Driven Brands Holdings Inc. (DRVN) Earnings Call Transcript & Summary

Hi, everybody. I'm Robby Ohmes from BofA Global Research. [ Vicki ] and I are very pleased to have Driven brands here with us today, including Jonathan Fitzpatrick, the President and CEO; and Danny Rivera, the EVP and COO; I think most of you know Driven Brands is the largest automotive services company in North America, and they continue to execute incredibly well in what has been a pretty dynamic environment out there. So I know they've been very busy. So I want to thank Jonathan and Danny again for coming today.

I'm going to just kick it off. I think just in terms of the industry outlook, where do you think we're in the demand cycle for the customer? I know in the past, the DIY was -- there was sort of DIY overperformance during the pandemic. How does the do-it-for-me customer doing? How do you guys think about that?

Yes. I'd say the overall retail consumer environment is pretty good. I think if you look at just the complexity of the automobile, it's pretty hard for that sort of nostalgic, let's do it in my driveway type thing. So I don't see that sort of picking back up from where we were in the middle of COVID. Our core household income customer is about $70,000, typically married, typically have 2 vehicles in their house, typically use those vehicles to live their lives and use those vehicles for work. So we've seen a very nice sort of overall demand profile over the last number of years. Outside of our U.S. car wash business, which is the only sort of more discretionary element of our needs-based services. But I'd say overall, we feel very good. And I think it's important for people who don't necessarily understand 50% of our system-wide sales come from commercial customers or B2B customers. So 50% of our total system sales are coming from large insurance, large fleet managers, rental car companies, things like that. So we've got a very nice balanced book of business between B2B and B2C.

That's really helpful.

Yes. And thank you for that. And then when we look at the factors that impact the industry, should we be looking at miles driven? And is growth in that resulting in the net increases that you were originally expecting?

Yes. Miles driven is definitely one factor. I think another factor is the average age of the automobile which has now crossed that 12-year mark. So you've got older cars being driven more. You've also got generally more complicated cars. So if you look across our business lines, you've seen organic growth in average check just because of the complexity of the vehicle, for example, a premiumization of oil, the cost of collision repair, the ability that you have to generally replace versus repair 10 or 15 years ago. So I think this industry still is anchored on miles driven in age of the vehicles, but there's natural tailwinds because of the vehicle complexity, which is driving check. Some people think that check is price driven. It's really more sort of the [ p ] mix element of that and the cost of the repair.

Yes. Thank you.

All right. Kind of 2 questions together. One of them, I think you guys get it a lot and I think probably sick of it. What is the current thinking on EVs and what that means across your businesses? That's the first one. And then I just have a follow-up.

Robby, you know you were on our IPO team and back in 2021, there was a lot of positive narrative around EVs and the electrification of the fleet. And by 2025, the U.S. was going to be full of self-driving vehicles, and we're going to be at 50% electrification I think what we've seen is the narrative change certainly over the last 12 to 18 months. I think a couple of things that people don't take a step back and just look at the math. So there's about 280 million vehicles on the road today in the United States, less than 5% of those are fully electric vehicles. So our car park predominantly is an internal combustion car park with 280 million vehicles. If you think about new car sales on an annual basis, let's call it, an average of 16 million to 18 million over the last decade. If you were to assume every new car sold was fully electric starting now, you can sort of do the math, how long you'll take for that car park to turn over. Clearly, we're not seeing 100% of new vehicle sales being electric. I think we're seeing now that the initial demand curve for electric vehicles where rich people who lived in rich parts of the world. That demand seems to be sort of net to some extent right now. We're seeing inventories build. I think we're seeing the true cost of repair and ownership of some of the electric vehicles, certainly on the collision side is a lot higher than people think. So within our portfolio, the only business that we have that's directly exposed to the electrification is our Take 5 Oil Change business. Again, $70,000 household income car is typically 5-plus years of age. These are folks that are not necessarily buying Teslas that live in Maryland County. They tend to frequent Dunkin' Donuts and not Starbucks. So I think we look at our business and say, our Quick Lube business alone is going to continue to grow into the late 2030s until we reach some sort of inflection point. And then I think from a technology perspective, it does seem like hybrid is becoming a more likely solution or part of the solution for the long term. And obviously, with hybrid cars, we still require oil changes. So I think we watch it very closely, and it's been kind of interesting to see the narrative and the reality shift over the last 3 to 4 years.

