Q4 2022 Mister Car Wash Inc Earnings Call

Speaker 1: But.

Speaker 2: good afternoon.

Speaker 3: And welcome to Mr. Carwash's conference call to discuss financial results for the fourth quarter in fiscal year 2022.

Speaker 3: At this time, all participants are in a listen-only mode.

Speaker 3: Later, we will conduct a question and answer session and instructions will follow at that time. states for you to know more at those companies.

Speaker 3: 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. Speaking from management on today's call are John Lye, chairperson and chief executive officer and Jed Gold, chief financial officer. After John and Jed have made their formal remarks we will open the call to questions.

Speaker 3: During this conference call, references to non-GAAP financial measures will be made. A complete reconciliation of these measures to the most comparable GAAP measures have been included in the company's earnings press release issued earlier today and posted to the investor relations section of Mr. Karr's KarrWashes website at ir.mrkarrwash.com.

Speaker 3: As a reminder, comments made on today's call may include forward-looking statements which are subject to significant risks and uncertainties that could cause the company's results to actual to different materially from management's current expectations.

Speaker 3: Please be advised that the statements made today are current as of this call and are based on our present understanding of the market and industry conditions. While we may choose to update these statements in the future, we are under no obligation to do so unless required by applicable law or regulations. Please review the forward-looking statements disclaimer contained in the company's third quarter 10Q as such factors may be updated from time to time in other filings with the Securities and Exchange Commission. I will now turn the call over to Mr. John Lott.

Speaker 4: Good afternoon everyone. As I reflect on this past year, I characterize 2022 as a year of progress and promise. A year where we turn challenges into opportunities. Opportunities to strengthen our team, improve our products and services, and differentiate in an increasingly competitive environment. It was a year where we experienced a slowdown in retail frequency, which we believe was primarily driven by the macro economy, while also experiencing inflationary cost pressures across almost every corner of our business, which put downward pressure on margins.

Speaker 4: But it was also a year where we got stronger and more focused. We reset our labor model and improved productivity and became more cost efficient with a keener eye on managing our expenses while prioritizing projects that have the highest return on invested capital. With that backdrop in 2022, we ended the year with 436 locations, growing our portfolio by 40 net stores.

Speaker 4: We increased revenues by 16% to $877 million. We increased adjusted EBITDA 11% to $282 million and grew comparable store sales by 5%. In looking at the fourth quarter, we grew revenue by 12%, increased comp store sales by 4%, increased adjusted EBITDA by 15%.

Speaker 4: and opened a record 13 new Greenfield locations, as well as acquiring three new locations in California. As we barrel into 2023, we've identified six pillars that will guide everything we do.

Speaker 4: Number one, expand our footprint while densifying and fortress-ing the MSAs we're in by accelerating our greenfield development and pursuing strategic M&A. Number two, introduce our new premium-positioned Titanium 360 retail package and UWC program alongside our new rinse and drying systems. Number three, improve our marketing and ad-spend by focusing on acquiring new retail customers through more targeted, data-driven outreach. For more information, visit MSN.com

Speaker 4: Number four, continue to focus on growing and strengthening our UWC member base. Number five, improve the performance of our existing portfolio by reformatting and reimaging many of our existing stores while continuing to look for ways to improve speed and quality.

Speaker 4: And number six, never pulling back on the people side of our business by building our leadership bench, which in the end is one of our most distinct competitive advantages.

Speaker 4: On that note, at Mr. Carwash, human capital matters. I was recently in Minnesota visiting stores and had the opportunity to meet one of our high potential future leaders who happened to be a recipient of our tuition reimbursement program.

Speaker 4: As she pursues her degree in software development, she applied her learnings from school to create a very sophisticated algorithm that combines store-level data into a dynamic regional dashboard to better track performance across all stores in Minnesota.

Speaker 4: The regional team quickly adopted this and it's a great example of how investing in people yields dividends, sometimes in the most unexpected ways. It's also another example that our culture of taking care of our people can foster an environment where they come up with new innovative ideas to help our business. We have many stories like hers and it's what makes us not just a best-in-class operator but a special company to work for.

