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

All right. Well, good afternoon, everyone. Thank you for joining us at the Goldman Sachs 32nd Annual Global Retailing Conference. My name is Mark Jordan. I'm an analyst here at Goldman Sachs. And it's my pleasure to introduce Driven Brands and to moderate our fireside chat. We have with us today Danny Rivera, President and CEO; and Mike Diamond, Executive Vice President and Chief Financial Officer. Danny and Mike, it's a pleasure to have you here today.

Yes. pleasure, Mark. Thank you.

Excellent. Well, being a diversified auto services business, I think it's probably best to take this segment by segment and what better segment to start with than the Take 5. I think some in the audience may not be too familiar with how the quick lube model is differentiated by maybe their local corner repair shop where oil changes are done. So could you talk about what makes the quick lube model different? What makes Take 5 different from its competitors? And what's the value proposition that you provide to customers?

Yes, amazing. First and foremost, thank you. We've been looking forward to this, and we're happy to be here. So look, maybe I'll take a quick step back, spend 30 seconds on Driven Brands. Maybe some folks are new to that, and then we'll double-click into the Take 5 business. So if you look at Driven Brands, we are the largest provider of automotive services in North America. So it's about 4,800 locations, roughly 85% of those locations are franchised. The rest are company-owned stores, about $6.5 billion of system-wide sales, $2 billion of revenue, mostly nondiscretionary services. So think oil changes, brakes, shocks, rusts, collision. So it's the type of work that you need to do, not necessarily that you want to do. And the way that we tend to think about Driven Brands, just to keep it simple because it's a nice collection of businesses is its growth and cash, right? So growth really comes from the Take 5 business, which we're going to talk about here in a second. And then cash mostly comes from our franchise business, which I'm sure we'll get to hear a little bit later. When it comes to Take 5 and the premise of your question, so what does the average person kind of expect out of that general repair in the corner of your neighborhood kind of a thing? So I think, look, the average person, if they're going to get their car serviced, they're probably thinking, I'm going to drive into a shop. Hopefully, the shop is clean, let's just start there, right? I'm going to park the car. I'm going to get out of the car, I'm going to sit in the lobby. Maybe there is somebody in the lobby, maybe there's 10 people in the lobby, right? This technician is going to work on the car. I don't really see what they're doing. They're going to come, they're going to make these recommendations to me. I'm going to choose some things. And then, look, hopefully, I'm out of here in a couple of hours. Maybe I need to leave the car next day and pick it up. So I think, generally speaking, that's what folks have come to expect. If you look at the quick lube space, and then specifically, I'll talk obviously about Take 5, which is our crown jewel business, we are the home of the stay in your car 10-minute oil change. So in that one sentence, you get a sense of how we're differentiated and why you may want to come to a Take 5. So stay in your car, right? There's no dirty lobby. You're not sitting with anybody. You're going to stay in the comfort of your car, be on your phone, whatever it is that you want to do with your time. It's a 10-minute oil change. So you're going to be in and out pretty quickly. And we also enjoy the fact that our customer service is fantastic. We enjoy NPS scores in the high 70s, right? So you're going to get a world-class experience, not just world-class as defined by automotive, but even in retail, NPS scores in the high 70s are pretty amazing. So that's the Take 5 experience. That's really from a consumer's eyes what makes it different. When we look at Driven, again, it's our growth vehicle, and I'll put maybe some context to that statement. So we bought the business in 2016. When we bought the business, it was about 40 units, mostly in New Orleans, call it, $50-ish million in system-wide sales, 100% company-owned. Fast forward to today, 1,300 locations, both company and franchised, we're going to hit close to $1.4 billion in system-wide sales in 9 years. So it's just been an absolute juggernaut of the business for us and why it's the growth part of the equation.

