MCW - NASDAQ

Good afternoon, and welcome to Mister Car Wash's conference call to discuss financial results for the first quarter fiscal 2022. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. Please note that this call is being recorded, and a reproduction of this call in whole or in part, is not permitted without written authorization from the company. I would now like to turn the 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's Q1 2022 Earnings Call. Speaking today are Chairperson and Chief Executive Officer, John Lai; and Chief Financial Officer, Jed Gold. 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 if circumstances change. Please review the cautionary statements and risk factors contained in the company’s most recent filings with the SEC, as such factors may be updated from time to time. During the call today, management 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 posted to the Investor Relations section of Mister Car Wash's website at ir.misterCarWash.com. With that, I'll turn the call over to John.

Thanks, Megan, and good afternoon, everyone, and thanks for joining us on our first quarter earnings call. We had another great quarter and are pleased with the strong start that we've had in 2022. With our high volume express exterior locations, a limited wash club program, and expanding network of stores, we're making car washing more convenient than ever. And as more and more customers discover how quick and easy it is to keep their car clean, they're also discovering the great value of our unlimited wash club program, and the amazing customer service that our team members provide. We see that the combination of convenience, value, and service, is driving strong demand and fundamentally changing the way people care for their vehicles. This is translating into strong and consistent demand and results. In the first quarter, total revenue increased 25% from the first quarter of 2021 to $219 million. Comp sales at locations opened more than a year, increased 11%. Adjusted EBITDA increased 22% to $75 million, and we added 125,000 new UWC members, and ended the quarter with nearly 1.8 million members. We're off to a great start, with three green - new greenfield locations that we opened in Q1 in Houston, Orlando, and Abilene, and our greenfield locations are some of the most productive and profitable in our portfolio. As a result, we're continuing to invest in our real estate and development teams to expand our capabilities to open new locations. As we think about M&A, we'll continue to look for assets that complement our footprint and allow us strategic entry into a market. We recently announced the acquisition of four stores in Victor Valley, California, and are excited about the opportunity to grow in that region. We have a long track record of buying good businesses and making them better over time, by integrating them into one brand, versus trying to manage over 100 bespoke brands. Speaking of integration, we often say that anyone can buy a business. The hard part is the post-acquisition integration process. And on that note, we're pleased with the progress we're making on the Clean Streak and Downtowner businesses, which are both performing above our early expectations. Shifting to our team members and the best-in-class customer service model, we're pleased that through what continues to be a tight labor market, our stores remain fully staffed, and we are building out our bench of future leaders. The path to being a people-centric company began many years ago, and the ongoing investments we've made in wages, benefits, training, and career path progression, have led to the most highly engaged and motivated team in the industry. And at a time when many businesses are struggling to staff their operations, we feel very fortunate that we've had no interruptions to our business, and our stores have become even more productive, as we set volume records in almost every region. Before I turn it over to Jed, I'd like to recognize and thank our amazing team who are growing and scaling the business. Despite all the systems, machinery, and equipment, it’s the people who service our customers and deliver upon our mission each and every day to build the Mister Car Wash brand and propel us forward. We are so very grateful for their passionate and hardworking team members that make up the Mister Car Wash team. Thank you for everything you do. Jed, I'll now turn it over to you to review our first quarter financial results.

