Good afternoon and welcome to Mister Car Wash' Conference call to Discuss Financial Results for the Third Quarter of Fiscal 2021. [Operator Instructions] Please note that this call is being recorded, and the reproduction of this call in whole or in part is not permitted without written authorization from the company. I would now like to turn the conference call over to Megan Everett, Senior Director of Communications. Please go ahead, ma'am.

Thank you. Good afternoon, everyone, and thank you for joining us today for Mister Car Wash' Third Quarter Fiscal 2021 Earnings Call. Speaking from management today on the call are John Lai, Chairperson and Chief Executive Officer; and Jed Gold, Chief Financial Officer. After John and Jed have made their formal remarks, we will open the call to questions. Before we begin, I do need to remind everyone that comments made today may include forward-looking statements, which are subject to significant risks and uncertainties that could cause the company's actual results to differ materially from management's current expectations. These statements speak as of today and except as may be required by law, the company does not have any obligation to update or revise such statements as circumstances change. Please review the cautionary statements and risk factors contained in the company's second quarter 10-Q as such factors may be updated from time to time in its other filings with the SEC. During the call today, we will also refer to certain non-GAAP financial measures. A reconciliation between the GAAP and non-GAAP financial measures can be found in the company's earnings press release issued earlier today and which is posted to the Investor Relations section of Mister Car Wash' website at ir.mistercarwash.com. With that, I'll turn the call over to John.

Thanks, Megan. Good afternoon, and thank you for joining us for our third quarter earnings call. I'd like to begin by briefly recapping our third quarter results and then discuss our strategic growth initiatives that will help drive long-term shareholder value. Jed Gold, our CFO, will then discuss our financial results, and we'll conclude with a Q&A session. From both an operational and financial perspective, we are very pleased with the underlying trends in our business. As many of you know, Mister Car wash is the largest operator of car washes in the U.S., and we believe there is significant opportunity to continue building our brand and growing our market share. As a result, we've been focused on expanding our footprint and investing in our people to continue scaling our company. In the third quarter, revenue increased 24.7% from the third quarter last year to $194 million that was driven by strong comp store sales and unit growth. Adjusted EBITDA increased more than 44% and from the third quarter last year to $62.5 million and reflects both increased operating efficiencies as well as investments we're making to drive long-term sustainable growth, which I'll discuss more in a moment. We opened nine new locations in the quarter, bringing our total store count to 360 as of September 30. We added over 30,000 new members to our Unlimited Wash Club and ended the quarter with over 1.5 million unique members. All of this helped us deliver another strong quarter of top and bottom-line results, continuing our track record of delivering consistent growth. This consistency in the business is a testament to the operational excellence that our teams deliver day in and day out, something that we're very proud of. And I'd like to thank all of our team members who create a…

Thank you, John, and good afternoon, everyone. We're pleased with our third quarter results and the underlying trends in our business. Our teams are executing well against our strategic growth initiatives and we continue investing in our future. Before we get into the numbers, let me make some high-level commentary on what we're seeing in the business. First, the fundamentals of our business are strong as evidenced by our top and bottom-line results. Second, we're seeing strong member retention levels in our Unlimited Wash Club, and the big gains we experienced in the first half of the year are holding nicely thus far in the back half of the year. Third, like many other companies, we're seeing some continued inflationary input pressures, primarily in store-level labor and chemicals. We're offsetting these with selective pricing increases in the retail wash side of the business. Fourth, and maybe most importantly, we continue to invest heavily in our people. As John mentioned, we have a significant opportunity to accelerate our growth and capture market share, both through acquisitions and greenfield openings. And we have stepped up our management training and investments in people to better position us to take advantage of the opportunities in the marketplace. Now, let me review our third quarter results. My comments will focus on our adjusted non-GAAP results. Please refer to today's press release if you would like more details on our financial performance and our methodology in calculating non-GAAP financial metrics. In the third quarter, revenue increased 24.7% compared to the third quarter of last year to $194.3 million, driven by comparable store sales growth of 21% and unit growth of 6.5%. On a two-year basis, our comparable store sales grew 14.5% versus 2019 during the quarter. It is important to note that the third quarter last…

[Operator Instructions] And the first question will come from Elizabeth Suzuki from Bank of America.