Excellent. Yes. And I think one of the thing that really resonates with investors is when you say you're making convenient, what is an otherwise inconvenient aspect of automotive maintenance. Nobody likes doing oil changes, nobody likes getting out of their vehicle and sitting in a dirty waiting room and taking time. So Takes 5 to stay in your car 10-minute oil change. It's just adding convenience to a customer who craves convenience.

That's right. That's right.

And I think same-store sales growth for Take 5, it's been great, fairly consistent to mid- to high single-digit range. Can you talk about what's driving that? And a portion of it may be the maturation of some of your younger stores in the store fleet. But there's also other initiatives that you're working on and other avenues you have to drive the growth.

Yes. I think you called out part of it, but I really break it into 3 separate buckets. You've got -- as you mentioned, the maturation of the store fleet. So our stores grow typically in the first 3 years of being open, a fairly meaningful step change year 1 to year 2, year 2 to year 3. They continue to grow after that, but it's more of a normalized growth rate. We expect that to continue. We expect to continue to open a lot of new stores. We do comment that as a contributor to the overall growth, that will moderate. When you open up 150-odd stores and your base is only 500, that contributes a lot more than when you open up 150 stores and you've got 1,500 locations. So we continue to expect that growth from new stores, but the share that it has to the broader equation goes down. The second, as I mentioned, is just ongoing continued growth that you expect to see from existing mature locations. We have a great advertising fund that enables us to spend nationally, building awareness in places where Take 5 is not as well penetrated, driving conversion at the bottom end of the funnel where we are really well known. The beauty about being part of a chain that is growing both units and top line sales is that advertising power continues to grow and gives us more dollars to help communicate. And then third is ticket. And I use that word carefully because I say ticket, not necessarily price. We have the ability to take price. We can if we need to, but we have not pulled that lever nor have we really needed to. When I talk about ticket, there are really 2 big drivers here. The first is the continued premiumization of oil. So 90% of the oil we sell is in some way premium, but only 30% is that full synthetic top of the line. So if you think about the overall premiumization pyramid, we still have a ways to go to take people who are at the semisynthetic all the way up to the top. And that comes with additional ticket growth for us. The second is the non-oil change revenue, right? We are currently at about 20% non-oil change revenue. When I say non-oil change revenue, think filters, wipers, your fuel additive, the differential service that we just announced in Q2. These are additional services that stay within the stay in your car 10-minute oil change that customers want and value, but also give us an ability to add additional price to the ticket. The advantage of that is we're at 20%. Our attach rate is in the 40s that has grown from the 30s. We're actually into the upper 40s at this point. But we look at our fleet, whether corporate or franchise owned, and we see stores that have 60% attach rates. And so we know between the premiumization, ongoing premiumization and the ability to continue to drive attachment, we have natural tailwinds on the ticket in addition to some of the other transaction levers that we have as well.

And so digging into premiumization a little bit, 90% is great. And I think it's above some of your peers. And I think there's 2 drivers of it, right? So one is the natural shift from OEMs requiring the fully synthetic and synthetic blend that will go into your car park. And then the next is just the trade-up opportunity you get when those higher mileage vehicles come in and maybe they require synthetic, but they can use blend or fully and you get that trade up. And so how does the company think about the balance there? And then getting someone to trade up from blend to fully? Is there an upselling aspect there and an educational aspect where you can say, the full synthetic is better for your higher mileage vehicle?

Yes. So I think you kind of hit the nail on the head in that really, there are 2 drivers, right? So number one, the newer cars, as newer cars roll off the lots and they come into the car park, those newer cars, generally speaking, require higher viscosities, right? So with fuel efficiency standards being what they are, as they continue to go up, and I'll nerd out for a second. I'm an engineer by background, right? But these engines are getting more and more compact, which means you need higher viscosity oils. And as that happens, just naturally, there's a nice tailwind into it. Secondarily, and you said it, not me, so I'll take advantage that you said it. We're world-class at selling premium oil, right? If you come into a Take 5, it's a very natural experience. We're going to -- first and foremost, we're going to scan the barcode on the door jam. That's going to automatically load your car information. We're going to know the make model year of the car. We know, therefore, what viscosity you should get. So we're good. We're telling you this is what Ford recommends or Chevy or whatever manufacturer is. And then from there, we're going to look at your odometer. And if you're at 120,000 miles, let's say, we're going to naturally ask you to get into a high-mileage oil, which is better for your vehicle. If not, we're going to recommend a different oil. So it's a very natural non-salesy, non-pressure environment. We're just telling you kind of what your car is calling for.

