MISTER CAR WASH, INC. Management’s discussion and analysis of financial condition and results of operations. (Form 10-Q) – Marketscreener.com | CarTailz

You should read the following discussion and analysis of our financial condition
and results of operations together with our unaudited condensed consolidated
financial statements and related notes included elsewhere in this Quarterly
Report on Form 10-Q and the audited consolidated financial statements and
related notes included in our 2021 10-K. This discussion contains
forward-looking statements based upon current plans, expectations and beliefs
involving risks and uncertainties. Our actual results may differ materially from
those anticipated in these forward-looking statements as a result of various
factors, including those set forth in other parts of this Quarterly Report on
Form 10-Q and in Part I, Item 1A. "Risk Factors" and in Part II. Item 7.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" of our 2021 10-K.

who we are


Mister Car Wash, Inc. is the largest national car wash brand, primarily offering
express exterior cleaning services, with interior cleaning services at select
locations, across 420 car washes in 21 states as of September 30, 2022. Founded
in 1996, we employ an efficient, repeatable, and scalable process, which we call
the "Mister Experience," to deliver a clean, dry, and shiny car every time. The
core pillars of the "Mister Experience" are greeting every customer with a wave
and smile, providing the highest quality car wash, and delivering the experience
quickly and conveniently. We offer a monthly subscription program, which we call
the Unlimited Wash Club(R) ("UWC"), as a flexible, quick, and convenient option
for customers to keep their cars clean. As of September 30, 2022 and September
30, 2021, we had approximately 1.9 million and approximately 1.6 million UWC
Members, respectively. This represented an increase of approximately 19% over
the same time last year. For the three months ended September 30, 2022 and 2021,
UWC sales represented 69% and 66% of our total wash sales, respectively, and UWC
volume represented 77% and 74% of our total wash volume, respectively. Our scale
and over 25 years of innovation allow us to drive operating efficiencies and
invest in training, infrastructure, and technology that improve speed of
service, quality, and sustainability and realize strong financial performance.

Factors affecting our business and trends

We believe our business and growth depend on a number of factors that present significant opportunities for us and may present risks and challenges, including those discussed below and in Part I, Item 1A. “Risk Factors” of our 2021 10-K.

• Growth in comparable store sales. Comparable store sales were strong

Driver of our net sales growth and we expect it to continue to play a key role

role in our future growth and profitability. We will keep trying

increase our comparable store sales by increasing the number of UWC members,

Increasing the efficiency and throughput of our car washes, increasing

Marketing spend to acquire new customers and increase customer visits

      frequency.


• Number and loyalty of UWC members. The UWC program is a critical element of

our business. UWC members contribute a significant portion of our network

revenue and provide recurring revenue through their monthly membership fees.

• Labor administration. Hiring and retaining qualified and experienced team members

Management represents one of our greatest costs. We believe that people are that

Key to our success and we have been able to successfully recruit and retain

dedicated, highly qualified team members by paying competitive wages, offer

attractive service packages and the provision of robust training and further education

occasions. While competition for skilled labor is intense and

subject to high turnover, we believe our approach to wages and benefits will do so

      continue to allow us to attract suitable team Members and management to
      support our growth.



Factors affecting the comparability of our results of operations


Our results have been affected by, and may in the future be affected by, the
following factors, which must be understood in order to assess the comparability
of our period-to-period financial performance and condition.

Location development on the green field


Our primary historical growth strategy has involved acquiring local and regional
car wash operators, upgrading the facilities and equipment, training the team to
provide the "Mister Experience," and converting the site to the "Mister" brand.
More recently, we have also grown through greenfield development of Mister Car
Wash locations, with particular focus on Express Exterior Locations, and
anticipate further pursuit of this strategy in the future. In the three and nine
months ended September 30, 2022, we successfully opened eight and 15 greenfield
locations, respectively. Our future location growth will be dependent on
greenfield development.

The comparability of our results may be impacted by the inclusion of financial
performance of greenfield locations that have not delivered a full fiscal year
of financial results nor matured to average unit volumes, which we typically
expect after approximately three full years of operation.
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acquisitions


In the three months ended September 30, 2022, we completed one acquisition
consisting of three properties that operated as conveyorized car washes. In the
nine months ended September 30, 2022, we completed three acquisitions consisting
of eight properties that operated as conveyorized car washes.

Following an acquisition, we implement a variety of operational improvements to
unify branding and enhance profitability. As soon as feasible, we fully
integrate and transition acquired locations to the "Mister" brand and make
investments to improve site flow, upgrade tunnel equipment and technology, and
install our proprietary Unity Chemical system, which is a unique blend of our
signature products utilizing the newest technology and services to make a better
car wash experience for our customers. We also establish member-only lanes,
optimize service offerings and implement training initiatives that we have
successfully utilized to improve team member engagement and drive UWC growth
post-acquisition. The costs associated with these onboarding initiatives, which
vary by site, can impact the comparability of our results.