And then a follow-up, I was just curious on this. You mentioned miles driven, average age of an automobile. In the event that I mean -- used cars did very well during COVID. If you got a glut of new cars in the U.S. and you saw more consumption of new cars, where I think initially, those people go to the dealer and stuff like that, would that be a headwind to your business?

I don't see it happening. It's an interesting hypothesis. I think what you're seeing is the price of new cars is significantly up over, let's say, pre-pandemic levels. We're seeing the average age of the vehicle grow because our core customer, that $70,000 household income simply can't afford to buy at the price of the new cars. So I think, look, rounding errors, if we had a bump for new car sales year before we got to [ 22 million, 23 million ] on the margin, there's a small impact to our business. But we actually look at the average holding period for a vehicle is likely to expand, not [ detract ] over the next sort of 5 to 10 years.

Well, I think the only thing I'd add to that, just to double quick for a second is if you look at Driven, right? So Driven is a platform, which brings with it a little bit of diversification, right? So if there was hypothetically a glut, so to speak of new vehicles being purchased, that may impact, let's say, our repair and maintenance businesses and our oil change businesses. But when it comes to car wash, or collision business, no impact whatsoever, right? So like so many things with Driven if it's a put in 1 place, it could be a take in another.

That's really helpful.

Yes. I want to dive into the competitive environment a little bit. So to start off, can you talk about what the competitive environment looks like for each of your segments broadly?

Sure. Let's -- well, we obviously have competitors in all of our markets. A handful of those companies are publicly traded. Within our oil change business, we've got a super great public company competitor that we respect and I think they've done a great job over many, many decades. We feel really good about our unit economics, our pipeline, the number of franchisees that we have building stores. So we feel like we're in a very good spot there from an oil change perspective. In our collision business, we have 1,000 franchise collision shops. We do over $2 billion of annual revenue, 95% of that coming from our insurance partners. There's 1 public competitor Boyd Gerber Group, who do a really nice job, but it's a company-operated model versus a franchise model. So the margins on our franchise business are significantly north of 50% versus a company-operated model that may be in the low to mid-single -- or sorry, low teens, let's say, on a company EBITDA margin. Car Wash, we have 1 public competitor. I think Jon and the team have done a great job for decades in that space. I think what's happened in the car wash industry, though, overall is we've seen a massive influx of new stores come online over the last 4 years. So I think it's not so much about a really great competitor, where Jon and the team, it's really about the incremental competitive intensity we've seen in that space. So that's kind of a quick landscape on some of the competitors.

Yes. Very helpful.

I want to dig a little more into Take 5. I think you guys took some pricing in the fourth quarter of 2022. How do the pricing opportunities look from here for Take 5? And what is the pricing environment look like in the industry for them?

So maybe I'll answer the question this way. I think the focus on pricing is a little bit -- you got to look at it a little bit differently, and Jonathan alluded to it a second ago. So in the oil change space, you have some of these natural tailwinds in the business, right? So one of them, Jonathan mentioned is the premiumization of oil. So 10, 15 years ago, you had a lot more cars back then would have had conventional oil. So think about it as like a base product, right? Sitting here today, if you look at our Take 5 business, north of 90% of the oil that we put in cars is going to be synthetic or semi-synthetic oil. That synthetic and semi-synthetic oil is just going to come at a higher price point because it costs more, right? So there's just this natural tailwind in the business or in the industry as it relates -- you can see it as price, but really what's happening under the covers is it's really a PMIC story, right? We also have attachment, right? So we have our big 5 attachment back when we started with the business that could have been 30%. You look at it today, 40, 45, we think we can get it to 45% and we -- it was big 4, and now it's big 5. So if we look at average check, there's a few different great things happening in our industry and in the Oil Change business, in particular, with premiumization of oil and then our attachment rates. And look, in 2023, we didn't take any price. The last time that we took prices back in Q4 of 2022. The team out in the field does an amazing job taking care of our customers. And historically, if there are commodity price increases, at least historically, we've been able to pass that through and maintain high 70 NPS scores.

And then to follow up on that, are you seeing rational pricing dynamics in the industry from your competitors as well?

We're seeing a little more from certain competitors, a little more promotional activity, let's just say. The team is keeping their eye on it. I'd say we're being smart about it. We're not overreacting to it. We're being competitive where it merits us being competitive and making sure that we don't lose share. So it's a little bit more promotional out there than it was, let's say, a year ago.

