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

Episode Summary

Executive Summary: Andrew Walker and Kyle Mowry argue that Driven Brands (DRVN) remains an event-driven value opportunity despite an accounting restatement. They focus on Take 5 oil change as the core asset, compare it to Valvoline, assess EV and car-park dynamics, parse the restatement’s likely scope, and debate whether Roark may simplify or sell parts of the business once accounting is resolved.

Main Topics: Take 5 as the core value driver (Priority: 5/5): Both speakers frame Take 5 as the crown jewel: a quick-lube business with strong unit economics, national scale, and meaningful embedded growth. They view it as the primary source of intrinsic value in DRVN. Accounting restatement and credibility risk (Priority: 5/5): They dissect the February 25, 2025 restatement 8-K, concluding the scary headline likely overstated the operational damage. The main concern is the cash adjustment item, but both think the issues are mostly historical and likely limited in magnitude. Comparable valuation vs. Valvoline (Priority: 4/5): Valvoline serves as the key public-market comp. They argue Take 5 has similar returns on capital and should justify a low-double-digit EBITDA multiple, while DRVN trades at a discount because of noise, leverage, and credibility issues. EV penetration and long-run demand for oil changes (Priority: 4/5): Kyle argues electric vehicles are not yet a sufficient threat to the U.S. car parc, which is still overwhelmingly ICE-powered and aging. He believes the business has a long runway, with peak ICE penetration still years away. Corporate overhead and add-backs (Priority: 4/5): A major bear case is that DRVN’s corporate expense load has ballooned and current EBITDA may not be fully loaded. They debate whether the company can simplify costs after the ERP transition and asset sales. Non-Take 5 businesses and sum-of-the-parts (Priority: 3/5): They discuss the franchise brands, auto glass, and smaller assets as possible hidden value. The speakers disagree slightly on valuation but broadly think the market is underappreciating the private-market worth of these assets. Roark Capital’s incentives and possible catalysts (Priority: 3/5): They speculate on whether Roark will hold, simplify, or sell pieces of DRVN once the restatement is complete. The upcoming Inspire Brands IPO is discussed as a possible timing/PR consideration for Roark.

Key Arguments: Take 5 is a high-quality, capital-light, recurring service model with strong four-wall economics and meaningful rollout potential. DRVN’s car wash divestitures were sold cheaply because the category was oversupplied and strategically non-core, not because Take 5 is weak. The accounting restatement is unsettling, but most items appear historical and not indicative of an outright fraud or a broken current business. Cash adjustments are the most concerning restatement item, but the transcript suggests they largely relate to years 2023 and earlier. Valvoline’s public multiple supports a low-double-digit EBITDA valuation for Take 5; DRVN trades lower because of “three strikes” of bad news and leverage. EV adoption is not yet sufficient to undermine the business: over 90% of U.S. car sales are still ICE, and the current car park remains mostly internal combustion. Corporate expenses are the biggest ongoing question; bears argue DRVN’s overhead may be far too high versus peers and may suppress valuation. The franchise brands and auto glass may be worth more in private markets than public investors assume, especially given their cash-light nature and potential strategic buyer interest. Roark likely prefers simplicity and may eventually run a process for some or all of the business, but timing and structure are uncertain. The stock could still offer 50%+ upside over 12-18 months if Take 5 rerates and the restatement uncertainty resolves. Data Points: DRVN stock price before restatement reaction: mid-$14s - Referenced as the earlier level in the prior podcast thesis before the accounting issue DRVN stock reaction to restatement: fell from about 16 to 10 - Walker cites the post-restatement market selloff Current DRVN stock price during discussion: about 13 and change - Referenced as the share price at the time of recording Take 5 locations: almost 1,300 locations - Current U.S. footprint discussed by Mowry Take 5 long-term unit target: 2,500 locations - Embedded growth runway cited for Take 5 U.S. cars sold that are ICE-powered: over 90% in 2025 - Used to argue EV adoption is not yet a major threat Average age of U.S. car park: over a decade old - Supports the case for ongoing oil-change demand ICE car parc peak estimate: 2032-2033 - Original 2024 cohort analysis estimate cited by Mowry Alternative ICE peak estimate from franchisees: 2035-2037 or later - Franchisee sentiment on how long ICE demand may last Valvoline valuation multiple: about 11x EBITDA - Benchmark comp for Take 5 valuation DRVN trading multiple: about 8x EBITDA - Walker cites current discount versus Valvoline Public peer same-store sales: Valvoline +8.2% - Walker notes Valvoline’s recent comp growth Take 5 recent same-store sales: about 4% - Referenced as preliminary/reporting period performance Car wash sale multiple (U.S.): about 8x EBITDA - Discussed as the U.S. car wash divestiture valuation Car wash sale multiple (international): about 7x EBITDA - Discussed as the international car wash divestiture valuation Potential EBITDA referenced by bears: about $500 million EBITDA with $120-$180 million add-backs - Used to question quality of reported earnings Corporate expense burden: approaching $200 million annually - Bear concern about overhead and centralized costs S&G&A as % of revenue for Valvoline: about 20% - Used as a benchmark for DRVN corporate cost efficiency S&G&A as % of revenue for Driven historically: about 20%, drifting to 24-25% - Illustrates overhead expansion over time Restatement impact on 2025 revenue for ATI: $1 million to $5 million - Latest NT 10-Q / 8-K guidance on smaller business revenue adjustment Potential gross profit impact from ATI restatement: less than $1 million per quarter - Derived from the $1M-$5M revenue impact Estimated Take 5 EBITDA used in valuation: about $400 million - Walker’s sum-of-the-parts framework Estimated Take 5 standalone value target: about $17 per share - At an 11x multiple, before assigning value to other assets Potential stock upside scenario: 50%+ over 12-18 months - Mowry’s and Walker’s broad event-driven return expectation

Pivotal Quotes: "Take Five is a wonderful business. It's a quick loop business. It was the underpinning of our original thesis, and it underpins the thesis today." — Kyle Mowry: Explaining why Take 5 remains the central bull case despite the restatement "I continue to believe take five is the whole ballgame." — Andrew Walker: Walker frames the investment thesis around the core quick-lube asset "There were four line items, three were innocuous, one was spicy." — Andrew Walker: Summarizing the accounting restatement items and highlighting cash adjustments as the most concerning

Implications: Listeners are encouraged to separate Take 5’s business quality from short-term accounting noise. If the restatement is contained, DRVN could rerate on simplification, deleveraging, or a strategic process; if not, overhead and trust issues may cap upside.