Driven Brands Holdings Inc. Q2 FY2023 Earnings Call

Good morning. My name is Joelle and I will be your conference operator today. At this time, I would like to welcome everyone to the Driven Brands Q2 2023 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. Thank you. I will now turn the call over to Joel Arne, SVP of Finance. Joel, you may begin your conference.

Thank you very much, and welcome to Driven Brands second 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; and Gary Ferrera, Executive Vice President and Chief Financial Officer. In a moment, Jonathan 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 reconciliations of 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, management 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 can cause actual results and events to differ materially from the results and the 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 kindly ask you to limit yourself to one question and one follow-up. With that, I'll now turn it over to Jonathan.

Thank you for joining us to discuss our second quarter 2023 financial results. I want to start by welcoming Gary Ferrera, our new Chief Financial Officer to the Driven Brands team. We are excited to have Gary on board and have already seen the added value his extensive financial experience and expertise brings to the team since joining in May. I'll start this morning with a review of our second quarter highlights, then touch on our objectives for the remainder of 2023 before turning it over to Gary to discuss our second quarter results and full year 2023 outlook in more detail. 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 have navigated an extremely dynamic macroeconomic environment. Now let's discuss our second quarter results. Compared to Q2 of 2022, we delivered 19% revenue growth, supported by 8% same-store sales growth and 7% unit growth, achieving adjusted diluted EPS of $0.29 per share. We are pleased by the performance of our Quick Lube and franchise businesses across all metrics, both being key contributors to our overall success this quarter. The platform that we've intentionally built had positive same-store sales in a climate that many consumer businesses did not. Over the course of ever-changing economic cycles, some of our businesses may be challenged and some strengthened, the benefit of the platform is that it provides diversification. Car wash and U.S. glass are challenged currently, while all other categories are neutral to up. The core macro dynamics of our industry, including aging car park, fragmentation, importance of scale, digital and technology penetration remain tailwinds for Driven Brands. We remain bullish on the needs-based $350 billion auto aftermarket service industry, where we have unique and growing brands with service differentiation. Our investment thesis and growth algorithm are working. As a reminder, our long-term growth algorithm is same-store sales growth plus unit growth plus M&A. We have a best-in-class model of attracting franchisees based on our higher returns versus peers, confirmed by our 900 plus unit pipeline for new locations. Furthermore, we have the ability to reduce our investment capital via sale and leasebacks and capital light franchise growth, given our superior economic profile which in turn will allow deleveraging. Management is highly incentivized with Driven stock. We will continually assess multiple options for value creation and are fully aligned with shareholders and thinking about the long-term. Our long-term adjusted EBITDA target of at least $850 million by the end of 2026 remains fully intact. I will now discuss the three primary growth levers of the business. We are building national brands with Take 5, both Oil Change and Car Wash and Auto Glass Now. Take market share positioning us to win long-term. Now while our investments in building the U.S. Car Wash and Glass platforms have been capital intensive, we believe that diversification is an essential value driver as the car park evolves. We have invested significant capital over the last 24 months into Glass, Car Wash and Oil Change, which we expect to deliver significant EBITDA and cash flow over the next three to five years. We will share more details at our upcoming Investor Day on September 20 in Charlotte. We remain very disciplined with our deployment of capital. Our average invested capital for Car Wash locations after sale and leasebacks is $500,000. Our average invested capital for Take 5 Oil Change locations is $950,000 for leased real estate and $200,000 when we buy the real estate and do a sale and leaseback. Finally, our average invested capital for a Glass location is $150,000. And we do not deploy capital unless we believe we can generate cash-on-cash returns of 30% to 40%. Now let's discuss each business. Starting with Take 5 Oil Change, our most matured growth lever. This quarter, Take 5 Oil Change, both company and franchise locations continued to drive customer acquisition and delivered same-store sales of 17%. We continue to outpace the competition as our differentiated 10-minute stay-in-your-car Quick Lube model builds brand recognition with top quartile NPS scores and increasing repeat rates. We extended market share gains as customers become aware of Take 5's faster, friendlier and simpler alternative for their oil change at a more effective price point than dealerships. And we're particularly pleased with the nice balance of traffic and check, our continued Big 4 attachment rate of more than 40% and industry-leading NPS scores. This quarter, we grew our footprint over 19% year-over-year and our pipeline remains robust at approximately 900 units. We expect to grow our footprint by over 13% in 2023, mainly driven by asset-light franchise store growth. And as we look over the medium term, the majority of new store growth will be franchised. Take 5 Oil Change is a scaled, national and differentiated stay-in-your-car model, which continues to deliver industry-leading same-store sales growth, unit growth and cash quarter-over-quarter. Now moving on to Car Wash. On our first quarter earnings call, we noted softer retail volume in U.S. Car Wash. We continue to see this softness in Q2. The U.S. consumer, particularly at Car Wash, pulled back more than we anticipated. Our International Car Wash business continues to perform against a backdrop of challenging macroeconomic factors in Europe. There are a number of challenges that this segment uniquely faces, primarily in the U.S., that the team is working hard to overcome. We have seen retail traffic softness in the first half and we are expecting that trend to continue for the remainder of 2023. Retail traffic customers are important, both to drive our member flywheel and because they are our highest margin customers. Secondly, the Car Wash segment, unlike any of our other segments has seen significant competitive unit growth in the last two years, as the industry has added approximately 1,500 locations. And as consumers are presented with double or triple the options to wash their cars, it is only natural that we will see some temporary market share decline. 