I want to switch over to acquisitions and divestitures. I think you guys indicated a bit of the presentation you guys gave, no expectations for M&A this year. Is that right?

Yes, we've never forecasted M&A. And the last couple of years, we're quite busy with building on our U.S. Glass platform where we did 12 acquisitions. But what I've said to investors from our Investor Day back in September to the latest earnings call, I don't foresee any material M&A certainly in 2024. We still do a little bit of bolt-on tuck-in acquisitions for a couple of quick lube stores here and there, but really de minimis. So at least sitting here today for 2024, we don't see a lot of M&A.

And then just a follow-up. Would you guys look at making a divestiture at some point?

Sure. I said it a couple of times already in the public domain. My job is to be an active portfolio manager. We have a number of segments and operating businesses. And there may come a time where some of those businesses don't fit strategically as we're thinking about the business for 5 or 10 years. So yes, absolutely, we continuously evaluate the portfolio. And as a result of that, we may end up with some dispositions.

You briefly mentioned the top acquisition. So I want to touch on that a little bit. So on the last call, you mentioned you completed the integration. Can you tell us a little more about how you went about that process and any difficulty that you saw in the process?

Yes, we went through it carefully, very carefully. Look, what we did is 24 months ago, we weren't in the Glass space at all, right? So made the decision to get into the glass space through a series of acquisitions, and we bought 12 different companies over the course of 12 months or so. And then we went about integrating those businesses. Think of these businesses as entrepreneur-led, small businesses that [ oil ] had -- number one, they have their own brands, their own processes, their own people. So everything about the business is unique to how that business was built up through the years. The challenge for our team as far as integration is concerned is to take these 12 different and disparate businesses and turn them into 1 business that goes to market 1 way with 1 operating playbook, right? So I've mentioned it in the public domain, that was everything from point-of-sale system, which I think I say that I have a former life and technology and [ folks ] eyes like roll back in their heads. When I say a point-of-sale system change out, you're talking about every single process within the 4 walls of the business, right? So that person that was, let's say, in sales that's been doing that for 15 years. They've been landing the work, processing the work and deploying the work the same way for 15 years, you go in there and you change out their point-of-sale system, you've changed out there 9 to 5. Every single part of their business is now different. We had to go change compensation plans. Again, it's a pretty straightforward thing to say. But when you start changing people's pay, that tends to upset people, right? That's a very violent way of moving somebody's cheese. But the reality is we can't run a business with 25 different payment plans, right? So we went about pretty methodically integrating the business over the course of the last 12 months or so and that all culminated in last earnings said, "hey, this work is behind us now." So feel good about where we are. The business is going to market as 1 business with 1 set of systems and processes. And that opens up the team now for 2024 to really focus on, number one, maintaining the cost structures we've put in place. But number 2 is leaning into the revenue side of the business.

Yes, That's great.

You guys have been talking more about sale leasebacks, real estate pipeline divestitures, things like that. What's driving that? Would be kind of the first question. The second would be who are typically the partners? And kind of what kind of terms are you getting on these divestitures? And related to that, should we forecast rent expense to start to grow at a more significant accelerated rate going forward.

Yes. Let me unpack that a little bit, Robby. So to start with, we have $300 million of assets held for sale, which we've talked about. That is a set of assets in real estate that we built as part of our U.S. carwash pipeline, represents about 130 different pieces of property or car wash buildings that we have that we haven't opened. So that -- none of that assets held for sale will impact store count. So that's number one. The total assets held for sale on the balance sheet is $300 million. We are actively marketing, selling and disposing of those assets. We have said that we would expect at least $100 million of proceeds in fiscal 2024. Hopefully, that would be more than that. And obviously, any of those proceeds that we get in will generally be used to pay down debt, which is a priority for us. That's kind of on that assets held for sale bucket. In terms of future sale and leasebacks, so the only area we'll be doing sale and leasebacks for 2024 is on our company Quick Lube stores. So we will build this year approximately 50 stores. We think about 35 to 40 of those locations will have real estate, and we will sale and lease back those typically within 6 months of opening the location. We're selling those to really 2 types of real estate investor, one is sort of that 1031 exchange investor. And then we're selling to more institutional groups like REITs and so forth. Typically, we're getting in the 6.25% to 6.5% cap rate on those Quick Lubes. When you look at the math, it takes the costs about $1 million to build a Quick lube ex real estate. You could think about real estate on average being about $700,000. So gross CapEx of about 1.7. We're getting about 90% of that capital returned to us through the sale and leaseback and then we've been very thoughtful around making sure that the occupancy expense is really less than 10% of the annualized sales at maturity. So that's important that we're getting the capital out in a very efficient way but we're not burdening the stores with excessive occupancy cost. So that's kind of how we're thinking about this year. Our forecast for this year, Robbie, for sale and leaseback proceeds is in that $40 million range for the entire fiscal year, again, coming from our Quick Lube stores.