Thank you, John, and good afternoon, everyone. Overall, we're very pleased with our first quarter results, the underlying trends in the business, and the great start to 2022. Before we get into the details, there are a couple of highlights I want to emphasize. First, demand was strong across the business, across all regions throughout the quarter, and retail sales benefited from favorable weather. Our newer stores, as well as our more mature locations, all continued to perform very well and generated strong comp growth. Second, during the Omicron surge in January of this year, we experienced higher levels of absenteeism related to people being out sick and taking health-related precautions. This led to lower-than-expected staffing and labor expenses in the quarter that were temporary in nature. As we’ve discussed, our biggest differentiator starts with our people. Our service delivery model and labor and customer service, are key to delivering the experience our customers have come to expect. Third, similar to the last few quarters, we experienced some year-over-year input inflation, primarily related to labor rates, chemical pricing, and utility rates, but we managed this well, and the increased costs were offset by improvements in our productivity, the modest retail price increase we took late last year, and the higher absenteeism I just mentioned. Lastly, while the business is performing at a very high level, and we are not seeing any fundamental change in the overall demand picture, we simply wanted to remind everyone about the 93% comparable store sales that we are facing in the current second quarter due to the government stimulus, a strong macroeconomic backdrop, and the reemergence of the consumer population that was previously sheltered during Q2 of last year. Now, let me walk through the highlights for the first quarter of 2022. Net revenue increased 25% to $219.4 million, driven by comparable store sales growth of 11% and unit growth of 16% compared to Q1 of last year. New greenfield units and recent acquisitions, many of which are not in a comparable store base yet, performed very well in the quarter, and contributed to the strong revenue growth. Our strong comparable store sales growth is being fueled primarily by growth in subscriptions in our UWC program. We added 125,000 net new UWC members in the first quarter, bringing total club membership to nearly 1.8 million members as of March 31, 2022. On a year-over-year basis, UWC membership increased 28%, and we are seeing strong increases across all regions and cohorts of stores. We are particularly pleased with the strong UWC membership growth at our newer greenfield locations, which continue to perform above expectations. Turning now to expenses for the first quarter. Against a backdrop of revenue increasing 25% during the quarter, the cost of labor and chemicals increased 26.6% from the first quarter of 2021 to $65.5 million, and included $1.9 million of stock-based compensation expense. As a percentage of revenue, the cost of labor and chemicals increased 40 basis points to 29.9%. The increase is primarily related to stock-based compensation expense, and slight inflationary pressure in wash chemicals and supplies. Partially offsetting this was a temporary decline in labor expenses that resulted from the higher absenteeism highlighted earlier. Also, in line with our 25% revenue growth, other store operating expenses increased 27.4% from the first quarter of 2021 to $77.8 million, driven primarily by the increase in wash locations. As a percentage of revenue, other store operating expenses increased 70 basis points to 35.5%. The increase was primarily driven by the inflationary pressure related to operating costs such as utilities and maintenance services. General and administrative expenses were $23.7 million in the first quarter versus $15 million last year. Of the nearly $9 million increase, just over $3 million was from stock compensation expense. About $3 million was from an increased investment in G&A headcount labor, and about $2 million of other expenses, primarily related to public company costs, including D&O insurance and professional services. As we have discussed on earlier calls, our biggest area of incremental G&A investment has been in public company costs and our investment in the greenfield development team as we continue to scale the internal capabilities and bring more development projects in-house. Interest expense decreased to $8.2 million from $14 million last year, due to using most of the proceeds from the IPO to pay down debt, and being partially hedged against rising interest rates at favorable interest rates. Our GAAP reported effective tax rate for the first quarter was 18.9%, compared with 25.4% for the first quarter of 2021. The decrease was primarily due to the exercise of employee stock options and the favorable tax treatment. The benefit to our GAAP tax rate related to the exercise of stock awards, was $3.7 million during the first quarter of 2022. Adjusted net income, which adds back stock-based compensation of certain non-core operating expenses, increased 43.1% to $37.8 million. And adjusted net income per diluted share was $0.11. First quarter adjusted EBITDA was $74.8 million, up 21.8% from the first quarter last year. The $74.8 million of adjusted quarterly EBITDA was the highest in the history of Mister Car Wash, a testament to all the hard work of the team and an achievement we are proud of. Moving on to some balance sheet and cash flow highlights. At quarter end, cash and cash equivalents were approximately $70 million, and outstanding long-term debt was $895 million. For the first three months of the year, net cash provided by operating activities was $81.5 million and gross capital of expenditures were $30 million. Similar to M&A, we plan to be opportunistic and disciplined with the timing of our sale leasebacks, and aim to maximize the proceeds and economics of these transactions. Lastly, let me make a few comments around guidance. Our outlook for the full year 2022 is unchanged at this point. While our first quarter results were slightly ahead of our expectations, the second quarter represents our most challenging comparison, and we are projecting second quarter 2022 comps in the flat to 2% range. Given some of the uncertainties in the macro environment, we simply think it is prudent to maintain our full year outlook until we get a little further along in the year. That outlook calls for revenue in the range of $875 million to $895 million, an increase of 15% to 18%, the opening of approximately 30 greenfield locations, with the majority of these in the second half of the year. Comparable store sales increase of between 5% to 7%, GAAP net income of $139 million to $149 million, adjusted net income of $144 million to $153 million or $0.44 to $0.47 per diluted share, and adjusted EBITDA of $284 million to $297 million. Gross capital expenditures and sale leasebacks are still projected to be in the range of $285 million to $315 million, and $140 million to $150 million for the full year, respectively. And there could be some variability in the timing of the sale leasebacks. In closing, I would also like to add my thanks and appreciation to all our hardworking team members who are executing the business every day and helping us fulfill our mission of being America's premier carwash brand. We are as confident as ever in our ability to deliver against our long-term growth algorithm, driven by our best-in-class operations and further new unit expansion. As always, we greatly appreciate the dedication and hard work of our team members, as well as the support of our other stakeholders. With that, I'll turn it over to the operator to begin the Q&A session. Operator?

