Published: 2021-11-09 00:00:00 ET

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Description of Business

Driven Brands Holdings Inc., together with its subsidiaries (collectively, the “Company”), is a Delaware corporation and is the parent holding company of Driven Brands, Inc. and Shine Holdco (UK) Limited (collectively, “Driven Brands”). Driven Brands is the largest automotive services company in North America with a growing and highly-franchised base of more than 4,300 franchised, independently-operated, and company-operated locations across 49 U.S. states and 14 other countries. The Company has a portfolio of highly recognized brands, including Take 5 Oil Change®, Meineke Car Care Centers®, MAACO®, CARSTAR®, and 1-800-Radiator & A/C® that compete in the automotive services industry. Approximately 81% of the Company’s locations are franchised or independently-operated.

Initial Public Offering and Secondary Offering

On January 14, 2021, the Company completed an initial public offering (the “IPO”) of approximately 32 million shares of common stock at $22 per share. On February 10, 2021, the Company’s underwriters exercised their over-allotment option to purchase approximately 5 million additional shares of common stock. The Company received total proceeds of $761 million from these transactions, net of the underwriting discounts and commissions.

The Company used the proceeds from the IPO, along with cash on hand, to fully repay the First Lien Term Loan, Second Lien Term Loan, and revolving credit facility assumed as part of the acquisition of International Car Wash Group (“ICWG”) in 2020 (collectively, the “Car Wash Senior Credit Facilities”), which totaled $725 million with interest and fees. The Company recognized a $46 million loss on debt extinguishment related to this settlement, primarily related to the write-off of unamortized discount. The Company cancelled the interest rate and cross currency swaps associated with these debt agreements as part of the settlement. The Company also used $43 million in proceeds to purchase approximately 2 million shares of common stock from certain of our existing shareholders.

On August 2, 2021, the Company filed a Registration Statement on Form S-1 for a secondary offering of approximately 12 million shares of common stock at $29.50 per share by certain of the Company’s stockholders, Driven Equity LLC and RC IV Cayman ICW Holdings LLC, each of which is a related party of Roark Capital Management, LLC. The Company did not sell any common stock in the offering and did not receive any proceeds from the offering. On September 8, 2021, the underwriters for the secondary offering exercised a portion of their over-allotment option and purchased 881,393 additional shares of common stock. The Company did not receive any proceeds from the exercise of the over-allotment option.

Income Tax Receivable Agreement

The Company expects to be able to utilize certain tax benefits which are related to periods prior to the effective date of the Company’s IPO and are attributed to current and former shareholders. The Company previously entered into an income tax receivable agreement which provides our pre-IPO shareholders with the right to receive payment of 85% of the amount of cash savings, if any, in U.S. and Canadian federal, state, local and provincial income tax that the Company will actually realize. The income tax receivable agreement is effective as of the date of the Company’s IPO, and the Company has recorded a liability of $156 million as of September 25, 2021, which is recorded under long-term liabilities as the income tax receivable liability on the consolidated balance sheet.

Stock Split

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Fiscal Year

The Company operates and reports financial information on a 52- or 53-week year with the fiscal year ending on the last Saturday in December and fiscal quarters ending on the 13th Saturday of each quarter (or 14th Saturday when applicable with respect to the fourth fiscal quarter). The three and nine months ended September 25, 2021 and September 26, 2020, each consist of 13 and 39 weeks, respectively. The Car Wash segment (primarily ICWG which was acquired in August 2020) is currently consolidated based on a calendar month end. See Note 3 for additional discussion regarding the acquisition of ICWG.

Basis of Presentation

The unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of results of operations, balance sheet, cash flows, and shareholders’ equity for the periods presented have been reflected. The adjustments include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

These interim consolidated financial statements should be read in conjunction with the consolidated financial statements as of and for the year ended December 26, 2020. Certain information and note disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. The results of operations for the three and nine months ended September 25, 2021 may not be indicative of the results to be expected for any other interim period or the year ending December 25, 2021.

Use of Estimates    

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and the related notes to the consolidated financial statements. Estimates are based upon historical factors, current circumstances and the experience and judgment of the Company’s management. Management evaluates its estimates and assumptions on an ongoing basis and may employ outside experts to assist in its evaluations. Changes in such estimates, based on more accurate future information, or different assumptions or conditions, may affect amounts reported in future periods.

Deferred IPO costs

Costs incurred that are directly related to the IPO, such as legal and accounting fees, registration fees, printing expenses, and other similar fees and expenses, totaling $9 million were capitalized and included within prepaid and other assets as of December 26, 2020. Upon completion of the IPO, the Company reclassified these costs, as well as an additional $6 million of IPO costs incurred during the nine months ended September 25, 2021, to Additional paid-in capital.

Fair Value of Financial Instruments

Financial assets and liabilities are categorized, based on the inputs to the valuation technique, into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to the quoted prices in active markets for identical assets and liabilities and the lowest priority to unobservable inputs. Observable market data, when available, is required to be used in making fair value measurements. When inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement.

The Company classifies and discloses assets and liabilities carried at fair value in one of the following three categories:

•Level 1: Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity as the ability to access at the measurement date;

•Level 2: Inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; or

•Level 3: Inputs are unobservable inputs for the asset or liability. Unobservable inputs are used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.