Just one question on the quick lube business that you divested. One of your competitors is thinking of co-branding their car wash with quick lube. And so I'm wondering why that wasn't successful for you or why you would choose to have gotten out of the quick lube business.

Yes. So this is John. We subscribe to the theory of doing fewer things well and focusing on our core competencies. And so at the risk of selling somewhat myopic, we've got our hands full in delivering a clean, dry, shiny car consistently across our entire beautiful portfolio of 360 stores. So we like that we're a pure-play car wash company, and we're very, very focused on that. Back in the day, there was a whole bunch of ancillary profit centers that people would attach to their car washes, be it convenience store, gas, lube shops, et cetera. And in the early days, we manage many of those businesses, but we have been strategically shedding them, as Jed mentioned. And today, we wake up thinking, living and breathing car wash, and we're happy that we're doing that.

Great. And then just one other question on growth. You've done a combination of M&A and also greenfield expansion historically, and you're still planning to do that going forward, I would assume. I mean, what are the merits of both? I mean, presumably, if you do an acquisition, you're also taking out a competitor at the same time, but then there's more work to convert all the signage and change over the experience to your brand. But if you -- with greenfield, you could potentially run up on the issue of having not enough space to expand into or running out of the locations. Just how are you thinking about both avenues of growth?

Yes. So I'll tackle the latter part of your question first, and that is we see an unbelievable amount of white space and runway for new unit growth in our industry. And we believe that the industry can almost double in size before it hits any point of maturation. And that's evolving us to, again, double down, triple down on our greenfield initiatives. The pros and cons between M&A and greenfield, I think, they're widely understood. You're paying up for an M&A acquisition opportunity to scale your business quicker, but sometimes the economics aren't as attractive, depending upon how much you're having to pay for that business versus a greenfield. So in our world, we're looking at both as we enter into new markets. Typically, it's done through a strategic M&A platform acquisition. And then we will build out that market with bolt-on acquisitions, some onesie-twosies as well as now building out with greenfield. So we like having a kind of a dual path to growth in more recent years. We're really, really excited about greenfield, but we remain highly acquisitive and hungry as we continue to look for new opportunities.

And the next question will come from Michael Lasser from UBS.

During the script, you talked several times about accelerating growth. What specifically are you referring to? And has the global supply chain challenge impacted the timing of any of your -- of the opening of any of your new greenfield locations? Wouldn't be surprising if it's just more difficult to get supplies to build some of these new car washes from the ground?

Yes. Great, Michael. I'll take the growth question and Jed you can maybe handle the supply side. So we were speaking specifically to unit growth and the opportunity that we have in front of us, as I previously mentioned, to continue to scale our company and take what is a 360-store chain strong business and continue on this trajectory. So that's our path, that's our ambition, and that's our vision. And we're on that track. And the only thing that's holding us back is our ability to build out the teams to support that growth. And so behind the scenes, we're feverishly working to not just double but triple our construction and development teams, our real estate sourcing teams, while we're also simultaneously building out our leadership development pipeline to be able to run the stores. So you can build them, but you got to run them. And we are on that parallel path to building out the teams on both fronts so we can achieve our vision.

Yes, Michael, we'll provide our outlook for 2022 on our Q4 call, but we do see a little bit of upside to the 23% number that we had provided earlier. As you look at the supply chain, there -- it's hard to find a company in today's environment that is completely insulated from the supply chain pressures that are being experienced. We have factored that in to the 16% to 18% between now and the end of the year, and it's being factored in as we think about 2022 and ahead.

