Q2 2024 Mister Car Wash Inc Earnings Call
Operator: Good afternoon, and welcome to Mr. Car Wash's earnings call to discuss the financial results for the second quarter ending June 30, 2024. At this time, all participants are in a listen-only mode.
Speaker Change: Good afternoon, and welcome to Mister Car Wash's earnings call to discuss the financial results for the second quarter ending June 30, 2024.
Operator: Later, we will conduct a question and answer session, and instructions will follow at that time. 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 for Management on today's call are John Lai, Chairman 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. During this conference call, references to non-GAAP financial measures will be made.
Speaker Change: 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.
Operator: A complete reconciliation of these measures to the most comparable gap measures has been included in the company's earnings press release issued earlier today and posted to the investor relations section of the company's website at mistercarwash.com. 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 actual results to differ materially from management's current expectations. Please be advised that the statements made today are current only as of this call and are based on the company's present understanding of the market and industry conditions.
Speaker Change: 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.
Speaker Change: Speaking from management on today's call are John Lai, Chairman and Chief Executive Officer, and Jed Gold, Chief Financial Officer.
Speaker Change: After John and Jed have made their formal remarks, we will open the call to questions.
Speaker Change: During this conference call, references to non-GAAP financial measures will be made.
Speaker Change: 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 the company's website at MrCarWash.com.
Speaker Change: 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 actual results to differ materially from the management's current expectations.
Speaker Change: Please be advised that the statements made today are current only as of this call and are based on the company's present understanding of the market and industry conditions.
Speaker Change: While the company may choose to update these statements in the future, they are under no obligation to do so unless required by ethical law or regulations.
Speaker Change: Please review the forward-looking statements disclaimer contained in the company's latest annual 10-K and 10-Q reports, as such factors may be updated from time to time in other filings with the Securities and Exchange Commission.
Operator: While the company may choose to update these statements in the future, it is under no obligation to do so unless required by ethical law or regulation. Please review the forward-looking statements disclaimer contained in the company's latest annual 10-K and 10-Q reports. 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 Lai. Please go ahead, sir.
Speaker Change: I will now turn the call over to Mr. John Lai. Please go ahead, sir.
John Lai: Good afternoon, and thank you for joining our second quarter earnings call. I'd like to start with a quick update on Houston and the impact of Hurricane Beryl. As many of you are aware, the storm damaged a lot of power lines, and it took the city several weeks to get things back up and running.
Speaker Change: Good afternoon and thank you for joining our second quarter earnings call. I'd like to start with a quick update on Houston and the impact of Hurricane Beryl.
Speaker Change: As many of you are aware, the storm damaged a lot of power lines, and it took the city several weeks to get things back up and running.
John Lai: We initially had to close 42 of our stores and then began to reopen as power was restored. I'm happy to report that today, all stores are open and processing cars. Now allow me to update everyone on Q2, which was a strong quarter by many measures. Sales increased 8% to $255 million, comp store sales increased 2.4%, adjusted EBITDA increased 20% to $89 million, adjusted even a margin increase of 360 bips to nearly 35% titanium member adoption was 20% of our member base, and our UWC member base increased 3% year over year. The only headwind right now remains retail traffic, which has been soft. In Q2, we opened nine new stores, ending the quarter with 491 locations.
Speaker Change: We initially had to close 42 of our stores and then began to reopen as power was restored.
Speaker Change: I'm happy to report that today, all stores are open and processing cars.
Speaker Change: Now allow me to update everyone on Q2, which is a strong quarter by many measures.
Speaker Change: Sales increased 8% to $255 million.
Speaker Change: CompStore sales increased 2.4 percent.
Speaker Change: Adjusted EBITDA increased 20% to $89 million.
Speaker Change: adjusted even a margin increased 360 bips to nearly 35%.
Speaker Change: Titanium member adoption was 20% of our member base.
Speaker Change: and our UWC member base increased 3% year-over-year.
Speaker Change: The only headwind right now remains to be retail traffic, which has been soft.
Speaker Change: In Q2, we opened 9 new stores, ending the quarter with 491 locations.
John Lai: When we hit the 500 store milestone, which is right around the corner, we plan on raising our glass and having a shot of tequila and celebrating doing what no one thought was possible. When it comes to our titanium introduction, we couldn't be happier with how our members have responded. Today, we sit at 20% membership penetration for over 400,000 members who are enjoying the mirror-like finish and 360 degrees of protection, building upon our long tradition of developing new and innovative products. Titanium has truly accentuated the car wash experience while extending our competitive advantage with our proprietary in-house solution.
Speaker Change: When we hit the 500 store milestone, which is right around the corner, we plan on raising our glass and having a shot of tequila and celebrating doing what no one thought was possible.
Speaker Change: When it comes to our titanium introduction, we couldn't be happier with how our members have responded.
Speaker Change: Today, we sit at 20% membership penetration for over 400,000 members who are enjoying the mirror-like finish and 360 degrees of protection.
Speaker Change: Building upon our long tradition of developing new and innovative products.
Speaker Change: Titanium has truly accentuated the car wash experience while extending our competitive advantage with our proprietary in-house solution.
John Lai: From the very early stages of our launch, we moved deliberately but remained nimble, staying closely attuned to how our members were responding. Our philosophy around generating trial has always been to respect our customers and allow them to make an educated and informed decision. We know our customers are savvy, and they know quality and value when they see it. Over the last several quarters, I know many of you wanted more specifics around the timing of our rolling rollout and what our promotional schedule looked like.
Speaker Change: From the very early stages of our launch, we moved deliberately, but remained nimble, staying closely attuned to how our members were responding.
Speaker Change: Our philosophy around generating trial has always been to respect our customers and allow them to make an educated and informed decision.
Speaker Change: We know our customers are savvy and they know quality and value when they see it.
Speaker Change: Over the last several quarters, I know many of you wanted more specifics around the timing of our rolling rollout and what our promotional schedule looked like.
John Lai: Like any new product launch, we stayed flexible and adapted to how customers responded and made a few tweaks along the way. Our focus was on generating trial in a smart way, not being overly aggressive with discounts, and making sure we drove a stable and enduring member base. Today, most of our titanium members are paying full price.
Speaker Change: Like any new product launch, we stayed flexible and adapted to how customers responded and made a few tweaks along the way.
Speaker Change: Our focus was on generating trial in a smart way, not being overly aggressive with discounts, and making sure we drove a stable and enduring member base.
John Lai: As a result, we are seeing a nice lift in revenue per member. However, we still see an opportunity in select markets to continue to grow our titanium and platinum memberships, and we'll approach those units on a more site-specific basis. Bottom line, we're happy with 20%, but we know there's room for improvement in certain regions.
Speaker Change: Today, most of our titanium members are paying full price.
Speaker Change: As a result, we are seeing a nice lift in revenue per member.
Speaker Change: However, we still see an opportunity in select markets.
Speaker Change: To continue to grow our titanium and platinum memberships, and we'll approach those units on a more site-specific basis.
Speaker Change: Bottom line, we're happy with 20%, but we know there's room for improvement in certain regions.
John Lai: With respect to retail traffic, it's our number one priority from a marketing perspective, and the team under Matt Marakovits, our new VP of marketing, is laser focused on broadening our reach and driving customer acquisition. Beginning with leveraging our database of over 2.1 million members and identifying lookalike characteristics that can be used for more targeted emails, paid social, and smart search, which is still literally in use for us, but our goal is to turn the retail trend around without giving away the farm.
Speaker Change: With respect to retail traffic, it's our number one priority from a marketing perspective and the team under Matt Marakovits, our new VP of Marketing, is laser focused on broadening our reach and driving customer acquisition.
Speaker Change: Beginning with leveraging our database of over 2.1 million numbers and identifying look-alike characteristics that can be used for more targeted emails, paid social, and smart search.
Speaker Change: Still literally in use for us, but our goal is to turn the retail trend around without giving away the farm.
John Lai: As we scale our company for the long term, we will continue to make investments in people, technologies, and our stores, all while maintaining tight control over expenses. On the people front, our ability to continue to develop future leaders will be the primary determining factor of how fast we can scale our company, which is why we continue to make material investments in our high-potential future leaders with our Mr. Learn the program, trainer infrastructure, and comp and benefits program.
Speaker Change: As we scale our company for the long term, we will continue to make investments in people, technologies, and our stores.
Speaker Change: all while maintaining tight control over expenses.
Speaker Change: On the people front, our ability to continue to develop future leaders will be the primary determining factor on how fast we can scale our company.
Speaker Change: Which is why we continue to make material investments in our high potential future leaders with our Mister Learn program, Trainer Infrastructure, and Comp and Benefits program.
John Lai: One of the things that makes Mister Car Wash special is that we're always encouraging our general managers to think big, be creative, take initiative, and become even more entrepreneurial. Our goal is to cultivate a deep pipeline of talent and set them up with the ability to make independent and autonomous decisions in an agile and somewhat decentralized way. Today, we have over 300 managers at different points in our leadership funnel, working their way through our immersive and very intense Mister University OLP program.
Speaker Change: One of the things that makes Mister Car Wash special is that we're always encouraging our general managers to think big, be creative, take initiative, and become even more entrepreneurial.
Speaker Change: Our goal is to cultivate a deep pipeline of talent and set them up with the ability to make independent and autonomous decisions in an agile and somewhat decentralized way.
Speaker Change: Today, we have over 300 managers at different points in our leadership funnel, working their way through our immersive and very intense Mister University OLP program.
John Lai: It goes without saying that our success depends on their success, which is why we spend so much time investing in their future. It wouldn't be a Mr. Earnings call without providing an update on our culture and the esprit de corps of the team. We just wrapped up our employee engagement survey, which allowed us to quantify how they're feeling about working at MNISTR and, more importantly, areas where we can improve. Overall, 85% of our team members stated that they recommend MNISTR as a great place to work. From an opportunity for improvement standpoint, better communications, and recognizing those who are contributing at a high level bubble to the top.
Speaker Change: It goes without saying that our success depends on their success, which is why we spend so much time investing in their future.
Speaker Change: It wouldn't be a Mr. Earnings Call without providing an update on our culture and the esprit de corps of the team.
Speaker Change: We just wrapped up our employee engagement survey which allowed us to quantify how they're feeling about working at MNISTR and more importantly areas where we can improve.
Speaker Change: Overall, 85% of our team members stated that they recommend MISTER as a great place to work.
Speaker Change: From an opportunity for improvement standpoint, better communications and recognizing those who are contributing at a high level bubble to the top.
John Lai: We believe feedback is a gift and are committed to continuing to strengthen our culture, which is what makes Mr. unique. In late June, we announced that Myra Schimanti would be stepping down as our COO and staying on for now as a special advisor.