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Financial assets and liabilities measured at fair value on a recurring basis as of September 25, 2021 and December 26, 2020 are summarized as follows:

Items Measured at Fair Value at September 25, 2021
(in thousands)			Level 1						Level 2						Total
Mutual fund investments held in rabbi trust			$	983					$	—					$	983
Foreign currency derivative liabilities not designated as hedging instruments			$	—					$	509					$	509

Items Measured at Fair Value at December 26, 2020
(in thousands)			Level 1						Level 2						Total
Mutual fund investments held in rabbi trust			$	704					$	—					$	704
Foreign currency derivative assets not designated as hedging instruments			—						227						227
Total assets measured at fair value on a recurring basis			$	704					$	227					$	931
Interest rate swap liabilities designated as hedging instruments			$	—					$	9,561					$	9,561
Cross currency swap liabilities not designated as hedging instruments			—						12,197						12,197
Total derivative liabilities			$	—					$	21,758					$	21,758

The fair value of the Company’s foreign currency derivative instruments are derived from valuation models, which use Level 2 observable inputs such as quoted market prices, interest rates and forward yield curves. Derivative liabilities are included in long-term accrued expenses and other liabilities in the Consolidated Balance Sheet.

The carrying values of cash, restricted cash, and receivables included in the Consolidated Balance Sheet approximate their fair value. The fair value of long-term debt is estimated based on Level 2 inputs using discounted cash flows and market-based expectations for interest rates, credit risk and contractual terms of the debt agreements.

The carrying value and estimated fair value of total long-term debt were as follows:

			September 25, 2021												December 26, 2020
(in thousands)			Carrying value						Estimated fair value						Carrying value						Estimated fair value
Long-term debt			$	1,695,679					$	1,754,963					$	2,125,207					$	2,169,597

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Accumulated Other Comprehensive Income (Loss)

The following tables present changes in each component of accumulated other comprehensive income (loss), net of tax.

			Three months ended September 25, 2021
(in thousands)			Foreign currency translation adjustment						Cash flow hedges						Defined benefit pension plan						Accumulated other comprehensive income (loss)
Balance at June 26, 2021			$	19,002					$	(57)					$	(91)					$	18,854
Net change			(30,903)						(1)						3						(30,901)
Balance at September 25, 2021			$	(11,901)					$	(58)					$	(88)					$	(12,047)

			Three months ended September 26, 2020
(in thousands)			Foreign currency translation adjustment						Cash flow hedges						Defined benefit pension plan						Accumulated other comprehensive income (loss)
Balance at June 27, 2020			$	(7,489)					$	—					$	—					$	(7,489)
Net change			(2,981)						552						—						(2,429)
Balance at September 26, 2020			$	(10,470)					$	552					$	—					$	(9,918)

			Nine months ended September 25, 2021
(in thousands)			Foreign currency translation adjustment						Cash flow hedges						Defined benefit pension plan						Accumulated other comprehensive income (loss)
Balance at December 26, 2020			$	16,834					$	(87)					$	(219)					$	16,528
Net change			(28,735)						29						131						(28,575)
Balance at September 25, 2021			$	(11,901)					$	(58)					$	(88)					$	(12,047)

			Nine months ended September 26, 2020
(in thousands)			Foreign currency translation adjustment						Cash flow hedges						Defined benefit pension plan						Accumulated other comprehensive income (loss)
Balance at December 28, 2019			$	3,626					$	—					$	—					$	3,626
Net change			(14,096)						552						—						(13,544)
Balance at September 26, 2020			$	(10,470)					$	552					$	—					$	(9,918)

Recently Adopted Accounting Standards

In December 2019, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, as part of its initiative to reduce complexity in accounting standards. The amendments in this ASU simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and improve consistency by clarifying and amending existing guidance. The Company adopted the ASU on December 27, 2020, and the adoption did not have a material impact on the Company’s consolidated financial statements.

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2021 Acquisitions

During the nine months ended September 25, 2021, the Company completed 25 acquisitions in the Car Wash segment, representing 66 car wash sites, each individually immaterial (the “2021 Car Wash Acquisitions”), which were deemed to be business combinations. The aggregate cash consideration for these acquisitions, net of cash acquired and liabilities assumed, was approximately $427 million.

The provisional amounts for assets acquired and liabilities assumed for the 2021 Car Wash Acquisitions are as follows:

(in thousands)
Assets:
Cash																		$	161
Right of use assets																		2,487
Land and improvements																		46,495
Building																		232,375
Equipment																		46,063
Inventory																		311
Intangibles, net																		550
Deferred tax assets																		212
Assets held for sale																		996
Assets acquired																		329,650
Liabilities:
Accrued liability																		356
Lease liability																		2,587
Deferred tax liabilities																		812
Liabilities assumed																		3,755
Net assets acquired																		325,895
Total consideration																		427,236
Goodwill																		$	101,341

We also acquired separately identifiable intangible assets certain of which have not presented above as the valuation has not yet been performed. All goodwill was allocated to the Car Wash segment and substantially all is deductible for income tax purposes.

