10-Q

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

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

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

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

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

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

As of April 30, 2024, the registrant had 319,509,183 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 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,” “should,” or "vision," or the negative thereof 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, 2023 (the “2023 Form 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. 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 indicative 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

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements as of March 31, 2024 and for the three months ended March 31, 2024 and 2023 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, 2023 included in the 2023 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, 2024, consolidated results of operations for the three months ended March 31, 2024 and 2023, and consolidated cash flows for the three months ended March 31, 2024 and 2023. Such adjustments are of a normal and recurring nature. The consolidated results of operations for the three months ended March 31, 2024 are not necessarily indicative of the consolidated results of operations that may be expected for any other future interim or annual period.

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.

Reclassification

Within the unaudited condensed consolidated financial statements certain immaterial amounts have been reclassified to conform with current period presentation. We reclassified Restricted cash of $116 and $72 from an individual line item on the unaudited condensed consolidated balance sheets at March 31, 2024 and December 31, 2023, respectively, to Prepaid expenses and other current assets to conform with the current period presentation.

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 $30 and $68 as of March 31, 2024 and December 31, 2023, respectively. The activity in the allowance for doubtful accounts was immaterial for the three months ended March 31, 2024 and 2023.

Other Receivables

Other receivables consisted of the following for the periods presented:


	As of
	March 31, 2024		December 31, 2023
Payroll tax withholding and exercise proceeds receivable	$	17	$	-
Construction receivable		5,537		6,480
Income tax receivable		1,520		3,051
Insurance receivable		4,380		3,686
Employee retention credit receivable		5,189		-
Other		1,050		1,497
Total other receivables		17,693		14,714

Inventory, Net

Inventory consisted of the following for the periods presented:


	As of
	March 31, 2024			December 31, 2023
Chemical washing solutions	$	7,804		$	9,135
Reserve for obsolescence		(157	)		(183	)
Total inventory, net	$	7,647		$	8,952

The activity in the reserve for obsolescence was immaterial for the three months ended March 31, 2024 and 2023.

Revenue Recognition

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


	Three Months Ended March 31,
	2024		2023
Recognized over time	$	176,259	$	156,891
Recognized at a point in time		62,846		68,970
Other revenue		78		99
Net revenues	$	239,183	$	225,960

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,
	2024		2023
Numerator:
Net income	$	16,637	$	21,136

Denominator:
Weighted-average common shares outstanding - basic		315,838,788		307,291,909
Effect of potentially dilutive securities:
Stock options		12,685,179		19,798,577
Restricted stock units		1,457,395		498,213
Employee stock purchase plan		30,782		19,567
Weighted-average common shares outstanding - diluted		330,012,144		327,608,266

Net income per share - basic	$	0.05	$	0.07
Net income per share - diluted	$	0.05	$	0.06

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,
	2024		2023
Stock options		3,666,223		2,677,756
Restricted stock units		-		356,400
Employee stock purchase plan		3,133		3,619

Employee Retention Credit

In response to the COVID-19 pandemic, the Employee Retention Credit (“ERC”), was established under the Coronavirus Aid, Relief, and Economic Security Act. The ERC is a refundable tax credit against certain employment taxes equal to 50% of the qualified wages an eligible employer paid to employees from March 13, 2020 to December 31, 2020. Companies who meet the eligibility requirements can claim the ERC on an original or adjusted employment tax return for a period within those dates.

In March 2024, the Company determined that it qualifies for $5,189 in relief for the period from March 13, 2020 to December 31, 2020. Upon receipt of the credit, the Company will owe $526 in tax advisory costs associated with the assessment of the tax credit. This amount was accrued within General and administrative expenses as of March 31, 2024. As there is no authoritative guidance under U.S. GAAP for government assistance to for-profit business entities, the Company accounts for the ERC by analogy to International Accounting Standards 20, or IAS 20, Accounting for Government Grants and Disclosure of Government Assistance. In accordance with IAS 20, management determined it has reasonable assurance of receipt of the identified ERC amount and recorded the $5,189 credit in Other income on our condensed consolidated statements of operations during the three months ended March 31, 2024. A corresponding accrual of the tax credit receivable was recorded under Other receivables on our condensed consolidated balance sheet as of March 31, 2024.

Recently Adopted Accounting Pronouncements

There have been no new accounting standards issued which would require either disclosure or adoption in the current period.

