Q4 2021 Mister Car Wash Inc Earnings Call
Good afternoon, and welcome to Mister car Wash as conference call to discuss financial results for the fourth quarter fiscal 2021.
At this time all participants are in a listen only mode.
Later, we will conduct a question and answer session and instructions will follow at that time. Please.
Please note that this call is being recorded and a reproduction of this call in whole or in part is not permitted without written authorization from the company.
I would now like to turn the call over to Megan Everett Senior Director of Communications. Please go ahead ma'am.
Thank you good afternoon, everyone and thank you for joining us today for Mister car wash is fourth quarter of fiscal year 2021 earnings call.
Speaking today are chairperson and Chief Executive Officer, John Life, and Chief Financial Officer, you got to go after.
After John and Chad have made their formal remarks, we will open the call to questions.
Before we begin I do need to remind everyone that comments made today may include forward looking statements, which are subject to significant risks and uncertainties that could cause the company's actual results to differ materially from management's current expectations.
These statements speak as of today and is and except as may be required by law. The company does not have any obligation to update or revise such statements as circumstances change.
During the call today management will also refer to certain non-GAAP financial measures.
A reconciliation between the GAAP and non-GAAP financial measures can be found in the company's earnings press release issued earlier today and posted to the Investor Relations section of Mister car wash its web site at IR Dot Mister car wash dot com.
With that I'll turn the call over to John John .
Thanks, Peg and good afternoon, everyone and thanks for joining us on our fourth quarter and year end earnings call.
We had another great quarter and an extraordinary year that we're excited to share with you, but before I dive in I'd like to zoom out and talk about the growing nature of our market. Some of the trends, we're seeing across the industry and how we execute and deliver best in class unit level results.
Big picture the U S car park is huge and growing with approximately 285 million vehicles on the road today.
When we look at the size of the market. The pond is not only very large but it's expanding.
As more consumers come into the category driven by the ease convenience and tremendous value of the drive to express Carwash model.
More importantly, we're seeing consumption rising as more people sign up to become members of our subscription based on limited Wash club program, which has made it easy and affordable to keep their car cleaning all the time, while protecting their investment.
Even in the face of inflation and rising gas prices, we believe that the joy customers receive from keeping the car clean coupled with the relative affordability of our service has created a strong tailwind for expansion.
As the largest car wash operator in the United States with less than 5% market share. We believe we're in a great position to expand our footprint by increasing penetration in existing markets, while continuing to look for new markets to move into.
In short when we look at the size of our industry, we see demand outpacing supply, we just created a huge growth opportunity for us.
Biggest differentiator is our people and the amazing team, we have developed that delivers an elevated level of hospitality across the entire company.
As service providers, we take great pride in our service delivery model, which has become arguably our biggest competitive advantage.
We talk a lot about technology and systems and the procedures, we used to consistently watch lots of cars, but it's our people first culture that we've developed at scale.
The real key to our success.
Watching our team's process 200 cars per hour and a smooth and seamless way is like watching a well choreographed dance with everyone moving in synchronicity.
The perpetual motion of our crews working in unison with the skipping their step and a shared purpose is what makes a.
A very special.
And this results in incredibly strong avs and customer satisfaction.
During 2021, I'm delighted to share that our full year revenue increased 31, 9% to over $750 million and EBITDA of over $254 million.
From a unit level standpoint, we grew our footprint by 55 stores acquiring 38 locations and opening up 17 Greenfields.
This set a record for the single biggest year and unit growth in the history of our company.
On the M&A front late in the fourth quarter of last year, we closed two strategic acquisitions clean streak in the downtown or that significantly bolstered our position in Florida.
We now have 65 locations in Florida and plan on opening at least 10 more before the end of the year.
Greenfields or one of the most important pieces of our growth strategy and we're thrilled with how well they're performing we've leveraged all of the knowledge, we picked up over the years and have developed a carwash model. This is all about throughput and volume.
We're investing heavily in our new store development and construction teams and see significant opportunity to accelerate our greenfield openings in 2022 and beyond.
For the full year.
We watched over 75 million vehicles and ended the year with nearly $1 7 million Unlimited watch club members.
We continue to see healthy membership growth as more and more customers see the value in keeping the car cleaning all the time, which has fundamentally changed the way people care for their vehicles.
Yeah.
We achieve exceptional results by hiring great people paying them, well and most importantly, treating them well.
We invest heavily in training and as a company on the rise we're in constant leadership development mode as we build out our bench of future managers.