In addition, during the nine months ended September 25, 2021, the Company completed four acquisitions in the Maintenance segment representing four maintenance sites, each individually immaterial (the “2021 Maintenance Acquisitions”), which were deemed to be business combinations. The aggregate cash consideration for these acquisitions, net of cash acquired and liabilities assumed, was $8 million.

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The provisional amounts for assets acquired and liabilities assumed for the 2021 Maintenance Acquisitions are as follows:

(in thousands)
Assets:
Land and improvements																		$	1,590
Building																		3,390
Equipment																		850
Deferred tax assets																		28
Assets acquired																		5,858
Liabilities:
Prepaid liability																		20
Liabilities assumed																		20
Net assets acquired																		5,838
Total consideration																		7,601
Goodwill																		$	1,763

In addition, during the nine months ended September 25, 2021, the Company completed an acquisition of two collision sites, each individually immaterial, which are included within the Company’s Paint, Collision & Glass segment (the “2021 PC&G Acquisitions”), which were deemed to be business combinations. The aggregate cash consideration for these acquisitions, net of cash acquired and liabilities assumed, was $2 million.

The provisional amounts for assets acquired and liabilities assumed for the 2021 PC&G Acquisitions are as follows:

(in thousands)
Assets:
Right of use asset																		$	1,067
Equipment																		75
Intangibles, net																		1,804
Deferred tax assets																		23
Assets acquired																		2,969
Liabilities:
Accrued liability																		5
Lease liability																		1,089
Liabilities assumed																		1,094
Net assets acquired																		1,875
Total consideration																		1,969
Goodwill																		$	94

Included in the total consideration amounts above for the Car Wash and Maintenance acquisitions in 2021 was $8 million of consideration not paid on the closing date. The Company had $11 million of deferred consideration related to 2021 and 2020 acquisitions at September 25, 2021. The Company had $5 million of deferred consideration related to 2020 acquisitions at December 26, 2020. The Company paid $2 million of deferred consideration related to 2020 and prior acquisitions during the nine months ended September 25, 2021. Deferred consideration is typically paid six months to one-year after the acquisition closing date once all conditions under the purchase agreement have been satisfied.

The Company incurred approximately $1 million of transaction costs during the nine months ended September 25, 2021.

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In addition, during the nine months ended September 25, 2021, the Company completed five acquisitions, each individually immaterial, each of which were deemed to be asset acquisitions as the fair value of assets acquired is substantially all land and buildings. Two of these acquisitions were included in the Car Wash segment and three were included in the Maintenance segment. The aggregate consideration paid for the Car Wash acquisitions and Maintenance acquisitions was $9 million and $2 million, respectively.

2021 Dispositions

On April 27, 2021, the Company disposed of its 70% owned subsidiary, At-Pac Auto Parts Inc., for consideration of $2 million. As a result of the sale, a loss of less than $1 million was recognized within selling, general, and administrative expenses during the nine months ended September 25, 2021. Also, a noncontrolling interest of $1 million was derecognized.

2020 Acquisitions

Acquisition of International Car Wash Group

On August 3, 2020, the Company completed the acquisition of Shine Holdco (UK) Limited, the holding company of ICWG, to expand on its service offerings by entering into the car wash business (the “ICWG Acquisition”). The ICWG Acquisition resulted in the Company acquiring 940 car wash centers in 14 countries across the United States, Europe, and Australia. The following table presents the final purchase price allocation for the ICWG Acquisition, which was deemed to be a business combination:

(in thousands, except shares)						August 3, 2020
Assets:
Cash						$	37,011
Accounts and notes receivable						2,591
Inventory						12,761
Fixed assets						692,486
Operating lease right-of-use assets						479,787
Definite-lived intangibles						5,972
Indefinite-lived intangibles						165,730
Other assets						7,476
Total assets acquired						1,403,814
Liabilities:
Accounts payable						13,435
Long-term debt						656,684
Deferred income tax liability						134,130
Operating lease liabilities						476,216
Derivative liabilities						12,714
Other liabilities						82,307
Total liabilities assumed						1,375,486
Net assets acquired						28,328
Non-controlling interest acquired						400
Total consideration paid (39,169,857 common shares)(1)						809,000
Goodwill						$	781,072

(1) Common shares issued as consideration have been adjusted to reflect an implied 88,990-for-one stock split that became effective on January 14, 2021. See Note 1 for additional information.

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The fair value of the equity consideration was determined based on an estimated enterprise value using a market approach and income approach as of the purchase date, reduced by borrowings assumed. The Company finalized its purchase accounting estimates during the nine months ended September 25, 2021 related to the deferred tax liability and other liabilities and, as a result, reduced goodwill related to the ICWG Acquisition by approximately $1 million.

Acquisition of Fix Auto

On April 20, 2020, the Company acquired 100% of the outstanding equity of Fix Auto USA (“Fix Auto”), a franchisor and operator of collision repair centers, for $29 million, net of cash received of approximately $2 million. This acquisition resulted in the Company acquiring 150 franchised locations and 10 company-operated locations and increased the Company’s collision services footprint within the Paint, Collision & Glass segment.

