Mister Car Wash, Inc.

Good afternoon and welcome to Mr. Car Wash first quarter 2025 conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session and instructions will follow at that time. Please note that this is being recorded and a reproduction of this call in the whole or in part is not permitted without written authorization from the company. I will now turn the conference over to Eddie Plank, Vice President of Investor Relations.

Good afternoon, everyone, and thank you for joining us to discuss our first quarter financial results. With me on the call today are John Lai, Chairman and Chief Executive Officer, and Jed Gold, Chief Financial Officer. After John and Jed have made their formal remarks, we'll open the call to questions. During this conference call, references to non-GAAP financial measures will be made. A complete reconciliation of these measures to the most comparable GAAP measures have been included in the company's earnings press release issued earlier today and posted to the investor relations section of the company's website at mrcarwash.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. While the company may choose to update these statements in the future, it is under no obligation to do so unless required by applicable law or regulation. Please review the forward-looking statements disclaimer contained in the company's SEC filings, including its most recent 10-K and 10-Q reports, as such factors may be updated from time to time with the Securities and Exchange Commission. I'll now turn the call over to John.

Thanks, Eddie. Good afternoon, everyone, and thanks for joining our first quarter 2025 earnings call. We are very pleased with our continued momentum in Q1, during which we delivered strong comp store sales growth of 6% and record revenues and adjusted EBITDA, which increased 9% and 14% respectively. These results exceeded our expectations, led primarily by strong demand during the quarter and efficient execution by our best-in-class operations team, who maximized throughput and continue to drive UWC membership. Q1 marked eight consecutive quarters of overall comp growth for MISTER and the first back-to-back quarters of positive retail comps in three years, which also helped fuel better-than-expected UWC member growth. In terms of industry dynamics, we've seen a steady reprieve to competitive intrusion, with the number of competitor new bills opening within the three-mile radius of MISTER becoming less intense since the peak of 2023. We view this along with some of the recent industry restructurings, as an opportunity to extend our leadership position and build upon our strong foundation. As the market rationalizes over the next several years, we believe we're optimally positioned to capitalize on the shifting landscape in our space. While there's still uncertainty around the tariff environment, our exposure is primarily limited to the indirect impacts that tariffs may have on consumer spending and on our supplier base. As a consumer services company, we are better positioned than most traditional retailers, and our cost structure eliminates most of the direct exposure, keeping it fairly well contained as a percentage of our total spend. Moving forward, we continue to make meaningful progress on our four strategic pillars to drive sustainable long-term growth. I'll now provide a brief update on each pillar, starting with expanding our footprint. We opened four new Greenfield stores in the first quarter, fortifying our position in key markets, and we remain on track to add 30 to 35 new stores in 2025. As a reminder, we're taking an even greater data-driven approach in our analysis of both core and new markets to identify sites that will generate the highest ROI as we aim to increase our share and expand our store footprint across the country. Given the large opportunity in front of us, we remain confident in our potential to organically double our store count in the U.S. over time, That said, as our history demonstrates, we are agnostic with respect to avenues of growth and will opportunistically pursue M&A where it makes strategic and financial sense. Next, increasing our innovative solutions. We believe one of our many competitive advantages is our ability to consistently innovate and develop new products and services to create even more value for our customers. Our motivation is to continuously elevate and enhance the customer experience and look for ways to further distinguish ourselves to create an even bigger competitive advantage. Innovations like our proprietary titanium 360 with its mirror-like finish and underbody protection developed by our in-house R&D team have had a tremendous impact on our top and bottom line while delivering an exceptional car to our customers. We're also continuously assessing our value to price ratio across the country and saw an opportunity to implement a $3 price increase in most markets to our base UWC program, which represents approximately 40% of our membership tiers. This puts us in line with many of our competitors and is the first increase to our base program since inception. Moving on to driving traffic and growing membership. We increased UWC membership by 5% year over year in Q1 to over 2.2 million members. As we increase our investment in marketing this year, Our goal is to drive retail traffic with messages and offers that resonate down to the individual level. To that end, we're running a media test in six different regions across digital, radio, and paid social to drive visitation. And we've also run targeted promotions to increase membership sign-ups. As we refine and more fully implement these efforts, we believe it will help expand our customer reach, drive increased traffic, and deliver higher membership growth. Finally, building a best-in-class team. From our senior management team to our rock stars in the stores, we continue to strengthen our bench, improve our capabilities, and increase our capacity for growth while working diligently to improve our culture. In the end, it's all about people, and I couldn't be prouder of our team who have an extraordinary will to succeed and are constantly evolving and getting better each day. Looking ahead, and with a somewhat uncertain macro environment in the near term, we remain confident in our ability to deliver positive results and build upon our leadership position. The American consumer has embraced express exterior car washing as part of their regular routine, and the popularity of our subscription program is driven by its convenience and affordability. Over the last 30 years, we've managed through various economic cycles and demonstrated how resilient our service remains. Before I hand the call off to Jed, I want to express our sincere gratitude to our amazing team who shows up every day, works incredibly hard, and makes our strong results possible. I'll now pass it to Jed to provide more commentary around our financial results.

