our credit rating, or a deterioration of certain financial ratios.

Driven Brands Funding, LLC (the “Issuer”), a wholly-owned subsidiary of the Company, and Driven Brands Canada Funding Corporation (along with the Issuer, the “Co-Issuers”) are subject to certain quantitative covenants related to debt service coverage and leverage ratios in connection with the Securitization Senior Notes. The Term Loan Facility and Revolving Credit Facility also have certain qualitative covenants. As of April 1, 2023, the Co-Issuers and Driven Holdings were in compliance with all covenants under their respective credit agreements.

At April 1, 2023, the Company had total liquidity of $466 million, which included $191 million in cash, and cash equivalents, and $90 million and $185 million of undrawn capacity on its 2019 variable funding securitization senior notes and Revolving Credit Facility, respectively. This does not include the additional $135 million Series 2022-1 Class A-1 Notes that expand our variable funding note borrowing capacity when the company elects to exercise it, assuming certain conditions continue to be met. As of April 1, 2023, there was $115 million outstanding on the Revolving Credit Facility with $140 million of borrowings and $25 million of repayments made during the three months ended April 1, 2023. Borrowings of $195 million and repayments of $80 million were reported in the first quarter 2023 earnings release on May 3, 2023. Both amounts were revised to reflect the actual cash movement during the three months ended April 1, 2023. There were no changes to the amount outstanding on the Revolving Credit Facility or the leverage ratio as of April 1, 2023.

The following table illustrates the main components of our cash flows for the three months ended April 1, 2023 and March 26, 2022:


	Three months ended
(in thousands)	April 1, 2023		March 26, 2022
Net cash provided by operating activities	$	36,792	$	9,040
Net cash used in investing activities	(181,690)		(253,332)
Net cash provided by (used in) financing activities	108,492		(5,719)
Effect of exchange rate changes on cash	2,392		(592)
Net change in cash, cash equivalents, restricted cash, and restricted cash included in advertising fund assets	$	(34,014)	$	(250,603)

Operating Activities

Net cash provided by operating activities was $37 million for the three months ended April 1, 2023 compared to $9 million for the three months ended March 26, 2022. The increase was due to a $56 million payment for transaction costs associated with the AGN acquisition paid during the three months ended March 26, 2022, partially offset by higher net working capital in the current period.

Investing Activities

Net cash used in investing activities was $182 million for the three months ended April 1, 2023 compared to $253 million for the three months ended March 26, 2022. The decrease was due to a $195 million decrease in net cash paid for acquisitions, partially offset by a $100 million increase in capital expenditures, primarily relating to building new company-operated stores and remodeling and maintaining existing stores, and a $21 million decrease in proceeds from sale-leaseback transactions.

Financing Activities

Net cash provided by financing activities was $108 million for the three months ended April 1, 2023 primarily related to net borrowings on the revolving credit facility of $115 million. Net cash used in financing activities was $6 million for the three months ended March 26, 2022 primarily related to the repayment of senior securitized notes. See Note 6 to our consolidated financial statements for additional information regarding the Company’s debt.

Tax Receivable Agreement

We expect to be able to utilize certain tax benefits which are related to periods prior to the effective date of the Company’s initial public offering, which we therefore attribute to our existing shareholders. We expect that these tax benefits (i.e., the Pre-IPO and IPO-Related Tax Benefits) will reduce the amount of tax that we and our subsidiaries would otherwise be required to pay in the future. We have entered into a tax receivable agreement which provides our Pre-IPO shareholders with the right to receive payment by us of 85% of the amount of cash savings, if any, in U.S. and Canadian federal, state, local, and provincial income tax that we and our subsidiaries actually realize as a result of the utilization of the Pre-IPO and IPO-Related Tax Benefits.

For purposes of the tax receivable agreement, cash savings in income tax will be computed by reference to the reduction in the liability for income taxes resulting from the utilization of the Pre-IPO and IPO-Related Tax Benefits. The term of the tax receivable agreement commenced upon the effective date of the Company’s initial public offering and will continue until the Pre-IPO and IPO-Related Tax Benefits have been utilized, accelerated or expired.

