UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer |
(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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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 July 31, 2024, the registrant had
Table of Contents
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2 |
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PART I. |
FINANCIAL INFORMATION |
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Item 1. |
Financial Statements (Unaudited) |
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3 |
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4 |
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5 |
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6 |
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7 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
21 |
Item 3. |
30 |
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Item 4. |
30 |
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PART II. |
OTHER INFORMATION |
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Item 1. |
31 |
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Item 1A. |
31 |
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Item 2. |
31 |
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Item 3. |
31 |
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Item 4. |
31 |
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Item 5. |
31 |
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Item 6. |
32 |
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33 |
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:
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)
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As of |
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(Amounts in thousands, except share and per share data) |
June 30, 2024 |
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December 31, 2023 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
$ |
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$ |
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Accounts receivable, net |
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Other receivables |
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Inventory, net |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Operating lease right of use assets, net |
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Other intangible assets, net |
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Goodwill |
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Other assets |
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Total assets |
$ |
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$ |
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Liabilities and stockholders’ equity |
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Current liabilities: |
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Accounts payable |
$ |
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$ |
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Accrued payroll and related expenses |
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Other accrued expenses |
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Current maturities of long-term debt |
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Current maturities of operating lease liability |
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Current maturities of finance lease liability |
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Deferred revenue |
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Total current liabilities |
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Long-term portion of debt, net |
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Operating lease liability |
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Financing lease liability |
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Deferred tax liability |
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Other long-term liabilities |
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Total liabilities |
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Stockholders’ equity: |
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Common stock, $ |
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Additional paid-in capital |
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Retained earnings |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
$ |
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$ |
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See accompanying notes to condensed consolidated financial statements.
3
Mister Car Wash, Inc.
Condensed Consolidated Statements of Operations
(Amounts in thousands, except share and per share data)
(Unaudited)
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Three Months Ended June 30, |
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Six Months Ended June 30, |
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2024 |
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2023 |
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2024 |
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2023 |
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Net revenues |
$ |
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$ |
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$ |
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$ |
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Cost of labor and chemicals |
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Other store operating expenses |
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General and administrative |
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(Gain) loss on sale of assets, net |
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( |
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( |
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Total costs and expenses |
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Operating income |
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Other (income) expense: |
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Interest expense, net |
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Loss on extinguishment of debt |
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Other income |
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Total other expense, net |
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Income before taxes |
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Income tax provision |
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Net income |
$ |
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$ |
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$ |
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$ |
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Net income per share: |
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Basic |
$ |
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$ |
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$ |
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$ |
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Diluted |
$ |
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$ |
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$ |
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$ |
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Weighted-average common shares outstanding: |
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Basic |
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Diluted |
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See accompanying notes to condensed consolidated financial statements.
4
Mister Car Wash, Inc.
Condensed Consolidated Statements of Cash Flows
(Amounts in thousands)
(Unaudited)
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Six Months Ended June 30, |
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2024 |
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2023 |
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Cash flows from operating activities: |
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Net income |
$ |
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$ |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization expense |
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Stock-based compensation expense |
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(Gain) loss on sale of assets, net |
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( |
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Loss on extinguishment of debt |
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Amortization of debt issuance costs |
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Non-cash lease expense |
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Deferred income tax |
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Changes in assets and liabilities: |
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Accounts receivable, net |
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( |
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Other receivables |
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( |
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( |
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Inventory, net |
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Prepaid expenses and other current assets |
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Accounts payable |
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Accrued expenses |
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Deferred revenue |
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Operating lease liability |
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( |
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( |
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Other noncurrent assets and liabilities |
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Net cash provided by operating activities |
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Cash flows from investing activities: |
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Purchases of property and equipment |
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Acquisition of car wash operations, net of cash acquired |
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Proceeds from sale of property and equipment |
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Net cash used in investing activities |
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Cash flows from financing activities: |
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Proceeds from issuance of common stock under employee plans |
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Payments of tax withholding on option exercises |
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Proceeds from debt borrowings |
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Proceeds from revolving line of credit |
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Payments on debt borrowings |
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( |
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Payments on revolving line of credit |
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Payments of deferred financing costs |
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( |
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Principal payments on finance lease obligations |
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( |
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Net cash provided by financing activities |
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Net change in cash and cash equivalents and restricted cash during period |
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Cash and cash equivalents and restricted cash at beginning of period |
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Cash and cash equivalents and restricted cash at end of period |
$ |
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$ |
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Reconciliation of cash, cash equivalents, and restricted cash to the condensed consolidated balance sheets |
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Cash and cash equivalents |
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Restricted cash, included in prepaid expenses and other current assets |
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Total cash, cash equivalents, and restricted cash |
$ |
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$ |
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Supplemental disclosure of cash flow information: |
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Cash paid for interest |
$ |
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$ |
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Cash paid for income taxes |
$ |
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$ |
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Supplemental disclosure of non-cash investing and financing activities: |
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Property and equipment in accounts payable |
$ |
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$ |
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Property and equipment in other accrued expenses |
$ |
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$ |
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Proceeds from sale of property and equipment in other receivables |
$ |
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$ |
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Payment of debt financing costs in other accrued expenses |
$ |
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$ |
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Stock option exercise proceeds in other receivables |
$ |
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$ |
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See accompanying notes to 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)
Six Months Ended June 30, 2024
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Common Stock |
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Additional Paid-in Capital |
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Retained Earnings |
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Stockholders’ Equity |
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Shares |
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Amount |
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Balance as of December 31, 2023 |
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$ |
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$ |
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$ |
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$ |
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Stock-based compensation expense |
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— |
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— |
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— |
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Vesting of restricted stock units |
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( |
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— |
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— |
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Exercise of stock options |
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— |
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Tax withholding on option exercises |
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( |
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( |
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( |
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— |
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( |
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Net income |
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— |
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— |
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— |
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Balance as of March 31, 2024 |
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$ |
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$ |
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$ |
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$ |
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Stock-based compensation expense |
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— |
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— |
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— |
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Issuance of common stock under employee plans |
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— |
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Vesting of restricted stock units |
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( |
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— |
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— |
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Exercise of stock options |
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— |
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Tax withholding on option exercises |
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( |
) |
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( |
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( |
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— |
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( |
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Net income |
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— |
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— |
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— |
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Balance as of June 30, 2024 |
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$ |
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$ |
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$ |
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$ |
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Six Months Ended June 30, 2023
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Common Stock |
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Additional Paid-in Capital |
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Retained Earnings |
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Stockholders’ Equity |
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Shares |
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Amount |
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Balance as of December 31, 2022 |
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$ |
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$ |
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$ |
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$ |
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Stock-based compensation expense |
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— |
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— |
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— |
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Vesting of restricted stock units |
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— |
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— |
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— |
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— |
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Exercise of stock options |
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— |
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Net income |
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— |
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— |
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— |
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Balance as of March 31, 2023 |
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$ |
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$ |
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$ |
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$ |
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Stock-based compensation expense |
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— |
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— |
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— |
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Issuance of common stock under employee plans |
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— |
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Vesting of restricted stock units |
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( |
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— |
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— |
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Exercise of stock options |
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— |
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Net income |
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— |
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— |
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— |
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Balance as of June 30, 2023 |
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$ |
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$ |
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$ |
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$ |
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See accompanying notes to 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, “we,” “us,” “our” or 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
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements as of June 30, 2024 and for the three and six months ended June 30, 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 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 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 condensed consolidated financial statements contain all adjustments which are necessary for a fair presentation of our consolidated financial position as of June 30, 2024, consolidated results of operations for the three and six months ended June 30, 2024 and 2023, and consolidated cash flows for the six months ended June 30, 2024 and 2023. Such adjustments are of a normal and recurring nature. The consolidated results of operations for the three and six months ended June 30, 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 condensed consolidated financial statements include the accounts of the Company. All material intercompany balances and transactions have been eliminated in consolidation.
Reclassification
Within the condensed consolidated financial statements certain immaterial amounts have been reclassified to conform with current period presentation. We reclassified Restricted cash of $
Use of Estimates
The preparation of the 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 $
7
Other Receivables
Other receivables consisted of the following for the periods presented:
|
As of |
|
|||||
|
June 30, 2024 |
|
|
December 31, 2023 |
|
||
Construction receivable |
$ |
|
|
$ |
|
||
Income tax receivable |
|
|
|
|
|
||
Insurance receivable |
|
|
|
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|
||
Employee retention credit receivable |
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|
||
Other |
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|
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|
||
Total other receivables |
|
|
|
|
|
Inventory, Net
Inventory consisted of the following for the periods presented:
|
As of |
|
|||||
|
June 30, 2024 |
|
|
December 31, 2023 |
|
||
Chemical washing solutions |
$ |
|
|
$ |
|
||
Reserve for obsolescence |
|
( |
) |
|
|
( |
) |
Total inventory, net |
$ |
|
|
$ |
|
The activity in the reserve for obsolescence was immaterial for the three and six months ended June 30, 2024 and 2023.