32% of our U.S. Car Wash locations have had a competitor open within 3 miles over the last two years. And these locations represent some of the oldest sites in our portfolio, part of the Original acquisition in 2020. Consequently, these older sites are absorbing an outsized impact. We expect this impact to moderate as we finish our rebranding and fully activate the power of the Take 5 brand to drive new customers and take share. We believe there is still significant white space in select markets for express car washes. We continue to see undisciplined short-term growth from small chains and entrepreneurs. Large-scale single branded well-capitalized long-term focused owners like Driven Brands will win, take share and consolidate over the medium to long-term. And this is before you consider the incremental value of approximately 900 and growing Take 5 Oil Change locations, which provides significant opportunities to drive incremental customers and revenue to our Take 5 Car Wash locations. The third factor, which has impacted our U.S. Car Wash business is weather. And it doesn't matter how good of an operator you are, if it's raining outside, most consumers will not wash their cars. When we look at the first half and examine the core selling days, Thursday, Friday and Saturday, we saw that these days were negatively impacted by weather versus prior year. And we know that over time, weather will have ups and downs, but the first half has definitely been a negative. When you combine these factors, consumer slowdown, competitive intrusion, and first half weather, this is a major driver for our updated overall guidance for fiscal 2023. We have taken several decisive actions during the quarter and will continue to do so in the second half. Regarding retail traffic, we have implemented cross-brand promotions to drive Car Wash customer acquisition. In Q2, we marketed to 2.5 million existing Take 5 Quick Lube customers, which resulted in 125,000 new customers and 13,000 new members at our Car Wash locations. 90% of our Take 5 Oil Change locations now have at least one Take 5 Car Wash in their markets. This is only the beginning of turning on the full power of the Take 5 brand across both Car Wash and Oil Change. We are reviewing all aspects of our marketing, pricing, promotion, and brand positioning strategies to ensure they align with current market conditions. We are also focused on optimizing the expense side of the business to enhance operational efficiency. And finally, we are conducting a thorough review of underperforming locations, markets, and our pipeline of new locations to identify opportunities for improvement. On the positive side, rebranded Take 5 Car Wash stores are outperforming non-rebranded locations. Our core rebranded markets, those with density continue to generate relatively stronger performance. Our priority is to build density and brand awareness in key markets with a focus on markets with Take 5 Oil Change presence. Over time, scale and one brand will matter as this market matures and consolidates. We are making progress towards having a unified tech stack across all of our Car Wash locations. This creates the foundation for our Take 5 digital platform, which will cover both Car Wash and Quick Lube. This platform will enable Take 5 brand level loyalty and membership programs. We expect to have this in market in late 2023. This quarter, we have seen both our conversion rates and member counts continue to rise. We now have over 700,000 monthly members. This will continue to drive brand loyalty and can serve as a hedge to weather volatility. Lastly, the opening of our greenfield stores is going well. Stores are ramping and are in line with our underwriting. We are on track to reach our target of approximately 65 greenfield openings in 2023. Most of these locations included underlying real estate and will be sold in the sale and leaseback market to make sure that we are recycling that capital. In summary, we remain confident in the long-term for this sector, given its strong profitability, cash-on-cash returns and cash flow generation and specifically, our scale of one brand will ensure long-term success. Now on to the Glass business. One of our biggest growth drivers in our PC&G segment. We continue to make progress integrating our 12 acquisitions under the Auto Glass Now brand. Remember, our strategy was to build a platform through a significant number of acquisitions in a short period of time to become the clear number two in this industry, but known risk was the potential level of complexity of integrating numerous acquisitions simultaneously. As a result, we are currently a few quarters behind where we anticipated. This is also contributing to our updated guidance for fiscal 2023. The benefit of our strategy was we paid attractive multiples and significantly reduced the opportunity for other potential consolidators to enter this space. This was a calculated decision that we believe was the right strategy. Similar to Car Wash, we have taken several decisive actions during the quarter and will continue to do so in the second half. We appointed Nick Lament to lead the U.S. Glass business about 100 days ago. Nick previously held the number two position of Take 5 Oil Change, and we believe his experience and success at Take 5 Oil Change will transfer to the Glass business. Under Nick's leadership, we are actively investing in people, processes, and systems as we are building a scalable platform for long-term growth. There are several positive aspects of the U.S. Glass business to highlight. We have made significant progress in rolling out a standard tech stack ensuring uniformity and efficiency across our operations. Approximately 25% of our stores have completed the Auto Glass Now rebranding process, aligning them with our one national brand strategy. In 2023, we have opened 39 greenfield stores at an average capital investment of $150,000, and sales are in line with our underwriting. At the end of Q2, we had 780 mobile units, expanding our reach beyond our bricks-and-mortar stores. Demand from commercial insurance and retail customers remain strong. We are now averaging more than 10,000 inbound calls a week. And finally, our calibration rates continue to grow, which is a long-term tailwind. We are pleased with the scaled Glass business that we are building and remain excited with the compelling economics, capitalized investment, and long-term vision. And with that, I will now turn it over to Gary to discuss the second quarter financial results and provide additional detail on our 2023 outlook.

