MISTER CAR WASH, INC. You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and related notes included in our 2021 10-K. This discussion contains forward-looking statements based upon current plans, expectations and beliefs involving risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in other parts of this Quarterly Report on Form 10-Q and in Part I, Item 1A. "Risk Factors" and in Part II. Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our 2021 10-K.
Who We Are
Mister Car Wash, Inc. is the largest national car wash brand, primarily offering express exterior cleaning services, with interior cleaning services at select locations, across 420 car washes in 21 states as ofSeptember 30, 2022 . Founded in 1996, we employ an efficient, repeatable, and scalable process, which we call the "Mister Experience," to deliver a clean, dry, and shiny car every time. The core pillars of the "Mister Experience" are greeting every customer with a wave and smile, providing the highest quality car wash, and delivering the experience quickly and conveniently. We offer a monthly subscription program, which we call theUnlimited Wash Club (R) ("UWC"), as a flexible, quick, and convenient option for customers to keep their cars clean. As ofSeptember 30, 2022 andSeptember 30, 2021 , we had approximately 1.9 million and approximately 1.6 million UWC Members, respectively. This represented an increase of approximately 19% over the same time last year. For the three months endedSeptember 30, 2022 and 2021, UWC sales represented 69% and 66% of our total wash sales, respectively, and UWC volume represented 77% and 74% of our total wash volume, respectively. Our scale and over 25 years of innovation allow us to drive operating efficiencies and invest in training, infrastructure, and technology that improve speed of service, quality, and sustainability and realize strong financial performance.
Factors Affecting Our Business and Trends
We believe that our business and growth depend on a number of factors that present significant opportunities for us and may pose risks and challenges, including those discussed below and in Part I, Item 1A. "Risk Factors" of our 2021 10-K.
• Growth in comparable store sales. Comparable store sales have been a strong
driver of our net revenue growth and we expect it to continue to play a key
role in our future growth and profitability. We will seek to continue to
grow our comparable store sales by increasing the number of UWC Members,
increasing efficiency and throughput of our car wash locations, increasing
marketing spend to add new customers, and increasing customer visitation
frequency.
• Number and loyalty of UWC Members. The UWC program is a critical element of
our business. UWC Members contribute a significant portion of our net
revenue and provide recurring revenue through their monthly Membership fees.
• Labor management. Hiring and retaining skilled team members and experienced
management represents one of our largest costs. We believe people are the
key to our success and we have been able to successfully attract and retain
engaged, high-quality team Members by paying competitive wages, offering
attractive benefit packages, and providing robust training and development
opportunities. While the competition for skilled labor is intense and
subject to high turnover, we believe our approach to wages and benefits will
continue to allow us to attract suitable team Members and management to
support our growth.
Factors Affecting the Comparability of Our Results of Operations
Our results have been affected by, and may in the future be affected by, the following factors, which must be understood in order to assess the comparability of our period-to-period financial performance and condition.
Our primary historical growth strategy has involved acquiring local and regional car wash operators, upgrading the facilities and equipment, training the team to provide the "Mister Experience," and converting the site to the "Mister" brand. More recently, we have also grown through greenfield development ofMister Car Wash locations, with particular focus on Express Exterior Locations, and anticipate further pursuit of this strategy in the future. In the three and nine months endedSeptember 30, 2022 , we successfully opened eight and 15 greenfield locations, respectively. Our future location growth will be dependent on greenfield development. The comparability of our results may be impacted by the inclusion of financial performance of greenfield locations that have not delivered a full fiscal year of financial results nor matured to average unit volumes, which we typically expect after approximately three full years of operation. 24 --------------------------------------------------------------------------------
Acquisitions
In the three months endedSeptember 30, 2022 , we completed one acquisition consisting of three properties that operated as conveyorized car washes. In the nine months endedSeptember 30, 2022 , we completed three acquisitions consisting of eight properties that operated as conveyorized car washes. Following an acquisition, we implement a variety of operational improvements to unify branding and enhance profitability. As soon as feasible, we fully integrate and transition acquired locations to the "Mister" brand and make investments to improve site flow, upgrade tunnel equipment and technology, and install our proprietary Unity Chemical system, which is a unique blend of our signature products utilizing the newest technology and services to make a better car wash experience for our customers. We also establish member-only lanes, optimize service offerings and implement training initiatives that we have successfully utilized to improve team member engagement and drive UWC growth post-acquisition. The costs associated with these onboarding initiatives, which vary by site, can impact the comparability of our results.
