10-Q

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

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 April 30, 2022, the registrant had 302,272,484 shares of common stock, $0.01 par value per share, outstanding.

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”). All statements other than statements of present and historical facts contained in this Quarterly Report on Form 10-Q, including without limitation, statements regarding our future results of operations and financial position, business strategy and approach may be forward-looking. 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 are based on our management’s beliefs and assumptions and on information currently available to us. Such beliefs and assumptions may or may not prove to be correct. Additionally, such forward-looking statements are subject to a number of known and unknown risks, uncertainties and assumptions, and actual results may differ materially from those expressed or implied in the forward-looking statements due to various factors, including, but not limited to, those identified in Part I. Item 1A. “Risk Factors” and in Part II. Item 7. “Management's Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (the “2021 10-K”) and in Part I. Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Quarterly Report on Form 10-Q. These risks and uncertainties include, but are not limited to:

Given these and other risks and uncertainties applicable to us, 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.

As used in this Quarterly Report on Form 10-Q, unless otherwise stated or the context requires otherwise, references to “Mister Car Wash,” “Mister,” the “Company,” “we,” “us,” and “our,” refer to Mister Car Wash, Inc. and its subsidiaries on a consolidated basis.

See accompanying notes to unaudited condensed consolidated financial statements.

2. Summary of Significant Accounting Policies

The accompanying unaudited condensed consolidated financial statements as of March 31, 2022 and for the three months ended March 31, 2022 and 2021 have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial statements. Certain information and note disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto for the year ended December 31, 2021 included in the 2021 10-K.

The unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements. In the opinion of management, the included disclosures are adequate, and the accompanying unaudited condensed consolidated financial statements contain all adjustments which are necessary for a fair presentation of the Company’s consolidated financial position as of March 31, 2022, consolidated results of operations and comprehensive income for the three months ended March 31, 2022 and 2021, and consolidated cash flows for the three months ended March 31, 2022 and 2021. Such adjustments are of a normal and recurring nature. The consolidated results of operations for the three months ended March 31, 2022 are not necessarily indicative of the consolidated results of operations that may be expected for the year ending December 31, 2022.

Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company. All material intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of the unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements. Estimates also affect the reported amounts of revenue and expenses during the periods reported. Some of the significant estimates that the Company has made pertain to the determination of deferred tax assets and liabilities; estimates utilized to determine the fair value of assets acquired and liabilities assumed in business combinations and the related goodwill and intangibles; and certain assumptions used related to the evaluation of goodwill, intangibles, and property and equipment asset impairment. Actual results could differ from those estimates.

Accounts Receivable, Net

Accounts receivable are presented net of an allowance for doubtful accounts of $78 and $70 as of March 31, 2022 and December 31, 2021, respectively. The activity in the allowance for doubtful accounts was immaterial for the three months ended March 31, 2022 and 2021.

Other Receivables

Other receivables consisted of the following for the periods presented:


	As of
	March 31, 2022		December 31, 2021
Payroll tax withholding and exercise proceeds receivable	$	—	$	8,477
Construction receivable		5,911		5,574
Income tax receivable		2,343		4,935
Insurance receivable		2,646		2,594
Other		1,833		1,216
Total other receivables	$	12,733	$	22,796

Inventory, Net

Inventory consisted of the following for the periods presented:


	As of
	March 31, 2022			December 31, 2021
Chemical washing solutions	$	7,055		$	6,406
Other		81			52
Total inventory, gross		7,136			6,458
Reserve for obsolescence		(136	)		(124	)
Total inventory, net	$	7,000		$	6,334

The activity in the reserve for obsolescence was immaterial for the three months ended March 31, 2022 and 2021.

Revenue Recognition

The following table summarizes the composition of the Company’s revenue, net for the periods presented:


	Three Months Ended March 31,
	2022		2021
Recognized over time	$	140,874	$	108,270
Recognized at a point in time		78,008		66,322
Other revenue		537		916
Net revenues	$	219,419	$	175,508

Net Income Per Share

Basic net income per share is computed by dividing net income by the weighted-average number of common shares outstanding for the period. Diluted net income per share is computed by dividing net income by the weighted-average shares outstanding for the period and includes the dilutive impact of potential new shares issuable upon vesting and exercise of stock options, vesting of restricted stock units, and stock purchase rights granted under an employee stock purchase plan. Potentially dilutive securities are excluded from the computation of diluted net income per share if their effect is antidilutive. Reconciliations of the numerators and denominators of the basic and diluted net income per share calculations for the periods presented are as follows:


	Three Months Ended March 31,
	2022		2021
Numerator:
Net income	$	35,488	$	24,584

Denominator:
Weighted-average common shares outstanding - basic		300,931,453		262,151,037
Effect of potentially dilutive securities:
Stock options		27,010,017		16,203,426
Restricted stock units		1,230,967		-
Weighted-average common shares outstanding - diluted		329,172,437		278,354,463

Net income per share - basic	$	0.12	$	0.09
Net income per share - diluted	$	0.11	$	0.09

The following potentially dilutive shares were excluded from the computation of diluted net income per share for the periods presented because including them would have been antidilutive:


	Three Months Ended March 31,
	2022		2021
Stock options		2,041,141		458,152

Deferred Offering Costs

The Company capitalizes certain legal, accounting, and other third-party fees that are directly related to the Company’s equity financings, including the IPO, until such financings are consummated. After consummation of an equity financing, these costs are then recorded as a reduction of the proceeds received as a result of the financing. Should a planned equity financing be abandoned, terminated, or significantly delayed, the deferred offering costs would be immediately written off to operating expenses. Upon the closing of the IPO in June 2021, all deferred offering costs in the accompanying unaudited condensed consolidated balance sheets were reclassified from prepaid expenses and other current assets and recorded against the IPO proceeds as a reduction to additional paid-in capital. As of March 31, 2022 and December 31, 2021, there were no deferred offering costs capitalized.

Prior Period Reclassification

Certain prior period amounts related to other receivables within accounts receivable, net and prepaid expenses and other current assets in the accompanying unaudited condensed consolidated financial statements have been reclassified to conform to the current period presentation. There was no change to prior period current or total assets.

Recently Issued Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU No. 2016-13”), which replaces the existing incurred loss impairment model with an expected credit loss model and requires a financial asset measured at amortized cost to be presented at the net amount expected to be collected. The guidance will be effective for the Company beginning January 1, 2023, and interim periods therein. Early adoption is permitted. The Company is currently evaluating the effect that ASU No. 2016-13 will have on its consolidated financial statements and related disclosures.

In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805) – Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU No. 2021-08”). The guidance improves the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and certain inconsistencies in application. Under current U.S. GAAP, an acquirer generally recognizes contract assets acquired and liabilities assumed in a business combination at fair value on the acquisition date. The amendments in this update require that an acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC Topic 606 as if it had originated the

contracts. The amendments in this update will be effective for the Company beginning January 1, 2023, and interim periods thereafter. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the effect that ASU No. 2021-08 will have on its consolidated financial statements and related disclosures.

3. Property and Equipment, Net

Property and equipment, net consisted of the following for the periods presented:


	As of
	March 31, 2022			December 31, 2021
Land	$	87,072		$	81,911
Buildings and improvements		177,301			171,540
Finance leases		16,497			16,497
Leasehold improvements		96,704			92,821
Vehicles and equipment		191,464			188,053
Furniture, fixtures and equipment		76,848			73,213
Construction in progress		31,407			24,724
Property and equipment, gross		677,293			648,759
Less: accumulated depreciation		(187,860	)		(175,017	)
Less: accumulated depreciation - finance leases		(1,536	)		(1,294	)
Property and equipment, net	$	487,897		$	472,448

For the three months ended March 31, 2022 and 2021, depreciation expense was $12,934 and $9,971, respectively.

For the three months ended March 31, 2022 and 2021, amortization expense on finance leases was $242 and $242, respectively.


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)


		Page
	FORWARD-LOOKING STATEMENTS	2

PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Operations and Comprehensive Income	4
	Condensed Consolidated Statements of Cash Flows	5
	Condensed Consolidated Statements of Stockholders' Equity	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	30
Item 4.	Controls and Procedures	30

PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	32
Item 1A.	Risk Factors	32
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32
Item 3.	Defaults Upon Senior Securities	32
Item 4.	Mine Safety Disclosures	32
Item 5.	Other Information	32
Item 6.	Exhibits	33

Signatures		34


	As of
	March 31, 2022			December 31, 2021
Assets
Current assets:
Cash and cash equivalents	$	70,261		$	19,738
Restricted cash		174			120
Accounts receivable, net		1,128			1,090
Other receivables		12,733			22,796
Inventory, net		7,000			6,334
Prepaid expenses and other current assets		9,858			8,766
Total current assets		101,154			58,844

Property and equipment, net		487,897			472,448
Operating lease right of use assets, net		716,745			718,533
Other intangible assets, net		128,052			129,820
Goodwill		1,060,766			1,060,221
Other assets		8,265			8,236
Total assets	$	2,502,879		$	2,448,102

Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	33,869		$	27,346
Accrued payroll and related expenses		20,484			16,963
Other accrued expenses		20,405			20,201
Current maturities of operating lease liability		37,889			37,345
Current maturities of finance lease liability		577			559
Deferred revenue		28,463			27,815
Total current liabilities		141,687			130,229

Long-term portion of debt, net		894,629			896,336
Operating lease liability		714,098			717,552
Financing lease liability		15,206			15,359
Long-term deferred tax liability		28,246			22,603
Other long-term liabilities		7,659			8,871
Total liabilities		1,801,525			1,790,950

Stockholders’ equity:
Common stock, $0.01 par value, 1,000,000,000 shares authorized, 301,607,178 and 300,120,451 shares outstanding as of March 31, 2022 and December 31, 2021, respectively		3,022			3,007
Additional paid-in capital		759,173			752,343
Accumulated other comprehensive income		2,094			225
Accumulated deficit		(62,935	)		(98,423	)
Total stockholders’ equity		701,354			657,152
Total liabilities and stockholders’ equity	$	2,502,879		$	2,448,102


	Three Months Ended March 31,
	2022		2021
Net revenues	$	219,419	$	175,508
Cost of labor and chemicals		65,538		51,749
Other store operating expenses		77,801		61,083
General and administrative		23,687		14,961
Loss on sale of assets		459		790
Total costs and expenses		167,485		128,583
Operating income		51,934		46,925

Other expense:
Interest expense, net		8,166		13,959
Total other expense		8,166		13,959
Income before taxes		43,768		32,966
Income tax provision		8,280		8,382
Net income	$	35,488	$	24,584

Other comprehensive income, net of tax:
Gain on interest rate swap		1,869		319
Total comprehensive income	$	37,357	$	24,903

Net income per share:
Basic	$	0.12	$	0.09
Diluted	$	0.11	$	0.09
Weighted-average common shares outstanding:
Basic		300,931,453		262,151,037
Diluted		329,172,437		278,354,463


	Three Months Ended March 31,
	2022			2021
Cash flows from operating activities:
Net income	$	35,488		$	24,584
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense		14,945			11,650
Stock-based compensation expense		5,519			310
Loss on sale of assets		459			790
Amortization of deferred debt issuance costs		419			356
Non-cash lease expense		9,606			8,613
Deferred income tax		5,018			7,099
Changes in assets and liabilities:
Accounts receivable, net		146			(318	)
Other receivables		10,108			(262	)
Inventory, net		(665	)		289
Prepaid expenses and other current assets		901			(242	)
Accounts payable		5,679			3,144
Accrued expenses		3,635			2,799
Deferred revenue		648			1,254
Operating lease liability		(9,094	)		(8,245	)
Other noncurrent assets and liabilities		(1,268	)		(232	)
Net cash provided by operating activities	$	81,544		$	51,589

Cash flows from investing activities:
Purchases of property and equipment		(30,015	)		(32,301	)
Proceeds from sale of property and equipment		1			3,591
Net cash used in investing activities	$	(30,014	)	$	(28,710	)

Cash flows from financing activities:
Proceeds from exercise of stock options		1,281			121
Payments for repurchases of common stock		-			(199	)
Payments on debt borrowings		(2,100	)		(2,100	)
Principal payments on finance lease obligations		(134	)		(119	)
Payments of issuance costs pursuant to initial public offering		-			(35	)
Net cash used in financing activities	$	(953	)	$	(2,332	)

Net change in cash and cash equivalents and restricted cash during period		50,577			20,547
Cash and cash equivalents and restricted cash at beginning of period		19,858			117,874
Cash and cash equivalents and restricted cash at end of period	$	70,435		$	138,421

Supplemental disclosure of cash flow information:
Cash paid for interest	$	7,821		$	14,149
Cash paid for income taxes	$	-		$	109

Supplemental disclosure of non-cash investing and financing activities:
Property and equipment in accounts payable	$	18,123		$	6,363
Stock option exercise proceeds in other receivables	$	45		$	-
Repurchase of common stock in other accrued expenses	$	-		$	15
Deferred offering costs in accounts payable and other accrued expenses	$	-		$	1,030


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


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


	Common Stock				Additional Paid-in Capital		Accumulated Other Comprehensive Income		Accumulated Deficit			Stockholders’ Equity
	Shares		Amount
Balance as of December 31, 2021		300,120,451	$	3,007	$	752,343	$	225	$	(98,423	)	$	657,152
Stock-based compensation expense		-		-		5,519		-		-			5,519
Exercise of stock options		1,486,727		15		1,311		-		-			1,326
Gain on interest rate swap		-		-		-		1,869		-			1,869
Net income		-		-		-		-		35,488			35,488
Balance as of March 31, 2022		301,607,178	$	3,022	$	759,173	$	2,094	$	(62,935	)	$	701,354


	Common Stock					Additional Paid-in Capital			Accumulated Other Comprehensive Loss			Accumulated Deficit			Stockholders’ Equity
	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