Revenue Recognition
The following table summarizes the composition of our net revenues for the periods presented:
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Recognized over time |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Recognized at a point in time |
|
|
|
|
|
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|
|
|
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|
||||
Other revenue |
|
|
|
|
|
|
|
|
|
|
|
||||
Net revenues |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
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.
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Numerator: |
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|
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|
||||
Net income |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
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|
||||
Denominator: |
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||||
Weighted-average common shares outstanding - basic |
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|
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Effect of potentially dilutive securities: |
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Stock options |
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|
||||
Restricted stock units |
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|
||||
Employee stock purchase plan |
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|
||||
Weighted-average common shares outstanding - diluted |
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|
||||
|
|
|
|
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|
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|
|
|
|
|
||||
Net income per share - basic |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Net income per share - diluted |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
8
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 June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Stock options |
|
|
|
|
|
|
|
|
|
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|
||||
Restricted stock units |
|
|
|
|
|
|
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|
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|
||||
Employee stock purchase plan |
|
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|
|
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|
|
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, we determined that we qualify for $
Recent Accounting Pronouncements
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 periods presented. The adoption of this ASU is not expected to have a material impact on 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.
9
3. Property and Equipment, Net
Property and equipment, net consisted of the following for the periods presented:
|
As of |
|
|||||
|
June 30, 2024 |
|
|
December 31, 2023 |
|
||
Land |
$ |
|
|
$ |
|
||
Buildings and improvements |
|
|
|
|
|
||
Finance leases |
|
|
|
|
|
||
Leasehold improvements |
|
|
|
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|
||
Vehicles and equipment |
|
|
|
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|
||
Furniture, fixtures and equipment |
|
|
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|
|
||
Construction in progress |
|
|
|
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|
||
Property and equipment, gross |
|
|
|
|
|
||
Less: accumulated depreciation |
|
( |
) |
|
|
( |
) |
Less: accumulated amortization - finance leases |
|
( |
) |
|
|
( |
) |
Property and equipment, net |
$ |
|
|
$ |
|
For the three months ended June 30, 2024 and 2023, depreciation expense was $
For the three months ended June 30, 2024 and 2023, amortization expense on finance leases was $
4. Other Intangible Assets, Net
Other intangibles assets, net consisted of the following as of the periods presented:
|
June 30, 2024 |
|
|
December 31, 2023 |
|
||||||||||
|
Gross Carrying Amount |
|
|
Accumulated Amortization |
|
|
Gross Carrying Amount |
|
|
Accumulated Amortization |
|
||||
Trade names and Trademarks |
$ |
|
|
$ |
|
|
$ |
|
|
|
|
||||
CPC Unity System |
|
|
|
|
|
|
|
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|
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|
||||
Customer relationships |
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|
||||
Covenants not to compete |
|
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|
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|
|
|
|
|
||||
Other intangible assets, net |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
For the three months ended June 30, 2024 and 2023, amortization expense associated with our finite-lived intangible assets was $
As of June 30, 2024, estimated future amortization expense was as follows:
Fiscal Year Ending: |
|
|
|
|
|
2024 (remaining six months) |
|
|
$ |
|
|
2025 |
|
|
|
|
|
2026 |
|
|
|
|
|
2027 |
|
|
|
|
|
2028 |
|
|
|
|
|
Thereafter |
|
|
|
|
|
Total estimated future amortization expense |
|
|
$ |
|
5. Goodwill
Goodwill consisted of the following for the periods presented:
|
As of |
|
|||||
|
June 30, 2024 |
|
|
December 31, 2023 |
|
||
Balance at beginning of period |
$ |
|
|
$ |
|
||
Current period acquisitions |
|
|
|
|
|
||
Balance at end of period |
$ |
|
|
$ |
|
Goodwill is generally deductible for tax purposes, except for the portion related to purchase accounting step-up goodwill.
10
6. Other Accrued Expenses
Other accrued expenses consisted of the following for the periods presented:
|
|
As of |
|
|||||
|
|
June 30, 2024 |
|
|
December 31, 2023 |
|
||
Utilities |
|
$ |
|
|
$ |
|
||
Accrued other tax expense |
|
|
|
|
|
|
||
Insurance expense |
|
|
|
|
|
|
||
Greenfield development accruals |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Total other accrued expenses |
|
$ |
|
|
$ |
|
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 June 30, 2024 and December 31, 2023.
7. Income Taxes
The effective income tax rates on continuing operations for the six months ended June 30, 2024 and 2023 were
The year-to-date provision for income taxes for the six months ended June 30, 2024 included taxes on earnings at an anticipated annual effective tax rate of
The year-to-date provision for income taxes for the six months ended June 30, 2023 included taxes on earnings at an anticipated annual effective tax rate of
On August 9, 2022, the Creating Helpful Incentives to Produce Semiconductors (“CHIPS”) Act of 2022 was signed into law. The CHIPS Act is designed to boost domestic semiconductor manufacturing and encourage 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 six months ended June 30, 2024 and 2023, we recorded $
8. Debt
Long-term debt consisted of the following as of the periods presented:
|
As of |
|
|||||
|
June 30, 2024 |
|
|
December 31, 2023 |
|
||
First lien term loan |
$ |
|
|
$ |
|
||
Revolving line of credit |
|
|
|
|
|
||
Total debt |
|
|
|
|
|
||
Less: unamortized discount and debt issuance costs |
|
( |
) |
|
|
( |
) |
Less: current maturities of long-term debt |
|
( |
) |
|
|
|
|
Total long-term portion of debt, net |
$ |
|
|
$ |
|
11
As of June 30, 2024, annual maturities of debt were as follows:
Fiscal Year Ending: |
|
|
|
|
|
2024 (remaining six months) |
|
|
$ |
|
|
2025 |
|
|
|
|
|
2026 |
|
|
|
|
|
2027 |
|
|
|
|
|
2028 |
|
|
|
|
|
Thereafter |
|
|
|
|
|
Total maturities of debt |
|
|
$ |
|
As of June 30, 2024 and December 31, 2023, unamortized discount and debt issuance costs were $
For the three months ended June 30, 2024 and 2023, the amortization of debt issuance costs in interest expense, net in the condensed consolidated statements of operations was approximately $
For the six months ended June 30, 2024 and 2023, the amortization of debt issuance costs in interest expense, net in the condensed consolidated statements of operations was approximately $
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.
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 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 $
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 $
12
expensed $
As of June 30, 2024 and December 31, 2023, the amount outstanding under the First Lien Term Loan was $
The Amended and Restated First Lien Credit Agreement requires us to maintain compliance with a First Lien Net Leverage Ratio. As of June 30, 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 $
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 $
In March 2024, we entered into Amendment No. 5 to our Amended and Restated First Lien Credit Agreement to increase our borrowing capacity from $
As of June 30, 2024 and December 31, 2023, the amount outstanding under the Revolving Commitments was $
The maximum available borrowing capacity under the Revolving Commitments is reduced by outstanding letters of credit under the Revolving Commitments. As of June 30, 2024 and December 31, 2023, the available borrowing capacity under the Revolving Commitments was $
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 June 30, 2024 and December 31, 2023, the unused commitment fee was
Standby Letters of Credit
As of June 30, 2024, we have a letter of credit sublimit of $
9. Fair Value Measurements
The following table presents financial liabilities which are measured at fair value on a recurring basis as of June 30, 2024:
13
|
Fair Value Measurements |
|
|||||||||||||
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
||||
Deferred compensation plan |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
||||
Deferred compensation plan |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Contingent consideration |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
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 |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
||||
Deferred compensation plan |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Contingent consideration |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
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 certain group of our highly compensated employees, in which certain of our executive officers participate in.