The comparability of our results may also be impacted by the inclusion of
financial performance of our acquisitions that have not delivered a full fiscal
year of financial results under
See Note 14 Business Combinations to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional discussion.
Key Performance Indicators We prepare and analyze various operating and financial data to assess the performance of our business and to help in the allocation of our resources. The key operating performance and financial metrics and indicators we use are set forth below, as of and for the three and nine months endedSeptember 30, 2022 and 2021. Three Months EndedSeptember 30 ,
Nine Months Ended
(Dollars in thousands) 2022 2021 2022 2021
Financial and Operating Data
Location count (end of period) 420 360 420 360
Comparable store sales growth 2.9 % 21.3 % 5.3 % 38.6 %
UWC Members (in thousands, end
of period) 1,860 1,564 1,860 1,564
UWC sales as a percentage of
total wash sales 69 % 66 % 67 % 63 %
Net income (loss) $ 23,997 $ 27,366 $ 95,144 $ (58,350 )
Net income (loss) margin 11.0 % 14.1 % 14.4 % (10.3 )%
Adjusted EBITDA $ 66,132 $ 62,450 $ 215,457 $ 197,000
Adjusted EBITDA margin 30.4 % 32.1 % 32.5 % 34.8 %
Location Count (end of period)
Our location count refers to the total number of car wash locations at the end of a period, inclusive of new greenfield locations and acquired locations. The total number of locations that we operate, as well as the timing of location openings, acquisitions, and closings, have, and will continue to have, an impact on our performance. In the three months endedSeptember 30, 2022 , we increased our location count by 11 locations, comprised of eight greenfield locations and three acquired locations. In the nine months endedSeptember 30, 2022 , we increased our location count by 24 locations, comprised of 15 greenfield locations and nine acquired locations. One location, which was part of a 2021 acquisition, opened during the second quarter of 2022 and is included as an acquired location above. Our Express Exterior Locations, which offer express exterior cleaning services, comprise 345 of our current locations and our Interior Cleaning Locations, which offer both express exterior cleaning services and interior cleaning services, comprise 75 of our current locations.
Comparable Store Sales Growth
A location is considered a comparable store on the first day of the 13th full
calendar month following a location's first day of operations. A location
converted from an Interior Cleaning Location format to an Express Exterior
Location format is excluded when the location did not offer interior cleaning
services in the current period but did offer interior cleaning services in the
prior year period. Comparable store sales growth is the percentage change in
total wash sales of all comparable store car washes.
Opening new locations is a primary component of our growth strategy and as we
continue to execute on our growth strategy, we expect that a significant portion
of our sales growth will be attributable to non-comparable store sales.
Accordingly, comparable store
25
--------------------------------------------------------------------------------
sales are only one measure we use to assess the success of our growth strategy.
For the three months ended September 30, 2022 , comparable store sales increased
to 2.9% compared to an increase of 21.3% in the three months ended September 30,
2021 .
UWC Members (end of period)
Members of our monthly subscription service are known as Unlimited Wash Club
Members, or UWC Members. We view the number of UWC Members and the growth in the
number of UWC Members on a net basis from period to period as key indicators of
our revenue growth. The number of UWC Members has grown over time as we have
acquired new customers and retained previously acquired customers. There were
approximately 1.9 million and approximately 1.6 million UWC Members as of
September 30, 2022 and September 30, 2021 , respectively. There were
approximately 1.7 million UWC Members as of December 31, 2021 .
Our UWC Members grew by approximately 19% from
UWC Sales as a Percentage of Total Wash Sales
UWC sales as a percentage of total wash sales represents the penetration of our subscription membership program as a percentage of our overall wash sales. Total wash sales are defined as the net revenue generated from express exterior cleaning services and interior cleaning services for both UWC Members and retail customers. UWC sales as a percentage of total wash sales is calculated as sales generated from UWC Members as a percentage of total wash sales. We have consistently grown this measure over time as we educate customers as to the value of our subscription offering. UWC sales were 69% and 66% of our total wash sales for the three months endedSeptember 30, 2022 and 2021, respectively. UWC sales were 67% and 63% of our total wash sales for the nine months endedSeptember 30, 2022 and 2021, respectively.
