10-Q

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

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

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

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

As of April 28, 2023, the registrant had 308,519,147 shares of common stock, $0.01 par value per share, outstanding.

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of present and historical facts contained in this Quarterly Report on Form 10-Q, including without limitation, statements regarding our future results of operations and financial position, business strategy and approach are 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 in this Quarterly Report on Form 10-Q 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, 2022 (the “2022 10-K”) and in Part I. Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Quarterly Report on Form 10-Q. These risks and uncertainties include, but are not limited to:

Given these and other risks and uncertainties applicable to us, you are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included elsewhere in this Quarterly Report on Form 10-Q are not guarantees of future performance and our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate, may differ materially from the forward-looking statements included elsewhere in this Quarterly Report on Form 10-Q. In addition, even if our results of operations, financial condition and liquidity, and events in the industry in which we operate, are consistent with the forward-looking statements included elsewhere in this Quarterly Report on Form 10-Q, they may not be predictive of results or developments in future periods.

Any forward-looking statement that we make in this Quarterly Report on Form 10-Q speaks only as of the date of such statement. Except as required by law, we do not undertake any obligation to update or revise, or to publicly announce any update or revision to, any of the forward-looking statements, whether as a result of new information, future events or otherwise, after the date of this Quarterly Report on Form 10-Q.

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

See accompanying notes to unaudited condensed consolidated financial statements.

2. Summary of Significant Accounting Policies

The accompanying unaudited condensed consolidated financial statements as of March 31, 2023 and for the three months ended March 31, 2023 and 2022 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 our audited consolidated financial statements and the notes thereto for the year ended December 31, 2022 included in the 2022 Form 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 our consolidated financial position as of March 31, 2023, consolidated results of operations and comprehensive income for the three months ended March 31, 2023 and 2022, and consolidated cash flows for the three months ended March 31, 2023 and 2022. Such adjustments are of a normal and recurring nature. The consolidated results of operations for the three months ended March 31, 2023 are not necessarily indicative of the consolidated results of operations that may be expected for the year ending December 31, 2023.

Principles of Consolidation

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

Use of Estimates

The preparation of the unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements. Estimates also affect the reported amounts of revenue and expenses during the periods reported. Some of the significant estimates that we have 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 $47 and $76 as of March 31, 2023 and December 31, 2022, respectively. The activity in the allowance for doubtful accounts was immaterial for the three months ended March 31, 2023 and 2022.

Other Receivables

Other receivables consisted of the following for the periods presented:


	As of
	March 31, 2023		December 31, 2022
Payroll tax withholding and exercise proceeds receivable	$	85	$	273
Construction receivable		6,462		6,199
Income tax receivable		3,353		4,387
Insurance receivable		1,759		2,627
Other		2,457		1,696
Total other receivables	$	14,116	$	15,182

Inventory, Net

Inventory consisted of the following for the periods presented:


	As of
	March 31, 2023			December 31, 2022
Chemical washing solutions	$	8,391		$	9,357
Reserve for obsolescence		(163	)		(183	)
Total inventory, net	$	8,228		$	9,174

The activity in the reserve for obsolescence was immaterial for the three months ended March 31, 2023 and 2022.

Revenue Recognition

The following table summarizes the composition of our net revenues for the periods presented:


	Three Months Ended March 31,
	2023		2022
Recognized over time	$	156,891	$	140,874
Recognized at a point in time		68,970		78,008
Other revenue		99		537
Net revenues	$	225,960	$	219,419

Net Income Per Share

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


	Three Months Ended March 31,
	2023		2022
Numerator:
Net income	$	21,136	$	35,488

Denominator:
Weighted-average common shares outstanding - basic		307,291,909		300,931,453
Effect of potentially dilutive securities:
Stock options		19,798,577		27,010,017
Restricted stock units		498,213		1,230,967
Employee stock purchase plan		19,567		-
Weighted-average common shares outstanding - diluted		327,608,266		329,172,437

Net income per share - basic	$	0.07	$	0.12
Net income per share - diluted	$	0.06	$	0.11

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


	Three Months Ended March 31,
	2023		2022
Stock options		2,677,756		2,041,141
Restricted stock units		356,400		-
Employee stock purchase plan		3,619		-

Recently Adopted Accounting Pronouncements

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. We adopted the new standard on January 1, 2023 and was

applied prospectively. We reviewed our business processes and controls to support the recognition and disclosure as required under the new standard. The adoption of this new standard did not have a material impact on our unaudited condensed consolidated financial statements.

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. This update requires 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. This update was effective for us as of January 1, 2023, and the adoption of this new standard did not have a material impact on our condensed consolidated financial statements and related disclosures.

3. Property and Equipment, Net

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


	As of
	March 31, 2023			December 31, 2022
Land	$	100,090		$	94,594
Buildings and improvements		204,617			189,998
Finance leases		16,604			16,604
Leasehold improvements		118,952			115,811
Vehicles and equipment		236,175			229,453
Furniture, fixtures and equipment		90,567			86,613
Construction in progress		68,061			53,373
Property and equipment, gross		835,066			786,446
Less: accumulated depreciation		(235,836	)		(223,288	)
Less: accumulated amortization - finance leases		(2,535	)		(2,284	)
Property and equipment, net	$	596,695		$	560,874

For the three months ended March 31, 2023 and 2022, depreciation expense was $15,379 and $12,934, respectively.

For the three months ended March 31, 2023 and 2022, amortization expense on finance leases was $251 and $242, respectively.