As of June 30, 2
As of June 30, 2024 and December 31, 2023, we held
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
During the three and six months ended June 30, 2
14
10. Leases
Balance sheet information related to leases consisted of the following for the periods presented:
|
|
|
|
As of |
|
|||||
|
|
Classification |
|
June 30, 2024 |
|
|
December 31, 2023 |
|
||
Assets |
|
|
|
|
|
|
|
|
||
Operating |
|
Operating right of use assets, net |
|
$ |
|
|
$ |
|
||
Finance |
|
|
|
|
|
|
|
|||
Total lease assets |
|
|
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
|
|
||
Liabilities |
|
|
|
|
|
|
|
|
||
Current |
|
|
|
|
|
|
|
|
||
Operating |
|
Current maturities of operating lease liability |
|
$ |
|
|
$ |
|
||
Finance |
|
Current maturities of finance lease liability |
|
|
|
|
|
|
||
Long-term |
|
|
|
|
|
|
|
|
||
Operating |
|
Operating lease liability |
|
|
|
|
|
|
||
Finance |
|
Financing lease liability |
|
|
|
|
|
|
||
Total lease liabilities |
|
|
|
$ |
|
|
$ |
|
Components of total lease cost, net, consisted of the following for the periods presented:
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Operating lease expense (a) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Finance lease expense |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Amortization of lease assets |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest on lease liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Short-term lease expense |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Variable lease expense (b) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
The following includes supplemental information for the periods presented:
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Operating cash flows from operating leases |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Operating cash flows from finance leases |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Financing cash flows from finance leases |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Operating lease ROU assets obtained in exchange for lease liabilities |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted-average remaining operating lease term |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted-average remaining finance lease term |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted-average operating lease discount rate |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
||||
Weighted-average finance lease discount rate |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
15
As of June 30, 2024, lease obligation maturities were as follows:
Fiscal Year Ending: |
|
Operating Leases |
|
|
Finance Leases |
|
||
2024 (remaining six months) |
|
$ |
|
|
$ |
|
||
2025 |
|
|
|
|
|
|
||
2026 |
|
|
|
|
|
|
||
2027 |
|
|
|
|
|
|
||
2028 |
|
|
|
|
|
|
||
Thereafter |
|
|
|
|
|
|
||
Total future minimum obligations |
|
$ |
|
|
$ |
|
||
Less: Present value discount |
|
|
( |
) |
|
|
( |
) |
Present value of net future minimum lease obligations |
|
$ |
|
|
$ |
|
||
Less: current portion |
|
|
( |
) |
|
|
( |
) |
Long-term obligations |
|
$ |
|
|
$ |
|
Forward-Starting Leases
As of June 30, 2024, we entered into
As of December 31, 2023, we entered into
Sale-Leaseback Transactions
During the three months ended June 30, 2024 and 2023, we completed
During the six months ended June 30, 2024 and 2023, we completed
11. Stockholders’ Equity
As of June 30, 2024, there were
As of December 31, 2023, there were
As of June 30, 2024 and December 31, 2023, there were
During the six months ended June 30, 2024, we withheld a total of
We use the cost method to account for treasury stock. As of June 30, 2024 and December 31, 2023, we had
12. Stock-Based Compensation
We recognize stock-based compensation expense associated with stock options and restricted stock units ("RSUs"), and stock purchase rights. Stock options and RSUs are granted under the 2014 Stock Option Plan of Hotshine Holdings, Inc. (the “2014 Plan”) and 2021 Incentive Award Plan (the “2021 Plan”) while stock purchase rights are granted under the 2021 Employee Stock Purchase Plan (“2021 ESPP”).
Refer to our 2023 Form 10-K for additional details on employee stock incentive plans.
16
Share-Based Payment Valuation
The grant date fair value of Time Vesting Options granted is determined using the Black-Scholes option-pricing model. The grant date fair value of Performance Vesting Options is determined using a Monte Carlo simulation model and a barrier-adjusted Black-Scholes option-pricing model. The grant date fair value of stock purchase rights granted under the 2021 ESPP is determined using the Black-Scholes option-pricing model.
2021 ESPP
The following table presents, on a weighted-average basis, the assumptions used in the Black-Scholes option-pricing model to determine the grant date fair value of stock purchase rights granted under the 2021 ESPP during the periods presented:
|
Six Months Ended June 30, |
||
|
2024 |
|
2023 |
Expected volatility |
|
||
Risk-free interest rate |
|
||
Expected term (in years) |
|
||
Expected dividend yield |
|
Time Vesting Options
The following table presents, on a weighted-average basis, the assumptions used in the Black-Scholes option-pricing model to determine the grant date fair value of Time Vesting Options granted under the 2021 Plan during the periods presented:
|
Six Months Ended June 30, |
||
|
2024 |
|
2023 |
Expected volatility |
|
||
Risk-free interest rate |
|
||
Expected term (in years) |
|
||
Expected dividend yield |
|
Stock Options
A summary of our stock option activity during the period presented is as follows:
|
Time Vesting Options |
|
|
Performance Vesting Options |
|
|
Total Number of Stock Options |
|
|
Weighted-Average Exercise Price |
|
||||
Outstanding as of December 31, 2023 |
|
|
|
|
|
|
|
|
|
$ |
|
||||
Granted |
|
|
|
|
|
|
|
|
|
$ |
|
||||
Exercised |
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
$ |
|
|
Forfeited |
|
( |
) |
|
|
|
|
|
( |
) |
|
$ |
|
||
Outstanding as of June 30, 2024 |
|
|
|
|
|
|
|
|
|
$ |
|
||||
Options vested or expected to vest as of June 30, 2024 |
|
|
|
|
|
|
|
|
|
$ |
|
||||
Options exercisable as of June 30, 2024 |
|
|
|
|
|
|
|
|
|
$ |
|
The number and weighted-average grant date fair value of stock options during the period presented are as follows:
|
Number of Stock Options |
|
Weighted-Average |
||||||||
|
Time Vesting Options |
|
|
Performance Vesting Options |
|
Time Vesting Options |
|
|
Performance Vesting Options |
||
Non-vested as of December 31, 2023 |
|
|
|
|
$ |
|
|
||||
Non-vested as of June 30, 2024 |
|
|
|
|
$ |
|
|
||||
Granted during the period |
|
|
|
|
$ |
|
|
||||
Vested during the period |
|
|
|
|
$ |
|
|
||||
Forfeited/canceled during the period |
|
|
|
|
$ |
|
|
We granted
The fair value of shares attributable to stock options that vested during the six months ended June 30, 2024 was $
As of June 30, 2024, the weighted-average remaining contractual life of outstanding stock options was approximately
17
Restricted Stock Units
A summary of
|
Restricted Stock Units |
|
|
Weighted-Average Grant Date Fair Value |
|
||
Unvested as of December 31, 2023 |
|
|
|
$ |
|
||
Granted |
|
|
|
$ |
|
||
Vested |
|
( |
) |
|
$ |
|
|
Forfeited |
|
( |
) |
|
$ |
|
|
Unvested as of June 30, 2024 |
|
|
|
$ |
|
We granted
The fair value of shares attributable to RSUs that vested during the six months ended June 30, 2024 was $
As of June 30, 2024, the weighted-average remaining contractual life of outstanding RSUs was approximately
Stock-Based Compensation Expense
We estimated a forfeiture rate of
Total stock-based compensation expense, by caption, recorded in the condensed consolidated statements of operations for the periods presented is as follows:
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Cost of labor and chemicals |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
General and administrative |
|
|
|
|
|
|
|
|
|
|
|
||||
Total stock-based compensation expense |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
Total stock-based compensation expense, by award type, recorded in the condensed consolidated statements of operations for the periods presented is as follows:
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Time Vesting Options |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
RSUs |
|
|
|
|
|
|
|
|
|
|
|
||||
2021 ESPP |
|
|
|
|
|
|
|
|
|
|
|
||||
Total stock-based compensation expense |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
As of June 30, 2024, total unrecognized compensation expense related to unvested Time Vesting Options was $
As of June 30, 2024, there was
As of June 30, 2024, total unrecognized compensation expense related to unvested RSUs was $
As of June 30, 2024, total unrecognized compensation expense related to unvested stock purchase rights under the 2021 ESPP was $
13. Business Combinations
From time to time, we may pursue acquisitions of conveyorized car washes that either strategically fit with the business or expand our presence in new and attractive markets.
We account for business combinations under the acquisition method of accounting. The assets acquired and liabilities assumed in connection with business acquisitions are recorded at the date of acquisition at their estimated fair values, with any excess of the purchase price over the estimated fair values of the net assets acquired and intangible assets assigned, recorded as goodwill. Significant judgment is required in estimating the fair value of assets acquired and liabilities assumed and in assigning their respective useful lives. Accordingly, we may engage third-party valuation specialists to assist in these determinations. The fair value estimates are based on available historical information and on future expectations and assumptions deemed reasonable by management; but are inherently uncertain.
