UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
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:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer |
(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
|
Trading Symbol(s) |
|
Name of each exchange on which registered |
|
|
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.
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).
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.
Large accelerated filer |
|
☐ |
|
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 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 November 1, 2022, the registrant had
Table of Contents
|
|
Page |
|
2 |
|
|
|
|
PART I. |
FINANCIAL INFORMATION |
|
Item 1. |
Financial Statements (Unaudited) |
|
|
3 |
|
|
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) |
4 |
|
5 |
|
|
6 |
|
|
8 |
|
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
24 |
Item 3. |
36 |
|
Item 4. |
36 |
|
|
|
|
PART II. |
OTHER INFORMATION |
|
Item 1. |
37 |
|
Item 1A. |
37 |
|
Item 2. |
37 |
|
Item 3. |
37 |
|
Item 4. |
37 |
|
Item 5. |
37 |
|
Item 6. |
38 |
|
|
|
|
39 |
||
i
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”). 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.
2
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
Mister Car Wash, Inc.
Condensed Consolidated Balance Sheets
(Amounts in thousands, except share and per share data)
(Unaudited)
|
As of |
|
|||||
|
September 30, 2022 |
|
|
December 31, 2021 |
|
||
Assets |
|
|
|
|
|
||
Current assets: |
|
|
|
|
|
||
Cash and cash equivalents |
$ |
|
|
$ |
|
||
Restricted cash |
|
|
|
|
|
||
Accounts receivable, net |
|
|
|
|
|
||
Other receivables |
|
|
|
|
|
||
Inventory, net |
|
|
|
|
|
||
Prepaid expenses and other current assets |
|
|
|
|
|
||
Total current assets |
|
|
|
|
|
||
|
|
|
|
|
|
||
Property and equipment, net |
|
|
|
|
|
||
Operating lease right of use assets, net |
|
|
|
|
|
||
Other intangible assets, net |
|
|
|
|
|
||
Goodwill |
|
|
|
|
|
||
Other assets |
|
|
|
|
|
||
Total assets |
$ |
|
|
$ |
|
||
|
|
|
|
|
|
||
Liabilities and stockholders’ equity |
|
|
|
|
|
||
Current liabilities: |
|
|
|
|
|
||
Accounts payable |
$ |
|
|
$ |
|
||
Accrued payroll and related expenses |
|
|
|
|
|
||
Other accrued expenses |
|
|
|
|
|
||
Current maturities of operating lease liability |
|
|
|
|
|
||
Current maturities of finance lease liability |
|
|
|
|
|
||
Deferred revenue |
|
|
|
|
|
||
Total current liabilities |
|
|
|
|
|
||
|
|
|
|
|
|
||
Long-term portion of debt, net |
|
|
|
|
|
||
Operating lease liability |
|
|
|
|
|
||
Financing lease liability |
|
|
|
|
|
||
Long-term deferred tax liability |
|
|
|
|
|
||
Other long-term liabilities |
|
|
|
|
|
||
Total liabilities |
|
|
|
|
|
||
|
|
|
|
|
|
||
Stockholders’ equity: |
|
|
|
|
|
||
Common stock, $ |
|
|
|
|
|
||
Additional paid-in capital |
|
|
|
|
|
||
Accumulated other comprehensive income |
|
|
|
|
|
||
Accumulated deficit |
|
( |
) |
|
|
( |
) |
Total stockholders’ equity |
|
|
|
|
|
||
Total liabilities and stockholders’ equity |
$ |
|
|
$ |
|
||
See accompanying notes to unaudited condensed consolidated financial statements.
3
Mister Car Wash, Inc.
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
(Amounts in thousands, except share and per share data)
(Unaudited)
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Net revenues |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Cost of labor and chemicals |
|
|
|
|
|
|
|
|
|
|
|
||||
Other store operating expenses |
|
|
|
|
|
|
|
|
|
|
|
||||
General and administrative |
|
|
|
|
|
|
|
|
|
|
|
||||
(Gain) loss on sale of assets |
|
( |
) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Total costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
||||
Operating income (loss) |
|
|
|
|
|
|
|
|
|
|
( |
) |
|||
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other expense: |
|
|
|
|
|
|
|
|
|
|
|
||||
Interest expense, net |
|
|
|
|
|
|
|
|
|
|
|
||||
Loss on extinguishment of debt |
|
|
|
|
|
|
|
|
|
|
|
||||
Total other expense |
|
|
|
|
|
|
|
|
|
|
|
||||
Income (loss) before taxes |
|
|
|
|
|
|
|
|
|
|
( |
) |
|||
Income tax provision (benefit) |
|
|
|
|
|
|
|
|
|
|
( |
) |
|||
Net income (loss) |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|||
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other comprehensive income (loss), net of tax: |
|
|
|
|
|
|
|
|
|
|
|
||||
(Loss) gain on interest rate swap |
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Total comprehensive income (loss) |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|||
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|||
Diluted |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|||
Weighted-average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
|
|
|
|
|
|
|
|
|
|
||||
Diluted |
|
|
|
|
|
|
|
|
|
|
|
||||
See accompanying notes to unaudited condensed consolidated financial statements.
4
Mister Car Wash, Inc.
Condensed Consolidated Statements of Cash Flows
(Amounts in thousands)
(Unaudited)
|
Nine Months Ended September 30, |
|
|||||
|
2022 |
|
|
2021 |
|
||
Cash flows from operating activities: |
|
|
|
|
|
||
Net income (loss) |
$ |
|
|
$ |
( |
) |
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
|
|
|
|
|
||
Depreciation and amortization expense |
|
|
|
|
|
||
Stock-based compensation expense |
|
|
|
|
|
||
(Gain) loss on sale of assets |
|
( |
) |
|
|
( |
) |
Loss on extinguishment of debt |
|
|
|
|
|
||
Amortization of deferred debt issuance costs |
|
|
|
|
|
||
Non-cash lease expense |
|
|
|
|
|
||
Deferred income tax |
|
|
|
|
( |
) |
|
Changes in assets and liabilities: |
|
|
|
|
|
||
Accounts receivable, net |
|
( |
) |
|
|
( |
) |
Other receivables |
|
|
|
|
( |
) |
|
Inventory, net |
|
( |
) |
|
|
|
|
Prepaid expenses and other current assets |
|
( | ) |
|
|
( | ) |
Accounts payable |
|
|
|
|
|
||
Accrued expenses |
|
|
|
|
|
||
Deferred revenue |
|
|
|
|
|
||
Operating lease liability |
|
( |
) |
|
|
( |
) |
Other noncurrent assets and liabilities |
|
( |
) |
|
|
( |
) |
Net cash provided by operating activities |
$ |
|
|
$ |
|
||
|
|
|
|
|
|
||
Cash flows from investing activities: |
|
|
|
|
|
||
Purchases of property and equipment |
|
( |
) |
|
|
( |
) |
Acquisition of car wash operations, net of cash |
|
( |
) |
|
|
( |
) |
Proceeds from sale of property and equipment |
|
|
|
|
|
||
Net cash used in investing activities |
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
||
Cash flows from financing activities: |
|
|
|
|
|
||
Proceeds from issuance of common stock pursuant to initial public offering |
|
|
|
|
|
||
Proceeds from issuance of common stock under employee plans |
|
|
|
|
|
||
Payments for repurchases of common stock |
|
|
|
|
( |
) |
|
Proceeds from secondary public offering for employee tax withholdings |
|
|
|
|
|
||
Tax withholdings paid on behalf of employees for secondary public offering |
|
|
|
|
( |
) |
|
Payments on debt borrowings |
|
( |
) |
|
|
( |
) |
Payments of debt extinguishment costs |
|
|
|
|
( |
) |
|
Payments of deferred debt issuance costs |
|
|
|
|
( |
) |
|
Principal payments on finance lease obligations |
|
( |
) |
|
|
( |
) |
Payments of issuance costs pursuant to initial public offering |
|
|
|
|
( |
) |
|
Net cash provided by (used in) financing activities |
$ |
|
|
$ |
( |
) |
|
|
|
|
|
|
|
||
Net change in cash and cash equivalents and restricted cash during period |
|
|
|
|
|
||
Cash and cash equivalents and restricted cash at beginning of period |
|
|
|
|
|
||
Cash and cash equivalents and restricted cash at end of period |
$ |
|
|
$ |
|
||
|
|
|
|
|
|
||
Supplemental disclosure of cash flow information: |
|
|
|
|
|
||
Cash paid for interest |
$ |
|
|
$ |
|
||
Cash paid for income taxes |
$ |
|
|
$ |
|
||
|
|
|
|
|
|
||
Supplemental disclosure of non-cash investing and financing activities: |
|
|
|
|
|
||
Property and equipment in accounts payable |
$ |
|
|
$ |
|
||
Property and equipment accrued in other accrued expenses |
$ |
|
|
$ |
|
||
See accompanying notes to unaudited condensed consolidated financial statements.
5
Mister Car Wash, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(Amounts in thousands, except share and per share data)
(Unaudited)
Nine Months Ended September 30, 2022
|
Common Stock |
|
|
Additional Paid-in Capital |
|
|
Accumulated Other Comprehensive Income |
|
|
Accumulated Deficit |
|
|
Stockholders’ Equity |
|
|||||||||
|
Shares |
|
|
Amount |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Balance as of December 31, 2021 |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||||
Stock-based compensation expense |
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
||
Exercise of stock options |
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
||||
Gain on interest rate swap |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
||
Net income |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
||
Balance as of March 31, 2022 |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||||
Stock-based compensation expense |
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
||
Issuance of common stock under employee plans |
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
||||
Vesting of restricted stock units |
|
|
|
|
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
– |
|
||
Exercise of stock options |
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
||||
Gain on interest rate swap |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
||
Net income |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
||
Balance as of June 30, 2022 |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||||
Stock-based compensation expense |
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
||
Exercise of stock options |
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
||||
Loss on interest rate swap |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( | ) |
|
|
- |
|
|
|
( | ) |
Net income |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
||
Balance as of September 30, 2022 |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||||
6
Nine Months Ended September 30, 2021
|
Common Stock |
|
|
Additional Paid-in Capital |
|
|
Accumulated Other Comprehensive Loss |
|
|
Accumulated Deficit |
|
|
Stockholders’ Equity |
|
|||||||||
|
Shares |
|
|
Amount |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Balance as of December 31, 2020 |
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
||||
Stock-based compensation expense |
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
||
Exercise of stock options |
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
||||
Shares repurchased |
|
( |
) |
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
Gain on interest rate swap |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
||
Net income |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
||
Balance as of March 31, 2021 |
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
||||
Issuance of common stock pursuant to initial public offering, net of issuance of $ |
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
||||
Stock-based compensation expense |
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
||
Vesting of restricted stock units |
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Exercise of stock options |
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
||||
Shares repurchased |
|
( |
) |
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
Gain on interest rate swap |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
||
Net loss |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
Balance as of June 30, 2021 |
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
||||
Stock-based compensation expense |
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
||
Exercise of stock options |
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
||||
Shares repurchased |
|
( |
) |
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
Gain on interest rate swap |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
||
Net income |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
||
Balance as of September 30, 2021 |
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
||||
See accompanying notes to unaudited condensed consolidated financial statements.