Speaker 4: As we look ahead to 2023, we know that the immediate road won't get any easier. We've built the most talented and experienced management team in the industry with a shared sense of purpose around doing something that no one has done before, building a national car wash brand that stands for excellence. And behind the scenes, we'll never lose sight of our guiding principle, which is to take care of our people, who take care of our customers.

Speaker 4: who in turn allow us to generate extraordinary shareholder value over the long run. I will now turn the call over to Jed to provide more commentary around our financial results. Thank you, John , and good afternoon, everyone. Overall, we are pleased with our results and underlying trends in the fourth quarter. Demand was consistent with the broader trends we have seen throughout much of the year.

Speaker 3: and we are able to offset inflationary pressures with productivity improvements, expense containment, and retail pricing increases. As a result, fourth quarter revenue was in line with our expectations, and our adjusted EBITDA was modestly ahead of our expectations. As John mentioned, a big highlight of the quarter was new store openings. In the fourth quarter, we opened 13 new Greenfield locations which was a quarterly record and acquired three locations. Our Greenfield stores continue to perform very well, ramping toward our mature express ex...

Speaker 3: in December likely had some negative impact on retail demand. Another highlight of the quarter was the continued steady performance of our unlimited wash club subscription business.

Speaker 3: UWC cells represented 71% of total wash cells, and we added 24,000 net members in the fourth quarter.

Speaker 3: On a year-over-year basis, the number of UWC members increased by 13.8% to just under 1.9 million members. Once again, we did not see a meaningful change from our historic churn rates and our historical numbers.

Speaker 3: and we did not see club members trading down from the premium package to the base package in any meaningful way. Looking at the expense side of the business, we were pleased to see some of our cost containment measures beginning to result in lower labor costs and higher operating efficiencies.

Speaker 3: Overall, fourth quarter adjusted EBITDA margins were better than expected and came in at 30.9% compared to 30% last year. Excluding stock-based compensation and as a percentage of revenue, labor and chemicals decreased 180 basis points to 29.5%. Labor store operating expense increased 170 basis points to 38.8%.

Speaker 3: And G&A expense decreased 280 basis points to 10.1%. The labor and chemicals line primarily benefited from better labor scheduling. Other store operating expenses increased primarily from higher utility rates, increased maintenance service costs, and increased rents related to additional cell leasebacks. The increase in G&A was primarily from growth related investments. During the fourth quarter, interest expense increased to $15 million from $6 million last year because of higher interest rates, an increase in debt levels and the expiration of our interest rate hedge. During the quarter, we transitioned to a SOFR-based borrowing rate, and we are now paying SOFR plus 310 basis points on our outstanding debt.

Speaker 3: This compares to a previous rate of LIBOR Plus 300. Our GAAP reported effective tax rate for the fourth quarter was 25.1% compared with 11.4% for the fourth quarter of 2021. The increase was primarily due to the exercise of employee stock options and the favorable tax treatment in the year-ago period. Adjusted net income and adjusted net income per diluted share, which add back stock-based compensation and certain non-core operating expenses, were $26 million and 8 cents respectively in the quarter.

Speaker 3: Fourth quarter adjusted EBITDA was $66 million, up 15.4% from the fourth quarter last year. Moving on to some balance sheet and cash flow highlights. At year end, cash and cash equivalents were approximately $65.2 million and outstanding long-term debt was $896 million. For the year, net cash provided by operating activities was $229 million and gross capital expenditures were $192 million. Lastly, let me make a few comments around guidance. Our initial full year 2023 guidance calls for.

Speaker 3: Net revenues of $925 to $960 million. Comparable store sales growth of 0 to 3%. Adjusted net income of $100 to $115 million. And adjusted EBITDA of $277 to $297 million. We do expect comparable store sales growth to be lower in the first half of the year versus the second half of the year. The primary drivers of this are the more difficult lap and the natural ramping of more greenfield stores that opened in 2022 being picked up as comp stores in the second half of the year. As a reminder, when we forecast interest expense, we use the SOFR forward curve in the market. And this makes for a bit of a moving target. As a result, our 2023 interest expense assumption is currently $73 million versus the $42 million we reported last year. The big year-over-year change is the result of the expiration of our very favorable hedge and the rising interest rate environment. We continue to look at strategies to reduce interest expense going forward, but do not expect any material benefits in the short term.

