$DRVN Cruising through the Driven Brands thesis | Kyle Mowery GrizzlyRock Capital

You're about to listen to yet another value podcast with your host, me, Andrew Walker. Today I have one of my favorite people in the industry, Kyle Mowery from Grizzly Rock Capital on. We're going to be talking about Driven Brands. The ticker there is DRVN. Disclosure, as I'll talk about on the podcast, I'm long, but you can see the disclaimer about everything not being investing advice in the show notes at the back end of this podcast. Look, we're talking about it because Kyle came on. We did a podcast on Driven about two years ago. A lot, as we are going to talk about, a lot has happened since then. And I think it is a fantastic combination of event-driven, value-driven, lots of fundamental research to be done, lots of game theory to be applied. Hence why I'm long. Again, disclaimer, disclaimer, disclaimer. But yeah, look, it's an awesome podcast. I think you're really going to enjoy it. Kyle's one of my favorite people in the industry, so we're going to get there in 1 second. But first, word from our sponsors. Today's podcast is sponsored by fiscal.ai. Fiscal.ai is a modern financial data provider for global equities. In addition to their web-based terminal, Fiscal is one of the leading data connectors for Claude and ChatGPT. With their self-serve API, you can connect in real-time fundamental data directly to your LLM. And look, I said it in podcast before and I'll say it again. I am They're not just an advertiser. I've been doing lots of cool stuff with Claude and co-workers in particular, building all sorts of awesome tools, and I needed a API. So guess what? I signed up with my own money, tossed my own credit card down, and said, "Hey, fiscal.ai, I I need you guys to plug into my Claude co-worker for me so I can keep building these cool tools and have access to real-time fundamental data and stock prices everything." And that includes more than 20 years of financial statements, ratios, filings, segments, KPIs, and all sorts of other things. Unlike other providers, their data updates within minutes of earnings reports, not days. So whether you want powerful out-of-the-box terminal or the real-time AI connector with API, you can use my link at fiscal.ai/yab, that's fiscal.ai/yab, to get 15% off. And they'll be a link in the show notes, All right, hello and welcome to yet another Value Podcast. I'm your host Andrew Walker. With me today I'm happy to have on from Grizzly Rock, my buddy Kyle Mowry. Kyle, how’s it going?

Good. Thank you for the time.

I’m really excited today. Before we get there, a quick disclaimer: Nothing on this podcast is investing advice. That’s always true, but there are 2 things to remember about today’s podcast. First, I have a pretty decent-sized long position in it, so I’m very much talking my own book. That’s my disclosure; I’ll let Kyle give his own if he wants to in a second.

Second, this company is going through, as we’re going to address, a big accounting restatement, which increases all sorts of risks. So, just remember: not investing advice. The full disclaimer is at the end of the podcast and in the show notes.

Kyle, the company we’re going to talk about today is Driven Brands. The ticker is DRVN. We did a podcast on it—it must have been 2.5 years ago at this point. I was re-listening to parts of it to prepare for this podcast, and I think it holds up well. I’ll include a link to that in the show notes if you want to listen to it, but I’ll toss it over to you. What is Driven Brands? What has happened in the past 2.5 years that has made us want to do a new podcast on it? Then we can go from there.

The question on the podcast is reasonable because I thought we were only allowed to talk about AI-related things these days, Andrew.

You joke, and I saw you last week. As you know, every day I look at the memory stocks, I’m like, “What am I doing with my life?” And every day I do something with AI, and I’m like, “How long can I make a living with my brain?” I’m a very handsome man, but how long am I going to be able to make a living with my brain? So, I see potential.

The jokes aside, Driven Brands is a very simple business in terms of the products that it offers. It’s automotive aftermarket. The crown jewel is Take 5. Take 5 is a wonderful business: It’s a quick-lube business. It was the underpinning of our original thesis, and it underpins the thesis today. There’s been a lot of noise, and we’ll get to that.

Just to level-set for anyone who listened to the podcast in fall 2024, the stock was in the $14s, and the thesis was, “Hey, look, they’re going to exit car wash.” Car wash was a capital-allocation disaster, frankly, and that actually occurred. The catalyst has occurred in that both U.S. car wash and international car wash were not only divested, but those sales have closed as well.

That was a main catalyst we were looking at and a reason we were long then and, candidly, we’re long now based on Take 5. Those catalysts actually did materialize. A large reason was the low purchase price—or low sales price on those businesses—but also this accounting issue.

I do find Driven very interesting here in terms of being catalytic. I know we’ll get to that in a little bit, but it’s cheap, it’s growing, it has cash flow, and it’s catalytic. So, I think even in a world for event-driven, value-oriented folks, it’s worth a look, in my opinion.

You used “catalytic” twice, and I think you’re going to have to start saying “pun intended” if you use “catalytic” when you talk about a car wash business.

Let’s ignore the elephant in the room—the accounting restatement—for a second. We will talk about that, and I’m happy to wax poetic on it. I want to ask a historical question, and then I want to dive into the Take 5 business, because I do think that, unless you think this is out-and-out fraud—I rarely use that term—or that there are no Take 5s in existence, we can bucket the accounting restatement and focus on Take 5 as a whole to start.

Let me ask you the historical question, which I probably have less information on. When I look at those 2025 car wash sales, they look to me like a very low multiple. I want to ask about that because, again, Take 5 is the whole ball game to me, and we’ll get there in a second.

When I look at those multiples, I say, “Man, these car wash multiples, even though it wasn’t a great business—it was tough, especially the international one—it came in pretty low.” It makes me wonder: Am I wrong that Roark owns 65% of this and that they’re going to realize reasonable value for it? Or was I just so wrong on the business? And does that mean I’m wrong on the other business here? I’d love to start with that past thing that we were alluding to in the last podcast.

I keep a couple of books on my literal desk—my main desk—and one of them is Capital Returns. I think anyone who focuses on Capital Returns-style investing understands supply and demand.

Very simply, the car wash business in the United States became oversupplied in a dramatic way, and that was the initial foray that allowed the share price to re-rate to a level that I personally found attractive a couple of years ago. This oversupply was persistent, the quality of Driven’s individual car wash locations was not great, and ultimately, in an oversupplied market, the price was low.