Speaker Change: We believe feedback is a gift, and are committed to continuing to strengthen our culture, which is what makes Mister unique.
Speaker Change: In late June , we announced that Myra Schimanti would be stepping down as our COO and staying on for now as a Special Advisor.
John Lai: I'd like to take this opportunity to express my deep gratitude for the instrumental role she played in helping shape this company, particularly during the early years when we were laying the groundwork for where we are today. In keeping with our tradition of promoting from within, I'm proud to announce the recent promotion of Tim Vaughn to SVP of Operations. Tim has been with Mister for 13 years, 26 in the industry, and is one of our best developers of talent.
Speaker Change: I'd like to take this opportunity to express my deep gratitude for the instrumental role she played in helping shape this company, particularly during the early years when we were laying the groundwork for where we are today.
John Lai: Alongside Tim, I'm thrilled to announce the promotion of Luke Kittley to VP of Operations. Luke is a 12 year veteran of Mr. Smith who helped him, alongside our directors of operations and regional managers, lead our best in class operations team. I've said it many times in the past, but it's worth repeating.
Speaker Change: Keeping with our tradition of promoting from within, I'm proud to announce the recent promotion of Tim Vaughn to SVP of Operations.
Speaker Change: Tim has been with MISTER for 13 years, 26 in the industry, and is one of our best developers of talent.
Speaker Change: Alongside Tim, I'm thrilled to announce the promotion of Luke Kintley to VP of Operations.
Speaker Change: Luke is a 12-year veteran of MRF who will help Tim, alongside our Directors of Operations and Regional Managers, lead our best-in-class operations team.
John Lai: We are an operations-driven company, and today, our operations team has never been stronger. As I watch the Olympics unfold in Paris, the grit and determination of the best athletes in the world remind me of our own team members and their championship drive to help make Mr. Smith the best company in the industry. Before I turn it over to Jed, I'd like to give a big shout out to the entire team who put up a really strong quarter and are having to do it during one of the hottest summers on record. I'll now turn the call over to Jed to give a deeper dive into our financials. Thank you, John. And good afternoon, everybody.
Speaker Change: I've said it many times in the past, but it's worth repeating. We are an operations-driven company, and today, our operations team has never been stronger.
Speaker Change: As I watch the Olympics unfold in Paris, the grit and determination of the best athletes in the world remind me of our own team members and their championship drive to help make Mr. the best company in the industry.
Speaker Change: Before I turn it over to Jed, I'd like to give a big shout out to the entire team who put up a really strong quarter and are having to do it during one of the hottest summers on record.
Speaker Change: I'll now turn the call over to Jed to give a deeper dive into our financials.
Jedidiah Marc Gold: We had a strong second quarter, and we're pleased with the underlying trends in our business. Let me touch on a few highlights before we run through the numbers. Our revenue and adjusted EBITDA reached record levels for any quarter in the company's history.
Jedidiah Marc Gold: Thank you, John , and good afternoon, everybody.
Jedidiah Marc Gold: We had a strong second quarter and we're pleased with the underlying trends in our business.
Jedidiah Marc Gold: Let me touch on a few highlights before we run through the numbers.
Jedidiah Marc Gold: Our revenue and adjusted EBITDA reached record levels for any quarter in the company's history.
Jedidiah Marc Gold: Our subscription business remained resilient, and we didn't see any material changes in our core churn levels from previous quarters. Our new titanium membership offerings continued to ramp ahead of our expectations. The vast majority of our Titanium Wash Club members are now paying the regular monthly rate, and we are seeing a healthy increase in subscription revenue per member. We know that trial drives adoption when it comes to our unlimited wash club and titanium offerings, and we will continue to strategically offer trial pricing to club and titanium members when and where it makes sense, similar to prior periods. We continue to see downward pressure on retail transactions.
Jedidiah Marc Gold: Our subscription business remained resilient and we didn't see any material changes in our core churn levels from previous quarters.
Jedidiah Marc Gold: Our new titanium membership offerings continues to ramp ahead of our expectations.
Jedidiah Marc Gold: The vast majority of our Titanium Wash Club members are now paying the regular monthly rate and we are seeing a healthy increase in subscription revenue per member.
Jedidiah Marc Gold: We know that trial drives adoption when it comes to our Unlimited Wash Club.
Jedidiah Marc Gold: and Titanium Offerings and we will continue to strategically offer trial pricing to Club and Titanium members.
Jedidiah Marc Gold: when and where it makes sense.
Jedidiah Marc Gold: Similar to prior periods,
Jedidiah Marc Gold: Our greenfield pipeline remains solid, but we have experienced some delays that have pushed the timing of a few stores to later in the year or early next year. Our priority is to build our subscription membership base at our new locations during the first year, and our 2023 and 2024 Greenfield locations are growing membership in line with our overall expectations. We continue to see paybacks of about three years. Finally, we have done a lot of work around expense management.
Jedidiah Marc Gold: We continue to see downward pressure on retail transactions.
Jedidiah Marc Gold: Our greenfield pipeline remains solid, but we have experienced some delays that have pushed the timing of a few stores to later in the year or early next year.
Jedidiah Marc Gold: Our priority is to build our subscription membership base at our new locations during the first year, and our 2023 and 2024 Greenfield locations are growing membership in line with our overall expectations. We continue to see paybacks of about three years.
Jedidiah Marc Gold: And our strong adjusted EBITDA margin in the second quarter is a testament to the ownership mentality of our team. However, some of the margin growth in the quarter was also from the timing of certain investments that were originally budgeted for earlier in the year. Let me run through the second quarter numbers. Net revenues increased 8% and comparable store sales increased 2.4% compared to last year. UWC cells represented 72% of total wash cells, and we added 15,000 net new UWC members in the quarter. On a year-over-year basis, the number of UWC members increased by 61,000, or 3%.
Jedidiah Marc Gold: Finally, we have done a lot of work around expense management and our strong adjusted EBITDA margin in the second quarter is a testament to the ownership mentality of our team.
Jedidiah Marc Gold: However, some of the margin growth in the quarter was also from the timing of certain investments that were originally budgeted for earlier in the year.
Jedidiah Marc Gold: At the end of the quarter, the membership split between base, platinum, and titanium was approximately 42%. 38% and 20%, respectively. While the average express revenue per member was $28.14, versus $25.87 in the second quarter last year, adjusted net income and adjusted net income per diluted share, which add back stock-based compensation and certain non-core operating expenses, were $37 million and 11 cents, respectively, in the quarter. Adjusted EBITDA increased 20% to $89 million and adjusted EBITDA margin increased 360 basis points to nearly 35%. Total costs and expenses were $200 million in Excluding these items, total operating expenses as a percentage of revenue decreased 260 basis points to 74.6%.
Jedidiah Marc Gold: Now, let me run through the second quarter numbers.
Jedidiah Marc Gold: Net revenues increased 8%.
Jedidiah Marc Gold: And comparable store sales increased 2.4% compared to last year.
Jedidiah Marc Gold: UWC cells represented 72% of total wash cells and we added 15,000 net new UWC members in the quarter.
Jedidiah Marc Gold: On a year-over-year basis, the number of UWC members increased by 61,000 members, or 3%.
Jedidiah Marc Gold: At the end of the quarter, the membership split between base, platinum, and titanium was approximately 42%, 38%, and 20%, respectively, while the average express revenue per member was $28.14.
Jedidiah Marc Gold: versus $25.87 in the second quarter last year.
Jedidiah Marc Gold: Adjusted Net Income and Adjusted Net Income per Diluted Share, which add back stock-based compensation and certain non-core operating expenses,
Jedidiah Marc Gold: worth $37 million and 11 cents, respectively, in the quarter.
Jedidiah Marc Gold: Adjusted EBITDA increased 20% to $89 million and adjusted EBITDA margin increased 360 basis points to nearly 35%.
Jedidiah Marc Gold: Total costs and expenses were $200 million in the quarter and included $7 million of stock-based compensation and related taxes.
Jedidiah Marc Gold: and $3 million of losses related to the disposition of assets.
Jedidiah Marc Gold: Excluding these items, total operating expenses as a percentage of revenue decreased 260 basis points to 74.6 percent.
Jedidiah Marc Gold: The main cost drivers were labor and chemicals, which decreased 160 basis points to 27.4%. Other store operating expense, inclusive of depreciation and amortization, increased 90 basis points to 39%. GNA expense decreased 190 basis points to 8.2%, commenting on each of these a little further. The decrease in labor and chemicals was driven primarily by greater labor and scale efficiencies, partially offset by increased labor rates.
Jedidiah Marc Gold: The main cost drivers were labor and chemicals decreased 160 basis points to 27.4 percent.
Jedidiah Marc Gold: Other store operating expense, inclusive of depreciation and amortization, increased 90 basis points to 39%.
Jedidiah Marc Gold: G&A expense decreased 190 basis points to 8.2 percent.
Jedidiah Marc Gold: Commenting on each of these a little was driven primarily by greater labor and scale efficiencies
Jedidiah Marc Gold: The increase in other store operating expenses was primarily from an increase in rent expense related to our store growth and lease back. We ended the second quarter with 31 more car wash leases compared to the same time last year, and cash rent expense increased 14% to $27 million. The decrease in G&A expense was primarily driven by our focus on managing expenses, optimizing our G&A structure, and the deferred timing of some planned investments around marketing systems and new hires. In the second quarter, interest expense increased to $20 million from $18 million last year, primarily due to higher interest rates and slightly higher net debt.
Jedidiah Marc Gold: partially offset by increased labor rates.
Jedidiah Marc Gold: The increase in other store operating expenses was primarily from an increase in rent expense related to our store growth and sell leasebacks.
Jedidiah Marc Gold: We ended the second quarter with 31 more car wash leases compared to the same time last year, and cash rent expense increased 14% to $27 million.
Jedidiah Marc Gold: The decrease in G&A expense was primarily driven by our focus on managing expenses, optimizing our G&A structure, and the deferred timing of some planned investments around marketing, systems, and new hires.
Jedidiah Marc Gold: In the second quarter, interest expense increased to $20 million from $18 million last year, primarily due to higher interest rates and slightly higher net debt.
Jedidiah Marc Gold: Moving on to some balance sheet and cash flow highlights, at the end of the quarter, cash and cash equivalents were $4 million, and outstanding long-term debt was $919 million. Our balance sheet remains healthy, and we continue to self-fund our growth and expansion. In the second quarter, we completed three cell leaseback transactions involving three car wash locations for an aggregate consideration of $14 million. Let me conclude with a few comments on guidance.
Jedidiah Marc Gold: Moving on to some balance sheet and cash flow highlights. At the end of the quarter, cash and cash equivalents were four million dollars and outstanding long-term debt was nine hundred and nineteen million dollars.
