This draft registration statement has not been publicly filed with the Securities and Exchange Commission and all information herein remains strictly confidential.

As confidentially submitted with the Securities and Exchange Commission on April 2, 2021

Registration No. 333-                

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

Mister Car Wash, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware		7542		04-3299064
(State or other jurisdiction of incorporation or organization)		(Primary Standard Industrial Classification Code Number)		(I.R.S. Employer Identification No.)

222 E 5^th Street

Tucson, Arizona 85705

(520) 615-4000

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

Jedidiah Gold

Chief Financial Officer

222 E 5^th Street

Tucson, Arizona 85705

(520) 615-4000 (Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies to:

 

Howard Sobel Gregory P. Rodgers Benjamin J. Cohen Drew Capurro Latham & Watkins LLP 885 Third Avenue New York, New York 10022 Telephone: (212) 906-1200 Fax: (212) 751-4864		Lisa Bossard Funk General Counsel 222 E 5th Street Tucson, Arizona 85705 Telephone: (520) 615-4000 Fax: 866-728-7752		William B. Brentani David W. Azarkh Simpson Thacher & Bartlett LLP 425 Lexington Avenue New York, New York 10017 Telephone: (212) 455-2000 Fax: (212) 455-2100

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box.  ☐

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer		☐		Accelerated filer		☐
Non-accelerated filer		☒		Smaller reporting company		☐
				Emerging growth company		☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.  ☐

 

 

CALCULATION OF REGISTRATION FEE

 

Title of each class of securities to be registered		Proposed maximum aggregate offering price(1)(2)		Amount of registration fee(3)
Common stock, par value $0.01 per share		$		$

(1)	Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(o) under the Securities Act of 1933, as amended.

(2)	Includes the offering price of shares of common stock that may be sold if the underwriters fully exercise their option to purchase additional shares of common stock.

(3)	To be paid in connection with the initial filing of the registration statement.

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

 

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

SUBJECT TO COMPLETION, DATED                 , 2021.

            Shares

 

Mister Car Wash, Inc.

Common Stock

 

 

This is an initial public offering of shares of common stock of Mister Car Wash, Inc. We are offering                shares of our common stock to be sold in the offering.

Prior to this offering, there has been no public market for the common stock. The initial public offering price is expected to be between $                and $                per share. We intend to apply to list our common stock on the                  under the symbol “MCW”.

The underwriters have an option for a period of 30 days after the date of this prospectus to purchase from time to time, in whole or in part, up to a maximum of                additional shares of our common stock from the selling stockholders identified in this prospectus. We will not receive any proceeds from the sale of shares pursuant to the exercise of the underwriters’ option to purchase additional shares from the selling stockholders.

After the consummation of this offering, we expect to be a “controlled company” within the meaning of the corporate governance standards of the                .

We are an “emerging growth company” under the federal securities laws and, as such, may elect to comply with certain reduced public reporting requirements. See “Prospectus Summary—Implications of Being an Emerging Growth Company.”

 

 

Investing in our common stock involves risk. See “Risk Factors” beginning on page 16 to read about factors you should consider before buying shares of our common stock.

 

		Per Share				Total
Initial public offering price		$				$
Underwriting discounts and commissions (1)		$				$
Proceeds, before expenses, to us		$				$

 

(1)	See “Underwriting” for a description of the compensation payable to the underwriters.

Neither the Securities and Exchange Commission, or the SEC, nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

Delivery of the shares of common stock will be made on or about                 , 2021.

 

BofA Securities		Morgan Stanley		Goldman Sachs & Co. LLC		Jefferies

(in alphabetical order)
BMO Capital Markets						UBS Investment Bank

The date of this prospectus is                 , 2021.

TABLE OF CONTENTS

 

About this Prospectus			ii
Market and Industry Data			ii
Basis of Presentation			ii
Certain Trademarks			iii
Key Performance Indicators and Non-GAAP Financial Measures			iii
Letter From Our Chief Executive Officer			vi
Prospectus Summary			1
Risk Factors			16
Cautionary Note Regarding Forward-Looking Statements			36
Use of Proceeds			38
Capitalization			39
Dividend Policy			40
Dilution			41
Selected Consolidated Financial and Other Data			43
Management’s Discussion and Analysis of Financial Condition and Results of Operations			46
Business			62
Management			83
Executive Compensation			88
Principal and Selling Stockholders			96
Certain Relationships and Related Party Transactions			98
Description of Capital Stock			100
Description of Certain Indebtedness			105
Shares Eligible for Future Sale			109
Material U.S. Federal Income Tax Considerations for Non-U.S. Holders of Our Common Stock			111
Certain ERISA Considerations			115
Underwriting			116
Legal Matters			124
Experts			124
Where You Can Find More Information			124
Index to Consolidated Financial Statements			F-1

 

i

ABOUT THIS PROSPECTUS

You should rely only on the information included elsewhere in this prospectus and any free writing prospectus prepared by or on behalf of us that we have referred to you. Neither we nor the underwriters have authorized anyone to provide you with additional information or information different from that included elsewhere in this prospectus or in any free writing prospectus prepared by or on behalf of us that we have referred to you. If anyone provides you with additional, different or inconsistent information, you should not rely on it. Offers to sell, and solicitations of offers to buy, shares of our common stock are being made only in jurisdictions where offers and sales are permitted.

No action is being taken in any jurisdiction outside the United States to permit a public offering of common stock or possession or distribution of this prospectus in that jurisdiction. Persons who come into possession of this prospectus in jurisdictions outside the United States are required to inform themselves about and to observe any restriction as to this offering and the distribution of this prospectus applicable to those jurisdictions.

MARKET AND INDUSTRY DATA

This prospectus includes estimates regarding market and industry data that we prepared based on our management’s knowledge and experience in the markets in which we operate, together with information obtained from various sources, including publicly available information, industry reports and publications, surveys, our customers, distributors, suppliers, trade and business organizations and other contacts in the markets in which we operate. Management estimates are derived from publicly available information released by independent industry analysts and third-party sources, as well as data from our internal research, and are based on assumptions made by us upon reviewing such data and our knowledge of such industry and markets which we believe to be reasonable.

In presenting this information, we have made certain assumptions that we believe to be reasonable based on such data and other similar sources and on our knowledge of, and our experience to date in, the markets for the services we offer. Market share data is subject to change and may be limited by the availability of raw data, the voluntary nature of the data gathering process and other limitations inherent in any statistical survey of market shares. In addition, customer preferences are subject to change. Accordingly, you are cautioned not to place undue reliance on such market share data. References herein to the markets in which we conduct our business refer to the geographic metropolitan areas in which we operate our locations.

BASIS OF PRESENTATION

Certain monetary amounts, percentages, and other figures included elsewhere in this prospectus have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables or charts may not be the arithmetic aggregation of the figures that precede them, and figures expressed as percentages in the text may not total 100% or, as applicable, when aggregated may not be the arithmetic aggregation of the percentages that precede them.

As used in this prospectus, unless the context otherwise requires, references to:

 

•

“CAGR” means compound annual growth rate;

 

•

the “Company,” “Mister Car Wash,” “we,” “us” and “our” mean Mister Car Wash, Inc. (f.k.a. Hotshine Holdings, Inc.) and, unless the context otherwise requires, its consolidated subsidiaries;

 

•

“Credit Facilities” means our First Lien Term Loan, our Second Lien Term Loan and our Revolving Credit Facility;

 

ii

•

“Delayed Draw Facility” means our $40.0 million delayed draw term loan facility, pursuant to an amended and restated first lien credit agreement entered into on May 14, 2019;

 

•

“DGCL” means the Delaware General Corporation Law;

 

•

“Exchange Act” means the Securities Exchange Act of 1934, as amended;

 

•

“Express Exterior Location” means a car wash location that offers self-drive exterior cleaning services and includes free vacuums available for customer use;

 

•

“First Lien Term Loan” means our amended and restated senior secured first lien term loan facility in an initial principal amount of $800.0 million, pursuant to an amended and restated first lien credit agreement entered into on May 14, 2019;

 

•

“GAAP” means U.S. generally accepted accounting principles;

 

•

“Interior Cleaning Location” means a car wash location that offers exterior and interior cleaning services, including vacuuming by our team members;

 

•

“LGP” means investment funds affiliated with or advised by Leonard Green & Partners, L.P., which own a controlling interest in us;

 

•

“Revolving Credit Facility” our $75.0 million revolving credit facility, pursuant to an amended and restated first lien credit agreement entered into on May 14, 2019;

 

•

“Second Lien Term Loan” means our senior secured second lien term loan facility in an initial principal amount of $225.0 million pursuant to a second lien credit agreement entered into on May 14, 2019, as amended by the incremental term loan facility in an initial amount of $5.6 million entered into on March 31, 2020; and

 

•

“Stockholders Agreement” means the stockholders agreement by and among us, LGP, certain of our directors and executive officers, and certain other existing stockholders.

CERTAIN TRADEMARKS

This prospectus includes trademarks and service marks owned by us, including Mister Car Wash®, Hotshine®, Mister Hotshine® and Unlimited Wash Club®. This prospectus also contains trademarks, trade names and service marks of other companies, which are the property of their respective owners. Solely for convenience, trademarks, trade names and service marks referred to in this prospectus may appear without the ^®, ^™ or ^SM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the right of the applicable licensor to these trademarks, trade names and service marks. We do not intend our use or display of other parties’ trademarks, trade names or service marks to imply, and such use or display should not be construed to imply, a relationship with, or endorsement or sponsorship of us by, these other parties.

KEY PERFORMANCE INDICATORS AND NON-GAAP FINANCIAL MEASURES

Throughout this prospectus, we use a number of key performance indicators used by management to evaluate our business. These key performance indicators are discussed in more detail in the section of the prospectus titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations— Key Performance Indicators”

Location Count (end of period)

Our location count refers to the total number of car wash locations we had open at the end of a period.

 

iii

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 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.

UWC Members

Members of our monthly subscription service are known as Unlimited Wash Club members (“UWC Members”).

UWC Sales as a Percentage of Total Wash Sales

Total wash sales are defined as the net revenue generated from express exterior and interior cleaning services for both UWC Members and retail customers. UWC sales as a percentage of total wash sales is calculated as net revenue generated from UWC Members as a percentage of total wash sales.

Adjusted EBITDA and Adjusted EBITDA Margin

Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP measures of our financial performance and should not be considered as an alternative to net income or net income margin as a measure of financial performance or any other performance measure derived in accordance with GAAP. Adjusted EBITDA is defined as net income before interest expense net, income tax expense (benefit), depreciation and amortization, (loss) gain on sale of assets, gain on sale of quick lube facilities, dividend recapitalization fees and payments, loss on early debt extinguishment, stock-based compensation, acquisition expenses, management fees, non-cash rent expense and other non-recurring charges. Adjusted EBITDA margin is defined as Adjusted EBITDA divided by total net revenue 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 following this offering, 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 supplement GAAP measures of performance in the evaluation of the effectiveness of our business strategies; to make budgeting decisions; and because our Credit Facilities use 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 GAAP. Some of these limitations include:

 

•

Adjusted EBITDA does not reflect our cash expenditure or future requirements for capital expenditures or contractual commitments;

 

iv

•

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;

 

•

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.

 

v

LETTER FROM OUR CHIEF EXECUTIVE OFFICER

It is my pleasure to welcome you to Mister Car Wash. At the core, we are in the service business with a love and passion for washing cars, taking care of our customers, and delivering happiness. We are unified in our purpose of inspiring people to shine which conveys our dual objective of improving the lives of our people and helping our customers feel good about themselves.

It Starts With Culture

We are a company that celebrates individuality and are a diverse mosaic of talented team members who subscribe to the three simple core values: We Care. We Work Hard. We Have Fun. We embrace the principles of servant leadership and have learned that the best way to create a strong culture is to take care of your people. We do this by paying competitive wages, investing in their training, offering great benefits, and most importantly—treating them well. In turn, our team takes care of our customers. Customers often tell me that what impresses them the most about Mister Car Wash is our people, and we fundamentally believe that our people take care of our customers because we take care of them.

The Car Wash Experience

Getting your car washed is fun and the sensory experience within our tunnels creates a magic, feel-good moment. We often refer to our stores as the stage and our tunnels the show where all our people play a part in our interactive and dynamic experience. The daily interactions between our team members and our customers create a string of moments, each of which plays a small but significant role in our customers’ love for our brand. Because we have changed the way that customers think about car washing—it’s easy, fast, and affordable—we’ve turned something that used to be a chore into a part of their regular routine.

Fundamental Building Blocks

At Mister Car Wash, we have a deep passion for Operational Excellence. We have developed a reputation for quality, speed, and delivering an exceptional customer experience, while remaining committed to being excellent environmental stewards for the communities we serve. We have been able to execute consistently, at scale, because of our amazing operations team which has been built one person at a time over the last 25 years. The investment we’ve made into our regional support infrastructure provides a scalable model for future growth, giving us an incredible competitive advantage in the marketplace that is very difficult to replicate.

The X Factor

Our subscription business model called the Unlimited Wash Club (UWC) has changed the way people care for their vehicles and has fundamentally transformed every aspect of our business. UWC offers incredible value for our members who have become our biggest raving fans, and in turn has helped us grow the program through word of mouth. We’re bullish about our future growth potential and are committed to developing ways to make the program even more attractive to more non-members.

The Sky’s the Limit

Americans view their cars as a symbol of freedom, and we are proud that they trust us with one of their most prized assets. While we have grown to become the largest national car wash company, we’re even more excited about the path in front of us. As we embark on this next chapter in our company’s lifecycle, we see a long, wide-open road in front of us and are thrilled to have you join us on our journey.