Thanks, Jonathan and welcome, everyone. I've been on board for just under three months now and have been busy getting to know the teams in our businesses. I want to take a moment to thank the entire Driven team for their support and especially the Charlotte-based team for helping me settle into my new home city. As Jonathan mentioned previously, we've experienced some recent headwinds in parts of the business, but based on what I've witnessed so far, I'm optimistic that this results-focused and action-oriented team will deliver on our long-term plan. Now I will discuss our second quarter results before moving on to the full year guidance. On a consolidated basis, we had another strong quarter of growth versus Q2 2022. Our system-wide sales reached $1.7 billion, representing an 18% increase from the previous year. This growth was driven by an 8% increase in same-store sales and by 7% net store growth. This translated into reported revenue for the quarter of $606.9 million, a 19% increase. Adjusted EBITDA of $151 million increased 12% versus the same quarter last year. Adjusted EBITDA margin for the quarter was 24.9%, a decrease of approximately 170 basis points versus the same quarter last year. This decrease is primarily related to a margin decline in the Car Wash segment and the Paint, Collision & Glass segment, partially offset by increases in both the larger Maintenance segment as well as the Platform segment. I'll now focus on our performance by segment. We are pleased with the positive same-store sales growth of 10.2% in the Maintenance segment, our largest segment. This was primarily driven by the success of our Take 5 Quick Lube locations. These locations have continued to deliver remarkable performance by increasing car count and average ticket during the quarter, as they have in the last few years. The boost in average ticket is attributed to price increases and improved attachment rates of ancillary products, including the launch of our new fuel system cleaner. Maintenance segment adjusted EBITDA margin increased by 240 basis points versus Q2 2022, due to flow-through from strong top line performance as well as continued operational efficiency activity. In our Car Wash segment, we experienced negative same-store sales of 4%. While this is an improvement compared to a double-digit decline, we saw in Q1, it is far from where we want to be performing. As Jonathan mentioned previously, we've seen some weakness in our retail customer demand, continued unfavorable weather conditions, and we are also seeing an increase in competitive intensity. We are actively addressing these issues by continuing to consolidate under our Take 5 Car Wash brand and operating standards in the U.S. By the end of the second quarter, over 75% of our U.S. Car Wash business was operating under the Take 5 banner and these rebranded locations have outperformed the rest of the Car Wash locations. Additionally, we are making significant progress in growing our subscription program and subscription revenue has increased as a percentage of total Car Wash revenue. Currently, we have over 700,000 Take 5 unlimited subscribers. Car Wash segment adjusted EBITDA margin decreased by approximately 750 basis points versus Q2 last year, primarily due to the flow-through of the decline in same-store sales experienced during the quarter, as well as an increase in rent expense due to store count growth and sale and leaseback activity. In our Paint, Collision & Glass segment, we achieved positive same-store sales growth of 12%. We entered the U.S. Auto Glass market a little over a year ago and we focused on integration under the Auto Glass Now brand name. However, our integration of these 12 businesses has taken longer than expected. Segment adjusted EBITDA increased year-over-year by $8 million, but margins declined by approximately 350 basis points, primarily due to ongoing integration of the multiple glass brands as well as the increase in company-owned stores in the segment. We remain excited about the sector and more importantly, we remain excited about our acquired businesses and strategy for long-term growth. In our Platform Services segment, we had