Okay. And if I could get a follow-up question. You mentioned retail prices have gone up. How much have you -- how much price have you taken? And has there been an elastic response on the retail side? I know you haven’t changed the price of the UWC program, but what’s the history of raising prices on retail? And then as part of that, Jed, maybe you can offer some perspective, the cost of labor and chemicals margin was up about 44 basis points. You did a similar number of sales dollars this quarter versus last quarter, but the margin was much higher. Is that all because of increases in labor costs and increases in chemical costs? A – Jed Gold: So Michael, a couple of things there. So the price increase that we took, it was just on the retail side of the business, which makes up about 35% of our total sales. And it was phased in, in early November. So just recently. Roughly 80% of the stores received some type of a retail pricing increase. With retail obviously being the smaller part of the business, it impacted about 25% of our business. As we think about the labor side and the cost of labor, it’s the driver there, this year’s margin versus last year. There’s a little bit of noise when you start looking at it that way because of prior year some COVID noise in there. But as said in the prepared remarks, the investments that we’re making on the labor front, which can really be categorized into two buckets, the inflationary pressures that we’re experiencing and the investments we’re making to offset those, but then also the investments that we’re making to build out that team to continue to drive even more future unit growth. A – John Lai: Jed, can I just add to that? I think, historically, we’ve taken a very conservative approach to leveraging our pricing power. And where we sit today vis-à-vis our competitors, we still think that we have additional room should we elect to use it next year and that we can pass it through relatively easily with all the knock-on-wood. So we’re keeping some gas in our tank. We don’t want to -- again, any moves that we make are very measured and very conservative. And to your comment, we have not touched our Unlimited Wash Club pricing because we still are very much in member growth mode.

And the next question will come from Greg Badishkanian from Wolfe Research.

This is David Bellinger on for Greg. So I'll start on the UWC member growth. That slowed sequentially from an average of about 150,000 new members in each of the first two quarters of the year to about 30,000 this quarter. So is there anything you can highlight on that net change, maybe having to do with seasonality of the business or even labor at the store level? And if you think there was some type of pull-forward into the earlier part of the year?

Yes, David. So listen, when you look at the year-to-date growth on the Unlimited Wash Club, we're very pleased with the growth that we've seen. We've added 330,000 members year-to-date. We've grown it by just over 30% versus Q3 of last year. There is just a little bit of seasonality when you look at member sign-ups first half versus second half. Historically, when you look at this from 2015 through 2019, about 75 -- roughly 75% of those sign-ups occur during the first half of the year. This year, with the macro trends that we highlighted on our earlier call, we did see a little bit of a spike in Q2 relative to previous quarters. Listen, really difficult to say whether we pulled members forward or whether we took members from previous year and pushed them into this year. But listen, overall, we're happy. We're sitting at over 1.5 million members in the Unlimited Wash Club, and we're holding on and retaining those members fine.

Yes, Jed. And I would just add to that, the first half of this year was unusual in a lot of ways in a beautiful way in that we grew our member base so significantly. But when you look at Q3, we're actually in line with historical trends from a growth standpoint. And we've always taken approach of having this kind of steady as she goes. We call it a slow burn approach. We don't deploy any promotional gimmicks or tactics to try and lure folks into the program. We educate and we inform and we allow our customers to, in a very relaxed way, sign up for the program, and we're going to continue on that path.

That’s helpful. And just as a follow-up, the percentage of sales from UWC members, that stepped up about 4 percentage points sequentially to 66% of sales. So help us understand that improvement. Just to clarify, is pricing impactful at all there? And also, should we expect the price gap between your retail customer and the UWC to remain relatively consistent from here? A – Jed Gold: Yes. So the pricing increases that we took, David, were just recently taken in the earlier parts of November. So as you look at the 66% mix, right, the UWC sales mix, there’s also the retail side of that as well. So it was a step up, as you had highlighted, of -- compared to last quarter of 62%. That’s just a function of the movement of, right, growing UWC a little bit, but then also the retail trailing just a little bit. As you recall, on our Q2 call, we had that retail sales were a little bit more pronounced in helping drive the beat that we saw in Q2. A – John Lai: Yes. And just to clarify, the gap isn’t going to increase, it’s going to shrink between retail and UWC. And so as we shrink that gap, in theory, that will -- should have a positive impact on the value that our members will see and we hope that, that helps us drive more member growth.