And that trade-up must be pretty sticky, right? Because when you tell someone who -- this is the second most important asset or expensive asset they own, right, next to their property, for most of them, you say, hey, we've trade up this higher mileage vehicle or oil is better for your vehicle. It's going to maintain it longer. They're happy to do it generally, right? And so you don't -- it's generally a very sticky behavior.

It's sticky behavior, and it's a very natural question, right? The way that we lead the transaction and you lead the customer, you're not operating from a position of I know more than you do. And any time that there's a relationship where I know more than you do that all of a sudden, your defenses go up, you're bringing the customer along for the journey. You're explaining why it is that this oil is better for them. And to your point, it is a big investment for the average American, and so they're more than willing to spend the money.

Excellent. And then I touched a bit upon the non-oil change revenue, and I think it's great to be announced the differential service recently. Certainly, more extended interval cycles for changing it versus oil, but it's an important part of maintenance and it's OEM required. So -- when you have that come in, you scan the VIN, you know the intervals, you look at the odometer. It's a pretty natural sell, and there wasn't any CapEx you had to put in, right? You're leveraging your existing infrastructure. So how should we think about future non-oil change services? The 10 minutes change in your car -- oil change probably won't go into many involved under the hood type of service, big repairs, but what else can we expect to roll out in the future? I just something adjacent to the quick and easy changes?

Yes. So I think, first and foremost, what you should expect is continued growth, right? So Take 5 is our growth business. We're going to continue to grow that business. When we think about growth, we think about 2 main avenues, right? Number one, new unit growth, right? So we're going to open, we said pretty publicly, 150-plus locations a year. We're going to open, roughly speaking, 2 franchise locations for every one company location. We've been doing that for some time now. We're committed to doing that well into the future. So that's one avenue of growth. The second avenue of growth is organic growth at the 4-wall level, right? And so one of the strategies there, to your point, is, over time, we're going to continue to introduce new services to make sure that we can continue to grow organically kind of the 4-wall AUVs of the box. The way that we think about it, there's basically 2 things that have to be true for us to roll out a service. There's operational fit and there's financial fit. Operational fit is exactly what you said. We are the home of the stay in your car 10-minute oil change. That is the promise that we've made to consumers. When you come to a Take 5, this is what you should expect. We have to uphold that promise. So the first thing that we're looking at is, okay, can we continue to deliver a 10-minute oil change experience in the car with NPS scores in the high 70s. Check -- you got to check that box. Second one is financial fit. At the end of the day, the margin profile of the service has to be in line with the rest of the basket of services that we offer. In the case of differentials, it's kind of a textbook example of how we're thinking about new services, right? So operational fit, the team spent 2 quarters testing this every which way from Sunday, processes, procedures, training, making sure that we can deliver this experience, 10 minutes, stay in your car, NPS scores in the high 70s. So great, we could check that box. And then on the financial fit side, this one was easy because differentials is margin accretive to the rest of the basket. So in this case, another big check mark. So it gives you a good sense of how we're thinking about things and how we're not going to butcher what Take 5 is in the future, right? Take 5 means something, it has to continue to mean something.

Excellent. Excellent. Yes. That's perfect. And then kind of adjacent to that, one of the things we hear from investors, and it's much less of a concern now than it was, say, 3 years ago, is the looming concern of battery electric vehicle penetration, right? At one time, it was considered a much larger threat, and now it's just kind of adjacent to the story. But can you tell us how you approach your framework of thinking about that? And how you expect the addressable market for your service to shift over time?