In our last earnings call, we talked about our recent launch of our certified trainer program and our operations leadership program.
To date more than 200 team members have completed the training and this is providing a clearer stepping stone for those looking to take on more responsibility within our company.
At a time when companies are struggling to staff their operations, we feel very fortunate that we've had no interruptions to our business and our stores are continuing to become even more productive as we set volume records in almost every region.
In the second half of last year, we moved to get out in front of the labor challenges that everyone's experiencing right now by increasing hourly wages to retain and attract talented team members.
Our path of being a people centric company began many years ago and the ongoing investments we've made in wages benefits training and career path progression has put us in a great position during this tough labor environment.
On the executive leadership front I'd like to recognize the retirement of Dave Hill, our VP of development, who decided after 20 years with Mr and over 40 years in the industry. It was time to write off into the sunset and spend some quality time with his family.
From everyone and Mister car wash I want to say, thank you to Dave and wish him happiness.
Over the last two years, Dave has been grooming his successor, Ryan Darby to takeover and I'm happy to report that Ryan and his team are doing a phenomenal job building beautiful stores and increasing our capacity to open up even more.
I'm also thrilled to announce the promotion of Mira <unk> as our new Chief operating officer.
<unk> is a 14 year veteran of Mister car Wash has served as VP of ops services prior to being promoted to a new role.
Fact that she is a female and Latina and are predominantly male dominated industry is also pretty cool.
Before I turn it over to Chad I'd like to thank our entire team has done an amazing job scaling our company and elevating our culture, especially our field and HQ teams who've been working so hard to deliver on our mission to deliver the best Carwash experience.
We couldn't do without our people and are grateful to have the best team in the industry.
Like to now turn it over to Chad to review, our fourth quarter and 2021 financial results.
Thank you John and good afternoon, everyone.
2021 was a record year on many levels and as John indicated we're pleased so far with our strong start to 2022.
Before going through our results in 2020 to guidance I want to make three comments to help you better understand some of the broader trends in our business.
First is around demand underlying demand was strong during the fourth quarter. We did see some variability in the middle of the quarter related to weather, specifically impacting our retail sales, but that works itself out in December and the traffic trends have remained strong.
The second is around input inflation and pricing as.
As we discussed on our last earnings call, we proactively adjusted hourly labor rates in August of 'twenty, 'twenty, one and that resulted in some modest labor inflation in the fourth quarter.
To offset this we took a modest price increase in our retail wash offerings across the majority of our locations in November we.
We are happy to report that since December the increase in pricing has basically offset the increase in labor inflation.
But the fourth quarter did experience a little bit of margin compression based on the timing of these two events.
More importantly, these investments have helped keep our employee turnover relatively flat since the middle of last year and we're also seeing improvements in labor productivity measures such as cars washed per labor hour and.
And store labor dollars per car washed that are allowing us to maintain very strong margins, while continuing to invest in our people and future growth.
The third is around acquisitions, we closed two acquisitions late in the fourth quarter. These acquisitions have helped boost our market share and solidify our positioning in Florida, a state that is experiencing strong population growth and demographic trends.
Upon the completion of the salaries back process of the acquired locations. The acquisition multiple is expected to be in the low teens as we have mentioned before it can take six months to a year to fully integrate acquired locations had during this time period the acquired locations experienced some margin compression.
As we apply our labor model and processes.
Now let me review our fourth quarter results. My comments will include some of our adjusted non-GAAP results. Please refer to today's press release, if you would like more details on our financial performance and our methodology in calculating non-GAAP financial metrics.
In the fourth quarter revenue increased 18, 2% to 191 $5 million driven by comparable store sales growth of 14, 6% and unit growth of 15.8%. Please.
Please note that last year's fourth quarter included $4 $9 million of revenue from the quick lube oil change business that was subsequently divested in December of last year.
Excluding this from the comparison revenue increased 21, 8% in the quarter.
Our subscription unlimited Wash club program remains a key driver of growth EWC memberships increased 34%.
To 1.656 million from one point to three 3 million as of December 31st 2020, and accounted for approximately 67% of total wash sells in the quarter.
With respect to unit growth, we added 36 net new locations in the fourth quarter an increase in units.
15, 8% year over year.
Of the 36, new locations 31 of these were acquired locations that were added in the quarter and six of these were new Greenfield build locations.
We also closed one location in the quarter, giving us a total of 396 locations at year end.
Turning to the expense side of the P&L for the quarter.