7
Mister Car Wash, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
(Unaudited)
1. Nature of Business
Mister Car Wash, Inc., together with its subsidiaries (collectively, the “Company”), is a Delaware corporation based in Tucson, Arizona and provider of conveyorized car wash services. The Company primarily operates Express Exterior Locations, which offers express exterior cleaning services along with free vacuum services, and interior cleaning services at select locations. As of
Forward Stock Split
In June 2021, the Company's board of directors (the “Board”) and the stockholders of the Company approved a
Initial Public Offering
In June 2021, the Company completed its initial public offering (“IPO”) of
Secondary Public Offering
In August 2021, the Company completed a secondary public offering of
2. Summary of Significant Accounting Policies
The accompanying unaudited condensed consolidated financial statements as of September 30, 2022 and for the three and nine months ended September 30, 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 September 30, 2022, consolidated results of operations and comprehensive income (loss) for the three and nine months ended September 30, 2022 and 2021, and consolidated cash flows for the nine months ended September 30, 2022 and 2021. Such adjustments are of a normal and recurring nature. The consolidated results of operations for the three and nine months ended September 30, 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
8
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 $
Other Receivables
Other receivables consisted of the following for the periods presented:
|
As of |
|
|||||
|
September 30, 2022 |
|
|
December 31, 2021 |
|
||
Payroll tax withholding and exercise proceeds receivable |
$ |
|
|
$ |
|
||
Construction receivable |
|
|
|
|
|
||
Income tax receivable |
|
|
|
|
|
||
Insurance receivable |
|
|
|
|
|
||
Other |
|
|
|
|
|
||
Total other receivables |
$ |
|
|
$ |
|
||
Inventory, Net
Inventory consisted of the following for the periods presented:
|
As of |
|
|||||
|
September 30, 2022 |
|
|
December 31, 2021 |
|
||
Chemical washing solutions |
$ |
|
|
$ |
|
||
Other |
|
|
|
|
|
||
Total inventory, gross |
|
|
|
|
|
||
Reserve for obsolescence |
|
( |
) |
|
|
( |
) |
Total inventory, net |
$ |
|
|
$ |
|
||
The activity in the reserve for obsolescence was immaterial for the three and nine months ended September 30, 2022 and 2021.
Revenue Recognition
The following table summarizes the composition of the Company’s net revenues for the periods presented:
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Recognized over time |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Recognized at a point in time |
|
|
|
|
|
|
|
|
|
|
|
||||
Other revenue |
|
|
|
|
|
|
|
|
|
|
|
||||
Net revenues |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
9
Net Income (loss) Per Share
Basic net income (loss) per share is computed by dividing net income by the weighted-average number of common shares outstanding for the period. Diluted net income (loss) 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.
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
||||
Net income (loss) |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|||
|
|
|
|
|
|
|
|
|
|
|
|
||||
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted-average common shares outstanding - basic |
|
|
|
|
|
|
|
|
|
|
|
||||
Effect of potentially dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
||||
Stock options |
|
|
|
|
|
|
|
|
|
|
|
||||
Restricted stock units |
|
|
|
|
|
|
|
|
|
|
|
||||
Employee stock purchase plan |
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted-average common shares outstanding - diluted |
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income (loss) per share - basic |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|||
Net income (loss) per share - diluted |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|||
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 September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Stock options |
|
|
|
|
|
|
|
|
|
|
|
||||
Restricted stock units |
|
|
|
|
|
|
|
|
|
|
|
||||
Employee stock purchase plan |
|
|
|
|
|
|
|
|
|
|
|
||||
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 September 30, 2022 and December 31, 2021, there were
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 Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("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.
10
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 |
|
|||||
|
September 30, 2022 |
|
|
December 31, 2021 |
|
||
Land |
$ |
|
|
$ |
|
||
Buildings and improvements |
|
|
|
|
|
||
Finance leases |
|
|
|
|
|
||
Leasehold improvements |
|
|
|
|
|
||
Vehicles and equipment |
|
|
|
|
|
||
Furniture, fixtures and equipment |
|
|
|
|
|
||
Construction in progress |
|
|
|
|
|
||
Property and equipment, gross |
|
|
|
|
|
||
Less: accumulated depreciation |
|
( |
) |
|
|
( |
) |
Less: accumulated depreciation - finance leases |
|
( |
) |
|
|
( |
) |
Property and equipment, net |
$ |
|
|
$ |
|
||
For the three months ended September 30, 2022 and 2021, depreciation expense was $
For the three months ended September 30, 2022 and 2021, amortization expense on finance leases was $
4. Other Intangible Assets, Net
Other intangibles assets, net consisted of the following as of the periods presented:
|
September 30, 2022 |
|
|
December 31, 2021 |
|
||||||||||
|
Gross Carrying Amount |
|
|
Accumulated Amortization |
|
|
Gross Carrying Amount |
|
|
Accumulated Amortization |
|
||||
Trade names and trademarks |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
CPC Unity System |
|
|
|
|
|
|
|
|
|
|
|
||||
Customer relationships |
|
|
|
|
|
|
|
|
|
|
|
||||
Covenants not to compete |
|
|
|
|
|
|
|
|
|
|
|
||||
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
For the three months ended September 30, 2022 and 2021, amortization expense associated with the Company’s finite-lived intangible assets was $
For the nine months ended September 30, 2022 and 2021, amortization expense associated with the Company’s finite-lived intangible assets was $
As of September 30, 2022, estimated future amortization expense was as follows:
Fiscal Year Ending: |
|
|
|
|
|
2022 (remaining three months) |
|
|
$ |
|
|
2023 |
|
|
|
|
|
2024 |
|
|
|
|
|
2025 |
|
|
|
|
|
2026 |
|
|
|
|
|
Thereafter |
|
|
|
|
|
Total estimated future amortization expense |
|
|
$ |
|
|
11
5. Goodwill
Goodwill consisted of the following for the periods presented:
|
As of |
|
|||||
|
September 30, 2022 |
|
|
December 31, 2021 |
|
||
Balance at beginning of period |
$ |
|
|
$ |
|
||
Current period acquisitions |
|
|
|
|
|
||
Other provisional adjustments |
|
( |
) |
|
|
( |
) |
Balance at end of period |
$ |
|
|
$ |
|
||
Goodwill is generally deductible for tax purposes, except for the portion related to purchase accounting step-up goodwill.
6. Other Accrued Expenses
Other accrued expenses consisted of the following for the periods presented:
|
|
As of |
|
|||||
|
|
September 30, 2022 |
|
|
December 31, 2021 |
|
||
Utilities |
|
$ |
|
|
$ |
|
||
Accrued other tax expense |
|
|
|
|
|
|
||
Insurance expense |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Total other accrued expenses |
|
$ |
|
|
$ |
|
||
7. Income Taxes
The effective income tax rates on continuing operations for the nine months ended September 30, 2022 and 2021 were
The year-to-date provision for income taxes for the nine months ended September 30, 2022 included taxes on earnings at an anticipated annual effective tax rate of
The year-to-date provision for income taxes for the nine months ended September 30, 2021 included taxes on earnings at an anticipated annual effective tax rate of
On August 9, 2022, the Creating Helpful Incentives to Produce Semiconductors (“CHIPS”) Act of 2022 was signed into law. The
CHIPS Act is designed to boost domestic semiconductor manufacturing and encourage US research activities. Later that month,
on August 16, 2022, the Inflation Reduction Act (“IRA”) of 2022 was signed into law. The IRA creates a new book-minimum tax
on certain large corporations and an excise tax on stock buybacks while also providing incentives to address climate change
mitigation and clean energy, among other items. Most of these changes will become effective for the 2023 tax year and after initial evaluation, the Company does not currently expect these laws to have a material effect on the consolidated financial statements.
For the nine months ended September 30, 2022 and 2021, the Company did
12
8. Debt
The Company’s long-term debt consisted of the following as of the periods presented:
|
As of |
|
|||||
|
September 30, 2022 |
|
|
December 31, 2021 |
|
||
Credit agreement |
|
|
|
|
|
||
First lien term loan |
$ |
|
|
$ |
|
||
Less: unamortized discount and debt issuance costs |
|
( |
) |
|
|
( |
) |
First lien term loan, net |
|
|
|
|
|
||
Total long-term portion of debt, net |
$ |
|
|
$ |
|
||
As of September 30, 2022, annual maturities of debt were as follows:
Fiscal Year Ending: |
|
|
|
|
|
2022 (remaining three months) |
|
|
$ |
|
|
2023 |
|
|
|
|
|
2024 |
|
|
|
|
|
2025 |
|
|
|
|
|
2026 |
|
|
|
|
|
Thereafter |
|
|
|
|
|
Total maturities of debt |
|
|
$ |
|
|
As of September 30, 2022 and December 31, 2021, unamortized debt issuance costs, including those associated with the Company's Revolving Commitment (as defined below), were $
For the three months ended September 30, 2022 and 2021, the amortization of deferred debt issuance costs in interest expense, net in the unaudited condensed consolidated statements of operations and comprehensive income (loss) was approximately $
For the nine months ended September 30, 2022 and 2021, the amortization of deferred debt issuance costs in interest expense, net in the unaudited condensed consolidated statements of operations and comprehensive income (loss) was approximately $
Credit Agreement
On August 21, 2014, the Company entered into a Credit Agreement (“Credit Agreement”) which was originally comprised of a term loan (“First Lien Term Loan”) and a revolving commitment (“Revolving Commitment”). The Credit Agreement was collateralized by substantially all personal property (including cash, inventory, property and equipment, and intangible assets), real property, and equity interests owned by the Company.
First Lien Term Loan
In February 2020, the Company entered into Amendment No. 1 to Amended and Restated First Lien Credit Agreement (“Amendment No. 1”) which amended the Amended and Restated First Lien Credit Agreement entered into in May 2019 (the “A&R First Lien Credit Agreement”). Amendment No. 1
In June 2021, the Company made a voluntary prepayment of $
13
and comprehensive income (loss). The early prepayment resulted in the elimination of required quarterly amortization principal payments through 2026.