Adjusted EBITDA and Adjusted EBITDA Margin
Adjusted EBITDA is a non-GAAP measure of our financial performance and should not be considered as an alternative to net income as a measure of financial performance or any other performance measure derived in accordance with generally accepted accounting principles inthe United States of America ("U.S. GAAP") and should not be construed as an inference that our future results will be unaffected by unusual or nonrecurring items. Adjusted EBITDA is defined as net income (loss) before interest expense, net, income tax provision (benefit), depreciation and amortization expense, (gain) loss on sale of assets, loss on extinguishment of debt, stock-based compensation expense, acquisition expenses, management fees, non-cash rent expense, expenses associated with the IPO, expenses associated with the secondary public offering, and other nonrecurring charges. Adjusted EBITDA margin is defined as Adjusted EBITDA divided by net revenues for a given period. We present Adjusted EBITDA because we believe it assists investors and analysts in comparing our operating performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our ongoing operating performance. You are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis. In evaluating Adjusted EBITDA, you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in our presentation of Adjusted EBITDA. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. There can be no assurance that we will not modify the presentation of Adjusted EBITDA in future periods, and any such modification may be material. In addition, Adjusted EBITDA may not be comparable to similarly titled measures used by other companies in our industry or across different industries. Our management believes Adjusted EBITDA is helpful in highlighting trends in our core operating performance compared to other measures, which can differ significantly depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which companies operate and capital investments. We also use Adjusted EBITDA in connection with establishing discretionary annual incentive compensation; to supplementU.S. GAAP measures of performance in the evaluation of the effectiveness of our business strategies; to make budgeting decisions; and because our Amended A&R FirstLien Credit Agreement uses measures similar to Adjusted EBITDA to measure our compliance with certain covenants.
Adjusted EBITDA has its limitations as an analytical tool, and you should not
consider it in isolation or as a substitute for analysis of our results as
reported under
• Adjusted EBITDA does not reflect our cash expenditure or future requirements
for capital expenditures or contractual commitments;
• Adjusted EBITDA does not reflect changes in our cash requirements for our
working capital needs;
• Adjusted EBITDA does not reflect the interest expense and the cash
requirements necessary to service interest or principal payments on our
debt;
• Adjusted EBITDA does not reflect cash requirements for replacement of assets
that are being depreciated and amortized;
26--------------------------------------------------------------------------------
• Adjusted EBITDA does not reflect non-cash compensation, which is a key
element of our overall long-term compensation;
• Adjusted EBITDA does not reflect the impact of certain cash charges or cash
receipts resulting from matters we do not find indicative of our ongoing
operations; and
• other companies in our industry may calculate Adjusted EBITDA differently
than we do.
Adjusted EBITDA was approximately$66.1 million and$62.5 million in the three months endedSeptember 30, 2022 and 2021, respectively. Our Adjusted EBITDA margin was 30.4% and 32.1% in the three months endedSeptember 30, 2022 and 2021, respectively. Adjusted EBITDA was approximately$215.5 million and$197.0 million in the nine months endedSeptember 30, 2022 and 2021, respectively. Our Adjusted EBITDA margin was 32.5% and 34.8% in the nine months endedSeptember 30, 2022 and 2021. The following is a reconciliation of our net income (loss) to Adjusted EBITDA for the periods presented. Three Months EndedSeptember 30 ,
Nine Months Ended
(Dollars in thousands) 2022 2021 2022 2021
Reconciliation of net income
(loss) to Adjusted EBITDA:
Net income (loss) $ 23,997 $ 27,366 $ 95,144 $ (58,350 )
Interest expense, net 10,100 $ 5,717 27,028 33,416
Income tax provision (benefit) 8,814 6,440 26,988 (29,747 )
Depreciation and amortization
expense 15,193 12,980 45,274 36,530
(Gain) loss on sale of assets (a) (649 ) 748 (3,336 ) (5,559 )
Loss on extinguishment of debt - - - 3,183
Stock-based compensation expense
(b) 5,461 6,751 16,959 210,292
Acquisition expenses (c) 1,303 968 2,541 1,977
Management fees (d) - - - 500
Non-cash rent expense (e) 745 380 1,820 1,136
Expenses associated with initial
public offering (f) - 124 272 1,574
Expenses associated with secondary
public offering (g) - 498 - 498
Other (h) 1,168 478 2,767 1,550
Adjusted EBITDA $ 66,132 $ 62,450 $ 215,457 $ 197,000
Net Revenues $ 217,576 $ 194,310 $ 662,154 $ 566,898
Adjusted EBITDA margin 30.4 % 32.1 % 32.5 % 34.8 %
(a)Consists of gains and losses on the disposition of assets associated with sale-leaseback transactions, store closures or the sale of property and equipment.
(b)
Represents non-cash expense associated with our share-based payments.
(c)
Represents expenses incurred in strategic acquisitions, including professional fees for accounting and auditing services, appraisals, legal fees and financial services, one-time costs associated with supplies for rebranding the acquired stores, and distinct travel expenses for related, distinct integration efforts by team members who are not part of our dedicated integration team.