The comparability of our results can also be impacted by the inclusion of the financial performance of our acquisitions that have not delivered a full year of financial results Mister car wash Property.

See Note 14 Business Combinations to our Unaudited Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q for further discussion.


Key Performance Indicators

We prepare and analyze various operating and financial data to assess the
performance of our business and to help in the allocation of our resources. The
key operating performance and financial metrics and indicators we use are set
forth below, as of and for the three and nine months ended September 30, 2022
and 2021.

                                 Three Months Ended September 30,           

Nine months over 09/30,

    (Dollars in thousands)          2022                  2021                 2022                   2021
Financial and Operating Data
Location count (end of period)             420                   360                  420                    360
Comparable store sales growth              2.9 %                21.3 %                5.3 %                 38.6 %
UWC Members (in thousands, end
of period)                               1,860                 1,564                1,860                  1,564
UWC sales as a percentage of
total wash sales                            69 %                  66 %                 67 %                   63 %
Net income (loss)              $        23,997       $        27,366     $         95,144       $        (58,350 )
Net income (loss) margin                  11.0 %                14.1 %               14.4 %                (10.3 )%
Adjusted EBITDA                $        66,132       $        62,450     $        215,457       $        197,000
Adjusted EBITDA margin                    30.4 %                32.1 %               32.5 %                 34.8 %



Location count (end of period)


Our location count refers to the total number of car wash locations at the end
of a period, inclusive of new greenfield locations and acquired locations. The
total number of locations that we operate, as well as the timing of location
openings, acquisitions, and closings, have, and will continue to have, an impact
on our performance. In the three months ended September 30, 2022, we increased
our location count by 11 locations, comprised of eight greenfield locations and
three acquired locations. In the nine months ended September 30, 2022, we
increased our location count by 24 locations, comprised of 15 greenfield
locations and nine acquired locations. One location, which was part of a 2021
acquisition, opened during the second quarter of 2022 and is included as an
acquired location above.

Our Express Exterior Locations, which offer express exterior cleaning services,
comprise 345 of our current locations and our Interior Cleaning Locations, which
offer both express exterior cleaning services and interior cleaning services,
comprise 75 of our current locations.

Comparable store sales growth


A location is considered a comparable store on the first day of the 13th full
calendar month following a location's first day of operations. A location
converted from an Interior Cleaning Location format to an Express Exterior
Location format is excluded when the location did not offer interior cleaning
services in the current period but did offer interior cleaning services in the
prior year period. Comparable store sales growth is the percentage change in
total wash sales of all comparable store car washes.

Opening new locations is a primary component of our growth strategy and as we
continue to execute on our growth strategy, we expect that a significant portion
of our sales growth will be attributable to non-comparable store sales.
Accordingly, comparable store
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sales are only one measure we use to assess the success of our growth strategy.
For the three months ended September 30, 2022, comparable store sales increased
to 2.9% compared to an increase of 21.3% in the three months ended September 30,
2021.

UWC Members (end of period)

Members of our monthly subscription service are known as Unlimited Wash Club
Members, or UWC Members. We view the number of UWC Members and the growth in the
number of UWC Members on a net basis from period to period as key indicators of
our revenue growth. The number of UWC Members has grown over time as we have
acquired new customers and retained previously acquired customers. There were
approximately 1.9 million and approximately 1.6 million UWC Members as of
September 30, 2022 and September 30, 2021, respectively. There were
approximately 1.7 million UWC Members as of December 31, 2021.

Our UWC members grew by about 19% September 30, 2021 through
09/30/2022 and about 12% off December 31, 2021 through
09/30/2022.

UWC sales as a percentage of total wash sales


UWC sales as a percentage of total wash sales represents the penetration of our
subscription membership program as a percentage of our overall wash sales. Total
wash sales are defined as the net revenue generated from express exterior
cleaning services and interior cleaning services for both UWC Members and retail
customers. UWC sales as a percentage of total wash sales is calculated as sales
generated from UWC Members as a percentage of total wash sales. We have
consistently grown this measure over time as we educate customers as to the
value of our subscription offering. UWC sales were 69% and 66% of our total wash
sales for the three months ended September 30, 2022 and 2021, respectively. UWC
sales were 67% and 63% of our total wash sales for the nine months ended
September 30, 2022 and 2021, respectively.

Adjusted EBITDA and Adjusted EBITDA Margin


Adjusted EBITDA is a non-GAAP measure of our financial performance and should
not be considered as an alternative to net income as a measure of financial
performance or any other performance measure derived in accordance with
generally accepted accounting principles in the United States of America ("U.S.
GAAP") and should not be construed as an inference that our future results will
be unaffected by unusual or nonrecurring items. Adjusted EBITDA is defined as
net income (loss) before interest expense, net, income tax provision (benefit),
depreciation and amortization expense, (gain) loss on sale of assets, loss on
extinguishment of debt, stock-based compensation expense, acquisition expenses,
management fees, non-cash rent expense, expenses associated with the IPO,
expenses associated with the secondary public offering, and other nonrecurring
charges. Adjusted EBITDA margin is defined as Adjusted EBITDA divided by net
revenues for a given period.