Because we are a holding company with no operations of our own, our ability to make payments under the tax receivable agreement is dependent on the ability of our subsidiaries to make distributions to us. The securitized debt facility may restrict the ability of our subsidiaries to make distributions to us, which could affect our ability to make payments under the tax receivable agreement. To the extent that we are unable to make payments under the tax receivable agreement because of restrictions under our outstanding indebtedness, such payments will be deferred and will generally accrue interest at a rate of LIBOR plus 1.00% per annum until paid. To the extent that we are unable to make payments under the tax receivable agreement for any other reason, such payments will generally accrue interest at a rate of LIBOR plus 5.00% per annum until paid.

Critical Accounting Policies and Estimates

Our significant accounting policies are more fully described in Note 2 of the consolidated financial statements presented in our Form 10-K for the year ended December 31, 2022. There have been no material changes to our critical accounting policies from those disclosed in our Form 10-K for the year ended December 31, 2022.

Application of New Accounting Standards

See Note 2 of the consolidated unaudited financial statements for a discussion of recently issued accounting standards applicable to the Company.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Refer to the Company’s annual report for the year ended December 31, 2022 for a complete discussion of the Company’s market risk. There have been no material changes in the Company’s market risk from those disclosed in the Company’s Form 10-K for the year ended December 31, 2022.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our CEO and Principal Financial Officer, has evaluated the design effectiveness of our disclosure controls and procedures (as defined in Rules 13a- 15(e) and 15d- 15(e) under the Exchange Act), as of April 1, 2023. The term “disclosure controls and procedures,” means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on evaluation of the design of our disclosure controls and procedures as of April 1, 2023, our CEO and Principal Financial Officer have concluded that as of such date, our disclosure controls and procedures were designed effectively and will provide a reasonable level of assurance.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the three months ended April 1, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part II. Other Information

Item 1. Legal Proceedings

We are subject to various lawsuits, administrative proceedings, audits, and claims arising in the ordinary course of business. Some of these lawsuits purport to be class actions and/or seek substantial damages. We are required to record an accrual for litigation loss contingencies that are both probable and reasonably estimable. Legal fees and expenses associated with the defense of all of our litigation are expensed as such fees and expenses are incurred. Management regularly assesses our insurance deductibles, analyzes litigation information with our attorneys and evaluates our loss experience in connection with pending legal proceedings. While we do not presently believe that any of the legal proceedings to which we are currently a party will ultimately have a material adverse impact on us, there can be no assurance that we will prevail in all the proceedings we are party to, or that we will not incur material losses from them.

Item 1A. Risk Factors

For a discussion of risk factors that could adversely affect our results of operations, financial condition, business reputation or business prospects, we refer you to Part I, Item 1A "Risk Factors" included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 5. Other Information

None.

Item 6. Exhibits.


Exhibit Number						Exhibit Description
10.1†*						Letter of Employment by and between Muhammad A. Khalid and Driven Brands Holdings, Inc., dated as of January 13, 2023.
10.2†*						Second Amendment to Employment Agreement between Scott O’Melia and Driven Brands Shared Services LLC dated as of March 22, 2023.
31.1*						Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes Oxley Act of 2002.

32.1*						Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes Oxley Act of 2002 and 18 U.S.C. Section 1350.

101.INS*						XBRL Instance Document
101.SCH*						XBRL Schema Document
101.CAL*						XBRL Calculation Linkbase Document
101.DEF*						XBRL Definition Linkbase Document
101.LAB*						XBRL Label Linkbase Document
101.PRE*						XBRL Presentation Linkbase Document
104						Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
*						Filed herewith.
†						Indicates management contract or compensatory plan.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: May 9, 2023

DRIVEN BRANDS HOLDINGS INC.

By:

/s/ Jonathan Fitzpatrick

Name:

Jonathan Fitzpatrick

Title:

President, Chief Executive Officer, and Principal Financial Officer

By:

/s/ Michael Beland

Name:

Michael Beland

Title:

Senior Vice President and Chief Accounting Officer