The cost of labor and chemicals and increased to 19, 2%.
From the fourth quarter of 2020 to $62 $1 million or 32, 4% of revenue. The increase was primarily driven by the increased labor and benefits cost of labor included $2 $3 million of expense related to stock based compensation.
Our chemical costs were well managed in the quarter and were down slightly on a per car basis.
Other store operating expenses were 71 2 million in this year's fourth quarter or 37, 2% of revenue compared with $60 1 million or 37, 1% of revenue last year.
The modest increase was primarily driven by the increase in wash locations and volume.
General and administrative expenses in this year's fourth quarter were $28 8 million or 15% of revenue compared with $14 $3 million or eight 8% of revenue last year.
Of the nearly $14 $5 million increase $4.4 million was from the debt issuance cost incurred in connection with our financing to acquire clean streak.
$4 million was from stock comp.
Expense 2 million was from public company and professional fees and $2 6 million was from an increased investment in G&A labor as.
As we have discussed on earlier calls our development team is an area. We continue to invest and build as we continue to scale, our greenfield capabilities and bring more development projects in house.
Interest expense decreased to $6 million from $14 $7 million last year due to the majority of the proceeds from the IPO to pay down debt.
As a reminder, late in the quarter, we raised an additional $290 million in.
And incremental first lien term loan to help fund our acquisition of clean streak.
Our GAAP reported effective tax rate for the 2021 fourth quarter was 11, 4% compared with 26, 6% for the fourth quarter of 2020.
Increase was primarily due to the exercise of employee stock options and the favorable tax treatment.
Our GAAP tax rate, excluding the benefit of stock option exercises was 26, 3% in the fourth quarter of 2021.
Adjusted net income, which adds back stock based compensation and certain non core operating expenses increased 105% to $33 $6 million in the fourth quarter and adjusted net income per diluted share was 10 cents.
Versus six cents in the prior year period.
The lower taxes that resulted from the exercise of stock options benefited adjusted net income per diluted share by two cents in the fourth quarter.
We realize the tax benefits from the exercise of stock options are difficult to predict and model. So starting in the first quarter of this year, we plan to begin excluding the tax benefits from the way we calculate adjusted net income and adjusted net income per share and our reported financial table.
Lastly, adjusted EBITDA increased 15, 9% to $57 $3 million in the fourth quarter of 2021 versus $49 5 million in the fourth quarter of 2020.
For the full year, we are very happy with what the team accomplished on top of becoming a publicly traded company the team delivered impressive results.
We added 54 net stores grew our store count by 16% and ended the year with 396 car washes car.
Carwash revenue increased nearly 38% to $758 $3 million.
Comparable store sales increased nearly 32%.
You WC memberships accounted for 64% of total watch sales in fiscal 2021, compared with 62% in fiscal 2020, and we ended the year with nearly 1.7 million members and the EWC program.
Adjusted net income was $136 $6 million.
Or <unk> 44.
<unk> per diluted share and adjusted EBITDA increased to $254 $3 million.
Moving on to some balance sheet and cash flow highlights.
At year end cash and cash equivalents was $20 million in long term debt was $896 million.
Net cash provided by operating activities for the year was $173 million gross capital expenditures were $126 million.
And we generated $96 million in proceeds from sale leasebacks.
Lastly, let me make a few comments around our initial outlook for 2022 as well as some commentary on first quarter trends for the full year 2022.
Revenue in the range, we expect revenue in the range of $875 million to $895 million, an increase of 15% to 18%.
This assumes the opening of approximately 30 Greenfield locations opened primarily in the second half of the year.
Comparable store sales increase of between 5% to 7%.
On a GAAP basis net income is expected to be in the range of $139 million to $149 million.
Adjusting for stock based compensation acquisition expenses noncash rent and other nonrecurring non operating or onetime expenses. Adjusted net income is expected to be $144 million to $153 million or $44 47 per diluted share.
And adjusted EBITDA is projected to be $284 million to $297 million.
Gross capital expenditures are expected to be in the range of $285 million to $315 million.
And we are projecting gross proceeds from sale leasebacks to be between 140 and $150 million.
While we do not anticipate providing quarterly commentary on a regular basis. We wanted to provide some color on trends in the first quarter and how we're thinking about the progression of the year.
As indicated earlier trends in the first quarter had been very strong specifically January and February .
We talked about how weather can have some impact on the business, particularly retail cells.
And the weather in the first quarter has been favorable.