18
The condensed consolidated financial statements reflect the operations of an acquired business starting from the effective date of the acquisition. We expensed $
2024 Acquisitions
We did
2023 Acquisitions
For the year ended December 31, 2023, we acquired the assets and liabilities of
The acquisitions were located in the following markets:
Location (Seller) |
Number of Washes |
|
Month Acquired |
Arizona (Dynamite Car Wash) |
|
April |
|
California (Cruizers Car Wash) |
|
July |
14. Commitments and Contingencies
Litigation
From time to time, we are party to pending or threatened lawsuits arising out of or incident to the ordinary course of business. We carry professional and general liability insurance coverage and other insurance coverages. In the opinion of management and upon consultation with legal counsel, none of the pending or threatened lawsuits will have a material effect upon the consolidated financial position, operations, or cash flows of the Company.
Class Action Litigation
On February 14, 2023, a plaintiff filed a purported class action lawsuit in the Stanislaus County Superior Court, California, on behalf of all non-exempt employees employed by Defendants Prime Shine LLC, a wholly-owned subsidiary of the Company, in California any time between February 14, 2019, and the present, against Prime Shine, LLC and Does 1 – 20 inclusive. Plaintiff alleges eight claims for violations of the California Labor Code and one claim for violation of the California Business & Professions Code. On June 13, 2023, Plaintiff filed a First Amended Complaint to add a claim for penalties pursuant to the Private Attorneys General Act. Plaintiff seeks, among other things, an unspecified amount for unpaid wages, actual, consequential, and incidental losses, penalties, and attorneys’ fees and costs. The parties agreed to an informal exchange of information in lieu of formal discovery prior to mediation with an experienced wage-and-hour mediator. In October 2023, following mediation, both parties agreed to settle the lawsuit. A financial amount was accrued that was not material to our consolidated financial statements. A formal written settlement agreement has been executed by the parties and the Court granted preliminary approval of settlement. No putative class members objected or opted out of the settlement during the class action settlement notice period. The Court entered final approval of the class action settlement on July 19, 2024. By mid-2025, following the settlement funding, the court clerk is expected to administratively close the case.
Insurance
We carry a broad range of insurance coverage, including general and business auto liability, commercial property, workers’ compensation, cyber risk, and general umbrella policies. As of June 30, 2024 and December 31, 2023, we accrued $
Environmental Matters
Operations at certain facilities currently or previously owned or leased by us utilize, or in the past have utilized, hazardous substances generally in compliance with applicable law. Periodically, we have had minor claims asserted against it by regulatory agencies or private parties for environmental matters relating to the handling of hazardous substances by us, and we have incurred obligations for investigations or remedial actions with respect to certain of these matters. There can be no assurances that activities at these facilities, or future facilities owned or operated by us, may not result in additional environmental claims being asserted against us or additional
19
investigations or remedial actions being required. We are not aware of any significant remediation matters as of June 30, 2024. Because of various factors including the difficulty of identifying the responsible parties for any particular site, the complexity of determining the relative liability among them, the uncertainty as to the most desirable remediation techniques and the amount of damages and clean-up costs and the time period during which such costs may be incurred, we are unable to reasonably estimate the ultimate cost of claims asserted against us related to environmental matters; however, we do not believe such costs will be material to our condensed consolidated financial statements.
In addition to potential claims asserted against us, there are certain regulatory obligations associated with these facilities. We also have a third-party specialist to review the sites subject to these regulations annually, for the purpose of assigning future cost. A third party has conducted a preliminary assessment of site restoration provisions arising from these regulations and we have recognized a provisional amount. As of June 30, 2024 and December 31, 2023, our accrual for environmental remediation was $
20
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion and analysis of our financial condition and results of operations together with our condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and related notes included in our 2023 Form 10-K. This discussion contains forward-looking statements based upon current plans, expectations and beliefs involving risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in other parts of this Quarterly Report on Form 10-Q and in Part I, Item 1A. “Risk Factors” and in Part II. Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2023 Form 10-K.
Who We Are
Mister Car Wash, Inc. is the largest national car wash brand, primarily offering express exterior cleaning services, with interior cleaning services at select locations, across 491 car washes in 21 states as of June 30, 2024. Founded in 1996, we employ an efficient, repeatable, and scalable process, which we call the “Mister Experience,” to deliver a clean, dry, and shiny car every time. The core pillars of the “Mister Experience” are greeting every customer with a wave and smile, providing the highest quality car wash, and delivering the experience quickly and conveniently. We offer a monthly subscription program, which we call the Unlimited Wash Club® (“UWC”), as a flexible, quick, and convenient option for customers to keep their cars clean. Our scale and over 25 years of innovation allow us to drive operating efficiencies and invest in training, infrastructure, and technology that improve speed of service, quality, and sustainability and realize strong financial performance.
Factors Affecting Our Business and Trends
We believe that our business and growth depend on a number of factors that present significant opportunities for us and may involve risks and challenges, including those discussed below and in Part I, Item 1A. “Risk Factors” of our 2023 Form 10-K.
|
|
|
Growth in comparable store sales. Comparable store sales have been a driver of our net revenue growth and we expect it to continue to play a key role in our future growth and profitability. We will seek to continue to grow our comparable store sales by increasing the number of UWC Members, maximizing efficiency and throughput of our car wash locations, optimizing marketing spend to add new customers, and increasing customer visitation frequency. |
|
|
|
Number and loyalty of UWC Members. The UWC program is a critical element of our business. UWC Members contribute a significant portion of our net revenue and provide recurring revenue through their monthly membership fees. |
|
|
|
Labor management. Hiring and retaining skilled team members and experienced management represents one of our largest costs. We believe people are the key to our success and we have been able to successfully attract and retain engaged, high-quality team members by paying competitive wages, offering attractive benefit packages, and providing robust training and development opportunities. While the competition for skilled labor is intense and subject to high turnover, we believe our approach to wages and benefits will continue to allow us to attract suitable team members and management to support our growth. |
Factors Affecting the Comparability of Our Results of Operations
Our results have been affected by, and may in the future be affected by, the following factors, which must be understood in order to assess the comparability of our period-to-period financial performance and condition.
Greenfield Location Development
More recently, a component of our growth strategy has been to grow through greenfield development of Mister Car Wash locations, with particular focus on Express Exterior Locations, and we anticipate further pursuit of this strategy in the future. In the three and six months ended June 30, 2024, we successfully opened nine and 15 greenfield locations, respectively, and we expect to drive our future location growth through greenfield development. We believe such a strategy will provide a more controllable pipeline of unit growth for future locations in existing and adjacent markets.
The comparability of our results may be impacted by the inclusion of financial performance of greenfield locations that have not delivered a full fiscal year of financial results nor matured to average unit volumes, which we typically expect after approximately three full years of operation.
21
Acquisitions
We continue to employ a disciplined approach to acquisitions, carefully selecting locations that meet our criteria for a potential Mister Car Wash site. In the six months ended June 30, 2024, we did not consummate any acquisitions.
Following an acquisition, we implement a variety of operational improvements to unify branding and enhance profitability. As soon as feasible, we fully integrate and transition acquired locations to the “Mister” brand and make investments to improve site flow, upgrade tunnel equipment and technology, and install our proprietary Unity Chemical system, which is a unique blend of our signature products utilizing the newest technology and services to make a better car wash experience for our customers. We also establish member-only lanes, optimize service offerings and implement training initiatives that we have successfully utilized to improve team member engagement and drive UWC growth post-acquisition. The costs associated with these onboarding initiatives, which vary by site, can impact the comparability of our results.
The comparability of our results may also be impacted by the inclusion of financial performance of our acquisitions that have not delivered a full fiscal year of financial results under Mister Car Wash’s ownership.
See Note 13 Business Combinations to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional discussion.
Key Performance Indicators
We prepare and analyze various operating and financial data to assess the performance of our business and to help in the allocation of our resources. The key operating performance and financial metrics and indicators we use are set forth below, as of and for the three and six months ended June 30, 2024 and 2023.