The price was lower than we had put in our original deck, which I believe I put in the public domain concurrent with the podcast in late 2024. So, you can go back and check the numbers. The price was lower.

I think in the end, they just wanted out of any business tied to weather. They wanted to simplify the business and narrow it to high-margin, recurring franchise revenue and Take 5, which is the crown jewel. So, for simplicity, I think they just said, “Look, we really screwed up in terms of capital allocation a couple of years ago. Let’s just start over from a car wash perspective. Let’s just take it off the board, simplify, and get back to focusing on cash flow and growth.”

I completely agree, but again, I don’t have the car wash multiple in front of me. I’m trying to flip through my notes. I didn’t put the car wash multiple in my notes, but I think they sold these things for mid-single-digit EBITDA multiples.

Yeah, it was about 8 times on the U.S. business; let’s call it 7-ish on international.

I thought it was a little lower than that, but yeah. Especially the international business, I thought it was a fine business, and you looked at those multiples and were just like, “Ugh.”

If I was a turn or 2 off here on the lower-quality business, which was at a lower multiple, what if I’m more than a turn or 2 off on the crown jewel? So, let’s go to Take 5. Again, I think people are going to look at this and see the accounting restatement, and the accounting restatement is scary and it’s a near-term headline. We’ll talk about that at the end.

But I continue to believe Take 5 is the whole ball game. I think it’s the crown jewel, and I think you think it’s a crown jewel. I’m happy to lob in a lot of thoughts, and as you know, I’ve done a lot of diligence here, but let’s just start at a high level. Why do we think Take 5 is a crown jewel, and let’s start trying to build out the value of Take 5?

Sure. Take 5 is typically a 2-bay, stay-in-your-car quick-lube service. It’s cheap, friendly, and efficient. You get in, you get out, and the locations are good. The four-wall unit economics are very, very strong. This started down in the South, in the area that you’re near and dear to.

Started in Louisiana, in Metairie, Louisiana.

That’s where I’m from.

That’s right, Louisiana. From there, it grew quickly in the Southeast, and now it’s national, right? They have almost 1,300 locations across the United States, and they’re going to 2,500. So, there’s significant embedded growth of units, and each unit—each box—whether it’s corporate-owned or franchisee-owned tends to be state-by-state, depending on whether it’s franchise or corporate.

The point is that the returns on capital are very, very good, whether it’s Driven’s capital or a franchisee’s capital. The reason is that it’s a simple service, it’s very quick to get people in and out, and the customer’s happy. So, you have a situation where it’s win-win-win.

To make things very simple, Valvoline, which is a more known brand and a little larger as well, has very similar returns on capital, and that business trades at 11 times. They’re also, you know, 11 times this year’s EBITDA. What you see is that the returns for Valvoline are strong, and the returns for Take 5 are strong. But what public-markets investors can’t see past is all the noise associated with Driven as it relates to Take 5. The reason I bring up Valvoline’s returns on capital and multiple is that it speaks to the quality of that very simple, straightforward business.

Perfect. You hit on a lot of the points that I wanted to make, but let me go through a few. When we did this podcast in 2024, and fast-forward to today, I think there were a few questions that, even if someone’s listening for the first time, they’re going to have. The first question is, “Hey, what about the rise of electric vehicles? What happens as electric vehicles rise?” I think there was an answer then, and I think there’s an answer now. I think they’re similar, but I’d love to ask you: If electric vehicles are coming and slowly displacing part of the car parc, why is this an 11-times-EBITDA business? I was kind of surprised when I heard this 3 years ago. Why is this a growth-business, crown-jewel multiple? Doesn’t this feel like it should be a sunset business?

Well, in the United States, over 90% of the cars sold are ICE-powered, and that’s even for 2025, right? The costs of an electric car are significant, and there are still range issues. I think those problems will be solved down the road. But the reality is that the U.S. car parc is over a decade old on average, and that car parc is mostly ICE cars.

I think we, as investors, probably skew a little bit higher socioeconomically on average, and more of our friends probably have EVs. But when you just look at the data, when we did our original cohort analysis in 2024, we projected that the U.S. car parc, in terms of ICE-powered vehicles, was going to peak in 2032 or 2033. We’re not seeing any data that would suggest that has changed.

When you think about the franchisees and the cash-on-cash returns here, where the car parc is now and where it’s going, that speaks to a 20-year life cycle for each unit. Maybe let me flip the script and ask you. I know you’ve spoken with some franchisees in the quick-lube industry. What are you hearing from these guys?

No, you hit the nail on the head. The franchisees range from—I don’t want to say mom-and-pop, because you do need a little bit of money to get started here—but it ranges from people who I think are more in this for a real-estate or hobbyist play to serious, sophisticated small private-equity shops that are looking to open 20, 30, or 40 boxes.

When I talk to the more mom-and-pop types, they say, “Hey, I get the real estate. That’s a problem for 10 years down the road, and I’ll have taken all of my cash out multiple times over by then.” When I talk to the private-equity firms, a lot of it is exactly what you’re saying: “Hey, I think 2 years ago they would have said peaking in 2032 or 2033. I think now they’re saying, ‘Hey, the ICE car parc is going to peak in 2035 to 2037, maybe later.’”

We’re all dead in the long run. By the way, after it peaks in 2035, there’s another 15 years of servicing behind it. The other side of that coin is, “Hey, we get great cash-on-cash returns, and we also think we get a big tailwind from both premiumization—higher, more synthetic oil changes—and we’re going to continue to take share from maybe not dealerships as much, but just legacy oil changes.”

I do think there’s an interesting push and pull with dealerships putting people in warranty and stuff, but definitely with legacy auto mechanics. They just think this is where the puck is going. There’s going to be a lot more share, so that’s what I’m hearing from franchisees.

One of the reasons I liked this was that, when I talked to the franchisees, they were confirming what you and I are saying. They like this business. They want to open more stores. The business is good now. I’ve missed the mark on franchisees before, but it’s a pretty broad base, so I’m hearing it from a lot of people. I’ll pause there if you’ve got anything.