That's really helpful. Thank you.

Pleasure.

And then in the beginning, you were talking a little bit about the margins differences between franchise and company-owned, do you have a preference on franchise versus company-owned stores, which 1 you prefer to open and why? And can you also remind us of the growth outlook for each?

Sure. Having been doing this for 25 years, I've experienced both good margin, the bad margins, both on company and franchise. Our main company-operated business is our 650 company Take 5 Quick lubes. Their 4-wall EBITDA margins are mid-30%. So there's just not many multi-unit customer-facing businesses that are generating mid-30% 4-wall EBITDA margin. So it's an incredibly powerful EBITDA margin. People ask me, why don't I refranchise those stores? And having done refranchisings in former lives, you typically refranchised company stores whose EBITDA margins are low double digit, 10%, 12%, 13%, 14%, 15%, you're trading that for a royalty rate of 5%, 6%, 7%. And typically trading it for an offsetting development agreement. So you put it all together, it can be positive. It's a pretty hard trade to trade 35% 4-wall company margins to 7% franchise margin. And we already have a 1,000 store pipeline. So we love the company stores. We love the margins. We love the simplicity of that business, and we will continue to open broadly 50 to 60 company stores for the foreseeable future. In other parts of Driven brands, we have pure franchise businesses. So we've got about 5, what we call legacy franchise businesses, Meineke, Maaco 1-800-CARSTAR. And those are 99% franchise businesses. We obviously get paid royalty off the gross sales. That blended royalty rate is about 4.5% because there's different royalty rates in there. Those businesses, we look at high cash flow generating assets. And those businesses are typically generating EBITDA margins north of 60%. So again, really good businesses, and this is the combination that we like at Driven that we've got really strong, stable franchise businesses. Some of these have been around for more than 50 years, very predictable same-store sales outlook, very predictable margin profile because we get paid off the top, which then provides great free cash flow for the business, which we can then invest into some of the higher growth opportunities like Quick Lube.

Yes.

In the Dream Big plan for 2026, circling back to Take 5. Take 5, I think, is well over half of the EBITDA dollar growth between now.

Yes. 2/3s, yes.

So 2/3 is so huge contributor. So obviously, they have fantastic profitability and everything. Are they not knowing the business as well as I'd like to. I mean is -- Take 5, what are the competitors all in that range also? Or what does Take 5 do different from competitors?

Yes. So I think 2 things come to mind when I think about Take 5, right? And how does this thing keep delivering the way it's been delivering. I'd say number 1 is we've stayed true to who we are to our core, right? So Take 5 is about being fast, friendly and simple. So it's a 10-minute experience. It's not a 15-minute experience or a 20-minute experience, right? It's a 10-minute experience. It's a stay-in-your-car model, which is a differentiated model other than our competitors in blue, right, really the -- we're the folks that are bringing that model to bear and the consumer loves it, right? It's a very simple model. So we only sell 5 services. So in the world of automotive aftermarket where the average consumer has a certain, let's just say, expectation when they show up to do something with their car, they're expecting maybe an entry price point and now it's a much bigger price point after the fact it's a very simple service. We sell you 5 things. It's a very visual sales process. So it's very hard to feel like there's a bait-and-switch happening. I mean you're seeing with your own eyes, the services that we're recommending. So it's fast, it's friendly, and it's simple. And you put that all together, we're delivering that service with high 70% NPS scores. So I think you'd be hard-pressed to find frankly, any retailer doing high 70% NPS scores, let alone in the automotive aftermarket. So we do all of those things, and we figured out how to do it at scale. So it's one thing to do that when we got into the business. We bought the business, it was about 40 units in New Orleans mostly. That's one thing, doing it with 1,000 units across the entire country, I think, takes a certain amount of execution, let's say, that's difficult to pull off. So I'd say, number one, it's staying true to your core. And then the second one is just our people. So I think our people are phenomenal. If I think about our company employees, north of 80% of Take Five's management team, let's call it store manager and above are grown from within. So these are folks that we've hired, we've trained on how to handle our culture and deliver these kind of north of kind of high 70 NPS scores and we distributed these people throughout the country. So we have an amazing team with an amazing DNA that we've grown from the ground up. And then if you look at the franchise base, it's an amazing group of franchisees. These are all, for the most part, either former developers or scaled operators, and these folks know how to operate businesses and scale predictably. So you put that all in the blender, and it's stuff that's easy to say, but it's hard to do at scale.