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
(Dollars in thousands) |
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Financial and Operating Data |
|
|
|
|
|
|
|
|
|
|
|
||||
Location count (end of period) |
|
491 |
|
|
|
449 |
|
|
|
491 |
|
|
|
449 |
|
Comparable store sales growth |
|
2.4 |
% |
|
|
0.3 |
% |
|
|
1.6 |
% |
|
|
(0.6 |
)% |
UWC Members (in thousands, end of period) |
|
2,126 |
|
|
|
2,065 |
|
|
|
2,126 |
|
|
|
2,065 |
|
UWC sales as a percentage of total wash sales |
|
72 |
% |
|
|
69 |
% |
|
|
73 |
% |
|
|
69 |
% |
Net income |
$ |
22,091 |
|
|
$ |
27,132 |
|
|
$ |
38,728 |
|
|
$ |
48,268 |
|
Net income margin |
|
8.7 |
% |
|
|
11.5 |
% |
|
|
7.8 |
% |
|
|
10.4 |
% |
Adjusted EBITDA |
$ |
88,692 |
|
|
$ |
73,860 |
|
|
$ |
163,864 |
|
|
$ |
144,836 |
|
Adjusted EBITDA margin |
|
34.8 |
% |
|
|
31.2 |
% |
|
|
33.2 |
% |
|
|
31.3 |
% |
Location Count (end of period)
Our location count refers to the total number of car wash locations at the end of a period, inclusive of new greenfield locations, acquired locations and offset by closed locations. The total number of locations that we operate, as well as the timing of location openings, acquisitions, and closings, have, and will continue to have, an impact on our performance. In the three and six months ended June 30, 2024, we increased our location count by the nine and 15 greenfield locations, respectively, as noted above.
Our Express Exterior Locations, which offer express exterior cleaning services, comprise 426 of our current locations and our Interior Cleaning Locations, which offer both express exterior cleaning services and interior cleaning services, comprise 65 of our current locations.
Comparable Store Sales Growth
We consider a location a comparable store on the first day of the 13th full calendar month following a greenfield location’s first day of operations, or for acquired locations, the first day of the 13th full calendar month following the date of acquisition. A location converted from an Interior Cleaning Location format to an Express Exterior Location format is excluded when the location did not offer interior cleaning services in the current period but did offer interior cleaning services in the prior year period. Comparable store sales growth is the percentage change in total wash sales of all comparable store car washes.
Increasing the number of new locations is a component of our growth strategy and as we continue to execute on our growth strategy, we expect that a significant portion of our sales growth will be attributable to non-comparable store sales. Accordingly, comparable store sales are only one measure we use to assess the success of our growth strategy.
UWC Members (end of period)
22
Members of our monthly subscription service are known as Unlimited Wash Club Members, or UWC Members. We view the number of UWC Members and the growth in the number of UWC Members on a net basis from period to period as key indicators of our revenue growth. The number of UWC Members has grown over time as we have acquired new customers and retained previously acquired customers. There were approximately 2.1 million UWC Members as of June 30, 2024. UWC Members grew by approximately 3% from June 30, 2023 through June 30, 2024 and approximately 2% from December 31, 2023 through June 30, 2024.
UWC Sales as a Percentage of Total Wash Sales
UWC sales as a percentage of total wash sales represents the penetration of our subscription membership program as a percentage of our overall wash sales. Total wash sales are defined as the net revenue generated from express exterior cleaning services and interior cleaning services for both UWC Members and retail customers. UWC sales as a percentage of total wash sales is calculated as sales generated from UWC Members as a percentage of total wash sales. We have consistently grown this measure over time as we educate customers as to the value of our UWC subscription offering. UWC sales were 72% and 69% of our total wash sales for the three months ended June 30, 2024 and 2023, respectively. UWC sales were 73% and 69% of our total wash sales for the six months ended June 30, 2024 and 2023, respectively.
Adjusted EBITDA and Adjusted EBITDA Margin
Adjusted EBITDA is a non-GAAP measure of our operating performance and should not be considered as an alternative to net income as a measure of financial performance or any other performance measure derived in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”). Adjusted EBITDA is defined as net income before interest expense, net, income tax provision, depreciation and amortization expense, (gain) loss on sale of assets, stock-based compensation expense, acquisition expenses, non-cash rent expense, loss on extinguishment of debt, and other nonrecurring charges. Adjusted EBITDA margin is defined as Adjusted EBITDA divided by net revenues for a given period.
We present Adjusted EBITDA because we believe it assists investors and analysts in comparing our operating performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our ongoing operating performance. You are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis. In evaluating Adjusted EBITDA, you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in our presentation of Adjusted EBITDA. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. There can be no assurance that we will not modify the presentation of Adjusted EBITDA in future periods, and any such modification may be material. In addition, Adjusted EBITDA may not be comparable to similarly titled measures used by other companies in our industry or across different industries.
Our management believes Adjusted EBITDA is helpful in highlighting trends in our core operating performance compared to other measures, which can differ significantly depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which companies operate and capital investments. We also use Adjusted EBITDA in connection with establishing discretionary annual incentive compensation; to supplement U.S. GAAP measures of performance in the evaluation of the effectiveness of our business strategies; to make budgeting decisions; and because our Amended and Restated First Lien Credit Agreement uses measures similar to Adjusted EBITDA to measure our compliance with certain covenants.
Adjusted EBITDA has its limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under U.S. GAAP. Some of these limitations include:
|
|
|
Adjusted EBITDA does not reflect our cash expenditure or future requirements for capital expenditures or contractual commitments; |
|
|
|
Adjusted EBITDA does not reflect changes in our cash requirements for our working capital needs; |
|
|
|
Adjusted EBITDA does not reflect the interest expense and the cash requirements necessary to service interest or principal payments on our debt; |
|
|
|
Adjusted EBITDA does not reflect cash requirements for replacement of assets that are being depreciated and amortized; |
|
|
|
Adjusted EBITDA does not reflect non-cash compensation, which is a key element of our overall long-term compensation; |
|
|
|
Adjusted EBITDA does not reflect the impact of certain cash charges or cash receipts resulting from matters we do not find indicative of our ongoing operations; and |
|
|
|
other companies in our industry may calculate Adjusted EBITDA differently than we do. |
The following is a reconciliation of our net income to Adjusted EBITDA for the periods presented.
23
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
(Dollars in thousands) |
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Reconciliation of net income to adjusted EBITDA: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income |
|
$ |
22,091 |
|
|
$ |
27,132 |
|
|
$ |
38,728 |
|
|
$ |
48,268 |
|
Interest expense, net |
|
|
20,254 |
|
|
|
18,295 |
|
|
|
40,278 |
|
|
|
36,043 |
|
Income tax provision |
|
|
12,655 |
|
|
|
7,205 |
|
|
|
21,846 |
|
|
|
13,903 |
|
Depreciation and amortization expense |
|
|
20,261 |
|
|
|
16,512 |
|
|
|
39,856 |
|
|
|
33,819 |
|
(Gain) loss on sale of assets, net (a) |
|
|
2,897 |
|
|
|
(4,728 |
) |
|
|
1,364 |
|
|
|
(4,791 |
) |
Stock-based compensation expense (b) |
|
|
6,791 |
|
|
|
5,993 |
|
|
|
13,593 |
|
|
|
11,354 |
|
Acquisition expenses (c) |
|
|
548 |
|
|
|
1,280 |
|
|
|
1,113 |
|
|
|
1,739 |
|
Non-cash rent expense (d) |
|
|
1,495 |
|
|
|
1,184 |
|
|
|
2,982 |
|
|
|
2,214 |
|
Loss on extinguishment of debt |
|
|
- |
|
|
|
- |
|
|
|
1,882 |
|
|
|
- |
|
Employee retention credit (e) |
|
|
- |
|
|
|
- |
|
|
|
(5,189 |
) |
|
|
- |
|
Other (f) |
|
|
1,700 |
|
|
|
987 |
|
|
|
7,411 |
|
|
|
2,287 |
|
Adjusted EBITDA |
|
$ |
88,692 |
|
|
$ |
73,860 |
|
|
$ |
163,864 |
|
|
$ |
144,836 |
|
Net revenues |
|
$ |
255,043 |
|
|
$ |
236,894 |
|
|
$ |
494,226 |
|
|
$ |
462,854 |
|
Adjusted EBITDA margin |
|
|
34.8 |
% |
|
|
31.2 |
% |
|
|
33.2 |
% |
|
|
31.3 |
% |
The Adjusted EBITDA results in the three and six months ended June 30, 2024 when compared to the prior year period are primarily attributable to the increase in car wash sales due to growth in UWC members and the year-over-year addition of 42 locations.
