Good afternoon. And welcome to Mister Car Wash First Quarter 2025 Conference Call. 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 will now turn the conference over to Mr. Eddie Plank, Vice President of Investor Relations.

Good afternoon, everyone. And thank you for joining us to discuss our first quarter financial results. With me on the call today are John Lai, Chairman and Chief Executive Officer; and Jed Gold, Chief Financial Officer. After John and Jed have made their formal remarks, we will open the call to questions. During this conference call, references to non-GAAP financial measures will be made. A complete reconciliation of these measures to the most comparable GAAP measures has been included in the company's earnings press release issued earlier today and posted to the Investor Relations section of the company's website at mistercarwash.com. As a reminder, comments made on today's call 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. While the company may choose to update these statements in the future, it is under no obligation to do so unless required by applicable law or regulation. Please review the forward-looking statement disclaimer contained in the company's SEC filings, including its most recent 10-K and 10-Q reports, as such factors may be updated from time to time with the Securities and Exchange Commission. I'll now turn the call over to John.

Thanks, Eddie. Good afternoon, everyone. And thanks for joining our first quarter 2025 earnings call. We are very pleased with our continued momentum in Q1 during which we delivered strong comp store sales growth of 6% and record revenues and adjusted EBITDA, which increased 9% and 14% respectively. These results exceeded our expectations, led primarily by strong demand during the quarter and efficient execution by our best-in-class operations team who maximized throughput and continue to drive UWC membership. Q1 marked eight consecutive quarters of overall comp growth for Mister and the first back-to-back quarters of positive retail comps in three years, which also helped fuel better than expected UWC member growth. In terms of industry dynamics, we've seen a steady reprieve to competitive intrusion with a number of competitor new builds opening within the three-mile radius of Mister becoming less intense since the peak of 2023. We view this along with some of the recent industry restructurings as an opportunity to extend our leadership position and build upon our strong foundation. As the market rationalizes over the next several years, we believe we're optimally positioned to capitalize on the shifting landscape in our space. While there's still uncertainty around the tariff environment, our exposure is primarily limited to the indirect impacts the tariffs may have on consumer spending and on our supplier base. As a consumer services company, we are better positioned than most traditional retailers, and our cost structure eliminates most of the direct exposure, keeping it fairly well contained as a percentage of our total spend. Moving forward, we continue to make meaningful progress on our four strategic pillars to drive sustainable long-term growth. I'll now provide a brief update on each pillar, starting with expanding our footprint. We opened four new greenfield stores in the first quarter, fortifying our position in key markets, and we remain on track to add 30 to 35 new stores in 2025. As a reminder, we're taking an even greater data-driven approach in our analysis of both core and new markets to identify sites that will generate the highest ROI as we aim to increase our share and expand our store footprint across the country. Given the large opportunity in front of us, we remain confident in our potential to organically double our store count in the US over time. That said, as our history demonstrates, we are agnostic with respect to avenues of growth and will opportunistically pursue M&A where it makes strategic and financial sense. Next, increasing our innovative solutions. We believe one of our many competitive advantages is our ability to consistently innovate and develop new products and services to create even more value for our customers. Our motivation is to continuously elevate and enhance the customer experience and look for ways to further distinguish ourselves to create an even bigger competitive advantage. Innovations like our proprietary Titanium 360 with its mirror-like finish and underbody protection developed by our in-house R&D team have had a tremendous impact on our top and bottom line while delivering an exceptional car to our customers. We're also continuously assessing our value to price ratio across the country and saw an opportunity to implement a $3 price increase in most markets to our base UWC program, which represents approximately 40% of our membership tiers. This puts us in line with many of our competitors and is the first increase to our base program since inception. Moving on to driving traffic and growing membership. We increased UWC membership by 5% year-over-year in Q1 to over 2.2 million members. As we increase our investment in marketing this year, our goal is to drive retail traffic with messages and offers that resonate down to the individual level. To that end, we're running a media test in six different regions across digital, radio, and paid social to drive visitation. We've also run targeted promotions to increase membership sign-ups. As we refine and more fully implement these efforts, we believe it will help to expand our customer reach, drive increased traffic, and deliver higher membership growth. Finally, building a best-in-class team. From our senior management team to our rock stars in the stores, we continue to strengthen our bench, improve our capabilities, and increase our capacity for growth while working diligently to improve our culture. In the end, it's all about people, and I couldn't be prouder of our team who have an extraordinary will to succeed and are constantly evolving and getting better each day. Looking ahead, and with a somewhat uncertain macro environment in the near term, we remain confident in our ability to deliver positive results and build upon our leadership position. The American consumer has embraced express exterior car washing as part of the regular routine, and the popularity of our subscription program is driven by its convenience and affordability. Over the last 30 years, we've managed through various economic cycles and demonstrated how resilient our service remains. Before I hand the call off to Jed, I want to express our sincere gratitude to our amazing team who shows up every day, works incredibly hard, and makes our strong results possible. I'll now pass it to Jed to provide more commentary around our financial results.