As a result, we've seen a nice acceleration in the business over the past few months and anticipate first quarter comparable comparable store sales growth to be in the area of 10%.
As a reminder, this is on top of almost 19% comp growth that we reported in the first quarter last year.
With this being the case, we see first quarter revenue being in the area of $250 $15 million.
And first quarter adjusted EBITDA being in the area of $73 million.
As a reminder, the second quarter represents our toughest comparison for the year driven by the strong prior year demand and our initial outlook for full year 2022 revenue currently assumes a mid to high single digit comparable store sales increase in the first half of the year at a low to me.
Mid single digit comparable store sales in the second half of the year.
Yeah.
In closing I would like to add my thanks, and appreciation to all of our team members, who work day in and day out to execute our business and serve our customers.
2021 was a historic and record breaking year for the company, we feel very good about our positioning in the fundamentals of the business going into 2022, we're as confident as ever in our ability to deliver against our long term growth algorithm driven by our best in class operations and further new unit expansion.
On behalf of the team we look forward to our continued success in delivering consistent earnings growth for our shareholders.
With that I'll turn it over to the operator to begin the Q&A session operator.
We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.
If you are using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.
Our first question is from Simeon Siegel with BMO capital markets. Please go ahead.
Great. Thanks, Hey, everyone nice end to the year congrats.
So yes, I think you just really great to hear about the positive quarter to date commentary. So this question might answer itself, but just curious how youre thinking about and I guess, maybe stress testing internally any potential usage impacts whether it's a retailer or UW CE churn just anything from inflation Gulf our general macro sentiment factors, just kind of thinking about how your customer might be impacted and how they re.
<unk>.
And then I was hoping I think I think you said you raised your expected Greenfield estimate for the year. So I was hoping you could dig into that a little bit more you've now handily be any M&A target if youre raising greenfields like it just seems like that the heightened unit expansion is really in full gear. So maybe just kind of talk to that talk to the acceleration. Thanks, a lot guys.
Hey, Simeon this is John and before I turn it over to Jan I, just want to give some broad color on how we see the health of the business.
If theres a technical definition for crushing it.
But.
And trying to remain keeping both feet on the ground and we live by the mantra of stay humble and stay hungry, but to have a Q4, where comps were plus 14, 6%.
The numbers speak for themselves and as Jed alluded to Q1, how we feel pretty confident that we're going to be able to.
Grow comps plus 10%.
In this quarter, our business is super healthy right.
As I mentioned in my opening comments the demand for our service has been amazing. So we feel very fortunate to be in this category and with respect to concerns around inflation and what's going to happen to consumer spending we're not seeing it.
So for all with all the knock on woods right because no one knows what the future holds.
We're in a great spot right now and we've got cars lined up to the street and we're processing them as quickly as we can.
I'll turn it over to Jay to give more precise answers.
Yes, so simeon on the debt.
But the first part of the question and just some of the broader macro trends right as we were putting together the guidance.
First of all I think it's worth highlighting that the fundamental outlook fundamentals and outlook for the business as John said have never been stronger we're really encouraged with how the business is performing and the trends that we're seeing but its in the backdrop of a lot of uncertainty with with rising interest rates gas prices gas prices are up nearly 30%.
On a national average year to date.
And then we've got the backdrop of the geopolitical risk, even though we operate 100% of the U S. The indirect impact and potential trickle down that may come so as we pulled together that the guidance, we believe that what we've built.
Adequately reflects the trends that we're seeing but then also factors in the broader macro event the batter broader macro environment that were operating again.
Greenfield side of your question. So we're saying approximately 30 greenfields during the year.
We've made some as you've as you know we've made some investments in that team, where we're ramping up the development.
And.
When we look at the white space and potential opportunity for future expansion. Nothing has changed there is a lot of white space and runway for growth.
Yeah.
Excellent. Thanks, a lot guys best of luck for the year and John keep up those technical terms.
Thanks.
The next question is from Simeon Gutman with Morgan Stanley . Please go ahead.
Hi, This is Jackie salesman on for Simeon.
Congratulations on a good quarter.
Kind of piggybacking off of what you were saying about the strong coordinate trends the market is starting to think about a more traditional recession potentially occurring in your business did have a bit of a decline in the last recession, but as you mentioned at the different business now with a higher recurring revenue mix. So I guess yeah.
More specifically how resilient subsea.
Subscription base during a recession.
We're expecting stronger comps going forward throughout the year.
Yes terrific question, when we look at <unk> and the impact that we received our portfolio is a lot different back then we had a majority of our stores were full service interior clean locations today.