We present Adjusted EBITDA because we believe it assists investors and analysts
in comparing our operating performance across reporting periods on a consistent
basis by excluding items that we do not believe are indicative of our ongoing
operating performance. You are encouraged to evaluate these adjustments and the
reasons we consider them appropriate for supplemental analysis. In evaluating
Adjusted EBITDA, you should be aware that in the future we may incur expenses
that are the same as or similar to some of the adjustments in our presentation
of Adjusted EBITDA. Our presentation of Adjusted EBITDA should not be construed
as an inference that our future results will be unaffected by unusual or
non-recurring items. There can be no assurance that we will not modify the
presentation of Adjusted EBITDA in future periods, and any such modification may
be material. In addition, Adjusted EBITDA may not be comparable to similarly
titled measures used by other companies in our industry or across different
industries.

Our management believes Adjusted EBITDA is helpful in highlighting trends in our
core operating performance compared to other measures, which can differ
significantly depending on long-term strategic decisions regarding capital
structure, the tax jurisdictions in which companies operate and capital
investments. We also use Adjusted EBITDA in connection with establishing
discretionary annual incentive compensation; to supplement U.S. GAAP measures of
performance in the evaluation of the effectiveness of our business strategies;
to make budgeting decisions; and because our Amended A&R First Lien Credit
Agreement uses measures similar to Adjusted EBITDA to measure our compliance
with certain covenants.

Adjusted EBITDA has limitations as an analytical tool and you should not view it in isolation or as a substitute for analyzing our results, as described below US GAAP. Some of these limitations include:

• Adjusted EBITDA does not reflect our cash outflows or future needs

      for capital expenditures or contractual commitments;


• Adjusted EBITDA does not reflect changes in our liquidity requirements for our

      working capital needs;



  •   Adjusted EBITDA does not reflect the interest expense and the cash
      requirements necessary to service interest or principal payments on our
      debt;


• Adjusted EBITDA does not reflect cash requirements for asset replacement

      that are being depreciated and amortized;



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• Adjusted EBITDA does not reflect non-cash compensation, which is a key factor

      element of our overall long-term compensation;


• Adjusted EBITDA does not reflect the impact of specific cash expenses or cash

Receipts arising from matters that we do not consider to be indicative of our continuation

      operations; and


• Other companies in our industry may calculate Adjusted EBITDA differently

as we.



Adjusted EBITDA was approximately $66.1 million and $62.5 million in the three
months ended September 30, 2022 and 2021, respectively. Our Adjusted EBITDA
margin was 30.4% and 32.1% in the three months ended September 30, 2022 and
2021, respectively. Adjusted EBITDA was approximately $215.5 million and $197.0
million in the nine months ended September 30, 2022 and 2021, respectively. Our
Adjusted EBITDA margin was 32.5% and 34.8% in the nine months ended September
30, 2022 and 2021. The following is a reconciliation of our net income (loss) to
Adjusted EBITDA for the periods presented.

                                        Three Months Ended September 30,    

Nine months over 09/30,

      (Dollars in thousands)               2022                   2021                 2022                2021
Reconciliation of net income
(loss) to Adjusted EBITDA:
Net income (loss)                    $         23,997       $         27,366     $         95,144       $  (58,350 )
Interest expense, net                          10,100       $          5,717               27,028           33,416
Income tax provision (benefit)                  8,814                  6,440               26,988          (29,747 )
Depreciation and amortization
expense                                        15,193                 12,980               45,274           36,530
(Gain) loss on sale of assets (a)                (649 )                  748               (3,336 )         (5,559 )
Loss on extinguishment of debt                      -                      -                    -            3,183
Stock-based compensation expense
(b)                                             5,461                  6,751               16,959          210,292
Acquisition expenses (c)                        1,303                    968                2,541            1,977
Management fees (d)                                 -                      -                    -              500
Non-cash rent expense (e)                         745                    380                1,820            1,136
Expenses associated with initial
public offering (f)                                 -                    124                  272            1,574
Expenses associated with secondary
public offering (g)                                 -                    498                    -              498
Other (h)                                       1,168                    478                2,767            1,550
Adjusted EBITDA                      $         66,132       $         62,450     $        215,457       $  197,000
Net Revenues                         $        217,576       $        194,310     $        662,154       $  566,898
Adjusted EBITDA margin                           30.4 %                 32.1 %               32.5 %           34.8 %


(a)

Consists of gains and losses on disposal of assets related to sale-leaseback transactions, store closures or sale of property, plant and equipment.

(b)

Represents non-cash expenses related to our stock-based compensation awards.