Sincerely,

John Lai

 

vi

 

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RISK FACTORS

You should carefully consider the risks described below, together with all of the other information included in this prospectus, including our consolidated financial statements and related notes included elsewhere in this prospectus, before making an investment decision. Our business, financial condition and results of operations could be materially and adversely affected by any of these risks or uncertainties. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment. Furthermore, the potential impact of the COVID-19 pandemic on our business operations and financial results and on the world economy as a whole may heighten the risks described below.

Risks Related to Our Business

Increased competition in the car wash industry may impact our future growth.

The car wash industry has recently attracted increased levels of investment by private equity firms and other capital providers. The ongoing competition for acquisitions may result in higher purchase prices for desirable car wash acquisitions. Construction by competitors of express car washes near our existing car wash locations may negatively impact our business, comparable sales and our net revenues. While we have active programs to identify both acquisition targets and future locations for greenfield expansion, there can be no assurance that we will continue to be successful in acquiring targets at reasonable purchase prices or constructing new car washes in existing or new markets.

We may be unable to sustain or increase demand for our UWC subscription program, which could adversely affect our business, financial condition and results of operations and rate of growth.

As of March 31, 2021, we had approximately 1.4 million UWC Members. This subscription program accounted for approximately 62% of our total wash sales in 2020. Our continued business and revenue growth is dependent on our ability to continue to attract and retain UWC Members, but we cannot assure you that we will be successful in these efforts, or that our membership levels will not decline, which decline may be material. UWC Members are able to cancel their membership at any time and may decide to cancel or forego memberships due to any number of reasons, including increased prices for membership in our UWC or for our services, quality issues with our services, harm to our reputation or brand, or individuals’ personal economic pressures. Increasing governmental regulation of automatically renewing subscription programs may negatively impact our marketing of this program. A decline in the number of UWC Members could materially and adversely affect our business, results of operations and financial condition.

If we fail to open and operate new locations in a timely and cost-effective manner or fail to successfully enter new markets, our financial performance could be materially and adversely affected.

Our growth strategy depends on growing our location base, both through greenfield expansion and acquisitions, and expanding our operations in existing and new geographic regions and operating our new locations successfully. We cannot assure you that our contemplated expansion will be successful, or that such expansion will be completed in the time frames or at the costs we estimate.

Our ability to successfully open and operate new locations depends on many factors, including, among others, our ability to:

 

•

identify suitable locations;

 

•

negotiate acceptable purchase price or lease terms, including the ability to renew or extend upon favorable terms;

 

•

address regulatory, competitive, marketing, distribution and other challenges encountered in connection with expansion into new markets;

 

16

•

hire, train and retain an expanded workforce of managers and other personnel;

 

•

maintain an adequate distribution footprint, information systems and other operational capabilities;

 

•

successfully integrate new locations into our existing management structure and operations, including information system integration;

 

•

source sufficient levels of inventory, supplies and equipment at acceptable costs;

 

•

obtain necessary permits and licenses;

 

•

construct and open our locations on a timely basis;

 

•

generate sufficient levels of cash or obtain financing on acceptable terms to support our expansion;

 

•

achieve and maintain brand awareness in new and existing markets; and

 

•

identify and satisfy the merchandise and other preferences of our consumers.

Our failure to effectively address challenges such as these could materially and adversely affect our ability to successfully open and operate new locations in a timely and cost-effective manner. Further, we will have pre-operating costs and we may have initial losses while new locations commence operations.

In addition, there can be no assurance that newly opened locations will achieve sales or profitability levels comparable to those of our existing locations in the time periods estimated by us, or at all. In instances where new locations are geographically proximate to existing locations, new locations may also adversely impact the comparable store sales growth of our existing car wash locations. If our locations fail to achieve, or are unable to sustain, acceptable total sales and profitability levels, our business may be materially and adversely affected and we may incur significant costs associated with the early closure of such locations. Our plans to accelerate the growth of our location base may increase this risk.

We may not be able to successfully implement our growth strategies on a timely basis or at all.

Our future success depends, in large part, on our ability to implement our growth strategies, including acquiring new customers, growing our UWC membership base, opening greenfield locations and pursuing opportunistic and disciplined acquisitions. Our ability to implement these growth strategies depends, among other things, on our ability to:

 

•

increase our brand awareness by effectively implementing our digital-first marketing strategy;

 

•

leverage data analytics throughout the organization;

 

•

increase customer engagement with our digital platform;

 

•

educate UWC Members on value propositions to drive retention and add new members;

 

•

leverage our investments to drive traffic and customer acquisition

 

•

drive scale efficiencies and generate free cash flow; and

 

•

selectively grow our location base.

We may not be able to successfully implement our growth strategies and may need to change them. If we fail to implement our growth strategies or if we invest resources in a growth strategy that ultimately proves unsuccessful, our business, results of operations and financial condition may be materially and adversely affected.

If we are unable to identify attractive acquisition targets and acquire them at attractive prices, we may be unsuccessful in growing our business.

A significant portion of the growth of our number of locations has been as a result of our acquisition of additional car wash locations and subsequent adaptation of those locations to operate consistently with other

 

17

Mister Car Wash locations. There can be no assurance, however, that we will find suitable acquisition targets in the future, that we will acquire them at attractive prices or that we will succeed at effectively managing the integration of the acquired location into our existing operations and the “Mister” brand. We could also encounter unforeseen transaction- and integration-related costs or delays or other circumstances such as challenges or delays in adapting these locations to operate similarly to other Mister Car Wash locations or unforeseen or higher-than-expected inherited liabilities. Many of these potential circumstances are outside of our control and any of them could result in increased costs, decreased revenue or the diversion of management time and attention.

In order for us to continue to grow our business through acquisitions we will need to identify appropriate acquisition opportunities and acquire them at attractive prices. We may choose to pay cash, incur debt or issue equity securities to pay for any such acquisition. The incurrence of indebtedness would result in increased fixed obligations and could also include covenants or other restrictions that would impede our ability to manage our operations. The sale of equity to finance any such acquisition could result in dilution to our stockholders.

We are subject to a number of risks and regulations related to credit card and debit card payments we accept.

We accept payments through credit card and debit card transactions. For credit card and debit card payments, we pay interchange and other fees, which may increase over time. An increase in those fees would require us to either increase the prices we charge for our memberships, which could cause us to lose UWC Members or suffer an increase in our operating expenses, either of which could harm our operating results.

If we or any of our processing vendors have problems with our billing software, or the billing software malfunctions, it could have an adverse effect on our member satisfaction and could cause one or more of the major credit card companies to disallow our continued use of their payment products. In addition, if our billing software fails to work properly and, as a result, we do not automatically charge our UWC Members’ credit cards or debit cards on a timely basis or at all, we could lose membership revenue, which would materially and adversely affect our operating results.

If we fail to adequately control fraudulent credit card and debit card transactions, we may face civil liability, diminished public perception of our security measures and significantly higher credit card and debit card related costs, each of which could adversely affect our business, financial condition and results of operations. We may also face legal liability or reputational harm for any failure to comply, or any allegation that we have failed to comply, with consumer protection laws relating to consumer credit transactions.

An overall decline in the health of the economy and other factors impacting consumer spending, such as natural disasters and fluctuations in inflation may affect consumer purchases, reduce demand for our services and materially and adversely affect our business, results of operations and financial condition.

Our business depends on consumer demand for our services and, consequently, is sensitive to a number of factors that influence consumer confidence and spending, such as general current and future economic and political conditions, consumer disposable income, energy and fuel prices, shifts in consumer transportation preferences leading to a reduction in car ownership, technological advances in autonomous vehicle technology reducing the number of vehicles on the road, recession and fears of recession, unemployment, minimum wages, availability of consumer credit, consumer debt levels, conditions in the housing market, interest rates, tax rates and policies, inflation, war and fears of war, inclement weather, natural disasters, terrorism, active shooter situations, outbreak of viruses or widespread illness and consumer perceptions of personal well-being and security.

Consumer purchases of car washes decline during periods when economic or market conditions are unstable or weak. Reduced consumer confidence and spending cutbacks may result in reduced demand for our services, which could result in lost sales. Reduced demand also may require increased selling and promotional expenses,

 

18

impacting our profitability. Changes in areas around our locations that result in reductions in car traffic or otherwise render the locations unsuitable could cause our sales to be less than expected. Prolonged or pervasive economic downturns could slow the pace of new greenfield openings, reduce comparable sales or cause us to close certain locations, which could have a material negative impact on our financial performance.

If we are not able to maintain and enhance our reputation and brand recognition, our business and results of operations may be harmed.

We believe that maintaining and enhancing our reputation and brand recognition are critical to our relationships with existing customers and our ability to attract new customers. The promotion of our brand may require us to make substantial investments and we anticipate that, as our market becomes increasingly competitive, these marketing initiatives may become increasingly difficult and expensive. Our marketing activities may not be successful or yield increased revenue, and to the extent that these activities yield increased revenue, the increased revenue may not offset the expenses we incur and our results of operations could be materially and adversely affected.

In addition, any factor that diminishes our reputation or that of our management, including failing to meet the expectations of our customers, could make it substantially more difficult for us to attract new customers. Also, there has been a marked increase in the use of social media platforms that provide individuals with access to a broad audience of consumers and other interested persons. The availability of information on social media platforms is virtually immediate as is its impact. Many social media platforms immediately publish the content their subscribers and participants can post, often without filters or checks on accuracy of the content posted. The opportunity for dissemination of information, including inaccurate information, is seemingly limitless and readily available. Information concerning us may be posted on such platforms at any time. Information posted may be adverse to our interests or may be inaccurate, each of which may harm our performance, prospects or business. The harm may be immediate without affording us an opportunity for redress or correction.

If we do not successfully maintain and enhance our reputation and brand recognition with our customers, our business may not grow and we could lose our relationships with customers, which would materially and adversely affect our business, results of operations and financial condition.

Changes in labor and chemical costs, other operating costs, interest rates and inflation could materially and adversely affect our results of operations.

Increases in employee wages, benefits, and insurance and other operating costs such as commodity costs, legal claims, insurance costs and costs of borrowing could adversely affect operating costs and administrative expenses at our locations. Operating costs are susceptible to increases as a result of factors beyond our control, such as minimum wage legislation, weather conditions, natural disasters, disease outbreaks, global demand inflation, civil unrest, tariffs and government regulations. Any increase in costs for our locations could reduce our sales and profit margins if we choose not, or are unable, to pass the increased costs to our customers. In addition, increases in interest rates may impact land and construction costs and the cost and availability of borrowed funds and leasing locations, and thereby adversely affect our ability to finance the development of additional locations and maintenance of existing locations. Inflation can also cause increased commodity, labor and benefits costs, which could reduce the profitability of our locations. Any of the foregoing increases could materially and adversely affect our business, results of operations and financial condition.

Our work force may expose us to claims that could materially and adversely affect our business, results of operations and financial condition, and our insurance coverage may not cover all of our potential liability.

Our work force may claim that our actions or workplace conditions violate applicable law. As a result of such claims, we may incur fines and other losses, as well as negative publicity. In addition, some or all of these claims may rise to litigation, which could be costly and time-consuming to our management team, and could

 

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have a negative impact on our business. Additionally, actions by our team members such as damage to customers’ cars may subject us to financial claims and harm our reputation. We cannot assure you that we will not experience these problems in the future, that our insurance will cover all claims or that our insurance coverage will continue to be available at economically feasible rates.

Our locations may experience difficulty hiring and retaining qualified personnel, resulting in higher labor costs.

The operation of our locations requires both entry-level and skilled team members, and trained personnel may continue to be in high demand and short supply at competitive compensation levels in some areas, which may result in increased labor costs. From time to time, we may experience difficulty hiring and maintaining such qualified personnel. In addition, the formation of unions may increase the operating expenses of our locations. Any such future difficulties could result in a decline in customer service negatively impacting sales at our locations, which could in turn materially and adversely affect our business, results of operations, business, and financial condition.

Many of our key personnel have worked for us for a significant amount of time or were recruited by us specifically due to their experience. Our success depends in part upon the reputation and influence within the industry of our senior managers. Each of our executive officers and other key employees may terminate his or her relationship with us at any time and the loss of the services of one or a combination of our senior executives or members of our senior management team may significantly delay or prevent the achievement of our business or development objectives and could materially harm our business. Further, contractual obligations related to confidentiality and noncompetition may be ineffective or unenforceable, and departing employees may share our proprietary information with competitors in ways that could adversely impact us.

In addition, certain senior management personnel are substantially vested in their stock option grants or other equity compensation. We intend to grant additional equity awards to management personnel prior to the offering to provide additional incentives to remain employed by us, team members may be more likely to leave us if a significant portion of their equity compensation is fully vested.

If our car wash equipment is not maintained, our car washes will not be operable.

Our car washes have equipment that requires frequent repair or replacement. Although we undertake to keep our car washing equipment in adequate operating condition, the car wash operating environment results in frequent mechanical problems. If we fail to properly maintain the equipment, a car wash could become inoperable or malfunction resulting in a loss of revenue, damage to vehicles and poorly washed vehicles.

We rely on a limited number of suppliers for certain of our car wash equipment and supplies and may not be able to immediately transition to alternative suppliers.