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


		Page
	FORWARD-LOOKING STATEMENTS	2

PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Operations and Comprehensive Income	4
	Condensed Consolidated Statements of Cash Flows	5
	Condensed Consolidated Statements of Stockholders' Equity	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27
Item 4.	Controls and Procedures	27

PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	28
Item 1A.	Risk Factors	28
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28
Item 3.	Defaults Upon Senior Securities	28
Item 4.	Mine Safety Disclosures	28
Item 5.	Other Information	28
Item 6.	Exhibits	29

Signatures		30


	As of
(Amounts in thousands, except share and per share data)	March 31, 2023		December 31, 2022
Assets
Current assets:
Cash and cash equivalents	$	69,903	$	65,152
Restricted cash		70		70
Accounts receivable, net		933		3,941
Other receivables		14,116		15,182
Inventory, net		8,228		9,174
Prepaid expenses and other current assets		10,767		12,618
Total current assets		104,017		106,137

Property and equipment, net		596,695		560,874
Operating lease right of use assets, net		776,496		776,689
Other intangible assets, net		122,122		123,615
Goodwill		1,109,815		1,109,815
Other assets		8,190		9,102
Total assets	$	2,717,335	$	2,686,232

Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	30,379	$	25,649
Accrued payroll and related expenses		20,036		17,218
Other accrued expenses		30,730		41,196
Current maturities of operating lease liability		41,279		40,367
Current maturities of finance lease liability		687		668
Deferred revenue		30,509		29,395
Total current liabilities		153,620		154,493

Long-term portion of debt, net		896,223		895,830
Operating lease liability		758,752		759,775
Financing lease liability		14,599		14,779
Deferred tax liability		58,823		53,395
Other long-term liabilities		6,577		6,832
Total liabilities		1,888,594		1,885,104

Stockholders’ equity:
Common stock, $0.01 par value, 1,000,000,000 shares authorized, 308,101,847 and 306,626,530 shares outstanding as of March 31, 2023 and December 31, 2022, respectively		3,087		3,072
Additional paid-in capital		790,041		783,579
Retained earnings (Accumulated Deficit)		35,613		14,477
Total stockholders’ equity		828,741		801,128
Total liabilities and stockholders’ equity	$	2,717,335	$	2,686,232


	Three Months Ended March 31,
	2023			2022
Net revenues	$	225,960		$	219,419
Cost of labor and chemicals		66,792			65,538
Other store operating expenses		89,466			77,801
General and administrative		24,183			23,687
(Gain) loss on sale of assets		(63	)		459
Total costs and expenses		180,378			167,485
Operating income		45,582			51,934

Other expense:
Interest expense, net		17,748			8,166
Total other expense		17,748			8,166
Income before taxes		27,834			43,768
Income tax provision		6,698			8,280
Net income	$	21,136		$	35,488

Other comprehensive income, net of tax:
Gain on interest rate swap		-			1,869
Total comprehensive income	$	21,136		$	37,357

Net income per share:
Basic	$	0.07		$	0.12
Diluted	$	0.06		$	0.11
Weighted-average common shares outstanding:
Basic		307,291,909			300,931,453
Diluted		327,608,266			329,172,437


	Three Months Ended March 31,
	2023			2022
Cash flows from operating activities:
Net income	$	21,136		$	35,488
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense		17,307			14,945
Stock-based compensation expense		5,361			5,519
(Gain) loss on sale of assets, net		(63	)		459
Amortization of debt issuance costs		419			419
Non-cash lease expense		10,739			9,606
Deferred income tax		5,428			5,018
Changes in assets and liabilities:
Accounts receivable, net		3,009			146
Other receivables		1,128			10,108
Inventory, net		946			(665	)
Prepaid expenses and other current assets		1,850			901
Accounts payable		2,553			5,679
Accrued expenses		5,155			3,635
Deferred revenue		1,114			648
Operating lease liability		(9,696	)		(9,094	)
Other noncurrent assets and liabilities		631			(1,268	)
Net cash provided by operating activities	$	67,017		$	81,544

Cash flows from investing activities:
Purchases of property and equipment		(72,059	)		(30,015	)
Proceeds from sale of property and equipment		8,899			1
Net cash used in investing activities	$	(63,160	)	$	(30,014	)

Cash flows from financing activities:
Proceeds from issuance of common stock under employee plans		1,055			1,281
Payments on debt borrowings		-			(2,100	)
Principal payments on finance lease obligations		(161	)		(134	)
Net cash provided (used) by financing activities	$	894		$	(953	)

Net change in cash and cash equivalents and restricted cash during period		4,751			50,577
Cash and cash equivalents and restricted cash at beginning of period		65,222			19,858
Cash and cash equivalents and restricted cash at end of period	$	69,973		$	70,435

Supplemental disclosure of cash flow information:
Cash paid for interest	$	11,697		$	7,821
Cash paid for income taxes	$	151		$	-

Supplemental disclosure of non-cash investing and financing activities:
Property and equipment in accounts payable	$	11,993		$	18,123
Property and equipment in other accrued expenses	$	5,969		$	-
Stock option exercise proceeds in other receivables	$	61		$	45


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


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


	Common Stock				Additional Paid-in Capital		Accumulated Other Comprehensive Income		Retained Earnings (Accumulated Deficit)		Stockholders’ Equity
	Shares		Amount
Balance as of December 31, 2022		306,626,530	$	3,072	$	783,579	$	—	$	14,477	$	801,128
Stock-based compensation expense		—		—		5,361		—		—		5,361
Vesting of restricted stock units		4,296		—		—		—		—		–
Exercise of stock options		1,471,021		15		1,101		—		—		1,116
Net income		—		—		—		—		21,136		21,136
Balance as of March 31, 2023		308,101,847	$	3,087	$	790,041	$	-	$	35,613	$	828,741


	March 31, 2023				December 31, 2022
	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Trade names and Trademarks	$	107,200	$	200	$	107,200		200
CPC Unity System		42,900