Jedidiah Marc Gold: Our balance sheet remains healthy and we continue to self-fund our growth and expansion.
Jedidiah Marc Gold: In the second quarter, we completed three-cell leaseback transactions involving three car wash locations for an aggregate consideration of $14 million.
Jedidiah Marc Gold: Let me conclude with a few comments on guidance.
Jedidiah Marc Gold: We are reiterating our previously provided guidance ranges for the fiscal year ending December 31, 2024, which are included in a table at the back of today's earnings release. Within the context of those ranges, we wanted to provide some directional commentary on the major components. On the revenue side, we currently expect full-year revenue to be at the low end of the guidance range of $988 million to just over $1 billion. There are a few key drivers here.
Speaker Change: We are reiterating our previously provided guidance ranges for the fiscal year ending December 31st, 2024, which are included in a table at the back of today's earnings release.
Speaker Change: Within the context of those ranges, we wanted to provide some directional commentary on the major components.
Speaker Change: On the revenue side, we currently expect full year revenue to be at the low end of the guidance range of $988 million to just over $1 billion.
Jedidiah Marc Gold: First, we've shifted the timing of new store openings to later in the year. Second, we closed 42 stores in Houston in the month of July related to Hurricane Beryl. On the comparable store sell side, we currently expect comp growth to be around the midpoint of the guidance range of 0.5% to 2.5%. The puts and takes here are stronger than forecasted titanium performance and revenue per member, offset by lower than forecasted retail transactions and the impact of Hurricane Barrow.
Speaker Change: There are a few key drivers here. First, we've shifted the timing.
Speaker Change: of new store openings to later in the year.
Speaker Change: Second, we closed 42 stores in Houston in the month of July related to Hurricane Burrow.
Speaker Change: On the comparable store sell side, we currently expect comp growth to be around the midpoint of the guidance range of 0.5 percent.
Speaker Change: to 2.5%. The puts and takes here are stronger than forecasted titanium performance and revenue per member, offset by lower than forecasted retail transactions, and the impact of Hurricane Barrel.
Jedidiah Marc Gold: On the Adjusted EBITDA side, we expect Adjusted EBITDA to be at the high end of the guidance range of $291.5 to $308 million. The puts and takes here are that we've done a good job of managing expenses and optimizing our GNA structure. We also built our budgets around some additional investments, which have not yet materialized and are now planned for the second half of the year.
Speaker Change: On the Adjusted EBITDA side, we expect Adjusted EBITDA to be at the high end of the guidance range of $291.5 to $308 million.
Speaker Change: The puts and takes here are, we've done a good job of managing, managing expenses and optimizing our GNA structure. We also built our budgets around some additional investments, which have not yet materialized and are now planned for second half of the year.
Jedidiah Marc Gold: I think it's also worth noting our field merit increases went into effect in July 2024 and will be reflected in the second half of 2024. These were included in our original guidance and will impact the comparability with Q2. Let me wrap up by recognizing our hardworking team members who are braving the heat and executing the business every day. Also, I appreciate the team for thinking like owners and helping manage expenses. We feel very good about our performance in the second quarter and the way we are navigating an evolving industry landscape.
Speaker Change: I think it's also worth noting our field merit increases went into effect July of 2024 and will be reflected in the second half of 2024. These were included in our original guidance.
Speaker Change: and will impact the comparability with Q2.
Speaker Change: Let me wrap up by recognizing our hardworking team members who are braving the heat and executing the business every day.
Speaker Change: Also, I appreciate the team for thinking like owners and helping manage expenses.
Speaker Change: We feel very good about our performance in the second quarter and the way we are navigating an evolving industry landscape.
Jedidiah Marc Gold: That concludes our prepared remarks, and we will now open the call for your questions. We will now begin the question and answer session. To ask a question, you may press star and one on your touchtone phone.
Speaker Change: That concludes our prepared remarks, and we will now open the call for your questions.
Speaker Change: We will now begin the question and answer session.
Speaker Change: To ask a question, you may press star then 1 on your touchtone phone.
Operator: If you are using a speakerphone, please pick up your handset before pressing the. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. In the interest of time, please limit yourself to one question and one follow-up. At this time, we will pause momentarily to assemble our rafts. The first question today comes from Justin Kleber with Baird. Please go ahead.
Speaker Change: If you are using a speakerphone, please pick up your handset before pressing the keys.
Speaker Change: If at any time your question has been addressed and you would like to withdraw your question, please press star, then two.
Speaker Change: In the interest of time, please limit yourself to one question and one follow-up.
Speaker Change: At this time, we will pause momentarily to assemble our roster.
Speaker Change: Who's that?
Speaker Change: The first question today comes from Justin Kleber with Baird. Please go ahead.
Operator: Hey, good afternoon, John, and Jedidiah, thanks for taking the questions. First one for me, just on the comments around the downward pressure on retail transactions that's continued. I guess when I run the math, it looks like the retail declines moderated fairly significantly on a year-over-year basis relative to 1Q. So I'm just curious if my math is right. And if so, can you speak to what at least appears like an improving trend line? Was it weather? Are you starting to see any success with, you know, some of the tactics around retail customer acquisition? Just any color there would be helpful.
Justin E. Kleber: Hey, good afternoon, John and Jedidiah. Thank you for taking the questions. First one for me, just on the comments around the downward pressure on retail transactions that's continued. I guess when I run the math, it looks like the retail declines moderated.
Speaker Change: Fairly significantly on a year of your basis relative to one queue. So I'm just curious if my math is right, if so, can you speak to what at least appears like an improving trend line? Was it weather? Are you starting to see any success with some of the tactics around retail customer acquisition? Just any color there would be helpful.
Jedidiah Marc Gold: Yeah, Justin, it's Jed. Good afternoon. And listen, you're right. When you look at retail sales, they did moderate compared to Q1. Retail sales were down low double digits in the second quarter, which was slightly better than what we actually expected. The difference here is the composition of the sales decline. It was a little bit different than what we had expected.
Justin E. Kleber: Yeah, Justin, it's Jed. Good afternoon. And listen, you're right. When you look at the retail sales,
Speaker Change: They did moderate compared to Q1. Retail sales were down, low double digits in the second quarter, which was slightly better than what we actually expected.
Speaker Change: The difference here is the composition of the sales decline. It was a little bit different than what we had expected. Retail transactions were lower than we expected.
Jedidiah Marc Gold: Retail transactions were lower than we expected, but the retail average ticket was higher than we expected. Similar to the lift in revenue per member, we're seeing a nice lift in average ticket for retail due to titanium. We've updated this. We've taken this into account in the color and context that we provided as to what to expect in the second half of the year. Okay, thanks for that, Jed.
Speaker Change: Retail average ticket was higher than what we expected so Similar to the lift in revenue per member. We're seeing a nice lift in average ticket for retail due to a titanium
Speaker Change: We've updated this. We've taken this into account in the color and context that we provided as to what to expect in the second half of the year.
John Lai: And then a question on member growth, you know, members per store are running down across the first half of this year. I imagine part of that's just a function of new builds, diluting that average figure. So I was curious if you could just comment on how you know UWC member accounts are trending in your more mature locations. Are they stable?
Jedidiah Marc Gold: Okay, thanks for that, Jed. And then a question on member growth, you know, members per store are running down across the first half of this year. I imagine, you know, part of that's just a function of new builds.
Speaker Change: diluting that average figure. So I was curious if you could just comment on how, you know, UWC member accounts are trending in your more mature locations. Are they stable? Are they increasing? Are they declining? Just any color on that would be helpful. Thanks so much, guys.
John Lai: Are they increasing? Are they declining? Just any color on that would be helpful.
John Lai: Thanks so much, guys. Hey Justin, this is John. Thanks for the question. As we've shared previously, we have over the last year prioritized, focusing on taking our existing members and upgrading them to our premium programs, platinum and titanium specifically. The offset there is, you know, as we pivoted to focusing on upgrading existing members, that acted as kind of downward pressure on new member growth. The reality is, though, that, you know, the top of the funnel for us is retail traffic.
Speaker Change: Hey Justin, this is John . Thanks for the question. So, yeah, we, as we've shared previously, we have over the last year prioritized
Justin E. Kleber: Focusing on taking our existing members and upgrading them to our premium programs, platinum and titanium specifically. The offset there is, you know, as we pivoted to focusing on upgrading existing members, you know, that acted as kind of downward pressure on new member growth.
Justin E. Kleber: The reality is, though, that, you know, the top of the funnel for us is retail traffic.
Justin E. Kleber: Pressure on the retail side, you know, that's leading to less at-bats for our team And so right now the the net member growth has been modest and we expect that trend to continue probably through the back half
John Lai: So with pressure on the retail side, you know, that's leading to less at bats for our team. And so right now, net member growth has been modest, and we expect that trend to continue probably through the back half. Got it. All right. Thanks, guys. Appreciate it. The next question comes from Michael Lasser with UVS. Please go ahead.
Speaker Change: Got it. All right. Thanks, guys. Appreciate it.
Speaker Change: The next question comes from Michael Lasser with UVS. Please go ahead.
Jedidiah Marc Gold: Hi, this is Henry Caron from Michael Lasser. Thanks so much for taking our question. One question, you know, can you speak a little bit about the penetration cadence for titanium 360 during the quarter? I think we ended one cue at 20%.
Speaker Change: Hi, this is Henry Caron from Michael Lasser. Thanks so much for taking our question.
Henry Caron: One ask, you know, can you speak a little bit about the penetration cadence for titanium 360 during the quarter? I think it we ended one cue at 20%. We were expected to moderate a little bit. And how is that sort of gone into July ?
Jedidiah Marc Gold: We were expected to moderate a little bit. And how is that sort of gone into July? Yeah, so as we think about titanium penetration, first of all, I think it goes without saying that we're very happy with the progression of titanium sitting at a 20% titanium mix, which is consistent with where we sat at the end of Q1. The difference here is that at the end of Q1, that 20% member mix, there were still a large number of those members on promotion.
Speaker Change: Yes, so as we think about titanium penetration, first of all, I think it goes without saying we're very happy with the progression of titanium sitting at 20% titanium mix, which is consistent with where we sat at the end of Q1. The difference here...
Speaker Change: The End of Q1, that 20% member mix, there were still a large number of those members on promotion. And when we look at the 20% titanium mix at the end of Q2,
Jedidiah Marc Gold: And when we look at the 20% titanium mix at the end of Q2, they were vastly off promotion, and as a result, that's what's helping drive this nice lift in revenue per member of $2.27 that we saw during the quarter. We still see an opportunity in select stores and markets, as John talked about in his prepared remarks, to continue to drive titanium and platinum memberships. We're going to approach these units and markets on a more site-specific basis, but bottom line, we're happy with 20%, and we know that there's some room for improvement in certain regions with a little bit more time. Unknown Attendee.