Today that ratio has been flipped upside down where the bulk of our portfolio is express exterior which.
By virtue of that value proposition has a very affordable price points of anywhere from seven to eight or $9 to get in so it's easily accessible for for.
All motorists and that affordability, we think is perfectly positioned in.
Could be an even tighter environment going forward.
Great. Thank you and just a quick follow up if I can you.
You guys had a great year in 'twenty. One you said you were going to reinvest back into the business.
Is there any kind of volatility in your thinking given the inflation and the kind of macro backdrop in terms of how you're choosing to invest.
No for us its full steam ahead, we were so emboldened with some of the success that we've been enjoying particularly with our Greenfields that were as we've mentioned in previous calls not just doubling down but tripling down.
Building out our capabilities, there and really the focus is on the human capital side.
Making sure that we've got the right team in place.
So we're growing like weeds, right now and having a lot of fun doing what we're doing now, but we don't anticipate pulling back on the throttle at all.
Great. Thanks, so much.
The next question is from Michael Lasser with UBS. Please go ahead.
Mr. Lasser. Your line is open on our end, perhaps you have your phone muted.
Good evening. Thanks, a lot for taking my question John is there a <unk>.
National price per gallon of gas.
If we got to that level. You think you would start to have an impact on the business would it be $5 closer to $6 what would that be about what that level will be.
Yes.
That's a tricky question to answer I wish I had a really good crystal ball into future gas prices I do know that from an inflation.
Adjusted standpoint, we've had a couple of the years in the history of our company I'm going to go back to 2012, where again on an inflation adjusted basis. The price per gallon was a little north of $4.
We didn't see any impact to our business than that were quite frankly, not seen it now, but I want to do all the knock on woods because to your question.
To get to $5 or higher.
I don't want to come across with in any Hubristic way, where we think that there is not going to have any impact on consumer spend.
And I think if anything is going to affect folks that.
Our living paycheck to paycheck and it disproportionately impacts their overall budget in a more meaningful way.
But for US we haven't seen.
Any threat thus far.
My follow up question has two parts. One is how much is the price increase contributing to your same store sales growth in 2022.
And.
As part of that you did have a tough compare like like you pointed out in the second quarter.
Particularly on the on the retail side of the business.
So to the extent that we can start soften in the second quarter is it going to make it more difficult to recruit additional watch plus members.
Key sources of new membership.
Yeah, So Mike I'll take the first part of your question around the price and what we expect that so.
As we've said we took a price increase in November of.
Last year and as we look forward and the impact on two.
2022, we expect that to be just under 2% benefit on the year.
From that pricing, which will.
Largely offset the cost pressures that the labor inflation and some of the investments that we've made.
We are making to to support the future growth of the business.
Yes, Michael I would add to that for us the lifeblood of growing our member base is attracting more retail customers into our stores and then.
Working towards educating them to make an informed decision and converting them into membership.
So for US retail traffic is important we've got this unique phenomenon, where because we are doing so well and we watched so many cars.
We had a member base.
As we've shared previously we've done a lot.
Lot to decompress or locations and speed things up and reduce bottlenecks.
Two quite frankly cut down the lines and make sure that you can get in and out in five minutes. There are certain hours in certain stores, where we're bumping up against maximum capacity.
Which I guess is a good problem to have but it also then highlights the opportunity that we have to continue to grow our share increase our penetration and add more stores, where when we have people lined up to the street.
It's a beautiful thing and for US then, we're saying hey, there's more cars that were quote unquote, leaving down the street.
Let's add some some locations around some of those high performing stores to decompress them a bit.
And overall lift our share in that market.
Thank you very much good luck.
The next question is from Chris <unk> with Stifel. Please go ahead.
Thanks, Good afternoon guys.
John given you have made significant investments in the development team and you continue to make those investments I was hoping you could describe what kind of capacity for greenfield development, you're targeting longer term.
Yes.
We continue to reset our set our set high watermark and if.
Just to put things in perspective last year, we opened up 17 stores. This year, we expect to open up 30 stores and if we continue on that path.
And by the way, that's 100% of almost 100%.
We want to get to about a store a week, which we think is kind of a good sweet spot for us.
And one of the most important things that I want to highlight is opening the store has as much work as that is the.
The other piece of the equation, which is the most important pieces, we'd have to have the team in place to be able to operate them and deliver that exceptional customer experience, which speaks to our investments management training program investments and building out our bench. So we've got this concurrent path of building out our capability of building new stores, coupled with increase.