(d)
Represents fees paid to
(e)
Represents the difference between cash paid for rent expense and
(f)
Represents nonrecurring expenses associated with the consummation of our IPO in
(g)
Represents nonrecurring expenses associated with the consummation of our
secondary public offering in
(h)
Consists of other items as determined by management not to be reflective of our ongoing operating performance, such as costs associated with our one-time rebranding initiative costs, severance pay, non-deferred legal fees and other expenses related to credit agreement amendments, legal settlements and legal fees related to contract terminations, and nonrecurring strategic project costs.
Components of Our Results of Operations
Net Revenues
27
--------------------------------------------------------------------------------
We recognize revenue in two main streams: (i) the UWC program that entitles the
customer to unlimited washes for a monthly subscription fee, cancellable at any
time and (ii) retail car washes and other services. In the UWC program, we enter
into a contract with the customer that falls under the definition of a customer
contract under ASC 606, Revenue from Contracts with Customers. Customers are
automatically charged on a credit card or debit card on the same date of the
month that they originally signed up. Our performance obligations are to provide
unlimited car wash services for a monthly fee. Revenue from the UWC program is
recognized ratably over the month in which it is earned and amounts unearned are
recorded as deferred revenue on the unaudited condensed consolidated balance
sheets; all amounts recorded as deferred revenue at year-end are recognized as
revenue in the following year. Revenue from retail car wash and other services
is recognized at the point in time at which services are rendered and the
customer pays with cash, debit card, or credit card. Revenues are net of sales
tax, refunds, and discounts applied as a reduction of revenue at the time of
payment.
Store Operating Costs
Store operating costs consist of cost of labor and chemicals and other car wash store operating expenses.
Cost of Labor and Chemicals
Cost of labor and chemicals include compensation and related employee benefit expenses associated with car wash employees, maintenance employees, warehouse employees, chemicals and associated supplies, including wages, cash bonuses, stock-based compensation, taxes, insurance, and workers compensation payments as reported in the unaudited condensed consolidated statements of operations and comprehensive income included elsewhere in this Quarterly Report on Form 10-Q.
Other Store Operating Expenses
Other store operating expenses includes all other costs related to the operations of car wash and warehouse locations such as credit card fees, car damages, office and lobby supplies, information technology costs associated with the locations, telecommunications, advertising, non-healthcare related insurance, rent, repairs and maintenance related to assets, utilities, property taxes, and depreciation expense on assets at the car wash and warehouse locations.
General and Administrative
General and administrative expenses include compensation expenses and the related employee benefits of headquarters employees, including wages, cash bonuses, stock-based compensation, taxes, insurance, and workers compensation payments, as well as information technology expenses, administrative office expenses, professional services and other related expenses, depreciation expense on held-for-use assets used at our headquarters, and amortization expense associated with our intangible assets. We will continue to incur significant expenses on an ongoing basis that we did not incur as a private company. Those costs include additional director and officer liability insurance expenses, as well as third-party and internal resources related to accounting, auditing, Sarbanes-Oxley Act compliance, legal, and investor and public relations expenses. We expect such expenses to further increase after we are no longer an emerging growth company starting in 2023. These costs will generally be expensed under general and administrative expenses in the unaudited condensed consolidated statements of operations and comprehensive income (loss) included elsewhere in this Quarterly Report on Form 10-Q.
(Gain) Loss on Sale of Assets
(Gain) Loss on sale of assets includes gains and losses on the sale-leaseback of our locations and sale of property and equipment.
Interest Expense, net
Interest expense, net consists primarily of cash and non-cash interest expense on borrowings, partially offset by interest income earned on our cash balances.
Loss on Extinguishment of Debt
Loss on extinguishment of debt includes losses associated with amendments to our existing debt that are accounted for as extinguishments, as well as losses associated with partial or whole payments on our debt that qualify for extinguishment accounting.
Income Tax Provision (Benefit)
28
--------------------------------------------------------------------------------
We recognize deferred tax assets and liabilities for the expected future tax
consequences of events that have been recognized differently in the financial
statements or tax returns. Under this method, deferred tax liabilities and
assets are determined based on the difference between the financial statement
carrying amounts and tax basis of assets and liabilities using enacted tax
rates.
We have adopted a more-likely-than-not threshold for financial statement
recognition and measurement of an uncertain tax position taken or expected to be
taken in a tax return. We recognize interest and penalties related to uncertain
tax positions in income tax provision in our unaudited condensed consolidated
statements of operations and comprehensive income (loss) included elsewhere in
this Quarterly Report on Form 10-Q.