Speaker Change: They were vastly off promotion, and as a result, that's what's helping drive this nice
Speaker Change: Lift In Revenue Per Member of $2.27 we saw during the quarter. We still see an opportunity in select stores and markets as John talked about in his prepared remarks to continue to drive titanium and platinum memberships.
John Lai: We're going to approach these units and markets on a more site-specific basis, but bottom line, we're happy with 20%, and we know that there's some room for improvement in certain regions with a little bit more time.
Jedidiah Marc Gold: Thank you. And just as a follow-up, you know, understand a little bit better for 4Q into 3Q, how that, Rolling off the promotions, I think the penetration for T360 increased from 6% to 15% in 4Q from 3Q. So is that going to basically benefit the comp a little bit more in 4Q versus 3Q? Yeah, listen, the Henry, the way that we've modeled it out is for q3 and q4, that revenue per member is relatively relatively consistent with what we saw in q2. Obviously, we're going to engage the teams to help drive that further and beat it. Great, thanks so much. The next question comes from Chris O'Call by default. Please go ahead.
Speaker Change: Thank you, and just as a follow-up.
Speaker Change: you know, understand a little bit better for 4Q into 3Q, how that
Speaker Change: I think the penetration for T360 increased from 6% to 15% in 4Q from 3Q, so is that going to basically benefit the comp a little bit more in 4Q versus 3Q? Thanks.
Speaker Change: Yeah, listen, Henry, the way that we've modeled it out is for Q3 and Q4, that revenue per member is relatively consistent with what we saw in Q2. Obviously, we're going to engage the teams to help drive that further and beat it.
Speaker Change: Thanks so much.
Chris O'Call: The next question comes from Chris Ocol with Stiefel. Please go ahead. Thanks. Good afternoon, guys. Jed, I know you recently said the average retail ticket was around $14. Did that figure include the impact you're seeing on titanium, or has it climbed more from there?
Jedidiah Marc Gold: Thanks. Good afternoon, guys. Jed, I know you recently said the average retail ticket was around $14. Did that figure include the impact you're seeing on titanium?
Jedidiah Marc Gold: Or has it climbed more from there? Yeah, Chris, so retail, when you look at the average retail ticket, or average, yeah, average retail ticket, it's doing q2 was sitting at $14 and 88 cents. It was up about 5.2% from where we were a year ago. Okay.
Jedidiah Marc Gold: Yeah, Chris, so retail, when you look at average retail ticket, or average, yeah, average retail ticket, it's, it's, during Q2, it was sitting at $14.88. It was up about 5.2% from where we were a year ago.
John Lai: And then, based on our math, it looks like you had fewer new UWC members join in the first quarter than last year. And that's typically your highest seasonal quarter for additions. Then this quarter, it seems like you followed a fairly normal progression downward off that lower first quarter level.
Jedidiah Marc Gold: Okay.
Speaker Change: Unknown Speaker And then based on our math, it looks like you had
Speaker Change: Fewer new UWC members joined in the first quarter.
Speaker Change: Unknown Speaker Then last year, and that's typically your highest seasonal quarter for additions, then this quarter, it seems like
Speaker Change: You followed a fairly normal progression downward off that lower first quarter level. First, when do you become concerned that you simply don't have enough new retail customers coming in the door to keep
John Lai: First, when do you become concerned that you simply don't have enough new retail customers coming in the door to keep UWC membership growth positive? And then second, can you help us understand where your conversion rates are today compared to where they may be historically? Okay. Hey, Chris.
Speaker Change: UWC membership growth positive? And then second, can you help us understand where your conversion rates are today, compared to where they may be ran historically?
John Lai: Great question. So, let me start by saying that the TAM for subscription car washes is underpenetrated in general and that there is upside growth potential for subscription car washes in general. As we've previously stated, you know, for us, the pressure that we're feeling on retail is leading to some softness in net member growth. So the chicken and the egg for us is prioritizing retail traffic growth and customer acquisition of new retail customers coming into our funnel.
Speaker Change: Okay. Hey Chris, great question. So let me start by saying we believe that the TAM
Speaker Change: for Subscription is underpenetrated in general and that there is upside growth potential for Subscription car washes in general as we've previously stated, you know for us the the
Speaker Change: Pressure that we're feeling on the retail is leading to some softness in net member growth. So the chicken and the egg for us is prioritizing retail traffic growth.
John Lai: And then when we get them into the stores, the team has done an amazing job of converting them into membership, and our membership conversion rates are at an all-time high. So we're executing really, really well once we get them in the store. The goal is to get them in the store.
Speaker Change: Customer Acquisition of new retail customers coming into our funnel.
Speaker Change: And then when we get them into the stores, the team has done an amazing job of converting them into membership, and our membership conversion rates are at an all-time high. So we're executing really, really well once we get them in the store.
Speaker Change: The goal is to get them in the store. So your question of when do we get concerned? Well, we're always concerned, right? Our nature is to fret about everything. And I think it's important to put into context that
Speaker Change: When you look at our current average membership on a per-store basis, we're in the top decile given our portfolio and given just the scale of our business. So with close to 5,000 members per store, there's a lot of operators out there that would love to have that kind of average, and we're doing it in a way where we're not
Speaker Change: Pushing Aggressive Pricing. So, you know, we have shared openly that the value of that membership and revenue per member is really, really important to us. So we could spike membership, but we want to do it in a profitable way and do it in a way where we're not doing it that
Speaker Change: in a way that dilutes our RPM.
Speaker Change: So, the plus $2 per car that Jed shared, we see upside in that, but our focus has been on the premiumization of our membership plans.
Speaker Change: And really it begs the question, should we get more aggressive with our base offering at $19.99? We're seeing some operators moving downstream and choosing to offer more aggressive pricing. We think that that actually devalues your product and ultimately has a negative impact on your brand and what your brand stands for. And we would like to see ourselves as the premier operator in the space, and that doesn't need to resort to overly aggressive discount tactics.
Speaker Change: And then Chris, the second part of your question around conversion rates, conversion rates have held consistent with where we've been in recent quarters at hovering at about that 9 to 11% level.
Chris O'Call: Unknown Attendee, as has core churn remained consistent. So, you're correct. About 60-70% of our membership signups are typically in the first half as part of our forecast update.
Speaker Change: Unknown Attendee and the color that we provided on the outlook for the balance of the year reflects those trends. Chris, have we shared our Tommy Boy reference with you?
Chris O'Call: Unknown Speaker I don't think so.
Speaker Change: Do you know when he's selling the brake pads and he's met with resistance and he says, I don't know if you've seen Tommy Boy, but for those who have seen that movie, it's really funny. But what we have is a very easy to get into the program and as a result, easy to cancel setup because we didn't want to be that company that forces you to jump through hoops to cancel your subscription.
Speaker Change: That said...
Speaker Change: We've identified, the marketing team has identified over 800,000 lapsed members.
Speaker Change: that we can reach out to and we're starting to design some tailored messages and offers that can win them back into the program. So there's a huge opportunity to take existing former members.
Speaker Change: and bring them back into the fold. And so that's right in front of us. And sorry if my Tommy Boy reference didn't land, but it works for me. When do you think you'll be able to activate some of those marketing tactics? Would that be a third quarter or fourth quarter event?
John Lai: So your question of when do we get concerned? Well, we're always concerned, right? Our nature is to fret about everything.
John Lai: And I think, you know, we're going to get there. And I think it's important to put into context that when you look at our current average membership on a per-store basis, you know, we're in the top decile given our portfolio and given just the scale of our business. So with close to 5,000 members per store, there are a lot of operators out there that would love to have that kind of average. And we're doing it in a way where we're not pushing aggressive pricing. So the plus $2 per car that Jed shared, we see upside in that.
Speaker Change: Yeah, they're being activated as we speak.
Speaker Change: Okay, great. Thanks.
John Lai: But our focus has been on the premiumization of our membership plans. And really, it begs the question, should we get more aggressive with our base offering at $19.99? We're seeing some operators moving downstream and choosing to offer more aggressive pricing. We think that that actually devalues your product and ultimately has a negative impact on your brand and what your brand stands for. And we would like to see ourselves as the premier operator in the space, and that doesn't need to resort to overly aggressive discount tactics.
Speaker Change: The next question comes from Christian Carlino with J.P. Morgan. Please go ahead.
John Lai: And then, Chris, the second part of your question around conversion rates. Conversion rates have held consistent with where we've been in recent quarters at hovering at about that 9% to 11% level, as has core churn remained consistent. So you're correct.
Jedidiah Marc Gold: About 60% to 70% of our membership signups are typically in the first half, and as part of our forecast update and the color that we provided on the outlook for the balance of the year reflect those trends. Chris, have we shared our Tommy Boy reference with you? Unknown Speaker I don't think so. You know, when he's selling the brake pads and he's met with resistance, and he says, I don't know if you've seen Tommy Boy, but for those who have seen that movie, it's really funny.
John Lai: But what we have is a very easy to get into the program, and, as a result, easy to cancel setup because we didn't want to be that company that forces you to jump through hoops to cancel your subscription. That said, we've identified, the marketing team has identified over 800,000 lapsed members that we can reach out to, and we're starting to design some tailored messages and offers that can win them back into the program.
Speaker Change: Good job.
Christian Justin Carlino: Hi, good evening. Thanks for taking our question.
Christian Justin Carlino: Can you speak to the cadence of comps over the quarter and how things are trending according to date and just given, you know, revenue per member or customer likely improved over the quarter as the promotions rolled off, was there any meaningful difference in the cadence of visits or transactions, whether due to weather or some of the macro events going on?
Speaker Change: Yeah, so when you look at comps over the quarter, comp trends, they're fairly, when you look at it on the month, they were fairly consistent throughout the quarter, although April was, it did slightly outperform.
Speaker Change: The other months in the quarter.
Speaker Change: The other thing to keep in mind as we move into July and August , these were strong years, so we're facing a more challenging comparison.
Speaker Change: During those months, we did see a moderation in comps during July , but there was some noise from Hurricane Beryl that was impacting the comp.
Speaker Change: And then as far as anything specific that jumps out on transactions, it's relatively consistent. RPM was relatively consistent during the quarter, therefore trans were as well.
Speaker Change: Got it. That's really helpful. And just going back to your prior commentary about not needing to see retail trends improve to hit above the midpoint of the guide, how should we think about that now that we're halfway through the year? And I guess, could you quantify the expense benefit that you expect to shift into the back half for some of the marketing and store openings?
Speaker Change: Yeah, so the retail trends we built into Q3 and Q4, consistent with what we saw in Q2.
