10-Q

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2021


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-40542

Mister Car Wash, Inc.

(Exact name of registrant as specified in its charter)


Delaware	47-1393909
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
222 E 5th Street Tucson, Arizona	85705
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (520) 615-4000

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

Common stock, par value $0.01 per share

MCW

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐ No ☒

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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.

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 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☒ No ☐

As of August 12, 2021, the registrant had 296,072,999 shares of common stock, $0.01 par value per share, outstanding.

Table of Contents


		Page
	FORWARD-LOOKING STATEMENTS	2
	RISK FACTOR SUMMARY	3

PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets	4
	Condensed Consolidated Statements of Operations and Comprehensive Loss	5
	Condensed Consolidated Statements of Stockholders' Equity (Deficit)	6
	Condensed Consolidated Statements of Cash Flows	8
	Notes to Unaudited Condensed Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36
Item 4.	Controls and Procedures	36

PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	37
Item 1A.	Risk Factors	37
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	53
Item 3.	Defaults Upon Senior Securities	53
Item 4.	Mine Safety Disclosures	53
Item 5.	Other Information	53
Item 6.	Exhibits	54

Signatures		55

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). 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 the number of our Unlimited Wash Club ("UWC") members;


	•		potential future impacts of the COVID-19 pandemic, including from variants thereof;


	•		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 Leonard Green & Partners, L.P.’s ("LGP") 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 Quarterly Report on Form 10-Q in Part I., Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Part II, Item IA. “Risk Factors,” 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 pandemic related to COVID-19 and variants thereof 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 included elsewhere in this Quarterly Report on Form 10-Q 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 Quarterly Report on Form 10-Q. 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 Quarterly Report on Form 10-Q, they may not be predictive of results or developments in future periods.

Any forward-looking statement that we make in this Quarterly Report on Form 10-Q 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 Quarterly Report on Form 10-Q.

RISK FACTOR SUMMARY

Our business is subject to numerous risks and uncertainties, including those described in Part II. Item 1A. “Risk Factors” in this Quarterly Report on Form 10-Q. You should carefully consider these risks and uncertainties when investing in our common stock. Some of the principal risks and uncertainties include the following.


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


	•		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.


	•		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.


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


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


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


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


	•		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.


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


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


	•		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.


	•		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 locations are subject to certain environmental laws and regulations.


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


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


	•		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.


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

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

Mister Car Wash, Inc. and Subsidiaries (f/k/a Hotshine Holdings, Inc.)

Condensed Consolidated Balance Sheets

(Amounts in thousands, except share and per share data)

(Unaudited)


	As of
	June 30, 2021			December 31, 2020
Assets
Current assets:
Cash and cash equivalents	$	154,972		$	114,647
Restricted cash		3,368			3,227
Accounts receivable, net		7,813			4,613
Inventory		6,407			6,415
Prepaid expenses and other current assets		8,843			6,068
Total current assets		181,403			134,970

Property and equipment, net		279,605			263,034
Operating lease right of use assets, net		696,134			681,538
Other intangible assets, net		125,642			127,019
Goodwill		755,524			737,415
Other assets		5,224			4,477
Total assets	$	2,043,532		$	1,948,453

Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	24,160		$	24,374
Accrued payroll and related expenses		20,069			11,424
Other accrued expenses		23,116			20,264
Current maturities of debt		8,400			8,400
Current maturities of operating lease liability		35,545			33,485
Current maturities of finance lease liability		526			495
Deferred revenue		26,495			24,505
Total current liabilities		138,311			122,947

Long-term portion of debt, net		603,649			1,054,820
Operating lease liability		698,751			685,479
Financing lease liability		15,647			15,917
Long-term deferred tax liability		7,397			46,082
Other long-term liabilities		5,760			6,558
Total liabilities		1,469,515			1,931,803

Commitments and contingencies (Note 15)

Stockholders’ equity:
Common stock, $0.01 par value, 1,000,000,000 shares authorized, 296,062,478 and 261,907,622 shares outstanding as of June 30, 2021 and December 31, 2020, respectively		2,967			2,622
Additional paid-in capital		733,914			91,523
Accumulated other comprehensive loss		(770	)		(1,117	)
Accumulated deficit		(162,094	)		(76,378	)
Total stockholders’ equity		574,017			16,650
Total liabilities and stockholders’ equity	$	2,043,532		$	1,948,453

See accompanying notes to unaudited condensed consolidated financial statements.