negative same-store sales of 11%. Please remember that this metric only reflects the 1-800-Radiator units, which represent less than 50% of the segment. We actually had high-single-digit revenue and EBITDA growth for the entire segment during the quarter versus the same quarter last year. Now I will focus on key components below adjusted EBITDA. Depreciation and amortization expense totaled $45 million in the quarter, reflecting a $7 million increase from the prior year, mainly due to an increase in store count. Additionally, interest expense reached $41 million with a $50 million increase from Q2 of 2022, primarily due to higher interest on our variable rate debt and an increase in total debt levels, driven primarily by our securitization issuance in Q4 2022. Net income for the second quarter was $37.7 million versus a net loss of $57 million in Q2 2022. Adjusted net income was $49.1 million for the quarter, resulting in adjusted diluted EPS for the quarter of $0.29, both are down from the prior year's quarter due to the previously mentioned factors. Cash flow from operating activities for the six months was $114.6 million, an increase of 52% versus the first half of 2022. As of the end of the second quarter, we had $493 million in liquidity comprising $212 million in cash and cash equivalents, along with $281 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. Our ability to continuously generate strong cash flows from operations, along with our significant liquidity provides us flexibility in executing our long-term growth plans. Our net leverage ratio improved to 4.6 times for the quarter versus 4.7 times in both Q2 of the prior year and in Q1 2023. We don't anticipate incurring any incremental long-term debt in fiscal 2023. For additional information on our net leverage ratio, please visit our Investor Relations website. I will now turn to our fiscal 2023 full year guidance. This update is based on significant analysis and discussion since my arrival. Our revised guidance is as follows: revenue at approximately $2.3 billion, down 2% or $50 million from our previous guidance. Adjusted EBITDA at approximately $535 million, down 9% or $55 million and adjusted EPS is now $0.92 or down 24%. We currently anticipate no material change in the same-store sales growth or net store growth that was provided by the company in late February. The EBITDA guidance change is larger than the revenue guidance change. This is due to a few items that are not directly tied to the lowered revenue guidance. For example, in order to free up capital and drive down net leverage, we have accelerated sale leaseback activity, which will result in additional rent expense. As Jonathan previously mentioned, we have had and continue to plan for weakness in the Car Wash segment. We were negatively impacted by weather in the first half and this is also the most consumer discretionary of our segments. We felt these factors are more directly related to our retail or non-subscription customer base, which also happens to be our highest margin customer. The U.S. market has also been impacted by intensified competitive intrusion, which we expect to continue in the near term. Additionally, while we continue to make progress integrating the 12 acquisitions in our Glass business, it is not going as quickly as planned. We've taken several decisive actions and will continue to drive towards improved results, but this is another factor weighing on our second half. Our adjusted EPS guidance is additionally impacted by higher interest expense in the second half due to higher than anticipated leverage levels, primarily related to lower than originally projected adjusted EBITDA, as well as slightly higher depreciation expense. With our current net leverage multiple at 4.6 times versus 4.7 times in Q1, we will focus on actions that will assist in further driving leverage lower in the second half of the year, while continuing to grow the business. To wrap up, while we've had to revise our outlook, we are still guiding the full year towards double-digit revenue growth and mid-single-digit adjusted EBITDA growth. With that, I'll now turn the call back over to Jonathan.

