Driven Brands gives green light on $100 million share buyback, talks Auto Glass Now and collision repair plans

Driven Brands announced Tuesday updates to its capital allocation priorities, which it said are “aimed at accelerating growth and driving long-term shareholder returns.”

“The strength of Driven Brands’ Growth and Cash framework has been on full display over the last several years as Driven reduced its net leverage from 5.0x at the end of 2023 to an expected 3.0x at the end of Q3 2026, reaching our 3.0x target a full quarter ahead of plan,” said President and CEO Danny Rivera in a company press release. “We are entering a new phase focused on deploying capital to support growth, maintaining financial flexibility and enhancing shareholder value. Today’s announcement provides investors with greater clarity regarding the framework that will guide our capital allocation decisions going forward.”

The release laid out “key elements” of the updates:

• • “Continuing to invest in Take 5 growth, leveraging its proven operating model, strong 4-wall economics and compelling cash-on-cash returns. This growth will come through units in new and existing markets and may include acquisitions where attractive.
  • “Setting a long-term net leverage target of 2-3x Net Debt to Adjusted EBITDA. This range balances financial flexibility, investment capacity, and efficient use of capital while maintaining a strong balance sheet.
  • “Returning capital to shareholders, beginning with a $100M [million] share repurchase authorization. This amount represents approximately 5% of the Company’s market capitalization.”

“Driven’s free cash flow profile and balance sheet create a strong foundation for the Company to execute its capital allocation priorities,” said Executive Vice President and Chief Financial Officer Mike Diamond in the release. “This initial authorization demonstrates our commitment to returning capital to shareholders while continuing to invest in Take 5.”

Driven Brands says its Board of Directors has authorized the company to repurchase up to $100 million of its outstanding common stock from time to time via open-market purchases through any method or program, including pursuant to a repurchase plan.

The release states that any purchases will be funded from available cash balances and ongoing cash flows and will be made subject to market and economic conditions. It notes that Driven Brands isn’t obligated to make any repurchases, may discontinue the program at any time, and the authorization has no stated expiration date.

Rivera and Diamond participated in a fireside chat on Tuesday at the Goldman Sachs Global Consumer and Retail Conference in New York. The discussion focused mostly on Take 5 business plans and market trends in that segment.

However, Diamond did comment on the overall benefit of the repurchase authorization to the company.

“We generate so much cash that even between the growth and the potential accumulation of cash, we’ll still have more,” he said. “And so that’s what anchored the share repurchase authorization… exactly $100 million, that’s about 5% of our market cap. And we think it’s a really good first step to help us assess what this does with respect to the float. That 5% market cap reflects roughly 13% of the company float, and [will] assess how engaging in that will impact the float as we move forward.”

When asked how any drift down from three-times net leverage might come from more from EBITDA expansion versus debt, Diamond said he doesn’t think it will come from debt reduction.

“The next couple of tranches we have in our securitization are very low interest; that’s very attractive,” he said. “I’m not interested in paying those off until the day before they’re due. I do think we will generate cash given our strong free cash flow characteristics. It is possible that leverage ratio will drift down as we continue to generate cash. But I think that’s really what we’re looking at: it gives us a tremendous amount of flexibility, enables us to lean into growing that Take 5 business, and then again, helps us assess the best way to go forward from a return to shareholders, of which the $100 million is really that good first step.”

Specific to the collision repair market, Rivera said coming into this year, Driven Brands believed it would be a year of stabilization rather than bounce-back.

“I think that’s basically how things have played out,” he said. “When we look at our business, and we compare ourselves to the industry, we tend to outperform the industry anywhere between 100 to 300 basis points, historically. …it’s a fully franchised business, and I think the reason why we outperform… is because of the franchise model of that business.

“If you look at the collision space, number one, it is a very complex space. You’ve got insurance carriers that have pretty demanding requirements and SLAs and KPIs that you have to keep up with. You’ve got the repairs themselves are quite complex; you’re talking about body work and welding and all sorts of really difficult things. And then the third thing that makes it fairly complex is the labor force.”

Rivera said collision repair shops need to keep certified senior technicians, who are in short supply, while ensuring labor consistency.

“One of the competitive advantages that I think we have is that franchisee,” he said. “You’ve got an owner-operator on the ground every single day, and what ends up happening is, ultimately, you get better customer service, you get better quality, which keeps the carriers happy, and you have a more stable workforce because that owner can take care of those technicians. For us, we think that’s been a nice competitive advantage.”

Rivera noted that Driven Brands’ Maaco is the only discretionary business left in its portfolio, so while business has been soft this year, the business often operates on consumer wants versus needs, such as a paint job on an older vehicle or a fender bender repair, he said.

Regarding Auto Glass Now, Rivera said it is now No. 2 in the North American market, a quick rise in the five years during which Driven Brands has been in the glass repair and replacement business segment.

“I would say the reason we got into this space — nothing has really changed — we see heavy amounts of fragmentation, certainly when you get outside of the No. 1 player who’s the incumbent who has been in the space for a long time,” he said.

Auto glass repair and replacement has great unilevel economics and is relatively simple to operate, Rivera added.

“We continue to say that that business is an incubation,” he said. “We see growth, and we have been growing that business, but growth is not expected to be linear right now. For us, this is really about the long term. And the long-term is ultimately we want to get into the national insurer carrier business. If you look at the top 10 national insurers in the country, they’re all sitting with the incumbent. We would love to earn our fair share of that business. And when we do, you’re going to see a nice unit step change in the business, both from an EBITDA dollars perspective and also from a margin perspective.”

Rivera also said M&A in the glass segment won’t be large, such as new vertical entries, in the short term.

“M&A has been a tool in the tool belt for a long time,” he said. “In the short term, what you should expect from us is M&A as it relates to bolt-on makes a ton of sense. It’s a great way to deploy capital, and that’s a business that we understand.”

The fireside chat webcast is available here.

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