Speaker 3: need to operate a number of stores on company owned properties eligible for sell these back.

Speaker 3: Our guidance includes sell these back proceeds of between 110 to 130 million dollars for the year. At this point, we believe we can execute our sell these back target utilizing both the 1031 and national REAP market, and it will be a creed of the EPS when compared to other sources of financing. Between the sell these backs executed last year and expected sell these backs to be completed this year, along with rent escalators, and the

Speaker 3: we expect 2023 cash rent expense to increase $12 million to approximately $100 million. Our initial capital expenditure outlook for the full year 2023 is $220 to $270 million. This initial outlook is calculated based on our outlook of approximately 35 new green fields this year. As a reminder, our CapEx in any given year includes some spending on new stores that are early in the development process and not likely to open until the following calendar year. Also, we did defer some capital projects last year because it was simply more cost-efficient to work on certain projects while we were retooling the stores for the new service offering this year. Finally, regarding the new service offering, we expect it to take approximately 18 months to have it rolled out across the entire base of stores, and our initial guidance for 2023 does not include any benefit from the new offering. As we have mentioned,

Speaker 3: We also plan to use this opportunity to further standardize many of our wash tunnels. While we do expect the new offering to be accretive to our margins and earnings, it's simply too early to build anything into the model at this point. In conclusion, while we cannot predict how the macroeconomic environment will play out over the next 12 months, we will continue to strengthen our operations and work hard to earn each and every customer visit. I want to thank all our hard-working team members and associates who work hard every day and for their commitment to help grow Mr. Carwash. With that, we're happy to take your questions.

Speaker 5: We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw a question, please press star then 2. At this time, we will pause this momentarily to assemble our roster. Our first question will come from Elizabeth Suzuki with Bank of America. Please go ahead. Great, thank you. Just a question on how your costs are expected to flow throughout the year and also between the other store operating expense and general administration and cost of labor. Just how should we think about those?

Speaker 3: and then also the rent as highlighted in the prepared remarks.

Speaker 6: Great. And then my follow-up question is really about labor and increases that you've put through over the last year and then maybe plans going forward, how much you plan to take up wages and whether historically you can point to market share gains that have been transpired after those increases.

Speaker 4: In the question of would you recommend Mr. Carwash is a great place to work, we think that that's a terrific score. But looking at some other non-GAAP measures, you know, our applicant flow is up 30%. Our turnovers remain relatively constant. And it kind of fulfills our goal of becoming an employer of choice, making sure we're creating a great environment. So specific to your question, you know, we have seen year over year our wages.

Speaker 4: activity gains and you know this management team is managing through you know those forces. Hard for us to kind of have a clearer insider's view as to what the future holds but we are feeling better about where we sit from a labor standpoint. Great thanks very much. Our next question will come from Simeon Gutman with Morgan Stanley . Please go ahead. Hey John , hey Jed. Can we talk about the comp guide? You know it's a bit of a step down from where you're running so please if you can diagnose the macro, the consumer, the retail side of the business and how you thought about the 0-3. Yes Simeon so that we are still seeing some softness on the resale side of the business.

Speaker 3: As you know, we had a really strong September and October , as we highlighted on our last call. Those trends moderated just a little bit and didn't transcend into November , December , and going into Q1. So our full year guidance calls for comps in the 0-3 percent range. Keep in mind, particularly Q1, we have some really, really strong lap. So giving that difficult year-over-year comparison, we think that the first half could be 0 percent plus or minus, and then at the high end of the range, plus or minus in the second half of the year due to the lap that we talked about, then also just the natural ramping of some of our green fields as they start to get picked up in that comp store. Yeah. Jed, I would add to Simeon's question. I think when we look at our retail business, which we're right now laser focused on, we have seen what we're considering a reduction in frequency. It's not necessarily a lost customer. It's a customer that's coming in less often.