Yes, it's a great question. And to your point, I mean, when we IPO-ed a few years ago, it was the question. It was every other question. And so we're very prepared for that. I think of 2 things when I think of this question. The first thing that always comes to mind is if I'm talking to a prospective investor and they're concerned about this, the first answer is you're not investing in Take 5. You're investing in Driven Brands. And Driven Brands is a diversified platform, of which only one of our businesses has some exposure to EV. The rest of the portfolio is EV agnostic. So that's one thing. The second thing is whenever you think about a question like this, again, the engineer in me want to go straight to the numbers, right? I think you have to ground yourself in the numbers. So if we look at the numbers in the U.S., EVs make up less than 2% of the U.S. car park. If you look at new EV growth, right? So new car sales, if you look at the EVs as a percentage of sales in the last quarter, it was 10%, down from 11% in Q4 of last year. So not only are EVs a very, very small part of the overall car park, it's also not growing tremendously fast, and that growth has moderated at least here recently. So you put that all in the blender, and obviously, this is very top of mind for us. We're serious about running our Take 5 business, all of the models that we have internally say not only do we have a business that survives, that goes without saying, we have a business that thrives and is growing well through the 2020s, well through the 2030s. And I'm not going to speculate further than that because you got to put a time limit on something. But suffice it to say, I think Take 5 is going to be doing quite well for a long period of time.

And hybrid vehicles become the electrified powertrain of choice, then you win there as well.

That's right because you still need oil changes in a hybrid vehicle, 100%.

Perfect. And then as I think of Take 5, there's tremendous white space opportunity for future growth and franchisees play a very important role here, as you mentioned, too, for every one company -- as we look forward, at the end state, is there a specific mix you're looking for or franchise versus company-operated clear asset-light model? Is it more capital-light and better margins on that?

Yes. I mean I think you nailed it. I would say, in general, we -- our goal is to open 2 franchise for every 1 corporate store. We are opportunistic, right? I think last year, probably this year will be a little bit more 50-50, but that's not strategic driven as much as it is. We find good real estate that we like in the corporate markets we own. It is such a good return on capital that we wouldn't be doing our duty if we didn't try to open those stores. I think in general, though, we see an opportunity to continue to grow the franchise model. I love franchising and I love franchising for a concept that is at this part of the retail growth curve because it helps you grow more quickly than if I was trying to put in $1 million plus a site for every site I wanted to build across the entire company -- and country, and we have great partners doing it. So for the foreseeable future, expect it to be 2: 1 for every franchise to corporate. That probably gets us over time to more of a 50-50 blend. And then at that point, we'll assess where we want to go from there. But I think for me, great company returns, like we get fantastic sub 3-year paybacks on the sites that we open ourselves. It is a great company-owned model as I think about deploying capital and make sure it continues to return and grow the box. Great franchisee returns, some of the best in the industry. And we've got franchise partners who are excited, some of them on their second and third ADAs to continue developing. And so I think we actually have the best of both worlds, which is the ability to deploy capital in a high-return environment when we need to and the ability to provide that same upside to our franchise partners as well.

That actually goes great to the next question for unit economics. I mean they're tremendous for the Take 5 business. So can you talk about the investment that's required for the company to open a new location, the maturity curve, which I think you mentioned is 3 years. And then what are the cash-on-cash returns? And is all that very similar to the franchise business as well?