And the next question will come from Simeon Siegel from BMO Capital Markets.

John, sorry, I think I want to throw some quick ones over to Jed, if that's all right. Can you talk about your gross margin trajectory, I guess, next quarter, into next year just considering the inflationary point you referenced? So just anything there? Anything changed in your underlying incremental margin as you think about that flow-through? And then just quickly on the full year guide change. I think you -- so I think you said you raised revs where it was $4 million to $9 million, but brought the high end of net income down about $5 million. So just any help there? Is there something below the line that we need to keep in mind? And then just sorry if I missed it, did you comment on what looked like the lower CapEx guide for the year? So is that lower gross CapEx, higher leasebacks or something else?

Jed, before you answer, Simeon, I'm waiting for the -- and maybe this is not in the financial analyst playbook, but I'm waiting for the day that you ask me a question about culture. I can feel that. But the hardball question is about specific misses. I'll let Jed handle.

That's my follow-up. So you just pre-empted.

So Simeon, as we think about gross margin, particularly that quarter-over-quarter cadence, right, there's some timing where we made the investments on the labor front in early August. Pricing goes into effect in early November. So you'll see things move around just a little bit. Listen, at the end of the day, we -- Q2 was an anomaly. With the 37% margins, we see this coming down with the investments that we're making more in line with what we expect. We're very happy with margins in that 30% level. At the end of the day, we're looking at this at a full year basis over a longer term, not just quarter-to-quarter. And then on the CapEx side of your question, it is slightly lower. Don't read into that. It's really just a timing thing and some of the sale leasebacks and versus when the actual CapEx spend is occurring. Keep in mind, on the CapEx front, it's about an 18-month lead time on the development cycle. So we're -- the spend that you're seeing is really going into 2022, 2023 newbuilds at this point.

And I will say our physical plants are in the best shape they've ever been in, and they're set up for peak performance. And so the way we've embraced technology across every aspect of our business. And as a result, we can process 150 to 180 cars very easily, in some cases, 200 cars per hour depending upon the store.

Perfect. And then just a quick follow-up. John, I’m just wondering, are you pro or against having a positive culture? A – John Lai: Culture eats strategy for lunch.

And the next question will be from Peter Keith from Piper Sandler.

I wanted to maybe circle back on the pricing. And John, I'm just checking back in my notes. I don't think you guys have raised prices for a long time. If you have at any point in your tenure, I guess, I'm curious, historically, what you have seen or we call seeing with demand trends. And then to your point around the pricing gap with membership shrinking, have you historically seen an uptick in membership penetration when you raised retail prices?

Yes. So back to our conservative approach. Every time we go into a pricing discussion, which is, as you can imagine, are probably the most intensely internally debated conversations with respect to strategic moves. There's always a little bit of stress around what kind of impact that's going to have on volume. And every time we've made the move over the last 20 years, we haven't seen any material impact to our volume. And so it's been relatively easy to pass it through. But again, we're going to stay true to our core, which is remain conservative and only take pricing when we think we need to. And so the most recent move in November, which again is lagging some of the moves we made from a wage standpoint in August, has put some initial near-term pressure on margins. But really, I think the question is and one of the things that we're still, I think America is, trying to figure out is what does the future labor market look like.

Yes. Listen, the one thing I would add there, Peter, is that we're always looking at retail pricing, and there have been historic retail pricing actions. To John's point, right, it doesn't have an impact on volume. With a subscription business, right, this is where it's unique from a QSR or other broader retail that actually help serve the -- and drive UWC -- historically has helped drive UWC sign-ups.

Yes. Okay. Makes sense. And the other question I want to ask was around the point you made. I think it was you've reduced labor hours by 29%, I think going back two years, if I got that right. So just operationally, can you talk about how you're doing that? And are you in the early stages of this effort? Or conversely, are you kind of about to annualize some of these initiatives?