Speaker Change: So we expect those same trends on a year-over-year basis to be relatively consistent in the second half of the year.
Speaker Change: And then as far as the marketing, the expense load, there's really, there's a few different things that add up here and are impacting the timing of the spend.
Speaker Change: The first and most pronounced is really marketing. The new head of marketing has come in and he's taking a very consumer insights approach and doing a lot of customer profiling so we can be just that much more efficient when we do deploy these marketing dollars.
Speaker Change: That works underway, and then the plan will be to have some more targeted consumer media in the second half of the year. There's also a little bit of timing with some IT systems, and then also just the timing around some new hires.
Speaker Change: From a margin perspective, we do expect margins to moderate during the second half of the year to approximately the adjusted EBITDA margin in the low 30%.
Speaker Change: Got it. That's really helpful. Thanks a lot.
John Lai: So there's a huge opportunity to take existing former members and bring them back into the fold, and so that's right in front of us, and sorry if my Tommy Boy reference didn't hit, but it works for me. When do you think you'll be able to activate some of those marketing tactics? Would that be a third quarter or fourth quarter event? Yeah, they're being activated as we speak. Okay, great. Thanks. The next question comes from Christian Carlino with J.P. Morgan. Please go ahead. Hi, good evening.
Speaker Change: The next question comes from David Bellinger with Mizzou Go. Please go ahead.
John Lai: Thanks for taking our question. Could you speak to the cadence of comps over the quarter and how things are trending quarter to date? And just given, you know, revenue per member or customer likely improved over the quarter as the promotions rolled off? Was there any meaningful difference in the cadence of visits or transactions, whether due to weather or some of the macros?
Jedidiah Marc Gold: Yeah, so when you look at comps over the quarter conference, they're fairly consistent when you look at it by the month. They were fairly consistent throughout the quarter, although April slightly outperformed the other months in the quarter. The other thing to keep in mind as we move into July and August, these were strong years, so we're facing a more challenging comparison during those months. We did see a moderation in comps during July, but there was some noise from Hurricane Beryl that was impacting the comps. And then, as far as anything specific that jumps out on transactions, it's relatively consistent. RPM was relatively consistent during the entire quarter.
David Leonard Bellinger: Hey guys, thanks for the question. The first one on the titanium promos and the roll-off...
Jedidiah Marc Gold: Therefore, trans people were, as well. That's really helpful. And just going back to your prior commentary about not needing to see retail trends improve to hit above the midpoint of the guide, how should we think about that now that we're halfway through the year? And I guess, could you quantify the expense benefit that you expect to ship and marketing and store? Yeah, so the retail trends we built into Q3 and Q4 are consistent with what we saw in Q2.
Speaker Change: Just exiting Q1, I think there was something like 15% of stores still on promotions into early May.
Speaker Change: Based on some of the recent checks and some of the recent offerings we've seen out there, it looks like July and August might be reverting to some of these free trade-ups for titanium.
Speaker Change: Can you just help us with the thinking there? I know you mentioned a more site-specific approach, but any more detail on what locations those could be, and is this in any way like a step back from your initial cadence of rolling these promos off?
Jedidiah Marc Gold: So we expect those same trends on a year over year basis to be relatively consistent in the second half of the year. And then as far as marketing, the expense load, there's really, I mean there are a few different things that add up here and are impacting the timing of the spend. The first and most pronounced is really marketing.
Jedidiah Marc Gold: The new head of marketing has come in, and he's taking a very consumer insights approach and doing a lot of customer profiling so we can be just that much more efficient when we do deploy these marketing dollars. That work is underway, and then the plan will be to have some more targeted consumer media in the second half of the year. There's also a little bit of timing with some IT systems and then also just the timing around some new hires. From a margin perspective, we do expect margins to moderate during the second half of the year to approximately the low, the adjusted EBITDA margin in the low 30%, not it. It's really helpful. Thanks a lot.
Speaker Change: Yeah, hey, David. No, so to be super clear,
Speaker Change: We had been pushing trial offers during the introduction over the last year.
Speaker Change: As we now stop and pause and reset and reevaluate where we sit.
Speaker Change: at 20% on average. That means we have a number of stores in regions that are below 20% and a number of stores in regions that are above 20%. So our opportunity to continue to push and to continue to drive.
Jedidiah Marc Gold: The next question comes from David Bellinger with Mizzou. Please go ahead. Hey guys, thanks for the question. First one on the titanium promos and the roll off, exiting Q1. I think there were something like 15% of stores still on promotions into early May. Based on some of the recent checks and some of the recent offers we've seen out there, it looks like July and August might be reverting to some of these free trade-ups for titanium.
Jedidiah Marc Gold: Can you just help us with the thinking there? I know you mentioned a more site-specific approach, but any more detail on what locations those could be? And is this in any way like a step back from your initial cadence of rolling these promos? Yeah, hey, David. No.
Speaker Change: premium member adoption is right in front of us. The way we're going about it though is to do it where it doesn't take any revenue off the table.
Speaker Change: And so if we offer a trial upgrade for the existing price of your current membership.
Speaker Change: It is not diluted in any way, shape, or form. So those are done, again, on a store-specific and sometimes region-specific basis. But I just want to underscore that it's not going to do anything to shrink our revenues, which is really important to us.
John Lai: So to be super clear, we have been pushing trial offers during the introduction over the last year, but now we stop and pause and reset and re-evaluate where we sit at 20% on average. That means we have a number of stores and regions that are below 20%, and a number of stores and regions that are above 20%. So our opportunity to continue to push for and to continue to drive premium member adoption is right in front of us.
John Lai: The way we're going about it, though, is to do it where it doesn't take any revenue off the table. And so if we offer a trial upgrade for the existing price of your current membership, it is not diluted in any way, shape, or form. So those are done, again, on a store-specific and, sometimes, region-specific basis. But I just want to emphasize that it's not going to do anything to shrink our revenues, which is really important to us.
Speaker Change: Understood. Okay. And then just a follow-up on the...
Speaker Change: Additional membership breakdown you gave, appreciate that. Maybe a longer term question is, how should we think about the overall mix and where that could land?
John Lai: Understood. Okay. And then, just a follow up on the additional membership breakdown you gave. I appreciate that. Maybe a longer-term question is, how should we think about the overall mix and where that could land? Is this more of a barbell approach where the middle package might be the lowest penetration over the next three to five years? How do we think about the split across the three pieces of membership? Yeah, there was a really smart analyst out there that made a very bold statement about operators at 50% of their top tier package.
Speaker Change: Is this more of a barbell approach where that middle package might be the lowest penetration over the next three to five years? How do we think about the split across the three pieces of membership?
Speaker Change: Yeah, there was there was a really smart analyst out there that made a very bold statement about operators at 50% of their top tier package and I was sitting there going, where did he get that data point?
John Lai: And I was sitting there going, "Where did he get that data point?" I'm having fun with you, David, when I say that it was in your last last report because that felt very aggressive, by the way. Can I ask you where you got that data point? Because I've never heard that before in my life.
David Leonard Bellinger: I'm having fun with you, David, when I say that. That was in your last report. Because that felt very aggressive. By the way, can I ask you, where did you get that data point? Because I've never heard that before in my life.
John Lai: Yeah, I'll just tell you, speaking with some of these operators, it might be in some regions like Florida, where some of these newest members coming in tend to trade up to that highest premium package. There are a few conversations like that where, you know, some of those numbers shook out 50% or even higher. Yeah, listen. I spent a lot of time at these trade shows and different conferences and oftentimes in the mosh pit of the bar, where sometimes people can be loose with their words but also somewhat boastful about what they're doing. Jed Gold, when he states a number, he's got a he's held to the highest standard. And he can't frivolously or whimsically throw out something that is not accurate or that he can't stand behind.
David Leonard Bellinger: I'll just tell you, just speaking with some of these operators, it might be in some regions like Florida, where some of these newest
Speaker Change: members coming in tend to trade up to that highest premium package. A few conversations like that that some of those numbers shook out 50% or even higher.
Jedidiah Marc Gold: Yeah, listen, um, I spent a lot of time at these trade shows and at the different conferences and oftentimes the mosh pit of the bar where sometimes people can be loose with their words but also somewhat boastful about what they're doing. Jed Gold, when he states a number, he's got a, he's held to the highest standard.
Jedidiah Marc Gold: And he can't frivolously or whimsically throw out something that is not accurate, that he can't stand behind. So the numbers that we report are true and spot on. Bottom line, short answer to your question is right now 60% of our 2.1 million members are in our platinum and or titanium plans. So roughly 40% platinum, 20% titanium. We feel really, really good about that than the other 40% are in the base. Is there an opportunity to continue shifting that member base to the right?
John Lai: So the numbers that we report are true and spot on. The bottom line, short answer to your question is that right now, 60% of our 2.1 million members are in our platinum and or titanium plans. So roughly 40% platinum, 20% titanium.
Speaker Change: for sure. Hard for us to predict, right? So not knowing that we're one year into this thing, how high the tree line can go. But we do know that we have data points inside of our existing portfolio.
John Lai: We feel really, really good about that. But we do know that we have data points inside of our existing portfolio that have materially exceeded our current targets, and that's given us hope and promise that, you know, the possibility of further growth is in front of us. But I'm a little reticent. I don't want to be that guy at the bar after two drinks that throws out a number.
Speaker Change: that have materially acceded.
Speaker Change: of our current targets and that's given us hope and promise that, you know, the possibility of further growth is in front of us.
Speaker Change: But I'm a little reticent. I don't want to be that guy at the bar.
John Lai: And so we're going to stay reserved and not overshare. David, just a little bit more context. I think that's important. The goal here is not to drive penetration as high as we can – what you'll often see when you talk to some of these competitors is $5, $3 memberships. So really, really low RPM.
Speaker Change: After two drinks that throws out a number and so we're going to stay reserved and not oversharing
David Leonard Bellinger: David, just a little bit more context, I think that's important. The goal here is not to drive penetration as high as we... What you'll see oftentimes when you talk to some of these competitors is $5, $3 memberships, so really, really low RPM.
Jedidiah Marc Gold: But it helps drive that member mix. So it's really a bit of a balancing act; we want to maintain that high RPM that we enjoy; we believe it's best in class in the industry, and then drive the penetration levels higher. And over time, we expect the 20% to increase, but we're not prepared to say over what timeframe and how high it's going to get. Thanks, guys. I won't give you my specific sources, but we'll keep the conversation going.
David Leonard Bellinger: But it helps drive that member mix. So it's really a bit of a balancing act. We want to maintain that high RPM that we enjoy. We believe it's best in class in the industry, and then driving the penetration levels higher. And over time,
Speaker Change: We expect the 20% to increase, but we're not prepared to say over what time frame and how high it's going to get.
