Mister Car Wash, Inc. (NYSE:MCW) Q1 2025 Earnings Call Transcript

Mister Car Wash, Inc. (NYSE:MCW) Q1 2025 Earnings Call Transcript April 30, 2025

Operator: Good afternoon. And welcome to Mister 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 call 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 Mr. Eddie Plank, Vice President of Investor Relations.

Eddie Plank: 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 will 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 Web site 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.

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 statement 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.

John Lai: 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 a number of competitor newbuilds 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 the 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 US overtime.

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 to 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 the 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.

Jed Gold: 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 digits 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 to 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 continue to tightly manage our expenses during the quarter, which along with the 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 2.5 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 newbuilds slowing down, I would 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 Mister for our superior offering and exceptional value proposition. Now let me provide some more details on the first quarter numbers. For simplicity, I will 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 8-K 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 $0.11 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 were $39 million and 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 sale leasebacks in the first quarter, we feel good about trends in the market and we will continue to focus on driving cap rates even lower, giving the strong demand from buyers interested in purchasing Mister 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 am 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 $0.02 negative impact respectively to our full year guidance. Without this change, our outlook for these metrics would have improved to $145 million to $152 million and $0.44 to $0.46 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.

Q&A Session

Operator: [Operator Instructions] Our first question comes from Simeon Gutman from Morgan Stanley.

Simeon Gutman: I wanted to ask first about the comp guidance. Jed, I know you just were very detailed on it and I wanted to follow-up. So the math on the next three quarters at the high end is just two things, I think it’s at 2% at this point to get to the high end 3%. 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 is that — are you thinking recession, consumer pulls back a lot, how do we get to that low end?

Jed Gold: So when we think about — first of all, the quarter really, really happy with what we saw during the quarter, plus 6% testament to 75% of the business subscription. The challenge is 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 digits to plus mid single digits range consistent with the guidance that we had in Q4. Comp store member growth slight positive to low single digits 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 digits 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 I shared in the prepared remarks, we did see a little bit of a moderation in April, although, we’re still running more positive. So a little bit cautious and tepid just given the backdrop that we’re in.

Simeon Gutman: Can I just ask a unrelated follow-up on free cash flow? Can you just remind us, how you — like a philosophy on it, are you using cash 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 as it continues to grow and build?

Jed Gold: Right now, the way that we model it out is roughly neutral. Simeon, if you recall on the Q4 call, we did pull back the number of newbuilds just a little bit and that gave us some excess cash flow that we used to help pay down the debt. So broad level — 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 newbuild 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 tax. So it’s roughly a positive $25 million free cash flow on the year.

Operator: Your next question comes from Randy Konik from Jefferies.

Randy Konik: 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?

John Lai: I think the plus 5% that we posted on member growth in Q1 was a direct result of the increase in retail traffic that also was plus 5%. 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.

Randy Konik: And then just to follow-up there, a follow-up. When you look at the price, just to clarify on the price change on the base. Was that a universal or in most markets? 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 those — give us thte kind of your thoughts on where long term penetration might fit for Titanium over the next few years?

John Lai: 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. 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.

Jed Gold: Base price increase?

John Lai: 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 and it’s kind of a rolling rollout, if you will. So we expect the full impact to start hitting the tilt around May-ish and then having it fully implemented by June.

Randy Konik: By the way, quick question on that. In the markets that haven’t seen — that saw the base price increase, have you seen a measurable difference in the uptake of Titanium relative to that 23% overall or no?

John Lai: No, the mix has remained the same and we just saw varying…

Operator: The next question comes from the line of David Bellinger from Mizuho.

David Bellinger: 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 sounds 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 Mister is starting to hit some kind of inflection point here where sales could slowed decidedly positive from here on out?

John Lai: I’ll start and Jed, you can add. But I think we’re very fortunate, 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 we are in this world where consumers having more choice, we have to get better at our craft and win the war on the ground by delivering 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 half but then we start to see a rebound in those customers coming back. So that, again, gives us some encouragement that we’re on the right track and we’re, from a value proposition, delivering on all the fundamental tenants their customers expect.

Jed Gold: And David, it seems like kind of the battle royale kind of peaked in 2023. When we look at the number of new competitor newbuilds within a 3-mile radius, Q1 of 2025, we had — we estimate seven new competitors within a 3-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, there’s still — 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.