[Operator Instructions] The first question from, from Simeon Gutman from Morgan Stanley. Please go ahead.

Great. Hey, guys. This is Michael Kessler on for Simeon. Thank you for taking our questions. First, I know this has been a common question the last several months, but thinking about how your business performs in a consumer slowdown, and an outright recession, I mean, like just any frameworks how to think about it, given your current scale, geographic diversity? What would be your assumption, I guess, on memberships, churn rates, frequency of shops and trips to the locations, things of that nature? I’d be curious to know your updated thoughts there.

I'll kick it off and, Jed, you can certainly chime in. And I think that was like 10 questions embedded into one. So, I'll try to cover all those under that broad umbrella. But starting with consumer demand, I think we feel very fortunate that we're in a space and we have a service that is universe - has universal appeal across all demographics. Everyone loves a carwash. Cars will always get dirty. They'll always need to be cleaned. And given the relative affordability of our service, where you can get your car cleaned in under five minutes for typically around $10, in some cases less than $10, it's very accessible and affordable to all. So, we have not seen any impact to our business. And as Jed said in some of his opening comments, we’re shattering records left and right and feel really, really confident and good about where we sit today. If there's a pending recession, we can look to ’08, ‘09 and kind of how well we performed during that timeframe. And if memory serves me correct, going back a few years ago, we had approximately a 5% shrink in comp sales during that timeframe, which, compared to other sectors, I would consider a win. And the fact that if technically we're viewed as a consumer discretionary non-staple and in an environment where people are starting to perhaps cut back on non-essential non-staple items, is car washing going to be impacted? What we have seen is that given the overall cost of transportation and what it takes for people to get from point A to point B, the cost of actually maintaining your asset and keeping it clean, is pennies on that overall budget. And it’s something that people want to do to feel good, particularly in tougher times. So, there's a little bit of affordable luxury play here as well. And so, in good times, we do really well, and in tougher times, we also do well. And so, for all the knock-on-woods, we’re feeling really confident about the future.

Yes. And Michael, the one thing I would add to that, right, to supplement right, John, what he had said, we're very fortunate to be in an industry where demand for our services remain strong. When you go back to that time period in the previous recession of ‘09, where we saw that 5% comp decline, the subscription part of the business only represented 14% of sales. So, it's a much smaller portion than what we have today, where we're sitting at about 65% of sales today.