Speaker Change: Thanks guys. I won't give you my specific sources, but we'll keep the conversation going.
John Lai: Okay, you got it, David. As a reminder, if you have a question, please press star then one to be joined in the queue. The next question comes from John Heinbockel with Guggenheim. Please go ahead, a John question.
David Leonard Bellinger: Okay, you got it, David.
Speaker Change: As a reminder, if you have a question, please press star then 1 to be joined into the queue.
Speaker Change: The next question comes from John Heinbockel with Guggenheim. Please go ahead.
John Lai: Is there any correlation between retail, retail traffic, and Unknown Speaker your density and or market share? Is there any correlation with that? And then when you think about marketing, right? What's your thought in terms of how you want to where you want to spend that money? Right?
John Edward Heinbockel: density and or market share. Is there any correlation with that? And then when you think about marketing,
John Lai: You want to spend it building brand awareness, you know, traditional media, digital; it may vary by market. And what should you guys spend under one? What's the right number?
Speaker Change: Right. What's your what's your thought in terms of how you want to where you want to spend that money? Right? Do you want to spend it building brand awareness? You know, traditional media, digital, it may vary by market. And what should you guys spend under one sales marketing?
John Lai: You know, it's double that. Is it more than double that? What's your thought on that? Yeah, John, thanks for the three-part question. Let me start with the first part of your question, which was, is there a correlation between the density of our portfolio from an MSA or DMA standpoint and really looking at it through a market share lens and then retail traffic? The short answer is no, we haven't seen a
Speaker Change: What's the right number? You know, is it double that? Is it more than double that? What's your thought on that?
Speaker Change: Yeah, John , thanks for the three-part question. Let me start with the first part of your question, which was, is there a correlation between
Speaker Change: The density of our portfolio on an MSA or DMA standpoint, and really looking at it through a market share lens and then retail traffic, the short answer is no, we haven't seen a correlation. We do know, though, that in markets where we do have an elevated share, we have elevated AUVs.
John Lai: We do know, though, that in markets where we do have an elevated share, we have elevated AUVs, which supports our thesis that, you know, the value prop increases when you have more optionality, and it's just a much stronger program when you're on the ground pitching somebody about the value of your membership, and then you can get your car cleaned at any 20 of the stores throughout the Tucson metro area versus an operator that may have two or three And so that has held true.
Speaker Change: that the value prop increases when you have more optionality. And it's just a much stronger program when you're on the ground pitching somebody about the value of your membership. And you can get your car cleaned in any 20 of the stores throughout the Tucson Metro area versus an operator that may have two or three stores. And so that has held true. But with respect to correlation to retail, that's a little bit fuzzier for us. To your question on just income. Yeah. Yeah.
John Lai: But with respect to correlation to retail, that's a little bit fuzzier for us. To your question on marketing and what our strategy there is, we do see an opportunity to do a better job of building our brand and brand awareness, but we really want to take that and lead it to generating trial. And so, specifically, things that we're doing through paid social, some targeted emails, some digital ad spin. Right now, we're testing various offers through various channels.
Speaker Change: Marketing and what our strategy there so so we do see an opportunity to do a better job of building our brand and brand awareness but we really want to take that and lead into generating trial and so specifically things that we're doing
Speaker Change: through paid social, some targeted emails, some digital ad spend. Right now we're testing various offers through various channels.
John Lai: But our goal is to, to answer your last question, increase our ad spend as our return on ad spend improves, and I think there is definitely a correlation between the bigger our network of stores gets, the more efficient our ad spend can be, and the more effective we become as we learn more and become better at our targeted advertising. We will get more efficiency out of our ad spend, which will then support us taking the 1% today and When tomorrow is, we're not going to overspend too quickly until we have the data to support the efficiency and the effectiveness of our promotion. Great And then maybe just for Jed, sort of getting back to the thing about low 30s or close to 30 in the back half of the year.
Speaker Change: But our goal is to, to your last question, is to increase our ad spend as our return on ad spend improves. And I think there is definitely a correlation between
Speaker Change: The bigger our network of stores gets, the more efficient our ad spend can be, and the more effective we become as we learn more and become better at our targeted advertising, we will get more efficiencies out of our ad spend, which will then support us taking the 1% today and perhaps taking it to 2% tomorrow. When tomorrow is, we're not going to overspend too quickly until we have the data to support.
Speaker Change: The Efficiency and the Effectiveness of our Promotional Spend.
Jedidiah Marc Gold: Great. And then maybe just for Jed, sort of getting back to, right, you think about low 30s or close to 30 in the back half of the year.
Jedidiah Marc Gold: Unknown Attendee What normalizes, you know, you think about labor and chemicals being new, right? You know, almost seems unsustainable. Does that normalize back to, you know, kind of a flattish level year over year? Is that the normalization? Or is it really not?
Jedidiah Marc Gold: What normalizes, you know, when you think about labor and chemicals,
Jedidiah Marc Gold: You didn't quantify the spend in GNA? Is it really that, you know, rising, you know, much more significantly? Which one of the two would it be?
Speaker Change: Right
Jedidiah Marc Gold: You know almost seems unsustainable. Does that normalize back to you know kind of a flattish?
Speaker Change: level year-over-year.
Speaker Change: Unknown Speaker Is that the normalization or is it really
Speaker Change: Yeah, because you didn't quantify the spend in GNA.
Speaker Change: Is it really that, you know, rising, you know, much more significantly? Which one of the two would it be?
Jedidiah Marc Gold: Well, listen, I think I'll answer it slightly differently. John, I think first of all that we've worked hard to build this owner operator mentality within the culture, and the team has done a phenomenal job of finding ways to be more efficient, individuals owning their budgets, looking for what's the return on the incremental dollars that are being spent. And we've got a culture where we can challenge each other, frankly, and make sure that those returns are there. Very, very pleased with what we've seen on a chemical cost per car as we've leveraged the scale of the business and our purchasing and our buying. Helping drive some efficiencies on that chemical cost per car.
Speaker Change: Well, listen, I think let me let me answer it slightly different way, John . I think the first of all, that we've worked hard to build this owner operator mentality within the culture, and the team has done a phenomenal job of finding ways to be more efficient.
Speaker Change: individuals owning their budgets, looking for what's the return on the incremental dollars that are being spent and we've got a culture where we can challenge each other frankly and and make sure that those returns are there.
Speaker Change: Very, very pleased with what we've seen on a chemical cost per car as we've leveraged the scale of the business and our purchasing and our buying and
Jedidiah Marc Gold: We've also seen some labor efficiencies in our interior clean, which isn't the core part of the business, but it represents 13% of our stores and about 30% of our employees. And so how can we find ways to be more efficient as we staff those interior clean locations? Freight costs are another one where we've seen some leverage the scale, and then some miscellaneous G&A items. I'm so pleased with what we've seen and how those specific items that I just mentioned are going to stick in the second half of the year.
Speaker Change: Helping drive some efficiencies on that chemical cost per car. We've also seen some labor efficiencies on our interior clean, which isn't at the core part of the business, but
Speaker Change: It represents 13% of our stores and about 30% of our employees. And so how can we find, how can we be more efficient as we staff those interior clean locations? Freight costs is another one where we've seen some leveraging the scale. And then some miscellaneous G&A items.
Speaker Change: So pleased with what we've seen and how those specific items that I just mentioned are going to stick in the second half of the year.
Jedidiah Marc Gold: What's more timing-related is, as I talked about earlier, the marketing IT system, and some of the new hires within G&A. We expect a little bit more of a step up in the second half from where we were compared to the first half.
Speaker Change: What's more timing related is, as I talked about earlier, the marketing IT system, some of the new hires within GNA, we expect a little bit more of a step up in the second half from where we were compared to the first half.
Jedidiah Marc Gold: Okay, thank you. The next question comes from Simeon Gutman with Morgan Stanley. Please go ahead. Good afternoon, everyone.
Speaker Change: Okay, thank you.
Speaker Change: The next question comes from Simeon Gutman with Gorgas Family. Please go ahead.
John Lai: My first question is on the top line, the, I guess, good progress on the comp. If you take the puts and the takes from the quarter, you know, titanium being paid for, maybe weather, I don't know if hot weather helps or hurts, and then hurricanes. John, would you say that your confidence is changing at all with regard to the revenue generation of the chain? And then, if I can just sneak in as part of it, would you say that most or all of those people getting titanium or users are paying for it now and it's been rolled across to the entire chain, or there's still a little bit of penetration and paying customers that could still roll on?
Simeon Ari Gutman: Good afternoon, everyone. My first question, it's on the top line, the, I guess, good progress on the comp.
Speaker Change: John , would you say that your confidence changing at all with regard to the revenue generation of the chain? And then if I can just sneak as part of it, did you say that most or all of
John Lai: So the 20% Well, actually, 40% of our platinum members are currently being billed at $32.99. 20% of our titanium members are being billed at $39.99. The promotional offers that we were speaking to were for members that are not in that program and trying to trade them up into that next tier program.
Speaker Change #100: 20% of our Titanium members are being billed at $39.99. The promotional offers that we were speaking to were for members that are not in that program and trying to trade them up into that next year program. So we are enjoying the full lift and with respect to
John Lai: So we are enjoying the full lift, and with respect to, I guess you're asking me my mood and sentiment. Well, listen, we've shared with you guys, we've asked you guys to be patient, as we were patient, wanting to focus on getting people into the program while our finger was firmly on the promotional button, and then we lifted it. And now we have delivered, we've delivered in a way with north of $2, this is blended Simeon, $2 average revenue per member across 2.1 million members.
Speaker Change: I guess you're asking me my mood and sentiment. Well, listen, we've shared with you guys. We've asked you guys to be patient, as we've been patient, wanting to focus on getting people into the program while our finger was firmly on the promotional button, and then we lifted it. And now we have delivered in a way with a north of $2. This is blended, Simeon.
John Lai: And we have momentum in that number, right? And so Jed is reticent and somewhat reluctant to want to, you know, stick his neck out and say, hey, there's more that we can generate. But with momentum, there's going to be some upside, and to what degree hard for us to determine. And Simeon, just a little bit more color.
Jedidiah Marc Gold: I think what you're seeing; you're asking about the disconnect between the comp and total revenue generation. I think one point worth noting and I commented on it in the prepared remarks is that with the timing of the new builds shifting to later in the year, it does create a little bit of a headwind to total revenue from what we had expected earlier in the year. Okay, and then just as a follow-up on something John mentioned earlier, contemplating something about the base rate at some point in the future, you know, good or bad, we don't, I think it probably won't go down.