We currently leverage a diversified supply base to supply most of the car wash equipment and certain other supplies we use in our operations. While we believe we could secure such equipment and supplies from alternative sources, doing so may be time-consuming or expensive or may cause a temporary disruption in our supply chain. Shortages or interruptions in the supply of car wash equipment and other supplies could occur for reasons within or beyond the control of us and the supplier. Any shortage or interruption to our supply chain could reduce our sales and profit margins, which in turn may materially and adversely affect our business and results of operations.

We lease or sublease the land and buildings where a number of our locations are situated, which could expose us to possible liabilities and losses.

We lease the land and buildings where a significant number of our locations are located. The terms of the leases and subleases vary in length, with primary terms (i.e., before consideration of option periods) expiring on

 

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various dates. In addition, we may not be able to terminate a particular lease if or when we would like to do so, which could prevent us from closing or relocating certain underperforming locations. Our obligations to pay rent are generally non-cancelable, even if the location operated at the leased or subleased location is closed. Thus, if we decide to close locations, we generally are required to continue paying rent and operating expenses for the balance of the lease term. The performance of any of these obligations may be expensive. We may not assign or sublet the leased locations without consent of the landlord. When we assign or sublease vacated locations, we may remain liable on the lease obligations if the assignee or sub-lessee does not perform. Accordingly, we are subject to the risks associated with leasing locations which can have a material adverse effect on us.

As leases expire, we may be unable to negotiate renewals on commercially acceptable terms or at all, which could cause us to close locations in desirable locations or otherwise negatively affect profits, which in turn could materially and adversely affect our business and results of operations.

We are required to make significant lease payments for our leases, which may strain our cash flow.

We depend on net cash provided by operating activities to pay our rent and other lease expenses and to fulfill our other cash needs. If our business does not generate sufficient cash provided by operating activities, and sufficient funds are not otherwise available to us from borrowings under our Credit Facilities or from other sources, we may not be able to service our lease expenses, grow our business, respond to competitive challenges or fund our other liquidity and capital needs, which would harm our business.

We may experience significant quarterly and annual fluctuations in our operating results due to a number of factors, which makes our future operating results difficult to predict.

Our quarterly and annual operating results may fluctuate significantly due to a variety of factors, many of which are outside of our control. As a result, comparing our operating results on a period-to-period basis may not be meaningful. Our past results may not be a predictor of our future performance.

Factors that may affect our operating results include:

 

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the impact of a recession, pandemic or any other adverse global economic conditions on our business;

 

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the timing of, and the ability to execute on, opening new greenfield locations and acquiring car washes through acquisitions;

 

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our ability to sustain and grow the number of UWC Members;

 

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changes in our pricing policies or those of our competitors;

 

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periodic fluctuations in demand for our services;

 

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volatility in the cost of utilities;

 

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volatility in the sales of our services;

 

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the success or failure of our acquisition strategy;

 

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our ability to develop and implement in a timely manner new products and services and enhancements that meet customer requirements;

 

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any significant changes in the competitive dynamics of our market, including new entrants or substantial discounting of car wash services;

 

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our ability to control costs;

 

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any significant change in our facilities-related costs;

 

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the timing of hiring personnel;

 

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general economic conditions; and

 

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our ability to appropriately resolve any disputes.

We have in the past experienced, and we may experience in the future, significant variations in our level of sales. Such variations in our sales have led and may lead to significant fluctuations in our cash flows, revenue and deferred revenue on a quarterly and annual basis. Failure to achieve our quarterly goals will decrease the value of the Company and accordingly the Company’s securities.

Our comparable store sales may fluctuate significantly.

Our comparable store sales may be adversely affected for many reasons, including new location openings by our competitors and the opening of our own new car wash locations that may cannibalize our existing store sales. Other factors that may affect comparable store sales include cycling against strong sales in the prior year, new car wash locations entering into our comparable store base and price reductions in response to competition.

The ongoing COVID-19 pandemic has materially and adversely affected our business, financial condition and results of operations and may continue to do so.

The public health crisis caused by the COVID-19 pandemic and the measures taken by governments, businesses, including us and our suppliers, and the public at large to limit COVID-19’s spread had certain negative impacts on our business including:

 

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we temporarily suspended operations at more than 300 of our locations in March and April 2020;

 

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we temporarily suspended interior cleaning services at our Interior Cleaning Locations in March 2020 and fully resumed operations at those locations by August 2020;

 

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we temporarily suspended a majority of our acquisition activity and paused greenfield initiatives from March 2020 to July 2020;

 

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we requested and received temporary rent deferrals, which have since been repaid; and

 

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we amended our Second Lien Term Loan credit agreement to cause the interest payment due March 31 to be paid in-kind, rather than in cash; subsequent interest payments have been paid in cash.

Our net revenues were adversely impacted in the first and second quarters of 2020 as a result of the pandemic and actions taken to control its spread. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for further discussion. We continue to implement extensive measures in response to COVID-19 throughout our business operations, but actions we have taken or may take, or decisions we have made or may make, as a consequence of the pandemic may result in legal claims or ligation against us. There can be no assurances that our business, suppliers or third-party service providers will not be adversely impacted or disrupted in the future by the COVID-19 pandemic. Developments related to the pandemic have also caused volatility in the capital markets, which could adversely affect our ability to access additional capital on commercially reasonable terms or at all.

Our ability to use our net operating losses to offset future taxable income may be subject to certain limitations.

As of December 31, 2020, we had U.S. federal and state net operating loss carryforwards (“NOLs”) of approximately $66 million and $11 million, respectively, available to offset future taxable income. Certain of our state NOLs will begin to expire in 2034. Under Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), a corporation that undergoes an “ownership change,” generally defined as a greater than 50% change by value in its equity ownership by certain stockholders over a three year period, is subject to limitations on its ability to utilize NOLs which arose prior to the ownership change to offset future taxable income. Similar

 

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rules may apply under state tax laws. If it is determined that we have in the past experienced ownership changes, or if we undergo one or more ownership changes as a result of this offering or future transactions in our stock, some of which may be outside our control, then our ability to utilize NOLs could be limited by Section 382 of the Code, and certain of our NOLs may expire unused. In addition, under the Tax Cuts and Jobs Act (the “Tax Act”), as modified by the Coronavirus Aid, Relief, and Economic Security Act, NOLs arising in taxable years beginning after December 31, 2017, may be carried forward indefinitely, but the deductibility of such NOLs in taxable years beginning after December 31, 2020, will be limited to 80% of our taxable income in such year. For these reasons, we may not be able to realize, in whole or in part, a tax benefit from the use of our NOLs.

Adverse developments in applicable tax laws could have a material and adverse effect on our business, financial condition and results of operations. Our effective tax rate could also change materially as a result of various evolving factors, including changes in income tax law resulting from the most recent U.S. presidential and congressional elections or changes in the scope of our operations.

We are subject to income taxation at the federal level and by certain states and municipalities because of the scope of our operations. In determining our income tax liability for these jurisdictions, we must monitor changes to the applicable tax laws and related regulations. While our existing operations have been implemented in a manner we believe is in compliance with current prevailing laws, one or more taxing jurisdictions could seek to impose incremental or new taxes on us. In addition, as a result of the most recent presidential and congressional elections in the United States, there could be significant changes in tax law and regulations that could result in additional federal income taxes being imposed on us. Any adverse developments in these laws or regulations, including legislative changes, judicial holdings or administrative interpretations, could have a material and adverse effect on our business, financial condition and results of operations. Finally, changes in the scope of our operations, including expansion to new geographies, could increase the amount of taxes to which we are subject, and could increase our effective tax rate.

Risks Related to Our Indebtedness and Capital Requirements

Our indebtedness could adversely affect our financial health and competitive position.

As of December 31, 2020, we had $1,063.2 million of indebtedness outstanding under our Credit Facilities, net of unamortized debt issuance costs. To service this debt and any additional debt we may incur in the future, we need to generate cash. Our ability to generate cash is subject, to a certain extent, to our ability to successfully execute our business strategy, including acquisition activity, as well as general economic, financial, competitive, regulatory and other factors beyond our control. There can be no assurance that our business will be able to generate sufficient cash flow from operations or that future borrowings or other financing will be available to us in an amount sufficient to enable us to service our debt and fund our other liquidity needs. To the extent we are required to use our cash flow from operations or the proceeds of any future financing to service our debt instead of funding working capital, capital expenditures, acquisition activity or other general corporate purposes, we will be less able to plan for, or react to, changes in our business, industry and in the economy generally. This will place us at a competitive disadvantage compared to our competitors that have less debt. There can be no assurance that we will be able to refinance any of our debt on commercially reasonable terms or at all, or that the terms of that debt will allow any of the above alternative measures or that these measures would satisfy our scheduled debt service obligations. If we are unable to generate sufficient cash flow to repay or refinance our debt on favorable terms, it could significantly adversely affect our financial condition and the value of our outstanding debt. Our ability to restructure or refinance our debt will depend on the condition of the capital markets and our financial condition. Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations.

 

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The terms of our Credit Facilities impose certain operating and financial restrictions on us that may impair our ability to adapt to changing competitive or economic conditions.

The credit agreements governing our Credit Facilities contain, and any agreements evidencing or governing other future debt may contain, certain restrictive covenants that limit our ability, among other things, to engage in certain activities that are in our long-term best interests, including our ability to:

 

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incur liens;

 

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incur or assume additional debt or amend our debt and other material agreements;

 

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issue certain disqualified stock;

 

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declare or make dividends or distributions and redeem, repurchase or retire equity interests;

 

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prepay, redeem or repurchase debt;

 

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make investments, loans, advances, guarantees and acquisitions;

 

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enter into agreements restricting the ability to pay dividends or grant liens securing the obligations under the credit agreements;

 

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amend or modify governing documents;

 

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enter into transactions with affiliates;

 

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engage in certain business activities or alter the business conducted by us and our restricted subsidiaries; and

 

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engage in certain mergers, consolidations and asset sales.

In addition, the First Lien Term Loan contains a springing maximum first lien net leverage ratio financial covenant. See “Description of Certain Indebtedness”. Our ability to meet this requirement can be affected by events beyond our control, and we may not be able to satisfy such financial covenants. Our ability to comply with these covenants and restrictions may be affected by events and factors beyond our control. Our failure to comply with any of these covenants or restrictions could result in an event of default under our Credit Facilities. An event of default would permit the lending banks under the facility to take certain actions, including terminating all outstanding commitments and declaring all amounts outstanding under our credit facility to be immediately due and payable, including all outstanding borrowings, accrued and unpaid interest thereon, and all other amounts owing or payable with respect to such borrowings and any terminated commitments. In addition, the lenders would have the right to proceed against the collateral we granted to them, which includes substantially all of our assets.

In order to support the growth of our business, we may need to incur additional indebtedness or seek capital through new equity or debt financings, which sources of additional capital may not be available to us on acceptable terms or at all.

We intend to continue to make significant investments to support our business growth, respond to business challenges or opportunities, develop new services, enhance our existing services and operating infrastructure and potentially acquire complementary businesses and assets. For the year ended December 31, 2020, our net cash provided by operating activities was $101.8 million. As of December 31, 2020, we had $114.6 million of cash and cash equivalents, which were held for working capital purposes.

Our future capital requirements may be significantly different from our current estimates and will depend on many factors, including the need to:

 

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finance unanticipated working capital requirements;

 

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develop or enhance our infrastructure and our existing services;

 

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acquire complementary businesses, assets or services;

 

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the availability of sale-leaseback arrangements when we engage in an acquisition;

 

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fund strategic relationships, including joint ventures and co-investments;

 

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fund additional implementation engagements; and

 

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respond to competitive pressures.

Accordingly, we may need to engage in equity or debt financings or other arrangements to secure additional funds. Additional financing may not be available on terms favorable to us, or at all. If we raise additional funds through further issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our ordinary shares. Any debt financing secured by us in the future could involve additional restrictive covenants relating to our capital-raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. In addition, during times of economic instability, it has been difficult for many companies to obtain financing in the public markets or to obtain debt financing, and we may not be able to obtain additional financing on commercially reasonable terms, if at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us, it could have a material and adverse effect on our business, results of operations and financial condition.

We are a holding company and depend on our subsidiaries for cash to fund operations and expenses, including future dividend payments, if any.

We are a holding company that does not conduct any business operations of our own. As a result, we are largely dependent upon cash distributions and other transfers from our subsidiaries to meet our obligations and to make future dividend payments, if any. We do not currently expect to declare or pay dividends on our common stock for the foreseeable future; however, the agreements governing the indebtedness of our subsidiaries impose restrictions on our subsidiaries’ ability to pay dividends or other distributions to us. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.” The deterioration of the earnings from, or other available assets of, our subsidiaries for any reason could impair their ability to make distributions to us.

Risks Related to Government Regulation

Our business is subject to various laws and regulations and changes in such laws and regulations, or failure to comply with existing or future laws and regulations, could adversely affect our business.

Our business is subject to numerous and frequently changing federal, state and local laws and regulations. We routinely incur significant costs in complying with these regulations. The complexity of the regulatory environment in which we operate and the related cost of compliance are increasing due to additional legal and regulatory requirements, our expanding operation and increased enforcement efforts. Further, uncertainties exist regarding the future application of certain of these legal requirements to our business. New or existing laws, regulations and policies, liabilities arising thereunder and the related interpretations and enforcement practices, particularly those dealing with environmental protection and compliance, taxation, zoning and land use, workplace safety, public health, recurring debit and credit card charges, information security, consumer protection, and privacy and labor and employment, among others, or changes in existing laws, regulations, policies and the related interpretations and enforcement practices, particularly those governing the sale of products and consumer protection, may result in significant added expenses or may require extensive system and operating changes that may be difficult to implement and/or could materially increase our cost of doing business. For example, we have had to comply with recent new laws in some of the states in which we operate regarding recycling, waste, minimum wages, and sick time. In addition, we are subject to environmental laws pursuant to which we could be strictly liable for any contamination at our current or former locations, or at third-party waste disposal sites, regardless of our knowledge of or responsibility for such contamination.

