Mister Car Wash Inc. - Form S-1, a Valuable Information Source
By Robert Roman
Following the announcement that the Mister Car Wash chain was going public, I obtained a copy of the company’s Form S-1 — the general form for registration of securities under the Securities Act of 1933.
The S-1 registration statement includes historical financial statements, key data, company overview, risk factors, and more. In other words, it contains information that allows one to peel back secrets that normally surround a privately-held company.
Figure 1 – Mister’s store locations
Figure 2 – Car wash concentration
Figure 3 – Population migration (blue in, red out)
Information contained in an S-1 comes from a rigorous, time-consuming, and expensive process that involves market due diligence, legal and intellectual property due diligence, and financial and tax due diligence.
The company’s prospectus consists of Form S-1 (141 pages), condensed and consolidated financial statements, and information not required (e.g., financial and legal agreements) all of which number hundreds of pages of fine print.
It is also not an easy read. Consider the definition of adjusted EBITDA: “Adjusted EBITDA is defined as net income before interest expense net, income tax expense (benefit), depreciation and amortization, (gain) loss on sale of assets, gain on sale of quick lube facilities, dividend recapitalization fees and payments, loss on early debt extinguishment, stock-based compensation expense, acquisition expenses, management fees, non-cash rent expense and other non-recurring charges.”
Nevertheless, Mister’s prospectus is interesting, starting with value proposition. For consumers, it’s the promise of a clean, dry, and shiny car. For employees, it’s the opportunity for people to shine. For investors, it’s the promise of an emerging growth company.
Mister believes it can deliver on these promises through the power of its brand, employee training and development program, regional support, technology and innovation, and network effects.
So far, the proof is in the pudding. For example, Mister’s store count has increased from 65 units in 2010 to 344 in 2021 or a compound annual growth rate of more than 18 percent. Most of this growth has occurred through acquisition.
Since 2018, development of green-fields has included 22 units with the expectation for another 16 to 18 units in 2021.
Forty-eight percent of Mister’s car wash sites are located in the mid-Atlantic and South. About 33 percent are located in the West. Eighteen percent are in the Midwest. Less than 2 percent are located in the Northeast.
Of the company’s fleet, 75 percent is exterior-only, while 25 percent provides exterior and interior cleaning.
Average store sales for exterior-only washes is $1.6 million and four-wall EBITDA is more than 40 percent, whereas average sales for exterior/interior washes is $2.6 million (four-wall was not stated). Four-wall EBITDA is sales revenues less credit card fees, chemical, labor, utilities, and store-level expenses.
Store-level expenses include costs for repair and maintenance, property tax (rent), supplies, and allocation of regional expenses (i.e., labor, payroll, benefits).
Manpower is provided by 3,500 full-time and 2,250 part-time employees of which 150 are maintenance staff, 50 regional managers, and 60 training and development specialists. Average hourly pay is expected to exceed $14.00 this year.
Over time, the company has shifted from a broad and diversified customer base to one that is more dependent on a more moderate number of customers. For instance, participation in the company’s monthly subscription program (unlimited wash option) has increased from an average of 1,600 members per store in 2016 to an average of 4,000 members per store in 2021. Unlimited wash option now represents 70 percent of the company’s total wash volume and more than 60 percent of total wash revenues.
wash club represents 70% of total wash volume. It appears the company is making money and potentially a good value. For example, Mister paid dividends of $213 million in 2016 and $215 million in 2019. According to theS-1, asset sales and lower operating costs helped Mister Car Wash boost 2020 total comprehensive income to $59.3 million.
Here, we estimate the company managed to reduce cost of goods from 38.7 percent of sales revenue to 33.7 percent or a savings of $28.8 million as compared to 2019 financial results. Mister also managed to reduce store-level expenses from 49 percent of sales revenue to 48 percent or a savings of $5.7 million compared to 2019 results.
Investors clearly saw the potential value. Mister Car Wash (NYSE: MCW) made its New York Stock Exchange debut on Monday, June 28. Shares rallied to 49 percent above the IPO price of $15, raising $468 million and giving the company a total market capitalization of more than $6 billion. store count increased from 65 in 2010 to 344 in 2021.
Investing in any IPO is a potentially risky endeavor. IPO’s are susceptible to the volatility of the stock market and investors basically assume the same business, financial, and market risks the company faces every day. Investors will want to watch for a post-IPO correction, a not unusual occurrence with newly public stock.
In the final analysis, Mister went public to raise its capital structure to sustain a growth strategy. Consequently, investors need to conduct their own due diligence. This should include examining the company to learn about the essentials of the business, the company’s policies and objectives, its products and services, its competitors, and market share potential.