Our leadership pipeline and making sure that we've got.
Amazingly trained leaders that can go in and crush it. So we're on that parallel path and as I mentioned to the previous question.
We're not pulling back on the throttle.
That's helpful. And then your long term algorithm calls I think for 50 washes to be acquired over five years I mean, the claims steep street acquisition I think it was 23 units that were open 10 under construction and you had the other one I think had five or so locations. So should we interpret that to mean that the 50 wash outlook would be conservative or should we expect acquisitions to be.
Very limited going forward.
Okay.
Acquisitions by definition can be very lumpy and highly unpredictable.
For us what we're looking at.
Building out our markets.
For the market rent there is none.
Number of bolt on opportunities, where we lean in.
To increase our market share in the regions that we're already in but then also lean in on.
Some opportunities like the clean Street deal that you referenced that.
Strategically bolster our position and.
In that particular case, almost doubled our footprint in the Orlando and Tampa markets.
So as we look at.
This ever changing landscape.
It is consolidated and is being rolled out we.
We anticipate perhaps coming down the turnpike, some larger scale combination opportunities, but those are very difficult to break.
Hey, Chris the one yeah.
When we pulled that together the long term growth algorithm right. The 50 over five years, what we didn't want to do is put ourselves in a position where we are chasing a number just for the sake of chasing a number.
A lot of capital coming into this space multiples are being driven up.
So playing this to where we werent forced to play pay any egregious multiples to try and hit a number that we would put out there just didn't make sense for us.
And then also.
M&A is a key driver, but then we also are building out as you highlighted in your earlier question that the investments, we're making in Greenfield, which brings an element of predictability and even just that much more consistency to our unit expansion.
That's very helpful.
And I may have missed this I apologize if I did but did you say how much clean clean Street acquisition is embedded in your guidance.
How much you're anticipating maybe it contributes to EBITDAR.
So as we look at as we look at Q4 2021. The acquisition was was late in Q1, so very little impact on 2021 results and then we aren't disclosing the exact expectation around clean streak, but keep in mind, Chris as we make these acquisitions oftentimes.
It will take half a step back and then we'll get two steps ahead, we've done over 100 acquisitions, we have a strong track record of this and really looking at these investments over a three year investment horizon.
That's fair thank you.
Your next question is from Peter Keith with Piper Sandler. Please go ahead.
Hey, good afternoon, congrats on a great year.
I wanted to piggyback off of Queen Street. So you guys have now owned it for a couple of months, it's a fairly sizable.
Acquisition compared to what you guys have done in the past how would you frame it up versus your normal acquisition accretion benefit you historically raised four wall EBITDA by about 65%.
Three years do you see a similar opportunity here or maybe a little bit more a little bit less.
Yeah, we definitely see a ton of growth potential inside the business and we're very optimistic about <unk>.
As Jed referenced where we're gonna be in year three.
And just to underscore what Chad mentioned it takes us at least six months to get all the pieces in place and oftentimes a year to get the team.
<unk> been operating in the Mr. Wei.
For us we do take a somewhat conservative outlook in year, one because it's not about year, one EBITDA growth in our opinion, it's about what we get in year, three so making those necessary investments, making the necessary changes.
One of the things that we do really well, so we're integrating and standardizing and assimilating the creating this consistent experience across all of our stores. If you go into any store or any of the 75 in Florida.
<unk> the same Mister car wash experience, we're not there yet we have probably another 90 days to 180 days before we get there, but that's the heavy lifting for us and we will get there.
When we do again, we think all boats rise with the tide, because we're connecting everything from a standard point of sale system to singular procedures and getting the culture right again is.
Probably the most important and the most difficult.
But it's something that we really stick to it and get to ultimately because for the team members that we adopt into our family.
In almost every single case, it's a lifting experience for them personally and professionally Peter just a little bit more color on that so the.
But as we look at our vision of building a national brand.
A big step in that in that direction, particularly in bolstering our position there in Florida.
The one thing we will share that the the EBITDA on a per unit basis for this particular acquisition is higher than what we've seen in previous acquisitions.
<unk> said that we still see as John highlighted a lot of a lot of upside, particularly in memberships. When you look at the UW. The subscription members per location, it's materially lower than the 4300 that we had per store also theres opportunities for throughput and then also some some potential cost synergies as well, which as you guys know we.
Don't build those into the model, but as we convert them over to our chemical programs in some of our processes, but all of this it's going to take time, the integration does not happen overnight, but the one other point I think worth mentioning is that.