Thanks, Gary. And in closing, we remain confident in Driven's strategy and see this earnings update as a short-term adjustment caused by specific macroeconomic conditions and slower integration that should improve over time. Most importantly, our long-term adjusted EBITDA target of at least $850 million by the end of 2026 remains fully intact. We look forward to sharing more details at our upcoming Investor Day in Charlotte on September 20.

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Your first question comes from Simeon Gutman with Morgan Stanley. Please go ahead.

Good morning. It's Simeon Gutman. My first question is on the profit rebounding in these two businesses that caused the issue. First, in Glass, which I think there may be a more reasonable path to improving. Jonathan, I don't think we heard exactly what steps or what caused some of the integrations in that field? And then I guess I'll follow-up on the Car Wash business.

Yeah. And thanks, Simeon. Just to make sure everyone gets that right. I appreciate the question. On Glass, I think, Simeon, look, what I said in my prepared remarks is that we love this industry. We've been in it since 2019. We made a conscious decision to go fast in acquiring these 12 acquisitions and knew that there was potential complexity in integration. Nothing has changed whatsoever in terms of our long-term conviction and outlook for this business, the capital-light investment, the opportunity to grow in three consumer segments, retail, commercial and insurance. So it's simply just a couple of quarters or several quarters behind where we want to be. We will get that fixed. And our goal is to make sure that we're in as good a shape as possible by the end of this calendar year. So I would say nothing has changed there on the Glass. And I'm sure you have a follow-up on Car Wash.

It seems that the economic model for Glass, once the process is complete, should be as profitable as initially planned or even more so, thanks to the synergy or scale that you have.

Yeah. Exactly right, Simeon. Nothing has changed in our sort of underwriting thesis of the business. And again, if you think about 12 acquisitions, different business models, some more in-store-based, some more mobile-based, 12 different operating systems, a lot of entrepreneurial backed businesses. So consolidating all those people, processes, and systems, and technology onto one standard platform and one national brand, again, is simply taking several quarters longer than we thought. But nothing has changed in our long-term conviction around the returns in this business and the profitability over time.

Okay. And then, on Car Wash, the question is, how do you think about long-term profitability? Because you mentioned there's more competitors, there's competitors that are overlapping you in a high percentage of stores. You mentioned promotions, you're also doing membership, I guess, that could help offset some of the profit hit. But why should there be fully recoverable profit here? Why isn't the incremental margin of this business lower? And then how should we think about it?

Yeah. I think there's a couple of things there. One, we talked about sort of three contributing factors to this year and our revised guidance for this year. Competitive intrusion is definitely one. And I mentioned that, that is over-indexed towards some of our older stores. And some of those older stores had, I would say, sub-optimal real estate because they were built 10, 12, 15 years ago. So one of the things that we're doing, Simeon, is sort of assessing the bottom 10% of our system, like every large-scale multi-unit business, there's a bottom 10%. So we're assessing, is there an opportunity there to clean up the portfolio in terms of underperforming stores. So that's number one. Number two is the brand positioning, the marketing, the promotional activity. We have to make sure that we get that right, given sort of the consumer slowdown and spending and obviously, the competitive intrusion. So we think there's probably some tweaks to both brand positioning, pricing, and promotion activities in the balance of this year and as we look into next. Do not infer that as incremental discounting, but that could be brand positioning and how we attract new customers. The third element that we have, Simeon, which I don't think anyone else in this space has, is we sort of have this X factor of the Take 5 brand. And the customers from our Take 5 Quick Lube business that, as I mentioned, in Q2, we marketed to 2.5 million of those and saw some nice uptake in terms of shifting them from Quick Lube to Car Wash. We're also excited about sort of integrating the Take 5 brand on a digital platform, which I talked about, which will be out at the end of this year. And that's pretty exciting around creating a loyalty and membership platform for both Car Wash and Quick Lube coming through the Take 5 brands. So look, I think Car Wash is still a phenomenal business. If we look at the net capital invested after we do a sale and leaseback, we're at about $500,000. And we still feel very good about sort of the long-term prospects and cash generation from this business. So nothing has changed in our thesis there. I think we're just going through some challenging times sort of first half, second half of this year.