No, just don’t take our word for it. Look at the units. The units are growing at double digits. Franchisee and corporate units, and Driven and Valvoline, are all very similar in terms of growth profile. So, you’re seeing multiple different types of investors put their capital to work in the industry.

But the other thing about Valvoline—and one of the reasons I’ve taken a lot of comfort here, as you mentioned—is that you’ve got a public peer that’s saying everything we’re saying, and there’s a public multiple on it, right? If you don’t believe Take 5 is worth low-double-digit multiples, Valvoline’s got low-double-digit multiples. One of them can’t be correct.

Let me just stay on Valvoline. I think both you and I anchor on Valvoline, and it’s funny you said 11 times EBITDA because I have the same number when I fair-value Take 5. I’ve kind of got something somewhere in there. But I do think a person could look at Take 5 and, even setting aside the restatement stuff, Valvoline just reported, I think, last week.

Yeah.

They did 8.2% same-store sales. Two-thirds of that, from memory, was price, and one-third of that was increased transaction volume, right?

Yeah.

Take 5 did 4%. They came out with a preliminary report because they’re in the accounting restatement, but they did 4%. This is off a high 3s in the last quarter of last year.

I think a skeptic might look at this and say, “Hey, you guys are comparing Take 5 to Valvoline. Forget the accounting and forget all this. You guys are comparing it to a better system. They do have differences in how the boxes are run. You’re comparing it to a better-run brand, and it’s a better system. So, if Valvoline’s worth 11, maybe Take 5 is worth 9 or something.” What would you say to that on the multiple discrepancy?

I don’t disagree, but Driven’s trading at 8, not 9. I don’t believe we’re taking, quote-unquote, multiple risk, right? It’s already trading at 8. It’s on this year’s numbers. It’s going to keep growing, so that number goes down out into the out years.

I think there’s a chance for Take 5 to improve, but if they don’t, I think the reasons that Driven trades at 8 and Valvoline trades at 11 speak to leverage and just all the chaos that’s been driven since it came public, right? I think I’ve said to a few friends, “Three strikes and you’re out here,” right? You had car wash, strike 1. CFO—now, this is a couple of years ago even—but CFO, strike 2. And now, is this strike 3? The accounting restatement: strike 3 for Driven in the public markets.

I know we’ll get to the event part later, but I do think there’s a significant possibility that things begin to happen and value begins to unlock here.

Let’s start transitioning to the elephant in the room: the restatement. But just one other thing I would add there: You said the strikes. When I talked to a lot of friends, especially before the restatement—maybe after the restatement, too, but before the restatement—I know a lot of people who looked at this and said, “Hey, I think Take 5’s a good business. I think the other businesses are fine. But if they’re going to do 500 million in EBITDA next year, 180 million of that is going to be add-backs.”

They were looking at those add-backs and saying, “That is not a clean number.” This relates to the restatement because I think they were saying, “I don’t know if I can trust the accounting. I don’t know if I can trust the numbers.” That’s an issue that, as we start talking about restatements—and we’ll go there in 1 second—I think will shine through.

I don’t know if you want to say anything on the add-backs or if you want to go into the restatement.

It’s a valid point. Our thesis, when I did the first pod on Driven with you, was that the numbers were going to get cleaner. The ERP was going in. Car wash was sort of like, “Is it in a process? Is it not in a process?” It was, but the point is that corporate costs were 20% of revenue, and now they’re 25%, right?

The numbers are extremely noisy today, and I had anticipated that they would get less noisy. That was just something that my base case did not account for—the noise—but I still think there’s an opportunity for those to get less noisy.

I think this ERP—and I guess this will probably take us into the accounting particulars. This ERP is one of the reasons, in my personal opinion, that this accounting restatement even happened, right? But it's done, it's in, and it's about getting things clean and getting simplicity, right? Debt down, getting re-segmented. This is the second time they've re-segmented, and they re-segmented 2 weeks right before this happened. And that tells me—let's just get into it, I guess, since I kind of stepped—

Yep.

—stepped on it. You know, if you're putting out data for the first 3 quarters of 2025 2 weeks before you have to pull the plug on the 10-K, that tells me that the magnitude of the accounting restatement is not as large, because if it was huge, they would have known about it 2 weeks before they pulled the plug, right? So, you have this issue where they're working to get to that cleaner, clearer number, and that is certainly the goal in what they were saying to the street throughout 2025.

Let's go to the accounting restatement, then. For anybody who wants to, you can pull it up. On February 25 of this year, they filed an 8-K that says, "Hey, we're not going to be able to file our 10-K." It's a short 8-K, but for a restatement 8-K, there's a lot of stuff that they were stating. And the market pukes all over this, right? This is an accounting restatement. People say, "I can't trust this." This is a business with leverage. So, if you've got a restatement, you can't trust it. Even a small change in the EV is going to drive a big change in the stock price.

When it came out, I know you and I were talking that day, but to me, I looked at this and I said, "Hey, this looks like a scary headline." And I think you and I came at it different ways. You said, "Hey, look at the re-segmenting there and all that sort of stuff." I looked at the 8-K and I said, "People can go read it. All of the stuff they're talking about happened in fiscal 2024. Basically, all of the things that they talked about relate to not fiscal 2025—the numbers that we're really caring about—not the current business. It was way in the past."

I believe it was an Oracle ERP that got implemented in July 2024. A new CFO comes in October 2024 or something, if I remember correctly. So, to me, I looked at it and said, "Hey, I think they implement an ERP, a new CFO comes in, they sell both U.S. Car Wash and International Car Wash, and then when they're getting ready to close the books on 2025, there are all these old issues from the old ERP that are getting surfaced, or that might have been immaterial when they filed 2024, but now they are material because they've disposed of assets." So, that's kind of how I looked at it.

An accounting restatement is hard to talk about on a podcast. We can talk about it any which way. I've got notes on every single line of the 8-K, but however you want to talk about it, wherever you want to go on the accounting restatement, let's do it.

Yeah, and not to get too wonky, there were 4 line items. 3 were innocuous. 1 was spicy.

Wait, wait, wait. Let me get this. So, there are 4: lease adjustments, cash adjustments, expense classification, and other errors. You said 1 was spicy. The one that always jumps out to me is cash adjustments. That was the spicy one, but were you referring to a different one?