Thanks, John, and good afternoon, everyone. We are very pleased with our strong start to the year. As John indicated, Our results in the first quarter exceeded our expectations, marked by a solid improvement in retail and consistently strong UWC trends. This resulted in a record Q1 by many measures, including revenue, which increased 9%, and adjusted EBITDA, which grew 14%. Before I get into the details, I'd like to touch on a few highlights. From a top-line perspective, Our stronger-than-expected sales were driven by mid-single-digit UWC and retail comp growth. Sales were particularly robust in January, led by a high teens increase in our non-subscription business. This drove healthier membership sign-ups, which combined with our lower, best-in-class churn resulted in total membership growth that exceeded our plan. Converting one-time visits into higher UWC membership highlights the real power of our model as the stickiness of our members provides a durable and long-lasting tailwind to revenue. While weather provided a favorable backdrop this quarter, it was our operational strength, coupled with great site layouts which facilitate strong throughput, that enabled us to take advantage of the increase in demand. That said, comp store trends moderated through April, largely due to a stronger lap and the timing of Easter. Keep in mind that the Easter holiday fell later this year compared to last year, creating a slight headwind to our Q2 comp. Despite these factors, comp store sales are still running positive low single digits. Our subscription business continued to provide us with a meaningful and steady stream of reoccurring revenue. driven by continued strength in our titanium membership. Titanium accounted for 23% of our membership mix, contributing to a roughly 6% increase in express revenue per member during the first quarter. We continued to tightly manage our expenses during the quarter, which along with a timing shift in marketing expenses allowed us to lever SG&A and drive strong cash flow and adjusted EBITDA levels. Great revenue growth coupled with good expense management delivered strong flow through to EBITDA as well as a healthy increase to adjusted EBITDA margin. Furthermore, we voluntarily paid down approximately $62 million of debt during the quarter while still maintaining a strong and flexible cash position. As a result, we anticipate that our net leverage ratio will improve to just under two and a half times adjusted EBITDA by the end of the year. Finally, and building on John's comments around the competitive environment for a moment, in addition to the rate of competitor new builds slowing down, I'd like to point out that even when competitive intrusion has negatively impacted the performance of our stores, comps at those stores have consistently bounced back over a roughly two year period to outperform the chain average. This tells us that while customers may initially be tempted to try a new competitor site, over time they eventually come back to Mr. for our superior offering and exceptional value proposition. Now let me provide some more details on the first quarter numbers. For simplicity, I'll be referring to adjusted numbers only, which exclude items such as stock-based compensation and gain or loss from the disposition of assets. The reconciliation of adjusted figures can be found in our 8K filing and earnings press release. Net revenues increased 9%, driven by a combination of 6% comparable store sales growth and the contribution of incremental revenue from new store openings. UWC sales represented 73% of total wash sales, and we ended the quarter with more than 2.2 million UWC members. On a year-over-year basis, the number of UWC members increased by approximately 5%. At the end of the quarter, the membership split among base, platinum, and titanium was approximately 42%, 35%, and 23%, respectively. The average express revenue per member in Q1 increased approximately 6%, to $28.78, driven primarily by the success of our titanium membership tier. Overall, we are very pleased with the team's focus on expense management. Total operating expenses were $176 million in the quarter. As a percentage of revenue, total operating expenses decreased 130 basis points to 67.3%. Labor and chemicals decreased 160 basis points to 27.3%, driven primarily by leverage on our stronger sales performance, as well as efficiencies we realized from our optimized labor model and some savings in chemical costs. Other store operating expenses increased 90 basis points to 33.3%, primarily driven by higher rent expense related to our new store growth and sell-leasebacks. as well as higher utilities, equipment, and facilities maintenance costs. G&A expense decreased 60 basis points to 6.7%, driven primarily by better expense management. In addition, G&A benefited from the shift of roughly $1.5 million of planned marketing spend from Q1 to Q2. Overall, we remain focused on doing more with less, tightly managing expenses, and optimizing the G&A structure of the business. EBITDA increased 14% to $86 million, and EBITDA margin increased 130 basis points to 32.7%. First quarter interest expense decreased 20% to $16 million, primarily due to lower average interest rates year over year and lower borrowings compared to last year. Finally, First quarter net income and net income per diluted share were $35 million and 11 cents, respectively. As noted in our earnings press release, our new methodology for calculating adjusted net income and adjusted EPS no longer excludes non-cash rent expense, which totaled approximately $2 million in Q1. Moving on to some balance sheet and cash flow highlights at the end of the quarter, cash and cash equivalents worth $39 million. An outstanding long-term debt was $858 million, a $67 million sequential decrease as we opted to pay down a portion of the long-term debt. Our balance sheet remains healthy and flexible, and we continue to self-fund our growth and expansion. Although we did not execute any sell-leasebacks in the first quarter, we feel good about trends in the markets. and will continue to focus on driving cap rates even lower, giving the strong demand from buyers interested in purchasing MR locations. Now I'll provide an update to our full year outlook. Given our recent momentum, we are even more optimistic on the health of our business and our positioning in the marketplace. As a result, we are revising our guidance to reflect these encouraging trends. Specifically, we are raising the low end of our full year guidance range for revenue, comparable store sales, and adjusted EBITDA by flowing through the Q1 beat. Embedded in our outlook is a cautious view of the consumer given the current macro backdrop. We are balancing our optimism about our business and momentum against the uncertainty of the consumer environment and the potential economic fallout and turbulence from tariff negotiations. As John mentioned, we are well insulated from the direct tariff exposure. Our chemicals and materials are predominantly sourced within the United States, and we have contracted prices locked in to further hedge our short-term exposure. However, although our cost exposure is indirect, the broader downstream impact on the consumer is unknown and difficult to predict. This could create greater volatility in our business, particularly retail, where we are retaining a measured view on our expectations for the remainder of the year. For additional context and color, I'm including some factors to assist you for modeling purposes. First, we continue to expect total comparable store sales growth to be stronger in the front half of the year compared to the back half, as we lap the full price rollout of titanium in May and then face more challenging comparisons in the back half. The impact due to the timing of the Easter holiday this year compared to last year will be an estimated 30 to 40 basis point headwind to our full quarter Q2 comp. Number two, we continue to expect the implementation of price increases on our base membership to provide support to revenue per member, helping to offset some of the expected pressure in the back half. Number three, As I mentioned earlier, roughly $1.5 million of marketing spend shifted from Q1 into Q2. For the full year, we expect a modest uptick in our marketing investments versus last year. Number four, we continue to expect roughly 70% of our new greenfield openings to occur in the second half of this year. And number five, our new methodology for calculating adjusted net income and adjusted EPS no longer excludes non-cash rent expense in the calculation. This results in approximately a $5 million and 2 cent negative impact, respectively, to our four-year guidance. Without this change, our outlook for these metrics would have improved to $145 to $152 million and 44 cents to 46 cents, respectively. For even more details, the full list of our initial outlook ranges for 2025 can be found in the table in today's earnings release. In conclusion, as we look at many of the changes occurring across the industry and anticipate where the industry is heading, coupled with our strong positioning, we are optimistic about our long-term outlook despite a tough macro backdrop. Our operational excellence is unparalleled in the industry. and the depth and experience of our management is second to none. With our strong brand, dedicated team, leading subscription business, and robust unit economics, we are well positioned to drive growth and create long-term value for our shareholders. Operator, that concludes our prepared remarks, and we will now open the call for questions.