(c)

Represents expenses incurred in strategic acquisitions, including professional
fees for accounting and auditing services, appraisals, legal fees and financial
services, one-time costs associated with supplies for rebranding the acquired
stores, and distinct travel expenses for related, distinct integration efforts
by team members who are not part of our dedicated integration team.

(d)

Represents fees paid Leonard Green & Associates in accordance with our Management Services Agreement, which ended upon the closing of our IPO in June 2021 (“Initial public offering”).

(e)

Represents the difference between the rental cost paid in cash and US GAAP Rental Expense.

(f)

Represents one-time expenses related to the completion of our IPO
June 2021.

(G)

Represents one-time expenses related to the completion of our second public offering Aug 2021.

(H)

Consists of other items as determined by management not to be reflective of our
ongoing operating performance, such as costs associated with our one-time
rebranding initiative costs, severance pay, non-deferred legal fees and other
expenses related to credit agreement amendments, legal settlements and legal
fees related to contract terminations, and nonrecurring strategic project costs.

Components of our earnings situation

net income

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We recognize revenue in two main streams: (i) the UWC program that entitles the
customer to unlimited washes for a monthly subscription fee, cancellable at any
time and (ii) retail car washes and other services. In the UWC program, we enter
into a contract with the customer that falls under the definition of a customer
contract under ASC 606, Revenue from Contracts with Customers. Customers are
automatically charged on a credit card or debit card on the same date of the
month that they originally signed up. Our performance obligations are to provide
unlimited car wash services for a monthly fee. Revenue from the UWC program is
recognized ratably over the month in which it is earned and amounts unearned are
recorded as deferred revenue on the unaudited condensed consolidated balance
sheets; all amounts recorded as deferred revenue at year-end are recognized as
revenue in the following year. Revenue from retail car wash and other services
is recognized at the point in time at which services are rendered and the
customer pays with cash, debit card, or credit card. Revenues are net of sales
tax, refunds, and discounts applied as a reduction of revenue at the time of
payment.

Store Operating Costs

The cost of running the business consists of labor and chemical costs, as well as other running costs of the car wash business.

labor and chemical costs


Cost of labor and chemicals include compensation and related employee benefit
expenses associated with car wash employees, maintenance employees, warehouse
employees, chemicals and associated supplies, including wages, cash bonuses,
stock-based compensation, taxes, insurance, and workers compensation payments as
reported in the unaudited condensed consolidated statements of operations and
comprehensive income included elsewhere in this Quarterly Report on Form 10-Q.

Other operating expenses of the business


Other store operating expenses includes all other costs related to the
operations of car wash and warehouse locations such as credit card fees, car
damages, office and lobby supplies, information technology costs associated with
the locations, telecommunications, advertising, non-healthcare related
insurance, rent, repairs and maintenance related to assets, utilities, property
taxes, and depreciation expense on assets at the car wash and warehouse
locations.

General and administrative


General and administrative expenses include compensation expenses and the
related employee benefits of headquarters employees, including wages, cash
bonuses, stock-based compensation, taxes, insurance, and workers compensation
payments, as well as information technology expenses, administrative office
expenses, professional services and other related expenses, depreciation expense
on held-for-use assets used at our headquarters, and amortization expense
associated with our intangible assets.

We will continue to incur significant expenses on an ongoing basis that we did
not incur as a private company. Those costs include additional director and
officer liability insurance expenses, as well as third-party and internal
resources related to accounting, auditing, Sarbanes-Oxley Act compliance, legal,
and investor and public relations expenses. We expect such expenses to further
increase after we are no longer an emerging growth company starting in 2023.
These costs will generally be expensed under general and administrative expenses
in the unaudited condensed consolidated statements of operations and
comprehensive income (loss) included elsewhere in this Quarterly Report on Form
10-Q.

(Profit) Loss on sale of assets

(Gain) Loss on Sale of Assets includes gains and losses on the sale-leaseback of our sites and sale of property, plant and equipment.

Interest expense, net

Interest expense, net consists primarily of cash and non-cash interest expense on loans, partially offset by interest income on our cash on hand.

loss on debt settlement

Loss on debt extinguishment includes losses related to changes in our existing debt that are accounted for as debt extinguishment and losses related to partial or full payments of our debt that qualify for debt extinguishment.

Income tax provision (benefit)

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We recognize deferred tax assets and liabilities for the expected future tax
consequences of events that have been recognized differently in the financial
statements or tax returns. Under this method, deferred tax liabilities and
assets are determined based on the difference between the financial statement
carrying amounts and tax basis of assets and liabilities using enacted tax
rates.

We have adopted a more-likely-than-not threshold for financial statement
recognition and measurement of an uncertain tax position taken or expected to be
taken in a tax return. We recognize interest and penalties related to uncertain
tax positions in income tax provision in our unaudited condensed consolidated
statements of operations and comprehensive income (loss) included elsewhere in
this Quarterly Report on Form 10-Q.