Results of Operations for the Three Months Ended
The unaudited results of operations data for the three months endedSeptember 30, 2022 and 2021 have been derived from the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. Three Months Ended September 30, 2022 2021 (Dollars in thousands) Amount % of Revenue Amount % of Revenue Net revenues$ 217,576 100 %$ 194,310 100 % Store operating costs: Cost of labor and chemicals 68,228 31 % 63,438 33 % Other store operating expenses 82,343 38 % 68,435 35 % General and administrative 24,743 11 % 22,166 11 % (Gain) loss on sale of assets (649 ) (0 )% 748 0 % Total costs and expenses 174,665 80 % 154,787 80 % Operating income (loss) 42,911 20 % 39,523 20 % Other expense: Interest expense, net 10,100 5 % 5,717 3 % Loss on extinguishment of debt - 0 % - 0 % Total other expense 10,100 5 % 5,717 3 % Income (loss) before taxes 32,811 15 % 33,806 17 % Income tax provision (benefit) 8,814 4 % 6,440 3 % Net income (loss)$ 23,997 11 %$ 27,366 14 % Net Revenues Three Months Ended September 30, (Dollars in thousands) 2022 2021 $ Change % Change Net revenues$ 217,576 $ 194,310 $ 23,266 12 % Net revenues were$217.6 million for the three months endedSeptember 30, 2022 compared to$194.3 million for the three months endedSeptember 30, 2021 , an increase of$23.3 million , or 12%. The increase in net revenues was primarily attributable to the increase in car wash sales due to growth in UWC Members and the year-over-year addition of 60 locations.
Store Operating Costs
Cost of Labor and Chemicals
Three Months Ended September 30,
(Dollars in thousands) 2022 2021 $ Change % Change
Cost of labor and chemicals $ 68,228 $ 63,438 $ 4,790 8 %
Percentage of net revenues 31 % 33 %
Cost of labor and chemicals was $68.2 million for the three months ended
September 30, 2022 compared to $63.4 million for the three months ended
September 30, 2021 , an increase of $4.8 million , or 8%. The increase in the cost
of labor and chemicals is primarily driven by an increase in labor and benefits
of approximately $3.6 million and an increase in wash chemicals and supplies of
approximately $1.2 million during the three months ended September 30, 2022 ,
both attributable to an increase in volume and the
29
--------------------------------------------------------------------------------
year-over-year addition of 60 locations, as well as some inflationary pressures
on both our labor and chemicals. As a percentage of net revenues, costs of labor
and chemicals for the three months ended September 30, 2022 decreased by
approximately 2% due to improved labor staffing and express volume mix as
compared to the prior year period.
Other Store Operating Expenses
Three Months Ended September 30,
(Dollars in thousands) 2022 2021 $ Change % Change
Other store operating
expenses $ 82,343 $ 68,435 $ 13,908 20 %
Percentage of net
revenues 38 % 35 %
Other store operating expenses were $82.3 million for the three months ended
September 30, 2022 compared to $68.4 million for the three months ended
September 30, 2021 , an increase of $13.9 million , or 20%. The increase in other
store operating expenses was attributable to the year-over-year addition of 60
locations and some inflationary pressures on our utilities and maintenance
expenses. Rent expense increased approximately $2.9 million with the addition of
49 new land and building leases.
General and Administrative
Three Months Ended September 30,
(Dollars in thousands) 2022 2021 $ Change % Change
General and administrative $ 24,743 $ 22,166 $ 2,577 12 %
Percentage of net revenues 11 % 11 %
General and administrative expenses were $24.7 million for the three months
ended September 30, 2022 compared to $22.2 million for the three months ended
September 30, 2021 , an increase of $2.6 million , or 12%. The increase in general
and administrative expenses was primarily driven by an increase of approximately
$0.9 million in salaries and benefits and an increase of approximately $2.4
million in other costs, which were primarily attributable to the increased costs
of being a public company and increase in corporate headcount. These increases
were offset by a decrease of approximately $0.7 million in stock-based
compensation costs.
(Gain) Loss on Sale of Assets
Three Months Ended September 30,
(Dollars in thousands) 2022 2021 $ Change % Change
(Gain) loss on sale of assets $ (649 ) $ 748 $ (1,397 ) (187 )%
Percentage of net revenues (0 )% 0 %
(Gain) loss on sale of assets reflected a gain of $0.6 million for the three
months ended September 30, 2022 compared to a loss of $0.7 million for the three
months ended September 30, 2021 , a decrease of $1.4 million , or 187%. The
decrease in (gain) loss on sale of assets was primarily driven by gains
associated with our sale-leaseback transactions in the current year.