We will now begin the question and answer session. To ask a question, please press star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from Simeon Gutman from Morgan Stanley. Please go ahead.

Hey, guys. Good quarter. I wanted to ask first about the comp guidance. Jed, I know you just were very detailed on it. I wanted to follow up. So the math on the next three quarters at the high end is just two. I think it's just a 2% at this point to get to the high end three. So is that scenario weaker consumer and tough compares? And then at the low end, I think it's just a flat at this point. So you did say you're confident in the business. You just ran two quarters of six. Granted, tough compare, but are you thinking recession, consumer pulls back a lot? How do we get to that low end? Thank you.

Yeah, Simeon, so when we think about, first of all, the quarter, really, really happy with what we saw during the quarter, plus six, testament to 75% of the business subscription. The challenge, just the environment that we're in, And so as we look at where we made changes to the balance of the year, revenue per member growth still in that plus low single digit to plus mid single digit range, consistent with the guidance that we had in Q4. Comp store member growth, slight positive to low single digit, once again consistent with what we laid out on the Q4 call. And then we gave ourselves just a little bit of room as we looked at retail sales. At the high end of the guide, it was a negative mid-single-digit comp at the time of the Q4 call, and we've taken that down to negative high single digits. Just given the choppy backdrop and some of the turbulence, the tariffs, and then as shared in the prepared remarks, we did see a little bit of a moderation in April, although we're still running – we're positive. So – A little bit cautious and tepid, just given the backdrop that we're in.