Recently Issued Accounting Pronouncements Not Yet Adopted

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which focuses on the rate reconciliation and income taxes paid. ASU No. 2023-09 requires a public business entity (PBE) to disclose, on an annual basis, a tabular rate reconciliation using both percentages and currency amounts, broken out into specified categories with certain reconciling items further broken out by nature and jurisdiction to the extent those items exceed a specified threshold. In addition, all entities are required to disclose income taxes paid, net of refunds received disaggregated by federal, state/local, and foreign and by jurisdiction if the amount is at least 5% of total income tax payments, net of refunds received. For PBEs, the new standard is effective for annual periods beginning after December 15, 2024, with early adoption permitted. An entity may apply the amendments in this ASU prospectively by providing the revised disclosures for the period ending December 31, 2025 and continuing to provide the pre-ASU disclosures for the prior periods, or may apply the amendments retrospectively by providing the revised disclosures for all period presented. We expect this ASU to only impact our disclosures with no impacts to our consolidated financial statements.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires enhanced disclosures regarding significant segment expenses and other segment items for public entities on both an annual and interim basis. Specifically, the update requires that entities provide, during interim periods, all disclosures related to a reportable segment's profit or loss and assets that were previously required only on an annual basis. Additionally, this guidance necessitates the disclosure of the title and position of the Chief Operating Decision Maker ("CODM"). The new guidance does not modify how a public entity identifies its operating segments, aggregates them, or applies the quantitative thresholds to determine its reportable segments. This update is effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years starting after December 15, 2024. This ASU must be applied retrospectively to all prior periods presented. Early adoption is permitted. We are currently evaluating the impact this ASU may have on our 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, 2024			December 31, 2023
Land	$	127,185		$	121,960
Buildings and improvements		290,506			263,468
Finance leases		16,604			16,604
Leasehold improvements		137,481			135,861
Vehicles and equipment		299,574			285,127
Furniture, fixtures and equipment		102,260			100,457
Construction in progress		88,075			75,639
Property and equipment, gross		1,061,685			999,116
Less: accumulated depreciation		(284,915	)		(270,706	)
Less: accumulated amortization - finance leases		(3,540	)		(3,289	)
Property and equipment, net	$	773,230		$	725,121

For the three months ended March 31, 2024 and 2023, depreciation expense was $17,700 and $15,379, respectively.

For the three months ended March 31, 2024 and 2023, amortization expense on finance leases was $251 and $251, respectively.

4. Other Intangible Assets, Net

Other intangibles assets, net consisted of the following as of the periods presented:


	March 31, 2024				December 31, 2023
	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Trade names and Trademarks	$	107,000	$	-	$	107,000		-
CPC Unity System		42,900		41,113		42,900		40,040
Customer relationships		9,700		6,535		9,700		6,430
Covenants not to compete		13,230		9,159		13,230		8,693
Other intangible assets, net	$	172,830	$	56,807	$	172,830	$	55,163

For the three months ended March 31, 2024 and 2023, amortization expense associated with our finite-lived intangible assets was $1,644 and $1,677, respectively.

As of March 31, 2024, estimated future amortization expense was as follows:


Fiscal Year Ending:
2024 (remaining nine months)	$	3,366
2025		1,844
2026		1,585
2027		741
2028		422
Thereafter		1,065
Total estimated future amortization expense	$	9,023

8. Debt

Long-term debt consisted of the following as of the periods presented:


	As of
	March 31, 2024			December 31, 2023
Credit agreement
First lien term loan	$	925,000		$	901,201
Less: unamortized discount and debt issuance costs		(4,730	)		(3,777	)
Less: current maturities of long-term debt		(6,920	)		-
First lien term loan, net		913,350			897,424

Total long-term portion of debt, net	$	913,350		$	897,424

As of March 31, 2024, annual maturities of debt were as follows:


Fiscal Year Ending:
2024 (remaining nine months)	$	4,619
2025		9,169
2026		9,078
2027		8,988
2028		8,898
Thereafter		884,248
Total maturities of debt	$	925,000

As of March 31, 2024 and December 31, 2023, unamortized discount and debt issuance costs were $7,012 and $4,030, respectively, and accumulated amortization of discount and debt issuance costs was $3,196 and $6,145, respectively.