Speaker 4: And we believe it's primarily macro driven, less so weather, so competition. We also believe we don't have any hard data to support this. This is coming from probably the bottom quartile of our cohort customer base. I think the good news when we look at just other metrics that we keep an eye on, you know, our ticket average year over year is up over a buck north of 9% which is good. We haven't seen any material trade down in any percentage of package sales. So our premium package mix is holding up nicely. And as you know the margins on those premium packages are beautiful. So the business is on solid footing and on healthy grounds. And what we need to do now is just get better at marketing and see what we can do to drive retail traffic.

Speaker 4: And we believe it's primarily macro driven, less so weather, so competition. We also believe we don't have any hard data to support this. This is coming from probably the bottom quartile of our cohort customer base. I think the good news when we look at just other metrics that we keep an eye on, our ticket average year over year is up over a buck north of 9%, which is good. We haven't seen any material trade down in any percentage of package sales. So our premium package mix is holding up nicely. And as you know, the margins on those premium packages are beautiful. So the business is on solid footing and on healthy grounds. And what we need to do now is just get better at marketing and see what we can do to drive retail traffic. Fair enough. And then, um,

Speaker 4: Competitive backdrop as well as the deal flow or the deals that you're looking at, has anything come in yet as far as more attractive because there's more willing sellers or is everyone frozen given the rate environment and you're just keeping your head down waiting for the right chance? Yes, so when we look at unit growth, we have as we've shared in previous calls, we're really doubling tripling down on our greenfield development given the attractive economics and kind of how well we're performing. As you're aware, M&A has been a big part of our story and has helped us get to where we are but given how what we believe to be overpriced assets and us being very disciplined in our approach to M&A, we've been happy sitting on the sidelines and making sure that we're not overpaying for businesses at the very core. So what we're seeing right now is a slowdown across and we're not alone right now. So what we're seeing is a slowdown in M&A activity across the industry, kind of coming back down to earth from a multiple standpoint. We think that that's all healthy because things have gotten a little too exuberant, if I can use that word. And again, I think that that's a natural reset of where things ought to be. So we're very conservative when it comes to our M&A approach going forward. We're not going to swing at every pitch. We're going to make sure that we look for the right strategic opportunities in existing markets and probably do just onesie-twosies. That said, if there's a platform that comes along that looks attractive and it helps move us into a new geography, we've been known to surprise some people. So more to come. Okay. Thanks, John . Thanks, Jed. Good luck. Thanks. Thanks.

Speaker 4: Our next question will come from Michael Lasso with UBS. Please go ahead. Good evening. Thanks a lot for taking my question. So looking at the UWC membership base, the growth is 13.8% is as slow as it has been in the last four years. You mentioned the attrition has been stable so obviously that means it's been difficult to attract new customers, assuming that's because the retail business is down. So can you give us a sense of how the curve is going to look from here, assuming that retail business remains under pressure, what will the growth in UWC membership look like over the next couple of quarters, especially if the macro gets worse from here? Hey Michael, this is John . You had to throw that last piece in with the macro gets worse. So we're hoping that the macro gets better but we're also managing this business as if you know, hope for the best but expect the worst. So we have on the cost side, you know, batten down the hatches and we're running as efficiently as we need to. But as we look at our UWC member growth, you hit the nail on the head with a slowdown in retail as a top of the funnel kind of input to our UWC member conversion. We're also anticipating a slowdown in UWC member growth.

Speaker 3: in the near term. And so really we're focusing on how we can drive retail traffic to help us accelerate our UWC member growth. And I can spend some time talking about some of the things we're doing there, but the bottom line, short answer to your question is that it's gonna be relatively flat-ish over the next several quarters. We're not anticipating any significant growth. And Michael, just to add a little bit more color there in how we're thinking about it, is we put together the guide and the model. We still believe that consumers, they're still very pressured. I mean, when you look at economic indicators, balance sheets are running thinner, savings rates are declining relative to previous periods. And so from a UWC perspective, as you know, we don't provide a guide on actual UWC members that we expect in 2023, but we did assume that similar year-over-year trend that we saw in 2022 continuing into 2023 given the softness on the retail side of the business. Michael, if I could just add one more comment here.