And can I characterize, that member base is sticky and very loyal. And given how well our membership has performed, it’s really acted as kind of the catalyst and a smoothing effect to our business. And we feel very fortunate that many years ago, we climbed on top of this subscription bandwagon and said, hey, we can change the way people care for their vehicle. We can take something that was a once-in-a-while treat and convert consumer behavior into car washing as part of their regular routine. And we're doing that times 1.8 million members, and that's pretty cool.

Great. Right. Thanks for all that color. If I could ask a follow up, and this is on the drought, water shortage situation up and down the west coast, I know you guys have said when these types of situations have occurred in the past, we've never really seen a material impact to your business or any consumer response or from your side. But I'm curious, given headlines and what we're hearing in your store exposure on the west coast, if you're seeing any impact or how you think about how consumers might respond or how your business would respond given the situation out there?

Well, let me start by saying that we take water conservation very seriously. We recycle and repurpose over 30% of the water that we use to clean a car. And we're continuing to focus on ways that we can reduce our utilization of fresh water and making investments along those lines. I think the other thing that's important to note, given our geographic footprint and really this beautiful diversity from coast-to-coast, we’re not heavily weighted in any one region. And if there were to be any impact, I don't think it would have a material effect. With respect to what's going on right now in California specifically, and then there's also, I think, some concerns about Utah, and then here in Arizona, it's something that's always in the news, most municipalities, almost all municipalities know that in a drought environment, washing your car at a professional car wash is better for the environment than it is washing it in your driveway. And we've shared that with you all in the past. Any restrictions, it's on water in your lawn and/or washing in your driveway, not using a commercial car wash. So, the only effect that we've seen thus far, we have two stores in a pocket of California called Antelope Valley that have not had any impact whatsoever on our ability to operate. The only restriction was to not water our lawns, but that was a market-wide mandate by the city, and I quite frankly think it's a good mandate.

Great. Very clear. Thanks guys. Great quarter. Good luck for the rest of the year,

The next question comes from Michael Lasser of UBS. Please go ahead.

Good evening. Thanks a lot for taking my question. Have you seen any changes in either new customer - the cost of new customer acquisition or retention rates in the last few weeks? And you're guiding to a flat two comp this quarter. Is that what the business is currently running at, or is it you need to see an acceleration, given that you're in the heart of the stimulus lab right now in order to achieve that level for the quarter?

So, Michael, let me kick it off, and, Jed, you can certainly chime in here as well, but oddly enough, Michael, this might sound strange, but our CAC is virtually zero. We have been, right or wrong, focused on taking existing retail customers and educating and informing them on the value and the benefits of our membership plan. So, we have done very little advertising or promotional activity and very little discounting and promotions to attract people into the program. Our approach, which is, I think, unique to just our philosophy, is to educate, inform, and take what we call a soft sale approach and let our customers make their own decision when they're ready, versus being aggressive in offering certain promotional to have them try it, and then see a higher attrition rate. So, as a result, again, with all the knock-on-woods, we've had an amazing loyal member base. There will be a day though, when we probably need to turn on the advertising spigot and do some more. We're working right now behind the scenes on continuing to build out our digital ecosystem and do more to improve member engagement, which is a huge priority for us. But we're a few months away from having anything material to share.

And Michael, the thing I'd add there, right, so the fundamentals of the business, strong, remain unchanged. For the first quarter, we saw really strong performance on both the retail and UWC subscription sides of the business. Thus far in the second quarter, we're seeing relative outperformance of the UWC subscription side compared to the retail side. Given the macroeconomic environment and kind of the 93% comp that was mentioned earlier that we're facing in the second quarter, we knew the second quarter was going to be a challenging quarter from a comp perspective. However, our new stores and our recent acquisitions, which are not included in the comp store number, continued to perform very well. In addition, the UWC subscription side of the business remains strong, and we're not seeing any degradation there.

So, if retail is not as strong as subscription, is that some reflection of the current macro uncertainty, or do you just attribute it to the tough comparison? Like, is there a way you can give us a sense for how two and three-year stacks have been running in the last few weeks, given the very heightened focus on what's going on in the overall macro environment?