24
Results of Operations for the Three Months Ended June 30, 2024 and 2023
|
|
Three Months Ended June 30, |
|
|||||||||||||
|
|
2024 |
|
|
2023 |
|
||||||||||
(Dollars in thousands) |
|
Amount |
|
|
% of Revenue |
|
|
Amount |
|
|
% of Revenue |
|
||||
Net revenues |
|
$ |
255,043 |
|
|
|
100 |
% |
|
$ |
236,894 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Store operating costs: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cost of labor and chemicals |
|
|
72,691 |
|
|
|
29 |
% |
|
|
70,824 |
|
|
|
30 |
% |
Other store operating expenses |
|
|
99,543 |
|
|
|
39 |
% |
|
|
90,337 |
|
|
|
38 |
% |
General and administrative |
|
|
24,912 |
|
|
|
10 |
% |
|
|
27,829 |
|
|
|
12 |
% |
(Gain) loss on sale of assets, net |
|
|
2,897 |
|
|
|
1 |
% |
|
|
(4,728 |
) |
|
|
(2 |
)% |
Total costs and expenses |
|
|
200,043 |
|
|
|
78 |
% |
|
|
184,262 |
|
|
|
78 |
% |
Operating income |
|
|
55,000 |
|
|
|
22 |
% |
|
|
52,632 |
|
|
|
22 |
% |
Other (income) expense: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest expense, net |
|
|
20,254 |
|
|
|
8 |
% |
|
|
18,295 |
|
|
|
8 |
% |
Loss on extinguishment of debt |
|
|
- |
|
|
|
0 |
% |
|
|
- |
|
|
|
0 |
% |
Other income |
|
|
- |
|
|
|
0 |
% |
|
|
- |
|
|
|
0 |
% |
Total other expense, net |
|
|
20,254 |
|
|
|
8 |
% |
|
|
18,295 |
|
|
|
8 |
% |
Income before taxes |
|
|
34,746 |
|
|
|
14 |
% |
|
|
34,337 |
|
|
|
14 |
% |
Income tax provision |
|
|
12,655 |
|
|
|
5 |
% |
|
|
7,205 |
|
|
|
3 |
% |
Net income |
|
$ |
22,091 |
|
|
|
9 |
% |
|
$ |
27,132 |
|
|
|
11 |
% |
Net Revenues
|
|
Three Months Ended June 30, |
|
|
|
|
|
|
|
|||||||
(Dollars in thousands) |
|
2024 |
|
|
2023 |
|
|
$ Change |
|
|
% Change |
|
||||
Net revenues |
|
$ |
255,043 |
|
|
$ |
236,894 |
|
|
$ |
18,149 |
|
|
|
8 |
% |
The increase in net revenues was primarily attributable to the increase in car wash sales due to growth in UWC Members and the year-over-year addition of 42 locations.
Store Operating Costs
Cost of Labor and Chemicals
|
|
Three Months Ended June 30, |
|
|
|
|
|
|
|
|||||||
(Dollars in thousands) |
|
2024 |
|
|
2023 |
|
|
$ Change |
|
|
% Change |
|
||||
Cost of labor and chemicals |
|
$ |
72,691 |
|
|
$ |
70,824 |
|
|
$ |
1,867 |
|
|
|
3 |
% |
Percentage of net revenues |
|
|
29 |
% |
|
|
30 |
% |
|
|
|
|
|
|
The increase in cost of labor and chemicals is primarily attributable to an increase in volume and the year-over-year addition of 42 locations, as well as some inflationary pressures on store labor.
Other Store Operating Expenses
|
|
Three Months Ended June 30, |
|
|
|
|
|
|
|
|||||||
(Dollars in thousands) |
|
2024 |
|
|
2023 |
|
|
$ Change |
|
|
% Change |
|
||||
Other store operating expenses |
|
$ |
99,543 |
|
|
$ |
90,337 |
|
|
$ |
9,206 |
|
|
|
10 |
% |
Percentage of net revenues |
|
|
39 |
% |
|
|
38 |
% |
|
|
|
|
|
|
The increase in other store operating expenses was primarily attributable to the year-over-year addition of 42 locations and some inflationary pressures on utilities and maintenance expenses. Rent expense increased approximately $2.6 million due to the addition of 31 net new land and building leases.
25
General and Administrative
|
|
Three Months Ended June 30, |
|
|
|
|
|
|
|
|||||||
(Dollars in thousands) |
|
2024 |
|
|
2023 |
|
|
$ Change |
|
|
% Change |
|
||||
General and administrative |
|
$ |
24,912 |
|
|
$ |
27,829 |
|
|
$ |
(2,917 |
) |
|
|
(10 |
)% |
Percentage of net revenues |
|
|
10 |
% |
|
|
12 |
% |
|
|
|
|
|
|
The decrease in general and administrative expenses was primarily driven by a decrease of approximately $1.1 million in marketing expense, a decrease of approximately $0.7 million in corporate insurances, a decrease of approximately $0.7 million in corporate travel expense, a decrease of approximately $0.7 million in acquisition and new build expenses, partially offset by an increase of approximately $0.4 million in employee compensation expenses.
(Gain) Loss on Sale of Assets
|
|
Three Months Ended June 30, |
|
|
|
|
|
|
|
|||||||
(Dollars in thousands) |
|
2024 |
|
|
2023 |
|
|
$ Change |
|
|
% Change |
|
||||
(Gain) loss on sale of assets |
|
$ |
2,897 |
|
|
$ |
(4,728 |
) |
|
$ |
7,625 |
|
|
|
(161 |
)% |
Percentage of net revenues |
|
|
1 |
% |
|
|
(2 |
)% |
|
|
|
|
|
|
The change in (gain) loss on sale of assets was primarily driven by a net loss associated with sale-leaseback activity in the current year.
Total Other Expense, net
|
|
Three Months Ended June 30, |
|
|
|
|
|
|
|
|||||||
(Dollars in thousands) |
|
2024 |
|
|
2023 |
|
|
$ Change |
|
|
% Change |
|
||||
Total other expense, net |
|
$ |
20,254 |
|
|
$ |
18,295 |
|
|
$ |
1,959 |
|
|
|
11 |
% |
Percentage of net revenues |
|
|
8 |
% |
|
|
8 |
% |
|
|
|
|
|
|
The increase in other expense was primarily driven by increased interest expense driven by an increase in long term debt coupled with higher average interest rates as compared to the prior year period.
Income Tax Provision
|
|
Three Months Ended June 30, |
|
|
|
|
|
|
|
|||||||
(Dollars in thousands) |
|
2024 |
|
|
2023 |
|
|
$ Change |
|
|
% Change |
|
||||
Income tax provision |
|
$ |
12,655 |
|
|
$ |
7,205 |
|
|
$ |
5,450 |
|
|
|
76 |
% |
Percentage of net revenues |
|
|
5 |
% |
|
|
3 |
% |
|
|
|
|
|
|
The increase in income tax provision was primarily driven by the net, unfavorable income tax impact from equity awards activity in the current quarter.
26
Results of Operations for the Six Months Ended June 30, 2024 and 2023
|
|
Six Months Ended June 30, |
|
|||||||||||||
|
|
2024 |
|
|
2023 |
|
||||||||||
(Dollars in thousands) |
|
Amount |
|
|
% of Revenue |
|
|
Amount |
|
|
% of Revenue |
|
||||
Net revenues |
|
$ |
494,226 |
|
|
|
100 |
% |
|
$ |
462,854 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Store operating costs: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cost of labor and chemicals |
|
|
144,349 |
|
|
|
29 |
% |
|
|
137,616 |
|
|
|
30 |
% |
Other store operating expenses |
|
|
196,346 |
|
|
|
40 |
% |
|
|
179,803 |
|
|
|
39 |
% |
General and administrative |
|
|
54,622 |
|
|
|
11 |
% |
|
|
52,012 |
|
|
|
11 |
% |
(Gain) loss on sale of assets, net |
|
|
1,364 |
|
|
|
0 |
% |
|
|
(4,791 |
) |
|
|
(1 |
)% |
Total costs and expenses |
|
|
396,681 |
|
|
|
80 |
% |
|
|
364,640 |
|
|
|
79 |
% |
Operating income |
|
|
97,545 |
|
|
|
20 |
% |
|
|
98,214 |
|
|
|
21 |
% |
Other expense: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest expense, net |
|
|
40,278 |
|
|
|
8 |
% |
|
|
36,043 |
|
|
|
8 |
% |
Loss on extinguishment of debt |
|
|
1,882 |
|
|
|
0 |
% |
|
|
- |
|
|
|
0 |
% |
Other income |
|
|
(5,189 |
) |
|
|
(1 |
)% |
|
|
- |
|
|
|
0 |
% |
Total other expense |
|
|
36,971 |
|
|
|
7 |
% |
|
|
36,043 |
|
|
|
8 |
% |
Income before taxes |
|
|
60,574 |
|
|
|
12 |
% |
|
|
62,171 |
|
|
|
13 |
% |
Income tax provision |
|
|
21,846 |
|
|
|
4 |
% |
|
|
13,903 |
|
|
|
3 |
% |
Net income |
|
$ |
38,728 |
|
|
|
8 |
% |
|
$ |
48,268 |
|
|
|
10 |
% |
Net Revenues
|
|
Six Months Ended June 30, |
|
|
|
|
|
|
|
|||||||
(Dollars in thousands) |
|
2024 |
|
|
2023 |
|
|
$ Change |
|
|
% Change |
|
||||
Net revenues |
|
$ |
494,226 |
|
|
$ |
462,854 |
|
|
$ |
31,372 |
|
|
|
7 |
% |
The increase in net revenues was primarily attributable to the increase in car wash sales due to growth in UWC Members and the year-over-year addition of 42 locations.