For the three months ended March 31, 2024 and 2023, the amortization of debt issuance costs in interest expense, net in the condensed consolidated statements of operations was approximately $410 and $419, respectively.

Amended and Restated First Lien Credit Agreement

On August 21, 2014, we 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 us.

Under the First Lien Term Loan under the Credit Agreement, we had the option of selecting either (i) a Base Rate interest rate plus a fixed margin of 2.25% or (ii) a Eurodollar (LIBOR) interest rate for one, two, three or six months plus a fixed margin of 3.25%.

Under the Revolving Commitment under the Credit Agreement, we had the option of selecting either (i) a Base Rate interest rate plus a variable margin of 2.50% to 3.00%, based on our First Lien Net Debt Leverage Ratio, or (ii) a Eurodollar (LIBOR) interest rate for one, two, three or six months plus a variable margin of 3.50% to 4.00%, based on our First Lien Net Leverage Ratio.

In May 2019, we entered into the Amended and Restated First Lien Credit Agreement (“Amended and Restated First Lien Credit Agreement”) which amended and restated the entirety of the Credit Agreement.

First Lien Term Loan

In February 2020, we entered into Amendment No. 1 to Amended and Restated First Lien Credit Agreement, which changed the interest rate spreads associated with the credit agreement where (i) the variable margin associated with the Base Rate interest rate plus a variable margin based on our First Lien Net Leverage Ratio changed from 2.25% to 2.50% to 2.00% to 2.25% and (ii) the variable margin associated with the Eurodollar Rate interest rate for one, two, three or six months plus a variable margin based on our First Lien Net Leverage Ratio changed from 3.25% to 3.50% to 3.00% to 3.25%.

In December 2021, in connection with the Clean Streak Ventures acquisition, we entered into Amendment No. 3 to the Amended and Restated First Lien Credit Agreement, pursuant to which the previous First Lien Term Loan was increased by $290,000 to $903,301 with the balance due on May 14, 2026. The incremental increase in aggregate principal of $290,000 resulted in $285,962 of proceeds net of discount and debt issuance costs.

In December 2022, we entered into Amendment No. 4 to the Amended and Restated First Lien Credit Agreement with the lenders party thereto, and Jeffries Finance LLC, as administrative agent, to transition from LIBOR to Eurocurrency rate SOFR spread, whereas all revolver borrowings and term loan borrowings under the existing credit agreement will be SOFR based. All other terms governing this term loan facility remained substantially the same.

In March 2024, we entered into Amendment No. 5 to the Amended and Restated First Lien Credit Agreement with the lenders party thereto, and Bank of America, N.A. ("BofA") as the successor administrative agent and collateral agent. This amendment further modified the credit agreement by providing $925,000 in first lien term commitments, consisting of $901,201 to refinance outstanding term loans and $23,799 in additional incremental term commitments (collectively, the "2024 Term Loans"). The 2024 Term Loans have an interest rate of Term SOFR or Base Rate, at our option, plus an applicable margin (3.00% for SOFR Loans or 2.00% for Base Rate Loans), subject to step-downs based on the First Lien Net Leverage Ratio. For SOFR Loans, the margin starts at 3.00% and can decrease to 2.75% and 2.50% based on the First Lien Net Leverage Ratio. For Base Rate Loans, the margin begins at 2.00% and can decrease to 1.75% and 1.50%, depending on the First Lien Net Leverage Ratio. The SOFR rate has a floor of 0.00%. Starting September 30, 2024, the loans will be amortized in equal quarterly installments at an annual rate of 1.00% of the original principal amount. As a result of this amendment, the loans are scheduled to mature in March 2031. In connection with Amendment No. 5, we expensed $1,882 of previously unamortized debt issuance costs as a loss on extinguishment of debt in the condensed consolidated statements of operations.

As of March 31, 2024 and December 31, 2023, the amount outstanding under the First Lien Term Loan was $925,000 and 901,201, respectively. As of March 31, 2024 and December 31, 2023, the interest rate on the First Lien Term Loan was 8.33% and 8.46%, respectively.

The Amended and Restated First Lien Credit Agreement requires us to maintain compliance with a First Lien Net Leverage Ratio. As of March 31, 2024, we were in compliance with the First Lien Net Leverage Ratio financial covenant of the Amended and Restated First Lien Credit Agreement.