Yes. So, that retail side, Michael, it's going to perform similar to what you would see in a typical retail business. That customer is a lot more sensitive. The beauty, as we've talked about with the subscription is, it's more consistent. It's more predictable. And so, what we’ve seen here recently, it’s really - it feels like it's a combination of both, where that macro piece is having a little bit of a headwind to the retail side of the business, but we're seeing a really strong lap, and that really strong lap was even more pronounced last year on the retail side with some of the macro tailwinds that we had.

Yes. Michael, this is John, but to be crystal clear, I think to Jed's point, we have relatively outperformed on UWC. But to be honest with you, we have underperformed on - relatively unperformed on retail, but we're not alone. I just came from the national trade show in Nashville, and talking to other operators, they're also seeing some softness in their retail business as well. So, it’s a really good question. It's one that we're studying right now.

Understood. Thank you so much, and good luck.

The next question comes from Simeon Siegel of BMO Capital Markets. Please go ahead.

Thanks. Hey, everyone. Hope you're all doing well. Sorry if I missed it, did you give any geographic discrepancy that you guys have seen? And then Jed, can you just, on a store OpEx, how you think about that going forward? Thank you.

No, I think nothing that's unusual, Simeon, in terms of performance. It's not uncommon for one pocket of the country to have some weather and then another not. So, everything, in our view, smooths out over time. But we're not seeing any - on the downside, any region that is underperforming consistently over time. If anything, it's just for a couple of week period, and they bounce back once the weather comes back.

Yes. I would echo the same sentiment that when you look at the performance across all regions, when you look at the performance across even our most mature locations, when you look at across all income demographics, for the quarter, we were - we saw strong performance across all.

Great. Thanks guys. And then since it comes up, any - within UWC, strength was great. Are you seeing any change that the net - are you seeing any delta in the growth that's worth calling out?

No, Simeon. In fact, we actually - we saw slight improvement on the churn relative to where we'd been.

Perfect. Thanks a lot, guys. Best of luck for the rest of the year.

The next question comes from Elizabeth Suzuki of Bank of America. Please go ahead.

Sorry. I was on mute. How are you thinking about your capital structure and interest rate risk at the floating rate at this point? And what are your internal assumptions for rates this year that are baked into your guidance?

Yes, Liz, it’s a good question. As you look at the full year, we're about 60% hedged today at very favorable rates. The hedge will roll off in October of this year. We're currently evaluating different strategies to help mitigate that exposure, potentially cap that exposure. But at this point, we’re still looking at that. And the interest rate - so interest rate - interest expense during the quarter, it was about $8 million. On a full year, we’re expecting it to be around about $32 million. So, interest expense, it’s really difficult to project in this environment, as you know, and will likely be moving higher later in the year and could present some short-term pressure to the model.

Yep. Got it. Okay. That makes sense. And just one quick one on just what you're seeing in the labor market and in just the ability to recruit and train new members and those that will be leading all of your greenfield acquisitions. Are you seeing any constraints there on being able to hire and train?

Liz, this is John. So, listen, I think we feel very fortunate that we've been focused on building what we consider to be the best team in the industry. And it started many, many years ago. As we've shared in previous calls, our labor - our average hourly rates are up roughly 8% this year versus the same timeframe a year ago, but that's against the backdrop of improved productivity across our entire chain, where labor as a percentage of revenue is down. Cars per labor hour is up. Labor dollar per car is down. And so, while we're paying people more, we're washing more cars, far more productive and as a result, more profitable. So, when you're able to lift the lives of people, and allow them to make a little bit more and simultaneously improve profitability, there's not a lot of companies that can do those two things simultaneously, and we're doing that. With respect to just inflationary PI costs, there was an article in The Journal yesterday, I think, on - I think it's currently an 8% to 10% kind of (run rate). So, in a lot of ways, it's - that raise comes in, but it goes right back out to rents and food costs and et cetera. And so, we’re continuously looking for ways where we can actually help our people make even more while we drive our bottom-line results.

Great. Thanks so much.