Mister Car Wash, Inc. and Subsidiaries (f/k/a Hotshine Holdings, Inc.)

Condensed Consolidated Statements of Operations and Comprehensive Loss

(Amounts in thousands, except share and per share data)

(Unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
	2021			2020			2021			2020
Revenues, net	$	197,080		$	101,856		$	372,588		$	257,108
Cost of labor and chemicals		87,864			34,059			139,613			91,629
Other store operating expenses		65,363			49,752			126,446			108,225
General and administrative		188,896			13,634			203,857			26,593
(Gain) loss on sale of assets		(7,097	)		167			(6,307	)		510
Total costs and expenses		335,026			97,612			463,609			226,957
Operating (loss) income		(137,946	)		4,244			(91,021	)		30,151

Other expense:
Interest expense, net		13,740			16,229			27,699			33,424
Loss on extinguishment of debt		3,183			-			3,183			1,918
Total other expense		16,923			16,229			30,882			35,342
Loss before taxes		(154,869	)		(11,985	)		(121,903	)		(5,191	)
Income tax benefit		(44,569	)		(3,231	)		(36,187	)		(5,297	)
Net (loss) income	$	(110,300	)	$	(8,754	)	$	(85,716	)	$	106

Other comprehensive loss, net of tax:
Gain (loss) on interest rate swap		28			(901	)		347			(901	)
Total comprehensive loss	$	(110,272	)	$	(9,655	)	$	(85,369	)	$	(795	)

Net (loss) income per share:
Basic	$	(0.42	)	$	(0.03	)	$	(0.33	)	$	0.00
Diluted	$	(0.42	)	$	(0.03	)	$	(0.33	)	$	0.00
Weighted-average common shares outstanding:
Basic		264,274,968			261,742,515			263,218,870			261,744,966
Diluted		264,274,968			261,742,515			263,218,870			273,935,572

See accompanying notes to unaudited condensed consolidated financial statements.

Mister Car Wash, Inc. and Subsidiaries (f/k/a Hotshine Holdings, Inc.)

Condensed Consolidated Statements of Stockholders’ Equity (Deficit)

(Amounts in thousands, except share and per share data)

(Unaudited)


	Common Stock					Additional Paid-in Capital			Accumulated Other Comprehensive Loss			Accumulated Deficit			Stockholders’ Equity (Deficit)
	Shares			Amount
Balance as of December 31, 2020		261,907,622		$	2,622	$	91,523		$	(1,117	)	$	(76,378	)	$	16,650
Stock-based compensation expense		-			-		310			-			-			310
Exercise of stock options		688,430			7		260			-			-			267
Shares repurchased		(180,681	)		-		(534	)		-			-			(534	)
Gain on interest rate swap		-			-		-			319			-			319
Net income		-			-		-			-			24,584			24,584
Balance as of March 31, 2021		262,415,371		$	2,629	$	91,559		$	(798	)	$	(51,794	)	$	41,596
Issuance of common stock pursuant to initial public offering, net of issuance costs of $29,194		31,250,000			313		439,243			-			-			439,556
Stock-based compensation expense		-			-		203,231			-			-			203,231
Vesting of restricted stock units		7,680			-		-			-			-			-
Exercise of stock options		2,516,784			25		1,597			-			-			1,622
Shares repurchased		(127,357	)		-		(1,716	)		-			-			(1,716	)
Gain on interest rate swap		-			-		-			28			-			28
Net loss		-			-		-			-			(110,300	)		(110,300	)
Balance as of June 30, 2021		296,062,478		$	2,967	$	733,914		$	(770	)	$	(162,094	)	$	574,017

See accompanying notes to unaudited condensed consolidated financial statements.