That's all really important, but it's a 2.5-year cash-on-cash payback for someone who's investing in the business on an unlevered basis. You're making -- you're cash flow positive within the 6 months. So all of that stuff that Danny talked about is incredibly important. But ultimately, it's got to have a financial return. So you look at what our franchisees are deploying and getting returns on our same on our company stores, the magic comes from what Danny talked about, but it obviously manifests itself in their financials.

That's incredible.

And another thing I'm curious about Take 5 is the Take 5 rewards that you recently launched. Can you talk about if it's generating similar impacts to what you were originally expecting?

Yes, I'll take that one happily. So take Take 5 Rewards. So I would say we have our Car Wash business in our Oil Change business. They're both branded Take 5. And obviously, part of the reasoning behind that is we wanted to get this kind of cross-pollination of customers across both brands. Take 5 Rewards represents our first kind of formal way of introducing that and incentivizing that behavior from the consumer as opposed to just maybe you want to Take 5 Oil Change and you like the experience and there's this other Take 5 Car Wash and you may assume they would like the experience, right? So we said in Q3 that were -- or we said actually at Investor Day that we're going to be live in Q4 with Take 5 Rewards. I'm happy to say, first and foremost, that we did, in fact, go live in Q4, like we said. As a person that had a prior life in technology, I can tell you that it's not all the time that technology things happen on time. So I'm super happy that we did it on time and the team was great at executing. For us, think of it right now, it's basically in beta. So a big part of the test for us is there's a fair amount of technology behind the solution to make sure that the points that we're giving the customers and stuff like that works across both brands. It's working almost flawlessly from a technology perspective. So knock on wood, that's working quite well. The teams have done an amazing job integrating it into our day-to-day processes, how we interact with customers and kind of the sales process and the conversion rate or the adoption rate, let's say, that we're seeing from consumers right now is I'm happy with it. It's first half of the first inning. So we have a lot of room to go. But so far, I'm happy with what we're seeing.

In the businesses that aren't expected to grow like a Meineke, are there -- I mean, it might not be in the plan, but is there -- are there any sort of EBITDA improvement opportunities or anything that could -- or should we just think of those as kind of steady eddy cash flow generators?

Yes. I think on the margin, they're growing. I shouldn't mean margin as in financial margin, but I think they are growing at sort of a 1% to 3%, 1% to 4% on an annualized basis, some of that is coming from the natural growth in check we talked about earlier. But we're not deploying capital in there because they're franchise businesses. So we look at that is this really great predictable cash flow stream with runway for moderate, I'll say, 1% to 3% growth over time. But really, we look at sort of the cash flow characteristics there, first and foremost.

I want us to talk about the Glass business a little bit. So for the 3 size in glass, retail, commercial fleet and also insurance, what expectation do you have for their respective growth?

Yes. So maybe let me size it here for a second. So if you look at 2023 numbers, so to your point, kind of 3 channels when it comes to revenue in 2023, it loosely netted out to about 1/3 a piece, right? So 1/3 retail, 1/3 commercial, 1/3 insurance. As I think about 2024, I said it a second ago, there's kind of 2 big goals in my mind for the Glass business. Number one is hold on to the cost structures that we put in place, which look good coming out of 2023. And then the second piece is grow the revenue side. I think we'll certainly try to grow all 3 parts, whether it's retail, commercial or insurance. We're going to lean pretty heavily into the insurance space going into 2024 and then specifically into regional insurance, so just to spend a moment on that, not to further complicate things. But when it comes to the insurance business, there's basically 3 levels, 2 or 3 types of insurance work. So you have local insurance -- so I think local agents and maybe selling a multitude of different insurance carriers, we have a team that's solely dedicated to that landing that kind of work. The second is regional insurance, which I'll touch on here in a second. And then the third 1 is national insurance. So these are your state farms, your [ guide cos ], things like that. Big part of 2024 for us is that regional insurance carrier and leaning in there. So think -- these are typically carriers that cover states, let's say, or part of the state, it could be part of California, all of Massachusetts, something like that. Post integration, now that we have all the integration work behind us, all the systems and processes built out. We actually can go to these regional carriers and offer a TPA solution for them where they can basically outsource all the claims management to us. So we've built up in the last 6 months a nice pipeline of regional insurance. And I think we're positioned well for this year to start to deliver some of that work and make some announcements.