Thanks, John. And good afternoon, everyone. We are very pleased with our strong start to the year. As John indicated, our results in the first quarter exceeded our expectations, marked by a solid improvement in retail and consistently strong UWC trends. This resulted in a record Q1 by many measures, including revenue, which increased 9% and adjusted EBITDA, which grew 14%. Before I get into the details, I'd like to touch on a few highlights. From a top-line perspective, our stronger than expected sales were driven by mid single digits UWC and retail comp growth. Sales were particularly robust in January, led by a high teens increase in our non-subscription business. This drove healthier membership sign-ups, which combined with our lower, best-in-class churn resulted in total membership growth that exceeded our plan. Converting one-time visits into higher UWC membership highlights the real power of our model as the stickiness of our members provides a durable and long-lasting tailwind to revenue. While weather provided a favorable backdrop this quarter, it was our operational strength coupled with great site layouts that facilitated strong throughput that enabled us to take advantage of the increase in demand. That said, comp store trends moderated through April, largely due to a stronger lap and the timing of Easter. Keep in mind that the Easter holiday fell later this year compared to last year, creating a slight headwind to our Q2 comp. Despite these factors, comp store sales are still running positive to low single digits. Our subscription business continued to provide us with a meaningful and steady stream of recurring revenue, driven by continued strength in our Titanium membership. Titanium accounted for 23% of our membership mix, contributing to a roughly 6% increase in express revenue per member during the first quarter. We continue to tightly manage our expenses during the quarter, which, along with the timing shift in marketing expenses, allowed us to leverage SG&A and drive strong cash flow and adjusted EBITDA levels. Great revenue growth coupled with good expense management delivered strong flow-through to EBITDA as well as a healthy increase to adjusted EBITDA margin. Furthermore, we voluntarily paid down approximately $62 million of debt during the quarter while still maintaining a strong and flexible cash position. As a result, we anticipate that our net leverage ratio will improve to just under 2.5 times adjusted EBITDA by the end of the year. Finally, and building on John's comments around the competitive environment for a moment. In addition to the rate of competitor new builds slowing down, I would like to point out that even when competitive intrusion has negatively impacted the performance of our stores, comps at those stores have consistently bounced back over a roughly two-year period to outperform the chain average. This tells us that, while customers may initially be tempted to try a new competitor site, over time they eventually come back to Mister for our superior offering and exceptional value proposition. Now let me provide some more details on the first quarter numbers. For simplicity, I will be referring to adjusted numbers only, which exclude items such as stock-based compensation and gain or loss from the disposition of assets. The reconciliation of adjusted figures can be found in our 8-K filing and earnings press release. Net revenues increased 9%, driven by a combination of 6% comparable store sales growth and the contribution of incremental revenue from new store openings. UWC sales represented 73% of total wash sales, and we ended the quarter with more than 2.2 million UWC members. On a year-over-year basis, the number of UWC members increased by approximately 5%. At the end of the quarter, the membership split among Base, Platinum, and Titanium was approximately 42%, 35%, and 23% respectively. The average express revenue per member in Q1 increased approximately 6% to $28.78, driven primarily by the success of our Titanium membership tier. Overall, we are very pleased with the team's focus on expense management. Total operating expenses were $176 million in the quarter. As a percentage of revenue, total operating expenses decreased 130 basis points to 67.3%. Labor and chemicals decreased 160 basis points to 27.3%, driven primarily by leverage on our stronger sales performance as well as efficiencies we realized from our optimized labor model and some savings in chemical costs. Other store operating expenses increased 90 basis points to 33.3%, primarily driven by higher rent expense related to our new store growth and sell leasebacks, as well as higher utilities, equipment, and facilities maintenance costs. G&A expense decreased 60 basis points to 6.7%, driven primarily by better expense management. In addition, G&A