Speaker 4: know, just if we zoom out for a second and just say, hey, 70% of our revenues are subscription. So they're recurring, they're predictable with a really beautiful margin profile. We feel very fortunate that we have built what we believe to be the largest carwash loyalty member base in the entire industry. And, you know, I think one of the things that I was kind of waiting for you to ask, so I'll just go there. You know, we look at attrition or churn, you know, that's remained relatively constant. And so one of the things that I think some people were anticipating was an uptick in churn in a down economy. And we haven't seen that, which again, speaks to the loyalty and I think the strength of the member base that we've built.

Speaker 3: Understood. My follow-up question is going to be in two parts. Number one, how much have you assumed of a contribution from the rollout of the titanium offering to your same-store sales growth this year? And then my second part is if your same-store sales fall short of what you're guiding to, how much deleverage will you see on that shortfall? Obviously, a defining characteristic of the carwash business is that the marginal profit on an incremental wash is fantastic given the modest incremental costs associated with each incremental unit, but that can cut both ways where you lose out on some washes and that falling revenue can have pretty sharp decremental margins as well. So we'll start with the first question that you asked, and John can jump in and provide some more color, but from a modeling perspective and tighten.

Speaker 3: It's still early days. We're piloting that in a handful of stores. While we're encouraged with the early results that we're seeing, there's some things that we still need to tweak. As we think about continuing to roll that out over the next 18 months. Right now, the model assumes just a little bit of a headwind because of some of the investments that we need to make, particularly in the first half of 2023. On the labor side, we're offsetting some of that with some productivity initiatives as we're looking at labor scheduling and tightening that up. But we aren't assuming any upside due to titanium in 2023. Yeah. Jed, can I provide some more color to as to the why it's taking us so long to roll this thing out? I want to overstate that this is more than just a product launch. This is an entire re-engineering reconfiguration of our rinse and drying system as well as adding a brand new service, brand new package, brand new program.

Speaker 4: And we're also resetting and putting in place a better service delivery model for our customers. And so that massive amount of transformation we think is going to have a huge lifting effect. But because of the massive size of it, you know, we're going through this in a very thoughtful and intentional way, region by region as we always do our rollouts. This is not a flip the switch. And the next day we've got a new product with new pricing. As we've shared before, we've always felt that we need to earn the customers trust and deliver exceptional value. And so this is going to be a natural, we believe to be, you know, pull where people are gravitating towards this service, not through aggressive sales tactics, not through, you know, slick promotional gimmicks, but through demonstrating the value from the service. And we're really encouraged by the early stage results. But I've been asked to not share any of those results, because you guys take that and run with it from a model standpoint. And then I'm out there having said too many things. So bottom line is we're optimistic, we're excited, but we're staying kind of on soft ground with respect to the impact this year. But we're really confident about what that lifting effect is going to have in years following.

Speaker 3: And then Michael, the second question around the sales deleverage, it's a tricky one in the sense that, I mean right now we are very focused on different marketing initiatives to try and drive retail volume to bring in that retail traffic and we've been testing and trying different things but quite frankly we haven't seen anything that to our satisfaction that makes sense to do a wholesale roll out of yet. But we are continuing to lean in there. The other thing that we constantly look at and assess is where and when it makes sense to take pricing. While we don't have anything planned at this point, it is something that we continue to look at and assess. And then from a cost containment perspective, I believe we're still early days, particularly as we look to leverage the scale of Mr. in recognizing some various costs containment initiatives that will help offset any potential sales deleverage if we found ourselves in a scenario where our sales were decreasing. Understood, thank you so much and good luck. Our next...