The following table presents the final purchase price allocation for the Fix Auto acquisition, which was deemed to be a business combination:

(in thousands)						April 20, 2020
Assets:
Cash						$	2,020
Accounts and notes receivable, net						2,317
Inventory						414
Prepaid and other assets						293
Operating lease right-of-use assets						7,520
Property and equipment						1,023
Definite-lived intangibles						15,200
Assets acquired						28,787
Liabilities:
Accounts payable						1,835
Accrued expenses and other liabilities						2,919
Operating lease liabilities						7,520
Income taxes payable						673
Deferred income tax liabilities						3,770
Liabilities assumed						16,717
Net assets acquired						12,070
Total consideration						31,460
Goodwill						$	19,390

A summary of total consideration for Fix Auto is as follows:

(in thousands)
Cash			$	28,517
Fair value of contingent consideration			2,943
Total consideration			$	31,460

The Company recorded a liability for the fair value of contingent consideration of $3 million associated with the Fix Auto acquisition, which was subsequently increased to $4 million at December 26, 2020. The Company recorded a $4 million benefit to Acquisition costs in the Consolidated Statement of Operations during the three and nine months ended September 25, 2021 related to the reversal of the liability as the payment of contingent consideration was deemed to be remote.

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Other Acquisitions

During the fourth quarter of 2020, the Company completed the acquisition of 17 car wash sites, each individually immaterial, which are included within the Company’s Car Wash segment (the “2020 Car Wash Acquisitions”). The aggregate cash consideration paid for these acquisitions, net of cash acquired and liabilities assumed, was $109 million.

The following table presents the final purchase price allocation for the 2020 Car Wash Acquisitions, which were deemed to be business combinations:

(in thousands)
Assets:
Cash						$	41
Land and improvements						18,635
Building						42,570
Equipment						12,125
Deferred tax assets						5,117
Assets acquired						78,488
Liabilities:
Deferred revenue						368
Liabilities assumed						368
Net assets acquired						78,120
Total consideration						108,771
Goodwill						$	30,651

The valuation for the acquisitions requires significant estimates and assumptions. The estimates are inherently uncertain and subject to revision as additional information is obtained during the measurement period for the acquisitions. There were no measurement period changes related to Fix Auto acquisition or the 2020 Car Wash Acquisitions during the nine months ended September 25, 2021.

The Company records contract assets for the incremental costs of obtaining a contract with a customer if it expects the benefit of those costs to be longer than one year and if such costs are material. Commission expenses, a primary cost associated with the sale of franchise licenses, are amortized to selling, general and administrative expenses in the consolidated statements of operations ratably over the life of the associated franchise agreement.

Capitalized costs to obtain a contract as of September 25, 2021 and December 26, 2020 were $10 million and $9 million, respectively, and are presented within deferred commissions on the consolidated balance sheets. The Company recognized an immaterial amount of costs during the three and nine months ended September 25, 2021 and September 26, 2020, respectively, that were recorded as a contract asset at the beginning of the period.

Contract liabilities consist primarily of deferred franchise fees and deferred development fees. The Company had contract liabilities of $25 million and $21 million as of September 25, 2021 and December 26, 2020, respectively, which are presented within deferred revenue on the consolidated balance sheets. The Company recorded less than $1 million of revenue during both the three months ended September 25, 2021 and September 26, 2020, that was recorded as a contract liability as of the beginning of the period. The Company recorded $2 million and less than $1 million of revenue during the nine months ended September 25, 2021 and September 26, 2020, respectively, that was recorded as a contract liability as of the beginning of the period.

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The Company’s worldwide operations are comprised of the following reportable segments: Maintenance; Car Wash; Paint, Collision & Glass; and Platform Services. The Car Wash segment was formed in connection with the acquisition of ICWG in August 2020.

In addition to the reportable segments, the Company’s consolidated financial results include “Corporate and Other” activity. Corporate and Other incurs costs related to advertising fund revenues and expenses and shared service costs, which are related to finance, IT, human resources, legal, supply chain and other support services. Corporate and Other activity includes the adjustments necessary to eliminate intercompany transactions, namely sales by the Platform Services segment to the Paint, Collision & Glass and Maintenance segments, respectively.

Segment results for the three and nine months ended September 25, 2021 and September 26, 2020 are as follows:

			Three months ended September 25, 2021
(in thousands)			Maintenance						Car Wash						Paint, Collision & Glass						Platform Services						Corporate and Other						Total
Franchise royalties and fees			$	9,635					$	—					$	20,280					$	9,038					$	—					$	38,953
Company-operated store sales			125,561						74,105						12,723						1,465						(99)						213,755
Independently-operated store sales			—						47,941						—						—						—						47,941
Advertising fund contributions			—						—						—						—						19,762						19,762
Supply and other revenue			9,261						1,516						17,572						31,558						(9,170)						50,737
Total revenue			$	144,457					$	123,562					$	50,575					$	42,061					$	10,493					$	371,148
Segment Adjusted EBITDA			$	47,894					$	37,999					$	22,039					$	16,254					$	(25,558)					$	98,628