benefited from the shift of roughly $1.5 million of planned marketing spend from Q1 to Q2. Overall, we remain focused on doing more with less, tightly managing expenses, and optimizing the G&A structure of the business. EBITDA increased 14% to $86 million, and EBITDA margin increased 130 basis points to 32.7%. First quarter interest expense decreased 20% to $16 million, primarily due to lower average interest rates year-over-year and lower borrowings compared to last year. Finally, first quarter net income and net income per diluted share were $35 million and $0.11 respectively. As noted in our earnings press release, our new methodology for calculating adjusted net income and adjusted EPS no longer excludes non-cash rent expense, which totaled approximately $2 million in Q1. Moving on to some balance sheet and cash flow highlights at the end of the quarter. Cash and cash equivalents were $39 million, and outstanding long-term debt was $858 million, a $67 million sequential decrease as we opted to pay down a portion of the long-term debt. Our balance sheet remains healthy and flexible, and we continue to self-fund our growth and expansion. Although we did not execute any sale leasebacks in the first quarter, we feel good about trends in the market, and we will continue to focus on driving cap rates even lower, given the strong demand from buyers interested in purchasing Mister locations. Now I'll provide an update to our full-year outlook. Given our recent momentum, we are even more optimistic about the health of our business and our positioning in the marketplace. As a result, we are revising our guidance to reflect these encouraging trends. Specifically, we are raising the low end of our full-year guidance range for revenue, comparable store sales, and adjusted EBITDA by flowing through the Q1 beat. Embedded in our outlook is a cautious view of the consumer given the current macro backdrop. We are balancing our optimism about our business and momentum against the uncertainty of the consumer environment and the potential economic fallout and turbulence from tariff negotiations. As John mentioned, we are well insulated from the direct tariff exposure. Our chemicals and materials are predominantly sourced within the United States, and we have contracted prices locked in to further hedge our short-term exposure. However, although our cost exposure is indirect, the broader downstream impact on the consumer is unknown and difficult to predict. This could create greater volatility in our business, particularly retail, where we are retaining a measured view on our expectations for the remainder of the year. For additional context and color, I am including some factors to assist you for modeling purposes. First, we continue to expect total comparable store sales growth to be stronger in the front half of the year compared to the back half as we lap the full-price rollout of Titanium in May and then face more challenging comparisons in the back half. The impact due to the timing of the Easter holiday this year compared to last year will be an estimated 30 to 40 basis point headwind to our full quarter Q2 comp. Number two, we continue to expect the implementation of price increases on our base membership to provide support to revenue per member, helping to offset some of the expected pressure in the back half. Number three, as I mentioned earlier, roughly $1.5 million of marketing spend shifted from Q1 into Q2. For the full year, we expect a modest uptick in our marketing investments versus last year. Number four, we continue to expect roughly 70% of our new greenfield openings to occur in the second half of this year. And number five, our new methodology for calculating adjusted net income and adjusted EPS no longer excludes non-cash rent expense in the calculation. This results in approximately a $5 million and $0.02 negative impact respectively to our full-year guidance. Without this change, our outlook for these metrics would have improved to $145 million to $152 million and $0.44 to $0.46 respectively. For even more details, the full list of our initial outlook ranges for 2025 can be found in the table in today's earnings release. In conclusion, as we look at many of the changes occurring across the industry and anticipate where the industry is heading, coupled with our strong positioning, we are optimistic about our long-term outlook despite a tough macro backdrop. Our operational excellence is unparalleled in the industry, and the depth and experience of our management is second to none. With our strong brand, dedicated team, leading subscription business, and robust unit economics, we are well positioned to drive growth and create long-term value for our shareholders. Operator, that concludes our prepared remarks, and we will now open the call for questions.