Can I just ask an unrelated follow-up on free cash flow? Can you just remind us how you like this philosophy on it? Are you using cash, you know, not just to grow? It looks like you paid some debt down in this first quarter. Are you trying to keep neutral or the business should throw off cash, you know, as it continues to grow and build?

Yeah, right now the way that we model it out is roughly neutral. Simeon, if you recall in the Q4 call, we did pull back the number of new builds just a little bit, and that gave us some excess cash flow that we used to help pay down the debt. So high level, if you look at the high end of the guidance, $346 million of adjusted EBITDA. We've got $305 million in CAPEX. That includes both the core store and the new build CAPEX. We've got roughly $50 million in sell-leasebacks on the year, $61 million of interest going out the door, and then a little bit for cash taxes. So it's roughly a positive $25 million free cash flow on the year. Okay, thank you. Good luck.

Thanks. Your next question comes from Randy Koenig from Jefferies. Please go ahead.

Yeah, thanks, guys, and good afternoon. I guess one question. If I looked at the UWC member growth, I believe it was up 5% in the quarter. I believe coming out of the fourth quarter, it was up 2% on a year-over-year basis, so a nice healthy acceleration sequentially. Can you give us some perspective? Is that kind of just doing a better job on these different marketing tactics? Any particular kind of reasons for that better conversion, if you will, in the quarter sequentially? Sure.

Hey, Randy, this is John. I think the plus five that we posted on member growth in Q1 was a direct result of the increase in retail traffic that also was plus five. So it just proves out that when we get customers in the door, we're able to convert them. Our capture rates have remained steady right around 10%-ish. So when we get those retail customers in, we're able to sign up members, and that was the direct line to member growth.

Great. And just to follow up there, A follow-up. When you look at these, right, just to clarify on the price change on the base, is that a universal or in most markets? I just want to clarify there. And then as you think about titanium penetration, I think, again, for the second quarter in a row, about 23%, could you just give us some perspective on any variability by markets to give us kind of your thoughts on where long-term penetration might sit for titanium over the next few years? Thanks.

Yeah, I'll start with your last question first, Randy. So we're happy with where our titanium mix sits today. As we've shared before, it's been beautifully accretive and the customer acceptance has exceeded our expectations. So we don't expect any degradation. Again, we're happy with where that sits today. Our approach is more of a pull versus a push, allowing our customers to make their own choice. And they've spoken very loudly. You know, we're enjoying that. When you look at our membership mix, 22.5% of our overall UWC members are in titanium, and that's held steady quarter over quarter. I forgot what was the first part of the question. The base price increase? Yes. Yeah, so the answer to your base price. So in most markets, we are taking a price increase to $22.99, and that started roughly a month and a half-ish ago. It's kind of a rolling rollout, if you will. So we expect the full impact to start hitting the till around May-ish, and then have it fully implemented by June.

By the way, quick question on that. In the markets that saw the base price increase, have you seen a measurable difference in the uptake of titanium relative to that 23% overall or no?

No, the mixes remain the same. And we just saw a very – yeah.

All right, cool. Thank you.

Okay. The next question comes from the line of David Bellinger from Mizuho. Please go ahead.

Hey, thanks for the question. Good afternoon. Understanding this is a very, very fluid consumer backdrop here, but I thought some of the competitive comments were a little different this afternoon. It sounded more positive, especially with these restructurings happening in the space. You had a few quarters of decidedly positive comps here in a row. So, Should we start to think about this as Mr. is starting to hit some kind of inflection point here where sales could flow decidedly positive from here on out?

Yeah. Hey, David, this is John. I'll start and Jed, you can add. But, you know, I think we're very fortunate that demand for express car wash services continues to grow. But consumers have more choice. I think the stuff that's in market today is not going away. So, you know, we are in this world where consumers are having more choice. We have to get better at our craft and win the war on the ground by delivering an exceptional customer experience. So what we've seen, whenever there is competitive intrusion, we might see some impact to our business in the first year or year and a half, but then we start to see a rebound in those customers coming back. So that, again, gives us some encouragement that, you know, we're on the right track and we're – from a value proposition delivering on all the fundamental tenants their customers expect.

Yeah, David, it seems like kind of the battle royale kind of peaked in 2023. When we look at the number of new competitor new builds within a three-mile radius, Q1 of 2025, we estimate seven new competitors within a three-mile radius. Q1 of 2025, 15 competitors. And then going back to Q1 of 2023, 33. So we're seeing fewer competitors coming within the existing trade areas that we operate. But to John's point, the ones that came in in 2023, we're still battling it out with them. But ultimately, we believe we're better positioned just with our superior product offering, our team, and all the investments we've been making over the years to prevail.

Yeah, and I think, Jed, if I could just add, rationality is setting in. as our competitors are reevaluating their growth trajectories and realizing that, you know, it's not grow and scale at all costs, and they've got to be as smart as us.