Other Expense
Three Months Ended September 30,
(Dollars in thousands) 2022 2021 $ Change % Change
Other expense $ 10,100 $ 5,717 $ 4,383 77 %
Percentage of net revenues 5 % 3 %
Other expense was $10.1 million for the three months ended September 30, 2022
compared to $5.7 million for the three months ended September 30, 2021 , an
increase of $4.4 million , or 77%. The increase in other expense was primarily
driven by an increase in interest expense due to higher average interest rates
and borrowing levels as compared to the prior year period.
30
--------------------------------------------------------------------------------Income Tax Provision (Benefit)
Three Months Ended September 30,
(Dollars in thousands) 2022 2021 $ Change % Change
Income tax provision
(benefit) $ 8,814 $ 6,440 $ 2,374 37 %
Percentage of net
revenues 4 % 3 %
Income tax provision was $8.8 million for the three months ended September 30,
2022 compared to $6.4 million for the three months ended September 30, 2021 , an
increase of $2.4 million , or 37%. The increase in income tax provision was
primarily driven by reduced net, income tax benefits from equity awards.
31
--------------------------------------------------------------------------------
Results of Operations for the Nine Months Ended
The unaudited results of operations data for the nine months endedSeptember 30, 2022 and 2021 have been derived from the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. Nine Months Ended September 30, 2022 2021 (Dollars in thousands) Amount % of Revenue Amount % of Revenue Net revenues$ 662,154 100 %$ 566,898 100 % Store operating costs: Cost of labor and chemicals 203,117 31 % 203,051 36 % Other store operating expenses 239,173 36 % 194,889 34 % General and administrative 74,040 11 % 226,015 40 % (Gain) loss on sale of assets (3,336 ) (1 )% (5,559 ) (1 )% Total costs and expenses 512,994 77 % 618,396 109 % Operating income (loss) 149,160 23 % (51,498 ) (9 )% Other expense: Interest expense, net 27,028 4 % 33,416 6 % Loss on extinguishment of debt - 0 % 3,183 1 % Total other expense 27,028 4 % 36,599 6 % Income (loss) before taxes 122,132 18 % (88,097 ) (16 )% Income tax provision (benefit) 26,988 4 % (29,747 ) (5 )% Net income (loss)$ 95,144 14 %$ (58,350 ) (10 )% Net Revenues Nine Months Ended September 30, (Dollars in thousands) 2022 2021 $ Change % Change Net revenues$ 662,154 $ 566,898 $ 95,256 17 % Net revenues were$662.2 million for the nine months endedSeptember 30, 2022 compared to$566.9 million for the nine months endedSeptember 30, 2021 , an increase of$95.3 million , or 17%. The increase in net revenues was primarily attributable to the increase in car wash sales due to growth in UWC Members and the year-over-year addition of 60 locations. Store Operating Costs Cost of Labor and Chemicals Nine Months Ended September 30, (Dollars in thousands) 2022 2021 $ Change % Change Cost of labor and chemicals$ 203,117 $ 203,051 $ 66 0 % Percentage of net revenues 31 % 36 % Cost of labor and chemicals was$203.1 million for the nine months endedSeptember 30, 2022 compared to$203.1 million for the nine months endedSeptember 30, 2021 , an increase of less than$0.1 million , or 0%. The net change in the cost of labor and chemicals is primarily driven by an increase in labor and benefits of approximately$27.4 million and an increase in wash chemicals and supplies of approximately$3.9 million during the nine months endedSeptember 30, 2022 , both attributable to an increase in volume and the year-over-year addition of 60 locations, as well as some inflationary pressures on both our labor and chemicals. The prior year period reflected the recognition of stock-based compensation expense of$31.3 million related to our performance-based vesting stock options that vested on the consummation of our IPO inJune 2021 which offset the current year increases. As a percentage of net revenues, costs of labor and chemicals for the nine months endedSeptember 30, 2022 decreased by approximately 5% due to improved labor staffing and express volume mix as compared to the prior year period, as well as the prior year period recognition of stock-based compensation expense as noted above.