100% of the real estate was owned.
<unk> clean streak and we're in the process of looking at sale leaseback opportunities.
On the portfolio, Yes, Jed I would just add to that it's not uncommon for us to acquire businesses that are running leaner labor staffing models than we are and we're happy to again increase that staffing approach because we were able to generate more cars through the turnstile and we're already starting to see that so to your comment on increasing through.
Put in growing the topline.
For us having more people on the clock as counterintuitive as it may sound, because it's like well why aren't you increasing labor, yes, we're increasingly favorable for Washington, more cars and so overall, we're going to generate more revenue, which will ultimately trickle to the bottomline.
And that's a front end load investment, which we're happy to make.
Okay great.
That sounds exciting maybe just one last clarification question I'm Clean Street. So I think you had.
What was it I think there was an additional 10 stores that werent opened yet that are in process of opening.
So and you're guiding for 30 unit openings in 2022 are those your own Greenfield or do you have the the 10 clean streets in there as well.
The clean streets are factored into that approximately 30%.
Yeah. So you've got basically can have your sort of own greenfield plus the 20 of your own Greenfield plus 10 of these planned clean Street acquisitions, Yeah, roughly that's how it'll work out.
Okay.
Hey, guys. Thanks, so much and good luck.
Again, if you have a question. Please press Star then one.
The next question is from Ryan Sundby with William Blair. Please go ahead.
Yeah, Hi, guys. Good evening, thanks for the question here.
You ended the year with one or nearly $1 7 million.
We see numbers, it's just a house keeping standpoint does that include members that were active at the acquired locations and.
And if it does.
Quickly should we think about driving.
Penetration higher efforts at this location since it sounds like it was lower than the corporate average.
Yeah. So the the nearly $1 7 million members. It includes all of the members, including the members that we acquired through the acquisitions, yes, but when you look at the membership on a per unit basis for those acquired stores materially lower than the member per location and are in our core base business.
Providing us some opportunity for future UW see membership growth, but once again, that's going to take time, we've got to put in place our processes. Our team our training our development that it's not going to happen overnight, yeah, I would expect Jed that probably the second half of this year, we will start seeing an uptick in member growth there might be some modest growth.
Now but.
There's other things that were prior as he before we start.
Customers on the value of the membership we want to make sure the qualities their speeds their customer services, where it needs to be those are our fundamental building blocks before we turn them on to the limit of wash clip programs. So there's a little bit of a chicken and egg.
But the second half I think we're very optimistic about the growth potential.
Got it.
Makes a lot of sense.
And then historically I think you've talked about roughly 75% of the EWC sign ups occurred during the first half of the year.
2021 looks a little bit different with bigger gains in Q2 and Q4 can you just help us think about how we should think about the sequencing of a member adds next year and I guess, there's a different set up here in 'twenty, one does that impact anything like retention rates or frequency compared to years past.
Yeah, Ryan so seasonality it's.
In this business, it's a little bit tricky, particularly as we make these acquisitions because seasonality shifts just a little bit based on where for example, we now have a larger presence in Florida, which will have a little bit more seasonality that the seasonality patterns are different there versus the.
Our Michigan or IOR markets, so that seasonality shifts just a little bit.
Yeah.
Historically, we have seen that that 75% in the first half of the year, but.
It's a difficult thing to it really is a difficult thing to predict and when you look at any given year. There are some years, where it's relatively flat.
And then a year like last year, where I believe it was about 90% was in the first half of the year.
Jed I would add the beauty of our geographic footprint and how diverse our portfolio is.
Right now, we're coming into pollen season, which is like.
Gold when it hits the vehicle, because everyone and particularly in the southern climates.
I wanted to get that pawn off their vehicle.
The summer time in California during the harvest seasons of almonds, we absolutely crush it and the winter in Minnesota were.
Rocket enrolling so theres. This these different demand curves based on each of the regions.
And Florida is the love box random acts of God.
Down to each specific market demand comes at different.
And that is beautiful because what that has done is smoothed out our growth curve and I think some of the percentages as we try to triangulate around where do we see the bulk of our growth.
Smoothing not lumpy in any one quarter.
Because back in the Berkeley. It was Q1 and then moving into Q2.
But now it's more persistent year round.
Got it tough on them if I can just squeeze one more.
I think at least one of the Queen Street locations had oil change is that something that you'd continue to do or is that a business or a site that you would you'd want access.