Thank you.

Your next question comes from Peter Benedict with Baird. Please go ahead.

All right, guys. Thanks for the question. Just a follow-up a little bit, just on the Glass integration delays. When did you realize this? It's just you're saying you're kind of several quarters behind that would suggest that, that's kind of been emerging here. Just trying to understand the timing of when this kind of became clear. And what is it preventing you from doing in these businesses? That's my first question.

I believe, Peter, that after spending over ten years in various acquisitions, there isn’t a sudden moment where you think, oh no, we’re falling behind. It’s more of a gradual buildup. We did have a leadership change about 100 days ago with Nick Lament stepping in, who has been a fantastic leader and has seen great success at Take 5 Oil Change. When Gary joined around 60 days ago, he brought a fresh perspective to evaluate the business and its assumptions. So, while there's no sudden realization, Gary’s insights suggested that we might be slightly behind our goals. I want to emphasize that this slowdown is temporary and does not alter our long-term outlook on the profitability and potential of the business. Regarding the second part of your question about what is specifically being impacted, integrating 12 businesses with varying operating models and cultures is challenging. The effort to create consistency in terms of people, processes, and systems is simply taking longer than expected. This focus on integration is slightly diverting attention from expanding new stores and increasing revenue, which means we are several quarters behind in that aspect.

Sure. Thanks, Jonathan. It’s helpful. And then I guess my follow-up would be just maybe a broader view of systems throughout the business, what's the view there? I mean, Gary's now had a chance to take a look at things, how do you feel about just the systems underlying the broader business? And then, Gary, just if you could give us a little more detail on maybe what you're assuming for D&A and interest expense this year, that would be helpful. Thanks, guys.

Yeah, Peter. I'll answer the first question, and then Gary will jump in. On the broader systems, I think we have very solid sort of tech stack across the rest of our mature businesses. So I would say that's not an issue in any of the other business segments. Again, this is 12 acquisitions in a relatively short period of time, which is driving this integration delay. And then, I'll pass it over to Gary to answer your second question.

Hi, Peter. Yeah. No. So on D&A and interest expense, we think interest expense is going to be around $160 million, maybe a little bit higher than that. I think that's a little bit higher than obviously when the guidance was first given. And then on depreciation, it's probably about $183 million or D&A, the depreciation part being like around $150 million, $151 million.

Your next question comes from Christopher Horvers with JPMorgan. Please go ahead.

Thank you. Good morning, everyone. It would be helpful if you could provide more details on the $50 million reduction in EBITDA. You mentioned the impact of rent expenses, but it also seems you anticipate that the EBITDA from the Car Wash after its transition to Take 5, along with the integration of the Glass business, will improve EBITDA margins. Can you break down that $50 million? Additionally, as you consider the long-term growth potential in the Car Wash segment, are you focusing solely on the existing base, maintaining your long-term growth targets for new units, or are you looking at the potential for developing more new units?

I'll start with the $50 million. So we're looking at $55 million on EBITDA and $50 million on revenue. There's a significant flow-through on the $50 million revenue, while the rest includes items like sale-leasebacks, which we've accelerated. We've completed just under $150 million in the first half and hope to exceed that in the second half. This contributes to the overall figure, along with some other rent factors amounting to almost $10 million. In terms of margins, when evaluating things internally for the full year, the Car Wash segment is underperforming. Meanwhile, Glass is likely to underperform more in the second half, not just for the reasons mentioned but also because we’re investing in that business to ensure a strong start. We're making investments in personnel, among other areas, which affects margins. Hence, in relation to the rest of the year, the underperformance is leaning more towards that side of the business compared to Car Wash.