			Three months ended September 26, 2020
(in thousands)			Maintenance						Car Wash						Paint, Collision & Glass						Platform Services						Corporate and Other						Total
Franchise royalties and fees			$	6,971					$	—					$	19,235					$	10,599					$	(285)					$	36,520
Company-operated store sales			101,023						28,586						9,556						1,686						(63)						140,788
Independently-operated store sales			—						30,595						—						—						—						30,595
Advertising fund contributions			—						$	—					—						—						14,927						14,927
Supply and other revenue			6,642						$	4					18,281						27,370						(7,365)						44,932
Total revenue			$	114,636					$	59,185					$	47,072					$	39,655					$	7,214					$	267,762
Segment Adjusted EBITDA			$	34,774					$	17,739					$	23,231					$	13,306					$	(19,966)					$	69,084

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			Nine months ended September 25, 2021
(in thousands)			Maintenance						Car Wash						Paint, Collision & Glass						Platform Services						Corporate and Other						Total
Franchise royalties and fees			$	26,651					$	—					$	57,578					$	23,011					$	—					$	107,240
Company-operated store sales			365,735						196,858						37,672						3,911						(368)						603,808
Independently-operated store sales			—						160,483						—						—						—						160,483
Advertising fund contributions			—						—						—						—						56,665						56,665
Supply and other revenue			25,231						4,800						49,791						94,576						(27,199)						147,199
Total revenue			$	417,617					$	362,141					$	145,041					$	121,498					$	29,098					$	1,075,395
Segment Adjusted EBITDA			$	132,895					$	115,223					$	61,534					$	44,864					$	(76,422)					$	278,094

			Nine months ended September 26, 2020
(in thousands)			Maintenance						Car Wash						Paint, Collision & Glass						Platform Services						Corporate and Other						Total
Franchise royalties and fees			$	21,028					$	—					$	52,220					$	21,377					$	(411)					$	94,214
Company-operated store sales			268,267						28,586						21,613						5,020						(147)						323,339
Independently-operated store sales			—						30,595						—						—						—						30,595
Advertising fund contributions			—						—						—						—						42,429						42,429
Supply and other revenue			16,552						4						47,287						80,184						(18,912)						125,115
Total revenue			$	305,847					$	59,185					$	121,120					$	106,581					$	22,959					$	615,692
Segment Adjusted EBITDA			$	82,579					$	17,739					$	50,119					$	36,740					$	(45,722)					$	141,455

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The reconciliations of Segment Adjusted EBITDA to income before taxes for the three and nine months ended September 25, 2021 and September 26, 2020 are as follows:

			Three months ended												Nine months ended
(in thousands)			September 25, 2021						September 26, 2020						September 25, 2021						September 26, 2020
Income before taxes			$	44,966					$	9,999					$	72,766					$	9,364
Depreciation and amortization			28,447						16,221						78,722						32,656
Interest expense, net			17,688						29,594						52,390						64,973
Acquisition related costs(a)			636						12,076						2,674						13,287
Non-core items and project costs, net(b)			1,357						(2,690)						3,910						(926)
Store opening costs			666						119						1,360						1,921
Sponsor management fees(c)			—						4,278						—						5,357
Straight-line rent adjustment(d)			2,548						485						8,391						3,124
Equity-based compensation expense(e)			933						(182)						2,944						508
Foreign currency transaction (gain) / loss, net(f)			1,074						(2,230)						6,356						55
Bad debt expense			—						—						—						2,842
Asset impairment and closed store expenses(g)			313						741						3,005						7,621
Loss on debt extinguishment(h)			—						673						45,576						673
Segment Adjusted EBITDA			$	98,628					$	69,084					$	278,094					$	141,455

(a) Consists of acquisition costs as reflected within the consolidated statements of operations, including legal, consulting and other fees and expenses incurred in connection with acquisitions completed during the applicable period, as well as inventory rationalization expenses incurred in connection with acquisitions. We expect to incur similar costs in connection with other acquisitions in the future and, under GAAP, such costs relating to acquisitions are expensed as incurred and not capitalized.

(b) Consists of discrete items and project costs, including (i) third party consulting and professional fees associated with strategic transformation initiatives and (ii) other miscellaneous expenses, including non-capitalizable expenses relating to the Company’s initial public offering and other strategic transactions.

(c) Includes management fees paid to Roark Capital Management, LLC.

(d) Consists of the non-cash portion of rent expense, which reflects the extent to which our straight-line rent expense recognized under GAAP exceeds or is less than our cash rent payments.

(e) Represents non-cash equity-based compensation expense.

(f) Represents foreign currency transaction net gains and losses primarily related to the remeasurement of our intercompany loans.

(g) Represents non-cash charges incurred related to the impairment of certain fixed assets and lease exit costs and other costs associated with stores that were closed prior to their respective lease terminations dates.

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Our long-term debt obligations consist of the following:

(in thousands)			September 25, 2021						December 26, 2020
Series 2018-1 Securitization Senior Notes, Class A-2			$	265,375					$	267,438
Series 2019-1 Securitization Senior Notes, Class A-2			291,750						294,000
Series 2019-2 Securitization Senior Notes, Class A-2			269,500						271,563
Series 2020-1 Securitization Senior Notes, Class A-2			172,812						174,125
Series 2020-2 Securitization Senior Notes, Class A-2			446,625						450,000
Car Wash First Lien Term Loan (a)			—						528,858
Car Wash Second Lien Term Loan (a)			—						175,000
Car Wash Revolving Credit Facility (a)			—						18,000
Driven Holdings Revolving Credit Facility			247,000						—
Other debt (b)			34,923						26,763
Total debt			1,727,985						2,205,747
Less: unamortized discount			—						(46,030)
Less: unamortized debt issuance costs			(32,306)						(34,510)
Less: current portion of long-term debt			(18,342)						(22,988)
Total long-term debt, net			$	1,677,337					$	2,102,219

(a)     Car Wash Senior Credit Facilities

(b)     Consists primarily of finance lease obligations. See Note 7.