No, cash.

Yeah, that's the one.

Cash should be the one thing that's readily accountable.

We're on the same page. The cash adjustments are the ones that gave me a little heartburn when I was thinking through this, yeah.

Yeah, but again, I just want to double-click on the magnitude, right? The CFO didn't resign. The auditor didn't resign. You have a combination of ERP and magnitude, and there's just a lot of things moving in the shuffle: real estate that was purchased for car wash, leases that were entered into for car wash, et cetera. Now, that's all leaving the system, right?

So, I think there's a materiality argument, if one wants to make that argument, for this being nasty, for sure. Look at the stock. Look at the reaction. If you get under the hood and you just think, okay, first principles: does this business exist? Yes. Do these locations exist? Yes. Is the cash flowing through these businesses? Yes. And so, when you go and look operationally, it gives you a sense that the accounting issues were probably overblown when the stock—I mean, the stock went from 16 to 10, right? And that was at 19 last year, and now it's at 13 and change.

So, at 10, I would argue that it was overly punitive for what it probably is, and we'll find out in June. But in about a month, they're going to file their 10-K and then guide for 2026.

Yeah. Look, it was and is scary. We can talk about some of the filings since this has come out, which I think takes a lot of the left-tail risk off, but you can disagree. But, yeah, I just kept looking at this and saying a lot of this looks pretty innocuous.

As we talked about, you can talk to the franchisees. This is not—the worst restatements are percentage-of-completion buildings for engineering companies and stuff, because then you're like, "Oh, this might be a complete bag of goods." Here, you could talk to the franchisees, and not just at Take 5. I mean, there's a Take 5 2 minutes from my house in Kenner, Louisiana. You know that there's something there. You can talk to the franchisee, you can see the FDD. It doesn't mean that there's not fraud, but it was just hard to marry that with this.

Let's go quickly line by line, and I'll tell you and you tell me if I'm wrong. We mentioned there were 4. The first thing was lease adjustments, which are errors related to right-of-use assets and right-of-use liabilities. I mean, I saw that and I was pretty much like, "No big deal." You can agree or disagree with me.

I agree.

Okay. The next thing was expense classifications. Now, expense classifications—I'm not saying it's great—but it was during fiscal years 2023 and 2024. Notably to me, when I was reading it, it did not have anything in fiscal 2025. And I think it said that it caused an overstatement of company-operated stores expenses. So, maybe they were more profitable.

But I read that and said, "Oh, if I'm thinking of this as a business on a go-forward basis, I don't think this is a huge deal." You can agree or disagree.

I agree. And really, what that was was back in the day, when they were trying to be this giant platform. It was a 2021 IPO, and they were building up this wonderful platform, right? They had this platform segment, even—

It was a crazy time, 2021. We all wanted platforms, man.

Yeah, yeah. So, I think a lot of that was related to: are we building this supplier within the business that also supplies other businesses, and it's sort of this— So, that accounting is like, okay, was it platform, or was it at the store, or where does it go and how do you account for it?

Honestly, if you got 3 accountants in a room, you might get 2 or 3 different answers. And so, that to me was also less, quote-unquote, scary.

We mentioned the cash adjustments. I mean, that's the scary one. It says, "Certain errors relating to cash accounts." You say, "Oh my God, the 1 thing you should be able to account for is—you just pull up a—here's December 31, the bank statement from the bank." You feel like that should be pretty good.

But when I read it, I really noted—I’ve got this highlighted—"Cash amounts primarily originating in fiscal years 2023 and earlier." So, I looked at that and I said, "Hey, even if there were things missing, I think I can trust fiscal 2024 and definitely fiscal 2025 year-to-date on the cash balances. So, maybe there was—Is there any fraud going on here, Mike? Maybe there were some light cash issues years and years ago, but I don't think I'm missing anything there."

That was the one, as you said, that gave me heartburn, but you could tell me if I'm justifying it to myself or if it was too crazy.

No, I think the question is magnitude, right? If it's $5 million, that's a lot of money in the real world, but for something like Driven, that would be a wonderful sigh of relief. If it's a giant number, then I guess we'll be wrong.

But even if it was a giant number, again, if they filed—and this is why I think some of the left-tail risk has come out, because they filed some of the things—but if they filed and said, "Hey, our 2023 cash balance was $100 million short, but no changes to 2024 or 2025," I don't even know how that'd be possible. But the thing that just kept jumping out to me was it didn't say anything about the cash statement in the present day.

I agree.

Yeah. And then the last thing was other errors, and there's a lot of things in here. Again, when I looked at this, many of them are fiscal 2023 or 2024. This is the only thing that's really in fiscal 2025. It says, "Inappropriately recognized revenue for our ATI business in fiscal 2025."

Right.

I mean, that's where you start getting into the spicier accounting things, but the way I justified it to myself is I looked through everything and ATI is their absolute smallest business. So, I was like, even if this gets written off and there's nothing there, it's so small they never even mention it anymore. It's not going to impact the value.

It's a training business, if you will. It's a training program, might be a better word, for franchisees, of which they have many, right? They have them not only at Take 5, but they also have Meineke and Maaco.

Yep.

A number of automotive and auto-body repair businesses.

Yeah, okay.

And I should note they just put out an 8-K saying that, in Q1 of 25, revenue is going to go down $1 million to $5 million. So, let’s just pick the midpoint and call it $3 million, and pick a margin on that. They’re talking about gross profit of probably less than $1 million for that quarter.

Well, I’m glad you mentioned Q1 and the recent 8-K, because I think we can fast-forward a little bit. We kind of froze for that discussion at our February 25 8-K. We have had subsequent developments, and the 2 big ones, I would say, are that on April 21 they filed an 8-K with preliminary unaudited results for 2025 and Q1 2026. And just last Friday—you and I are recording May 11—on May 8, they filed an NT 10-Q for the Q1 2026 quarter that says, as you said, $1 million to $5 million in restatement impacts for 2025.

So, I said, “Hey, I think between the 2 of them, a lot of the left-tail risks that were really scary when that February 8-K came out are off the table, because they started giving you information.” But I don’t want to put words in your mouth. If you’ve got different feelings, I’d love to hear how you’re looking at that.