And Chris, regarding your question on Car Wash growth, we are not adjusting our long-term outlook for store growth or same-store sales growth in the Car Wash segment. We are still planning to open approximately 65 new locations this year and have a strong pipeline for the future. The main focus now is to ensure we build stores in markets where we have a solid position and density, while also utilizing the Take 5 Quick Lube. Overall, our long-term intentions for unit growth in the Car Wash segment remain unchanged.

And then just a follow-up on the first point with Gary. So we're clear here. So $55 million cut, $10 million is rent as you accelerate the sale-leaseback side in relation to the existing plan. How much of that $55 million in total is Car Wash versus Glass?

Well, on a full-year basis, I'd say it's 50-50, give or take a couple of million on the rest. That was my point, but if you just looking at the second half, it's a little bit more weighted to Glass.

Got it. And then my last question is about how the EBITDA compared to internal plans, specifically how the $55 million is distributed in the second quarter regarding EBITDA.

Yeah. I mean I don't think it's appropriate for us to comment versus our internal plans. Again, I wasn't here when the internal plans were made.

But Chris, safe to say that it's obviously disappointing from an internal plan perspective as well.

Your next question comes from Liz Suzuki with Bank of America. Please go ahead.

Thank you. I wanted to clarify the future store count expansion plans. Previously, aside from Car Wash, you mentioned a goal of 170 net new stores in maintenance. Are you still on track for that? Additionally, regarding Paint, Collision & Glass, which was previously set at 130, are we slowing that down to better manage integration?

Yeah, Liz. Good morning. No change on Quick Lube. No change on Car Wash, like I just mentioned. Glass will come down a little bit, Liz, as we slow down to sort of get the integration completed there. I think our new number in Glass has gone from 130 to about 90 on Glass for this year. But that's the only change to the net store growth.

Yeah. We kept what was originally provided. I mentioned in my script, it's basically in line when you look at total PC&G and things like that. They shouldn't change all that much nor the same-store growth number.

Your next question comes from Liz Suzuki with Bank of America. Please go ahead.

Great. Thank you. I wanted to clarify the future store count expansion plans. Previously, outside of Car Wash, you mentioned 170 net new stores in maintenance. Are you still on track for that? Additionally, for Paint, Collision & Glass, which was previously 130, are we now slowing that down a bit to ensure proper integration?

Yeah, Liz. Good morning. No change on Quick Lube. No change on Car Wash, like I just mentioned. Glass will come down a little bit, Liz, as we slow down to sort of get the integration completed there. I think our new number in Glass has gone from 130 to about 90 on Glass for this year. But that's the only change to the net store growth.

Your next question comes from Kate McShane with Goldman Sachs. Please go ahead.

Hi. Good morning. Thanks for taking our question. Jonathan, I think you said that the long-term guide through fiscal year '26 remains intact despite the guide down for the year this year. But just how do you envision recovering some of this EBITDA over the next couple of years?

Thank you, Kate. Good morning. I have emphasized this several times, and I'm pleased you noticed. There are a couple of points to consider. First, we view this as a temporary adjustment. Second, we're significantly ahead of our long-term objectives. We will provide details on how we plan to transition from our current estimates to the end of 2026 on September 20. Overall, we remain very optimistic, and Gary has reviewed the long-range plan. We look forward to sharing what these numbers will look like in a few weeks in Charlotte.

Thank you. Your next question comes from Chris O'Cull with Stifel. Please go ahead.

Yeah. Thanks. Jonathan, part of the attractiveness of the driven business is the durability of the cash flows and the growth prospects. But it sounds like the Car Wash segment is dealing with saturation in several markets. It's a high company ownership segment with high fixed cost business structure, which means changes in the comp sales can obviously have an impact on EBITDA and cash flows we're seeing this quarter. So I'm just wondering if the Car Wash segment, how it fits in the driven portfolio and whether or not it's still an area that deserves a lot of capital allocation?