As discussed in Note 1, the Company used the proceeds from the IPO, along with cash on hand, to fully repay the Car Wash Senior Credit Facilities during the nine months ended September 25, 2021, which totaled $725 million including interest and fees. As a result, the Company incurred a $46 million loss on debt extinguishment related to the write-off of unamortized discount during the nine months ended September 25, 2021.

Series 2019-3 Variable Funding Securitization Senior Notes

In December 2019, the Company issued Series 2019-3 Variable Funding Senior Notes, Class A-1 (the “2019 VFN”) in the revolving amount of $115 million. The 2019 VFN have a final legal maturity date of January 20, 2050. The commitment under the 2019 VFN expires on July 20, 2022, and is subject to three one-year extensions at the election of the Company. The 2019 VFN is secured by substantially all assets of the Issuer and are guaranteed by the Securitization Entities. The Issuer may elect interest at the Base Rate plus an applicable margin or LIBOR plus an applicable margin (the LIBOR rate as the applicable interest rate). No amounts were outstanding under the 2019 VFN as of September 25, 2021. As of September 25, 2021, there were $15 million of outstanding letters of credit which reduced the borrowing availability under the 2019 VFN to $100 million.

Driven Holdings Revolving Credit Facility

In May 2021, the Company entered into a credit agreement to secure a revolving line of credit with a group of financial institutions (“Driven Holdings Revolving Credit Facility”), which provides for an aggregate principal amount of up to $300 million, and has a maturity date of May 27, 2026. Eurocurrency borrowings incur interest at an adjusted London Interbank Offered Rate (“LIBOR”) plus an applicable margin of 1.50%, which may increase to 1.75% based on the Net First Lien Leverage Ratio under the Driven Holdings Revolving Credit Facility. The Driven Holdings Revolving Credit Facility also includes periodic commitment fees based on the available unused balance and a quarterly administrative fee.

As of September 25, 2021, there was $247 million outstanding on the Driven Holdings Revolving Credit Facility, with immaterial accrued interest at quarter-end.

The Company’s debt agreements are subject to certain quantitative and qualitative covenants. As of September 25, 2021, the Company and its subsidiaries were in compliance with all covenants.

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The following table details our total investment in operating and finance leases where the Company is the lessee:

(in thousands)			September 25, 2021						December 26, 2020
Right-of-use assets
Finance leases (a)			$	28,422					$	14,211
Operating leases			905,527						884,927
Total right-of-use assets			$	933,949					$	899,138
Current lease liabilities
Finance leases (b)			$	2,897					$	2,149
Operating leases (c)			61,506						60,095
Total current lease liabilities			$	64,403					$	62,244
Long-term lease liabilities
Finance leases (d)			$	24,413					$	16,726
Operating leases			843,925						818,001
Total long-term lease liabilities			$	868,338					$	834,727

(a) Finance lease right-of-use assets are included in property and equipment, net on the consolidated balance sheet.

(b) Current finance lease liabilities are included in current portion of long-term debt on the consolidated balance sheet.

(c) Current operating lease liabilities are included in accrued expenses and other liabilities on the consolidated balance sheet.

(d) Long-term finance lease liabilities are included in long-term debt on the consolidated balance sheet.

The lease cost for operating and finance leases recognized in the consolidated statement of operations for the three and nine months ended September 25, 2021 and September 26, 2020 were as follows:

			Three months ended												Nine months ended
(in thousands)			September 25, 2021						September 26, 2020						September 25, 2021						September 26, 2020
Finance lease expense:
Amortization of right-of-use assets			$	715					$	280					$	1,970					$	565
Interest on lease liabilities			299						163						796						375
Operating lease expense			29,028						20,874						85,564						46,180
Short-term lease expense			523						685						1,619						818
Variable lease expense			206						203						692						492
Total lease expense			$	30,771					$	22,205					$	90,641					$	48,430

The Company also subleases certain facilities to franchisees as a component of supply and other revenue on the consolidated statements of operations. The Company recognized $2 million in sublease revenue in both the three months ended September 25, 2021 and September 26, 2020 and $5 million in both the nine months ended September 25, 2021 and September 26, 2020.

During the nine months ended September 25, 2021, the Company sold 19 car wash and 3 maintenance properties in various locations throughout the United States for a total of $66 million, resulting in a net gain of $1 million. Concurrent with the closing of these sales, the Company entered into various operating lease agreements pursuant to which the Company leased back the properties. These lease agreements have terms ranging from 15 to 20 years and provide the Company with the option to extend the lease for up to an additional 20 years. The Company does not include option periods in its determination of the lease term unless renewals are deemed reasonably certain to be exercised. The Company recorded an operating lease right-of-use asset and operating lease liability of $62 million and $59 million, respectively, related to these lease arrangements.