 

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Our locations are subject to certain environmental laws and regulations.

Our current and former car wash operations, motor fuel dispensing, and quick lube businesses are governed by federal, state and local laws and regulations, including environmental regulations. Certain business activities involve the handling, storage, transportation, import/export, recycling, or disposing of various new and used products and generate solid and hazardous wastes. These business activities are subject to stringent federal, regional, state and local laws, by-laws and regulations governing the storage and disposal of these products and wastes, the release of materials into the environment or otherwise relating to environmental protection. These laws and regulations may impose numerous obligations upon our locations’ operations, including the acquisition of permits to conduct regulated activities, the imposition of restrictions on where or how to store and how to handle new products and to manage or dispose of used products and wastes, the incurrence of capital expenditures to limit or prevent releases of such material, the imposition of substantial liabilities for pollution resulting from our locations’ operations, and costs associated with workers’ compensation and similar health claims from employees.

Environmental laws and regulations have generally imposed further restrictions on our operations over time, which may result in significant additional costs to our business. Failure to comply with these laws, regulations, and permits may result in the assessment of administrative, civil, and criminal penalties, the imposition of remedial and corrective action obligations, and the issuance of injunctions limiting or preventing operation of our locations. Any adverse environmental impact on our locations, including, without limitation, the imposition of a penalty or injunction, or increased claims from employees, could materially and adversely affect our business and the results of our operations.

Environmental laws also impose liability for damages from and the costs of investigating and cleaning up sites of spills, disposals or other releases of hazardous materials. Such liability may be imposed, jointly and severally, on the current or former owners or operators of properties or parties that sent wastes to third-party disposal facilities, in each case without regard to fault or whether such persons knew of or caused the release. Moreover, neighboring landowners and other third parties may file claims for nuisance (including complaints involving noise and light), personal injury and property or natural resource damage allegedly caused by our operations and the release of petroleum hydrocarbons, hazardous substances or wastes into the environment. Although we are not presently aware of any such material liability related to our current or former locations or business operations, such liability could arise in the future and could materially and adversely affect our business and the results of our operations.

The transportation, distribution and storage of motor fuels (diesel fuel and gasoline) and other chemicals are subject to environmental protection and operational safety laws and regulations that may expose us to significant costs and liabilities, which could have a material and adverse effect on our business.

The transportation of motor fuels such as gasoline and diesel by third-party transporters, the transportation of other chemicals by the Company, as well as the associated storage of motor fuels and other chemicals at our current and past locations is subject to various federal, state and local environmental laws and regulations, including those relating to ownership and operation of underground storage tanks, the release or discharge of regulated materials into the air, water and soil, the generation, storage, handling, use, transportation and disposal of hazardous materials, the exposure of persons to regulated materials, and the health and safety of employees dedicated to these transportation and storage activities. These laws and regulations may impose numerous obligations that are applicable to the transportation and storage of motor fuels and other chemicals and other related activities, including acquisition of, or applications for, permits, licenses, or other approvals before conducting regulated activities; restrictions on the types, quantities and concentration of materials that may be released into the environment; requiring capital expenditures to comply with pollution control requirements; and imposition of substantial liabilities for pollution or non-compliance resulting from these activities.

Numerous governmental authorities, such as the U.S. Environmental Protection Agency (the “EPA”), and analogous state agencies, have the power to enforce compliance with these laws and regulations and the permits,

 

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licenses and approvals issued under them, which can often require difficult and costly actions. Failure to comply with these existing laws and regulations or any newly adopted laws or regulations may trigger a variety of administrative, civil and criminal enforcement measures, including the assessment of monetary penalties or other sanctions, the imposition of investigative, remedial or corrective action obligations and the issuance of orders enjoining future operations in particular areas or imposing additional compliance requirements on such operations. Moreover, environmental regulation are becoming more restrictive with limitations on activities that may adversely affect the environment and which may result in increased costs of compliance.

Where releases of motor fuels, chemicals or other substances or wastes have occurred, federal and state laws and regulations require that contamination caused by such releases be assessed and remediated to meet applicable clean-up standards. Certain environmental laws impose strict, joint and several liability for costs required to clean-up and restore sites where motor fuels, chemicals or other waste products have been disposed or otherwise released. The costs associated with the investigation and remediation of contamination, as well as any associated third-party claims for damages or to impose corrective action obligations, could be substantial and could have a material adverse effect on us. We could also be held liable for the costs and other liabilities of clean-up and restoration of contamination as well as possible third-party claims at our locations, which could have a material adverse effect.

For more information on potential risks arising from environmental and occupational safety and health laws and regulations, please see “Business—Environmental and Occupational Safety and Health Matters.”

Government regulations, weather conditions and natural hazards may affect the availability of water supplies for use at our car wash centers.

Our ability to meet the existing and future water demands at our car wash centers depends on adequate supplies of water. Generally our car wash centers use water from local public and/or private water agencies and in some instances through onsite groundwater wells. Our sources of water generally include rivers, lakes, streams and groundwater aquifers. As such, we typically do not own the water that we use in our operations.

Climate change, drought, overuse of sources of water, the protection of threatened species or habitats or other factors may limit the availability of ground and surface water. Climate change and seasonal drought conditions may impact our access to water supplies, and drought conditions currently exist in several areas of the United States. Governmental restrictions on water use may also result in decreased access to water supplies, which may adversely affect our financial condition and results of operations. Water service interruptions due to severe weather events are also possible. These include winter storms and freezing conditions in colder climate locations, high wind conditions in areas known to experience tornados, earthquakes in areas known to experience seismic activity, high water conditions in areas located in or near designated flood plains, hurricanes and severe electrical storms also have the potential to impact our access to water.

Any interruption in our ability to access water could materially and adversely affect our financial condition and results of operations. Furthermore, losses from business interruptions or damage to our facilities might not be covered by our insurance policies and such losses may make it difficult for us to secure insurance in the future at acceptable rates.

 

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Risks Related to Intellectual Property, Information Technology and Data Privacy

We are subject to data security and privacy risks that could negatively impact our results of operations or reputation.

We collect, process, transmit and store personal, sensitive and confidential information, including our proprietary business information and that of consumers (including users of our locations) and team members and suppliers. The secure processing, maintenance and transmission of this information is critical to our operations. Consumers, team members and suppliers have a high expectation that we will adequately protect their information, including personal information, from cyber-attack or other security breaches, and may have claims against us if we are unable to do so. We may also have exposure to regulatory investigation and other compliance risks in the event of a cyber-attack or other security breach.

Our systems and those of our third-party service providers and business partners may be vulnerable to security breaches, attacks by hackers, acts of vandalism, computer viruses, misplaced or lost data, human errors or other similar events. We have been subject to cyber-attacks and attempts in the past and may continue to be subject to such attacks in the future. Though no such incident to date has had a material impact on our business, we cannot guarantee that we will not experience material or adverse effects from any future incident. If unauthorized parties gain access to our networks or databases, or those of our third-party service providers or business partners, they may be able to access, publish, delete, use inappropriately or modify our own or third-party personal, sensitive or confidential information, including credit card information and personal identification information. In addition, employees may intentionally or inadvertently cause data or security breaches that result in the unauthorized release of personal, sensitive or confidential information. Because the techniques used to circumvent security systems can be highly sophisticated, change frequently, are often not recognized until launched against a target and may originate from less regulated and remote areas around the world, we may be unable to proactively address all possible techniques or implement adequate preventive measures for all situations. Any such breach, attack, virus or other event could result in costly investigations and litigation exceeding applicable insurance coverage or contractual rights available to us, government enforcement actions, civil or criminal penalties, fines, operational changes or other response measures, loss of consumer confidence in our security measures, and negative publicity that could materially and adversely affect our brand, business, results of operations and financial condition. These losses may not be adequately covered by insurance or other contractual rights available to us.

In addition, we must comply with increasingly complex and rigorous regulatory standards enacted to protect business and personal data in the United States. The regulatory environment surrounding information security and privacy is demanding, with the frequent imposition of new and changing requirements across our business. Various federal, state and foreign legislative and regulatory bodies, or self-regulatory organizations, may expand current laws or regulations, enact new laws or regulations or issue revised rules or guidance regarding privacy, data protection, information security and consumer protection. For example, in June 2018, California enacted the California Consumer Privacy Act (the “CCPA”), which, among other things, requires additional disclosures to California consumers, affords such consumers additional abilities to opt out of certain sales of personal information and creates a potentially severe statutory damages framework for violations, which took effect on January 1, 2020. Further, in November 2020, California voters passed the California Privacy Rights and Enforcement Act of 2020, or the CPRA, which amends and expands the CCPA with additional data privacy compliance requirements that may adversely impact our business, and establishes a regulatory agency dedicated to enforcing those requirements. The effects, and penalties for violations, of the CCPA and the CPRA are potentially significant, and may require us to further modify our data processing practices and policies and to incur substantial costs and expenses in an effort to comply. Further, our operations are subject to the Telephone Consumer Protection Act (the “TCPA”), and we have received in the past, and may receive in the future, claims alleging violations by us of the same. The interplay of federal and state laws may be subject to varying interpretations by courts and government agencies, creating complex compliance issues for us and potentially exposing us to additional expense, adverse publicity and liability. As privacy and information security laws and regulations change, we may incur additional compliance costs.

 

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Further, because we accept debit and credit cards for payment, we are subject to the Payment Card Industry Data Security Standard, or the PCI Standard, issued by the Payment Card Industry Security Standards Council, with respect to payment card information. The PCI Standard contains compliance guidelines with regard to our security surrounding the physical and electronic storage, processing and transmission of cardholder data. Compliance with the PCI Standard and implementing related procedures, technology and information security measures requires significant resources and ongoing attention. Costs and potential problems and interruptions associated with the implementation of new or upgraded systems and technology, such as those necessary to achieve compliance with the PCI Standard or with maintenance or adequate support of existing systems could also disrupt or reduce the efficiency of our operations. Any material interruptions or failures in our payment related systems could have a material adverse effect on our business, results of operations and financial condition. If there are amendments to the PCI Standard, the cost of recompliance could also be substantial and we may suffer loss of critical data and interruptions or delays in our operations as a result. If we are unable to comply with the security standards established by banks and the payment card industry, we may be subject to fines, restrictions and expulsion from card acceptance programs, which could materially and adversely affect our retail operations.

As a general matter, compliance with laws, regulations and any applicable rules or guidance from self-regulatory organizations relating to privacy, data protection, information security and consumer protection may result in substantial costs and may necessitate changes to our business practices, which may compromise our growth strategy, materially and adversely affect our ability to acquire customers and otherwise materially and adversely affect our business, results of operations and financial condition.

We may be unable to adequately protect, and we may incur significant costs in enforcing or defending, our intellectual property and other proprietary rights.

Our success depends in part on our brand image and our ability to enforce and defend our intellectual property and other proprietary rights and differentiate ourselves from our competitors. We rely upon a combination of trademark, patent, trade secret, copyright, and unfair competition laws, other contractual provisions, to protect our intellectual property and other proprietary rights. In addition, we attempt to protect our intellectual property and proprietary information by requiring our management-level employees and consultants to enter into confidentiality and assignment of inventions agreements. We cannot assure you that the steps we take to protect our intellectual property and other proprietary rights will be adequate to prevent the infringement or other violation of such rights by others, including the imitation and misappropriation of our brand, which could damage our brand identity and the goodwill we have created, causing sales to decline. To the extent that our intellectual property and other proprietary rights are not adequately protected, third parties may challenge, invalidate, circumvent, infringe or misappropriate our intellectual property or the intellectual property of our third-party licensors, or such intellectual property may not be sufficient to permit us to take advantage of current market trends or otherwise to provide competitive advantages, which could result in costly redesign efforts, discontinuance of certain service offerings or other competitive harm. We may have to litigate to enforce or determine the scope and enforceability of our intellectual property rights, which is expensive (and could exceed applicable insurance coverage), could cause a diversion of resources and may not prove successful. The loss of intellectual property protection or the inability to obtain sufficient rights to use third-party intellectual property could harm our business and ability to compete.

We may be subject to infringement claims.

Although we believe that our services and operations do not infringe upon or otherwise violate the proprietary rights of third parties, we cannot guarantee that we do not, and will not in the future, infringe or otherwise violate the proprietary rights of third parties. Third parties have in the past, and may in the future, assert infringement or other intellectual property violation claims against us with respect to future products, services or operations. Any claim from a third party may result in a limitation on our ability to use our intellectual property. Even if we believe that intellectual property related claims are without merit, defending

 

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against such claims is time consuming and expensive and could result in the diversion of the time and attention of our management and employees. Claims of intellectual property infringement are inherently uncertain, and might require us to redesign affected services, enter into costly settlement or license agreements, pay costly damage awards for which we may not have insurance, or face a temporary or permanent injunction prohibiting us from marketing or selling certain of our services. Even if we have an agreement for indemnification against such costs, the indemnifying party, if any in such circumstances, may be unable to uphold its contractual obligations. If we cannot or do not license the infringed technology on reasonable terms or substitute similar technology from another source, our revenue and earnings could be materially and adversely affected.