Speaker 4: member and customer base while not giving away the farm while we're doing that. So in our testing you know part of the equation is getting the engine up and running and this is a great time for us to announce that our digital app was just released on the Apple website as of last night and so

Speaker 4: That's been a long time coming, building out this native app. This is not an off-the-shelf app that you can buy from your point of sale provider. And every Tom, <expletive> , and Harry is using the same one with a different face. This is a customized solution that we think is really going to drive member engagement as well as customer acquisition. So, bottom line is we are testing to Jed's point. We have yet to determine which one is ultimately going to move the nail. We are not done testing and we are going to continue to experiment so that we can drive retail traffic. But as I mentioned, it is a priority for this company. And to be quite honest with you, as we reflect back again, we have been so successful in that old school word of mouth and taking existing customers and converting them into members that we hadn't needed to advertise. We didn't need to discount. And perhaps in hindsight, we took our foot off the pedal and we probably should have been perhaps more aggressive knowing that there was going to be some point in the...

Speaker 4: more competition out there that could be playing a role and maybe do you see pockets of the country where there's a lot of greenfield growth that there is extra retail weakness. Yeah, I think we're not there yet. To be honest, I still think it's more macro driven than it is competition or weather. And again, we're speculating that it's the bottom portal of our customer.

Speaker 3: that 70% of the sales are UWC. We're seeing that part of the business hold together. And then to John's point, when you look at those stores that are in a surrounding income demographic of less than $40,000, and we have a handful of stores in that demographic, they are down more than the balance of the portfolio. When you look at the plus four that we did in December , they're actually slightly, those stores are slightly negative during the quarter, so.

Speaker 5: I think though Jed they will come rolling back when the sun breaks. So I want to emphasize that this is just a temporary moment in time. Okay. Thanks guys. That's actually a really helpful insight on the demographic feedback. So thank you. Good luck. Thanks. Our next question will come from Simeon Segal with DMO Capital Markets. Please go ahead. Hi this is Derek Clingshurn on for Simeon. Thanks so much for taking our call. I'd just like to expand on that last point a little bit if possible. Looking across UWC members across different regions and different metro areas, I'm just curious if there's been anything notable to call out among member growth. Are you not seeing it this year that you've seen in previous years? Are there weather concerns potentially maybe being an issue as well too? Is there anything noteworthy within kind of your different pockets that you operate in that could be causing a divergence I guess? Yeah. The short answer is no. And I think part of it is because...

Speaker 5: At the very core, we have changed people's behavior. We've changed the way people care for their vehicles. Once you get accustomed to having your car clean all the time, you get really uncomfortable when your car is dirty. In the overall scheme of things, we still believe that their car wash expense as a percentage of their overall transportation expenses is a very tiny fraction and it's feel good. As a result, the member base has remained unbelievably resilient and for that we're very grateful. That's great. I appreciate the color. Jed talked about this a little earlier and you guys have mentioned this in the past. What is the ability to conduct sale lease-backs at current levels? You mentioned previously it was somewhat challenging and cap rates were getting a little pin-stopped. I guess from an attractiveness standpoint to do those deals. I'm just curious how that's kind of trended over the last few months. You just did some. Was that an area where that was an issue and how are you guys thinking about that for within your guidance next year with your plan sale expects? Yeah, Gary, just one clarification there to your question. It wasn't necessarily the attractiveness to do these deals. It was just as you see the cost of borrowing.

Speaker 6: How much more flexibility do you have to take prices up? And how much of a reality is it, especially in the context of what seems to be labor expense still being high?

Speaker 4: Yeah, hey Kate this is John . I'll start by saying I think we're appropriately priced in each of our markets. That said, you know, we continue to reassess our position and, you know, like any company we're going to remain opportunistic and make a move, feel it's appropriate. We do believe we have some additional pricing power but to your point in this kind of tougher macro...