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The weighted average remaining lease term as of September 25, 2021 was 11.5 years for finance leases and 14.8 years for operating leases. The weighted average discount rate as of September 25, 2021 was 5.33% for finance leases and 4.82% for operating leases.

Supplemental cash flow information related to the Company’s lease arrangements for the nine months ended September 25, 2021 and September 26, 2020, respectively, was as follows:

			Nine months ended
(in thousands)			September 25, 2021						September 26, 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows used in operating leases			$	79,310					$	40,898
Operating cash flows used in finance leases			736						360
Financing cash flows used in finance leases			921						197
Right-of-use assets obtained in exchange for lease obligations:
Operating leases			$	75,268					$	855,308
Finance leases			7,249						12,808

On January 6, 2021, the Company’s Board of Directors approved the 2021 Omnibus Incentive Plan (the “Plan”) and effective January 14, 2021, the Company’s shareholders adopted and approved the Plan. The Plan provides for the granting of stock options, stock appreciation rights, restricted stock awards, restricted stock units, other stock-based awards, other cash-based awards or any combination of the foregoing to current and prospective employees and directors of, and consultants and advisors to, the Company and its affiliates. The maximum number of shares of common stock available for issuance under the Plan is 12,533,984 shares. In conjunction with the closing of the IPO, our Board granted awards under the Plan to certain of our employees, representing an aggregate of 5,582,522 shares of common stock. At September 25, 2021, 6,986,207 shares of common stock were reserved for additional grants under the Plan.

Prior to IPO, the Parent’s equity awards included Profits Interest Units. There were two forms of Profits Interest - Time Units and Performance Units. Time Units generally vested in five installments of 20% on each of the first five anniversaries of the grant date or vesting date, provided that the employee remained in continuous service on each vesting date. All outstanding Time Units were to vest immediately prior to the effective date of a consummated sale transaction. The Time Units were exchanged for time-based restricted stock awards in connection with the IPO. In addition, the Company granted time-based and performance-based options in connection with the IPO to most employees with Profit Interests (each an “IPO Option”). The time-based restricted stock awards did not require modification accounting.

The Performance Units were to vest immediately prior to the effective date of a consummated sale transaction or qualified public offering, including the IPO (a “Liquidity Event”). The percentage of vesting was based on achieving certain performance criteria. No vesting occurred as a result of the IPO as the minimum performance criteria threshold was not achieved. In connection with the IPO, the Performance Units were exchanged for performance-based restricted stock awards. The vesting conditions of the performance-based restricted stock awards were modified to vest subject to an additional performance condition. Employees who received IPO Options have the same vesting conditions for the performance-based portion of the IPO Options as the performance-based restricted stock awards.

The Company calculated the fair value of these performance-based restricted stock awards on the modification date and determined the fair value of these awards increased to $66 million as a result of modification. In addition, the grant date fair value of the performance-based IPO Options was $26 million. The fair value of the performance-based restricted stock awards and performance-based IPO Options was determined by using a Monte Carlo simulation, using the following assumptions: (i) an expected term of 4.96 years, (ii) an expected volatility of 40.6%, (iii) a risk-free interest rate of 0.48%, and (iv) no expected dividends.

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There was approximately $6 million of unrecognized compensation expense related to the time-based restricted stock awards and time-based IPO Options at September 25, 2021, which is expected to be recognized over a weighted-average vesting period of 3.07 years.

There was approximately $91 million of unrecognized compensation expense related to the performance-based restricted stock awards and performance-based IPO Options at September 25, 2021. For the three and nine months ended September 25, 2021 and September 26, 2020, no compensation cost was recognized for the performance-based restricted stock awards and performance-based IPO Options given that none of the performance criteria were met or probable. Once the performance conditions are deemed probable, the Company will recognize compensation cost equal to the portion of the requisite service period that has elapsed. Certain former employees continued to hold performance-based awards after the IPO.

The Company established other new awards in connection with the IPO, including restricted stock units (“RSUs”) and performance stock units (“PSUs”). Awards established in connection with the IPO may only vest provided that the employee remains in continuous service on each vesting date. The RSUs vest in three installments of 33% on each of the first three anniversaries of the grant date. The PSUs may vest after a three-year period and are contingent on achieving certain performance goals, one being a market condition and the other being a performance condition. The awards are considered probable of meeting vesting requirements or vest upon achieving a market condition, and therefore, have started recognizing expense. The fair value of the PSUs was determined by using a Monte Carlo simulation, using the following assumptions: (i) an expected term of 2.96 years, (ii) an expected volatility of 41.16%, (iii) a risk-free interest rate of 0.23%, and (iv) no expected dividend.

At September 25, 2021, there was approximately $1 million of total unrecognized compensation cost related to the unvested RSUs, which is expected to be recognized over a weighted-average vesting period of 2.49 years, and there was approximately $2 million of total unrecognized compensation cost related to the unvested PSUs, which is expected to be recognized through December 30, 2023.