Our first question comes from Simeon Gutman from Morgan Stanley.

I wanted to follow up on the comp guidance. Jed, you were quite detailed about it, and I have some questions. For the next three quarters, the math for reaching the high end is based on achieving 2% growth, potentially going up to 3%. Does this indicate a weaker consumer and challenging comparisons? On the low end, it looks like it might be flat at this stage. You mentioned confidence in the business, and while you've just recorded two quarters of six, which is a tough comparison, are you anticipating a recession or significant consumer pullback? How do we arrive at that low end?

We are very pleased with the results of the quarter, showing a 6% increase driven largely by 75% of our subscription business. However, we are facing challenges in the current environment. For the remainder of the year, we expect revenue per member growth to remain in the low to mid-single digits, in line with our Q4 guidance. Comp store member growth is expected to be slightly positive to low single digits, consistent with our previous projections. We've adjusted our expectations for retail sales; previously anticipating a mid-single-digit decline at the high end of our guidance, we've now revised that to a high-single-digit decline due to market volatility, including tariffs. Additionally, while we saw some moderation in April, we are still experiencing overall positive trends. We remain cautious due to the current market conditions.

Can I ask a follow-up question about free cash flow? Can you remind us of your philosophy regarding its use? Are you utilizing cash solely for growth? It seems like you reduced some debt in the first quarter. Are you aiming to maintain a neutral position, or should the business generate cash while it continues to grow and expand?

Currently, our modeling indicates a roughly neutral position. As mentioned in the Q4 call, we slightly reduced the number of new builds, which allowed us to generate some excess cash flow that we used to reduce our debt. At a high level, if you consider the upper range of our guidance, we anticipate $346 million in adjusted EBITDA and $305 million in capital expenditures for both core stores and new builds. Additionally, we expect around $50 million from sale-leasebacks this year, $61 million in interest expenses, and some amount allocated for cash taxes. This results in approximately $25 million in free cash flow for the year.

Your next question comes from Randy Konik from Jefferies.

I guess one question. If I looked at the UWC member growth, I believe it was up 5% in the quarter. I believe coming out of the fourth quarter it was up 2% on a year-over-year basis, so a nice healthy acceleration sequentially. Can you give us some perspective? Is that kind of just doing a better job on these different marketing tactics, any particular kind of reasons for that better conversion, if you will, in the quarter sequentially?

I think the plus 5% that we posted on member growth in Q1 was a direct result of the increase in retail traffic that also was plus 5%. So it just proves that when we get customers in the door, we're able to convert them. Our capture rates have remained steady at around 10%. So when we get those retail customers in, we're able to sign up members, and that was the direct line to member growth.

Could you clarify whether the price change on the base was implemented universally or mostly in certain markets? Additionally, regarding the Titanium penetration, which has been around 23% for the second consecutive quarter, can you provide some insight into the variability across different markets and your thoughts on the potential long-term penetration of Titanium over the next few years?

I'll start with your last question first, Randy. So we're happy with where our Titanium mix sits today. As we've shared before, it's been beautifully accretive, and the customer acceptance has exceeded our expectations. So we don't expect any degradation. Again, we're happy with where that sits today. Our approach is more of a pull versus a push, allowing our customers to make their own choice, and they've spoken very loudly. We're enjoying that. When you look at our membership mix, 22.5% of our overall UWC members are in Titanium, and that's held steady quarter-over-quarter. I forgot what was the first part of the question.

Base price increase?

So the answer to your base price is that in most markets we are taking a price increase to $22.99, and that started roughly a month and a half ago, and it's kind of a rolling rollout, if you will. So we expect the full impact to start hitting the tilt around May and then having it fully implemented by June.

I have a quick question about this. In the markets that experienced the base price increase, have you noticed a noticeable change in the uptake of Titanium compared to the overall 23% or not?

No, the mix has remained the same and we just saw varying…

The next question comes from the line of David Bellinger from Mizuho.

Understanding this is a very, very fluid consumer backdrop here, but I thought some of the competitive comments were a little different this afternoon. It sounds more positive, especially with these restructurings happening in the space. You had a few quarters of decidedly positive comps here in a row. So should we start to think about this as Mister is starting to hit some kind of inflection point here where sales could slow decidedly positive from here on out?

I'll start, and Jed, you can add. But I think we're very fortunate; demand for express car wash services continues to grow, but consumers have more choice. I think the stuff that's in market today is not going away. So we are in this world where consumers having more choice, we have to get better at our craft and win the war on the ground by delivering exceptional customer experience. So what we've seen, whenever there is competitive intrusion, we might see some impact on our business in the first year or year and a half, but then we start to see a rebound in those customers coming back. So that, again, gives us some encouragement that we're on the right track and we're, from a value proposition, delivering on all the fundamental tenants their customers expect.

It seems that the competition peaked in 2023. By Q1 of 2025, we estimate there will be seven new competitors within a 3-mile radius, which is a decrease from the 15 competitors we projected earlier, and significantly lower than the 33 competitors in Q1 of 2023. While we are observing fewer new competitors entering our established trade areas, we are still competing against those that emerged in 2023. However, we believe we are in a strong position due to our superior product offerings, skilled team, and the ongoing investments we have made over the years to succeed.