John Lai: And I think, Jed, if I can just add, rationality is setting in as our competitors are reevaluating their growth trajectories and realizing that it’s not grow and scale at all costs and they got to be as smart as us.

David Bellinger: 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. So 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 year-over-year, is that sort of an indicator that the retail customer could possibly be back, is that a positive signal from retail?

Jed Gold: As we — 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 that — we get more retail customers coming in, it eventually — it 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 at 10% capture rates because it translates to more memberships.

Operator: Our next question comes from Peter Keith from Piper Sandler.

Peter Keith: 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 newbuilds looking forward?

John Lai: As Jed mentioned in his prepared remarks, we have multiyear 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, we feel pretty good with all the knock on wood that outside of a few things, perhaps there might be a slight uptick in towels, for example. But outside of that, it won’t be material.

Peter Keith: Moving on to marketing. So Jed had mentioned a slight uptick in marketing this year. We’ve done some work here over your peers. And you guys historically have spent about 0.5% in marketing. And it does seem like some of your peers 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 as a percent of sales? It just seems like there is an opportunity to really drive more traffic here.

John Lai: Yes, for sure and really fair point. So none of — 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, everyone to be measured. So while we’re accelerating our marketing efforts, 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 is — can be elusive for not just us but for our competitors. So once we have more data that supports the return on the advertising investment, we expect to do more and incrementally grow.

Operator: Our next question comes from Phillip Blee from William Blair.

Phillip Blee: 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 is 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.

Jed Gold: So membership growth, I guess, sequentially — I mean, from a year-over-year perspective, Phillip, 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. 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.

Phillip Blee: And then just 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?

Jed Gold: 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 some — a little bit of pressure with the — just with the general contractors when you think about how we source for our newbuilds, a lot of that is sourced on more of a regional basis or a site-by-site basis with those general contractors.

Operator: Our next question comes from Michael Lasser from UBS.

Michael Lasser: John, 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?

John Lai: I wholeheartedly reject your premise. And I say that with a little bit of a smile on my face, because I’d like to give you a hard time. But no, if you look at Q1 and the plus 5% 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 will be less competitive intrusion over time. That said, again, as customers have more choices than ever before and we need to execute 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 US car park and the demand — the growing demand for express exterior car washes and what we believe to be an under-subscribed TAM for membership, we’re actually very bullish.

Michael Lasser: My follow-up question is on heels of [raising] the base price membership you will be rolling out a premium, all of this is happening into what could be an accelerating broader inflationary environment. So just taking this much price we’re 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 deflation, it did seem like the business slowed a bit. What levers would you push this time in order to drive the business?

John Lai: So again, we believe that our membership value offering is strong. And when you look at the $22.99 divided into what is it, $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 heads. So the third visit, they’re getting a real discount and the fourth visit in their minds, it’s 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 $19.99 was in the overall scheme of things, we believe will be very modest and one that we held the line for many, many years to [Technical Difficulty], right. So the pass through and what we’re seeing right now and the lift in revenues was kind of supporting the decision.

Michael Lasser: And anything on the leverage you might call in the event there is a slowdown?

John Lai: 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 that we can get down — live to fight another day. But we — 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 want — they really value their vehicle. And the strong argument that if they’re going to forgo or delay that new car purchase, they really want to take care of their core assets. And so we benefit on either end.

Operator: Our next question comes from Chris O’cull from Stifel.

Chris O’cull: 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?

John Lai: So through the traditional ROAs, we’re looking for a 3:1 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 3:1 ratio that’s how we’re measuring the promotional effectiveness of each campaign. But if we apply a LTV target to that number, it actually makes it look like an even smarter investment.

Chris O’cull: Do you have a sense for how many markets could be — could use media?

John Lai: So right now, we’re testing across six different markets and four of 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 smooth the needle, I could see it applying to almost every market.

Jed Gold: But Chris, you touched 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 the DMA where we only have six stores versus the DMA where we have 30 stores, you obviously get a bigger bang for the marketing buck in those markets. But on other hand, you don’t want to completely neglect those stores in the smaller DMA. So 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 just a subscription element of the business and then lifetime value of those subscription members that you’re able to convert.

Chris O’cull: 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?

John Lai: 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 accretive 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.