Simeon: And Simeon, just a little bit more color. I think what you're seeing, you're asking about the disconnect between the comp and the total revenue generation. I think one point worth noting in
John Lai: Is that a next 12 to 24 month decision and you see how the rest of titanium goes, or that's a three year strategic decision that you're contemplating? Yeah, well, I know you cover Costco and their cadences minimum once every five years. And so we're, I think we're not worse than Costco. So for us, it's been 20 years since 1999. I think you're speaking specifically to that program.
Simeon: I think it probably doesn't go down. Is that a next 12 to 24 month decision and you see how the rest of titanium goes or that's a three year strategic decision that you're contemplating?
Speaker Change: I think we're not worse than Costco, so for us it's been 20 years at $19.99. I think you're speaking specifically to that program, and for us having a, we'll call it our value offering is good for those more value conscious customers. Is there an opportunity for us to take some price? Perhaps. Are we being overly conservative? Maybe.
John Lai: And for us having a, we'll call it, our value offering is good for those more value-conscious customers. Is there an opportunity for us to take some prices? Perhaps. Are we being overly conservative?
John Lai: Maybe. But, you know, the bottom line is, when we feel it's appropriate, we will choose to take the price. But really, it's a judgment call. And right now, we don't think we need to. It certainly will be highly creative the day that we do it. But right now, we're not going. Thanks, guys. Good luck. Thank you.
Speaker Change: But, you know, the bottom line is when we feel it's appropriate, we will choose to take price. But really, it's a judgment call, and right now we don't think we need to. It certainly will be highly accretive the day that we do it, but right now we're not going to.
Speaker Change #105: Thanks guys, good luck.
John Lai: The next question comes from Philip Blee with William Blair. Please go ahead. Hi guys, thanks for taking my question. You've spoken a bit about expectations for retail traffic to continue to remain soft in the second half of the year. But I mean, what do you expect to see for an inflection back to growth? Is it something, you know, improving in the macro, or maybe a change in the level of competitive intrusion in the market? Do you see any color there?
Simeon: Thank you. Thanks, Simeon.
Speaker Change: The next question comes from Phillip Blee with William Blair. Please go ahead.
Phillip Blee: Hi guys, thanks for taking my question. You've spoken a bit about expectations for retail traffic to continue to remain soft in the second half of the year, but I mean, what do you expect you need to see for an inflection back to growth? Is it something, you know, improving in the macro or maybe a change in the level of the competitive intrusion in the market? Any color there?
John Lai: Yeah, so you know, I think we're all hopeful that this is cyclical and that the state of the US consumer, particularly the lower end cohort, is going to improve over time. But trying to time when that happens, there's a whole lot of people that are a lot smarter than us trying to predict when that happens. So until then, we know that we've got a product with universal appeal; everyone loves a car wash. And, you know, when we see things come back to whatever the new normal is, we know that our lower end quartile is the one that bounces back the quickest. They come in and drill, they love it, and, in fact, in some cases, they place more value on their vehicle than the top quartile, which is a So that's our kind of non-answer on macro.
Speaker Change: Yeah, so, you know, I think we're all hopeful that this is cyclic and that the state of the U.S. consumer, particularly the lower-end cohort, is going to improve over time. But trying to time when that happens, there's a whole lot of people that are a lot smarter than us trying to predict when that happens. So until then, we know that we've got a product with universal appeal. Everyone loves a car wash.
Speaker Change: And, you know, when we see things come back to whatever the new normal is, we know that our lower end quartile is the one that bounces back the quickest.
Speaker Change: They come in in droves. They love, in fact, in some cases, they place more value on their vehicle than the top quartile, which is a little bit interesting. So that's our kind of...
John Lai: I think the other positive trend is that, you know, as we've stated in some of the previous calls, 2023 was kind of the high watermark for new units coming into the category, and we're seeing a pretty marked reduction in new units this year. And from all sources, we're expecting that to continue in its B cell into 2025. And so there'll be less competitive intrusion as a result, which is going to put less pressure on our stores. And quite frankly, if you're going to choose to put up a car wash, do you really want to put it up next to a mister?
Speaker Change: non-answer on macro. I think the other positive trend is that
Speaker Change: You know, as we've stated in some of the previous calls, the 2023 was kind of the high watermark for new units coming into the category, and we're seeing a pretty marked reduction in new units this year.
Speaker Change: From all sources, we're expecting that to continue in its B-cell into 2025. And so there'll be less competitive intrusion as a result, which is going to put less pressure on our stores. And quite frankly, if you're going to choose to put up a car wash,
John Lai: And so I'm not being cocky when I say that. It's just there are other operators that you could choose to go toe to toe with. But I would not want to go up against us.
Speaker Change: Do you really want to put it up next to a mister? And so, I'm not being cocky when I say that, it's just there's other operators that you could choose to go toe-to-toe with. I would not want to go up against us.
Jedidiah Marc Gold: Great, that makes sense. And then I believe you previously mentioned certain markets for titanium mixes trending well above the average, maybe exceeding 30% in some cases. Do those markets typically have an over or higher overall premium membership mix as well? And then do you look at these markets as something that could be reasonable for a national average at some point? Thank you. Jed, do you want to answer that one?
Speaker Change #106: Great, that makes sense. And then I believe you you previously mentioned certain markets for titanium mixes, you know, trending well above the average, maybe exceeding
Unknown Attendee: Unknown Attendee Do those markets typically have an overall or higher overall premium membership mix as well? And then do you look at these markets as something that could be reasonable for a national average at some point? Thank you.
Jedidiah Marc Gold: Yeah, so Philip, the short answer is we do see a higher premium premium mix in those markets that have a higher titanium mix. I mean, there's always a number of factors that go into this when you start looking market to market, but the surrounding income demographics of the score base, Um, I think it. Seeing some of these markets that are at that 30% plus level, it does.
Speaker Change #106: Jed, do you want to answer that one?
Jedidiah Marc Gold: Yeah, so Phillip, it's a...
Jedidiah Marc Gold: The short answer is we do see a higher premium mix in those markets that have a higher titanium mix. I mean, there's always a number of factors that go into this when you start looking market to market, the surrounding income demographics of the store base.
John Lai: It instills that sense of confidence that there's opportunity, particularly in some of those markets that are at the lower end, that are still below 20%, and that there's a path to bring them up. And over time, we expect, and we saw this over the last five years prior to when we had titanium, there's just a natural premiumization that takes place. It's not at the same rate that we've seen over the last year on the heels of the titanium product launch, but there's always been this natural shift into more premium products.
Speaker Change #101: I think it
Speaker Change #101: Seeing some of these markets that are at that 30% plus level, it does, it instills that sense of confidence that there's opportunity, particularly at some of those markets that are at the lower end, that are still below 20%.
Speaker Change #104: and then there's a path to bring them up and
Speaker Change #104: Over time, we expect, and we saw this over the last five years prior to when we had titanium.
Speaker Change #104: There's just a natural premiumization that takes place. It's not at the same rate that we've seen over the last year on the heels of the titanium product launch.
John Lai: Can I also add, too, when you have a brand new store with a relatively blank slate, it's so much easier as you're articulating the full suite of programs to get folks in versus having this installed base where you're then trying to trade them into a new program. And so there are a lot of operators out there, particularly with relatively young portfolios, that are enjoying that benefit.
Speaker Change #104: But but there's a there has always been this natural shift into more premium products. Yeah. Jed, can I also add to when you have a brand new store with relatively blank slate?
Jedidiah Marc Gold: It's so much easier as you're articulating the full suite of programs to get folks in versus having this installed base where you're then trying to
Speaker Change #107: trade them into a new program. And so
Speaker Change #108: There's a lot of operators out there that, particularly with relatively young portfolios that are enjoying that benefit, we're having to take this very, very large install base and shift some of their behaviors and purchasing choices. But we do know that in our greenfield locations, we're seeing really, really amazing premium numbers.
John Lai: We're having to take this very, very large installed base and shift some of their behaviors and purchasing choices. But we do know that in our greenfield locations, we're seeing really, really amazing premium numbers. And again, that's kind of our North Star for what the opportunity is. Once again, if you would like to ask a question, please press star then one to be joined in the question queue. The next question comes from Peter Keith with Piper Sandler. Please go ahead.
Speaker Change #107: And, again, that's kind of our North Star for what the opportunity is.
Speaker Change #103: Once again, if you would like to ask a question, please press star then 1 to be joined into the question queue.
Speaker Change #124: The next question comes from Peter Keith with Piper Sandler. Please go ahead.
Jedidiah Marc Gold: Good afternoon, guys. On the comp outlook for the rest of the year, could we think about a quantification of what Hurricane Beryl has done to Q3, maybe just to help level set our expectations, and then, following on that, has there been any change to your Q4 album? Yeah, Peter.
Peter Jacob Keith: Good afternoon, guys. On the comp outlook for the rest of the year, could we think about a quantification of what Hurricane Beryl has done to Q3, maybe just to help level set our expectations, and then following on that, has there been any change to your Q4 outlook?
Jedidiah Marc Gold: So Hurricane Barrel, when we look at it on the month, it was about 40 to 80 basis points of impact on July. I believe that could be a 20 to 30 basis point impact on comp stores for the quarter. So a little bit of an impact. It was 42 stores in Houston. They were closed on average. The average came out to about 2.9 days for the time that those were closed.
Speaker Change #111: Yeah, Peter. So Hurricane Barrel, when we look at it on the month, it was about 40 to 80 basis points of impact to July . I believe that could be a 20 to 30 basis impact.
Speaker Change #103: to comp stores on the quarter. So a little bit of impact. There's 42 stores in Houston. They were closed on average. The average came out to about 2.9 days.
Jedidiah Marc Gold: I believe that we've adequately reflected that trend as we think about second half comps and our color around the forecast rolling up to the middle of the guidance, the midpoint of the guidance range that we have provided. Okay, great. And I thought the commentary around the reactivation opportunity is interesting. And I guess, is this something that you guys were not doing in the past? It sounds like it's starting now. And so, I guess, how are you reaching out to some of these expired customers? What's the, what's the, I guess, technique?
Speaker Change #103: We believe that we've adequately reflected that trend as we think about second half comps and our color around the forecast rolling up to the middle of the guidance, the midpoint of the guidance range that we have provided.
Speaker Change #110: Okay, great.
Speaker Change #121: And I thought the commentary around the reactivation opportunity is interesting, and I guess...
Speaker Change #109: Is this something that you guys were not doing in the past? It sounds like it's starting now. And so, I guess, how are you reaching out to some of these expired customers? What's the
John Lai: Is it mailers or emails? Give us some color on that, please. Yeah, so it was naturally occurring before where we knew that inside that 800,000 number, there's what we define as a seasonal member that will come in and out. And I choose the Minnesota market as an example, where in the summertime, it's not uncommon for folks to go up to their lake cabin and cancel their membership during the summer period. But then when schools are back in session, they come back and reactivate.