No, I don’t think so. I was telling another friend of ours, “Look, the lawyers are in charge here. The lawyers are signing most of these documents. The lawyers are not going to let numbers leave that aren’t buttoned up at this point, right?” It’s pretty embarrassing for the company that it got to this point, but we are where we are. Now they’re going to be buttoned up 3 different ways. When you start talking about numbers of these magnitudes, it’s a small sigh of relief for Driven investors.

Let me flip to, when I talk to people who are skeptical or bearish on Driven right now, I think the main things I’m hearing are, “Hey, look at what they filed in the April 21 update, right?” The first thing they’d point to is that Driven says, “Hey, here’s what 2025 looks like,” but they did not give an adjusted EBITDA number for Q1 2026 or any guidance. They say the reason they can’t do that is because of the accounting restatements.

Both them and, I’ll be honest, me—I think I’m the one who coined this line—as I said earlier, about $500 million in EBITDA and, like, $120 million in add-backs, this company has never had any issue with doing add-backs. Why can’t they just say, “Hey, here’s our adjusted EBITDA, and by the way, we’re going to be adding back $20 million in accounting restatements”? So, I think a lot of the bears look at that—it’s the dog that didn’t bark, right? These guys won’t give an adjusted EBITDA number, and they’re worried that the fundamentals here are really bad. I think there are counters to that, but I’ll pause on that.

I think the counters are fairly weak until we get the numbers. We’re speculating about what numbers they’re going to file and what add-backs they’re going to include. My sense is, with the ERP and the finance function built out here, that this accounting restatement is probably going to be a one-time thing in terms of accountants and lawyers, primarily. But their finance systems should be okay to run a simpler business—XUS and international car wash, right?

I mean, I don’t know why, if they have to add $30 million of costs to the income statement structurally, then maybe the bears have the argument. But in the absence of real numbers, it’s very convincing for the bears to make that argument.

This other bear point will come up when we talk. I’ll walk you through my sum-of-the-parts, or we can do the sum-of-the-parts together, whatever it is, but I want people to know what we’re playing for. The other bear point is there’s a huge corporate expense burden here, right? It’s approaching—it’s not quite, but let’s just use round numbers—it’s approaching $200 million per year in corporate expenses.

The reason I mentioned that was because you mentioned, “Hey, tacking on another $30 million of ongoing finance costs.” I think another bear point is, “Andrew, you are using a Take 5 EBITDA number. You cannot use that number. It is not fully loaded.” There are tons of things that any standalone business would do that they’re pulling out into the corporate number.

I’ll be honest with anyone: there’s an activist here who’s published stuff. We can talk about it. The corporate expenses here have ballooned.

Yeah.

I kind of look at this and I don’t know what they’re spending so much money on. We can talk about the controlling shareholder, but I look at it and think, “Am I missing something because the corporate expense is so high?” So, this ties into the fundamentals and it ties into the restatement, but I’ll just toss it over to you: What do you think about that corporate expense load historically and going forward as it relates to this investment?

Well, the growth in corporate expenses is probably my biggest question for when they come back into the public markets, in terms of speaking with investors and having their quarterly guidance. If you just look at straight-up 10-K SG&A, it’s about 20% of revenue for Valvoline, and for many years it was about 20% for Driven, right? But that number over the last couple of years for Driven drifted toward 24% or 25%.

So, you’re talking about 400 to 500 basis points of SG&A that is unexplained. In my mind, when I read that 10-K for 2024, I said, “Okay, well, look, they’ve got car wash and all this noise, and they’re still trying to grow Take 5. There’s just a lot of chaos, and so they needed people. Or there are some other costs that are rolling through.”

Now, this is clearly a Roark-controlled company. They own over 60%, right? They’re making those decisions, and the disclosures are not as detailed as they could be. They have more information than we do, right? So, they know exactly what it is at the line-item level, and we don’t. We may or may not ever know the grand total with granularity, but we have the advantage of liquidity. That’s the offset—and price, right? To get in and get out. But just to focus on that, does that answer the question?

Yeah, I think it did. I mean, the answer is, “Hey, we aren’t 100% sure.” As you said, 20% of sales—this is a $2 billion revenue company—so if it goes from 20% to 25%, you’re talking $100 million of add-on expenses, if I’m doing that math in my head, right? That’s a lot of money.

Let me ask the Roark question. We’ll come back to Roark in a second, but maybe this is just me being—maybe you know that meme with the bell curve, where the guy in the middle is the dumbest, the guy who’s drooling actually says something really smart, and the guy who’s like the Jedi agrees with him. Maybe this is me being on the far left of the curve, but when this came out, one of the reasons I got so interested was I thought, “Look, there might be issues, but I feel like I can cut off the far-left tail where this is a complete and outright fraud: A, because I’ve talked to franchisees; B, because I’ve seen Take 5; and C, because Roark owns 65% of this, and they IPO’d it.”

I don’t think there’s ever been a private-equity-backed company like this, right, where the private equity firm Roark literally built this. I’m sure private equity has invested in frauds. I know that for sure. But I don’t think there’s, like, a Roark-built and IPO’d consumer brand that was a fraud, and I don’t even know how that would have been possible.

One of the ways I got comfortable was I thought, “Roark might not be the best controlling shareholder.” We’ll talk about that later, but I don’t think they could have been part of a fraud here. Was that too dumb? Was that right? How would you feel about that statement?

Yeah, I don’t believe there’s a reasonable possibility that that’s an outright fraud. There are too many people, too many channel checks that have been done, too much reinvestment in growth, and so on. I don’t think that’s even on the table.

Yeah, and again, another reason I got comfortable here was that this is not percentage-of-completion accounting. At its core, the main business is Take 5. Somebody drives in, swipes a credit card, pays you $50 for changing their oil, and then drives out. It’s done in 10 minutes. It just shouldn’t be that hard to account for, and unless you think somebody ran off with the cash, it’s tough to see.

Last bear point I’ll throw out there, and then we can maybe talk about the sum-of-the-parts and anything else you want to hit: We already talked about, “Hey, maybe you can’t comp Take 5 to Valvoline because Valvoline just seems to be executing better, even though there are all sorts of other things, like returns on invested capital, to consider.” But we already talked about that.