Speaker 4: titanium launch and moving upstream to more premium packages with a higher price point and again we're very confident that this will be accretive over time. Thank you and just any update on your Florida acquisition and or any further detail on the couple of car washes you acquired in California? Sure I'll start with Florida so you know the Clean Street Ventures deal was our biggest acquisition and as such it's taken us longer and quite frankly a little harder to integrate. What we adopted into the fold was three different operating platforms with three different point-of-sale systems and that's actually not uncommon there's a lot of PE back platforms right now.

Speaker 4: in the Orlando, Central Florida pocket. So we will probably be fully integrated here mid-year, then start seeing the lift that we were hoping for. So again, this one's taking a little longer than we anticipated. On the California acquisitions, these were three beautiful tuck-ins in the Central Valley where we're very, very strong. California is our third largest market and we are rocking.

Speaker 4: But now that the clouds have cleared, we're set up nicely for what we hope to be a great summer which is when their peak demand period is. So strengthening our position in California made a ton of sense and it kind of speaks back to our M&A strategy where we're going to do strategic bolt-ons to...

Speaker 5: Thank you. Again, if you have a question, please press star, then one. Our next question will come from David Ellinger with Roth MKM. Please go ahead.

Speaker 5: Hey, John Jett, thanks for taking the question. So earlier you mentioned the app rollout and trying to improve retention rates. So can you just tell us where average retention times are now sitting and maybe talk about the potential benefits you could get from keeping a customer just for one extra month and what that could mean in terms of upside and incremental profitability if you're able to attain that. Yeah, so we don't share that as a KPI just because we don't want to fall trap to that. It's a singular KPI and there's a whole lot of other metrics that we look at when we evaluate our UWC program. I will say this though that our member retention rates are growing.

Speaker 5: from a length standpoint, and again, that speaks to the stickiness of the program. And so the longer they're on the program, the better. That goes without saying. And so we're moving that needle in the right direction. But with respect to the app and the opportunity for us to improve engagement, since it just launched last night, we don't have a lot of data to share with you, but there's going to be, again, a lot of cool functions that we will roll out here over the next several months, and again, the objective is over time that that member becomes even more sticky. And David, just a data point to help you think through that, right? So if you look at the blended average on the GWPC program, I mean, one additional month and what it's going to mean, right? One additional month per customer, it's roughly $25 per month per that customer. So customer retention, this is an opportunity for us, and we believe the app that John had mentioned is going to help with that as we look to going forward. Got it. Okay. And then my second question is on guidance and the EBITDA margin compression that's baked into 2023. So on the low end, we're close to about a 30% rate there. And just understanding you haven't been as focused on margin expansion, this member in new unit growth mode, where could we see EBITDA margins ultimately bottom? There's much more competition in the space. You've got the softer retail business. There's a lot of promos out there. So do you see 30% as sort of this lower bound on margins over the near term, or is there something else behind that?

Speaker 3: Yeah, David, we believe that the fundamentals of the business remain intact. And as we've said all along, we're looking at this over the long term. We still believe that 30 to 35 percent margin that we've shared still holds true. As you think about margin in 2023, I do think it's important to emphasize that a couple of headwinds, right, that rent expense, as you think about the sell these backs that we closed on in 2022 and those being proformid, which is why we shared the $12 million in the prepared remarks. We also have a little bit of bonus reset when you look at 2022 and underperforming just relative to our internal expectations and resetting those bonuses back up to 100 percent payout, create a little bit of a headwind. And then as we look at unemployment rates, relative to historic averages, we believe that there's going to continue to be some pressure on the store level labor line in particular. And so we'd be built in a little bit of a headwind consistent with what we saw in 2022 going forward into 2023. Hence, that's creating a little bit of margin compression in the guide. We are going to be able to offset some of that through some productivity initiatives we really haven't talked much about yet. Just the team and they've done a great job of scheduling labor even better. And the number of people that we have on the clock when we have them on the clock. And this is something we've talked about in the past, but we continue to look at and refine looking at it through a lens of both interior clean and express and tightening and getting better going forward. Yeah, Jed, if I can add to, I think that the cool thing about this story is that we're looking at this thing through a long term lens.