No. I think it's important to note that our approach to staffing as we staff up, we don't staff down and this whole notion of right-staffing. What we're doing is delivering a beautiful customer experience where we have literally an attendant that is helping in a self-serve kiosk mode, get folks through the line even quicker. And so where some folks will run lean and mean, we're happy with our approach. That said, inside of our portfolio, some of our top-quartile stores were probably running heavier than they needed to. So we rightsized that kind of midway through the pandemic, and we're enjoying that. I think the other thing that's -- from a macro standpoint that's affecting the optimization of our labor is the fact that we have been converting some of our stores that were interior clean/full-serve locations to express exterior models, which, as you know, is a fundamentally different lower labor model than a traditional full-serve.

[Operator Instructions] The next question will come from Simeon Gutman from Morgan Stanley.

First question is short term on the fourth quarter. Can you help us what's implied in terms of the comp? The -- I know there's some puts and takes from the prior year, and I wanted to make sure we're interpreting right. It looks on the surface as a quiet acceleration, but trying to get that clarified.

Yes. Simeon, so when you look at the -- just the cadence going into Q4, right, it's July, we are plus 31%; August, plus 21; September, plus 23%. So we're seeing good momentum going into the quarter. Keep in mind, from a comp perspective, it does get progressively more difficult towards the back end of this year because of the reopening of our interior clean locations last year. So when you're looking purely at that comparable store sales percentage, the lap just becomes a little bit more difficult as those -- everything came back online -- fully back online.

Okay. And then the second question, I think this was touched on, but I'll make two parts to it. One, is there any competitive response in the markets in which you compete in terms of the cost of either competitive wash, express wash or memberships? And then the changes that you've made to the full service or the way you expressed it, Jed, is that -- are we at a good place now and we're not going to see price increases going forward? Or if the situation evolves, you may have to make a move, meaning, how sacred is the price points right now in the membership clubs?

Okay. So that was a three-part question. I'll break it into three pieces. So from a pricing standpoint and vis-à-vis our competitors, we've seen many of our competitors take price ahead of where we have made our recent moves. But on average, if you look at our base express retail price point across our 360 stores, we're roughly $8 while many of our competitors are at $10. So they've taken pricing earlier than we did, but our big moves just got us to $8. So again, we think we've got more gas in the tank. You did touch on something that is very sensitive to us, which is our Unlimited Wash Club pricing strategy, which we are electing not to touch. Again, as we've mentioned repeatedly, we're in member growth mode. We want to continue down that path as we build our member base and get more folks into the fold. I forgot the third question. Can you -- can somebody --

No. I think you touched on it, meaning the changes that you've made gets you to a good place. And I was trying to understand if this inflationary environment persists, is there a breaking point. But I don't know -- so I don't know how you think about that.

Yes. And on the interior clean, I just remembered it was the third part. So what is the future of the -- today, I think it's roughly 75 interior clean stores. We probably have another dozen-or-so opportunities that we're looking at right now, to optimize and perhaps convert to express exterior. But when we boil it down to the 50 that will remain, they are high-performance engines that generate a whole bunch of revenue and EBITDA. And we’re very happy with the performance of those stores. And as we’ve shared in the past, it actually creates this huge pipeline of talent because some of our best operations guys have come up through the interior clean full-serve ranks. And we’re able to take those guys and put them into new markets or new stores, and they absolutely crush it. So we love the interiors clean side of our business, but our growth strategy from a unit growth standpoint going forward is almost 100% pure express. A – Jed Gold: Simeon, just one other point I want to add on there is, so we’re – as John had mentioned, we’re always going to be looking at opportunities to take price. We believe that we still have some opportunities if we were pressed and we had to as we think about the near term and going forward and the impact of the pricing actions that we just took here recently in November, right? So it’s going to impact a small portion of the business, about 25% of our business. And on a go-forward basis, we anticipate this having a fairly minimal impact to comp in the low single digits.

Ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to John Lai for any closing remarks.

So we’ve had a great year so far with strength and all around performance. And as we look ahead, our focus will remain on continuously elevating the customer experience as we grow our network of stores and customers, all while maintaining the operational excellence and people-first culture that has come to define us. Thank you for joining us on the call today. We look forward to having a solid Q4 and finishing the year strong. Thanks, everybody.

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