Thank you for your question, Chris. It's easy to reevaluate our decisions based on short-term issues we’re facing in the business. I want to reiterate a point I made earlier about our long-term strategy. Several years ago, we recognized that the global and domestic car market would evolve, and we made a strategic choice to enhance our Car Wash and Glass services, both of which are expected to remain relevant even as the car market changes. I firmly believe that having these businesses in our portfolio is a sound strategy. Regarding your question about capital investment in the Car Wash segment, I want to emphasize that we have already invested in both Car Wash and Glass. So far, we’ve opened around 60 new Car Wash locations between last year and this year. While these locations are still in the ramp-up phase, we anticipate they will yield substantial returns over the next few years. We haven't yet seen the benefits of that investment. The same goes for our Glass business, where we’re overcoming some integration issues, but the capital we’ve committed will generate significant cash flow over the long term. We do face some short-term hurdles with Car Wash, but I remain very confident about its long-term profitability and growth potential. We will continue to be disciplined in our capital allocation within the Car Wash space. It's also worth noting that after accounting for sales and leasebacks—given that 90% of our stores have underlying real estate—the net invested capital is approximately $500,000, making the potential returns quite appealing.

Your next question comes from Seth Sigman with Barclays. Please go ahead.

Hey. Good morning, everyone. I wanted to follow-up on the revenue guidance and the change for this year. It sounds like it's pretty isolated, but maybe you could just give us a little bit more context about what you're seeing so far in Q3 across the different businesses? And then just back on that consumer question, more specifically, I'm curious if you're seeing any signs of trading down within the business. I think there was a comment about attachments earlier being healthy, but maybe if you can just elaborate on what you are actually seeing in terms of ticket, attachments, services per trip any metrics like that, that could be helpful. Thank you.

Seth, I'll start with your second question and then let Gary talk about the revenue question. As I mentioned before, the rest of our businesses are performing well. Outside of the Car Wash, which is very discretionary in the U.S., we're not seeing any indications of trading down or delay. If you look at our Quick Lube business, 17% same-store sales in Q2 and attachment rates have held very firm at sort of north of 40%. So we're not seeing it at this point, Seth, outside of the Car Wash space.

And Seth, I don't really have any more detail to give you on the revenue side. I mean we're not really commenting on Q3 at this point in time.

Your next question comes from Sharon Zackfia with William Blair. Please go ahead.

Hi. Good morning. I just wanted to follow-up on the competitive intrusion for Car Wash. In those markets that you said had older markets where you're seeing all the growth of competitors, I think it was 30% odd has had new entrants in the past year. Have you had any strategies that have yielded kind of recovery that would point to kind of what to do from here? And then, I'm curious about the Take 5 cross branding initiatives that you referenced. Did you use any discounts to get those customers to come in and try Car Wash for the first time?

Yeah. Thanks for the questions, Sharon. I think as I mentioned in my prepared remarks, about 32% of our stores have had a competitor open up in the last couple of years and that over indexes towards some of the older sites in our portfolio. Obviously, we're not sitting back and just allowing these competitors to come in and take market share. However, there is a sort of a bright shiny newness to some of these locations and people are certainly trying them out. One of the things that we have to focus on is continue to grow our overall membership count, which obviously drives improvement in weather volatility because you've got that sort of guaranteed revenue stream. And then secondly, that drives brand loyalty and stickiness to our consumer base. So that's one thing that we're heavily focused on. The second thing, Sharon, is actually I talked about is leveraging this Take 5 brand platform that we're building between both Car Wash and Quick Lube and using that to drive incremental Quick Lube customers to our Car Wash business and vice versa, Car Wash customers to our Quick Lube business. So those are some of the things that we're working on very quickly. In terms of the cross-branded promotion that I talked about earlier with 2.5 million Quick Lube customers, yes, there was some promotional activity there, which would be very normal when you're looking for customer acquisition. I think we're still very pleased that we drove 125,000 customers and north of 10,000 new members. But initial customer acquisition offers are very normal in, quite frankly, any multi-unit retail business.

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