Operator: Our next question comes from Justin Kleber from Baird.

Justin Kleber: I 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.

Jed Gold: 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 can — you take the — in this industry, you take — 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.

Justin Kleber: And then just the — we noticed you’re at a higher level in Minnesota, it’s like $25.99. So just curious what’s driving that decision? And should we ultimately expect you to move towards that that level over time across the chain?

John Lai: Yes, 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 crush their membership targets and goals. That’s also a market where there’s just a higher cost of living higher wage rate. And 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.

Jed Gold: 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 $22.99 versus $25.99. But Minnesota is an exception. We don’t have — that’s not the goal. It’s — $22.99 is going to be the system average.

John Lai: But I think — if I could just add one more then. 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.

Operator: Our next question comes from John Heinbockel from Guggenheim.

John Heinbockel: John, when you look at average per member visitation by month, how does that defer by tier of membership and geography? And 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?

John Lai: So John, I don’t have the membership frequency by tier, but I can get back to you on that one…

Jed Gold: It’s consistent, it’s across all tiers, sbout 3, 3.2 times…

John Lai: Well, I just got educated by Jed. So it’s consistent if you heard that across all three segments or three membership peers, I should say. And then with respect to regionality, again, it’s oftentimes the time of year. So during 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, in Northern California specifically, the period is the 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.

Jed Gold: And John, when you look at it, when you look at that frequency of use over the last four, five years, it’s been very consistent at that 3 to 3 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 will go from a 3, 3.2 down to a 2.8 to 3 visits per month, but nothing significant.

John Heinbockel: And then just a 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 are you going to get — would you give a 30 day notice all at once or you’d stagger it across the year, right? Because you think about a 15% increase on 40% of your business, you’re not going to get that lift immediately. Is that like realized over a 12 or 15 month period or sooner than that?

John Lai: 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 and 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, right? So the way our members are built 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 skipping a step as a result.

Operator: Our next question comes from Bobby Griffin from Raymond James.

Bobby Griffin: Just two quick questions from me, it might be [indiscernible]. 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 is there any response there to share?

John Lai: 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’re definitely not the leader in price at $22.99 in almost every market where there is a whole bunch of folks that were already there.

Bobby Griffin: I was just curious more — did they have any changes just where you look at the operating cost of this industry being more expensive than it was a couple of years. So everybody is 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?

John Lai: I think it’s too early to tell. We continue to monitor and gather as much competitive data as we can. But it’s — I’m not in a position to opine on every region.

Bobby Griffin: And then secondly from me, just on the chemical and labor line, continued nice performance there. Just curious what the guidance embeds for further labor optimization or chemical savings?

Jed Gold: So as we had talked on the Q4 call, we have realized most of that chemical optimization and labor optimization during Q1. 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 flow through on a year-over-year basis.

Operator: Your next question comes from Tristan Thomas-Martin from BMO Capital Markets.

Tristan Thomas-Martin: Just one question from me. You called out comp trends moderate a little bit in April. Anything else to kind of flag whether it’s consumer income demographics or geographic trends in the specific markets would be helpful?

John Lai: I think that the neat thing about our business is that it has universal appeal across all segments of motoring public. And when we break down the different average household income cohorts, we see consistency across the entire portfolio and that’s terrific. So you would think that 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.

Jed Gold: 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, as we’ve been saying all along, consistent predictable source of sales. Easter, the timing of Easter, when you look at the impact on the month, it’s about a 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 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 total — as we said, total comp store sales, they do remain positive in April and trending to that low single digit range.

Operator: Our next question comes from Thomas Wendler from Stephens.

Thomas Wendler: 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 time line look like for those customers to return would it be similar to the two year time frame to outperform when a new competitor moves into the market?

John Lai: 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.

Jed Gold: Keep in mind, it’s the first time we’ve taken a UWC price increase in the years, 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 Mister, they’re eventually going to find their way back.

John Lai: And I always have to add, Jed, that unlike gym, when you cancel your membership, you can’t get back into the gym. And Mister Car Wash oftentimes, people will temporarily suspend their membership if there are seasonal issues or reasons when they’re going to their lake house, what have you, but then they’ll come back. And so for us, a churn customer is not a lost customer in most cases. And many times, they default to retail.

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

John Lai: 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.

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