Revolving Commitment

In May 2019, as a part of the Amended and Restated First Lien Credit Agreement, the Revolving Commitment was increased from $50,000 to $75,000. We had the option of selecting either a Base Rate interest rate plus a variable margin based on our First Lien Net Leverage Ratio (ranging from 2.0% to 2.5%) or a Eurodollar Rate interest rate for one, two, three or six months plus a variable margin based on our First Lien Net Leverage Ratio (ranging from 3.0% to 3.5%).

In June 2021, we entered into Amendment No. 2 to our Amended and Restated First Lien Credit Agreement that (i) increased the maximum available borrowing capacity under the Revolving Commitment from $75,000 to $150,000 and (ii) extended the maturity date of the Revolving Commitment to the earliest to occur of (a) June 4, 2026, (b) the date that is six months prior to the maturity date of the First Lien Term Loan (provided that clause (b) shall not apply if the maturity date for the First Lien Term Loan is extended to a date that is at least six months after June 4, 2026, the First Lien Term Loan is refinanced having a maturity date at least six months after June 4, 2026, or the First Lien Term Loan is paid in full), (c) the date that commitments under the Revolving Commitment are permanently reduced to zero, and (d) the date of the termination of the commitments under the Revolving Commitment. The increase to the maximum available borrowing capacity was effected on the close of our initial public offering in June 2021.

In March 2024, we entered into Amendment No. 5 to our Amended and Restated First Lien Credit Agreement that consists of $150,000 to replace our existing Revolving Commitments and $150,000 in additional incremental Revolving Commitments. The amendment also updates the interest rate for these loans to SOFR or Base Rate, at our option, plus an applicable margin (2.50% for SOFR Loans or 1.50% for Base Rate Loans), subject to step-ups and step-downs based on the First Lien Net Leverage Ratio. Any unused commitment fee is also payable based on the First Lien Net Leverage Ratio. The Credit Agreement requires the Borrower to maintain a Rent Adjusted Total Net Leverage Ratio no greater than 6.50 to 1.00, tested quarterly beginning with the quarter ending September 30, 2024, for the benefit of lenders holding the Revolving Commitments. The Amendment also extends the time in which we can draw revolving loans under the Revolving Commitments until the earliest of March 2029.

As of March 31, 2024 and December 31, 2023, there were no amounts outstanding under the Revolving Commitments.

The maximum available borrowing capacity under the Revolving Commitments is reduced by outstanding letters of credit under the Revolving Commitments. As of March 31, 2024 and December 31, 2023, the available borrowing capacity under the Revolving Commitments was $299,716 and $149,193, respectively.

In addition, an unused commitment fee based on our First Lien Net Leverage Ratio is payable on the average of the unused borrowing capacity under the Revolving Commitments. As of March 31, 2024 and December 31, 2023, the unused commitment fee was 0.25%.

Standby Letters of Credit

As of March 31, 2024, we have a letter of credit sublimit of $90,000 under the Revolving Commitments, provided that the total utilization of revolving commitments under the Revolving Commitment does not exceed $300,000. Any letter of credit issued under the Amended and Restated Credit Agreement has an expiration date which is the earlier of (i) no later than 12 months from the date of issuance or (ii) five business days prior to the maturity date of the Revolving Commitments, as amended under Amendment No. 2 to the Amended and Restated First Lien Credit Agreement. Letters of credit under the Revolving Commitments reduce the maximum available borrowing capacity under the Revolving Commitment. As of March 31, 2024 and December 31, 2023, the amounts associated with outstanding letters of credit were $284 and $807, respectively.

9. Fair Value Measurements

The following table presents financial liabilities which are measured at fair value on a recurring basis as of March 31, 2024:


	Fair Value Measurements
	Total		Level 1		Level 2		Level 3
Assets:
Deferred compensation plan	$	5,922	$	5,922	$	-	$	-
Liabilities:
Deferred compensation plan	$	4,097	$	4,097	$	-	$	-
Contingent Consideration	$	4,750	$	-	$	-	$	4,750

The following table presents financial liabilities which are measured at fair value on a recurring basis as of December 31, 2023:


	Fair Value Measurements
	Total		Level 1		Level 2		Level 3
Assets:
Deferred compensation plan	$	5,553	$	5,553	$	-	$	-
Liabilities:
Deferred compensation plan	$	3,961	$	3,961	$	-	$	-
Contingent Consideration	$	4,750	$	-	$	-	$	4,750

We measure the fair value of our 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.