Store Operating Costs
Cost of Labor and Chemicals
|
|
Six Months Ended June 30, |
|
|
|
|
|
|
|
|||||||
(Dollars in thousands) |
|
2024 |
|
|
2023 |
|
|
$ Change |
|
|
% Change |
|
||||
Cost of labor and chemicals |
|
$ |
144,349 |
|
|
$ |
137,616 |
|
|
$ |
6,733 |
|
|
|
5 |
% |
Percentage of net revenues |
|
|
29 |
% |
|
|
30 |
% |
|
|
|
|
|
|
The increase in cost of labor and chemicals is primarily attributable to an increase in volume and the year-over-year addition of 42 locations, as well as some inflationary pressures on store labor.
Other Store Operating Expenses
|
|
Six Months Ended June 30, |
|
|
|
|
|
|
|
|||||||
(Dollars in thousands) |
|
2024 |
|
|
2023 |
|
|
$ Change |
|
|
% Change |
|
||||
Other store operating expenses |
|
$ |
196,346 |
|
|
$ |
179,803 |
|
|
$ |
16,543 |
|
|
|
9 |
% |
Percentage of net revenues |
|
|
40 |
% |
|
|
39 |
% |
|
|
|
|
|
|
The increase in other store operating expenses was primarily attributable to the year-over-year addition of 42 locations and some inflationary pressures on utilities and maintenance expenses. Rent expense increased approximately $5.8 million primarily due to the addition of 31 net new land and building leases.
27
General and Administrative
|
|
Six Months Ended June 30, |
|
|
|
|
|
|
|
|||||||
(Dollars in thousands) |
|
2024 |
|
|
2023 |
|
|
$ Change |
|
|
% Change |
|
||||
General and administrative |
|
$ |
54,622 |
|
|
$ |
52,012 |
|
|
$ |
2,610 |
|
|
|
5 |
% |
Percentage of net revenues |
|
|
11 |
% |
|
|
11 |
% |
|
|
|
|
|
|
The increase in general and administrative expenses was primarily driven by approximately $4.2 million in third party costs related to our debt refinancing in March 2024, an increase in stock-based compensation expense of approximately $1.0 million, partially offset by a decrease in marketing expense of approximately $1.6 million, and a decrease in corporate travel expense of approximately $1.0 million. As a percentage of net revenues, general and administrative expenses for the six months ended June 30, 2024 remained consistent to the prior year period.
(Gain) Loss on Sale of Assets
|
|
Six Months Ended June 30, |
|
|
|
|
|
|
|
|||||||
(Dollars in thousands) |
|
2024 |
|
|
2023 |
|
|
$ Change |
|
|
% Change |
|
||||
(Gain) loss on sale of assets |
|
$ |
1,364 |
|
|
$ |
(4,791 |
) |
|
$ |
6,155 |
|
|
|
(128 |
)% |
Percentage of net revenues |
|
|
0 |
% |
|
|
(1 |
)% |
|
|
|
|
|
|
The change in (gain) loss on sale of assets was primarily driven by a net loss associated with sale-leaseback activity in the current year.
Total Other Expense, net
|
|
Six Months Ended June 30, |
|
|
|
|
|
|
|
|||||||
(Dollars in thousands) |
|
2024 |
|
|
2023 |
|
|
$ Change |
|
|
% Change |
|
||||
Total other expense, net |
|
$ |
36,971 |
|
|
$ |
36,043 |
|
|
$ |
928 |
|
|
|
3 |
% |
Percentage of net revenues |
|
|
7 |
% |
|
|
8 |
% |
|
|
|
|
|
|
The increase in other expense, net is driven by increased interest expense of approximately $4.2 million due to increased long term debt coupled with higher average interest rates and loss on extinguishment of debt of approximately $1.9 million due to our debt refinancing in March 2024, partially offset by a gain of approximately $5.2 million due to the recognition of an employee retention credit.
Income Tax Provision
|
|
Six Months Ended June 30, |
|
|
|
|
|
|
|
|||||||
(Dollars in thousands) |
|
2024 |
|
|
2023 |
|
|
$ Change |
|
|
% Change |
|
||||
Income tax provision |
|
$ |
21,846 |
|
|
$ |
13,903 |
|
|
$ |
7,943 |
|
|
|
57 |
% |
Percentage of net revenues |
|
|
4 |
% |
|
|
3 |
% |
|
|
|
|
|
|
The increase in income tax provision was primarily driven by the net, unfavorable income tax impact from equity awards activity in the current year.
Liquidity and Capital Resources
Funding Requirements
Our primary requirements for liquidity and capital are to fund our investments in our core business, which includes lease payments, pursue greenfield location development, and acquisitions of new locations and to service our indebtedness. Historically, these cash requirements have been met through funds raised by the sale of our common stock, utilization of our Revolving Commitment, First Lien Term Loan, sale-leaseback transactions, and cash provided by operations.
As of June 30, 2024 and December 31, 2023, we had cash and cash equivalents of $3.6 million and $19.0 million, respectively, and $291.7 million and $149.2 million, respectively, of available borrowing capacity under our Revolving Commitment.
For a description of our credit facilities and our recent debt refinancing, please see Note 8 Debt in the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. As of June 30, 2024, we were in compliance with the covenants under the Amended and Restated First Lien Credit Agreement.
28
We believe that our sources of liquidity and capital will be sufficient to finance our growth strategy and operations, as well as planned capital expenditures, for at least the next 12 months. However, we cannot assure you that cash provided by operating activities or cash and cash equivalents will be sufficient to meet our future needs. If we are unable to generate sufficient cash flows from operations in the future, we may have to obtain additional financing. If we obtain additional capital by issuing equity, the interests of our existing stockholders will be diluted. If we incur additional indebtedness, that indebtedness may contain significant financial and other covenants that may significantly restrict our operations. We cannot assure you that we could obtain additional financing on favorable terms or at all.
Cash Flows for the Six Months Ended June 30, 2024 and 2023
The following table presents our summary cash flows:
|
|
Six Months Ended June 30, |
|
|||||
(Dollars in thousands) |
|
2024 |
|
|
2023 |
|
||
Net cash provided by operating activities |
|
$ |
118,882 |
|
|
$ |
117,122 |
|
Net cash used in investing activities |
|
|
(144,642 |
) |
|
|
(50,231 |
) |
Net cash provided by financing activities |
|
|
10,395 |
|
|
|
4,120 |
|
Net change in cash and cash equivalents, and restricted cash |
|
$ |
(15,365 |
) |
|
$ |
71,011 |
|
Operating Activities. Net cash used in operating activities consists of net income adjusted for certain non-cash items, including stock-based compensation expense, depreciation of property and equipment, gains on disposal of property and equipment, loss on extinguishment of debt, amortization of leased assets and deferred income taxes, as well as the effect of changes in other working capital amounts.
For the six months ended June 30, 2024, net cash provided by operating activities was $118.9 million and was comprised of net income of $38.7 million, increased by $99.9 million as a result of non-cash adjustments comprised primarily of depreciation and amortization expense, stock-based compensation expense, non-cash lease expense, deferred income taxes, a loss on disposal of property and equipment, a loss on extinguishment of debt, and amortization of debt issuance costs. Changes in working capital balances decreased cash provided by operating activities by $19.8 million and were primarily driven by operating lease payments and increases in accounts receivable, net, other receivables, partially offset by decreases to inventory and other noncurrent assets and liabilities and increases in accounts payable, accrued expense, and deferred revenue.
For the six months ended June 30, 2023, net cash provided by operating activities was $117.1 million and was comprised of net income of $48.3 million, increased by $74.1 million as a result of non-cash adjustments comprised primarily of depreciation and amortization expense, stock-based compensation expense, non-cash lease expense, deferred income taxes, a gain on disposal of property and equipment, and amortization of debt issuance costs. Changes in working capital balances decreased cash provided by operating activities by $5.3 million and were primarily driven by operating lease payments and increases in other receivables, accounts payable, accrued expense, and deferred revenue.