That's great.

Let me pause here and see if there are any questions from the audience. Okay. Well, I have many more questions. So you said a lot about Car Wash already. What is the -- and I looked at the plan out to 2026, and you're not really assuming a whole lot from that area. What I think it was -- it's like something like [ $5 million ] of EBITDA or something that's not a huge number. What can make it be more than that? What things could happen, that's going to be more than that? And then what things could happen that could make it a lot less than that.

Yes. So as I think about -- let's talk about kind of what happened at the end of 2023 and then where we focus into 2024. And if those plans come to fruition, it could turn into a more interesting business, right? So coming out of 2023, there is kind of 2 big focus areas. Number one is, let's really focus on the basics and operate the business better, right? So that's everything from making sure we have the right people, we have the right processes. We're open and operating at the time we're supposed to be kind of a variety of things. So I think the team did an amazing job improving kind of -- let's make sure that when we go to market and we make promises to the consumer, then we can fulfill those promises. So that's number one. Number two is we really focused in on the variable cost structure of the business. So I think you saw in Q4, we sequentially improved the business 600 basis points. That was a lot of very methodical work making sure that every piece of the business from a detergent and labor perspective specifically, was configured and operating correctly, right? So that's very methodical work is every single tunnel operating at the right speed or issuing the right amounts of chemicals, are you timing everything correctly. So it's not difficult work, but it's methodical work that needs to happen and then you have to put the proper controls around that to make sure that it doesn't go back out of whack 2 months later or something like that. So feel good about where we put the business towards the end of 2023. 2024 then turns into kind of 2 things. Number one is hold on to the variable cost structure of the business, right? So don't let it go back out of whack where our margins go upside or not upside down, they go regress, let's just say, and then grow the revenue side of that business. To me, a key part of growing revenue and where this business maybe could be more interesting over time is if we grow the membership base. So the reality is, if you look at the industry, we are underpenetrated from a member perspective. That's not a new phenomena for us. It's been true since we acquired the business. It hasn't been a huge focus for a period of time. So the good news in all of that is that we're very focused on it now in 2024. And if we have a couple of tests going on right now to make sure that we have the right program, priced the right way when we get the right type of customer with the right stickiness. To the extent that we figure that calculus out then the business looks hopefully different in the future.

That's really helpful.

So you've talked about the importance of membership conversions. With the increasing competition in Car Wash, are you seeing an increase in membership acquisition costs?

It's not so much that we're seeing an increase in acquisition cost. I would just say, with more competitors comes more choice, obviously, right? So as a consumer, if you look at our ICWG business that we acquired, it's an older business vis-a-vis some of the competitors that we compete with, certainly, some of the local or regional competitors. So it's a business where you over -- over time, if you haven't focused on the membership side of that business, then you haven't built that kind of moat into the business that you need from a P&L perspective, so that you can kind of out whether -- out whether the weather or not going to be repetitive. But when you have rain and stuff like that, you want to have this part of the business that has this nice annuity coming in, where you can kind of hedge against that. And since we have been focused on that for such a long time, and we haven't -- so that's a detriment to us. Additional competitors as [ there's ] more choice, which means we just have to fight a little bit harder to get that membership base up.

Yes. Got it.

So the -- my understanding the Driven Advantage platform is it's kind of a third-party marketplace structure? Is that -- so 3P marketplace, that's kind of an exciting term these days because of the success people like Walmart are having with 3P. Obviously, Amazon has a huge 3P marketplace. What are the data and digital advertising opportunities for that over time?