Yes. I mean I would say, in general, it doesn't look that much different. Obviously, there's a royalty for a franchise business. It takes a little more than $1 million for us to open a store. In some instances, we buy the land and then sale lease it back. And so that sometimes gives us an ability to get that net CapEx down below $1 million depending on the location and the cap rate. That's not a requirement. We'll open with ground leases. We'll open buying the dirt underneath it. It really is opportunistic based on where we want to be and what's available to get the right location in town, tend to be a 3-year ramp, year 1, year 2, year 3, pretty predictable across each of those 3 years, topping out, topping out, maturing at about $1.4 million AUV in year 3. We still get growth above that. But by year 3, you'll kind of have a mature at which point the growth becomes more normalized. And then look, EBITDA margins, 4-wall EBITDA margins in the 40s. payback is sub-3 years. Again, if we can get the net investment cost down either through sale leaseback or sometimes conversions require a lot less CapEx, that can be even less than that. But I think in general, it's great. Again, it's great to have this problem around capital allocation, which is making sure we continue to adhere to some of our other objectives around debt paydown and deleverage while also finding the capital to prudently continue to grow this fantastic asset.

Excellent. And then last question on Take 5 here. If we look at the segment margin, the EBITDA margin has been pressured the last couple of quarters. Some of that, I think, is due to higher maintenance spending in the platform. Is that right?

Yes. Yes. So I think take a step back, in general, we feel really good with margins in the mid-30s. And I think, obviously, there's been some quarter-over-quarter variations and some year-over-year variations. Q2 of last year was a particularly high-margin quarter. Q2 of this year was a little bit lower. We have been investing in our repair and maintenance and our new store opening costs. This is a tremendous asset. And I think both Danny and I have experience with assets that maybe aren't -- don't keep up with the maintenance, and we don't want to lose what we have, which is a fantastic consumer forward brand that has such high NPS and sometimes that comes with the state of the fleet. If you take a step back, mid-30s is where we want to be, and it's where we are. So there will be some variation quarter-over-quarter, potentially in a given quarter year-over-year, but we feel good with the mid-30s. It's a very good, strong, sustainable business in the mid-30s. We feel really good with the assets we're opening. And our job is just to continue nurturing this growth so we can continue to explore how much runway we really have.

Excellent. Excellent. And then moving to the Franchise Brands segment, obviously, your largest segment in turn of system-wide sales. And I think one of the businesses that have gotten a larger portion of the discussion today is the Maaco business, which generally, a very stable business, but in the last couple of quarters has seen some demand headwinds. Can you talk about what's going on there?

Sure, sure. And I'll double-click on to Maaco here in a second, but maybe take a step back and talk about the franchise segment and kind of lay some groundwork there. So we resegmented Driven Brands. Last year it was Mike's brainchild. It's worked really well for us. It just helps simplify the story. So at the end of the day, we are a platform. We own a collection of businesses, but you need to not understand all of the businesses to understand the power of Driven Brands. And so the franchise segment, in particular, is a collection of businesses that have a lot of commonality. These are fairly mature businesses, mostly nondiscretionary in nature, 100% franchise, asset-light. And ultimately, these businesses collectively over a period of time are going to operate very predictably. This is low single-digit growth, both top and bottom line. And most importantly, they're going to generate EBITDA margins north of 60%, and they're going to have very robust cash flow. And we can take that cash flow and then reinvest it back into the juggernaut that is Take 5 that we just spoke about. So that's the franchise segment. As far as Maaco, to your point, so Maaco has been a little bit softer this year. There's really kind of 2 reasons for that. The main reason is Maaco of all of our franchise businesses is the most nondisc -- or sorry, the most discretionary in nature. So a typical use case out of Maaco, I'd say 2 typical use cases, so you understand kind of the types of transactions that a Maaco would perform. So think you have a car, it's 9 years old, you want to hand it down to your son or daughter. But before you do so, you want to paint the car. That's a really typical use case. Obviously, almost by definition, that's a fairly discretionary use case, right? You don't have to paint the car, but you're choosing to do so. Another really common use case is you get into a very light fender bender, you don't want to claim it on the insurance, you don't want to pay for the deductible. So you're just going to take it to a Maaco and get the bumper replaced or something like that. Now again, fairly discretionary service. You don't have to fix the bumper, you may choose to do so. So given that it's more discretionary in nature and it also, just for historical reasons, tends to over-index as far as the driven portfolio of businesses, it over-indexes a little bit more into lower income consumer. That business is feeling a little bit of headwinds right now. But all of that being said, look, Maaco is a 50 -- more than 50-year-old business. I think it's a 53-year-old business. Franchisees are amazing. If we went back to 2022, 2023, '24, really strong comps in that business. So this is a short-term phenomenon. The business has survived many in the economic cycle, and it's going to be fine. And ultimately, most importantly, what we need from the franchise segment is strong cash flow and 60% margins that we delivered 61% margins last quarter.