Operating results for the past three months 09/30/2022 and 2021 (unaudited)


The unaudited results of operations data for the three months ended September
30, 2022 and 2021 have been derived from the unaudited condensed consolidated
financial statements included elsewhere in this Quarterly Report on Form 10-Q.

                                                  Three Months Ended September 30,
                                              2022                               2021
    (Dollars in thousands)          Amount        % of Revenue         Amount        % of Revenue
Net revenues                      $   217,576               100 %    $   194,310               100 %

Store operating costs:
Cost of labor and chemicals            68,228                31 %         63,438                33 %
Other store operating expenses         82,343                38 %         68,435                35 %
General and administrative             24,743                11 %         22,166                11 %
(Gain) loss on sale of assets            (649 )              (0 )%           748                 0 %
Total costs and expenses              174,665                80 %        154,787                80 %
Operating income (loss)                42,911                20 %         39,523                20 %
Other expense:
Interest expense, net                  10,100                 5 %          5,717                 3 %
Loss on extinguishment of debt              -                 0 %              -                 0 %
Total other expense                    10,100                 5 %          5,717                 3 %
Income (loss) before taxes             32,811                15 %         33,806                17 %
Income tax provision (benefit)          8,814                 4 %          6,440                 3 %
Net income (loss)                 $    23,997                11 %    $    27,366                14 %




Net Revenues

                            Three Months Ended September 30,
(Dollars in thousands)         2022                   2021           $ Change       % Change
Net revenues             $        217,576       $        194,310     $  23,266             12 %



Net revenues were $217.6 million for the three months ended September 30, 2022
compared to $194.3 million for the three months ended September 30, 2021, an
increase of $23.3 million, or 12%. The increase in net revenues was primarily
attributable to the increase in car wash sales due to growth in UWC Members and
the year-over-year addition of 60 locations.

store running costs

labor and chemical costs


                                Three Months Ended September 30,
  (Dollars in thousands)           2022                  2021             $ Change          % Change
Cost of labor and chemicals   $        68,228       $        63,438      $     4,790                  8 %
Percentage of net revenues                 31 %                  33 %



Cost of labor and chemicals was $68.2 million for the three months ended
September 30, 2022 compared to $63.4 million for the three months ended
September 30, 2021, an increase of $4.8 million, or 8%. The increase in the cost
of labor and chemicals is primarily driven by an increase in labor and benefits
of approximately $3.6 million and an increase in wash chemicals and supplies of
approximately $1.2 million during the three months ended September 30, 2022,
both attributable to an increase in volume and the
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year-over-year addition of 60 locations, as well as some inflationary pressures
on both our labor and chemicals. As a percentage of net revenues, costs of labor
and chemicals for the three months ended September 30, 2022 decreased by
approximately 2% due to improved labor staffing and express volume mix as
compared to the prior year period.

Other operating expenses of the business


                             Three Months Ended September 30,
 (Dollars in thousands)         2022                  2021              $ Change           % Change
Other store operating
expenses                   $        82,343       $        68,435      $      13,908                 20 %
Percentage of net
revenues                                38 %                  35 %



Other store operating expenses were $82.3 million for the three months ended
September 30, 2022 compared to $68.4 million for the three months ended
September 30, 2021, an increase of $13.9 million, or 20%. The increase in other
store operating expenses was attributable to the year-over-year addition of 60
locations and some inflationary pressures on our utilities and maintenance
expenses. Rent expense increased approximately $2.9 million with the addition of
49 new land and building leases.

General and Administrative

                               Three Months Ended September 30,
  (Dollars in thousands)          2022                  2021             $ Change           % Change
General and administrative   $        24,743       $        22,166     $       2,577                  12 %
Percentage of net revenues                11 %                  11 %



General and administrative expenses were $24.7 million for the three months
ended September 30, 2022 compared to $22.2 million for the three months ended
September 30, 2021, an increase of $2.6 million, or 12%. The increase in general
and administrative expenses was primarily driven by an increase of approximately
$0.9 million in salaries and benefits and an increase of approximately $2.4
million in other costs, which were primarily attributable to the increased costs
of being a public company and increase in corporate headcount. These increases
were offset by a decrease of approximately $0.7 million in stock-based
compensation costs.

(Gain) Loss on Sale of Assets

                                    Three Months Ended September 30,
   (Dollars in thousands)            2022                       2021             $ Change          % Change
(Gain) loss on sale of assets   $          (649 )          $          748      $      (1,397 )            (187 )%
Percentage of net revenues                   (0 )%                      0 %



(Gain) loss on sale of assets reflected a gain of $0.6 million for the three
months ended September 30, 2022 compared to a loss of $0.7 million for the three
months ended September 30, 2021, a decrease of $1.4 million, or 187%. The
decrease in (gain) loss on sale of assets was primarily driven by gains
associated with our sale-leaseback transactions in the current year.