Mister Car Wash, Inc. and Subsidiaries (f/k/a Hotshine Holdings, Inc.)

Condensed Consolidated Statements of Stockholders’ Equity (Deficit)

(Amounts in thousands, except share and per share data)

(Unaudited)


	Common Stock					Additional Paid-in Capital			Accumulated Other Comprehensive Loss			Accumulated Deficit			Stockholders’ Equity (Deficit)
	Shares			Amount
Balance as of December 31, 2019		261,749,196		$	2,620	$	90,358		$	-		$	(156,580	)	$	(63,602	)
Adoption of new accounting standards, net of tax		-			-		-			-			19,798			19,798
Stock-based compensation expense		-			-		387			-			-			387
Shares repurchased		(4,624	)		-		(324	)		-			-			(324	)
Net income		-			-		-			-			8,860			8,860
Balance as of March 31, 2020		261,744,572		$	2,620	$	90,421		$	-		$	(127,922	)	$	(34,881	)
Stock-based compensation expense		-			-		398			-			-			398
Shares repurchased		(2,400	)		-		(5	)		-			-			(5	)
Loss on interest rate swap		-			-		-			(901	)		-			(901	)
Net loss		-			-		-			-			(8,754	)		(8,754	)
Balance as of June 30, 2020		261,742,172		$	2,620	$	90,814		$	(901	)	$	(136,676	)	$	(44,143	)

See accompanying notes to unaudited condensed consolidated financial statements.

Mister Car Wash, Inc. and Subsidiaries (f/k/a Hotshine Holdings, Inc.)

Condensed Consolidated Statements of Cash Flows

(Amounts in thousands)

(Unaudited)


	Six Months Ended June 30,
	2021			2020
Cash flows from operating activities:
Net (loss) income	$	(85,716	)	$	106
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization expense		23,550			22,097
Stock-based compensation expense		203,541			785
(Gain) loss on disposal of property and equipment		(6,307	)		510
Loss on extinguishment of debt		3,183			1,918
Amortization of deferred financing costs		698			827
Non-cash lease expense		17,182			17,026
Deferred income tax		(38,440	)		4,085
Changes in assets and liabilities:
Accounts receivable		(3,201	)		242
Inventory		41			1,113
Prepaid expenses and other current assets		(2,776	)		270
Accounts payable		14,926			(2,348	)
Accrued expenses		8,614			21,751
Deferred revenue		1,838			(289	)
Operating lease liability		(16,446	)		(14,021	)
Other noncurrent assets and liabilities		(1,012	)		(219	)
Net cash provided by operating activities	$	119,675		$	53,853

Cash flows from investing activities:
Purchases of property and equipment		(44,194	)		(27,405	)
Acquisition of car wash operations, net of cash acquired		(44,652	)		(5,991	)
Proceeds from sale of property and equipment		22,201			3,893
Net cash used in investing activities	$	(66,645	)	$	(29,503	)

Cash flows from financing activities:
Proceeds from issuance of common stock pursuant to initial public offering		468,750			-
Proceeds from exercise of stock options		121			-
Payments for repurchases of common stock		(308	)		(329	)
Proceeds from secondary offering for employee tax withholdings		14,874			-
Tax withholdings paid on behalf of employees for secondary offering		(14,874	)		-
Proceeds from debt borrowings		-			45,625
Proceeds from revolving line of credit		-			111,681
Payments on debt borrowings		(454,872	)		(4,200	)
Payments on revolving line of credit		-			(125,681	)
Payments of debt extinguishment costs		(28	)		-
Payments of deferred financing costs		(226	)		-
Principal payments on finance lease obligations		(240	)		(61	)
Payments of issuance costs pursuant to initial public offering		(25,761	)		-
Net cash (used in) provided by financing activities	$	(12,564	)	$	27,035

Net change in cash and cash equivalents, and restricted cash during period		40,466			51,385
Cash and cash equivalents, and restricted cash at beginning of period		117,874			6,705
Cash and cash equivalents, and restricted cash at end of period	$	158,340		$	58,090

Supplemental disclosure of cash flow information:
Cash paid for interest	$	27,577