For all of the Company’s awards, excluding RSUs and PSUs, if the grantee’s continuous service terminates for any reason, the grantee shall forfeit all right, title, and interest in and to any unvested units as of the date of such termination, unless the grantee’s continuous service period is terminated by the Company without cause within the six-month period prior to the date of consummation of a Liquidity Event. In addition, the grantee shall forfeit all right, title, and interest in and to any vested units if the grantee resigns, is terminated for cause, breaches any post-termination covenants, or for failing to execute any general release required to be executed. For RSUs and PSUs, if the grantee’s continuous service terminates for any reason, the grantee shall forfeit all right, title, and interest in any unvested units as of the termination date.

On January 6, 2021, the Company’s Board of Directors approved the Employee Stock Purchase Plan (the “ESPP”) and effective January 14, 2021, the Company’s shareholders adopted and approved the ESPP. The ESPP provides employees of the Company with an opportunity to purchase the Company’s common stock at a discount, subject to certain limitations set forth in the ESPP. The ESPP authorized the issuance of 1,790,569 shares of the Company’s common stock. The initial offering period is one year. As of September 25, 2021, there were no shares of common stock purchased under the ESPP.

On March 22, 2021, the Company's Board of Directors approved the International Employee Stock Purchase Plan (the "International ESPP") that provides employees of certain designated subsidiaries of the Company with an opportunity to purchase the Company's common stock at a discount, subject to certain limitations set forth in the International ESPP. The shares available under the International ESPP are subject to available shares under the ESPP.

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The Company calculates basic and diluted earnings per share using the two-class method. The following table sets forth the computation of basic and diluted earnings per share attributable to common shareholders:

			Three months ended												Nine months ended
(in thousands, except per share amounts)			September 25, 2021						September 26, 2020						September 25, 2021						September 26, 2020
Basic earnings per share:
Net income attributable to Driven Brands Holdings Inc.			$	33,124					4,079						48,389						3,289
Less: Net income attributable to participating securities, basic			709						—						1,057						—
Net income after participating securities, basic			32,415						4,079						47,332						3,289
Weighted-average common shares outstanding (a)			162,635						111,950						160,030						96,643
Basic earnings per share			$	0.20					$	0.04					$	0.30					$	0.03
Diluted earnings per share:
Net income attributable to Driven Brands Holdings Inc.			33,124						4,079						48,389						3,289
Less: Net income attributable to participating securities, diluted			632						—						942						—
Net income after participating securities, diluted			32,492						4,079						47,447						3,289
Weighted-average common shares outstanding (a)			162,635						111,950						160,030						96,643
Dilutive effect of share-based awards			3,995						—						3,938						—
Weighted-average common shares outstanding, as adjusted (a)			166,630						111,950						163,968						96,643
Diluted earnings per share			$	0.19					$	0.04					$	0.29					$	0.03

(a) Weighted average common shares for 2020 have been adjusted to reflect an implied 88,990-for-one stock split that became effective on January 14, 2021. See Note 1 for additional information.

Basic earnings (loss) per share is computed by dividing the net income (loss) attributable to Driven Brands Holdings Inc. by the weighted-average number of common shares outstanding for the period. In addition, the Company’s participating securities are related to certain restricted stock awards issued to Section 16 officers which include non-forfeitable dividend rights. The Company has 4,618,722 shares of performance awards that are contingent on performance conditions which have not yet been met, and therefore have been excluded from the computation of weighted average shares for the three and nine months ended September 25, 2021.

The following securities were not included in the computation of diluted shares outstanding because the effect would be antidilutive:

Number of securities (in thousands)			Three Months Ended September 25, 2021						Nine months ended September 25, 2021
Restricted stock units			—						2
Stock options			—						36
Total			—						38

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The Company is subject to various lawsuits, administrative proceedings, audits, and claims arising in the ordinary course of business. Some of these lawsuits purport to be class actions and/or seek substantial damages. The Company is required to record an accrual for litigation loss contingencies that are both probable and reasonably estimable. Legal fees and expenses associated with the defense of litigation are expensed as incurred.

While the Company does not presently believe that any of the legal proceedings to which it is currently a party will ultimately have a material adverse impact, there can be no assurance that the Company will prevail in all of the proceedings or that the Company will not incur material losses from them.

On September 29, 2021, Driven Brands Funding, LLC and Driven Brands Canada Funding Corporation (together, the “Co-Issuers”), each wholly owned indirect subsidiaries of the Company issued $450 million of 2021-1 Securitization Senior Notes, Class A-2, bearing a fixed interest rate of 2.791% per annum, a final legal maturity date of October 20, 2051 and an anticipated repayment date of October 20, 2028 (the “2021 Senior Notes”). The proceeds from the issuance of the 2021 Senior Notes have been used to pay off the outstanding $247 million balance on the Driven Holdings Revolving Credit Facility with the remainder to be used for general corporate purposes including future acquisitions. On November 9, 2021, the Company made a draw of $10 million on the Driven Holdings Revolving Credit Facility.

On September 30, 2021, the Company acquired 10 CARSTAR franchise locations for $31 million. The initial accounting for this acquisition is incomplete as the valuation of the assets acquired and liabilities assumed and residual goodwill has not yet been performed.

From September 26, 2021 through November 9, 2021 the Company acquired 20 car wash sites for $123 million. The initial accounting for these acquisitions is incomplete as the valuation of the assets acquired and liabilities assumed and residual goodwill has not yet been performed.

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