Other Store Operating Expenses
32
--------------------------------------------------------------------------------
Nine Months Ended September 30,
(Dollars in thousands) 2022 2021 $ Change % Change
Other store operating
expenses $ 239,173 $ 194,889 $ 44,284 23 %
Percentage of net
revenues 36 % 34 %
Other store operating expenses were $239.2 million for the nine months ended
September 30, 2022 compared to $194.9 million for the nine months ended
September 30, 2021 , an increase of $44.3 million , or 23%. The increase in other
store operating expenses was attributable to the year-over-year addition of 60
locations and some inflationary pressures on our utilities and maintenance
expenses. Rent expense increased approximately $7.8 million with the addition of
49 new land and building leases.
General and Administrative
Nine Months Ended September 30,
(Dollars in thousands) 2022 2021 $
Change % Change
General and administrative
(67 )%
Percentage of net revenues 11 % 40 %
General and administrative expenses were $74.0 million for the nine months ended
September 30, 2022 compared to $226.0 million for the nine months ended
September 30, 2021 , a decrease of $152.0 million , or 67%. The decrease in
general and administrative expenses was primarily driven by the prior year
recognition of stock-based compensation expense of $170.7 million related to the
performance-based vesting stock options that vested on the consummation of our
IPO in June 2021 . This decrease was partially offset by an increase of
approximately $5.9 million in salaries and benefits, an increase of
approximately $5.5 million in stock-based compensation expense not related to
the performance-based vesting stock options noted above, and an increase of
approximately $6.2 million in other costs, which were primarily attributable to
the increased costs of being a public company and increase in corporate
headcount.
(Gain) Loss on Sale of Assets
Nine Months Ended September 30,
(Dollars in thousands) 2022 2021
$ Change % Change
(Gain) loss on sale of assets
(40 )%
Percentage of net revenues (1 )% (1 )%
Gain on sale of assets was $3.3 million for the nine months ended September 30,
2022 compared to $5.6 million for the nine months ended September 30, 2021 , a
decrease of $2.2 million , or 40%. The (gain) loss on sale of assets was
primarily driven by gains associated with our sale-leaseback transactions in
both years.
Other Expense
Nine Months Ended September 30,
(Dollars in thousands) 2022 2021 $ Change % Change
Other expense $ 27,028 $ 36,599 $ (9,571 ) (26 )%
Percentage of net revenues 4 % 6 %
Other expense was $27.0 million for the nine months ended September 30, 2022
compared to $36.6 million for the nine months ended September 30, 2021 , a
decrease of $9.6 million , or 26%. The decrease in other expense was primarily
driven by a $6.4 million reduction in interest expense, resulting from the June
2021 pay down of the First Lien Term Loan and the June 2021 pay-off of the
Second Lien Term Loan and a $3.2 million loss on extinguishment of debt recorded
in the prior year period.
33
--------------------------------------------------------------------------------Income Tax Provision (Benefit)
Nine Months Ended September 30,
(Dollars in thousands) 2022 2021 $ Change % Change
Income tax provision
(benefit) $ 26,988 $ (29,747 ) $ 56,735 (191 )%
Percentage of net
revenues 4 % (5 )%
Income tax provision was $27.0 million for the nine months ended September 30,
2022 compared to a benefit of $29.7 million for the nine months ended September
30, 2021 , an increase of $56.7 million , or 191%. The increase in income tax
provision was primarily driven by increased income before taxes for the nine
months ended September 30, 2022 .
Liquidity and Capital Resources
Funding Requirements
Our primary requirements for liquidity and capital are to fund our investments in our core business, to pursue greenfield expansion and acquisitions, and to service our indebtedness. Historically, these cash requirements have been met through funds raised by the sale of common equity, utilization of our Revolving Commitment, First Lien Term Loan, Second Lien Term Loan, sale-leaseback transactions, and cash provided by operations. As ofSeptember 30, 2022 andDecember 31, 2021 , we had cash and cash equivalents of$74.9 million and$19.7 million , respectively, and$149.0 million and$149.5 million , respectively, of available borrowing capacity under our Revolving Commitment. InJune 2021 , we entered into Amendment No. 2, which increased the commitments under the Revolving Commitment from$75.0 million to$150.0 million . InJune 2021 , we made a voluntary prepayment of all outstanding balances under our Second Lien Term Loan, which included$242.7 million in outstanding principal and$6.1 million in accrued interest expense, and a voluntary prepayment of$190.4 million of outstanding principal under our First Lien Term Loan. These voluntary prepayments were funded with the net proceeds of our IPO and the Amended Second Lien Credit Agreement was terminated. InDecember 2021 , in connection with theClean Streak Ventures acquisition, we entered into Amendment No. 3, which increased the principal borrowings under the First Lien Term Loan by$290.0 million to$903.0 million . For a description of our credit facilities, please see Note 8 Debt in the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
As of
We believe that our sources of liquidity and capital will be sufficient to finance our growth strategy and resulting operations, planned capital expenditures, and the additional expenses we expect to incur as a public company for at least the next 12 months. However, we cannot assure you that cash provided by operating activities or cash and cash equivalents will be sufficient to meet our future needs. If we are unable to generate sufficient cash flows from operations in the future, we may have to obtain additional financing. If we obtain additional capital by issuing equity, the interests of our existing stockholders will be diluted. If we incur additional indebtedness, that indebtedness may contain significant financial and other covenants that may significantly restrict our operations. We cannot assure you that we could obtain additional financing on favorable terms or at all.