Yeah, thanks for those data points. Incredibly helpful. And then just my follow-up here, looking at the UWC as a percentage of total wash sales, that went down year over year. I think that's the first time that's happened as a public company. How do you diagnose that? And just understanding that... It seems like the retail customer slowed a bit here in April. Stepping back, does UWC down you over here? Is that sort of an indicator that the retail customer could possibly do back? Is that a positive signal from retail?

Yeah, the goal is not to get that to 100%. And so what's happening in Q1, David, what you're seeing is the plus 5% comp retail growth growth. As we get more retail customers coming in, it eventually pulls that number, that subscription mix down just a little bit. So for us, it's not something that we get overly concerned about. We look at that data point, but we're not concerned. If anything, it's a good thing, especially when we're running 10% capture rates because it translates to more members.

Very good. Thanks, guys.

Our next question comes from Peter Keith from Piper Sandlow. Please go ahead.

Thanks, guys. Nice quarter. The tariffs make sense that you wouldn't have any direct exposure on day-to-day operations. I'm wondering on equipment and if there could be some equipment from your suppliers that's imported or impacted by steel tariffs. Any talk of that coming off the car wash show that might increase the cost of new builds looking forward?

Yes, as Jed mentioned in his prepared remarks, you know, we have multi-year agreements in place with most of our major suppliers that provides a hedge against any inflationary inputs that could cause a spike for those that don't have that in place. So we feel pretty good with where we sit and talking to the OEMs and some of the key strategic players that we work alongside with. Given our buying power, you know, we feel pretty good with all the knock-on woods. That outside of a few things, perhaps, you know, there might be a slight uptick in towels, for example. But outside of that, it won't be material. Great. Okay.

That's refreshing to hear. Moving on to marketing, so Jed had mentioned a slight uptick in marketing this year. We've done some work with some of your peers, and you guys historically have spent about half a percent on marketing, and it does seem like some of your peers have spend more like 2% to 3% of sales, so notably higher. So, John, I guess, are you still kind of in a testing mode this year? Do you think you'll ever get above 1% of marketing's percent of sales? It just seems like there is an opportunity to really drive more traffic here.

Yeah, for sure, and really fair point. So we all want to increase our ad spend and drive more retail traffic, which then leads to UWC member conversion. But as we've shared, we want to be measured. So while we're accelerating our marketing efforts, you know, we're measuring everything and making sure that the offers are not just targeted but they're relevant and then they do ultimately drive incremental growth. And oftentimes measuring that incrementality can be elusive for not just us but for our competitors. So once we have more data that supports that, the return on the advertising investment. We expect to do more and incrementally grow. Okay. Very good. Thanks so much.

Our next question comes from Philip Lee from William Blair. Please go ahead.

Hi, guys. Afternoon. Thanks. Appreciate the question. If you're assuming that retail revenue is down more high single digits for the year, given a potentially softer consumer environment, should we then consider the membership as more flattish or just slightly up quarter over quarter for the remainder of the year? And then should we consider anything like impacts from churn during a potential recession? Just any color how to think about this metric evolving throughout the year would be very helpful.

Yeah, so membership growth, I guess, sequentially – From a year-over-year perspective, Philip, which is how we model it out and think about it, we're expecting positive low single-digit comp store member growth. And from a churn perspective, we're expecting our core churn levels to be in line with where we have been. One caveat is... We built in a small period of elevated churn due to the base price increase. And we saw this in the six stores where we did the test last year. When we pushed through that price increase going from $19.99 to $22.99, we see a slight uptick in churn for about one month. but then the churn levels will settle back in going into month two, three, post the price increase. So we factored that into the guidance. We don't expect, and consistent with what we saw in the financial crisis, what we saw in COVID, that the subscription business, consistent, it's predictable. We don't expect periods of elevated churn, but People, especially those subscription members, they value a clean car despite the macro backdrop, and that's consistent with what we've seen over time. Okay, great.

And then just a different topic, but understood on the lack of direct tariff impact, but any color on the materials for greenfield expansion and ability to hit your store target for this year? Have you seen any early indicators around potential delays or lack of availability in materials later on this year that could make it harder to hit your full-year target, especially given the second half has a bigger exposure there?

Thank you. The pipeline is largely set not just for 2025, but we're starting to lock in 2026 as well. We haven't heard any early indicators. I mean, some whispering around masonry and concrete indirect through our general contractors, potentially some pressure there. But as we look at the total spend, we don't expect it to have a material impact on the cash-on-cash returns that we're able to generate. Lumber is another one that we've heard a little bit of pressure with. Just with the general contractors, when you think about how we source for our new builds, a lot of that's sourced on more of a regional basis or a site-by-site basis with those general contractors.