Risks Related to this Offering and Ownership of Our Common Stock

Prior to this offering, there has been no prior market for our common stock. An active market may not develop or be sustainable, and investors may be unable to resell their shares at or above the initial public offering price.

There has been no public market for our common stock prior to this offering. The initial public offering price for our common stock will be determined through negotiations between the representatives of the underwriters and us and may vary from the market price of our common stock following the completion of this offering. An active or liquid market in our common stock may not develop upon completion of this offering or, if it does develop, it may not be sustainable. In the absence of an active trading market for our common stock, you may not be able to resell those shares at or above the initial public offering price or at all. We cannot predict the prices at which our common stock will trade.

Because LGP owns a significant percentage of our common stock, it may control all major corporate decisions and its interests may conflict with your interests as an owner of our common stock and our interests.

We are controlled by LGP, which currently owns approximately              % of our common stock and will own approximately              % after the consummation of this offering. Accordingly, LGP currently controls the election of our directors and could exercise a controlling interest over our business, affairs and policies, including the appointment of our management and the entering into of business combinations or dispositions and other corporate transactions. Even if LGP were to own or control less than a majority of our total outstanding shares of common stock, it will be able to influence the outcome of corporate actions so long as it owns a significant portion of our total outstanding shares of common stock.

LGP may have interests that are different from yours and may vote in a way with which you disagree and that may be adverse to your interests. In addition, LGP’s concentration of ownership could have the effect of delaying or preventing a change in control or otherwise discouraging a potential acquirer from attempting to obtain control of us, which could cause the market price of our common stock to decline or prevent our stockholders from realizing a premium over the market price for their common stock.

Additionally, LGP is in the business of making investments in companies and may from time to time acquire and hold interests in businesses that compete directly or indirectly with us or supply us with goods and services. LGP may also pursue acquisition opportunities that may be complementary to our business and, as a result, those acquisition opportunities may not be available to us. Stockholders should consider that the interests of LGP may differ from their interests in material respects.

Sales of a substantial number of shares of our common stock in the public market by our existing stockholders could cause our stock price to fall.

Sales of a substantial number of shares of our common stock in the public market or the perception that these sales might occur, could depress the market price of our common stock and could impair our ability to raise

 

30

capital through the sale of additional equity securities. Substantially all of our existing stockholders are subject to lock-up agreements with the underwriters of this offering that restrict the stockholders’ ability to transfer shares of our common stock for            days from the date of this prospectus, subject to certain exceptions. The lock-up agreements limit the number of shares of common stock that may be sold immediately following the public offering. After this offering, we will have            outstanding shares of common stock based on the number of shares outstanding as of                 , 2021. Subject to limitations,            shares will become eligible for sale upon expiration of the lock-up period, as calculated and described in more detail in the section titled “Shares Eligible for Future Sale.” In addition, shares issued or issuable upon exercise of options vested as of the expiration of the lock-up period will be eligible for sale at that time. Further, the representatives of the underwriters may, in their sole discretion, release all or some portion of the shares subject to the lock-up agreements at any time and for any reason. See “Shares Eligible for Future Sale” for more information. Sales of a substantial number of such shares upon expiration of the lock-up agreements, the perception that such sales may occur, or early release of these agreements, could have a material and adverse effect on the trading price of our common stock.

Moreover, after this offering, holders of approximately            % of our outstanding common stock will have rights, subject to certain conditions such as the             -day lock-up arrangement described above, to require us to file registration statements for the public sale of their shares or to include their shares in registration statements that we may file for ourselves or other stockholders. Registration of these shares under the Securities Act, except for shares held by our affiliates as defined in Rule 144 under the Securities Act. Any sales of securities by these shareholders could have a material and adverse effect on the trading price of our common stock.

We will be a “controlled company” within the meaning of      rules following this offering and, as a result, will qualify for, and may rely on, exemptions from certain corporate governance requirements.

Following the consummation of this offering, LGP will continue to control a majority of our outstanding common stock. As a result, we expect to be a “controlled company” within the meaning of              corporate governance standards. A company of which more than 50% of the voting power is held by an individual, a group or another company is a “controlled company” within the meaning of              rules and may elect not to comply with certain corporate governance requirements of             , including:

 

•

the requirement that a majority of our board of directors consist of independent directors;

 

•

the requirement that we have a nominating and corporate governance committee that is comprised entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities;

 

•

the requirement that we have a compensation committee that is comprised entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and

 

•

the requirement for an annual performance evaluation of the nominating and corporate governance and compensation committees.

Following this offering, we intend to rely on all of the exemptions listed above. As a result, we will not have a majority of independent directors and our nominating and corporate governance and compensation committees will not consist entirely of independent directors. Our board of directors and those committees may have more directors who do not meet      independence standards than they would if those standards were to apply. The independence standards are intended to ensure that directors who meet those standards are free of any conflicting interest that could influence their actions as directors. Accordingly, you will not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of                 .

 

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We are an “emerging growth company” and our compliance with the reduced reporting and disclosure requirements applicable to “emerging growth companies” may make our common stock less attractive to investors.

We are an “emerging growth company,” as defined in the JOBS Act, and we have elected to take advantage of certain exemptions and relief from various reporting requirements that are applicable to other public companies that are not “emerging growth companies.” These provisions include being permitted to have only two years of audited financial statements and management’s discussion and analysis of financial condition and results of operations disclosures in this prospectus; being exempt from compliance with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act; being exempt from any rules that could be adopted by the Public Company Accounting Oversight Board requiring mandatory audit firm rotations or a supplement to the auditor’s report on financial statements; being subject to reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements; and not being required to hold nonbinding advisory votes on executive compensation or on any golden parachute payments not previously approved.

We may remain an “emerging growth company” until as late as December 31, 2026, the fiscal year-end following the fifth anniversary of the completion of this offering, though we may cease to be an “emerging growth company” earlier under certain circumstances, including if (i) we have more than $1.07 billion in annual revenue in any fiscal year, (ii) we become a “large accelerated filer,” with at least $700 million of equity securities held by non-affiliates as of the end of the second quarter of that fiscal year or (iii) we issue more than $1.0 billion of non-convertible debt securities over a three-year period. If some investors find our common stock less attractive as a result of us utilizing some or all of these exemptions or forms of relief, there may be a less active trading market for our common stock and our stock price may decline or become more volatile.

Purchasers in this offering will experience immediate and substantial dilution in the book value of their investment.

The assumed initial public offering price of $            per share is substantially higher than the as adjusted net tangible book value per share of our outstanding common stock immediately after this offering. Therefore, if you purchase our common stock in this offering, you will incur immediate dilution of $            in the as adjusted net tangible book value per share from the price you paid assuming that stock price. In addition, following this offering, purchasers who bought shares from us in the offering will have contributed     % of the total consideration paid to us by our stockholders to purchase                shares of common stock to be sold by us in this offering, in exchange for acquiring approximately    % of our total outstanding shares as of December 31, 2020 after giving effect to this offering. If the underwriters exercise their option to purchase additional shares, if we issue any additional stock options or any outstanding stock options are exercised, or if we issue any other securities or convertible debt in the future, investors will experience further dilution.

Some provisions of our charter documents and Delaware law may have anti-takeover effects that could discourage an acquisition of us by others, even if an acquisition would be beneficial to our shareholders, and may prevent attempts by our shareholders to replace or remove our current management.

Provisions in our amended and restated certificate of incorporation and our amended and restated bylaws, as well as provisions of the DGCL, could make it more difficult for a third party to acquire us or increase the cost of acquiring us, even if doing so would benefit our stockholders, including transactions in which stockholders might otherwise receive a premium for their shares. These provisions include:

 

•

establishing a classified board of directors such that not all members of the board are elected at one time;

 

•

allowing the total number of directors to be determined exclusively (subject to the rights of holders of any series of preferred stock to elect additional directors) by resolution of our board of directors and granting to our board the sole power (subject to the rights of holders of any series of preferred stock or rights granted pursuant to the Stockholders’ Agreement) to fill any vacancy on the board;

 

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•

providing that our stockholders may remove members of our board of directors only for cause and only by the affirmative vote of the holders of at least two-thirds of the voting power of our then-outstanding stock, following such time as LGP ceases to beneficially own, in the aggregate, at least 50% of the voting power of our common stock;

 

•

authorizing the issuance of “blank check” preferred stock by our board of directors, without further stockholder approval, to thwart a takeover attempt;

 

•

prohibiting stockholder action by written consent (and, thus, requiring that all stockholder actions be taken at a meeting of our stockholders), if LGP ceases to beneficially own, in the aggregate, at least 50% of the voting power of our common stock;

 

•

eliminating the ability of stockholders to call a special meeting of stockholders, except for LGP for so long as LGP beneficially owns, in the aggregate, at least 50% of the voting power of our common stock;

 

•

establishing advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted upon at annual stockholder meetings; and

 

•

requiring the approval of the holders of at least two-thirds of the voting power of all outstanding stock entitled to vote thereon, voting together as a single class, to amend or repeal our certificate of incorporation or bylaws if LGP ceases to beneficially own, in the aggregate, at least 50% of the voting power of our common stock.

In addition, while we have opted out of Section 203 of the DGCL, our amended and restated certificate of incorporation contains similar provisions providing that we may not engage in certain “business combinations” with any “interested stockholder” for a three-year period following the time that the shareholder became an interested stockholder, unless:

 

•

prior to such time, our board of directors approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder;

 

•

upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of our voting stock outstanding at the time the transaction commenced, excluding certain shares; or

 

•

at or subsequent to that time, the business combination is approved by our board of directors and by the affirmative vote of holders of at least two-thirds of our outstanding voting stock that is not owned by the interested stockholder.

Generally, a “business combination” includes a merger, asset or stock sale or other transaction provided for or through us resulting in a financial benefit to the interested stockholder. Subject to certain exceptions, an “interested stockholder” is a person who owns 15% or more of our outstanding voting stock and the affiliates and associates of such person. For purposes of this provision, “voting stock” means any class or series of stock entitled to vote generally in the election of directors. Our amended and restated certificate of incorporation will provide that LGP, its affiliates and any of its direct or indirect designated transferees (other than in certain market transfers and gifts) and any group of which such persons are a party do not constitute “interested stockholders” for purposes of this provision.

Under certain circumstances, this provision will make it more difficult for a person who qualifies as an “interested stockholder” to effect certain business combinations with us for a three-year period. This provision may encourage companies interested in acquiring us to negotiate in advance with our board of directors in order to avoid the shareholder approval requirement if our board of directors approves either the business combination or the transaction that results in the shareholder becoming an interested stockholder. These provisions also may have the effect of preventing changes in our board of directors and may make it more difficult to accomplish transactions that our shareholders may otherwise deem to be in their best interests. See “Description of Capital Stock.”

 

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These anti-takeover defenses could discourage, delay or prevent a transaction involving a change in control. These provisions could also discourage proxy contests and make it more difficult for you and other shareholders to elect directors of your choosing and cause us to take corporate actions other than those you desire.

Our amended and restated certificate of incorporation will provide that the Court of Chancery of the State of Delaware or federal district courts of the United States will be the sole and exclusive forum for certain types of lawsuits, which could limit our shareholders’ abilities to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

Our amended and restated certificate of incorporation and amended and restated bylaws will require, to the fullest extent permitted by law, that (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers, or other employees to us or our shareholders, (iii) any action asserting a claim against us arising pursuant to any provision of the DGCL or the amended and restated certificate of incorporation or the proposed bylaws, or (iv) any action asserting a claim against us governed by the internal affairs doctrine will have to be brought only in the Court of Chancery in the State of Delaware (or the federal district court for the District of Delaware or other state courts of the State of Delaware if the Court of Chancery in the State of Delaware does not have jurisdiction). The amended and restated certificate of incorporation and amended and restated bylaws will also require that the federal district courts of the United States of America will be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act; however, there is uncertainty as to whether a court would enforce such provision, and investors cannot waive compliance with federal securities laws and the rules and regulations thereunder. Although we believe these provisions benefit us by providing increased consistency in the application of applicable law in the types of lawsuits to which they apply, the provisions may have the effect of discouraging lawsuits against our directors and officers. These provisions would not apply to any suits brought to enforce any liability or duty created by the Exchange Act or any other claim for which the federal courts of the United States have exclusive jurisdiction.

We do not intend to pay dividends for the foreseeable future.

We currently intend to retain any future earnings to finance the operation and expansion of our business and we do not expect to declare or pay any dividends in the foreseeable future. Moreover, the terms of our existing Credit Facilities restrict our ability to pay dividends, and any additional debt we may incur in the future may include similar restrictions. In addition, Delaware law may impose requirements that may restrict our ability to pay dividends to holders of our common stock. As a result, stockholders must rely on sales of their common stock after price appreciation as the only way to realize any future gains on their investment.

General Risks

Changes in accounting rules, assumptions and/or judgments could materially and adversely affect us.

Accounting rules and interpretations for certain aspects of our operations are highly complex and involve significant assumptions and judgment. These complexities could lead to a delay in the preparation and dissemination of our financial statements. Furthermore, changes in accounting rules and interpretations or in our accounting assumptions and/or judgments could significantly impact our financial statements. In some cases, we could be required to apply a new or revised standard retroactively, resulting in restating prior period financial statements. Any of these circumstances could have a material and adverse effect on our business, prospects, liquidity, financial condition and results of operations.

 

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Our stock price may be volatile or may decline regardless of our operating performance, resulting in substantial losses for investors purchasing shares in this offering.