Yes, no we subscribe to the theory of doing fewer things well and we're very focused.
And committed to Washington cars, and delivering a great experience. So we as we divested our <unk> business last year. If we're acquiring a business that has a live shop, we'll either look to partner with another major oil change provider.
Divest that piece of the business, we will repurpose the.
That area to be able to either get more free vaccine or get more stacking leans in to watch more cars.
But.
Short answer to your question is no we don't anticipate.
And in these ancillary profit centers, we have our hands full with just washing cars and for the life of me.
Because back in the day, we had a whole bunch of profit centers.
It's hard to be good at all of those things.
Okay makes sense. Thank you.
The next question is from Greg <unk> with Wolfe Research. Please go ahead.
Mr about attaining perhaps your line is muted.
Yeah, Hey, Hey, guys. This is Jake Moser on for Greg.
Yes. So I was just wondering it looks like your <unk>.
That's a little bit of margin compression. So I was wondering how much of that is driven by the recently acquired Florida stores and then.
Secondly, it sounds like pricing is pretty much offsetting labor and chemicals.
Aside from the acquisition impact what else.
Is it mostly just the investments in building out the development team.
Contributing to the margin compression.
Yes, so couple of things on the margin like we've been saying the fundamentals and outlook for the business.
On a margin Hasnt changed.
Our targeted adjusted EBITDA margin for the business is in the low to mid 30% range like we've been saying.
Last year, we experienced the incredible margin rates, particularly in the first half of the year, they were exceptionally high and at or above our target range.
For the most part we're offsetting that the labor inflation.
Or just inflation in general with the modest price increase we took in November .
And through various productivity improvements.
When you look at clean streak in particular.
It's actually.
Margin neutral to the balance of the business.
And what Youre seeing on the overall margin compression side the investments that we're making.
In the M I T and operation leadership program as we make investments in our team members to help support the future New unit expansion.
And then also last year, we only had about half a year of public company costs, which we expect to be about $10 million on a year. This year, we'll have a full year of those costs, yes, Jed I would add to that is a high growth company, we have not prioritized margin expansion in our margins.
We think our.
Really healthy and strong.
Grown year over year.
But to your comment we are in investment mode. We are in a build mode. We could easily if we ever chose to dial back on certain investments and increased margins very very quickly or.
Take pricing if we wanted to to get the margin profile, even higher but if we're in growth mode. What do we want to do that prematurely. So as a result.
Remaining very conservative and again the goal here is to build a national Carwash brand.
And we're on that path.
That makes sense.
I appreciate the color there and then it sounded like you were seeing some encouraging trends in terms of <unk>.
Improving employee turnover, where.
Are those improvements across both manager level positions and sort of rank and file employees.
And then did <unk> have.
Have any impact on that sort of at the.
The start of 2022.
Yes for sure I think January from an army Crown standpoint.
We were put to the test with a bunch of call outs in a bunch of people that are.
Had gotten sick, we were able to work through that and again without any interruptions.
But in this current environment.
Flat turnover, we would consider a win.
And again, we over the last three years, we've reduced our turnover considerably.
Given the things that I mentioned in my opening comments to.
To make this an amazing place to work so.
Going forward.
Really focusing on now this employee value proposition and how we can make this an EBIT or attractive career opportunity.
And.
One of the things Thats been probably the most rewarding part about this entire journey is that we've been lifting lives and improving fundamentally improving people's lives.
Thousands of People's lives as a result, because we are.
And sharing our company that believes in cabin Egalet Cherry and mindset, but the fact that every one of our site managers is a owner in the company because we have provided and providing them with an equity position.
That is really powerful and it puts us in a great spot vis vis our competition, who has chosen not to share in the profits with their team leaders.
Okay.
Got you thanks for taking the questions I appreciate it.
This concludes our question and answer session I would like to turn the conference back over to John Lai for any closing remarks.
Well, thank you operator.
On behalf of the entire team are Mister car wash. We appreciate your interest in our journey. We think we're in the early stages of our lifecycle quite frankly, and even though we've been at this for over 25 years.
Feels like the second or third inning, and our opportunity to scale. This copy to 1000 stores and even higher.
Judge who came from Yum brands Pats me on the head sometimes in a very cognizant anyway, and so John 1000 stores, that's cute, let's get to 15000.
Which might be a little bit.
But.
1000 is in is in our sight line and we're thrilled to be on this.
Path. So thank you everyone for your support and interest.
Going to get back to Washington cars.
Yes.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.
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