Different edition


                                 Three Months Ended September 30,
  (Dollars in thousands)           2022                     2021              $ Change           % Change
Other expense                $          10,100         $         5,717     $        4,383                  77 %
Percentage of net revenues                   5 %                     3 %



Other expense was $10.1 million for the three months ended September 30, 2022
compared to $5.7 million for the three months ended September 30, 2021, an
increase of $4.4 million, or 77%. The increase in other expense was primarily
driven by an increase in interest expense due to higher average interest rates
and borrowing levels as compared to the prior year period.
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Income tax provision (benefit)

                               Three Months Ended September 30,
 (Dollars in thousands)          2022                     2021             $ Change           % Change
Income tax provision
(benefit)                  $          8,814         $          6,440     $       2,374                  37 %
Percentage of net
revenues                                  4 %                      3 %



Income tax provision was $8.8 million for the three months ended September 30,
2022 compared to $6.4 million for the three months ended September 30, 2021, an
increase of $2.4 million, or 37%. The increase in income tax provision was
primarily driven by reduced net, income tax benefits from equity awards.

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Operating results for the past nine months 09/30/2022 and 2021 (unaudited)


The unaudited results of operations data for the nine months ended September 30,
2022 and 2021 have been derived from the unaudited condensed consolidated
financial statements included elsewhere in this Quarterly Report on Form 10-Q.

                                                  Nine Months Ended September 30,
                                              2022                              2021
    (Dollars in thousands)          Amount       % of Revenue         Amount        % of Revenue
Net revenues                      $  662,154               100 %    $   566,898               100 %

Store operating costs:
Cost of labor and chemicals          203,117                31 %        203,051                36 %
Other store operating expenses       239,173                36 %        194,889                34 %
General and administrative            74,040                11 %        226,015                40 %
(Gain) loss on sale of assets         (3,336 )              (1 )%        (5,559 )              (1 )%
Total costs and expenses             512,994                77 %        618,396               109 %
Operating income (loss)              149,160                23 %        (51,498 )              (9 )%
Other expense:
Interest expense, net                 27,028                 4 %         33,416                 6 %
Loss on extinguishment of debt             -                 0 %          3,183                 1 %
Total other expense                   27,028                 4 %         36,599                 6 %
Income (loss) before taxes           122,132                18 %        (88,097 )             (16 )%
Income tax provision (benefit)        26,988                 4 %        (29,747 )              (5 )%
Net income (loss)                 $   95,144                14 %    $   (58,350 )             (10 )%


Net Revenues


                             Nine Months Ended September 30,
(Dollars in thousands)         2022                   2021           $ Change       % Change
Net revenues             $        662,154       $        566,898     $  95,256             17 %



Net revenues were $662.2 million for the nine months ended September 30, 2022
compared to $566.9 million for the nine months ended September 30, 2021, an
increase of $95.3 million, or 17%. The increase in net revenues was primarily
attributable to the increase in car wash sales due to growth in UWC Members and
the year-over-year addition of 60 locations.

Store Operating Costs

Cost of Labor and Chemicals


                                  Nine Months Ended September 30,
  (Dollars in thousands)            2022                   2021              $ Change           % Change
Cost of labor and chemicals   $        203,117       $        203,051      $          66                  0 %
Percentage of net revenues                  31 %                   36 %



Cost of labor and chemicals was $203.1 million for the nine months ended
September 30, 2022 compared to $203.1 million for the nine months ended
September 30, 2021, an increase of less than $0.1 million, or 0%. The net change
in the cost of labor and chemicals is primarily driven by an increase in labor
and benefits of approximately $27.4 million and an increase in wash chemicals
and supplies of approximately $3.9 million during the nine months ended
September 30, 2022, both attributable to an increase in volume and the
year-over-year addition of 60 locations, as well as some inflationary pressures
on both our labor and chemicals. The prior year period reflected the recognition
of stock-based compensation expense of $31.3 million related to our
performance-based vesting stock options that vested on the consummation of our
IPO in June 2021 which offset the current year increases. As a percentage of net
revenues, costs of labor and chemicals for the nine months ended September 30,
2022 decreased by approximately 5% due to improved labor staffing and express
volume mix as compared to the prior year period, as well as the prior year
period recognition of stock-based compensation expense as noted above.

Other operating expenses of the business

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                              Nine Months Ended September 30,
(Dollars in thousands)          2022                   2021             $ Change           % Change
Other store operating
expenses                  $        239,173       $        194,889     $      44,284                 23 %
Percentage of net
revenues                                36 %                   34 %



Other store operating expenses were $239.2 million for the nine months ended
September 30, 2022 compared to $194.9 million for the nine months ended
September 30, 2021, an increase of $44.3 million, or 23%. The increase in other
store operating expenses was attributable to the year-over-year addition of 60
locations and some inflationary pressures on our utilities and maintenance
expenses. Rent expense increased approximately $7.8 million with the addition of
49 new land and building leases.