In December 2021, in connection with the Clean Streak Ventures acquisition, the Company entered into Amendment No. 3 to Amended and Restated First Lien Credit Agreement (“Amendment No. 3”) which amended and restated the A&R First Lien Credit Agreement, as previously amended. Under the terms of Amendment No. 3, the previous First Lien Term Loan was increased by $
As of September 30, 2022 and December 31, 2021, the amount outstanding under the First Lien Term Loan was $
The A&R First Lien Credit Agreement, as amended (the “Amended A&R First Lien Credit Agreement”), requires the Company to maintain compliance with a First Lien Net Leverage Ratio. As of September 30, 2022, the Company was in compliance with the First Lien Net Leverage Ratio financial covenant of the Amended A&R First Lien Credit Agreement.
Revolving Credit Agreement
In June 2021, the Company entered into Amendment No. 2 to the Amended and Restated First Lien Credit Agreement (“Amendment No. 2”) that (i) increased the maximum available borrowing capacity under the Revolving Commitment from $
As of September 30, 2022 and December 31, 2021, there were
The maximum available borrowing capacity under the Revolving Commitment is reduced by outstanding letters of credit under the Revolving Commitment. As of September 30, 2022 and December 31, 2021, the available borrowing capacity under the Revolving Commitment was $
In addition, an unused commitment fee based on the Company’s First Lien Net Leverage Ratio is payable on the average of the unused borrowing capacity under the Revolving Commitment. As of September 30, 2022 and December 31, 2021, the unused commitment fee was
Standby Letters of Credit
As of September 30, 2022, the Company has a letter of credit sublimit of $
Second Lien Credit Agreement
In June 2021, the Company made a voluntary prepayment of all outstanding borrowings under the second lien term loan (the “Second Lien Term Loan”) pursuant to the Second Lien Credit Agreement entered into May 2019, as amended by the First Amendment to Second Lien Credit Agreement in March 2020 (the “Amended Second Lien Credit Agreement”) funded by the net proceeds from the IPO, which included outstanding principal of $
9. Fair Value Measurements
The following table presents financial liabilities which are measured at fair value on a recurring basis as of September 30, 2022:
14
|
Fair Value Measurements |
|
|||||||||||||
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
||||
Interest rate swap |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
||||
Contingent Consideration |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
The following table presents financial liabilities which are measured at fair value on a recurring basis as of December 31, 2021:
|
Fair Value Measurements |
|
|||||||||||||
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
||||
Interest rate swap |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
||||
Contingent Consideration |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
The Company measures the fair value of its financial assets and liabilities using the highest level of inputs that are available as of the measurement date. The carrying amounts of cash, accounts receivable, and accounts payable approximate their fair value due to the immediate or short-term maturity of these financial instruments. See Note 10 Interest Rate Swap for additional information on the interest rate swap.
As of September 30, 2
The Company recognized a Level 3 contingent consideration liability in connection with the Downtowner Car Wash acquisition in December 2021. The Company measured its contingent consideration liability using Level 3 unobservable inputs. The contingent consideration liability is associated with the achievement of certain targets and is estimated at each balance sheet date by considering among other factors, results of completed periods and the Company's most recent financial projection for future periods subject to earn-out payments. There are two components to the contingent consideration: a payment when the Company obtains the certificate of occupancy for the car wash and opens to the public in 2023 and an annual payment based on certain financial metrics of the business. A change in the forecasted revenue or projected opening dates could result in a significantly lower or higher fair value measurement. The Company determined that there were
During the three and nine months ended September 30, 2
10. Interest Rate Swap
In May 2020, the Company entered into a pay-fixed, receive-floating interest rate swap (the “Swap”) to mitigate variability in forecasted interest payments on an amortizing notional of $
As of September 30, 2022, information pertaining to the Swap was as follows:
Notional Amount |
|
|
Fair Value |
|
|
Pay-Fixed |
|
Receive-Floating |
|
Maturity Date |
||
$ |
|
|
$ |
|
|
|
|
|||||
As of September 30, 2022 and December 31, 2021, the fair value of the was $
For the three months ended September 30, 2022 and 2021, amounts reported in other comprehensive income (loss) in the accompanying unaudited condensed consolidated statements of operations and comprehensive income (loss) are net of tax of $(
For the nine months ended September 30, 2022 and 2021, amounts reported in other comprehensive income (loss) in the accompanying unaudited condensed consolidated statements of operations and comprehensive income (loss) are net of tax of $
In October 2022, the interest rate swap expired and was not replaced by a new interest rate swap.
15
11. Leases
Balance sheet information related to leases consisted of the following for the periods presented:
|
|
|
|
As of |
|
|||||
|
|
Classification |
|
September 30, 2022 |
|
|
December 31, 2021 |
|
||
Assets |
|
|
|
|
|
|
|
|
||
Operating |
|
Operating lease right of use assets, net |
|
$ |
|
|
$ |
|
||
Finance |
|
Property and equipment, net |
|
|
|
|
|
|
||
Total lease assets |
|
|
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
|
|
||
Liabilities |
|
|
|
|
|
|
|
|
||
Current |
|
|
|
|
|
|
|
|
||
Operating |
|
Current maturities of operating lease liability |
|
$ |
|
|
$ |
|
||
Finance |
|
Current maturities of finance lease liability |
|
|
|
|
|
|
||
Long-term |
|
|
|
|
|
|
|
|
||
Operating |
|
Operating lease liability |
|
|
|
|
|
|
||
Finance |
|
Financing lease liability |
|
|
|
|
|
|
||
Total lease liabilities |
|
|
|
$ |
|
|
$ |
|
||
Components of total lease cost, net, consisted of the following for the periods presented:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Operating lease expense(1) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Finance lease expense |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Amortization of lease assets |
|
|
|
|
|
|
|
$ |
|
|
|
|
||||
Interest on lease liabilities |
|
|
|
|
|
|
|
$ |
|
|
|
|
||||
Short-term lease expense |
|
|
|
|
|
|
|
$ |
|
|
|
|
||||
Variable lease expense(2) |
|
|
|
|
|
|
|
$ |
|
|
|
|
||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
The following includes supplemental information for the periods presented:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Operating cash flows from operating leases |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Operating cash flows from finance leases |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Financing cash flows from finance leases |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Operating lease liabilities arising from obtaining ROU assets |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Finance lease liabilities arising from obtaining ROU assets |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted-average remaining operating lease term |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted-average remaining finance lease term |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted-average operating lease discount rate |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
||||
Weighted-average finance lease discount rate |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
||||
16
As of September 30, 2022, lease obligation maturities were as follows:
Fiscal Year Ending: |
|
Operating Leases |
|
|
Finance Leases |
|
||
2022 (remaining three months) |
|
$ |
|
|
$ |
|
||
2023 |
|
|
|
|
|
|
||
2024 |
|
|
|
|
|
|
||
2025 |
|
|
|
|
|
|
||
2026 |
|
|
|
|
|
|
||
Thereafter |
|
|
|
|
|
|
||
Total future minimum obligations |
|
$ |
|
|
$ |
|
||
Less: Present value discount |
|
|
( |
) |
|
|
( |
) |
Present value of net future minimum lease obligations |
|
$ |
|
|
$ |
|
||
Less: current portion |
|
|
( |
) |
|
|
( |
) |
Long-term obligations |
|
$ |
|
|
$ |
|
||
Forward-Starting Leases
As of September 30, 2022, the Company entered into
As of December 31, 2021, the Company entered into
Sale-Leaseback Transactions
During the three months ended September 30, 2022 and 2021, the Company completed
During the nine months ended September 30, 2022 and 2021, the Company completed
12. Stockholders’ Equity
As of September 30, 2022, there were
As of December 31, 2021, there were
As of September 30, 2022, and December 31, 2021, the Company had
13. Stock-Based Compensation
The 2014 Plan
Under the 2014 Stock Option Plan of Hotshine Holdings, Inc. (the “2014 Plan”), the Company may grant incentive stock options or nonqualified stock options to purchase common shares of the Company to its employees, directors, officers, outside advisors and non-employee consultants.
17
The 2021 Plan
In June 2021, the Board adopted the 2021 Incentive Award Plan (the “2021 Plan”), which was subsequently approved by the Company's stockholders and became effective on June 25, 2021. Under the 2021 Plan, the Company may grant incentive stock options, nonqualified stock options, restricted stock units ("RSUs"), restricted stock, and other stock- or cash-based awards to its employees, directors, officers, and non-employee consultants. Initially, the maximum number of shares of the Company’s common stock that may be issued under the 2021 Plan is
All stock options granted under the 2021 Plan are equity-classified and have a contractual life of ten years. Under the 2021 Plan, the stock options contain service-based vesting conditions and generally vest ratably over a three- or five-year period (collectively with stock options under the 2014 Plan, the “Time Vesting Options”). The exercise prices for stock options granted under the 2021 Plan were not less than the fair market value of the common stock of the Company on the date of grant.
RSUs granted under the 2021 Plan are equity-classified and contain service-based conditions and generally vest ratably over one- to five-year periods. Each RSU represents the right to receive one share of the Company’s common stock upon vesting. The fair value is calculated based upon the Company’s closing stock price on the date of grant, and the stock-based compensation expense is recognized over the requisite service period, which is generally the vesting period.
The 2014 Plan and 2021 Plan are administered by the Board or, at the discretion of the Board, by a committee thereof. The exercise prices for stock options, the vesting of awards, and other restrictions are determined at the discretion of the Board, or its committee if so delegated.
The 2021 ESPP
In June 2021, the Board adopted the 2021 Employee Stock Purchase Plan (“2021 ESPP”), which was subsequently approved by the Company’s stockholders and became effective in June 2021. The 2021 ESPP authorizes the initial issuance of up to
Share-Based Payment Valuation
The grant date fair value of Time Vesting Options granted is determined using the Black-Scholes option-pricing model. The grant date fair value of Performance Vesting Options is determined using a Monte Carlo simulation model and a barrier-adjusted Black-Scholes
18
option-pricing model. The grant date fair value of stock purchase rights granted under the 2021 ESPP is determined using the Black-Scholes option-pricing model.
