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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended March 31, 2024

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: 001-40542

 

Mister Car Wash, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

47-1393909

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

222 E. 5th Street

Tucson, Arizona

85705

(Address of principal executive offices)

(Zip Code)

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

 

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

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common stock, par value $0.01 per share

 

MCW

 

New York Stock Exchange

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

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

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

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-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 April 30, 2024, the registrant had 319,509,183 shares of common stock, $0.01 par value per share, outstanding.

 

 

 


 

Table of Contents

 

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

 

1


 

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 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:

An overall decline in the health of the economy and other factors impacting consumer spending, such as natural disasters, the occurrence of a recession, growing inflation and worsening in economic conditions may affect consumer purchases and reduce demand for our services.
Our ability to attract new customers, retain existing customers and maintain or grow the number of Unlimited Wash Club ® (“UWC”) Members.
If we are unable to compete successfully against other companies and operators in our industry, including our ability to acquire, open and operate new locations in a timely and cost-effective manner, we may lose customers and market share and our revenues may decline
We may not be able to successfully implement our growth strategies on a timely basis or at all.
We are subject to a number of risks and regulations related to credit card and debit card payments we accept.
Supply chain disruption and other increased operating costs could materially and adversely affect our results of operations.
Our locations may experience difficulty hiring and retaining key or sufficient qualified personnel or increases in labor costs.
We lease or sublease the land and buildings where a number of our locations are situated, which could expose us to possible liabilities and losses.
Our indebtedness could adversely affect our financial health and competitive position.
Our business is subject to various laws and regulations, including environmental, and changes in such laws and regulations, or failure to comply with existing or future laws and regulations, or failure to comply with existing or future laws and regulations, could adversely affect our business.
We are subject to data security and privacy risks that could negatively impact our results of operations or reputation.
We may be unable to adequately protect, and we may incur significant costs in enforcing or defending, our intellectual property and other proprietary rights.
Our stock price may be volatile or may decline regardless of our operating performance, resulting in substantial losses for investors purchasing shares of our common stock.

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.

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

 

 (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

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

3


 

Mister Car Wash, Inc.

Condensed Consolidated Statements of Operations

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

(Unaudited)

 

 

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

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

4


 

Mister Car Wash, Inc.

Condensed Consolidated Statements of Cash Flows

(Amounts in thousands)

(Unaudited)

 

 

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

 

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)

 

Three Months Ended March 31, 2024

 

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

 

 

 

 

 

Three Months Ended March 31, 2023

 

Common Stock

 

 

Additional Paid-in Capital

 

 

Retained Earnings

 

 

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

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

6


 

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., a Delaware corporation, together with its subsidiaries (collectively, the Company), is based in Tucson, Arizona and is a provider of conveyorized car wash services. We primarily operate Express Exterior Locations, which offer express exterior cleaning services along with free vacuum services, and interior cleaning services at select locations. As of March 31, 2024, we operated 482 car washes in 21 states.

 

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.

 

 

7


 

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

 

 

8


 

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.

9


 

 

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.

10


 

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

 

 

5. Goodwill

Goodwill consisted of the following for the periods presented:

 

 

As of

 

 

March 31, 2024

 

 

December 31, 2023

 

Balance at beginning of period

$

1,134,734

 

 

$

1,109,815

 

   Current period acquisitions

 

-

 

 

 

24,919

 

Balance at end of period

$

1,134,734

 

 

$

1,134,734

 

 

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:

11


 

As of

 

March 31, 2024

 

 

December 31, 2023

 

Utilities

$

5,994

 

 

$

6,130

 

Accrued other tax expense

 

 

7,696

 

 

 

9,482

 

Insurance expense

 

 

5,055

 

 

 

4,355

 

Greenfield development accruals

 

 

4,234

 

 

 

13,343

 

Other

 

 

8,067

 

 

 

5,428

 

   Total other accrued expenses

 

$

31,046

 

 

$

38,738

 

 

Greenfield development accruals represent an obligation to pay for invoices not yet received, primarily related to land and buildings and improvements, on properties which we have taken control of as of March 31, 2024 and December 31, 2023.

 

7. Income Taxes

The effective income tax rates on continuing operations for the three months ended March 31, 2024 and 2023 were 35.6% and 24.1%, respectively. In general, the effective tax rates differed from the U.S. federal statutory income tax rate primarily due to state income taxes, non-deductible expenses such as those related to certain executive compensation, and other discrete tax benefits recorded during the period.

The year-to-date provision for income taxes for the three months ended March 31, 2024 included taxes on earnings at an anticipated annual effective tax rate of 25.6% and a net, unfavorable tax impact of $2,585 related primarily to discrete tax expense originating from stock options exercised during the three months ended March 31, 2024.

The year-to-date provision for income taxes for the three months ended March 31, 2023 included taxes on earnings at an anticipated annual effective tax rate of 25.3% and a net, favorable tax impact of $340 related primarily to discrete tax benefits originating from stock options exercised during the three months ended March 31, 2023.

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 U.S. research activities. Also in 2022, the Inflation Reduction Act (“IRA”) of 2022 was signed into law. The IRA created 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 became effective for the 2023 tax year and after initial evaluation, and similar to the prior quarter, we do not currently expect these laws to have a material effect on the consolidated financial statements.

 

For the three months ended March 31, 2024 and 2023, we recorded $219 and $0 related to unrecognized tax benefits or interest and penalties related to any uncertain tax positions.

 

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

 

 

12


 

 

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.

 

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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

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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

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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)