General and administrative



                                Nine Months Ended September 30,
  (Dollars in thousands)          2022                  2021             $ 

Change % change General and administrative $74,040 $226,015 $(151,975)

              (67 )%
Percentage of net revenues               11 %                   40 %



General and administrative expenses were $74.0 million for the nine months ended
September 30, 2022 compared to $226.0 million for the nine months ended
September 30, 2021, a decrease of $152.0 million, or 67%. The decrease in
general and administrative expenses was primarily driven by the prior year
recognition of stock-based compensation expense of $170.7 million related to the
performance-based vesting stock options that vested on the consummation of our
IPO in June 2021. This decrease was partially offset by an increase of
approximately $5.9 million in salaries and benefits, an increase of
approximately $5.5 million in stock-based compensation expense not related to
the performance-based vesting stock options noted above, and an increase of
approximately $6.2 million in other costs, which were primarily attributable to
the increased costs of being a public company and increase in corporate
headcount.

(Profit) Loss on sale of assets



                                   Nine Months Ended September 30,
   (Dollars in thousands)            2022                   2021            

$ Change % Change (Gain) Loss on Sale of Assets $ (3,336 ) $ (5,559 ) $2,223

               (40 )%
Percentage of net revenues                  (1 )%                  (1 )%



Gain on sale of assets was $3.3 million for the nine months ended September 30,
2022 compared to $5.6 million for the nine months ended September 30, 2021, a
decrease of $2.2 million, or 40%. The (gain) loss on sale of assets was
primarily driven by gains associated with our sale-leaseback transactions in
both years.

Other Expense


                                Nine Months Ended September 30,
  (Dollars in thousands)          2022                  2021              $ Change           % Change
Other expense                $        27,028       $        36,599     $       (9,571 )              (26 )%
Percentage of net revenues                 4 %                   6 %



Other expense was $27.0 million for the nine months ended September 30, 2022
compared to $36.6 million for the nine months ended September 30, 2021, a
decrease of $9.6 million, or 26%. The decrease in other expense was primarily
driven by a $6.4 million reduction in interest expense, resulting from the June
2021 pay down of the First Lien Term Loan and the June 2021 pay-off of the
Second Lien Term Loan and a $3.2 million loss on extinguishment of debt recorded
in the prior year period.
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Income tax provision (benefit)


                              Nine Months Ended September 30,
 (Dollars in thousands)         2022                  2021              $ Change          % Change
Income tax provision
(benefit)                  $       26,988       $        (29,747 )    $      56,735              (191 )%
Percentage of net
revenues                                4 %                   (5 )%



Income tax provision was $27.0 million for the nine months ended September 30,
2022 compared to a benefit of $29.7 million for the nine months ended September
30, 2021, an increase of $56.7 million, or 191%. The increase in income tax
provision was primarily driven by increased income before taxes for the nine
months ended September 30, 2022.

liquidity and capital resources

Funding Requirements


Our primary requirements for liquidity and capital are to fund our investments
in our core business, to pursue greenfield expansion and acquisitions, and to
service our indebtedness. Historically, these cash requirements have been met
through funds raised by the sale of common equity, utilization of our Revolving
Commitment, First Lien Term Loan, Second Lien Term Loan, sale-leaseback
transactions, and cash provided by operations. As of September 30, 2022 and
December 31, 2021, we had cash and cash equivalents of $74.9 million and $19.7
million, respectively, and $149.0 million and $149.5 million, respectively, of
available borrowing capacity under our Revolving Commitment.

In June 2021, we entered into Amendment No. 2, which increased the commitments
under the Revolving Commitment from $75.0 million to $150.0 million. In June
2021, we made a voluntary prepayment of all outstanding balances under our
Second Lien Term Loan, which included $242.7 million in outstanding principal
and $6.1 million in accrued interest expense, and a voluntary prepayment of
$190.4 million of outstanding principal under our First Lien Term Loan. These
voluntary prepayments were funded with the net proceeds of our IPO and the
Amended Second Lien Credit Agreement was terminated.

In December 2021, in connection with the Clean Streak Ventures acquisition, we
entered into Amendment No. 3, which increased the principal borrowings under the
First Lien Term Loan by $290.0 million to $903.0 million. For a description of
our credit facilities, please see Note 8 Debt in the unaudited condensed
consolidated financial statements included elsewhere in this Quarterly Report on
Form 10-Q.

away 09/30/2022we have complied with the terms of the amended A&R First Lien Credit Agreement.


We believe that our sources of liquidity and capital will be sufficient to
finance our growth strategy and resulting operations, planned capital
expenditures, and the additional expenses we expect to incur as a public company
for at least the next 12 months. However, we cannot assure you that cash
provided by operating activities or cash and cash equivalents will be sufficient
to meet our future needs. If we are unable to generate sufficient cash flows
from operations in the future, we may have to obtain additional financing. If we
obtain additional capital by issuing equity, the interests of our existing
stockholders will be diluted. If we incur additional indebtedness, that
indebtedness may contain significant financial and other covenants that may
significantly restrict our operations. We cannot assure you that we could obtain
additional financing on favorable terms or at all.

Cash flows for the past nine months 09/30/2022 and 2021 (unaudited)

The table below shows summary cash flow information for the past nine months 09/30/2022 and 2021:


                                                     Nine Months Ended 

09/30,

            (Dollars in thousands)                     2022                 

2021

Net cash flow from operations $185,453

153,309

Net cash used in investing activities                     (133,784 )              (90,458 )
Net cash provided by (used in) financing
activities                                                   3,420                (18,221 )
Net increase in cash and cash equivalents, and
restricted cash                                  $          55,089       $         44,630



Operating Activities. Net cash provided by operating activities consists of net
income (loss) adjusted for certain non-cash items, including stock-based
compensation expense, property and equipment depreciation, gains on the disposal
of property and equipment, amortization of leased assets and deferred income
taxes, as well as the effect of changes in other working capital amounts.

For the nine months ended September 30, 2022, net cash provided by operating
activities was $185.5 million and was comprised of net income of $95.1 million,
increased by $111.3 million as a result of non-cash adjustments comprised
primarily of stock-based compensation expense, depreciation and amortization
expense, non-cash lease expense, deferred income taxes, a gain on disposal of
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Property, plant and equipment and depreciation of deferred finance costs. Changes in working capital balances reduced cash flow from operating activities by
$21.0 million and were primarily caused by increases in operating lease liability, other non-current assets and liabilities, and prepaid expenses and other current assets, offset by decreases in other receivables, trade payables and prepaid expenses.


For the nine months ended September 30, 2021, net cash provided by operating
activities was $153.3 million and was comprised of net loss of $58.4 million,
increased by $238.6 million as a result of non-cash adjustments comprised
primarily of stock-based compensation expense, deferred income taxes,
depreciation and amortization expense, non-cash lease expense, a gain on
disposal of property and equipment, and a loss on extinguishment of debt.
Changes in working capital balances increased cash provided by operating
activities by $27.0 million and were primarily driven by decreases in the
operating lease liability and other noncurrent assets and liabilities, and
increases in accounts receivable, net and prepaid expenses and other current
assets, partially offset by increases in accounts payable, accrued expenses, and
a decrease in deferred revenue.

investment activity. Our net cash used in investing activities consists primarily of the purchase and sale of property, plant and equipment and the acquisition of car wash facilities.

For the nine months ended 09/30/2022Net cash used in investing activities was $133.8 million and consisted primarily of investments in property, plant and equipment to support our greenfield development and other initiatives, and three acquisitions partially offset by the sale of property, plant and equipment.


For the nine months ended September 30, 2021, net cash used in investing
activities was $90.5 million and was comprised of purchases of property and
equipment primarily to support our greenfield and other initiatives and three
acquisitions, partially offset by the sale of property and equipment including
sale-leaseback transactions.

financing activity. Our net cash used in financing activities consists primarily of proceeds and payments on our First Lien Term Loan, Second Lien Term Loan and Revolving Commitment and proceeds from our IPO.

For the nine months ended 09/30/2022Net cash inflow from financing activities was $3.4 million and consisted primarily of proceeds from the exercise of stock options, partially offset by payments made for borrowing.


For the nine months ended September 30, 2021, net cash used in financing
activities was $18.2 million and was primarily comprised of repayments of our
First Lien Term Loan and Second Lien Term Loan and payments of issuance costs
associated with our IPO, partially offset by proceeds from the consummation of
our IPO in June 2021.

Critical Accounting Policies and Estimates


Our unaudited condensed consolidated financial statements have been prepared in
accordance with U.S. GAAP. The preparation of these financial statements
requires us to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses and related disclosure of contingent
assets and liabilities.

On an ongoing basis, we evaluate our estimates and assumptions, including those
related to revenue recognition, goodwill and other intangible assets, income
taxes and stock-based compensation. We base our estimates on historical
experience, current developments and on various other assumptions that we
believe to be reasonable under these circumstances, the results of which form
the basis for making judgments about carrying values of assets and liabilities
that cannot readily be determined from other sources. There can be no assurance
that actual results will not differ from those estimates.

The significant accounting policies and estimates used in preparation of the
unaudited condensed consolidated financial statements are described in our 2021
10-K. There have been no material changes to our significant accounting policies
during the three and nine months ended September 30, 2022.

Current accounting pronouncements


See the sections titled "Summary of Significant Accounting Policies-Recently
issued accounting pronouncements not yet adopted" in Note 2 to our unaudited
condensed consolidated financial statements included elsewhere in this Quarterly
Report on Form 10-Q for a discussion of recent accounting pronouncements.
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