Great.

Thanks a lot.

Our next question comes from Michael Lasser from UBS. Please go ahead.

Good evening. Thank you so much for taking my question. Sean, is there a case where the retail business is simply becoming more volatile from month to month, not just simply because of the overall state of the macro environment, but given how much capacity has been added to the wash industry over the last few years, there are simply fewer unattached customers for the retail business, which is going to create more volatility from period to period. And do you think there's any evidence that you saw that from the last four months where it seemed like retail was up double digits in January and then down to maybe as much as high single digits in April. Thank you very much.

Hey, Michael. Thanks for the question. I wholeheartedly reject your premise, and I say that with a smile on my face because I like to give you a hard time. But no, if you look at Q1 and the plus five that we posted, I think that speaks to the health of our space. It speaks to the health of our business and how the demand for our service is omnipresent and continuous. With respect to the competitive impact and its impact on our retail volume, as I've previously shared, we're seeing a decel in new unit growth coming into the market. So it's slowing down dramatically right now, which, again, is going to be a favorable trend for us. So there'll be less competitive intrusion over time. That said, again, customers have more choices than ever before, and we need to execute at store level to win their business, earn their business day in and day out. And that's what we're really good at because we have built a massive member base of 2.2 million members. We're processing over 100 million cars on an annualized basis. And when you look at the U.S. car park and the demand there, the growing demand for express exterior car washes and what we believe to be an undersubscribed TAM for membership, we're actually very bullish. Got you.

My follow-up question is, on the heels of raising the base price membership shortly after rolling out the premium, all of this is happening into what could be an accelerating broader inflationary environment. So does taking this much price or generating this much additional revenue per member give you pause in what could be a more pressured consumer environment? And if that were the case, given what happened the last time there was a lot of inflation, it did seem like the business slowed a bit. What levers would you push this time in order to drive the business?

Thank you. Thank you, Michael. Fair question. So, again, we believe that our membership value offering is strong. And when you look at the $22.99 divided into what is a $10 on average median base retail price point, the consumer is actually getting tremendous value on that third visit. And they do the calculus in their head. So, at the third visit, they're getting a discount. The fourth visit, in their minds, is a free car wash. And so the affordability and then the value of membership is actually stronger than it ever has been. And I will add that the $22.99 price increase from 1999 was, in the overall scheme of things, we believe to be very modest and one that we held the line for many, many years until we felt the problem was right. So the pass-through and what we're seeing right now and the lift in revenues It was kind of supporting the decision.

And anything on the leverage you might pull in the event there is a slowdown?

Listen, we've managed through various economic cycles in the past, and as we ratchet up to continue to build and grow our business, If we were hit with any major headwinds, we would certainly, as a management team, look to ratchet down certain expenditures so we can live to fight another day. But our business, Michael, acts a little differently. And I know technically everyone wants to clump it in a consumer discretionary category, but it really acts like a staple. And in good times and in tough times, people want to take care of their assets. They really value their vehicle. And the strong argument that if they're going to forego or delay that new car purchase, they really want to take care of their core assets. And so we benefit on either end.

Thank you very much and good luck.

Thanks. Our next question comes from Chris O'Call from Stiefel. Please go ahead.

Thanks. Good afternoon, guys. I had a question about the media test. how do you guys plan to measure the return on that investment? And then I'm also curious how many markets you believe could be media efficient.

Yeah, Chris. Hey, this is John. So, you know, through the traditional ROAS, you know, we're looking for, you know, a three to one lift when you look at ad spend and then revenue. But for our business, given the longer term lifetime value of a member, it really does support us doing more, getting an actual better return. So through that traditional lens of a three-to-one ratio, that's how we're measuring the promotional effectiveness of each campaign. But if we apply an LTV target to that number, it actually makes it look like an even smarter investment.

Do you have a sense for how many markets could use media?

So, right now, we're testing across six different markets, and for the six, we're seeing some very promising results against the controls, and then iterating from each of those tests so that we can scale this program, but scale it, again, in a responsible way. So, over time, if it justifies and helps move the needle, I could see it applying to almost every market.

Yeah, but, Chris, you touch on an important point and something that we have had a lot of debate behind the scenes on, and that's the efficiency. So which markets do we go in and test, knowing that that media spend is relatively fixed at the DMA level? And so a DMA where we only have six stores versus a DMA where we have 30 stores, you obviously get a bigger bang for the marketing buck, right? in those markets. But on the other hand, you don't want to completely neglect those stores in the smaller DMA. So a lot of debate. That's also part of the calculus when we look at the return. But looking at all of this on a test and then relative to a control group and how much of an incremental lift are we getting relative to that control. The variable, though, as John said, is that the just the subscription element of the business and that lifetime value of those subscription members that you're able to convert.