The market price of our common stock may fluctuate significantly in response to numerous factors, many of which are beyond our control, including:

 

•

actual or anticipated fluctuations in our financial conditions and results of operations;

 

•

failure of securities analysts to initiate or maintain coverage of our company, changes in financial estimates or ratings by any securities analysts who follow our company or our failure to meet these estimates or the expectations of investors;

 

•

announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures, or capital commitments;

 

•

price and volume fluctuations in the overall stock market, including as a result of trends in the economy as a whole;

 

•

changes in our board of directors or management;

 

•

sales of large blocks of our common stock, including sales by our affiliates;

 

•

lawsuits threatened or filed against us;

 

•

anticipated or actual changes in laws, regulations or government policies applicable to our business;

 

•

changes in our capital structure, such as future issuances of debt or equity securities;

 

•

short sales, hedging and other derivative transactions involving our capital stock;

 

•

general economic conditions in the United States;

 

•

other events or factors, including those resulting from war, pandemics (including COVID-19), incidents of terrorism or responses to these events; and

 

•

the other factors described in the sections of this prospectus titled “Risk Factors” and “Special Note Regarding Forward-Looking Statements.”

The stock market has recently experienced extreme price and volume fluctuations. The market prices of securities of companies have experienced fluctuations that often have been unrelated or disproportionate to their results of operations. Market fluctuations could result in extreme volatility in the price of shares of our common stock, which could cause a decline in the value of your investment. Price volatility may be greater if the public float and trading volume of shares of our common stock is low. Furthermore, in the past, stockholders have sometimes instituted securities class action litigation against companies following periods of volatility in the market price of their securities. Any similar litigation against us could result in substantial costs, divert management’s attention and resources, and harm our business, financial condition and results of operations.

If securities analysts do not publish research or reports about our company, or if they issue unfavorable commentary about us or our industry or downgrade our common stock, the price of our common stock could decline.

The trading market for our common stock will depend in part on the research and reports that third-party securities analysts publish about our company and our industry. We may be unable or slow to attract research coverage and if one or more analysts cease coverage of our company, we could lose visibility in the market. In addition, one or more of these analysts could downgrade our common stock or issue other negative commentary about our company or our industry. As a result of one or more of these factors, the trading price of our common stock could decline.

 

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements. You can generally identify forward-looking statements by our use of forward-looking terminology such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “potential,” “predict,” “seek,” “vision,” or “should,” or the negative thereof or other variations thereon or comparable terminology. Forward-looking statements include those we make regarding the following matters:

 

•

developments involving our competitors and our industry;

 

•

our ability to attract new customers, retain existing customers and maintain or grow our number of UWC Members;

 

•

potential future impacts of the COVID-19 pandemic;

 

•

expectations regarding our industry;

 

•

our ability to maintain comparable store sales growth;

 

•

our ability to continue to identify and open greenfield locations;

 

•

our estimates of greenfield location expansions and our whitespace opportunity;

 

•

our ability to continue to identify suitable acquisition targets and consummate such acquisitions on attractive terms;

 

•

our ability to attract and retain a qualified management team and other team members while controlling our labor costs;

 

•

the impact of our debt and lease obligations on our ability to raise additional capital to fund our operations and maintain flexibility in operating our business;

 

•

our reliance on and relationships with third-party suppliers;

 

•

our ability to maintain security and prevent unauthorized access to electronic and other confidential information;

 

•

our ability to respond to risks associated with existing and future payment options;

 

•

our ability to maintain and enhance a strong brand image;

 

•

our ability to maintain adequate insurance coverage;

 

•

our status as a “controlled company” and LGP’s control of us as a public company;

 

•

the impact of evolving governmental laws and regulations and the outcomes of legal proceedings; and

 

•

the effects of potential changes to U.S. regulations and policies on our business.

The preceding list is not intended to be an exhaustive list of all of our forward-looking statements. We have based these forward-looking statements on our current expectations, assumptions, estimates and projections. While we believe these expectations, assumptions, estimates and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks and uncertainties, many of which are beyond our control. These and other important factors, including those discussed in this prospectus under the headings “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business,” may cause our actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements. Furthermore, the potential impact of the COVID-19 pandemic on our business operations and financial results and on the world economy as a whole may heighten the risks and uncertainties that affect our forward-looking statements described above. Given these risks and uncertainties, you are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements

 

36

included elsewhere in this prospectus are not guarantees of future performance and our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate, may differ materially from the forward-looking statements included elsewhere in this prospectus. In addition, even if our results of operations, financial condition and liquidity, and events in the industry in which we operate, are consistent with the forward-looking statements included elsewhere in this prospectus, they may not be predictive of results or developments in future periods.

Any forward-looking statement that we make in this prospectus speaks only as of the date of such statement. Except as required by law, we do not undertake any obligation to update or revise, or to publicly announce any update or revision to, any of the forward-looking statements, whether as a result of new information, future events or otherwise, after the date of this prospectus.

 

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USE OF PROCEEDS

We estimate that the net proceeds to us from the sale of shares of our common stock in this offering will be approximately $                 million, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us. We will not receive any proceeds from the sale of shares of our common stock in this offering by the selling stockholders if the underwriters exercise their option to purchase additional shares.

Each $1.00 increase (decrease) in the assumed initial public offering price of $                per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the net proceeds to us from this offering by approximately $                million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting underwriting discounts and estimated offering expenses payable by us. Each increase (decrease) of 100,000 shares in the number of shares sold in this offering by us, as set forth on the cover page of this prospectus, would increase (decrease) the net proceeds to us from this offering by approximately $                million, assuming an initial public offering price of $                per share, the midpoint of the price range set forth on the cover page of this prospectus, remains the same, and after deducting underwriting discounts and estimated offering expenses payable by us. The information discussed above is illustrative only and will adjust based on the actual initial public offering price and other terms of this offering determined at pricing.

We intend to use the net proceeds from this offering for paying down a portion of our Credit Facilities and general corporate purposes to support the growth of our business. As of the date of this prospectus, we cannot specify with certainty the specific allocations or all of the particular uses for the net proceeds to be received upon completion of this offering. We may use a portion of the proceeds for the acquisition of, or investment in, technologies, solutions, or businesses that complement our business. However, we do not have binding agreements or commitments for any acquisitions or investments outside the ordinary course of business at this time. In addition, affiliates of certain of the underwriters are lenders under our Credit Facilities and as a result may receive a portion of the net proceeds from this offering. See “Underwriting.”

Our Credit Facilities consist of (A) the First Lien Term Loan, which bears interest at a rate of, at the Company’s discretion and subject to certain exceptions, either (i) an adjusted LIBOR + 3.25% or (ii) 2.25% plus the higher of (x) federal funds rate plus 1/2 of 1%, (y) the rate of interest reported by the Wall Street Journal, and (c) an adjusted LIBOR plus 1% base rate plus applicable rate, and is scheduled to mature on May 14, 2026, (B) the Revolving Credit Facility, which is scheduled to mature on May 14, 2024, and (C) the Second Lien Term Loan, which bears interest at a rate of 10.0% per annum and is scheduled to mature on May 14, 2027. See “Description of Certain Indebtedness.”

We may find it necessary or advisable to use the net proceeds for other purposes, and we will have broad discretion in the application and specific allocations of the net proceeds of this offering. Pending the uses described above, we intend to invest the net proceeds from this offering in short- and intermediate-term, interest-bearing obligations, investment-grade instruments or other securities.

 

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CAPITALIZATION

The following table sets forth our cash and cash equivalents and our consolidated capitalization as of December 31, 2020:

 

•

on an actual basis; and

 

•

on an as adjusted basis, to give effect to: (i) the filing and effectiveness of our amended and restated certificate of incorporation and amended and restated bylaws and (ii) the sale and issuance by us of                  shares of our common stock in this offering at the initial public offering price of $                 per share, the midpoint of the price range set forth on the cover page of this prospectus, and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us, net of amounts recorded in accrued expenses and other current liabilities and other assets at December 31, 2020.

The information below is illustrative only and our capitalization following the closing of this offering will be adjusted based on the actual initial public offering price and other terms of this offering determined at the pricing of this offering. You should read this information in conjunction with the sections titled “Use of Proceeds,” “Selected Consolidated Financial and Other Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and the accompanying notes thereto included elsewhere in this prospectus.

 

		Actual				As Adjusted
		(dollars in thousands, except per share data)
Cash and cash equivalents(1)		$				$
Long-term debt, including current maturities:
Total debt, net
Stockholders’ equity (deficit):
Common stock; $0.01 par value; 3,250,000 shares authorized, 2,728,205 shares issued and outstanding, actual;             shares authorized, shares issued and outstanding as adjusted
Additional paid-in capital
Retained (deficit) earnings
Accumulated other comprehensive loss
Treasury stock at cost; 29,584 shares actual,             shares as adjusted
Total stockholders’ (deficit) equity
Total capitalization		$				$

 

(1)	Excludes                  in restricted cash set aside for maintenance expenses.

The table above excludes:

 

•

shares of common stock issuable upon the exercise of options outstanding under our equity incentive plans as of                at a weighted average exercise price of $                per share; and

 

•

additional shares of common stock reserved for future issuance under our new omnibus incentive plan.

 

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DIVIDEND POLICY

We currently intend to retain any future earnings to fund the development and expansion of our business, and, therefore, we do not anticipate paying cash dividends on our share capital in the foreseeable future. Any future determination to pay dividends will be at the discretion of our board of directors and will depend on our results of operations, financial condition, capital requirements, contractual restrictions, restrictions under our Credit Facilities and any other agreements governing our indebtedness and other factors deemed relevant by our board of directors. See “Description of Certain Indebtedness,” See “Description of Certain Indebtedness,” “Risk Factors—Risks Relating to Our Indebtedness and Capital Requirements—We are a holding company and depend on our subsidiaries for cash to fund operations and expenses, including future dividend payments, if any” and “Risk Factors—Risks Relating to this Offering and Ownership of Our Common Stock—We do not intend to pay dividends for the foreseeable future.”

 

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DILUTION

If you invest in our common stock in this offering, your interest will be diluted to the extent of the difference between the amount per share paid by purchasers of shares of our common stock in this initial public offering and the as adjusted net tangible book value per share of our common stock immediately after this offering.

As of December 31, 2020, our historical net tangible book value (deficit) was $                million, or $                per share of common stock. Historical net tangible book value (deficit) per share represents our total tangible assets less total liabilities, divided by the number of shares of common stock outstanding as of December 31, 2020.

After giving effect to our sale of                  shares of our common stock in this offering at an assumed initial public offering price of $                 per share, the midpoint of the price range set forth on the cover page of this prospectus, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us, our as adjusted net tangible book value as of December 31, 2020 would have been approximately $                 million, or $                 per share. This represents an immediate increase in as adjusted net tangible book value of $                 per share to our existing stockholders and an immediate dilution in as adjusted net tangible book value of approximately $                 per share to new investors purchasing shares of our common stock in this offering. Dilution in as adjusted net tangible book value (deficit) represents the difference between the price per share paid by investors in this offering and our net tangible book value per share of immediately after the offering.

The following table illustrates this dilution on a per share basis to new investors:

 

Assumed initial public offering price per share of common stock						$
Historical net tangible book value (deficit) per share as of December 31, 2020		$
As adjusted increase in net tangible book value (deficit) per share
As adjusted net tangible book value (deficit) per share as of December 31, 2020
Increase in as adjusted net tangible book value per share attributable to new investors purchasing common stock in this offering
As adjusted net tangible book value per share
Dilution in as adjusted net tangible book value per share to new investors in this offering						$

Each $1.00 increase (decrease) in the assumed initial offering price of $                 per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) our as adjusted net tangible book value by $                , or $                 per share, and the dilution per common share to new investors in this offering by $                 per share, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting underwriting discounts and estimated offering expenses payable by us. An increase of 1.0 million shares in the number of shares of common stock offered by us, as set forth on the cover page of this prospectus, would increase the as adjusted net tangible book value per share by $                and decrease the dilution per share to new investors by $                , assuming no change in the assumed initial public offering price and after deducting estimated underwriting discounts and estimated offering expenses payable by us. A decrease of 1.0 million shares in the number of shares of common stock offered by us, as set forth on the cover page of this prospectus, would decrease the as adjusted net tangible book

 

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value per share by $                and increase the dilution per share to new investors by $                , assuming no change in the assumed initial public offering price and after deducting underwriting discounts and estimated offering expenses payable by us.

The following table summarizes, on an as adjusted basis as of December 31, 2020, after giving effect to the as adjusted adjustments described above, the difference among existing stockholders and new investors purchasing shares of our common stock in this offering with respect to the number of shares purchased from us, the total consideration paid to us and the average price per share paid by our existing stockholders or to be paid by investors purchasing shares in this offering at the initial public offering price of $                 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, before deducting the underwriting discounts and commissions and estimated offering expenses payable by us.

 

		Shares Purchased								Total Consideration								Average Price Per Share
		Number				Percent				Amount				Percent
Existing stockholders								%		$						%		$
New investors
Total							100	%		$					100	%

Each $1.00 increase (decrease) in the assumed initial public offering price of $                 per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) total consideration paid by new investors by $                million and total consideration paid by all stockholders and average price per share paid by all stockholders by $                million and $                 per share, respectively, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting underwriting discounts and estimated offering expenses payable by us. An increase (decrease) of 1.0 million shares in the number of shares offered by us, as set forth on the cover page of this prospectus, would increase (decrease) total consideration paid by new investors by $                million and total consideration paid by all stockholders and average price per share paid by all stockholders by $                million and $                 per share, respectively, assuming the assumed initial public offering price remains the same, and after deducting underwriting discounts and estimated offering expenses payable by us.