Cash Flows for the Nine Months Ended
The following table shows summary cash flow information for the nine months
ended
Nine Months Ended
(Dollars in thousands) 2022 2021
Net cash provided by operating activities $ 185,453 $
153,309
Net cash used in investing activities (133,784 ) (90,458 ) Net cash provided by (used in) financing activities 3,420 (18,221 ) Net increase in cash and cash equivalents, and restricted cash $ 55,089 $ 44,630 Operating Activities. Net cash provided by operating activities consists of net income (loss) adjusted for certain non-cash items, including stock-based compensation expense, property and equipment depreciation, gains on the disposal of property and equipment, amortization of leased assets and deferred income taxes, as well as the effect of changes in other working capital amounts. For the nine months endedSeptember 30, 2022 , net cash provided by operating activities was$185.5 million and was comprised of net income of$95.1 million , increased by$111.3 million as a result of non-cash adjustments comprised primarily of stock-based compensation expense, depreciation and amortization expense, non-cash lease expense, deferred income taxes, a gain on disposal of 34 --------------------------------------------------------------------------------
property and equipment, and amortization of deferred financing costs. Changes in
working capital balances decreased cash provided by operating activities by
For the nine months endedSeptember 30, 2021 , net cash provided by operating activities was$153.3 million and was comprised of net loss of$58.4 million , increased by$238.6 million as a result of non-cash adjustments comprised primarily of stock-based compensation expense, deferred income taxes, depreciation and amortization expense, non-cash lease expense, a gain on disposal of property and equipment, and a loss on extinguishment of debt. Changes in working capital balances increased cash provided by operating activities by$27.0 million and were primarily driven by decreases in the operating lease liability and other noncurrent assets and liabilities, and increases in accounts receivable, net and prepaid expenses and other current assets, partially offset by increases in accounts payable, accrued expenses, and a decrease in deferred revenue.
Investing Activities. Our net cash used in investing activities primarily consists of purchases and sale of property and equipment and acquisition of car washes.
For the nine months ended
For the nine months endedSeptember 30, 2021 , net cash used in investing activities was$90.5 million and was comprised of purchases of property and equipment primarily to support our greenfield and other initiatives and three acquisitions, partially offset by the sale of property and equipment including sale-leaseback transactions.
Financing Activities. Our net cash used in financing activities primarily consists of proceeds and payments on our First Lien Term Loan, Second Lien Term Loan, and Revolving Commitment, as well as proceeds from our IPO.
For the nine months ended
For the nine months endedSeptember 30, 2021 , net cash used in financing activities was$18.2 million and was primarily comprised of repayments of our First Lien Term Loan and Second Lien Term Loan and payments of issuance costs associated with our IPO, partially offset by proceeds from the consummation of our IPO inJune 2021 .
Critical Accounting Policies and Estimates
Our unaudited condensed consolidated financial statements have been prepared in accordance withU.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates and assumptions, including those related to revenue recognition, goodwill and other intangible assets, income taxes and stock-based compensation. We base our estimates on historical experience, current developments and on various other assumptions that we believe to be reasonable under these circumstances, the results of which form the basis for making judgments about carrying values of assets and liabilities that cannot readily be determined from other sources. There can be no assurance that actual results will not differ from those estimates. The significant accounting policies and estimates used in preparation of the unaudited condensed consolidated financial statements are described in our 2021 10-K. There have been no material changes to our significant accounting policies during the three and nine months endedSeptember 30, 2022 .
Recent Accounting Pronouncements
See the sections titled "Summary of Significant Accounting Policies-Recently
issued accounting pronouncements not yet adopted" in Note 2 to our unaudited
condensed consolidated financial statements included elsewhere in this Quarterly
Report on Form 10-Q for a discussion of recent accounting pronouncements.
35--------------------------------------------------------------------------------
© Edgar Online, source