Investing Activities. Our net cash used in investing activities primarily consists of purchases and sale of property and equipment.
For the six months ended June 30, 2024, net cash used in investing activities was $144.6 million and was primarily comprised of investments in property and equipment to support our greenfield development and other initiatives, offset by the sale of property and equipment.
For the six months ended June 30, 2023, net cash used in investing activities was $50.2 million and was primarily comprised of investment in property and equipment to support our greenfield development and other initiatives and one acquisition, partially offset by the sale of property and equipment.
Financing Activities. Our net cash provided by financing activities primarily consists of proceeds and payments on our First Lien Term Loan and Revolving Commitment, payments on finance lease obligations, as well as issuance of common stock under employee plans.
For the six months ended June 30, 2024, net cash provided by financing activities was $10.4 million and was primarily comprised of proceeds from our refinancing of the First Lien Term Loan and Revolving Commitment, partially offset by payments for payroll tax withholdings to settle cashless stock option exercises, payments on debt borrowings and Revolving Commitment, and payments of deferred financing costs due to our debt refinancing.
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For the six months ended June 30, 2023, net cash provided by financing activities was $4.1 million and was primarily comprised of proceeds from exercise of stock options, partially offset by payments on finance lease obligations.
Critical Accounting Policies and Estimates
Our condensed consolidated financial statements have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities.
On an ongoing basis, we evaluate our estimates and assumptions, including those related to revenue recognition, goodwill and other intangible assets, income taxes and stock-based compensation. We base our estimates on historical experience, current developments and on various other assumptions that we believe to be reasonable under these circumstances, the results of which form the basis for making judgments about carrying values of assets and liabilities that cannot readily be determined from other sources. There can be no assurance that actual results will not differ from those estimates.
The significant accounting policies and estimates used in preparation of the condensed consolidated financial statements are described in our 2023 Form 10-K. There have been no material changes to our significant accounting policies during the three and six months ended June 30, 2024.
Recent Accounting Pronouncements
See Note 2 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for a discussion of recent accounting pronouncements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We are exposed to market risk from changes in interest rates and inflation. All these market risks arise in the normal course of business, as we do not engage in speculative trading activities. The following analysis provides quantitative information regarding these risks.
Interest Rate Risk
Our First Lien Term Loan bears interest at variable rates, which exposes us to market risks relating to changes in interest rates. Interest rate risk is highly sensitive due to many factors, including U.S. monetary and tax policies, U.S. and international economic factors, and other factors beyond our control. As of June 30, 2024 and December 31, 2023, we had $925.0 million and $901.2 million, respectively, of variable rate debt outstanding under our First Lien Term Loan. Based on the balance outstanding under our First Lien Term Loan as of June 30, 2024, an increase or decrease of 100 basis points in the effective interest rate on the First Lien Term Loan would cause an increase or decrease in interest expense of approximately $9 million over the next 12 months.
Impact of Inflation
Our results of operations and financial condition are presented based on historical cost. While it is difficult to accurately measure the impact of inflation due to the imprecise nature of the estimates required, we have recently experienced the effects of inflation on our results of operations and financial condition. In light of the current inflationary market conditions, we cannot assure you that our results of operations and financial condition will not be materially impacted by inflation in the future.
Item 4. Controls and Procedures.
Disclosure Controls and Procedures
In order to ensure that the information we must disclose in our filings with the Securities and Exchange Commission (the "SEC") is recorded, processed, summarized and reported on a timely basis, we have developed and implemented disclosure controls and procedures. Our management, with the participation of our President and Chief Executive Officer and our Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of June 30, 2024. Based on that evaluation, our management, including the President and Chief Executive Officer and the Chief Financial Officer, has concluded that our disclosure controls and procedures were effective as of June 30, 2024 in ensuring that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and is accumulated and communicated to our management, including the President and Chief Executive Officer and the Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the three months ended June 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
We are subjected from time-to-time to various claims, lawsuits and other legal proceedings, including intellectual property claims. Some of these claims, lawsuits and other legal proceedings involve highly complex issues, and often these issues are subject to substantial uncertainties. Accordingly, our potential liability with respect to a large portion of such claims, lawsuits and other legal proceedings cannot be estimated with certainty. Management, with the assistance of legal counsel, periodically reviews the status of each significant matter and assesses potential financial exposure. We recognize provisions for claims or pending litigation when we determine that an unfavorable outcome is probable and the amount of loss can be reasonably estimated. Due to the inherent uncertain nature of litigation, the ultimate outcome or actual cost of settlement may materially vary from estimates. If management’s estimates prove incorrect, we could incur a charge to earnings which could have a material and adverse effect on our business, results of operations, and financial condition.
Class Action Litigation
On February 14, 2023, a plaintiff filed a purported class action lawsuit in the Stanislaus County Superior Court, California, on behalf of all non-exempt employees employed by Defendants Prime Shine LLC, a wholly-owned subsidiary of the Company, in California any time between February 14, 2019, and the present, against Prime Shine, LLC and Does 1 – 20 inclusive. Plaintiff alleges eight claims for violations of the California Labor Code and one claim for violation of the California Business & Professions Code. On June 13, 2023, Plaintiff filed a First Amended Complaint to add a claim for penalties pursuant to the Private Attorneys General Act. Plaintiff seeks, among other things, an unspecified amount for unpaid wages, actual, consequential, and incidental losses, penalties, and attorneys’ fees and costs. The parties agreed to an informal exchange of information in lieu of formal discovery prior to mediation with an experienced wage-and-hour mediator. In October 2023, following mediation, both parties agreed to settle the lawsuit. A financial amount was accrued that was not material to our consolidated financial statements. A formal written settlement agreement has been executed by the parties and the Court granted preliminary approval of settlement. No putative class members objected or opted out of the settlement during the class action settlement notice period. The Court entered final approval of the class action settlement on July 19, 2024. By mid-2025, following the settlement funding, the court clerk is expected to administratively close the case.
Item 1A. Risk Factors.
In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the risk factors disclosed in Part I. Item 1A. "Risk Factors” and in Part II. Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2023 Form 10-K, before making an investment decision. Our business, financial condition and results of operations could be materially and adversely affected by any of these risks or uncertainties. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment. There have been no material changes to the risk factors described in Part I. Item 1A. "Risk Factors" of our 2023 Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
Rule 10b5-1 Trading Plan Arrangements
During the three months ended June 30, 2024, none of the directors or officers of the Company
On
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Item 6. Exhibits.
Exhibit Number |
|
Description |
Form |
File. No |
Exhibit |
Filing Date |
Filed/Furnished Herewith |
3.1 |
|
Amended and Restated Certificate of Incorporation of the Company |
8-K |
001-40542 |
3.2 |
06/01/2022 |
|
3.2 |
|
Certificate of Amendment of Amended and Restated Certificate of Incorporation of the Company |
8-K |
001-40542 |
3.1 |
06/01/2023 |
|
3.3 |
|
8-K |
001-40542 |
3.2 |
07/02/2021 |
|
|
10.1 |
|
8-K |
001-40542 |
10.1 |
06/28/2024 |
|
|
31.1 |
|
|
|
|
|
* |
|
31.2 |
|
|
|
|
|
* |
|
32.1 |
|
|
|
|
|
** |
|
32.2 |
|
|
|
|
|
** |
|
101.INS |
|
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document. |
|
|
|
|
* |
101.SCH |
|
Inline XBRL Taxonomy Extension Schema Document |
|
|
|
|
* |
101.CAL |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
|
* |
101.DEF |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document |
|
|
|
|
* |
101.LAB |
|
Inline XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
|
* |
101.PRE |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
|
|
|
|
* |
104 |
|
Cover Page Interactive Data File (embedded within the Inline XBRL document) |
|
|
|
|
* |
|
|
|
|
|
|
|
|
* Filed herewith.
** Furnished herewith.
+ Schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company undertakes to furnish supplemental copies of any of the omitted schedules upon request by the SEC.
^ Portions of this exhibit have been omitted pursuant to Item 601(b)(10)(iv) of Regulation S-K.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
Mister Car Wash, Inc. |
|
|
|
|
|
Date: August 02, 2024 |
|
By: |
/s/ John Lai |
|
|
|
John Lai |
|
|
|
Chairperson, President and Chief Executive Officer (Principal Executive Officer) |
|
|
|
|
Date: August 02, 2024 |
|
By: |
/s/ Jedidiah Gold |
|
|
|
Jedidiah Gold |
|
|
|
Chief Financial Officer (Principal Financial Officer) |
33