The table above assumes the underwriters do not exercise their option to purchase additional shares in this offering. If the underwriters fully exercise their option to purchase                 additional shares of our common stock in this offering, the as adjusted net tangible book value per share would be $                per share and the dilution to new investors in this offering would be $                 per share. If the underwriters fully exercise their option, the number of shares held by new investors will increase to                 shares of our common stock, or approximately    % of the total number of shares of our common stock outstanding after this offering.

The information presented in the tables and discussions above excludes:

 

•

shares of common stock issuable upon the exercise of options outstanding under our equity incentive plans as of December 31, 2020 at a weighted average exercise price of $                per share; and

 

•

additional shares of common stock reserved for future issuance under our new omnibus incentive plan.

To the extent any options are granted and exercised in the future, there may be additional economic dilution to new investors.

In addition, we may choose to raise additional capital due to market conditions or strategic considerations, even if we believe we have sufficient funds for our current or future operating plans. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the issuance of these securities could result in further dilution to our stockholders.

 

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SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

You should read the following selected consolidated financial data together with the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes included elsewhere in this prospectus. The selected consolidated financial data included in this section are not intended to replace the consolidated financial statements and are qualified in their entirety by the consolidated financial statements and the related notes included elsewhere in this prospectus.

We have derived the following selected consolidated statements of operations and cash flow data for the years ended December 31, 2019 and 2020 and the consolidated balance sheet data as of December 31, 2019 and 2020 from our audited consolidated financial statements included elsewhere in this prospectus. We have derived the following selected consolidated statements of operations and cash flow data for the years ended December 31, 2016, 2017 and 2018 and the consolidated balance sheet data as of December 31, 2016, 2017 and 2018 from our audited consolidated financial statements not included in this prospectus. Our historical results are not necessarily indicative of the results that may be expected for any future period. You should read the following information in conjunction with the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the accompanying notes thereto included elsewhere in this prospectus.

 

		Year Ended December 31,
		2016				2017				2018				2019				2020
Statements of Operations and Other Comprehensive Income Data		(in thousands)
Revenues, net		$	364,081			$	453,104			$	524,400			$	629,528			$	574,941
Cost of labor and chemicals			167,120				196,635				216,998				243,912				193,971
Other store operating costs			120,049				161,558				187,736				224,402				224,419
General and administrative			43,090				41,171				48,585				84,806				51,341
Loss (gain) on sale of assets			2,302				2,509				2,975				1,345				(37,888	)
Total expenses, net			332,561				401,873				456,294				554,465				431,843
Operating income			31,520				51,231				68,106				75,063				143,098
Other (expense) income:
Interest expense, net			(21,630	)			(42,434	)			(46,669	)			(67,610	)			(64,009	)
Loss on extinguishment of debt			—				—				—				(9,169	)			(1,918	)
Total other (expense) income			(21,630	)			(42,434	)			(46,669	)			(76,779	)			(65,927	)
Income (loss) before taxes			9,890				8,797				21,437				(1,716	)			77,171
Income tax provision (benefit)			4,078				(14,083	)			7,089				(2,636	)			16,768
Net income			5,812				22,880				14,348				920				60,403
Loss on interest rate swap			—				—				—				—				(1,117	)
Total comprehensive income			5,812				22,880				14,348				920				59,286
		Year Ended December 31,
		2016				2017				2018				2019				2020
Consolidated Statements of Cash Flow Data		(in thousands)
Net cash provided by operating activities		$	35,922			$	43,526			$	79,822			$	70,072			$	101,846
Net cash used in investing activities			(92,350	)			(146,561	)			(225,209	)			(113,821	)			(13,353	)
Net cash provided by financing activities			65,808				95,230				147,277				45,399				22,676

 

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		As of December 31,
		2016				2017				2018				2019				2020
Consolidated Balance Sheet Data		(in thousands)
Cash and cash equivalents		$	10,970			$	3,165			$	5,055			$	6,405			$	114,647
Total current assets			29,885				33,409				28,837				33,101				134,970
Goodwill			452,184				541,854				690,394				731,989				737,415
Total assets			737,270				861,366				1,052,441				1,150,074				1,948,453
Total current liabilities			48,441				56,661				96,448				85,569				122,947
Total long term debt, net			520,763				616,012				737,552				1,016,890				1,054,820
Total liabilities			652,127				749,557				924,694				1,213,676				1,931,803
Total stockholders’ equity (deficit)			85,143				111,809				127,747				(63,602	)			16,650

 

		Year Ended December 31,
Financial and Other Data		2016				2017				2018				2019				2020
Location count (end of period)(1)			202				251				287				322				342
Comparable store sales growth(1)			9	%			6	%			10	%			10	%			(11	)%
UWC Members (in thousands)(1)			331				519				766				986				1,233
UWC sales as a percentage of total wash sales(1)			36	%			40	%			49	%			53	%			62	%
Adjusted EBITDA (in thousands)(2)			79,021				105,113				126,975				163,217				161,084
Adjusted EBITDA margin(2)			21.7	%			23.2	%			24.2	%			25.9	%			28.0	%

 

(1)	See “Management’s Discussion and Analysis and Results of Operations—Key Performance Indicators” for a description of location count, comparable store sales growth, UWC Members and UWC sales as a percentage of total wash sales.

(2)	Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP financial measures. For a discussion about why we consider such measures useful and a discussion of the material risks and limitations of such measures, please see “Key Performance Indicators and Non-GAAP Financial Measures.”

The	following is a reconciliation of our net income (loss) to Adjusted EBITDA for the periods presented here and elsewhere in the prospectus. Adjusted EBITDA margin is defined as Adjusted EBITDA divided by net revenue for a given period.

 

		Year Ended December 31,
		2010								2016				2017				2018				2019				2020
										(in thousands)
Net income		$	3,684							$	5,812			$	22,880			$	14,348			$	920			$	60,403
Interest expense, net			5,104								21,630				42,435				46,669				67,610				64,009
Income tax expense (benefit)			2,284								4,079				(14,082	)			7,089				(2,636	)			16,768
Depreciation and amortization			5,189								20,489				30,732				33,516				39,468				45,289
(Gain) loss on sale of assets (a)			(95	)							2,302				2,509				2,975				1,345				(8,115	)
Gain on sale of quick lube facilities (b)			—								—				—				—				—				(29,773	)
Dividend recapitalization fees and payments (c)			—								7,718				1,895				1,348				29,346				650
Loss on early debt extinguishment (d)			—								—				—				—				9,169				1,918
Stock-based compensation expense (e)			75								3,139				1,832				1,553				2,365				1,493
Acquisition expenses (f)			173								4,274				6,466				9,037				4,887				2,163
Management fees (g)			344								1,000				1,000				1,000				1,000				250
Non-cash rent expense (h)			1,353								4,175				5,684				4,888				4,217				3,695
Other (i)			(927	)							4,404				3,763				4,551				5,527				2,334
Adjusted EBITDA		$	17,183							$	79,021			$	105,113			$	126,975			$	163,217			$	161,084

 

(a)	Consists of gain or (loss) on disposition of assets associated with store closures or the sale of property and equipment.

(b)	Consists of the gain on sale of the 27 quick lube facilities in December 2020.

 

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(c)	Represents payments to holders of our stock options made pursuant to anti-dilution provisions in connection with dividends paid to holders of our common stock and legal fees related to dividend recapitalizations.

(d)	Represents expensing of previously unamortized deferred financing fees at time of debt amendments.

(e)	Represents non-cash charges related to stock-based compensation.

(f)	Represents professional fees and expenses associated with strategic acquisitions.

(g)	Represents management fees paid to LGP in accordance with our management services agreement, which will terminate on the consummation of this offering.

(h)	Represents the difference between cash paid for rent and GAAP rent expense (per ASC 840 for 2010-2019 and per ASC 842 in 2020).

(i)

Consists of other non-recurring or discrete items as determined by management not to be reflective of our ongoing operating performance, such as transaction costs; personnel-related costs such as severance costs; legal settlements and legal fees related to contract terminations; and non-recurring strategic project costs.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with “Selected Consolidated Financial and Other Data” and our consolidated financial statements and related notes included elsewhere in this prospectus. 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 under “Risk Factors” and in other parts of this prospectus.

Who We Are

Mister Car Wash is the largest national car wash brand, offering express exterior and interior cleaning services to customers across 344 car wash locations in 21 states, as of March 31, 2021. 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 them the highest quality car wash and delivering the experience quickly and conveniently. We offer a monthly subscription program, which we call Unlimited Wash Club (“UWC”), as a flexible, quick and convenient option for customers to keep their cars clean. As of March 31, 2021, we had 1.4 million UWC Members, and, in 2020, UWC sales represented 62% of our total wash sales and 68% of our total wash volume. Our scale and 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.

UWC is our all-you-can-wash subscription program for a flat monthly fee. We have increased UWC membership over the last several years by adopting a member-centric approach, adding dedicated member-only lanes and utilizing radio-frequency identification (“RFID”) technology for our UWC Members at all of our locations. This allows quick, contactless and convenient trips. In 2020, the average UWC Member washed their car over 30 times, which we believe is significantly more than the average car wash user. Increased UWC membership provides us consistent, visible and recurring revenue while improving customer loyalty. We have grown the UWC program from representing 30% of our total wash sales in 2015 to 62% of our total wash sales in 2020, and despite the COVID-19 pandemic, we grew UWC membership by approximately 247,000 members in 2020.

We are the largest national car wash brand based on number of locations, having grown from 65 locations in 2010 to 344 locations as of March 31, 2021. We operate two location formats: (i) Express Exterior Locations, which offer express exterior cleaning services, and (ii) Interior Cleaning Locations, which offer both express exterior and interior cleaning services. Our Express Exterior Locations comprise 263 of our current locations and represent all of our historical and projected greenfield growth. We have 81 Interior Cleaning Locations that serve as a fertile training ground for our operations and generate strong unit-level economics and cash flows. In 2018, we launched our greenfield development strategy to expand the number of our Express Exterior Locations, opening our first location in Urbandale, Iowa. We have opened a total of 22 greenfield locations and have invested meaningfully in our greenfield development team, systems and capabilities. Our greenfield performance has been consistently strong over time. To date, we have been able to generate enough income from our existing greenfield locations to pay back our initial net capital investments in these locations within approximately three years of their operations. In 2021, we expect to open 16 to 18 total greenfield locations in existing markets nationwide and have a strong development pipeline for future locations.

We believe Mister Car Wash offers an affordable, feel-good experience, enjoyed by all who value a clean, dry and shiny car. Our car wash experience has broad demographic appeal and our typical base exterior car wash is approximately $8. As we continue to grow and serve more of the approximately 273 million registered vehicles in the United States, as of year end 2020, we are dedicated to putting our team members first and delivering a consistent, convenient and high quality car wash experience at scale.

 

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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 the section of the prospectus titled “Risk Factors.”

 

•

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 subscription 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. Our subscription business model is a key driver of our growth and allows us to capture a significant amount of data about our members, which we utilize to optimize our service offerings and user engagement.

 

•

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 them competitive wages, offering them 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.

 

•

Macroeconomic trends. Macroeconomic factors may affect consumer spending patterns and thereby our results of operations. These factors include general economic conditions, consumer confidence, employment rates, business conditions, changes in the housing and new vehicle markets, the availability of credit, interest rates, tax rates and fuel and energy costs.

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.

Impact of COVID-19

At the onset of the COVID-19 pandemic in March and April 2020, to ensure the safety of our team members and customers and in compliance with local regulations, we made the decision to temporarily suspend operations at more than 300 of our locations. During this period, we upgraded our safety protocols and modified our operating model by temporarily suspending all interior cleaning services from locations offering those services. While our operations were suspended, we furloughed approximately 5,500 of our hourly car wash team members. Furloughed team members were not paid by us unless they elected to use accrued paid time off; however, we did continue to provide benefits coverage to any team member who was enrolled at the time of furlough. The suspension of our operations negatively impacted our net revenues, but improved our net income margin and Adjusted EBITDA margin as express exterior cleaning services are less labor intensive compared to interior cleaning services. We also proactively undertook several measures to augment our liquidity, such as drawing on our Revolving Credit Facility, requesting rent deferrals, suspending all acquisition activity, and pausing all greenfield initiatives.

By the end of May 2020, all of our locations were safely reopened and offering express exterior cleaning services, including exterior only services at Interior Cleaning Locations. By the end of 2020, we also paid back 100% of our deferred rent and successfully resumed both greenfield initiatives and acquisition activity. Although our actions at the beginning of the COVID-19 pandemic impacted our financial results in 2020, we believe that

 

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our people-first approach engendered goodwill and loyalty among our team members and our customers, and allowed us to emerge an even stronger business.

Keeping our customers and team members safe has always been the highest priority for Mister Car Wash. We have been closely monitoring the national and local government health guidelines in each of our communities, and we have proactively implemented extensive measures in response to COVID-19 throughout our business operations, including:

 

•

requiring team members to wear additional protective gear, including gloves, face shields and safety glasses;

 

•

regular cleaning and sanitizing of high touch areas;

 

•

requiring all team members to practice safe social distancing at our kiosks and in our interior cleaning lanes;

 

•

updates to our lobby configurations at our Interior Cleaning Locations to allow customers to keep a safe distance;

 

•

transitioning to completely cashless transactions;

 

•

cleaning kiosks and tablets after each credit card transaction; and

 

•

eliminating all remaining hand towel drying at the end of the tunnel.

Given the unpredictable nature of this situation, we cannot estimate with certainty the long-term impacts of the COVID-19 pandemic on our business, financial condition, results of operations, and cash flows. Although the future economic environment is uncertain, we are confident in our ability to continue to provide car wash services to our customers, and we remain committed to serving our customers as we continue to navigate the public health challenge of COVID-19.

We are closely monitoring the impact of COVID-19 on all aspects of our business and in all of our locations. See “Risk Factors—Risks Relating to Our Business— The ongoing COVID-19 pandemic has materially and adversely affected our business, financial condition and results of operations and may continue to do so.”

Greenfield Location Development

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 of Mister Car Wash locations and anticipate pursuing this strategy more in the future. We have successfully opened 22 greenfield locations, with the expectation of driving the majority of our location growth through greenfield locations on a go-forward basis. In 2021, we expect to open 16 to 18 total greenfield locations in existing markets nationwide. Developing new locations may impact our operations going forward as we enter new markets and build out existing markets.

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 ramped to more mature average unit volumes, which we typically expect after approximately three full years of operation.

Business Acquisitions

In 2020, we made four acquisitions for a total of $33.6 million, including the acquisition of Bush Car Wash, a chain of seven locations in Washington, doubling our footprint in the state. We also added two locations in Orlando, Florida and one location in Austin, Texas. The number of acquisitions we pursue may vary from period to period.

 

 

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Upon acquisition, we implement a variety of operational improvements to unify branding and enhance profitability. 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 our customers car wash experience better for their vehicle and the environment. 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 each 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 Mister Car Wash’s ownership.

Divestitures

In December 2020, we completed the divestment of 27 quick lube facilities to Valvoline LLC. Our approximately 250 quick lube facility team members also transitioned to Valvoline after completion of the transaction. Concurrent with this divestiture, we also permanently closed four quick lube facilities that were co-located with our car washes. As a result, we closed or sold all of our quick lube facilities as of December 31, 2020. This divestment did not meet the criteria to be reported as a discontinued operation and accordingly its results of operations have not been reclassified. We recognized a gain of $29.8 million for the year ended December 31, 2020. See Note 16. Dispositions in the notes to our audited consolidated financial statements included elsewhere in this prospectus.

Total revenues for our quick lube facilities were $32.2 million and $23.8 million for the years ended December 31, 2019 and 2020, respectively, representing a decrease of $8.5 million, or 26.4%. Operating income for our quick lube facilities was $4.3 million and $1.0 million for the years ended December 31, 2019 and 2020, respectively.

 

		Year Ended December 31,
		2019				2020
		(in thousands)
Revenues, net		$	32,231			$	23,757
Cost of labor and chemicals			19,683				14,774
Other store operating expenses			7,533				6,569
General and administrative			—				—
Loss on sale of assets			749				1,380
Total costs and expenses			27,966				22,723
Operating income			4,265				1,033

 

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Key Performance Indicators

We prepare and analyze various operating and financial data to assess the performance of our business and allocate our resources. The key operating performance and financial metrics and indicators we use are set forth below, as of and for the years ended December 31, 2019 and 2020.

 

		Year Ended December 31,
		2019				2020
Financial and Operating Data
Location count (end of period)			322				342
Comparable store sales growth			10	%			(11	)%
UWC Members (in thousands)			986				1,233
UWC sales as percentage of total wash sales			53	%			62	%
Adjusted EBITDA (in thousands)		$	163,217			$	161,084
Adjusted EBITDA margin			25.9	%			28.0	%

For a reconciliation of Adjusted EBITDA to net income (loss), the most directly comparable GAAP measure, see “Selected Consolidated and Other Financial Data.”

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, acquired locations and closed 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 fiscal year 2019, we increased our location count by 35 locations, including four greenfield locations and 32 acquired locations, offset by one closed location. In fiscal year 2020, despite the challenging COVID-19 environment, we increased our location count by 20 locations, including 12 greenfield locations and 10 acquired locations, offset by two closed 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 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 sales are only one measure we use to assess the success of our growth strategy.

We have historically delivered consistent long-term growth. Prior to 2020, we achieved 39 consecutive quarters of positive comparable store sales growth, averaging 9% annually from 2010 to 2019.

In 2020, at the onset of the COVID-19 pandemic in March and April 2020, we temporarily suspended operations at more than 300 of our locations. By the end of May 2020, all of our locations were safely reopened and offering express exterior cleaning services, although our comparable store sales performance remained impacted by the ongoing suspension of interior cleaning services, which carry higher average revenue per car, through August 2020 when interior cleaning services were reintroduced. Overall, due to the temporary store closures and the decline in interior cleaning services, our 2020 comparable store sales declined (11)%. Excluding the period of temporary suspension of operations, our Express Exterior Locations averaged high single-digit positive comparable store sales growth for the year ended December 31, 2020, while comparable store sales declined at our Interior Cleaning Locations largely due to a mix shift toward lower revenue per car exterior cleaning services.

 

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UWC Members

Members of our monthly subscription service are known as Unlimited Wash Club members, or UWC Members. We view the number of UWC Members as a key indicator of our growth and use several internally developed metrics to track the increase of our member base. The number of members has grown over time as we acquired new customers and retained previously acquired customers. There were approximately 1.0 million and 1.2 million UWC Members as of December 31, 2019 and December 31, 2020, respectively. Our UWC membership program grew by approximately 247,000 members, or approximately 25.0%, from 2019 to 2020.

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 and interior cleaning services for both UWC Members and retail customers. UWC sales as a percentage of total wash sales is calculated as net revenue 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 53% and 62% of our total wash sales in 2019 and 2020, 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 GAAP and should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. Adjusted EBITDA is defined as net income before interest expense net, income tax expense (benefit), depreciation and amortization, (loss) gain on sale of assets, gain on sale of quick lube facilities, dividend recapitalization fees and payments, loss on early debt extinguishment, stock-based compensation, acquisition expenses, management fees, non-cash rent expense and other non-recurring charges. Adjusted EBITDA margin is defined as Adjusted EBITDA divided by net revenue for a given period.

Our Adjusted EBITDA was $163 million and $161 million in 2019 and 2020, respectively. Our Adjusted EBITDA margin was 25.9% and 28.0% in 2019 and 2020, respectively. The Adjusted EBITDA and Adjusted EBITDA margin results in 2020 are attributable to the impacts of COVID-19, the mix shift to exterior cleaning services, changes to our labor staffing model, other improvements in store operating costs and the divestiture of our quick lube facilities. For a reconciliation of Adjusted EBITDA to net income, the most directly comparable GAAP measure, see “Selected Consolidated and Other Financial Data.”

Components of Our Results of Operations

Revenues, net

We recognize revenue in two main streams: (i) an Unlimited Wash Club program that entitles the customer to unlimited washes for a monthly subscription fee, cancellable at any time and (ii) retail car wash 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. Customers are automatically charged on a credit 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. The UWC revenue is recognized ratably over the month in which it is earned and amounts unearned are recorded as deferred revenue on the consolidated balance sheets. All amounts recorded as deferred revenue at year end are recognized as revenue in the following year. Revenue from car wash and quick lube services is recognized at the point in time services are rendered and the customer pays with cash or credit. Revenues are net of sales tax, refunds and discounts applied as a reduction of revenue at the time of payment.

 

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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 labor costs at car washes, maintenance, warehouses, chemicals and associated supplies. The associated employee benefits such as taxes, insurance and workers compensation are also included in the cost of labor and benefits.

Other Store Operating Expenses

Other store operating expenses includes all other costs related to running the car wash or warehouse such as credit card fees, car damages, office and lobby supplies, information technology costs associated with the stores, telecommunications, advertising, non-healthcare related insurance, and other operating expenses. Other store operating expenses also includes rent, repairs and maintenance, utilities, property taxes, and depreciation on held for use assets at the car wash locations and warehouses.

General and Administrative

General and administrative expenses include salaries and related benefits of headquarter employees, IT expenses, administrative office expenses, professional services and other related expenses, depreciation on held for use assets used at our headquarters, and amortization of our intangible assets.

Following our initial public offering, we expect 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. These costs will generally be expensed under general and administrative in the consolidated statement of operations included elsewhere in this prospectus.

Upon the completion of this offering, we will recognize  stock-based compensation expense of $                million in connection with the vesting of stock-based compensation awards with performance-based vesting conditions. The remaining stock-based compensation expense of $                million                    for                     stock-based compensation awards with unvested service-based vesting conditions at the time of initial public offering will be expensed upon vesting.

(Gain) Loss on Sale of Assets

(Gain) loss on sale of assets includes gains or losses on the sale-leaseback of our locations, sale of property and equipment, and the gain on our sale of the quick lube facilities in December 2020.

Interest Expense, net

Interest expense, net consists primarily of cash and non-cash interest on borrowings, partially offset by interest earned on our cash.

Loss on Extinguishment of Debt

Loss on extinguishment of debt includes net loss related to various changes in our existing term loans. Analysis is performed to determine the portion of the change that is a modification or extinguishment of creditor holdings.

 

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Income Tax (Benefit) Provision

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 (benefit), net and general and administrative, respectively.

Results of Operations

The results of operations data for the years ended December 31, 2019 and 2020 have been derived from the audited consolidated financial statements included elsewhere in this prospectus.

 

		Year Ended December 31,
		2019								2020
		Amount				% of Revenue				Amount				% of Revenue
		(dollars in thousands)
Revenues, net		$	629,528				100	%		$	574,941				100	%
Store operating costs:
Cost of labor and chemicals			243,912				39	%			193,971				34	%
Other store operating expenses			224,402				36	%			224,419				39	%
General and administrative			84,806				13	%			51,341				9	%
Loss (gain) on sale of assets			1,345				0	%			(37,888	)			(7	)%
Total costs and expenses			554,465				88	%			431,843				75	%
Operating income			75,063				12	%			143,098				25	%
Other (expense) income, net:
Interest expense, net			(67,610	)			(11	)%			(64,009	)			(11	)%
Loss on extinguishment of debt			(9,169	)			(1	)%			(1,918	)			0	%
Total other (expense) income, net			(76,779	)			(12	)%			(65,927	)			(11	)%
(Loss) income before taxes			(1,716	)			0	%			77,171				13	%
Income tax (benefit) provision			(2,636	)			0	%			16,768				3	%
Net income		$	920				0	%		$	60,403				11	%

Revenues, net

 

		Year Ended December 31,
		2019				2020				$ Change				% Change
		(dollars in thousands)
Revenues, net		$	629,528			$	574,941			$	(54,587	)			(9	)%

Revenues were $629.5 million for the year ended December 31, 2019, compared to $574.9 million for the year ended December 31, 2020, a decrease of $54.6 million, or 9%. The decline in revenues in 2020 was primarily attributable to actions taken in response to the COVID-19 pandemic, including our temporary suspension of operations at more than 300 car wash locations late in the first quarter of 2020 and the first half of the second quarter of 2020 as well as the temporary removal of all interior cleaning services through August 2020. Revenues were also impacted by the divestiture of our quick lube facilities. Our comparable store sales

 

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growth for the year ended December 31, 2019 was 10%, compared to (11)% for the year ended December 31, 2020. Excluding the period of temporary suspension of operations, our Express Exterior Locations averaged high single-digit positive comparable store sales growth for the year ended December 31, 2020, while our Interior Cleaning Locations declined largely due to a mix shift toward lower revenue per car exterior cleaning services.

Store Operating Costs

Cost of Labor and Chemicals

 

		Year Ended December 31,
		2019				2020				$ Change				% Change
		(dollars in thousands)
Cost of labor and chemicals		$	243,912			$	193,971			$	(49,941	)			(20	)%
Percentage of revenues, net			39	%			34	%

The cost of labor and chemicals was $243.9 million for the year ended December 31, 2019 compared to $194.0 million for the year ended December 31, 2020. The decrease of $49.9 million, or 20%, was mainly driven by the decrease in volume due to the COVID-19 pandemic. The cost of labor and chemicals as a percentage of total revenue decreased from 39% in 2019 to 34% in 2020. This decrease was due to the permanent redesign of our labor model and the shift from interior cleaning services to express exterior cleaning services.

During the COVID-19 pandemic, we redesigned our labor staffing model to be based on location-level demand metrics, such as wash volumes, wait times, and peak hour needs. This adaptability enabled us to recalibrate our headcount without compromising our high standards of operational excellence.

Other Store Operating Expenses

 

		Year Ended December 31,
		2019				2020				$ Change				% Change
		(dollars in thousands)
Other store operating expenses		$	224,402			$	224,419			$	17				0	%
Percentage of revenues, net			36	%			39	%

Other store operating expenses were $224.4 million for the year ended December 31, 2019, compared to $224.4 million for the year ended December 31, 2020. The results were driven by a decrease in expenses due to the impacts of the pandemic of $5.1 million on variable operating expenses. This was partially offset by an increase in occupancy cost of $5.7 million with the addition of 20 net new locations.

General and Administrative

 

		Year Ended December 31,
		2019				2020				$ Change				% Change
		(dollars in thousands)
General and administrative		$	84,806			$	51,341			$	(33,465	)			(39	)%
Percentage of revenues, net			13	%			9	%

General and administrative expenses were $84.8 million for the year ended December 31, 2019 compared to $51.3 million for the year ended December 31, 2020. The decrease of $33.5 million, or 39%, was primarily driven by $29.3 million one-time payments made to option holders, including related fees and expenses, in connection with the dividend recapitalization transaction in May 2019.

 

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