We maintain a deferred compensation plan for a select group of our highly compensated employees, in which certain of our executive officers participate in. The plan allows eligible participants to defer up to 90% of their base salary and/or incentive plan compensation as well as any refunds from our 401(k) Plan. Participants may elect investment funds selected by the Company in whole percentages. Changes in the value of compensation deferred under these plans are recognized each period based on the fair value of the underlying measurement funds. These investment funds consist primarily of equity securities, such as common stock and mutual funds, and fixed income securities and are valued at the closing price reported on the active market on which the individual securities are traded and are classified as Level 1. These investment options do not represent actual ownership of or ownership rights in the applicable funds; they serve the purpose of valuing the account and the corresponding obligation of the Company.

As of March 31, 2024 and December 31, 2023, the fair value of our First Lien Term Loan approximated its carrying value due to the debt’s variable interest rate terms.

As of March 31, 2024 and December 31, 2023, we held no assets in cash investments.

We recognized a Level 3 contingent consideration liability in connection with the Downtowner Car Wash acquisition in December 2021. We 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 our most recent financial projection for future periods subject to earn-out payments. There are two components to the contingent consideration: a payment when we obtained the certificate of occupancy for the car wash and opened it to the public in 2023 and an annual payment

based on certain financial metrics of the acquired business. A change in the forecasted revenue or projected opening dates could result in a significantly lower or higher fair value measurement. We determined that there were no significant changes to the unobservable inputs that would have resulted in a change in fair value of this contingent consideration liability at March 31, 2024. During the three months ended March 31, 2023, a payment of $500 was made upon receipt of certificate of occupancy.

During the three months ended March 31, 2024 and 2023, there were no transfers between fair value measurement levels.

10. Leases

Balance sheet information related to leases consisted of the following for the periods presented:


		As of
	Classification	March 31, 2024		December 31, 2023
Assets
Operating	Operating right of use assets, net	$	836,528	$	833,547
Finance	Property and equipment, net		13,064		13,315
Total lease assets		$	849,592	$	846,862

Liabilities
Current
Operating	Current maturities of operating lease liability	$	44,850	$	43,979
Finance	Current maturities of finance lease liability		766		746
Long-term
Operating	Operating lease liability		810,783		809,409
Finance	Financing lease liability		13,833		14,033
Total lease liabilities		$	870,232	$	868,167

Components of total lease cost, net, consisted of the following for the periods presented:


	Three Months Ended March 31,
	2024		2023

Operating lease expense(a)	$	27,212	$	24,011
Finance lease expense
Amortization of lease assets		251		251
Interest on lease liabilities		264		276
Short-term lease expense		51		14
Variable lease expense(b)


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	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	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31
Item 4.	Controls and Procedures	31

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

Signatures		34


	As of
(Amounts in thousands, except share and per share data)	March 31, 2024		December 31, 2023
Assets
Current assets:
Cash and cash equivalents	$	10,701	$	19,047
Accounts receivable, net		6,475		6,304
Other receivables		17,693		14,714
Inventory, net		7,647		8,952
Prepaid expenses and other current assets		10,220		11,877
Total current assets		52,736		60,894

Property and equipment, net		773,230		725,121
Operating lease right of use assets, net		836,528		833,547
Other intangible assets, net		116,023		117,667
Goodwill		1,134,734		1,134,734
Other assets		12,010		9,573
Total assets	$	2,925,261	$	2,881,536

Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	33,676	$	33,641
Accrued payroll and related expenses		23,512		19,771
Other accrued expenses		31,046		38,738
Current maturities of long-term debt		6,920		–
Current maturities of operating lease liability		44,850		43,979
Current maturities of finance lease liability		766		746
Deferred revenue		33,899		32,686
Total current liabilities		174,669		169,561

Long-term portion of debt, net		913,350		897,424
Operating lease liability		810,783		809,409
Financing lease liability		13,833		14,033
Deferred tax liability		79,506		71,657
Other long-term liabilities		4,396		4,417
Total liabilities		1,996,537		1,966,501

Stockholders’ equity:
Common stock, $0.01 par value, 1,000,000,000 shares authorized, 317,835,082 and 315,192,401 shares outstanding as of March 31, 2024 and December 31, 2023, respectively		3,184		3,157
Additional paid-in capital		814,296		817,271
Retained earnings		111,244		94,607
Total stockholders’ equity		928,724		915,035
Total liabilities and stockholders’ equity	$	2,925,261	$	2,881,536