Speaker 4: And we're making investments particularly on the human capital side in people, in future leaders, to help support our growth opportunity. And so what we have not done is pull back on those investments in managers and training and our OLP program and making sure that we're continuing to invest in people that are going to help us support our growth. But those investments continue throughout our facility maintenance organization where many of our competitors are outsourcing our facility maintenance. For us it's a competitive advantage where we've taken it in-house and we now have the best trained and the largest facility maintenance infrastructure in the entire industry with the best coverage ratios that we've ever had in the history of our company. So it's really set us up nicely. So, you know, we could obsess about margins and margin expansion. We're not, again our margins have grown beautifully through top-line growth. We are managing our business responsibly, but we are not going to pull back on doing what we know we need to do. If our opportunities get to a thousand stores that would be very short-sighted. David you still there? We'll come from Justin Clay to look there. Please go ahead. Oh, hey guys, it's Pete on for Justin. Thanks for taking a question. First just around some of the top line stuff. Can you give us a sense for the average ticket assumption that's underlying the comp plan this year, the 0 to 3%?

Speaker 3: in the first quarter in particular, first half, and then expect to be at the high end of the range during the second half of the year, largely driven by just how the lap plays out, and then just the natural ramp, as you think about the 28 green fields that we brought online in 2022, as those start to pick up momentum and get picked up in the comp. That makes sense, thanks. And then just to follow up, just on the marketing, I know there's a lot of initiatives out there. The member discounts, or the new member discounts, you guys have been testing in a new location.

Speaker 4: where we have done such an amazing job of building a really big member base on a per store basis without having to do any types of discounts that there's a whole chorus inside of our organization that's saying why, don't give away the farm. At the same time there's another voice that's saying well perhaps we can get there quicker if we were to do some more clever tactics. And so to that end we're similar to our retail promotions.

Speaker 4: on the customer or at store level. And we're very thankful that we haven't had to get hyper aggressive as others have with some of their discount strategies. Understood, thanks so much guys, appreciate it.

Speaker 5: Our next question will come from Chris O'Call with Stiefel. Please go ahead. Thanks. Good afternoon, guys. Jen, I apologize if I missed it, but can you help us with the cadence of the wash openings for the year and maybe what volume you're assuming for new washes in year one?

Speaker 3: And then what maybe, or what the full investment you're looking for per wash, excluding land, I guess. Yeah, so as we think about, I mean, just Q4, we'll start there. 13 greenfields that we opened in Q4 of 2022, really pleased with how the quarter came together and the number of new builds that we were to open. As we think about the approximate 35 over the course of 2023, we did not disclose the cadence, but it will be slightly favored to the second half of the year versus the first half of the year. And then as we think about the overall investment, it's in line with what we've historically seen, just under $6 million gross CapEx investment, and then we're able to sell these back $4 million, just over $4 million.

Speaker 3: We still believe that we're going to be able to get less than a three-year payback on these green fields. We're seeing 50% cash on cash return by year two in our green fields. These continue to perform extremely well. And this is the highest and best use of our capital. And so we're making investments in building these as quickly as we can. But making sure we have a good quality asset that's going to withstand the test of time. We've got the team in place to operate them to our operating standards. But we, as you heard in a prepared remarks, we've got a very robust pipeline. Not only for 2023, but we're working toward 2024 and even 2025 at this point. What are these new washes averaging in terms of UWC membership levels? And they're maybe their first year? Or maybe how quickly do you think they're going to ramp to, let's say, 4,000 members? Yeah, Chris, for competitive reasons, we're not going to talk in a lot of deep.

Speaker 4: demonstrating who we are and what we're made of. It's one thing when you've got a whole lot of tailwind to look great, but when you face some headwinds and you're able to demonstrate your resolve, demonstrate who you are by delivering an exceptional experience to our customers, it really speaks volumes to how well positioned we are.

Speaker 4: super bright for us. And we'll check back a year from now and see how well we fared in this over the next 12 months. I know we'll be checking back in 90 days. But we're confident that we're going to continue on this path and continue building a beautiful company that's very people-centric. So thank you guys. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines.