Mister Car Wash, Inc. (MCW) Earnings Call Transcript & Summary

You're in the Walmart parking lot?

Yes. Would we generate even more traffic? The answer is yes. Yes. So we technically, I guess, are a destination, but we're what we call planned impulse, which is an oxymoron. So you know you need to get your car clean, but you want to make it convenient. So for us, convenience is the primary factor. But let me hold on that because I want to talk about the value proposition and kind of how we differentiate and what is our competitive advantage. So how we're enjoying 2 million members, and I got a little ahead of myself, let me zoom back out for a second. So on the $1 billion in revenue, we're going to watch almost 100 million vehicles a year which is a big number for us. It may look like a drop in the bucket for you guys. But if we have a 2-million member base, what is the size of our overall customer universe? So if 70% of our revenues are membership, and that represents 2 million members, the other 30% of our business, what does that represent back to the frequency card and how many uniques we have? We guesstimate that we have roughly 8 million customers that are regular retail. So collectively, we have about 10 million customers in our universe and our opportunity, again, to drive membership from retail into membership is right in front of us. And so when folks talk to us about customer acquisition costs and what are you guys are doing to drive membership? We say, "Hey, for us, it's that old ad agent in sales before you go try to acquire a new customer, try to increase the value of the existing customers that you have, that has been our primary focus as a company." And quite frankly, we don't spend a lot on advertising or promotions because when you have this installed base of 8 million customers that can be members, that has been our focus. But why do we enjoy such a strong customer base overall is because we execute on all the fundamentals, which sounds very basic and easy, but hard to deliver, hard to execute upon consistently at scale across a wide geography. So if I were to drill down and say what makes us special, again, this is very basic, but it's really, really important. So quality and our ability to deliver a clean, dry, shiny car, again, quickly is not for the faint of heart. There are roughly 250 makes and models on the road today. There's different soil conditions, different water quality, different ambient, temperatures. And then inside of our portfolio, we have longer tracks, we have shorter tracks. And due to all of those variabilities, delivering consistency, unlike a restaurant where you can control your inputs, we have different levels of cars that are coming in different shapes and sizes, and it's very, very difficult to do that. So how we do that is by embracing technology, so mechanization, chemistry. We automate almost every function of our business. So our model is what we call an express exterior, where you sit in your vehicle. And I think the bulk of you have probably tried this where you're sitting in the vehicle. It's a blend of kind of do it for me, do-it-yourself or we're watching the outside of your vehicle for you then if you want the inside services done, we have a series of free [ wax ]. We're not the only ones that offer this. But that model has proven to be hugely popular amongst consumers and the why is because you can get it out really quickly, right? So back in the day, for those of us of a different generation, it was the full service model, where you would pull in there was the inside outside services, and that would take typically an hour, sometimes longer, sometimes shorter, but an hour is kind of the number. Most consumers say I don't want to give an hour of their time up for anything. And their time is probably the most precious commodity, the most precious thing they have. So in our world, you can get in and out in 5 minutes or less, and that speed card has become really, really critical. So inside the speed card and how we make it even quicker than the average car wash is that we're operators at the core, and we're kind of myopically almost insanely focused on looking at every pinch point, every bottleneck, any friction that can happen in that transaction. And we use a lot of music metaphors where we talk about rhythm and pacing and tempo. But when you look at a well-run operation in our world, it's like poetry and motion, everything is flowing. And when you visit one of our stores, it's almost as if we're not busy because everything is run so efficiently. But how we got there was not by accident. So we have a term internally called PFO, which is process flow optimization. Every company has got their own acronyms. But for us, it's looking again at every one of those bottlenecks and saying, what can we do to get cars through and everything from turning radius is to -- let me give you an example. If you guys are parking your car and you're turning right into a parking spot, it's more difficult because we're on the left-hand side driving -- on the left-hand side, right, versus when you're pulling into the left into a parking lot. So when you're loading onto a conveyor yourself, you want to turn left, not right. and there's little things like that, how we bullnose our curve so that you're not scraping your rims as you're making that turn. You'd be surprised given the length of some of these vehicles, how everything from turning radius to how you're stacking and staging vehicles can really create problems and/or allow for a very smooth flow. So we have 10 stores in Bakersfield, California, I love to use this as a case study that on average are processing 400,000 cars per store across all 10 stores. And the unique thing about that design was that we are lining cars up 5 car lengths deep with a straight shot on, and that allows the consumer, the motorist to line up their vehicle smoothly and elegantly and not tap their brakes as they're entering onto the conveyor because every time you're tapping your brakes and consumers' motorists can be distracted, they're error-prone. All of those things can add seconds to your transaction times which can then lead to minutes, which can lead to hours. So today, what we're probably most proud of is that we can process very easily 150 cars per hour during peak capacity, where many of our competitors struggle at 100, it's like chaos. And really, it's 50 cars per hour is where things start to melt down for them. We're kind of use my portion on the Autobahn analogy where we're just starting to feel good at 90 miles per hour, right? And when below that, we're like, this is not fast enough, right? And then at 100, we're feeling really, really good because that is our rhythm, and that is our pace and our customers are comfortable with that. Where in other operations, you get stressed out because you're worried about the car in front of you, the car behind you as the attendant get to know what's going to happen. So for us, the processing speeds have become kind of our calling card, and then where we differentiate is on the customer service side. So we see ourselves and you might roll your eyes on this one, but we're in the hospitality business. We're service providers. So customer service is a critical piece of our value prop. And so how do we deliver exceptional customer service? We borrow from the Danny Meyer [indiscernible] hospitality of the world where you are an honored guest visiting our home, and we're going to welcome you in with a cup of coffee. We can offer you coffee and revisit with a biscuit. But we treat you as if you're this valued member that we haven't seen in a long time. And we're doing that in a way where the windows are up. So we live in also a world where a lot of consumers don't want to interact with anybody and they don't want to talk to anybody. So with windows up, everything is kind of nonverbal. And so how I communicate to you nonverbally, if I'm giving you one of these. And I'm uninspired and unmotivated and I look like I can care less versus a I'm at O'Hare Airport and your Boeing 777. And I'm bringing you on to the track, right? And I'm getting you on and then I'm giving you this, right? Thanking you. Those little subtle acts of appreciation and kindness. People have come to appreciate. And so we have a service culture inside of our organization and how we deliver that is through our people. So we have also 7,000 team members that are probably biggest competitive advantage. And for us, this is not just words or lip service. When we talk about mission, we talk about principles, we talk about culture. I roll my eyes when I hear other management teams with slogans on the wall and I look around their organization I see a lot of long faces, right? So we look at things like eNPS, which again, Jed is going to say, "John, nobody gets eNPS." Does anybody want a definition of eNPS? I'll give you a definition anyway. So Net Promoter Score, right, which is that one customer set metric, which is would you recommend Mister or In-N-Out Burger or Chick-fil-A to your friend. And eNPS is the employee Net Promoter Score, and that is would you recommend Mister as a good place to work. That's one metric in a mosaic of different data points to say how engaged are our team members, how happy are they how fulfilled are they? So they feel good about themselves. But before we start talking about culture in our world, our Maslow's hierarchy of needs are starting with the basics. So pay people well. And I remember one time I was talking to Walter Robb at Whole Foods back when he was with Whole Foods. And I was talking about culture, and he stopped me mid sense and goes, "What do you pay your people? What does your average hourly rate?" Because it's completely disingenuous for someone to talk about culture and they're paying people, crumbs, right? So I'm happy to share with you what our average nonmanagerial hourly wages absent of tip income and where we sit vis-a-vis the marketplace right now, but we're paying top of market for frontline folks. And then we have more slides that I can share with you on the career path progression and what a site manager can make inside of our business. But paying people well, offering comprehensive benefits and then treating them well for us is the recipe for success. Costco is widely hailed as one of the best companies to work for. And their engagement scores are through the roof and we ask Costco employees, what makes it great. They say they'll start with $17 an hour, and they treat us well. It sounds like such a basic model, but it's hard to do. So we focus more on the EQ than the IQ and do a lot of training with respect to how to have a conversation with a team member, how to coach, how to mentor, how to inspire, how to motivate, hugely powerful. But when we first started, it was management by crack the whip and effective immediately, and the meeting will start at 8:00 a.m. That's the school that Jed and I came up through and we said there's a better way, and you can extract way more better performance out of your team members which, again, so back to the virtuous cycle and what we see as our stakeholder universe. When you take care of your employees, they take care of the customers and the customers are more satisfied. So I'm not going to continue to join on, but this is one that we get really, really excited about. Okay. So where are we going? We have 5 key growth pillars. First and foremost is expand our footprint. So to your earlier question, we have 500 stores today, what do you do? We're a tiny little dot. What is our opportunity? We believe we can triple our footprint, if not quadruple our footprint in our lifetime in the -- so this is a tangible real goal, and I'll tell you in a second, we have a slide on our geographic footprint and how we're going to go about it. But simplifying it, we're going to densify existing markets while we continue to look at new markets. We're in 21 states today, 73 MSAs. We have this immense opportunity inside of our existing portfolio in existing markets to almost double our share. So on average, we believe that our current market share in our existing markets is roughly 15%. And what's a realistic number. We -- our goal is to get to 50% and where do we come up at 50%? So famously, we have an internal, not skeptic, but -- and it's not a cynic, but one that is -- one of the truth tellers that says, "Hey, 100% market share is not the objective." So where did you get the 50% goal? Well, we have 3 markets today, El Paso, Texas, Iowa and Bakersfield, California, where we have like a 45% share. And we absolutely crush it in those markets. We have elevated AUVs. We'll spend a little time on AUVs. But in a nutshell, we're doing $2 million a box. And again, about $1 million in EBITDA per store. And in those markets, it's at least 20% higher, if not more. And that's supporting our thesis that the more options that we have for our existing members, the more convenient it is, the stronger our value proposition is. So it's embolden us to say, "Hey, we need a store." And in our world, within a 7.5-minute drive time of any one of our other stores. And so today, if we're at a 15% share, we want to just double that, if not triple that. And that's where we get to our 500 stores can get to 1,500. But then we're also going to be expanding into new markets as we adjacently build out. And if you look at the map, and we'll get to the map here in a second. There are some very clear markets that we're not in or where we're in, in a very small way. A real quick side story Houston, Texas, when we first started, we had -- when I first started, we had 11 stores, and we had a 25% share. Today, we have 50 stores in Houston, and we have a 15% share. So what does that mean? That means the market has grown exponentially. Our rate of growth has not kept up with the market explosion that has been Houston. But if you look at other markets like Phoenix, et cetera, that have just gone through these. Salt Lake City, just Salt Lake City is on fire right now. And again, we were 25% share in Salt Lake City. We've devolved. That's the right way to say it to 12.5% share. So for us, the gun to our head, if you will, is we need to turn up the knob and get there even quicker. So our current pace through greenfields is about 50 stores a year. That's not fast enough, right? So we need to grow at an even quicker clip. We're introducing new products to continue to differentiate. We just launched a titanium product, which we have a special slide for that we're going to talk about in a second, but it's all about innovation and providing more services that are differentiated and unique, driving retail traffic is a priority for us, strengthening our unlimited wash club lifetime value, which, if I were to connect the dots to introduce new products and strengthening our membership program go hand in hand. And then the hardest piece of the equation for us is building out our team. And for anyone that scaled the company and has been on this kind of trajectory, there's always a team infrastructure slide. But it's the most important at the end of the day, if you were to say, hey, boil it all down, what have you learned over the last 22 years? Is that it's all about people. Now the people thing doesn't fit into your algorithm as you start to quantify how I can make money on the stock. But for us, we're making front-end investments in people with Jed's permission. We got to go big for his sign off that, hey, this is a front-end [ load ] okay? We have 150 managers and trainee that are not productive right now that are on our payroll, but we have to get them ready to run a high-volume shop. Has anyone seen the documentary, Jiro Dreams of Sushi? Highly recommended. It's a great documentary and it really is at the core about the apprenticeship model, right, where in Japan and Germany, they have this 7 years to master your craft world. In America, we expect everyone to be ready like -- and we try to compress that curve. But the key is you need repetition. So you're working in the back room, getting the rice ready for 3 years. We can elevate to slicing the octopus, you got to watch the documentary to get it. But in our world, we're taking new guys, externals off the street and saying, okay, you're going to run -- you thought your job is hard. I don't know want picking on you. I'm going to pick on you now. You thought your job was hard, right? But can you imagine running a store that's washing 1,000 cars a day. The average cost of that vehicle is north of $50,000 and customers they're, very particular, they're very finicky, and God forbid you miss a spot or God forbid, they got to wait a little bit longer than the next guy. But things can happen when you're washing 1,000 cars per day, and you got to be in on every place. So running a high-volume store and all of our stores are super high volume, not for the faint of heart. So we're making huge investments in people and the answer to my rhetorical question, it takes a person about a year, and that's if all things work out great for that person to be able to be promoted into running the store. And so if we're building out our bench right now, we've got 150 guys in the hopper. Guys and gals. And we're doing 50 stores here, you're saying, well, you've got excess capacity from a leadership standpoint, where your bench is never as strong as you needed to be because from a growth trajectory standpoint, there's also going to be -- I'm getting ahead of myself here, some M&A opportunities coming down the turnpike. And when we acquire business depending upon the size of the business, sometimes the leadership that's currently in place are willing to embrace change and buy into the new program. Some are not, some are not up to our standards. And so we need to have enough people ready to plug in because we do our valuation matrix on the Y behind the deal. There's the quality of the asset, there's the valuation piece, which is always important. If you look at our internal bandwidth and then we look at how much human capital is this going to take for us to actually do it right. And if the company is notoriously are guilty of underestimating the complexity of the people side of the equation and what can happen with them when you try to mush 2 cultures together. So how are we doing on time? I'm running short and I've got to move quickly here. Here's my time cut. Spent too much time on culture, didn't think that was going to happen. So titanium dioxide, titanium 360, it's our newest product, again, developed in-house. It took us 3 years to develop. It provides us 360 degrees of protection. [indiscernible] online, it's not digital. It's on our tracks. So it takes no additional labor, it's done automatically. And the level of shine is unparalleled. It creates a mirror-like finish on our vehicle. We've positioned it in our premium package, which on the retail side for an [indiscernible] $25, but also allowed us to launch a super premium membership plan. So back to our Unlimited Wash Club program, we had in $19.99 and a $29.99 program that represented the 2.1 million. We just launched over the last 12 months, this titanium program, which is our good, better, best. I hate that phrase but works here. And in that premium package, markers refer to that as the top side anchor. We had guesstimated in our projections that we were going to enjoy perhaps. I mean trying to figure out what a target should be for a brand-new product is very, very difficult. So we conservatively said, hey, 10% is a really good number and then trying to get Jed to commit to a bigger number because he's all about [indiscernible]. We stretched that to 15%. Today, we're happy to report that we have -- we're now at a 20% adoption rate for this plant. So 20% of our 2.1 million members are now being billed at $39.99 and what that represents for us from an increase in revenue per member is at least $2. Listen, if I was Netflix right now, and I told this audience, and we just increased our membership by $2, you guys will be hoisting me on your shoulders. Okay. Well, we're going to pat ourselves on the back because $2 lift is huge, and we're just now enjoying that, and it's going to roll for the next 18 to 24 months. And this is just part of our ongoing evolution to increase the value of our membership, but we're super thrilled about that. Real quick. And now I've got 2 minutes until our growth story, but we have this multipronged approach. So early in the day in a fragmented "mom-and-pop industry," it was all about consolidating, roll up and buy independent car washes and scale your way to greatness through M&A. Well, we were one of the first out of the box that did this again at scale. It attracted a lot of attention. Private equity looked at this similarly and said, "Hey, there's an opportunity for more than just one or 2 players to come in and do something similarly." So I share the story, but then I have some trepidation because it just draws even more attention to the space. But literally, there's been -- over the last 7 years, 30 private equity firms that have come barreling in with a similar strategy. The benefit that we have is that we've been at it just purely time, right? We're operators at the core. And so we've been at it for 28 years. We've made 10,000 mistakes. They're just now starting to make all the early-stage mistakes, but we've learned from every single one of those mistakes and has been very much an iterative process. But what we have done, unlike most of the others is when we buy, the post -- so any monkey you can buy a business. It's what you do with it after you buy the business. So we have integrated. Post-acquisition integration is not for the faint of heart, and there's all the physical stuff that you do to get a new business an acquired business, I should say, up to your standards. And again, the hardest part is getting the people to buy into the new program. And that can take almost a year post acquisition to show improvements, which again, when we're buying a business, we actually take a store backwards to take 2 steps forward. Some investors like way to say, we want to see immediate lift. So a lot of folks are just buying and throwing it into a pile and trying to retrade that to some other d******. Did I say that? Is that -- and we're like, no, we're in this thing for the long haul, right? And so for us, that's the hard part. We've pivoted to greenfield development because as prices got too expensive, more private equity was bidding on more things. So more demand than there was supply. Multiples got wonky, people were paying $10 million, $15 million, in some cases $20 million for a car wash. And this was a good lead into my next slide. We said, hey, we can build our own. So we went from, let's scale through M&A to about 5 years ago, we pivoted and partly it was probably due to just how insane the prices were getting to say, hey, we can build our own. The most important piece of the story right now is that we have acquired almost 400 businesses. We did over 100 deals to get to close to 500. We've learned from every single one of the acquisitions that we've acquired. We definitely take a stop, look and listen thing and evaluate what are the good things that this business is doing. We've learned from every single business and have baked that into our operating model. And our operating model, again, is all about speed, throughput and super high volume. And so what we do is today, we're buying -- we're building a store, it costs us gross about $6.5 million. We'll do a sale leaseback or net cash investment is about $2 million, Our AUVs for store year 3, just to round up again are about $2 million of store in rev, close to $1 million in EBITDA. So we're seeing a full payback on our $2 million investment in under 3 years. Okay. I do another drop the mic thing. I guess enough for my [indiscernible]. And again, I shared this with some trepidation because 1/4 of you are going to say, "Why are you on this side of the fence, I should be washing cars?" This is a beautiful business. And by the way, this has attracted a whole lot of attention to these kind of metrics. But we're also kind of leading players in this category. So we're definitely in the top quartile. But if there's kind of a key takeaway slide, it's this greenfield model right now. So really, what's the future for Mister Car Wash? We have a two-pronged approach to growth, both M&A and greenfield. We are the biggest player in the industry, but we see ourselves as actually super tiny and our opportunity to triple if not quadruple our footprint is right in front of us. How am I doing on time? We had time. So thank you for your interest in Mister Car Wash and we're happy to -- we don't have time for Q&A.

We have a breakout session right after this, so...

Okay. Thanks, guys. Appreciate it.