	Three Months Ended March 31,
	2024			2023
Net revenues	$	239,183		$	225,960
Cost of labor and chemicals		71,658			66,792
Other store operating expenses		96,803			89,466
General and administrative		29,710			24,183
Gain on sale of assets		(1,533	)		(63	)
Total costs and expenses		196,638			180,378
Operating income		42,545			45,582

Other (income) expense:
Interest expense, net		20,024			17,748
Loss on extinguishment of debt		1,882			-
Other income		(5,189	)		-
Total other expense, net		16,717			17,748
Income before taxes		25,828			27,834
Income tax provision		9,191			6,698
Net income	$	16,637		$	21,136

Net income per share:
Basic	$	0.05		$	0.07
Diluted	$	0.05		$	0.06
Weighted-average common shares outstanding:
Basic		315,838,788			307,291,909
Diluted		330,012,144			327,608,266


	Three Months Ended March 31,
	2024			2023
Cash flows from operating activities:
Net income	$	16,637		$	21,136
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense		19,595			17,307
Stock-based compensation expense		6,246			5,361
Gain on sale of assets, net		(1,533	)		(63	)
Loss on extinguishment of debt		1,882			-
Amortization of debt issuance costs		410			419
Non-cash lease expense		11,917			10,739
Deferred income tax		7,849			5,428
Changes in assets and liabilities:
Accounts receivable, net		(172	)		3,009
Other receivables		(4,096	)		1,128
Inventory, net		1,305			946
Prepaid expenses and other current assets		1,703			1,850
Accounts payable		2,344			2,553
Accrued expenses		3,615			5,155
Deferred revenue		1,214			1,114
Operating lease liability		(10,499	)		(9,696	)
Other noncurrent assets and liabilities		(427	)		631
Net cash provided by operating activities	$	57,990		$	67,017

Cash flows from investing activities:
Purchases of property and equipment		(81,844	)		(72,059	)
Proceeds from sale of property and equipment		4,900			8,899
Net cash used in investing activities	$	(76,944	)	$	(63,160	)

Cash flows from financing activities:
Proceeds from issuance of common stock under employee plans		729			1,055
Payments for repurchases of common stock		(9,924	)		-
Proceeds from debt borrowings		925,000			-
Proceeds from revolving line of credit		23,000			-
Payments on debt borrowings		(901,201	)		-
Payments on revolving line of credit		(23,000	)		-
Payments of deferred financing costs		(3,772	)		-
Principal payments on finance lease obligations		(180	)		(161	)
Net cash provided by financing activities	$	10,652		$	894

Net change in cash and cash equivalents and restricted cash during period		(8,302	)		4,751
Cash and cash equivalents and restricted cash at beginning of period		19,119			65,222
Cash and cash equivalents and restricted cash at end of period	$	10,817		$	69,973

Reconciliation of cash, cash equivalents, and restricted cash to the condensed consolidated balance sheets
Cash and cash equivalents	$	10,701		$	69,903
Restricted cash, included in prepaid expenses and other current assets		116			70
Total cash, cash equivalents, and restricted cash	$	10,817		$	69,973

Supplemental disclosure of cash flow information:
Cash paid for interest	$	19,233		$	11,697
Cash paid for income taxes	$	264		$	151

Supplemental disclosure of non-cash investing and financing activities:
Property and equipment in accounts payable	$	15,596		$	11,993
Property and equipment in other accrued expenses	$	4,234		$	5,969
Payment of debt financing costs in other accrued expenses	$	1,503		$	-
Stock option exercise proceeds in other receivables	$	-		$	61


☒	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			Retained Earnings		Stockholders’ Equity
	Shares			Amount
Balance as of December 31, 2023		315,192,401		$	3,157		$	817,271		$	94,607	$	915,035
Stock-based compensation expense		—			—			6,246			—		6,246
Vesting of restricted stock units		139,409			1			(1	)		—		–
Exercise of stock options		4,116,291			42			704			—		746
Shares repurchased		(1,613,019	)		(16	)		(9,924	)		—		(9,940	)
Net income		—			—			—			16,637		16,637
Balance as of March 31, 2024		317,835,082		$	3,184		$	814,296		$	111,244	$	928,724