And I think, Jed, if I can just add, rationality is setting in as our competitors are reevaluating their growth trajectories and realizing that it's not grow and scale at all costs and they got to be as smart as us.

And then just my follow-up here. Looking at the UWC as a percentage of total wash sales, that went down year-over-year. I think that's the first time that's happened as a public company. So how do you diagnose that? And just understanding that it seems like the retail customer slowed a bit here in April. Stepping back, does UWC down year-over-year, is that sort of an indicator that the retail customer could possibly be back? Is that a positive signal from retail?

The goal is not to reach 100%. In Q1, what you're seeing is a 5% increase in retail growth, which means we are attracting more retail customers. This trend slightly reduces the subscription mix, but we are not overly concerned about it. We view this data point positively, especially since we have a 10% capture rate, as it indicates more memberships.

Our next question comes from Peter Keith from Piper Sandler.

The tariffs make sense that you wouldn't have any direct exposure on day-to-day operations. I'm wondering on equipment and if there could be some equipment from your suppliers that's imported or impacted by steel tariffs, any talk of that coming off the car wash show that might increase the cost of new builds looking forward?

As Jed mentioned in his prepared remarks, we have multiyear agreements in place with most of our major suppliers that provide a hedge against any inflationary inputs that could cause a spike for those that don't have that in place. So we feel pretty good with where we sit and talking to the OEMs and some of the key strategic players that we work alongside. Given our buying power, we feel pretty good with all the knock on wood that outside of a few things, perhaps there might be a slight uptick in towels, for example. But outside of that, it won't be material.

Moving on to marketing. So Jed had mentioned a slight uptick in marketing this year. We've done some work here over your peers. And you guys historically have spent about 0.5% in marketing. And it does seem like some of your peers spend more like 2% to 3% of sales, so notably higher. So John, I guess, are you still kind of in a testing mode this year? Do you think you'll ever get above 1% of marketing as a percent of sales? It just seems like there is an opportunity to really drive more traffic here.

Absolutely, that's a very valid point. We all aim to increase our advertising expenditure to boost retail traffic, which in turn enhances UWC member conversion. However, we are committed to being measured in our approach. While we are ramping up our marketing strategies, we are also assessing everything to ensure our offers are not only targeted but also relevant, ultimately leading to additional growth. It's often challenging to measure this incremental growth, not just for us but also for our competitors. Once we gather more data to validate the return on our advertising investments, we anticipate increasing our efforts and achieving incremental growth.

Our next question comes from Phillip Blee from William Blair.

If you're assuming that retail revenue is down more high single digits for the year, given a potentially softer consumer environment, should we then consider the membership is more flattish or just slightly up quarter-over-quarter for the remainder of the year? And then should we consider anything like impacts from churn during a potential recession? Just any color how to think about this metric evolving throughout the year would be very helpful.

We anticipate positive low single-digit membership growth when comparing year-over-year. In terms of churn, we expect our core churn levels to remain consistent with previous periods. However, we have accounted for a brief increase in churn related to the base price increase. Last year, during our test at six stores, we observed a slight uptick in churn for about a month after raising the price from $19.99 to $22.99. After that, churn levels stabilized in the following months. We have included this consideration in our guidance. We do not foresee periods of elevated churn, similar to what we experienced during the financial crisis and COVID. Our subscription business has shown to be consistent and predictable, as our members value maintaining a clean car regardless of economic conditions. This pattern has remained steady over time.

And then just a different topic, but understood on the lack of direct tariff impact, but any color on the materials for greenfield expansion and ability to hit your store target for this year. Have you seen any early indicators around potential delays or lack of availability in materials later on this year that could make it harder to hit your full-year target, especially given the second half has a bigger exposure there?

The pipeline is mostly established not only for 2025 but we are also beginning to secure plans for 2026. We have not received any early warnings, although there have been some discussions regarding masonry and concrete through our general contractors, which may create some pressure. However, when we examine the overall expenditure, we do not anticipate a significant effect on the cash-on-cash returns we can achieve. Additionally, we have noticed some pressure on lumber from the general contractors, particularly considering that we source materials for our new builds primarily on a regional or site-by-site basis with those contractors.

Our next question comes from Michael Lasser from UBS.