I think the other bear point people would make is that there are other brands beyond Take 5. There’s Meineke, there’s the auto-glass business, and there are some other smaller franchise businesses in here. They don’t seem to be doing that well, right? The performance seems to be deteriorating.

If you look at the Q1 guide, it basically implies that the non-Take 5 business is probably flat on same-store sales. This is an inflationary consumer environment, and flat same-store sales are not great. Net unit growth at the non-Take 5 businesses has basically stalled out.

So, I think the last bear point would be, “Hey, you guys are talking about this, and Take 5 might be good, but if you took a 1-turn multiple away from Take 5 versus Valvoline, and then you said all the rest of these businesses are growing at X or maybe shrinking—and I know you and I have looked at franchises that are shrinking—the multiples get challenged real fast.”

If you do that math—hey, you're buying an accounting restatement without that much upside. I think that's what a bear might say to us.

Yeah, kind of two parts there. So, on what they now call franchise brands, that segment has Meineke, which is general automotive repair; then Auto Body, which is mostly an insurance-pay customer; and then there's Maaco. Maaco is auto paint, and its core customer is on the lower part of that K. It's a more discretionary, older car: “I want to fix my paint or paint a different color,” or whatnot.

What you saw was that they had a pretty good hiccup, actually, in Q2 of 2025. A lot of that was related to tariffs, economic questions, and pressure on the low end of the K. I would just say that, yes, that occurred. But in terms of whether that business can be flat over time, yeah, I think it will, right?

Driven is not trying to grow the franchise brand units. They're trying to maintain them. What is that worth in today's market, right? Jiffy Lube just sold—the sale was private—but depending on what source you read, you'll hear multiples between 8 times and 9 times. And that is not for a franchise system, right?

A franchise system is very low-capital-intensity for Driven. There is some operational intensity, and maybe you're seeing that as part of the corporate costs, but you are seeing good free-cash-flow conversion. They also fund the debt, which, while the debt is in the 3s right now at Driven, is clearly coming down over time. It's very, very low cost.

I would say, pick a multiple on that. I think in my original deck, I used a double-digit multiple on that line item, if you will. I don't think that multiple can be compressed much below 10, just because of the capital-light nature of that revenue stream.

You know, it is interesting. One of the reasons I was able to get comfortable with Take 5 is because I could talk to franchisees. The funny thing is, if I'm just looking very quickly at some notes, I think Take 5 has 780 corporate stores and 500 franchise stores. So, 60/40.

The funny thing is, the franchise business, as you said, is capital-light and recurring; somebody else puts it in, everybody loves it, but it's worth a higher multiple. One corporate store is probably worth 10 franchise stores, just in terms of value to the company.

Even if you think it's split 50/50, right, that means, you know, 95% of the value is from the corporate stores. Five percent is from the franchise stores, maybe 7% because it's a bigger thing. The corporate stores are where all the value is, and that's just one of the interesting things I've thought about.

I'll pause there. I want to switch over to some of the sum-of-the-parts, but I'm just going to pause there. You can comment on anything—on my eureka moment on corporate versus franchise, or anything else in the bear points, or anything you think we haven't hit on the fundamentals.

No, there's a lot that I want to get to in terms of go-forward—what do I expect to happen after the pod—but let's do some of the sum-of-the-parts first. Why don't we, again, put the question to you? I know this concept seems trite these days, but how are you thinking about intrinsic value or value to a private purchaser?

As I've said, I think all of the value—not all of the value, but the vast majority of the value—is in Take 5. I started investing—buying this, again, disclosure, I'm long—right when the accounting issues cropped up. Because of that, I stress-tested the Take 5 valuation. I've got 15 different ways I stress-tested it, but it's so funny you mentioned Valvoline trades at 11x.

All of the valuations I did kind of centered around the same thing. I did it unit by unit, franchise by franchise—everything. All the values ended up centering around this: if you think Valvoline's worth 11x, Driven's probably worth about 11x.

If I just say, “Hey, I think the Take 5 business does about $400 million in EBITDA,” and slap an 11x multiple on that, that covers all of the debt and covers the share price up to $17 per share. Then I get the franchise business and the Auto Glass business for free.

Franchise Brands does, I think, $180 million in trailing EBITDA. Auto Glass does $20 million in trailing EBITDA. Corporate is negative; it has about $150 million to $170 million in corporate costs. There are a lot of add-backs there, but what I basically thought is, “Hey, I think Auto Glass plus Franchise Brands is worth more than corporate plus add-backs, but just call it a wash.” I've got Take 5 up to $17, and now we're at $13. It was $11 to $12 when I was doing this math, but I think that's a pretty large margin of safety.

The other reason I like this is that everyone knows I love a shitty company that will not grow in value, that's just got a bunch of cash, and I just need management to unlock it. I think Take 5 will grow in value. So, if I sat here and, for some reason, things hadn't resolved a year from now, I think Take 5 would be worth $20 per share, and I kind of like that combo.

What did you think of that very quick, high-level SOTP?

I don't disagree with it. You came at it with fresh eyes, right? You were able to take a newer look at the system. Take 5 has the majority of the value here, but I would say that on Franchise Brands, I think people are overlooking the sustainability of the cash flow.

I think a lot of people in the public markets would be shocked at the private-market value, specifically to a private-equity purchaser like Roark, for that line, because of the cash-light nature of the operation. Excuse me—cash, there's no capex.

Yes, yes, yes, yes.

And I think the multiple would be a lot higher than people in the public markets are using. Because there's no growth, and we're in a market that focuses on growth and momentum more than free cash flow today, I think many in the public markets are underestimating the multiple that would trade at if it traded.

Secondly, Auto Glass. I was overly bullish on Auto Glass in my original write-up, but I don't think that business is dead. I think it's delayed, okay? What Auto Glass is, is they built a national No. 2 to Safelite by combining 13 different regional players. It's all on one operating system. It has the chance to grow tremendously.

So, I don't know what multiple that should trade at, because disclosure on Auto Glass has been very, very limited. That may, in fact, be a large part of the corporate cost. I don't know. That's my No. 2 question when they come back to speak in public: What's going on with Auto Glass? Where do you think the business will be in 3 to 4 years?