Okay. That's helpful. And then, John, you mentioned developing innovative solution is obviously one of your strategic pillars. And Titanium 360 has obviously been a success. But I'm curious, how would you characterize the pipeline of new ideas that you have for maybe future tests? And how are you thinking about potential timing if you've got a new idea that you'd like to roll out?

Yeah, I think our cadence for new product solution introductions is roughly 18 to 24 months, and that's the target. So we have some things in the hopper that we're not going to share on this call that we think are not just going to be transformative and extremely value-added, but are creative ultimately to our top line and then subsequently our bottom line. So how can we create more value for our customers and also increase profitability? That's the goal. And... That's what we're working on right now. So we've got some really cool things through our in-house R&D team that they're working on. And we can't wait to share that with you sometime down the road.

Okay. Fair enough. Thanks, guys.

Our next question comes from Justin Cleaver from Baird. Please go ahead.

Hey, good afternoon, guys. Thanks for taking the questions. Wanted to first follow up, Jed, on your churn comment. as it relates to the base price increase. I know you're building that into the plan, but just curious, the response you're seeing real-time as this price increase has been implemented more broadly, is it consistent with what you saw in the test markets? Just any color on what you're seeing.

Yeah, Justin, so when we look at the markets as we're rolling them out, and just a little bit more color on a price increase in this market, you take the, in this industry, you take a You can take a price increase, and those that are signing up, well, overnight, they start paying the new $22.99 base price. You have to give a notice to your existing members, so it takes about 30 days before they start to recharge at that new $22.99 price point. And So we're watching this churn closely, and so far everything, it's consistent and in line with what we saw in the markets that we tested in at the end of last year.

Okay, and then just the – we noticed you're at a higher level in Minnesota. You're like $25.99. So just curious, what's driving that decision? And should we ultimately expect you to move towards that level over time across the chain?

Good call out. You've done your research. So the great state of Minnesota, it's one of our strongest regions. And maybe now is a good time for me to give a shout out to all of Team Minnesota, who absolutely crushed their membership targets and goals. That's also a market where there's just a higher cost of living, higher wage rate. So we have, as we look at regional pricing, that's one market where we have a slightly different price point that's a little bit higher that's driving that revenue number.

Yeah, Justin, one of the inputs into this is we look at how we're priced relative to competition, and that 22, many of our competitors are already at the higher price point, and we look at that on a regional basis. That's also part of the math as we look at 2299 versus 2599. But Minnesota is an exception. We don't have – that's not the goal. It's 2299 is going to be the system average.

But I think if I can just add one more thing. So even at that elevated price point, the fact that they have had elevated sign-up numbers, again, speaks to the point that at the end of the day, while price is important, it's not the determining factor of why people choose to sign up for the program.

All right. Thank you, guys. I'll pass it on.

Our next question comes from John Hainbockel from Guggenheim. Please go ahead.

John, when you look at average per member visitation by month, how does that differ by tier of membership and geography? But I'm also curious if you go back, how has that increased over time? I imagine it has increased, right, over the last five years.

So, John, I don't have the membership frequency by tier, but I can get back to you on that one. It's consistent across all tiers. Okay, that's a great question. About three, 3.2 times every month. Well, I just got educated by Jed. So it's consistent, if you heard that, across all three segments, all three membership tiers, I should say. And then with respect to regionality, again, it's oftentimes the time of year. So during the winter months in the northern climates, we see a higher frequency in the summer months in the northern tiers. But again, it gets even more nuanced in California, for example. Northern California specifically, you know, the period is summertime when agriculture is at high. And I can go down to love bugs down in the southeast. I mean, each market, if you have pollen in Georgia, those really act as spikes to demand in a beautiful way.

And John, when you look at it, when you look at that frequency of use over the last four or five years, it's been very consistent at that three to three point times per month. You do see, to John's point, a little bit of fluctuation just based on seasonality in the particular market. So Q4, we'll see It'll go from a 3.2 down to a 2.8 to a 3 visits per month, but nothing significant.

All right. And then just the quick follow-up just on the mechanics of the price increase. So you give a 30-day notice, and then the price goes up. But would you give a 30-day notice all at once, or you'd stagger it across the year? Right. You think about a 15 percent increase on 40 percent of your business. You're not going to get that lift immediately. Is that like realized over, you know, a 12 or 15 month period or sooner than that?