Perfect. And actually, that goes nicely being Maaco going to the collision repair aspect of your business, generally, again, also a generally stable and great end market. But recently, the industry has seen some pressure from repairable claims going down for some changes in consumer behavior from insurance premiums rising and whatnot. But generally, when I think of your collision repair business, your franchisees, I think, have more of an entrepreneurial spirit than some of the larger chains. Is that fair to say and that they're able to kind of outperform in their local markets because they have a little more spirit to them?

Yes, I think you've hit the nail on the head. I mean, to take a step back to the premise of the question, right? So the industry overall is facing some headwinds right now. So it's down about 10% year-over-year in terms of estimate count. There's really 2 big drivers to that. So number one, you're seeing some claim avoidance. So if you look at deductibles and premiums and what's happened in the last few years vis-a-vis inflation, inflation really hit hard in that area. And so you're seeing some consumers holding back a little bit in terms of putting claims through. So that's part of the reason. The other part of the reason is you're seeing total loss rates at historic highs. So you combine those 2 things and you end up with estimates down 10%. Now that being said, we've said this on the last 2 quarterly earnings calls, we're taking share even though the industry is down, we -- there's really good industry data in that space. And we know that our collision business is taking share even though the overall industry is down. So while I hate the fact that the industry is down, we are taking share. And I think to the second part of your question, I think a lot of it has to do with the very unique way that we go to market in that business, which is through a franchise model. So the body shop space, the collision space is a fairly complicated business, and it makes the world of difference to have an owner-operator on the ground every single day, making sure the technicians are taking care of, making sure that the customers are getting taken care of, making sure that we can hit the quality KPIs. Folks that don't know this industry that well, the collision space as far as getting work from insurance carriers, that is a very meritocratic process. They -- the insurance carriers will insist on a variety of quality-related KPIs, customer satisfaction KPIs. And if you're not hitting those KPIs, you're just not getting the work. So having that owner on the ground is a huge differentiator.

And it's a very fragmented industry, right? Over 50% of the rooftops are single shop operators that they're competing against. And so having your CARSTAR platform be part of a number of DRP programs just helps naturally flow the volumes in, right? So that's another way you're helping to compete further. And then switching to Meineke, largely vehicle maintenance, right, one of your other larger Franchise Brands segment businesses. I'd expect trends there to be fairly stable, particularly as owners in this environment continue to maintain their vehicles, you can see the average age continue to tick up every year. Can you talk about what your franchisees are seeing in that market? And if they're seeing any signs of deferral or just any signs of customer hesitation there?

Yes. No, I mean, it's a very stable market right now. We're not seeing any real signs of deferral. If you look at that space, there's really 2 nice tailwinds going on right now. So the average age of a vehicle in the United States is at an all-time high. So the car park is at 12.8 years on average. Older cars are good for Meineke, right? The older your car is, and reason, the more repair and maintenance you're likely to need. The other thing is the older your car is, the less likely you are to take it to the dealership. So those are both kind of really good things for Meineke. The other nice tailwind in the industry is if you look at miles driven, that's completely bounced back post-COVID, right? So miles traveled is very, very high. Average age of a car in the car park is very, very high as well. And so both of those are really nice tailwinds for Meineke. And Meineke is kind of that quintessential example of a franchise business for us. So another business, more than 50 years old, 100% franchise, great group of franchisees. It's a really solid business, and it's performing solidly for us right now.