But I do think those businesses have latent value that's very hard to see in your sum of the parts. I don't disagree with it, but if those businesses sold in the private markets this summer or this fall, I think they'd sell at higher numbers than you had in your sum of the parts.

You know, the only thing I wanted to add there is that you and I are familiar with some franchisee streams that might have a little bit more cyclicality or questionableness of terminal value. I won't disclose them here, but think about something like CrossFit. If you were looking at a CrossFit franchisee stream and said, “Hey, it grew like crazy from 2016 to 2019,” well, now you've got to start saying, “Well, I don't know how sustainable this is. Fitness ebbs and flows.”

Meineke and Maaco were started in 1972. You look at the past 10 years of financials, and it is just rock-solid steady. People who are familiar with some of these smaller franchises might say, “Oh, I knew franchisees that trade for 8x in the public markets.” And I'd say, “A, they're probably worth more in the private markets, but B, Meineke and Maaco do not have that same issue.”

People are going to be getting their cars repaired and their cars painted for the next—I guess until AI takes over and never has an accident again. I just think the quality of that, to add on to what you were saying, might be lost in the public markets.

Auto Glass, I'm with you. If you talk to the company, they'll say, “Hey, it's a matter of when, not if. We will get a big national contract that will make this investment really work and turn it into Take 5 2.0.”

Okay, so it sounds like we're kind of aligned on roughly the sum of the parts and everything. Let's do—I want to do 2 more things before we wrap this up: how the accounting plays out and then Roark's motivations. Let's do the accounting first, because Roark can't do anything until the accounting plays out.

I think the other bear point I didn't mention is that the company has come out and said, “We will file our 10-K by the middle of June.” I can't remember the exact date. A lot of the bears I've talked to—and I will admit I've got some suspicions—will say, “Hey, if you look at the history of restatements like this, they're saying they're going to get this done in 4 months. You can't find an example of one getting done in 4 months. This is going to be an 8-month restatement. This is going to be a year-long restatement.”

So, they think the company is underselling how long the restatement will take. An extra month introduces extra uncertainty. It introduces extra cost and everything. I'll pause there. What do you think? Will this get resolved in the middle of June, or do you think this is going to drag on longer?

The simple answer is I don't know, and you cannot prove the counterfactual.

When this all hit, my estimate was late May. A lot of people I highly respect disagreed with me on that, both shorter and longer. Now it looks like it's going to be early June. My thinking is: no CFO resignation, no auditor resignation, and they put out new information 2 weeks before they pull the numbers.

My sense is that this is just barely a foot fault, to use a different sports analogy. It's a foot fault. They're not driving right over the line and leaving bodies in the wake. That is accounting, particularly on leaseholds and where the expenses go. That's fine; the lawyers and accountants can figure that out.

Look, I don't know, and I hate to say, "Oh, it's June for sure," and then have it be September. It could be anything. But the probability and the magnitude here, I think, are manageable, and certainly manageable in the context of the event path, which I do want to get to once we finish the accounting section.

No, look, I talked to the bears there. My overarching thing would be that I kind of agree with you. Again, I was a little skeptical of June. I think they've kind of put themselves on the line with it, but I talked to the Take 5 people. I see the Take 5 value.

If I'm buying this whole company for less than the value of Take 5 and getting the other brands for free, why do I care if it's June or September? Maybe that's too cavalier because everybody says they don't care about mark-to-market, but at some point everybody cares about mark-to-market. I don't think the market's going to be too happy if this isn't done in June, but at this point I think they're going to get it done in June. If it comes in September, I think they'll be fine.

Let's talk about what Roark does. Again, Roark is, for those who aren't familiar, the private equity company. They own, let's just call it, 2/3 of the company here. They've owned this for a long time. They obviously took it private, then sold a little bit after they took it public. I think their motivations and what they do on the back end of this are really interesting.

I'll turn it over to you for what they do, but I will just mention one thing that you and I talked about. We're recording this May 11. On May 8, there's actually a news report that goes out: Inspire Brands, which Roark owns—it has to be their largest investment by far—is going to IPO in the back half of the year. I can't help but think: Does Roark really want this? Inspire Brands is a big, franchise-retail-focused company. Does Roark really want this dog of an accounting restatement out there while they're going to pitch Inspire Brands? I've kind of softballed this to you, but I'd love to turn it over to you: What do you think Roark does? Once the accounting is resolved, what happens here?

Yeah. The caveat here is that I've never spoken to Roark about Inspire or Driven. I've never tried to speak with Roark about Inspire or Driven. So it's pure speculation—one man's opinion.

I'm conflicted because of that point that bulls made to me over the last couple of years: "Oh, they're going to clean it up before they IPO Inspire." Maybe, maybe not, right? It's a different segment of investor. It's large-cap, simple growth. That story is different from, look, there's only $800 million in public market cap on Driven, right?

A lot of that is held by folks who have held it for a long time. It's all public, and these firms are well respected in the fundamental investing community, such as North Peak and others, right? Is that the same segment that's buying? Is someone looking at Driven and looking at Inspire? Maybe, maybe not, right? And I don't know. I don't know what Roark's going to do.

I wrote to my investors a couple of months ago and said, "Look, here's what I think's going to happen. There are 2 paths forward. One: Now, we sold the car wash. We're going to just simplify with what we have. Yeah, we had this foot fault with the accounting, blah, blah, blah. Explain it away, get the revenue, continue growing, get the debt down, and remain in the public markets."

In that scenario, you probably never get the multiple you deserve because investors have long memories, and nobody wants to get burned by buying Driven because of all these 3 strikes that I talked about earlier. In that scenario, it probably takes a couple of years for the stock to wander into the low $20s, right? Take 5 growth, deleverage, et cetera. That's a fine return. But I think, for event-driven or catalytic investing—pun intended—

There you go. Yes, there you go.

Pun intended. I think the catalytic angle is that Roark runs a process, either for the entire business or for the franchise brands, and that may or may not have the car wash stapled to it. I think in that scenario Roark probably won't disclose whether they're running that or not. Same thing they did with the car wash: They never disclosed it until the day it was sold, right?