Yes. This is, I think, an unknown future positive with the company. So we started with trying to understand how much of the spend within Driven Brands are recaptured. And when we say capturing that means that we're influencing, we're making sure company stores and franchisees are pulling their purchasing together. We're getting our franchisees the best price so they can leverage the company's store purchasing. And then Driven really gets paid for creating this marketplace. So we invested in an SAP technology called Miracle, which we've been -- we probably put $12 million to $15 million in over the last couple of years. That platform is built, it's up and running. We now have 80,000 SKUs on that marketplace today, everything from pens and paper to 4 post lifts compressors. We've got a growing number of vendor partners that are on that marketplace. And by definition of a marketplace it is self-regulating in terms of competitive pricing. So you just need to make sure that you've got at least 2 vendors for every 1 product and it tends to self-regulate in terms of pricing. Our company stores are all purchasing on it and why that's important, not because they have any choice but to purchase on it, but we can curate what they're allowed to purchase. So we can curate a set of SKUs, ancillary products. So that means that we can control purchasing and out-of-marketplace purchasing. So that's been a really nice margin pickup for our company stores. We are now getting more and more of our franchisees to do their regular purchasing on it. So obviously, some of them will be buying oil every week. But then as they're buying oil, they see, well, maybe I need a compressor or I need office supplies and other things like that. And then we've got this cool little business called ATI, Automotive Training Institute, which is a small little business in our Platform Services segment. That's made up of 1,800 independent repair and maintenance and collision shops. And we've now introduced marketplace to those folks who are truly independents, and we're seeing a really nice pickup from them in terms of them buying product and other things in the marketplace. Our focus is to make sure that our franchisees get the best purchasing price and terms. And obviously, that won't be as good as third-party affiliates are non-Driven brand folks. We make about $0.08 to $0.10 on every dollar that flows through that platform, and it converts at a very high margin rate because our internal SG&A is relatively low on this platform. The vendors are super excited because they have a captive audience where they've got thousands upon thousands of eyeballs every day. This has upselling capabilities, basket creating capabilities. We're now getting advertising revenue from our vendors who want to get higher placement in terms of the search. So again, this is one of these unique platforms that has massive scalability to it. But most importantly, it benefits our franchisees and potentially third-party operators because they get lower costs. It's easy to navigate and order from. Our vendors love it because it puts purchasing in all one place. And obviously, Driven Brands like the $0.08 to $0.10 that we make on every dollar for it as well. So I think this is an unbelievable body of work the team has done the investment is made. We said that we would grow the EBITDA from that platform by about $30 million or $35 million through the end of 2026. I feel really good about where we stand on that.

Just to understand it, is it a closed platform, meaning it can only be accessed by the customers you let on it right now?

That's right. That's right. You have to have full credentials signed by Driven Brands to get on to it. But what's cool about it is, for example, Robby, we've got some CARSTAR franchisees. This is sort of an interesting anecdote who happened to own car dealerships. And they're actually seeing that they can buy product in our marketplace for their car dealerships that are cheaper than what they can buy in the open market, so to speak. So there's a bunch of interesting tangential circles to this. But again, it is a closed environment right now, but we're pretty excited about this platform.

It sounds very interesting.

Yes. Pretty excited about it.

And you've planned a significant CapEx reduction for 2024, and can you talk about what areas what CapEx invested in, in this year? And in what areas has CapEx being taken out of?

Yes, it's pretty simple. We stopped spending capital in Car Wash. So until we figure that out. So that's the biggest change from 2023. We talked about company stores for Quick Lube. There's a slug of dollars there. We're implementing a new ERP system, so that's got a slug of dollars. And then we've got maintenance CapEx just typical annual maintenance dollars that you spend on our company stores. So those are really the 3 big buckets.

What are you seeing -- we're running out of time. Last question, the labor market, what are you seeing in labor costs?

Yes. I think we've got about 11,000 employees at Driven Brands, about 10,000 above shop -- sorry, 1,000 above shop, 10,000 sort of at the shop level. I think overall, things have moderated from where they were 6, 9, 12 months ago, certainly in the above shop market, the pendulum, I think, has swung back to the employer. And on the comp -- shop labor. I think we've got unique labor models in terms of we don't require skilled labor for our shops, so we can employ people, train them in 6 to 8 weeks to be proficient. And I think Danny mentioned a hugely important data point, which is we've had really nice growth in our company store platform. So 80% of our shop managers were promoted from within. So that creates a real career path for some folks that may start at $15 an hour. So it feels a lot better than 12 months ago.

That's great. Is there any last questions from the audience, we can squeak one more in. All right. Terrific. I want to thank you guys for doing this. This has been great, great participation.

Thank you.

Thank you.

Thank you.