The next question comes from Kate McShane of Goldman Sachs. Please go ahead.

Hi. Good afternoon. Thanks for taking our question. If there were to be a softening of the topline, or if you were to see an environment where comps were negative or just weaker, can you remind us how you would manage costs in a tougher macro environment or a tougher topline environment and how we should think about margins?

Yes. So, Kate this is John. We're setting our sites on the long term and looking to build and get to 1,000 stores. When we get to 1,000 stores, we're going to, knock-on-wood, kick the door down and continue to grow. So, to that end, we're making material investments in infrastructure. We're making material investments in human capital to be able to support accelerated growth. We're not too focused on near-term pressures, because if we were to pull back on the throttle, it would have an impact two to three years down the road. So, for us, if this is a long-term play and we are a high growth company, we're attempting to build what we envision to be a national brand. Pulling back on the throttle just does not make sense for us. So, for us, it’s full steam ahead. That said, I think we're very responsible and we've shown that we've been able to manage through different price pressures and cost pressures over the years. And we will continue to do so. But for us, ratcheting down any costs at this point, just doesn't make sense.

Yes. Kate, the one thing I would add there, right, so to John's point, we're looking at this over the long run, very much growth-focused, growth-oriented. And we do look, though, at pricing and in general, we're priced competitively in each of our markets. We do continue to balance member and volume growth with margins and pricing, but we do believe if we needed it, we have additional pricing power that we can take if needed, but that's not how we're managing this business. It’s really the topline and how do we capitalize on the opportunity that's here in front of us with - in a fragmented (market).

Thank you.

The next question comes from Chris O'Cull of Stifel. Please go ahead.

Thanks. Good afternoon, guys. Jed, I appreciate the difficult comparisons in the second quarter, but when you look at the comp relative to ‘19, or even on a three-year geometric stack, it looks like, or it would appear, the flat to 2% comp guide would imply slower performance than what you just reported in the first quarter relative to ‘19. Is that true?

Yes. So, Chris, if you look at the - on a three-year stack, since we're going to introduce a new relatively unused term, it would be about a 9% comp, which is in line with what we've historically delivered when you look at what the business has done over the last 10 years. The first half especially, of Q1, performed really, really well on both retail and the UWC side. Particularly, that retail ticket or retail sales benefited from - as I'd said in my remarks, that we had some great weather trends that helped support us.

Jed, I would add, given the, I'll call it the insanity of what was Q2 of ‘21 in terms of just this amazingly great growth, budgeting and projecting and providing guidance for that lab that we're going into, is - and I think a lot of companies are also in this boat. This is one of the more difficult quarters for almost every business to guide to. So, in a lot of ways, you could accuse us of being conservative, but if we're guiding to at least hitting what we did last year, I think that would be a win in a lot of cases.

Yes, fair enough. And I'm glad to hear the churn rates have been steady and may be improving, but if you start to see the churn rate increase, especially among a certain consumer segment, does the - would the company attempt to reduce the churn with maybe special promotional offers such as, I don't know, next month at a discount or free, to a targeted group of consumers? Do you have that capability to do something like that?

Yes. We haven't done a lot of that. We think pressing the - I'll call it the price lever, the discount lever, the promotional tactic lever, is a slippery slope. And there's a strong argument that the way in which you attract a customer, is the way in which you need to retain a customer. And so, when folks are, in my opinion, giving away the farm at $9.99 for some introductory first month offer, and then seeing super high attrition rates in the next month, in our view, that's not the way to go about it. What we have done, when you look at this value proposition and the value stack and how people prioritize what's important to them, they may come in through the, hey, I'm going to save on the third or fourth visit door, but over time, they become obsessed with keeping their car clean all the time. They love the fact that they can “skip the line” and get through the store even quicker with our fast pass member lanes. And so, for all those convenience elements that we've introduced, back to changing their behavior, we think that just continuing to improve, or continuing to deliver, excuse me, exceptional customer experience, is ultimately the best way. But up until now, we’ve kind of stayed away from getting too aggressive on trying to retain people through price.

That's fair. And then one last one, and this might be a bit anecdotal, but we visited some of the washes in the surrounding markets here in Nashville, and we noticed the ability to tip the attendants had been added to the kiosk payment flow. Is this a widespread new feature? And if so, can you provide a bit color around why you chose to do it now?

Yes. Isn't that cool by the way? Hopefully you tipped.

Of course.

Of course. I'm not going to ask you how much. I won't put you on the spot, but, but I will say that our average customer, or excuse me, let me be very precise, the average tip income on a per-hour basis per employee, is around $2 per hour, which is huge. So, listen, we were in a tipping society, a tipping culture, and it's something that we just didn't introduce. We introduced it a little over six months ago, I think. And we're enjoying that $2 across the entire country. And let me highlight that that's just for our retail business, which is in the 20% of our overall volume range. And our limited wash club member today doesn't have that option to provide a tip, even though there's a strong argument that they're our most loyal, biggest fans, biggest ambassadors. And if we had the opportunity to give them the chance to tip, it'd be really interesting to see what that would do. But let me zoom out for a second and take your question kind of down a different path. When we look at average hourly wages and our goal of trying to get our average to $15 per hour, we're there, right? And when we add in tip income, we're pushing $17 per hour, and this is non-managerial average hourly wages. That is awesome. And if I can highlight, we're not managing to a part-time, full-time mix. There's many businesses out there that will talk a big game when it comes to a starting $15 hourly wage, but then limit your number of hours to 20 per week so that you don't qualify for benefits. We think benefits are important and we think everyone should get them if they want them. And so, I can drone on and on about some of the things we've done from a wages and benefits standpoint, but the tip income piece was something that we felt made a ton of sense.

Thanks, guys.

The next question comes from Ryan Sundby of William Blair. Please go ahead.

Yes. Hey, guys. Good evening. Thanks for the question and I appreciate all the color so far. As we look at the sequential decline in cost of labor and chemicals as a percentage of sales, can you maybe just help us quantify how much the Omicron really had an impact on labor supply, maybe health expenses? And then, did you see any corresponding impact on demand anywhere across the portfolio?

So, specific to Q1, I think, Jed, you have some thoughts on …

Yes. So, the impact that the absenteeism that we had highlighted in the prepared remarks, is about 30 to 35 basis points on the quarter when you look at it as a percentage of sales.

Yes. If I could just, again, underscore the fact that we have what we believe to be an elevated staffing model. So, we're opening and closing with at least two people. There's some businesses out there that will do it with one. We think that's highly unsafe and we wouldn’t want our kids to do that. So, we're not going to ask our team members to do that. But on average, we have at least three people on the clock throughout the day. And in our higher volume stores, it's not uncommon for us to have four or five. Many other businesses are managing to a much tighter labor model, which, again, there's no criticism. Our approach is to provide an elevated experience and make sure that we have this, what we call Express 360, where all of our team members are cross-trained, and we're not dependent upon any one person. Because they're all cross-trained, everyone can plug into any position. If it's a tunnel operator, a service advisor, picking up trash, dealing with a customer issue, everyone has been cross-trained to do all those things, and that's why we're delivering these amazing AUVs and processing so many cars, because we don't have the lines that you would see during peak periods in other businesses.

That's great to hear. And any thoughts on - do you think Omicron impacted demand at all?

Yes. No. Again, with all - I'm using the word knock-on-wood too many times here, but as a society, we're all hoping that this variant is behind us. But we have taken the safety and the welfare of our team members and our customers seriously throughout these last two years, and have put in place some very stringent guidelines to make sure that all of our team members are safe. And again, we haven't had any in recent times, interruptions to our business, and we're fully staffed.

Got it. Okay. And then, I guess, three of the 30 or so locations open so far, can you just talk a little bit more about the sequencing of the greenfield openings this year? I know you talked about it being back-half weighted, but just wanted to see if there had been any change in the pacing so far.