So I think this summer or fall we could see a scenario in which part of the business or all of the business is off the board, publicly speaking. If you look at the history of auto body, that is classic private-equity-owned and built that industry. There are a lot of people on private-equity teams that understand these businesses, and we can talk about some of the safety improvements, reduction of collisions, et cetera. I think we hit that on the last pod.

The reality is I think we will know by Labor Day or at least Halloween where this is going, and we shall see whether that's activists or other private equity, whether that comes public or private. I don't know vis-à-vis Roark, but Roark doesn't want to deal with this. I mean, they own this in fund vintages that are 10 years old and 14 years old.

The question is, if it was a newer-vintage fund, you might see them reach into their pocket and take minority shareholders out and fix it in the private markets, away from scrutiny and podcasts and the like. But when you're in a 14-year-old fund, what's your time frame? You're probably already in the year, sort of extended a couple of years here. So I think Roark probably wants out more than they want back in, is my guess.

Yeah, I think that's right. To me, obviously the ideal would be they clean this up and say, "Hey, we're done with this. We're running a full process. We're selling everything, and this goes off the board." I know some bulls who say, "You won't pry a share out of my hands before we get to $25." I know some bulls who say, "You won't pry a share out of my hand before we get to $35." I'll take either. Thank you very much.

Your dream case is a restatement followed by a full sales process. But I will tell you, a restatement followed by selling franchise brands, as you said, and maybe turning this into just Take 5 and Auto Glass—I think you said maybe they stay fully franchised with Auto Glass. But if you have Take 5 plus the growth upside of Auto Glass, and corporate expenses either cut down or maintained, I think this would be a very attractive public-market compounder.

"Hey, we run similar to Valvoline. We run this at 3x. Valvoline just bought Grease, which I think is going to be a pretty good acquisition, despite the FTC making them divest. Maybe we can find a bolt-on or 2 to the Take 5 system. If not, we're going to run this at 3x leverage, grow Auto Glass, and return all the capital to shareholders."

I think that would get a pretty strong multiple in the market, and either one of those—I think the stock would respond very well to the paths A and B I laid out there.

Yeah, I think there's a pretty straightforward way to make 50% or more over the next, let's just call it, 12 to 18 months.

When you're dealing with memory stocks that go up 50%, I mean, is it a week? Is it a day? It sounds trite, and maybe it is trite, but I would be very happy with that return. Again, I'm long it. That's kind of my base-ish case, to be honest with you.

I think we're good because it's been about an hour. We've hit just about everything on my question list. I think we did a really nice job discussing everything, but I'll pause here. Anything else you want to talk about, or anything else we should be thinking about mentioning?

No, I don't think so. I appreciate the time. I know this one's always awkward, if you will, to come back a year and a half later and say, "Oh, all I did was lose $1 on a $14 stock," and all the noise associated with that. So I appreciate the platform and the intellectual back-and-forth there.

Well, I appreciate it. One of the reasons I could ramp up so quickly is because I studied this so hard. Look, it went from $14 to $19, and then they had accounting issues.

Last one, and then I'll let you go. You mentioned capital cycles, which I've been thinking about a lot more. In my younger, dumber days, I was like, "Capital cycles, who cares? We study the fundamentals." But I've been thinking about them a lot more.

I know the one you've been looking at is not supposed to be much. I think you've been looking at housing-related companies a lot. I've been looking at a little bit of senior living. How are you feeling about capital cycles? What are the most interesting capital-cycle stories these days?

Good.

We started working on housing on the back of last summer. We haven’t made many investments. It’s publicly disclosed in our 13F that we’re long Olin. Its chlor-alkali and downstream products are wildly interesting as they relate to housing and other general industrial production.

The rest of the housing work that we’ve done hasn’t received as much capital because of the correlation to the 10-year, right? If the 10-year is at 4, the housing stocks will do well. At 4.4, roughly where it is today, they’re not going to do as well, and the correlation to rates is very, very high. So it’s functionally a macro play. There are some very interesting things we’ve been studying—brokerage and some of the building products—but there’s very little capital that we’ve actually deployed out the door.

But senior living is a home run because the demographics are so strong, especially on the private-pay side. Again, there, it’s management quality and what they’re going to do, because the multiples are typically high. I think Sonida is a wonderful business. I’m not long—I should be long—but it’s a wonderful business run by an exemplary capital allocator who’s well known in the fundamental investing world.

We’re talking May 11; it is 3:00 p.m. Eastern right now. There will be a Sanida write-up going out in the next 24 hours on Yet Another Value Blog. Sonida is the reason I was thinking about it for this, but there are others out there.

As I’ve gotten more gray hairs on my head, the capital cycle stories do speak to being a value investor. You wait until something is so starved out that nobody will put capital in it, and that’s where you can get spikes. Look at memory, right? Memory is a capital cycle story right now. The question now is, when is somebody going to say, “Hey, all the memory stocks are trading like they’ll make 50% ROEs forever. Why don’t we just go build the fourth memory player?” The stocks keep doing this; somebody’s going to do it. But it’s all capital cycles. I suppose in the space, man, shorting has always been the meme, but yeah.

Yeah, no, and again, probably a little bit downstream, but people are still with us. There are headlines today about China ramping supply, and China’s ramping supply has destroyed so much value in Western industrial production businesses. They’re either in AI and doing great, or they’re not in AI and they’re doing poorly.

For the ones that are not in AI and are doing poorly, almost all of that pressure is due to increased Chinese supply in the last 5 to 8 years. So anyone involved in memory—and I’m not involved, long or short—needs to study what’s being produced in China and what could be produced in China very, very closely. But as of now, shortages and prices are up.

Well, I’m going to have to wrap it up here, but Kyle, this has been great. As Kyle knows, he’s one of my favorite people in the industry, so I appreciate you coming on. We will chat soon, whether it’s on the podcast or offline. Talk to you soon, buddy.

Yes, sir.

A quick disclaimer, nothing on this podcast should be considered investment advice. Guests or the hosts may have positions in any of the stocks mentioned during this podcast. Please do your own work and consult a financial advisor. Thanks.