Yeah. So it's a little bit more nuanced than that. The way we approach it is we broke the country into five different subcategories. And part of it is the training that we need to do with the frontline team. And we don't want to shortchange that. So we're pretty methodical and intentional in making sure that we give all the tools on the ground so that the team members are prepared to answer any questions should they come their way. And then as we roll it out, I don't want to correct Jed earlier, but it's technically 30 to 60 days after the initial communication when we start to see the lift. So the way our members are billed over the course of a 30-day period you have kind of an even distribution, if you will, from day one to day 30. So we give a 30-day notice, then the existing members will start to, those that signed up on the first, will see their price increase, and we'll see it rolling there through, Jed, are you following my logic? Okay, through 60 days. So bottom line, John, is May is when we're starting to see things hit, and Jed's got a little skip in his step as a result.

Thank you.

Our next question comes from Bobby Griffin from Raymond James. Please go ahead.

Good afternoon, guys, and congrats on a good start to the year. Just two quick questions for me. It might be too early, but have you seen anything from a competitive side of things on the markets where you did move the price? I think you mentioned some competitors aren't there yet. Did they come up, or has there been any response there to share?

Yeah, so for the competitors that we compare ourselves against, we were getting to their median. There are certainly other players out there that have different pricing strategies, and I can't speak to every single one of them. But we were definitely not the leader in price at $22.99 in almost every market where there was a whole bunch of folks that were already there.

Yeah, I was just curious to Did they have any changes? Just where you look at the operating costs of this industry being more expensive than it was a couple years, so everybody's pricing more rationally now, so they took advantage of a peer like you moving up, and did they move up or they stayed the same? Just anything around that.

Yeah, I think it's too early to tell. We continue to monitor and gather as much competitive data as we can, but I'm not in a position to opine on every region.

Fair enough. And then secondly for me, just on the chemical and labor line, you know, continued nice performance there. Just curious what the guidance embeds for, you know, further labor optimization or chemical savings.

Yeah, so as we had talked on the Q4 call, we have realized most of that chemical optimization and labor optimization during Q1 period. So the year-over-year improvement that you've seen, we do not expect that to continue in Q2, 3, and 4, at least at this point. It's all been flowed through on a year-over-year basis. Thank you. Very helpful, and good luck the rest of the year.

Thanks. The next question comes from Tristan Thomas Martin from BMO Capital Markets. Please go ahead.

Just one question for me. You called out Comtrends Moderate a little bit in April. Anything else to kind of flag, whether it's consumer income demographics or geographic trends in specific markets would be helpful.

Thank you. Yeah, I'll start. You know, I think the neat thing about our business is that it has universal appeal across all segments of the motoring public. And when we break down the different average household income cohorts and We see consistency across the entire portfolio, and that's terrific. So you would think that, you know, the lower end might be under more pressure, which, again, we're not saying that they're not, but it really hasn't impacted our business. So for that, we feel very fortunate.

And just to emphasize a couple of points that were made in the prepared remarks. So first of all, I think as we look at April, UWC sales, they remain really strong, resilient, resilient. as we've been saying all along, consistent, predictable source of cells. Easter, the timing of Easter, when you look at the impact on the month, it's about 100 basis point impact on the month, which translates to 30 to 40 basis point impact on the quarter. So just the Easter timing. And then if you go back to 2024, there was some... There was some weather impact in Q1, and then April came back really strong, and so we had a stronger April lap, particularly on the retail side. So as we said, total comp store sales, they do remain positive in April and trending to that low single-digit range. Got it. Thank you.

Our next question comes from Thomas Wendler from Stevens. Please go ahead.

Hey, good afternoon, everyone. Just one quick one from me. I want to go back to the base membership churn one more time. Do you expect to see those customers returning as they shop around and kind of see your updated pricing is in line with the market? And what would the timeline look like for those customers to return? Would it be similar to the two-year timeframe to outperform when a new competitor moves into the market?

Yeah, we saw in the first month post-announcement a slight uptick in churn, and then it came back down to historic levels literally in the second month. So immaterial in the overall scheme of things. And again, the very slight uptick in churn was offset by the benefits that we enjoyed from the price increase.

Keep in mind, it's the first time we've taken a UWC price increase in 15 years. And so we don't have a lot of data points to say if after six months, a year, two years, these customers eventually come back. So we did not build any of that into the guidance or the model, but I think it's plausible to say that somewhere over time, if they had a good experience with Mr., they're eventually going to find their way back.

Yeah, and I always have to add, Jed, that unlike a gym, when you cancel your memberships, You can't get back into the gym. At Mr. Car Wash, oftentimes people will temporarily suspend their membership if there's seasonal issues or reasons where they're going to their lake house, what have you. But then they'll come back. And so for us, a churned customer is not a lost customer in most cases. And many times they default to retail.

Perfect.

I appreciate the color.

This concludes our question and answer session. I'll now turn the conference back to John Lai for closing comments.

Well, thank you all again for joining us today. We appreciate your interest in MISTER and look forward to speaking with you again when we report our second quarter results.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.