And very similar to your Take 5 business, you also benefit from just a secular shift from DIY to DIFM as -- I don't know many people that DIY these days, but it's a shrinking population, right? And so you get some natural benefit there. That's perfect. And as I think about the Collective Franchise Brands segment, I think you had alluded to this earlier, you have a great margin profile, very stable long-term business, business that have been around for a long time that just generate a tremendous amount of cash flow. And you can use that cash flow to fund your growth and Take 5 and deleverage. Is that a fair characterization?

Yes, absolutely. I mean I think you look, like that is the cash part of the growth and cash playbook that Danny mentioned earlier. It is incredibly high margin. It is an incredibly stable business. When you kind of step back and look at it over multiyear. It helps us with the red thread, if you think about why the Driven platform exists, our relationship with insurance companies, fleet, et cetera. It really helps us bring the power of the automotive aftermarket to bear. And as we've talked about with capital allocation, it's nice to have an internal source of cash flow to be able to fund some of our other higher growth objectives to help us advance them all forward.

Excellent. Okay. That's great. And then switching to your remaining car wash business, largest platform in Europe, independent operator model, a little bit -- it's different than the franchise model, but different than the company operates kind of in between. Can you talk about the profile there because I view that as also a great cash generative business.

It really is. And I think let me take a step back and talk about why is it different than the U.S. And I think, first of all, we are the market leader. We are the clear market leader, and there really is no second player. And so if you think about what has been part of the Car Wash business domestically, which is a lot of competition, a lot of regional players. If you think about our international Car Wash business, over 700 locations, about 1/3, 1/3, 1/3; 1/3 in the U.K., 1/3 in Germany and 1/3 scattered through all the smaller countries. The defensive moat is a little bit deeper. We recycle 80% of our wash washer, which is not only a nice thing to say, but it's one of the requirements you have in many of these municipalities so that you're actually recycling the water. In a place like Germany, hand car washing is actually banned because of the risk of runoff and the environmental impact. And so we are the only tunnel operator in the U.K. There are other smaller tunnel operators in Germany, but we are the clear #1. So we have a defensive moat there. The business is incredibly well run. That team has done a great job, whether you think about offering new products like the ceramic covering or graphene, which we've just started to roll out, a way to continue to build check size there. We've recently remodeled most of the fleet across, in particular, the U.K. and Germany, not only does it look prettier, but it helps get us on some more advantageous paper that further incentivizes our independent operators to drive up the choice from a wash up from a basic car wash into the ceramic or the graphene. The independent operator, I think, is an attractive model, particularly in high regulatory Europe because we don't have to deal with the employment issues. We are responsible for the capital, but that gives us some form of control. But even with that capital, to your point, it's a cash-generative machine. So it's a really strong business. It's really well run, and it helps generate cash, which we can then repatriate and use to help fund our other growth initiatives back here in the States.

That's perfect. And then switching quickly to your U.S. class business, relatively small part of your business today. You're incubating the growth there, but I think it's growing nicely. Can you talk about your position in the market and your overall aspirations for that business?

Yes. I mean, so to your point, we're incubating that business right now. Let's take a step back and maybe understand why did we get into that business and where we are in our journey. So if you look at that industry, we really liked everything that we saw in the industry in the terms of -- it's a very big industry. So you're talking about a $5 billion TAM, highly fragmented, plenty of white space, great unit level economics, fairly simple business from a 4-wall operations perspective. So all of that looks really kind of the things that we look for in terms of entering a new segment, right? There's this other interesting dynamic where you had this really strong #1 player. They do a really nice job and really no #2, certainly no #2 with any kind of national presence or with much capital to work with. So it seemed like there is a hole in the marketplace that we could uniquely fill being the largest provider of automotive services in North America. So we stepped into that space. Nothing's changed in terms of the underlying thesis, right? All those things remain true. And what we've been doing is we resegmented Driven Brands. We put that in the corporate that AGN, Auto Glass Now into the corporate and other segment because we're just incubating that business. We're giving it a little bit of time to breathe and to grow. What we've said is, look, we're going to lean pretty heavily into the top of the sales funnel. We're really going to focus in on insurance and commercial. That work tends to be stickier. It tends to be a little bit better margin. And so we're really leaning into that. But the nature of that business is it's a bit of a longer sales cycle, right? So if you're talking about a top 10 insurance carrier, and I won't mention any names, but you all know who they are, if they've been doing business with somebody for 20 years, you don't just show up and say, hey, so we're here and 3 months later, get the business. You have to earn the credibility to get that business, and that's what we're doing. So I think we have a fantastic leadership team there. They have the right priorities, 4-wall operations look great, and we're just putting our heads down and working.