Speaker Change #113: What's the, I guess, the technique? Is it mailers, emails? Give us some color on that, please.
Speaker Change #118: Yeah, so it was naturally occurring before where we knew that
Speaker Change #116: There was inside that 800,000 number, there's what we define as a seasonal member that will come in and out. And I choose the Minnesota market as an example where in the summertime, it's not uncommon for folks to go up to their lake cabin and cancel their membership during the summer period. But then when school's back in session, they come back and reactivate. And so we see that happen in that, not just in Minnesota, in a lot of markets where there'll be a temporary pause, they'll go on vacation, what have you. But we haven't done anything in a
John Lai: And so we see that happen not just in Minnesota and a lot of markets where there'll be a temporary pause, they've gone on vacation, what have you. But we haven't done anything in a more, I think, strategic and targeted way up until now. And this is where the beauty of Matt comes in.
John Lai: Matt said, Hey, there's this embedded base that's just sitting right in front of us. Let's go reach them. And the way to reach them is, we think the most effective way right now is email. And so we've got some campaigns that are going out as we speak. And we hope to have some more data to share on subsequent calls. Okay, sounds good. Thanks so much.
Speaker Change #116: strategic and targeted way up until now.
Speaker Change #116: There's this embedded base that's just sitting right in front of us. Let's go reach them. And the way to reach them is, we think the most effective way right now is email. And so we've got some campaigns that are going out as we speak. And we hope to have some more data to share on subsequent calls.
Speaker Change #128: Okay, sounds good. Thank you so much.
John Lai: Thank you. The next question comes from Robbie Ohm with Bank of America. Please go ahead.
Speaker Change #122: Thank you.
Speaker Change #116: The next question comes from Robbie Ohm with Bank of America. Please go ahead.
John Lai: Oh, hey, thanks for taking my question, really just to follow up on some of the ones that have gone before. For the greenfield stores that you've done, and maybe you don't have enough data yet, but where the penetration is really strong with titanium for a greenfield store, do you have any data on how those stores mature, what the maturation curve looks like versus historical new locations? Robby, just to clarify, are you talking about maturation of titanium or just maturation of the member, total members?
Robbie Ohm: Oh hey, thanks for taking my question. Really just a follow-up on some of the ones that have gone before.
Robbie Ohm: For the Greenfield stores that you've done, and maybe you don't have enough data yet, but where the penetration is really strong with titanium for a Greenfield store, do you have any data on how those stores mature, what the maturation curve looks like versus historical new locations?
John Lai: Maturation of members and in sales of that store. So you know, is there it does it change the maturation or waterfalls of the store? You know, versus stores when you when you weren't doing the high penetration of titanium when you opened a new store? Yeah, it's still early. We don't have enough data points to say definitively whether it impacts how those members ramp compared to prior to having titanium in our new building.
Speaker Change #127: Robby, just to clarify, are you talking about maturation of titanium or just maturation of the total members? Maturation of members and sales of that store. So, you know, does it change the maturation or waterfalls?
Speaker Change #120: of the store, you know, versus stores when you when you when you weren't doing the high penetration of titanium when you opened a new store.
Speaker Change #114: Yeah, it's still early. We don't have enough data points to say definitively whether it impacts how those members ramp
John Lai: Gotcha. And then just one other follow-up question. Do you think that it's been very promotional, and you think it's staying promotional, or do you think the weaker competitors are getting less promotional? You know, just overall, what's the thought competitively? Yeah, it's kind of a mixed bag.
Speaker Change #114: prior to having titanium in our new builds.
Speaker Change #119: Gotcha. And then just one other follow-up. I just want to get to clarify the
Speaker Change #129: Unknown AttendeeAre you see are you seeing it's been very promotional and you think it's staying promotional or is it getting you think the weaker competitors are getting less promotional, you know, just overall, what's the thought competitively?
John Lai: I think those that are executing really well that have really good customer experiences and a strong value proposition are not having to lean too heavily on aggressive promotions. But those that may not have those things that I just mentioned will need to resort to price as their primary driver, which is why, again, we've been somewhat conservative in our approach to not being overly promotional, because we know at the end of the day that when we look at the factor analysis of why people choose Mister Car Wash, price is not the primary driver. It's quality, it's speed, it's the efficiency of our stores, and then the customer service that they get when they come visit us is second to none. And that's really become our calling card.
Speaker Change #114: Um...
Speaker Change #125: Yeah, it's kind of a mixed bag. I think those that are executing really well, that have really good, really good customer experience and a strong value prop, are not having to lean too heavily on aggressive promotions. But those that may not have those things that I just mentioned, will need to resort to price as their primary driver. Which is why, again, we've been somewhat conservative in our approach to not being overly promotional. Because we know at the end of the day that when we look at the factor analysis of why people choose Mister Car Wash, price is not the primary driver. It's quality, it's speed,
Speaker Change #114: It's the efficiencies of our stores, and then the customer service that they get when they come visit us is second to none, and that's really become our calling card. So, that said, there's a segment of the motoring public that will be motivated by a potential attractive offer, and because our margin profile is healthy, we have some room to lean in on certain offers. But again, we want to be very targeted and measure it, not just spray and pray.
John Lai: So that said, there's a segment of the motoring public that will be motivated by a potential attractive offer. And because our margin profile is healthy, we have some room to lean in on certain offers. But again, we want to be very targeted and measure it, not just spray and pray. Got it. Thanks so much. The next question comes from Tristan Thomas Martin with BMO Capital Markets. Please go ahead.
Speaker Change #139: Got it. Thanks so much.
Speaker Change #136: The next question comes from Tristan Thomas Martin with BMO Capital Markets. Please go ahead.
John Lai: Hey, good afternoon. What are you seeing in terms of M&A multiples in the space? Yeah, it's been very quiet on the M&A front. I think the appetite for doing deals right now in this kind of environment, given just the cost of capital. And then, quite frankly, the debt loads specific to many of the PE-backed platforms, they're just overleveraged right now and can't get access to capital.
Speaker Change #126: Hey, good afternoon. Just one question for me. What are you seeing in terms of M&A multiples in the space?
Speaker Change #123: Yeah, it's been very quiet on the M&A front.
Speaker Change #133: now in this kind of environment, given just the cost of capital and then, quite frankly, the debt loads specific to many of the PE BAG platforms, they're just over levered right now and can't get access to capital. I think the REIT markets are also kind of wising up, saying, hey, we need to be really smart with some of the businesses that we're underwriting, because at the end of the day, even if the coverage ratios are there, if it starts getting thin, you're, quote unquote, looking for the landlord. That's not.
John Lai: I think the REIT markets are also kind of waking up, saying, hey, we need to be really smart with some of the businesses that we're underwriting, because at the end of the day, even if the coverage ratios are there, if it starts getting thin, and you're, quote, unquote, working for the landlord, that's not a single-purpose facility, there's some risks associated with that. So due to those reasons, I think right now, most operators are looking inward and saying, how do we do it, how do we execute across all the core fundamentals?
Speaker Change #138: Unknown Speaker, The Single Purpose Facility, there's some risks associated with that. So due to those reasons, I think right now, most operators are looking inward and saying, how do we do, how do we execute across all the core fundamentals?
John Lai: And to do that, you need to reinvest, and this is kind of a capital allocation question: how do you take some finite resources? You can't sweat the assets; you have to reinvest back into the business. But, importantly, you have to invest in human capital. And so when we're seeing businesses that are running super lean crews, and they're opening and closing with one guy, that's blasphemy for us, right? We would never do that because it's highly unsafe.
Speaker Change #133: And to do that you need to reinvest, and this is kind of a capital allocation question, how do you take some finite resources, you can't sweat the assets, you've got to reinvest back into the business, but as importantly, you've got to invest in human capital, and so when we're seeing businesses that are running super lean crews, and they're opening and closing with one guy,
John Lai: But more importantly, we don't want to be that company where you pull on a lot and there's no money there to service you. So we err on the side of running a little heavier, if you will, but we're okay with that because, for us, it's all about the customer experience. So at the end of the day, I'm drifting here a little bit, but I want to get back to your question
Speaker Change #123: That's blasphemy for us. We would never do that because it's highly unsafe. But more importantly, we don't want to be that company where you pull on it a lot and there's nobody there to service you. So we err on the side of running a little heavier, if you will. But we're okay with that because for us, it's all about the customer experience. So at the end of the day, I'm drifting here a little bit. I want to get back to your question on multiples. For the deals that are trading, I think the hard thing for anybody that's on the buy side right now is to pull the trigger on a deal north of where Mister is trading.
John Lai: For the deals that are trading, I think the hard thing for anybody that's on the buy side right now is to pull the trigger on a deal north of where Mister is trading because you really have to think, again, particularly if you're a sponsored back platform, "what is my exit on this thing and where does this thing end right now?" Mister is one marker, is trading at X, and I'm buying at Y. If that Y is materially over where we're trading, if I'm on that investment committee, I'm stressed out. Okay, thank you.
Speaker Change #134: Because you really got to think, you know, again, particularly if you're a sponsored back platform, you know, what is my exit on this thing? And where does this thing end right now? Mr. Is One Marker is trading at X and I'm buying at Y.
Speaker Change #134: If that Y is materially over where we're trading, if I'm on that investment committee, I'm stressed out.
Speaker Change #130: Okay, thank you.
Operator: This concludes our question and answer session. I would like to move the conference back over to management for any closing remarks. Well, thanks everyone for joining today's call. We have a lot of momentum going into the back half, and I couldn't be more proud of our team and all the hard work everyone's put in to get us here. Our emphasis on our people and their happiness and engagement really starts with developing a culture where we work hard, care about doing a good job, and have fun along the way.
John Lai: We're very optimistic about our future, and particularly the impact that our marketing and technology investments will have in the years ahead. Look forward to catching up with everyone on the next call, and hope everyone stays cool out there. Talk soon. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
Speaker Change #132: This concludes our question and answer session. I would like to move the conference back over to management for any closing remarks.
Speaker Change #135: Well thanks everyone for joining today's call. We have a lot of momentum going into the back half and I couldn't be more proud of our team and all the hard work everyone's put in to get us here.
Speaker Change #131: Our emphasis on our people and their happiness and engagement really starts with developing a culture where we work hard, care about doing a good job, and have fun along the way.
Speaker Change #131: We're very optimistic about our future, and particularly the impact that our marketing and technology investments will have in the years ahead. Look forward to catching up with everyone on the next call, and hope everyone stays cool out there.
Speaker Change #131: Talk soon.
Speaker Change #137: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.