2021 ESPP Valuation
The following table presents, on a weighted-average basis, the assumptions used in the Black-Scholes option-pricing model to determine the grant date fair value of stock purchase rights granted under the 2021 ESPP during the periods presented:
|
Nine Months Ended September 30, |
|
2022 |
Expected volatility |
|
Risk-free interest rate |
|
Expected term (in years) |
|
Expected dividend yield |
Time Vesting Options
The following table presents, on a weighted-average basis, the assumptions used in the Black-Scholes option-pricing model to determine the grant date fair value of Time Vesting Options granted under the 2014 Plan and 2021 Plan during the periods presented:
|
Nine Months Ended September 30, |
||
|
2022 |
|
2021 |
Expected volatility |
|
||
Risk-free interest rate |
|
||
Expected term (in years) |
|
||
Expected dividend yield |
|
||
Performance Vesting Options
The following table presents, on a weighted-average basis, the assumptions used in the Black-Scholes option-pricing model to determine the grant date fair value of Performance Vesting Options granted under the 2014 Plan during the periods presented:
|
Nine Months Ended September 30, |
||
|
2022 |
|
2021 |
Expected volatility |
|
||
Risk-free interest rate |
|
||
Expected term (in years) |
- |
|
|
Expected dividend yield |
|
||
Stock Options
A summary of the Company’s stock option activity during the period presented is as follows:
|
Time Vesting Options |
|
|
Performance Vesting Options |
|
|
Total Number of Stock Options |
|
|
Weighted-Average Exercise Price |
|
||||
Outstanding as of December 31, 2021 |
|
|
|
|
|
|
|
|
|
$ |
|
||||
Granted |
|
|
|
|
|
|
|
|
|
$ |
|
||||
Exercised |
|
( | ) |
|
|
( | ) |
|
|
( | ) |
|
$ |
|
|
Forfeited |
|
( |
) |
|
|
|
|
|
( |
) |
|
$ |
|
||
Outstanding as of September 30, 2022 |
|
|
|
|
|
|
|
|
|
$ |
|
||||
Options vested or expected to vest as of September 30, 2022 |
|
|
|
|
|
|
|
|
|
$ |
|
||||
Options exercisable as of September 30, 2022 |
|
|
|
|
|
|
|
|
|
$ |
|
||||
19
The number and weighted-average grant date fair value of stock options during the period presented are as follows:
|
Number of Stock Options |
|
Weighted-Average |
|
|||||||||
|
Time Vesting Options |
|
|
Performance Vesting Options |
|
Time Vesting Options |
|
|
Performance Vesting Options |
|
|||
Non-vested as of December 31, 2021 |
|
|
|
|
$ |
|
|
$ |
|
||||
Non-vested as of September 30, 2022 |
|
|
|
|
$ |
|
|
$ |
|
||||
Granted during the period |
|
|
|
|
$ |
|
|
$ |
|
||||
Vested during the period |
|
( |
) |
|
|
$ |
|
|
$ |
|
|||
Forfeited/canceled during the period |
|
( |
) |
|
|
$ |
|
|
$ |
|
|||
The Company granted
The fair value of shares attributable to stock options that vested during the nine months ended September 30, 2022 was $
As of September 30, 2022, the weighted-average remaining contractual life of outstanding stock options was approximately
Restricted Stock Units
The following table summarizes the Company’s RSU activity since December 31, 2021:
|
Restricted Stock Units |
|
|
Weighted-Average Grant Date Fair Value |
|
||
Unvested as of December 31, 2021 |
|
|
|
$ |
|
||
Granted |
|
|
|
$ |
|
||
Vested |
|
( |
) |
|
$ |
|
|
Forfeited |
|
( |
) |
|
$ |
|
|
Unvested as of September 30, 2022 |
|
|
|
$ |
|
||
The Company granted
The fair value of shares attributable to RSUs that vested during the nine months ended September 30, 2022 was $
As of September 30, 2022, the weighted-average remaining contractual life of outstanding RSUs was approximately
Stock-Based Compensation Expense
The Company estimated a forfeiture rate of
Total stock-based compensation expense, by caption, recorded in the unaudited condensed consolidated statements of operations and comprehensive income (loss) for the periods presented is as follows:
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Cost of labor and chemicals |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
General and administrative |
|
|
|
|
|
|
|
|
|
|
|
||||
Total stock-based compensation expense |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Total stock-based compensation expense, by award type, recorded in the unaudited condensed consolidated statements of operations and comprehensive income (loss) for the periods presented is as follows:
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Time Vesting Options |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Performance Vesting Options |
|
|
|
|
|
|
|
|
|
|
|
||||
RSUs |
|
|
|
|
|
|
|
|
|
|
|
||||
2021 ESPP |
|
|
|
|
|
|
|
|
|
|
|
||||
Total stock-based compensation expense |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
As of September 30, 2022, total unrecognized compensation expense related to unvested Time Vesting Options was $
20
As of September 30, 2022, there was
As of September 30, 2022, total unrecognized compensation expense related to unvested RSUs was $
As of September 30, 2022, total unrecognized compensation expense related to unvested stock purchase rights under the 2021 ESPP was $
Modification of Stock Options
In February 2021, the Company modified a total of
In June 2021, the Company modified all outstanding shares of Performance Vesting Options to remove, subject to the successful completion of the IPO, the requirement that the Principal Stockholders receive the Target Proceeds and the Maximum Amount as conditions for the Performance Vesting Options to vest. This modification resulted in incremental stock-based compensation expense of $
14. Business Combinations
From time to time, the Company may pursue acquisitions of conveyorized car washes that either strategically fit with the Company’s business or expand the Company’s presence in new and attractive markets.
The Company accounts for business combinations under the acquisition method of accounting. The assets acquired and liabilities assumed in connection with business acquisitions are recorded at the date of acquisition at their estimated fair values, with any excess of the purchase price over the estimated fair values of the net assets acquired and intangible assets assigned, recorded as goodwill. Significant judgment is required in estimating the fair value of assets acquired and liabilities assumed and in assigning their respective useful lives. Accordingly, the Company may engage third-party valuation specialists to assist in these determinations. The fair value estimates are based on available historical information and on future expectations and assumptions deemed reasonable by management; but are inherently uncertain.
The unaudited condensed consolidated financial statements reflect the operations of an acquired business starting from the effective date of the acquisition. The Company expensed $
For the three and nine months ended September 30, 2022, the amount of acquired goodwill not deductible for income tax purposes was $
2022 Acquisitions
For the three months ended September 30, 2022, the Company acquired the assets and liabilities of
The weighted-average amortization period for the acquired covenants not to compete is
The acquisitions were located in the following markets:
Location (Seller) |
Number of Washes |
|
Month Acquired |
Georgia (Bamboo Carwash) |
|
April |
|
California (Speedwash) |
|
April |
|
Minnesota (Top Wash) |
|
August |
2021 Acquisitions
21
In 2021, the Company acquired the assets and liabilities of
The weighted-average amortization periods for the acquired customer relationships and covenants not to compete are
The acquisitions were located in the following markets:
Location (Seller) |
Number of Washes |
|
Month Acquired |
Florida (Superwash Express) |
|
June |
|
Texas (Super Suds Car Wash) |
|
July |
|
Texas (Daddy O's Car Wash) |
|
November |
|
Florida (Downtowner Car Wash) |
|
December |
|
Florida (Clean Streak Ventures LLC) |
|
December |
15. Related-Party Transactions
For various advisory and monitoring services provided to the Company, Leonard Green & Partners ("LGP"), the majority owner of the Company, historically received $
LGP was one of the Company’s creditors under the Amended Second Lien Credit Agreement with an investment in 2020 of $
16. Commitments and Contingencies
Litigation
From time to time, the Company is party to pending or threatened lawsuits arising out of or incident to the ordinary course of business. The Company carries professional and general liability insurance coverage and other insurance coverages. In the opinion of management and upon consultation with legal counsel, none of the pending or threatened lawsuits will have a material effect upon the consolidated financial position, operations, or cash flows of the Company.
Insurance
The Company carries a broad range of insurance coverage, including general and business auto liability, commercial property, workers’ compensation, cyber risk, and general umbrella policies. As of September 30, 2022 and December 31, 2021, the Company accrued $
Environmental Matters
Operations at certain facilities currently or previously owned or leased by the Company utilize, or in the past have utilized, hazardous substances generally in compliance with applicable law. Periodically, the Company has had minor claims asserted against it by regulatory agencies or private parties for environmental matters relating to the handling of hazardous substances by the Company, and it has incurred obligations for investigations or remedial actions with respect to certain of these matters. There can be no assurances that activities at these facilities, or future facilities owned or operated by the Company, may not result in additional environmental claims being asserted against the Company or additional investigations or remedial actions being required. The Company is not aware of any significant remediation matters as of September 30, 2022. Because of various factors including the difficulty of identifying the
22
responsible parties for any particular site, the complexity of determining the relative liability among them, the uncertainty as to the most desirable remediation techniques and the amount of damages and clean-up costs and the time period during which such costs may be incurred, the Company is unable to reasonably estimate the ultimate cost of claims asserted against the Company related to environmental matters; however, the Company does not believe such costs will be material to its unaudited condensed consolidated financial statements.
In addition to potential claims asserted against the Company, there are certain regulatory obligations associated with these facilities. The Company also has a third-party specialist to review the sites subject to these regulations annually, for the purpose of assigning future cost. A third party has conducted a preliminary assessment of site restoration provisions arising from these regulations and the Company has recognized a provisional amount. As of September 30, 2022 and December 31, 2021, the Company recorded an environmental remediation accrual of $
23
Item 2. 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 our unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and related notes included in our 2021 10-K. This discussion contains forward-looking statements based upon current plans, expectations and beliefs involving risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in other parts of this Quarterly Report on Form 10-Q and in Part I, Item 1A. “Risk Factors” and in Part II. Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2021 10-K.
Who We Are
Mister Car Wash, Inc. is the largest national car wash brand, primarily offering express exterior cleaning services, with interior cleaning services at select locations, across 420 car washes in 21 states as of September 30, 2022. Founded in 1996, we employ an efficient, repeatable, and scalable process, which we call the “Mister Experience,” to deliver a clean, dry, and shiny car every time. The core pillars of the “Mister Experience” are greeting every customer with a wave and smile, providing the highest quality car wash, and delivering the experience quickly and conveniently. We offer a monthly subscription program, which we call the Unlimited Wash Club(R) (“UWC”), as a flexible, quick, and convenient option for customers to keep their cars clean. As of September 30, 2022 and September 30, 2021, we had approximately 1.9 million and approximately 1.6 million UWC Members, respectively. This represented an increase of approximately 19% over the same time last year. For the three months ended September 30, 2022 and 2021, UWC sales represented 69% and 66% of our total wash sales, respectively, and UWC volume represented 77% and 74% of our total wash volume, respectively. Our scale and over 25 years of innovation allow us to drive operating efficiencies and invest in training, infrastructure, and technology that improve speed of service, quality, and sustainability and realize strong financial performance.
Factors Affecting Our Business and Trends
We believe that our business and growth depend on a number of factors that present significant opportunities for us and may pose risks and challenges, including those discussed below and in Part I, Item 1A. “Risk Factors” of our 2021 10-K.
|
• |
|
Growth in comparable store sales. Comparable store sales have been a strong driver of our net revenue growth and we expect it to continue to play a key role in our future growth and profitability. We will seek to continue to grow our comparable store sales by increasing the number of UWC Members, increasing efficiency and throughput of our car wash locations, increasing marketing spend to add new customers, and increasing customer visitation frequency. |
|
• |
|
Number and loyalty of UWC Members. The UWC program is a critical element of our business. UWC Members contribute a significant portion of our net revenue and provide recurring revenue through their monthly Membership fees. |
|
• |
|
Labor management. Hiring and retaining skilled team members and experienced management represents one of our largest costs. We believe people are the key to our success and we have been able to successfully attract and retain engaged, high-quality team Members by paying competitive wages, offering attractive benefit packages, and providing robust training and development opportunities. While the competition for skilled labor is intense and subject to high turnover, we believe our approach to wages and benefits will continue to allow us to attract suitable team Members and management to support our growth. |
Factors Affecting the Comparability of Our Results of Operations
Our results have been affected by, and may in the future be affected by, the following factors, which must be understood in order to assess the comparability of our period-to-period financial performance and condition.
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, with particular focus on Express Exterior Locations, and anticipate further pursuit of this strategy in the future. In the three and nine months ended September 30, 2022, we successfully opened eight and 15 greenfield locations, respectively. Our future location growth will be dependent on greenfield development.
The comparability of our results may be impacted by the inclusion of financial performance of greenfield locations that have not delivered a full fiscal year of financial results nor matured to average unit volumes, which we typically expect after approximately three full years of operation.
24
Acquisitions
In the three months ended September 30, 2022, we completed one acquisition consisting of three properties that operated as conveyorized car washes. In the nine months ended September 30, 2022, we completed three acquisitions consisting of eight properties that operated as conveyorized car washes.
Following an acquisition, we implement a variety of operational improvements to unify branding and enhance profitability. As soon as feasible, we fully integrate and transition acquired locations to the “Mister” brand and make investments to improve site flow, upgrade tunnel equipment and technology, and install our proprietary Unity Chemical system, which is a unique blend of our signature products utilizing the newest technology and services to make a better car wash experience for our customers. We also establish member-only lanes, optimize service offerings and implement training initiatives that we have successfully utilized to improve team member engagement and drive UWC growth post-acquisition. The costs associated with these onboarding initiatives, which vary by site, can impact the comparability of our results.
The comparability of our results may also be impacted by the inclusion of financial performance of our acquisitions that have not delivered a full fiscal year of financial results under Mister Car Wash’s ownership.
See Note 14 Business Combinations to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional discussion.
Key Performance Indicators
We prepare and analyze various operating and financial data to assess the performance of our business and to help in the allocation of our resources. The key operating performance and financial metrics and indicators we use are set forth below, as of and for the three and nine months ended September 30, 2022 and 2021.
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
(Dollars in thousands) |
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Financial and Operating Data |
|
|
|
|
|
|
|
|
|
|
|
||||
Location count (end of period) |
|
420 |
|
|
|
360 |
|
|
|
420 |
|
|
|
360 |
|
Comparable store sales growth |
|
2.9 |
% |
|
|
21.3 |
% |
|
|
5.3 |
% |
|
|
38.6 |
% |
UWC Members (in thousands, end of period) |
|
1,860 |
|
|
|
1,564 |
|
|
|
1,860 |
|
|
|
1,564 |
|
UWC sales as a percentage of total wash sales |
|
69 |
% |
|
|
66 |
% |
|
|
67 |
% |
|
|
63 |
% |
Net income (loss) |
$ |
23,997 |
|
|
$ |
27,366 |
|
|
$ |
95,144 |
|
|
$ |
(58,350 |
) |
Net income (loss) margin |
|
11.0 |
% |
|
|
14.1 |
% |
|
|
14.4 |
% |
|
|
(10.3 |
)% |
Adjusted EBITDA |
$ |
66,132 |
|
|
$ |
62,450 |
|
|
$ |
215,457 |
|
|
$ |
197,000 |
|
Adjusted EBITDA margin |
|
30.4 |
% |
|
|
32.1 |
% |
|
|
32.5 |
% |
|
|
34.8 |
% |
Location Count (end of period)
Our location count refers to the total number of car wash locations at the end of a period, inclusive of new greenfield locations and acquired locations. The total number of locations that we operate, as well as the timing of location openings, acquisitions, and closings, have, and will continue to have, an impact on our performance. In the three months ended September 30, 2022, we increased our location count by 11 locations, comprised of eight greenfield locations and three acquired locations. In the nine months ended September 30, 2022, we increased our location count by 24 locations, comprised of 15 greenfield locations and nine acquired locations. One location, which was part of a 2021 acquisition, opened during the second quarter of 2022 and is included as an acquired location above.
Our Express Exterior Locations, which offer express exterior cleaning services, comprise 345 of our current locations and our Interior Cleaning Locations, which offer both express exterior cleaning services and interior cleaning services, comprise 75 of our current locations.
Comparable Store Sales Growth
A location is considered a comparable store on the first day of the 13th full calendar month following a location’s first day of operations. A location converted from an Interior Cleaning Location format to an Express Exterior Location format is excluded when the location did not offer interior cleaning services in the current period but did offer interior cleaning services in the prior year period. Comparable store sales growth is the percentage change in total wash sales of all comparable store car washes.
Opening new locations is a primary component of our growth strategy and as we continue to execute on our growth strategy, we expect that a significant portion of our sales growth will be attributable to non-comparable store sales. Accordingly, comparable store
25
sales are only one measure we use to assess the success of our growth strategy. For the three months ended September 30, 2022, comparable store sales increased to 2.9% compared to an increase of 21.3% in the three months ended September 30, 2021.
UWC Members (end of period)
Members of our monthly subscription service are known as Unlimited Wash Club Members, or UWC Members. We view the number of UWC Members and the growth in the number of UWC Members on a net basis from period to period as key indicators of our revenue growth. The number of UWC Members has grown over time as we have acquired new customers and retained previously acquired customers. There were approximately 1.9 million and approximately 1.6 million UWC Members as of September 30, 2022 and September 30, 2021, respectively. There were approximately 1.7 million UWC Members as of December 31, 2021.
Our UWC Members grew by approximately 19% from September 30, 2021 through September 30, 2022 and approximately 12% from December 31, 2021 through September 30, 2022.
UWC Sales as a Percentage of Total Wash Sales
UWC sales as a percentage of total wash sales represents the penetration of our subscription membership program as a percentage of our overall wash sales. Total wash sales are defined as the net revenue generated from express exterior cleaning services and interior cleaning services for both UWC Members and retail customers. UWC sales as a percentage of total wash sales is calculated as sales generated from UWC Members as a percentage of total wash sales. We have consistently grown this measure over time as we educate customers as to the value of our subscription offering. UWC sales were 69% and 66% of our total wash sales for the three months ended September 30, 2022 and 2021, respectively. UWC sales were 67% and 63% of our total wash sales for the nine months ended September 30, 2022 and 2021, respectively.
Adjusted EBITDA and Adjusted EBITDA Margin
Adjusted EBITDA is a non-GAAP measure of our financial performance and should not be considered as an alternative to net income as a measure of financial performance or any other performance measure derived in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and should not be construed as an inference that our future results will be unaffected by unusual or nonrecurring items. Adjusted EBITDA is defined as net income (loss) before interest expense, net, income tax provision (benefit), depreciation and amortization expense, (gain) loss on sale of assets, loss on extinguishment of debt, stock-based compensation expense, acquisition expenses, management fees, non-cash rent expense, expenses associated with the IPO, expenses associated with the secondary public offering, and other nonrecurring charges. Adjusted EBITDA margin is defined as Adjusted EBITDA divided by net revenues for a given period.
We present Adjusted EBITDA because we believe it assists investors and analysts in comparing our operating performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our ongoing operating performance. You are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis. In evaluating Adjusted EBITDA, you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in our presentation of Adjusted EBITDA. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. There can be no assurance that we will not modify the presentation of Adjusted EBITDA in future periods, and any such modification may be material. In addition, Adjusted EBITDA may not be comparable to similarly titled measures used by other companies in our industry or across different industries.
Our management believes Adjusted EBITDA is helpful in highlighting trends in our core operating performance compared to other measures, which can differ significantly depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which companies operate and capital investments. We also use Adjusted EBITDA in connection with establishing discretionary annual incentive compensation; to supplement U.S. GAAP measures of performance in the evaluation of the effectiveness of our business strategies; to make budgeting decisions; and because our Amended A&R First Lien Credit Agreement uses measures similar to Adjusted EBITDA to measure our compliance with certain covenants.
Adjusted EBITDA has its limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under U.S. GAAP. Some of these limitations include:
|
• |
|
Adjusted EBITDA does not reflect our cash expenditure or future requirements for capital expenditures or contractual commitments; |
|
• |
|
Adjusted EBITDA does not reflect changes in our cash requirements for our working capital needs; |
|
• |
|
Adjusted EBITDA does not reflect the interest expense and the cash requirements necessary to service interest or principal payments on our debt; |
|
• |
|
Adjusted EBITDA does not reflect cash requirements for replacement of assets that are being depreciated and amortized; |
26
|
• |
|
Adjusted EBITDA does not reflect non-cash compensation, which is a key element of our overall long-term compensation; |
|
• |
|
Adjusted EBITDA does not reflect the impact of certain cash charges or cash receipts resulting from matters we do not find indicative of our ongoing operations; and |
|
• |
|
other companies in our industry may calculate Adjusted EBITDA differently than we do. |
Adjusted EBITDA was approximately $66.1 million and $62.5 million in the three months ended September 30, 2022 and 2021, respectively. Our Adjusted EBITDA margin was 30.4% and 32.1% in the three months ended September 30, 2022 and 2021, respectively. Adjusted EBITDA was approximately $215.5 million and $197.0 million in the nine months ended September 30, 2022 and 2021, respectively. Our Adjusted EBITDA margin was 32.5% and 34.8% in the nine months ended September 30, 2022 and 2021. The following is a reconciliation of our net income (loss) to Adjusted EBITDA for the periods presented.
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
(Dollars in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Reconciliation of net income (loss) to Adjusted EBITDA: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income (loss) |
|
$ |
23,997 |
|
|
$ |
27,366 |
|
|
$ |
95,144 |
|
|
$ |
(58,350 |
) |
Interest expense, net |
|
|
10,100 |
|
|
$ |
5,717 |
|
|
|
27,028 |
|
|
|
33,416 |
|
Income tax provision (benefit) |
|
|
8,814 |
|
|
|
6,440 |
|
|
|
26,988 |
|
|
|
(29,747 |
) |
Depreciation and amortization expense |
|
|
15,193 |
|
|
|
12,980 |
|
|
|
45,274 |
|
|
|
36,530 |
|
(Gain) loss on sale of assets (a) |
|
|
(649 |
) |
|
|
748 |
|
|
|
(3,336 |
) |
|
|
(5,559 |
) |
Loss on extinguishment of debt |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
3,183 |
|
Stock-based compensation expense (b) |
|
|
5,461 |
|
|
|
6,751 |
|
|
|
16,959 |
|
|
|
210,292 |
|
Acquisition expenses (c) |
|
|
1,303 |
|
|
|
968 |
|
|
|
2,541 |
|
|
|
1,977 |
|
Management fees (d) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
500 |
|
Non-cash rent expense (e) |
|
|
745 |
|
|
|
380 |
|
|
|
1,820 |
|
|
|
1,136 |
|
Expenses associated with initial public offering (f) |
|
|
- |
|
|
|
124 |
|
|
|
272 |
|
|
|
1,574 |
|
Expenses associated with secondary public offering (g) |
|
|
- |
|
|
|
498 |
|
|
|
- |
|
|
|
498 |
|
Other (h) |
|
|
1,168 |
|
|
|
478 |
|
|
|
2,767 |
|
|
|
1,550 |
|
Adjusted EBITDA |
|
$ |
66,132 |
|
|
$ |
62,450 |
|
|
$ |
215,457 |
|
|
$ |
197,000 |
|
Net Revenues |
|
$ |
217,576 |
|
|
$ |
194,310 |
|
|
$ |
662,154 |
|
|
$ |
566,898 |
|
Adjusted EBITDA margin |
|
|
30.4 |
% |
|
|
32.1 |
% |
|
|
32.5 |
% |
|
|
34.8 |
% |
Components of Our Results of Operations
Net Revenues
27
We recognize revenue in two main streams: (i) the UWC program that entitles the customer to unlimited washes for a monthly subscription fee, cancellable at any time and (ii) retail car washes and other services. In the UWC program, we enter into a contract with the customer that falls under the definition of a customer contract under ASC 606, Revenue from Contracts with Customers. Customers are automatically charged on a credit card or debit card on the same date of the month that they originally signed up. Our performance obligations are to provide unlimited car wash services for a monthly fee. Revenue from the UWC program is recognized ratably over the month in which it is earned and amounts unearned are recorded as deferred revenue on the unaudited condensed consolidated balance sheets; all amounts recorded as deferred revenue at year-end are recognized as revenue in the following year. Revenue from retail car wash and other services is recognized at the point in time at which services are rendered and the customer pays with cash, debit card, or credit card. Revenues are net of sales tax, refunds, and discounts applied as a reduction of revenue at the time of payment.
Store Operating Costs
Store operating costs consist of cost of labor and chemicals and other car wash store operating expenses.
Cost of Labor and Chemicals
Cost of labor and chemicals include compensation and related employee benefit expenses associated with car wash employees, maintenance employees, warehouse employees, chemicals and associated supplies, including wages, cash bonuses, stock-based compensation, taxes, insurance, and workers compensation payments as reported in the unaudited condensed consolidated statements of operations and comprehensive income included elsewhere in this Quarterly Report on Form 10-Q.
Other Store Operating Expenses
Other store operating expenses includes all other costs related to the operations of car wash and warehouse locations such as credit card fees, car damages, office and lobby supplies, information technology costs associated with the locations, telecommunications, advertising, non-healthcare related insurance, rent, repairs and maintenance related to assets, utilities, property taxes, and depreciation expense on assets at the car wash and warehouse locations.
General and Administrative
General and administrative expenses include compensation expenses and the related employee benefits of headquarters employees, including wages, cash bonuses, stock-based compensation, taxes, insurance, and workers compensation payments, as well as information technology expenses, administrative office expenses, professional services and other related expenses, depreciation expense on held-for-use assets used at our headquarters, and amortization expense associated with our intangible assets.
We will continue to incur significant expenses on an ongoing basis that we did not incur as a private company. Those costs include additional director and officer liability insurance expenses, as well as third-party and internal resources related to accounting, auditing, Sarbanes-Oxley Act compliance, legal, and investor and public relations expenses. We expect such expenses to further increase after we are no longer an emerging growth company starting in 2023. These costs will generally be expensed under general and administrative expenses in the unaudited condensed consolidated statements of operations and comprehensive income (loss) included elsewhere in this Quarterly Report on Form 10-Q.
(Gain) Loss on Sale of Assets
(Gain) Loss on sale of assets includes gains and losses on the sale-leaseback of our locations and sale of property and equipment.
Interest Expense, net
Interest expense, net consists primarily of cash and non-cash interest expense on borrowings, partially offset by interest income earned on our cash balances.
Loss on Extinguishment of Debt
Loss on extinguishment of debt includes losses associated with amendments to our existing debt that are accounted for as extinguishments, as well as losses associated with partial or whole payments on our debt that qualify for extinguishment accounting.
Income Tax Provision (Benefit)
28
We recognize deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized differently in the financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement carrying amounts and tax basis of assets and liabilities using enacted tax rates.
We have adopted a more-likely-than-not threshold for financial statement recognition and measurement of an uncertain tax position taken or expected to be taken in a tax return. We recognize interest and penalties related to uncertain tax positions in income tax provision in our unaudited condensed consolidated statements of operations and comprehensive income (loss) included elsewhere in this Quarterly Report on Form 10-Q.
Results of Operations for the Three Months Ended September 30, 2022 and 2021 (Unaudited)
The unaudited results of operations data for the three months ended September 30, 2022 and 2021 have been derived from the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
|
|
Three Months Ended September 30, |
|
|||||||||||||
|
|
2022 |
|
|
2021 |
|
||||||||||
(Dollars in thousands) |
|
Amount |
|
|
% of Revenue |
|
|
Amount |
|
|
% of Revenue |
|
||||
Net revenues |
|
$ |
217,576 |
|
|
|
100 |
% |
|
$ |
194,310 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Store operating costs: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cost of labor and chemicals |
|
|
68,228 |
|
|
|
31 |
% |
|
|
63,438 |
|
|
|
33 |
% |
Other store operating expenses |
|
|
82,343 |
|
|
|
38 |
% |
|
|
68,435 |
|
|
|
35 |
% |
General and administrative |
|
|
24,743 |
|
|
|
11 |
% |
|
|
22,166 |
|
|
|
11 |
% |
(Gain) loss on sale of assets |
|
|
(649 |
) |
|
|
(0 |
)% |
|
|
748 |
|
|
|
0 |
% |
Total costs and expenses |
|
|
174,665 |
|
|
|
80 |
% |
|
|
154,787 |
|
|
|
80 |
% |
Operating income (loss) |
|
|
42,911 |
|
|
|
20 |
% |
|
|
39,523 |
|
|
|
20 |
% |
Other expense: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest expense, net |
|
|
10,100 |
|
|
|
5 |
% |
|
|
5,717 |
|
|
|
3 |
% |
Loss on extinguishment of debt |
|
|
- |
|
|
|
0 |
% |
|
|
- |
|
|
|
0 |
% |
Total other expense |
|
|
10,100 |
|
|
|
5 |
% |
|
|
5,717 |
|
|
|
3 |
% |
Income (loss) before taxes |
|
|
32,811 |
|
|
|
15 |
% |
|
|
33,806 |
|
|
|
17 |
% |
Income tax provision (benefit) |
|
|
8,814 |
|
|
|
4 |
% |
|
|
6,440 |
|
|
|
3 |
% |
Net income (loss) |
|
$ |
23,997 |
|
|
|
11 |
% |
|
$ |
27,366 |
|
|
|
14 |
% |
Net Revenues
|
|
Three Months Ended September 30, |
|
|
|
|
|
|
|
|||||||
(Dollars in thousands) |
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
Net revenues |
|
$ |
217,576 |
|
|
$ |
194,310 |
|
|
$ |
23,266 |
|
|
|
12 |
% |
Net revenues were $217.6 million for the three months ended September 30, 2022 compared to $194.3 million for the three months ended September 30, 2021, an increase of $23.3 million, or 12%. The increase in net revenues was primarily attributable to the increase in car wash sales due to growth in UWC Members and the year-over-year addition of 60 locations.
Store Operating Costs
Cost of Labor and Chemicals
|
|
Three Months Ended September 30, |
|
|
|
|
|
|
|
|||||||
(Dollars in thousands) |
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
Cost of labor and chemicals |
|
$ |
68,228 |
|
|
$ |
63,438 |
|
|
$ |
4,790 |
|
|
|
8 |
% |
Percentage of net revenues |
|
|
31 |
% |
|
|
33 |
% |
|
|
|
|
|
|
||
Cost of labor and chemicals was $68.2 million for the three months ended September 30, 2022 compared to $63.4 million for the three months ended September 30, 2021, an increase of $4.8 million, or 8%. The increase in the cost of labor and chemicals is primarily driven by an increase in labor and benefits of approximately $3.6 million and an increase in wash chemicals and supplies of approximately $1.2 million during the three months ended September 30, 2022, both attributable to an increase in volume and the
29
year-over-year addition of 60 locations, as well as some inflationary pressures on both our labor and chemicals. As a percentage of net revenues, costs of labor and chemicals for the three months ended September 30, 2022 decreased by approximately 2% due to improved labor staffing and express volume mix as compared to the prior year period.
Other Store Operating Expenses
|
|
Three Months Ended September 30, |
|
|
|
|
|
|
|
|||||||
(Dollars in thousands) |
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
Other store operating expenses |
|
$ |
82,343 |
|
|
$ |
68,435 |
|
|
$ |
13,908 |
|
|
|
20 |
% |
Percentage of net revenues |
|
|
38 |
% |
|
|
35 |
% |
|
|
|
|
|
|
||
Other store operating expenses were $82.3 million for the three months ended September 30, 2022 compared to $68.4 million for the three months ended September 30, 2021, an increase of $13.9 million, or 20%. The increase in other store operating expenses was attributable to the year-over-year addition of 60 locations and some inflationary pressures on our utilities and maintenance expenses. Rent expense increased approximately $2.9 million with the addition of 49 new land and building leases.
General and Administrative
|
|
Three Months Ended September 30, |
|
|
|
|
|
|
|
|||||||
(Dollars in thousands) |
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
General and administrative |
|
$ |
24,743 |
|
|
$ |
22,166 |
|
|
$ |
2,577 |
|
|
|
12 |
% |
Percentage of net revenues |
|
|
11 |
% |
|
|
11 |
% |
|
|
|
|
|
|
||
General and administrative expenses were $24.7 million for the three months ended September 30, 2022 compared to $22.2 million for the three months ended September 30, 2021, an increase of $2.6 million, or 12%. The increase in general and administrative expenses was primarily driven by an increase of approximately $0.9 million in salaries and benefits and an increase of approximately $2.4 million in other costs, which were primarily attributable to the increased costs of being a public company and increase in corporate headcount. These increases were offset by a decrease of approximately $0.7 million in stock-based compensation costs.
(Gain) Loss on Sale of Assets
|
|
Three Months Ended September 30, |
|
|
|
|
|
|
|
|||||||
(Dollars in thousands) |
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
(Gain) loss on sale of assets |
|
$ |
(649 |
) |
|
$ |
748 |
|
|
$ |
(1,397 |
) |
|
|
(187 |
)% |
Percentage of net revenues |
|
|
(0 |
)% |
|
|
0 |
% |
|
|
|
|
|
|
||
(Gain) loss on sale of assets reflected a gain of $0.6 million for the three months ended September 30, 2022 compared to a loss of $0.7 million for the three months ended September 30, 2021, a decrease of $1.4 million, or 187%. The decrease in (gain) loss on sale of assets was primarily driven by gains associated with our sale-leaseback transactions in the current year.
Other Expense
|
|
Three Months Ended September 30, |
|
|
|
|
|
|
|
|||||||
(Dollars in thousands) |
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
Other expense |
|
$ |
10,100 |
|
|
$ |
5,717 |
|
|
$ |
4,383 |
|
|
|
77 |
% |
Percentage of net revenues |
|
|
5 |
% |
|
|
3 |
% |
|
|
|
|
|
|
||
Other expense was $10.1 million for the three months ended September 30, 2022 compared to $5.7 million for the three months ended September 30, 2021, an increase of $4.4 million, or 77%. The increase in other expense was primarily driven by an increase in interest expense due to higher average interest rates and borrowing levels as compared to the prior year period.
30
Income Tax Provision (Benefit)
|
|
Three Months Ended September 30, |
|
|
|
|
|
|
|
|||||||
(Dollars in thousands) |
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
Income tax provision (benefit) |
|
$ |
8,814 |
|
|
$ |
6,440 |
|
|
$ |
2,374 |
|
|
|
37 |
% |
Percentage of net revenues |
|
|
4 |
% |
|
|
3 |
% |
|
|
|
|
|
|
||
Income tax provision was $8.8 million for the three months ended September 30, 2022 compared to $6.4 million for the three months ended September 30, 2021, an increase of $2.4 million, or 37%. The increase in income tax provision was primarily driven by reduced net, income tax benefits from equity awards.
31
Results of Operations for the Nine Months Ended September 30, 2022 and 2021 (Unaudited)
The unaudited results of operations data for the nine months ended September 30, 2022 and 2021 have been derived from the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
|
|
Nine Months Ended September 30, |
|
|||||||||||||
|
|
2022 |
|
|
2021 |
|
||||||||||
(Dollars in thousands) |
|
Amount |
|
|
% of Revenue |
|
|
Amount |
|
|
% of Revenue |
|
||||
Net revenues |
|
$ |
662,154 |
|
|
|
100 |
% |
|
$ |
566,898 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Store operating costs: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cost of labor and chemicals |
|
|
203,117 |
|
|
|
31 |
% |
|
|
203,051 |
|
|
|
36 |
% |
Other store operating expenses |
|
|
239,173 |
|
|
|
36 |
% |
|
|
194,889 |
|
|
|
34 |
% |
General and administrative |
|
|
74,040 |
|
|
|
11 |
% |
|
|
226,015 |
|
|
|
40 |
% |
(Gain) loss on sale of assets |
|
|
(3,336 |
) |
|
|
(1 |
)% |
|
|
(5,559 |
) |
|
|
(1 |
)% |
Total costs and expenses |
|
|
512,994 |
|
|
|
77 |
% |
|
|
618,396 |
|
|
|
109 |
% |
Operating income (loss) |
|
|
149,160 |
|
|
|
23 |
% |
|
|
(51,498 |
) |
|
|
(9 |
)% |
Other expense: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest expense, net |
|
|
27,028 |
|
|
|
4 |
% |
|
|
33,416 |
|
|
|
6 |
% |
Loss on extinguishment of debt |
|
|
- |
|
|
|
0 |
% |
|
|
3,183 |
|
|
|
1 |
% |
Total other expense |
|
|
27,028 |
|
|
|
4 |
% |
|
|
36,599 |
|
|
|
6 |
% |
Income (loss) before taxes |
|
|
122,132 |
|
|
|
18 |
% |
|
|
(88,097 |
) |
|
|
(16 |
)% |
Income tax provision (benefit) |
|
|
26,988 |
|
|
|
4 |
% |
|
|
(29,747 |
) |
|
|
(5 |
)% |
Net income (loss) |
|
$ |
95,144 |
|
|
|
14 |
% |
|
$ |
(58,350 |
) |
|
|
(10 |
)% |
Net Revenues
|
|
Nine Months Ended September 30, |
|
|
|
|
|
|
|
|||||||
(Dollars in thousands) |
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
Net revenues |
|
$ |
662,154 |
|
|
$ |
566,898 |
|
|
$ |
95,256 |
|
|
|
17 |
% |
Net revenues were $662.2 million for the nine months ended September 30, 2022 compared to $566.9 million for the nine months ended September 30, 2021, an increase of $95.3 million, or 17%. The increase in net revenues was primarily attributable to the increase in car wash sales due to growth in UWC Members and the year-over-year addition of 60 locations.
Store Operating Costs
Cost of Labor and Chemicals
|
|
Nine Months Ended September 30, |
|
|
|
|
|
|
|
|||||||
(Dollars in thousands) |
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
Cost of labor and chemicals |
|
$ |
203,117 |
|
|
$ |
203,051 |
|
|
$ |
66 |
|
|
|
0 |
% |
Percentage of net revenues |
|
|
31 |
% |
|
|
36 |
% |
|
|
|
|
|
|
||
Cost of labor and chemicals was $203.1 million for the nine months ended September 30, 2022 compared to $203.1 million for the nine months ended September 30, 2021, an increase of less than $0.1 million, or 0%. The net change in the cost of labor and chemicals is primarily driven by an increase in labor and benefits of approximately $27.4 million and an increase in wash chemicals and supplies of approximately $3.9 million during the nine months ended September 30, 2022, both attributable to an increase in volume and the year-over-year addition of 60 locations, as well as some inflationary pressures on both our labor and chemicals. The prior year period reflected the recognition of stock-based compensation expense of $31.3 million related to our performance-based vesting stock options that vested on the consummation of our IPO in June 2021 which offset the current year increases. As a percentage of net revenues, costs of labor and chemicals for the nine months ended September 30, 2022 decreased by approximately 5% due to improved labor staffing and express volume mix as compared to the prior year period, as well as the prior year period recognition of stock-based compensation expense as noted above.
Other Store Operating Expenses
32
|
|
Nine Months Ended September 30, |
|
|
|
|
|
|
|
|||||||
(Dollars in thousands) |
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
Other store operating expenses |
|
$ |
239,173 |
|
|
$ |
194,889 |
|
|
$ |
44,284 |
|
|
|
23 |
% |
Percentage of net revenues |
|
|
36 |
% |
|
|
34 |
% |
|
|
|
|
|
|
||
Other store operating expenses were $239.2 million for the nine months ended September 30, 2022 compared to $194.9 million for the nine months ended September 30, 2021, an increase of $44.3 million, or 23%. The increase in other store operating expenses was attributable to the year-over-year addition of 60 locations and some inflationary pressures on our utilities and maintenance expenses. Rent expense increased approximately $7.8 million with the addition of 49 new land and building leases.
General and Administrative
|
|
Nine Months Ended September 30, |
|
|
|
|
|
|
|
|||||||
(Dollars in thousands) |
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
General and administrative |
|
$ |
74,040 |
|
|
$ |
226,015 |
|
|
$ |
(151,975 |
) |
|
|
(67 |
)% |
Percentage of net revenues |
|
|
11 |
% |
|
|
40 |
% |
|
|
|
|
|
|
||
General and administrative expenses were $74.0 million for the nine months ended September 30, 2022 compared to $226.0 million for the nine months ended September 30, 2021, a decrease of $152.0 million, or 67%. The decrease in general and administrative expenses was primarily driven by the prior year recognition of stock-based compensation expense of $170.7 million related to the performance-based vesting stock options that vested on the consummation of our IPO in June 2021. This decrease was partially offset by an increase of approximately $5.9 million in salaries and benefits, an increase of approximately $5.5 million in stock-based compensation expense not related to the performance-based vesting stock options noted above, and an increase of approximately $6.2 million in other costs, which were primarily attributable to the increased costs of being a public company and increase in corporate headcount.
(Gain) Loss on Sale of Assets
|
|
Nine Months Ended September 30, |
|
|
|
|
|
|
|
|||||||
(Dollars in thousands) |
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
(Gain) loss on sale of assets |
|
$ |
(3,336 |
) |
|
$ |
(5,559 |
) |
|
$ |
2,223 |
|
|
|
(40 |
)% |
Percentage of net revenues |
|
|
(1 |
)% |
|
|
(1 |
)% |
|
|
|
|
|
|
||
Gain on sale of assets was $3.3 million for the nine months ended September 30, 2022 compared to $5.6 million for the nine months ended September 30, 2021, a decrease of $2.2 million, or 40%. The (gain) loss on sale of assets was primarily driven by gains associated with our sale-leaseback transactions in both years.
Other Expense
|
|
Nine Months Ended September 30, |
|
|
|
|
|
|
|
|||||||
(Dollars in thousands) |
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
Other expense |
|
$ |
27,028 |
|
|
$ |
36,599 |
|
|
$ |
(9,571 |
) |
|
|
(26 |
)% |
Percentage of net revenues |
|
|
4 |
% |
|
|
6 |
% |
|
|
|
|
|
|
||
Other expense was $27.0 million for the nine months ended September 30, 2022 compared to $36.6 million for the nine months ended September 30, 2021, a decrease of $9.6 million, or 26%. The decrease in other expense was primarily driven by a $6.4 million reduction in interest expense, resulting from the June 2021 pay down of the First Lien Term Loan and the June 2021 pay-off of the Second Lien Term Loan and a $3.2 million loss on extinguishment of debt recorded in the prior year period.
33
Income Tax Provision (Benefit)
|
|
Nine Months Ended September 30, |
|
|
|
|
|
|
|
|||||||
(Dollars in thousands) |
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
Income tax provision (benefit) |
|
$ |
26,988 |
|
|
$ |
(29,747 |
) |
|
$ |
56,735 |
|
|
|
(191 |
)% |
Percentage of net revenues |
|
|
4 |
% |
|
|
(5 |
)% |
|
|
|
|
|
|
||
Income tax provision was $27.0 million for the nine months ended September 30, 2022 compared to a benefit of $29.7 million for the nine months ended September 30, 2021, an increase of $56.7 million, or 191%. The increase in income tax provision was primarily driven by increased income before taxes for the nine months ended September 30, 2022.
Liquidity and Capital Resources
Funding Requirements
Our primary requirements for liquidity and capital are to fund our investments in our core business, to pursue greenfield expansion and acquisitions, and to service our indebtedness. Historically, these cash requirements have been met through funds raised by the sale of common equity, utilization of our Revolving Commitment, First Lien Term Loan, Second Lien Term Loan, sale-leaseback transactions, and cash provided by operations. As of September 30, 2022 and December 31, 2021, we had cash and cash equivalents of $74.9 million and $19.7 million, respectively, and $149.0 million and $149.5 million, respectively, of available borrowing capacity under our Revolving Commitment.