No. the original plan was - Ryan, was that the 30 - approximately 30, and it was more back half loaded in the original model that we put together.

Great. Thanks, guys.

[Operator instructions]. The next question comes from Peter Keith of Piper Sandler. Please go ahead.

Hey, thanks. Good afternoon, team. Was curious on the acquisitions. You'd commented that Clean Streak and Downtowner are going better than you expected. I guess, could you unpack that a little bit? Is it just simply that you're rebranding them more quickly? The member trends are good now. How are they trending better than you thought?

Well, first and part of our investment thesis is our, I’ll call it a love fest for Florida, just the beautiful trends that we're seeing, macro trends and the growth dynamic that is the state of Florida, but there's other states that also share similar dynamics. So, we're very bullish on Florida. And when we looked at both Clean Streak and the Downtowner, and we had the opportunity to double our footprint and improve our penetration and provide more washes for our members, it made absolute sense. Specific to your question around the improvements, we’re in the early innings of the post-acquisition integration process. This particular opportunity, given the fact that it was really specific to Clean Streak, flying three different flags with three different systems and three different operating procedures, it's going to take a little bit more work for us to get there. Our typical timeline for what we call go live and putting in our programs and our products and our menus, is about at the six-month mark, and then we start to see an uptick kind of month-over-month after that. But the hardest part is always taking the team members to a better place and improving the culture. This business came to the table with a very hungry group of team members that were really excited about being part of this team. But we're now going through all the nitty gritty and the hard work that is post-acquisition. And it's going to take us a while. So, short answer to your question, the improvements are just more naturally driven. I like to attribute it to some of the things that we've done, but we're still knee deep into it. I mean, our teams are going through and putting in place new equipment, and we're going through store by store, the transition to our integrated and link point of sales system, and then continuing to work on building out the team and the bench. And it's going to take us at least six months, if not a year, to get there.

Okay. That's helpful. And then maybe circling back, John, from some of the earlier comments, just around some of the - it sounds like some April softness with retail. And interesting, you're coming off the heels of a conference where you were talking to a lot of peers. What's some of the speculation? Are people citing higher gas prices? We know some pockets of the country have had a lot of precipitation in April and maybe that's impacted sales. Just curious on what some of the speculation is on that retail weakness.

Yes, there wasn't a - I mean, everyone's interpretation is their own opinion, quite frankly. I think, if anything, that was more euphoria and jubilance on the floor with respect to how well broadly our industry is doing right now. And I'm not in a position to speak on behalf of the entire industry, but just to give you kind of a temperature of the water, everyone's making a lot of money right now, and everyone's doing really well. And when you're in that kind of environment, people are less concerned about a temporary perhaps slowdown in retail because it's (indiscernible) times. But to be honest with you, when everyone's celebrating, that's when I get nervous and I'm like, man, maybe we should put the martini down and grab a cup of coffee because - and staying humble and staying hungry is our mantra. And so, we're not celebrating. This group is out there peddling as quickly as we can to continue to improve. But right now, there's just a lot of speculation around the why on retail, but I don't think anyone has a clear answer as to what the single driver is.

Okay. I appreciate the feedback. Good luck.

The next question comes from Jacob Moser of Wolfe Research. Please go ahead.

Hey, guys. Last time we talked, you noted consistently strong performance when comparing lower income trade areas versus higher income trade areas. So, I was wondering, would you say that's still the case today or have you seen any divergence between those two market cohorts?

Yes. No. The phrase that you hear us use is, everybody loves the car wash and we’re seeing strong performance across all income demographics. Even the locations in the most affluent income demographics, they're performing well, as well as those in the lower income demographics.

Got you. Thank you.

This concludes our question-and-answer session. I would like to turn the conference back over to John Lai for closing remarks.

Listen, I just want to thank our entire team and thank everyone on the call for your interest in Mister Car Wash. We have a super bright future in front of us, and we're very optimistic about our growth opportunity and our ability to continue to scale this company to even greater heights. So, thank you very much and have a great day.