That's excellent. Yes, another end market where there's tremendous fragmentation in the operators, you can take advantage of at scale.

That's right.

Well, this has been excellent. We have a couple of minutes left here. So there are 5 questions that we're asking every company. It's just kind of get a broader feel of your view of the consumer and the broader economy. I guess with regard to the health of your core consumer, I think Driven Brands as a whole, all your different businesses, what do you expect for the second half of the year relative to the first? Will they be stronger, weaker or about the same in terms of their economic position?

Yes. Look, I think when we did earnings last time, we reiterated our outlook for the second half of the year. We did note there are some headwinds. But with all that being said, we're reiterating our outlook. We did mention weather in Europe, certainly in July, and I'm not going to say anything forward from there. That's the only thing we've mentioned on the call, but weather was tough in July in Europe, and so that was a thing. There's still some pressure on anything that's very discretionary in nature. So that harkens back a little bit to Maaco and certainly that lower income per consumer, again, more so as it relates to Maaco, we're feeling a little bit of that softness there. But still, you put all of that in the blender, and we felt very comfortable reiterating our outlook for the year, and we stand by that today.

Perfect. And then understanding you haven't given '26 guidance yet, so I'm not trying to get any insight there. But as we think about next year, do you see anything changing in the -- for your consumer? Or are they in about the same position they are today?

We are -- so I'm going to completely punt on that question. We are heads down in 2025. As we go into the second half of the year, we'll go through AOP, we'll do our whole thing, and we'll talk about next year. But for right now, we just want to close the year out strong.

Perfect. And then as we think about pricing, everyone is trying to figure out pricing and the impact of pricing today on elasticity. To the extent you've taken it in any of your -- if you've seen tariff costs come through and you've taken pricing in any aspect of your business, has there been any elasticity response...

I mean I would start with, in general, we're a nondiscretionary business. And so one of the advantages of being nondiscretionary is not only the ability to pass along price if we have to. But as I said earlier, we don't really pass along a lot of price. The growth we're seeing in our check is more ticket-driven based on services and premiumization. Also because you slipped it in there, like our tariff exposure is fairly limited. We are largely subject to the USMCA, which helps us limit tariffs, and we've got a broad-based supply chain that enables us to optimize where we source our product when we need to. So we haven't seen those pressures. I think we have an ability to if we needed to from a pricing perspective, but we haven't had to and nor do we just take it because we want to. It's nondiscretionary. People care about their cars. They continue to invest in their cars because they want to and because the niceness of the car demands it, and we're here to serve that need.

Perfect. And then the last one, as we think about market consolidation in all of your end markets, looking towards next year, as an industry in general, would you expect it to slow down, speed up or be about the same?

I think the general trends, I mean, roughly stay about the same, right? I mean if you think about the automotive industry in general, it is a space that for some time now has a few consolidators. We're obviously the biggest one, and we've made -- we've done quite well acquiring businesses, and we've been very acquisitive historically. But the general trend of few consolidated players gobbling up smaller players, I don't see that trend changing. I'm not sure it accelerates or not, but it's a trend for a long time to come.

Excellent. Well, this has been a pleasure. Danny and Mike, thank you very much for being here today. It's been amazing.

Thanks, Mark.

Thank you, Mark. Appreciate it.