In June 2021, we entered into Amendment No. 2, which increased the commitments under the Revolving Commitment from $75.0 million to $150.0 million. In June 2021, we made a voluntary prepayment of all outstanding balances under our Second Lien Term Loan, which included $242.7 million in outstanding principal and $6.1 million in accrued interest expense, and a voluntary prepayment of $190.4 million of outstanding principal under our First Lien Term Loan. These voluntary prepayments were funded with the net proceeds of our IPO and the Amended Second Lien Credit Agreement was terminated.
In December 2021, in connection with the Clean Streak Ventures acquisition, we entered into Amendment No. 3, which increased the principal borrowings under the First Lien Term Loan by $290.0 million to $903.0 million. For a description of our credit facilities, please see Note 8 Debt in the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
As of September 30, 2022, we were in compliance with the covenants under the Amended A&R First Lien Credit Agreement.
We believe that our sources of liquidity and capital will be sufficient to finance our growth strategy and resulting operations, planned capital expenditures, and the additional expenses we expect to incur as a public company for at least the next 12 months. However, we cannot assure you that cash provided by operating activities or cash and cash equivalents will be sufficient to meet our future needs. If we are unable to generate sufficient cash flows from operations in the future, we may have to obtain additional financing. If we obtain additional capital by issuing equity, the interests of our existing stockholders will be diluted. If we incur additional indebtedness, that indebtedness may contain significant financial and other covenants that may significantly restrict our operations. We cannot assure you that we could obtain additional financing on favorable terms or at all.
Cash Flows for the Nine Months Ended September 30, 2022 and 2021 (Unaudited)
The following table shows summary cash flow information for the nine months ended September 30, 2022 and 2021:
|
|
Nine Months Ended September 30, |
|
|||||
(Dollars in thousands) |
|
2022 |
|
|
2021 |
|
||
Net cash provided by operating activities |
|
$ |
185,453 |
|
|
$ |
153,309 |
|
Net cash used in investing activities |
|
|
(133,784 |
) |
|
|
(90,458 |
) |
Net cash provided by (used in) financing activities |
|
|
3,420 |
|
|
|
(18,221 |
) |
Net increase in cash and cash equivalents, and restricted cash |
|
$ |
55,089 |
|
|
$ |
44,630 |
|
Operating Activities. Net cash provided by operating activities consists of net income (loss) adjusted for certain non-cash items, including stock-based compensation expense, property and equipment depreciation, gains on the disposal of property and equipment, amortization of leased assets and deferred income taxes, as well as the effect of changes in other working capital amounts.
For the nine months ended September 30, 2022, net cash provided by operating activities was $185.5 million and was comprised of net income of $95.1 million, increased by $111.3 million as a result of non-cash adjustments comprised primarily of stock-based compensation expense, depreciation and amortization expense, non-cash lease expense, deferred income taxes, a gain on disposal of
34
property and equipment, and amortization of deferred financing costs. Changes in working capital balances decreased cash provided by operating activities by $21.0 million and were primarily driven by increases in the operating lease liability, other noncurrent assets and liabilities and prepaid expenses and other current assets, offset by a decrease in other receivables, accounts payable and accrued expenses.
For the nine months ended September 30, 2021, net cash provided by operating activities was $153.3 million and was comprised of net loss of $58.4 million, increased by $238.6 million as a result of non-cash adjustments comprised primarily of stock-based compensation expense, deferred income taxes, depreciation and amortization expense, non-cash lease expense, a gain on disposal of property and equipment, and a loss on extinguishment of debt. Changes in working capital balances increased cash provided by operating activities by $27.0 million and were primarily driven by decreases in the operating lease liability and other noncurrent assets and liabilities, and increases in accounts receivable, net and prepaid expenses and other current assets, partially offset by increases in accounts payable, accrued expenses, and a decrease in deferred revenue.
Investing Activities. Our net cash used in investing activities primarily consists of purchases and sale of property and equipment and acquisition of car washes.
For the nine months ended September 30, 2022, net cash used in investing activities was $133.8 million and was primarily comprised of investment in property and equipment to support our greenfield development and other initiatives and three acquisitions, partially offset by the sale of property and equipment.
For the nine months ended September 30, 2021, net cash used in investing activities was $90.5 million and was comprised of purchases of property and equipment primarily to support our greenfield and other initiatives and three acquisitions, partially offset by the sale of property and equipment including sale-leaseback transactions.
Financing Activities. Our net cash used in financing activities primarily consists of proceeds and payments on our First Lien Term Loan, Second Lien Term Loan, and Revolving Commitment, as well as proceeds from our IPO.
For the nine months ended September 30, 2022, net cash provided by financing activities was $3.4 million and was primarily comprised of proceeds from exercise of stock options, partially offset by payments on debt borrowings.
For the nine months ended September 30, 2021, net cash used in financing activities was $18.2 million and was primarily comprised of repayments of our First Lien Term Loan and Second Lien Term Loan and payments of issuance costs associated with our IPO, partially offset by proceeds from the consummation of our IPO in June 2021.
Critical Accounting Policies and Estimates
Our unaudited condensed consolidated financial statements have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities.
On an ongoing basis, we evaluate our estimates and assumptions, including those related to revenue recognition, goodwill and other intangible assets, income taxes and stock-based compensation. We base our estimates on historical experience, current developments and on various other assumptions that we believe to be reasonable under these circumstances, the results of which form the basis for making judgments about carrying values of assets and liabilities that cannot readily be determined from other sources. There can be no assurance that actual results will not differ from those estimates.
The significant accounting policies and estimates used in preparation of the unaudited condensed consolidated financial statements are described in our 2021 10-K. There have been no material changes to our significant accounting policies during the three and nine months ended September 30, 2022.
Recent Accounting Pronouncements
See the sections titled “Summary of Significant Accounting Policies—Recently issued accounting pronouncements not yet adopted” in Note 2 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for a discussion of recent accounting pronouncements.
35
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We are exposed to market risk from changes in interest rates and inflation. All these market risks arise in the normal course of business, as we do not engage in speculative trading activities. The following analysis provides quantitative information regarding these risks.
Interest Rate Risk
Our First Lien Term Loan bears interest at variable rates, which exposes us to market risks relating to changes in interest rates. Interest rate risk is highly sensitive due to many factors, including U.S. monetary and tax policies, U.S. and international economic factors, and other factors beyond our control. As of September 30, 2022 and December 31, 2021, we had $901.2 million and $903.3 million, respectively, of variable rate debt outstanding under our First Lien Term Loan. Based on the balance outstanding under our First Lien Term Loan as of September 30, 2022, an increase or decrease of 100 basis points in the effective interest rate on the First Lien Term Loan would cause an increase or decrease in interest expense of approximately $9 million over the next 12 months.
In May 2020, we entered into an interest rate swap to mitigate variability in forecasted interest payments on an amortizing notional of $550.0 million of our variable-rate First Lien Term Loan. We designated the interest rate swap as a pay-fixed, receive-floating interest rate swap instrument and are accounting for this derivative as a cash flow hedge. This interest rate swap matured on October 20, 2022.
Impact of Inflation
Our results of operations and financial condition are presented based on historical cost. While it is difficult to accurately measure the impact of inflation due to the imprecise nature of the estimates required, we have recently experienced the effects of inflation on our results of operations and financial condition. In light of the current inflationary market conditions, we cannot assure you that our results of operations and financial condition will not be materially impacted by inflation in the future.
Item 4. Controls and Procedures.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed in the reports that we file or submit under the Exchange Act has been appropriately recorded, processed, summarized and reported on a timely basis and are effective in ensuring that such information is accumulated and communicated to the Company’s management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of September 30, 2022, our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, that occurred during the three months ended September 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
36
PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
We are from time to time subject to various claims, lawsuits and other legal proceedings, including intellectual property claims. Some of these claims, lawsuits and other legal proceedings involve highly complex issues, and often these issues are subject to substantial uncertainties. Accordingly, our potential liability with respect to a large portion of such claims, lawsuits and other legal proceedings cannot be estimated with certainty. Management, with the assistance of legal counsel, periodically reviews the status of each significant matter and assesses potential financial exposure. We recognize provisions for claims or pending litigation when we determine that an unfavorable outcome is probable and the amount of loss can be reasonably estimated. Due to the inherent uncertain nature of litigation, the ultimate outcome or actual cost of settlement may materially vary from estimates. If management’s estimates prove incorrect, we could incur a charge to earnings which could have a material and adverse effect on our business, results of operations, and financial condition. We are not party to any material legal proceedings.
Item 1A. Risk Factors.
In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the risk factors disclosed in Part I. Item 1A. "Risk Factors” and in Part II. Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2021 10-K, 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. There have been no material changes to the risk factors described in Part I. Item 1A. "Risk Factors" of our 2021 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
37
Item 6. Exhibits.
Exhibit Number |
|
Description |
Form |
File. No |
Exhibit |
Filing Date |
Filed/Furnished Herewith |
2.1+ ^ |
|
10-Q |
001-40542 |
2.1 |
05/13/2022 |
|
|
3.1 |
|
Amended and Restated Certificate of Incorporation of the Company |
8-K |
001-40542 |
3.2 |
06/01/2022 |
|
3.2 |
|
8-K |
001-40542 |
3.2 |
07/02/2021 |
|
|
31.1 |
|
|
|
|
|
* |
|
31.2 |
|
|
|
|
|
* |
|
32.1 |
|
|
|
|
|
** |
|
32.2 |
|
|
|
|
|
** |
|
101.INS |
|
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document. |
|
|
|
|
* |
101.SCH |
|
Inline XBRL Taxonomy Extension Schema Document |
|
|
|
|
* |
101.CAL |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
|
* |
101.DEF |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document |
|
|
|
|
* |
101.LAB |
|
Inline XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
|
* |
101.PRE |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
|
|
|
|
* |
104 |
|
Cover Page Interactive Data File (embedded within the Inline XBRL document) |
|
|
|
|
* |
|
|
|
|
|
|
|
|
* Filed herewith.
** Furnished herewith.
+ Schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company undertakes to furnish supplemental copies of any of the omitted schedules upon request by the SEC.
^ Portions of this exhibit have been omitted pursuant to Item 601(b)(10)(iv) of Regulation S-K.
38
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
Mister Car Wash, Inc. |
|
|
|
|
|
Date: November 10, 2022 |
|
By: |
/s/ John Lai |
|
|
|
John Lai |
|
|
|
Chairperson, President and Chief Executive Officer (Principal Executive Officer) |
|
|
|
|
Date: November 10, 2022 |
|
By: |
/s/ Jedidiah Gold |
|
|
|
Jedidiah Gold |
|
|
|
Chief Financial Officer (Principal Financial Officer) |
39