John, is there a case where the retail business is simply becoming more volatile from month to month, not just simply because of the overall state of the macro environment but given how much capacity has been added to the wash industry over the last few years, there are simply fewer unattached customers for the retail business, which is going to create more volatility from period to period. And do you think there's any evidence that you saw that from the last four months where it seemed like retail was up double digits in January and then down to maybe as much as high single digits in April?

I completely disagree with your assertion, and I say that with a bit of a playful attitude because I enjoy a good debate. However, if you examine our Q1 results, where we achieved a 5% increase, it clearly demonstrates the strength of our industry and our business, as the demand for our services remains consistently strong. Regarding the competitive landscape and its effect on our retail volumes, I’ve mentioned before that we are experiencing a slowdown in new unit growth in the market, which is a significant change and will work in our favor over time by reducing competition. That being said, with customers having more options than ever, we must excel at the store level to win their business daily, which is our strength since we have built a large member base of 2.2 million members and are processing over 100 million cars each year. Considering the U.S. car market and the increasing demand for express exterior car washes, along with what we see as an untapped total addressable market for memberships, we are quite optimistic.

My follow-up question is on the heels of raising the base price membership. You will be rolling out a premium. All of this is happening into what could be an accelerating broader inflationary environment. So, just taking this much price, we're generating this much additional revenue per member give you pause in what could be a more pressured consumer environment. And if that were the case, given what happened the last time there was a lot of deflation, it did seem like the business slowed a bit. What levers would you push this time in order to drive the business?

So again, we believe that our membership value offering is strong. And when you look at the $22.99 divided into what is it, $10 on average median base retail price point, the consumer is actually getting tremendous value on that third visit, and they do the calculus in their heads. So the third visit, they're getting a real discount, and the fourth visit in their minds, it's a free car wash. And so the affordability and then the value of membership is actually stronger than it ever has been. And I will add that the $22.99 price increase from $19.99 was, in the overall scheme of things, we believe will be very modest; and one that we held the line for many, many years. So the pass-through and what we're seeing right now and the lift in revenues were kind of supporting the decision.

And anything on the leverage you might call in the event there is a slowdown?

We have successfully navigated various economic challenges in the past. As we continue to grow our business, if we encounter significant obstacles, we will undoubtedly consider reducing certain expenses to ensure we can persevere. However, our business operates somewhat differently. While many categorize us as part of consumer discretionary, we function more like a staple. In both good times and tough times, people prioritize taking care of their assets and value their vehicles. Therefore, if they decide to delay purchasing a new car, they will still focus on maintaining their existing assets, which benefits us in any scenario.

Our next question comes from Chris O'cull from Stifel.

I had a question about the media test. How do you guys plan to measure the return on that investment? And then I'm also curious how many markets you believe could be media efficient?

We are aiming for a 3:1 return on ad spend relative to revenue. However, considering the long-term value of our members, this allows us to pursue a higher return. We use the traditional 3:1 ratio to gauge the effectiveness of our promotional campaigns. When we incorporate a lifetime value target, it actually shows an even more favorable investment outlook.

Do you have a sense for how many markets could use media?

So right now, we're testing across six different markets, and four of the six, we're seeing some very promising results against the controls and then iterating from each of those tests so that we can scale this program but scale it again in a responsible way. So over time, if it justifies and helps smooth the needle, I could see it applying to almost every market.

But Chris, you touched on an important point and something that we have had a lot of debate behind the scenes on, and that's the efficiency. So which markets do we go in and test, knowing that that media spend is relatively fixed at the DMA level? And so the DMA where we only have six stores versus the DMA where we have 30 stores, you obviously get a bigger bang for the marketing buck in those markets. But on the other hand, you don't want to completely neglect those stores in the smaller DMA. So a lot of debate, that's also part of the calculus when we look at the return, but looking at all of this on a test and then relative to a control group and how much of an incremental lift are we getting relative to that control. The variable, though, as John said, is that just the subscription element of the business and then lifetime value of those subscription members that you're able to convert.

I think our cadence for new product solution introductions is roughly 18 to 24 months, and that's the target. So we have some things in the hopper that we're not going to share on this call that we think are not just going to be transformative and extremely value-added, but accretive ultimately to our top line and then subsequently our bottom line. So how can we create more value for our customers and also increase profitability, that's the goal and that's what we're working on right now. So we've got some really cool things through our in-house R&D team that they're working on, and we can't wait to share that with you sometime down the road.

Our next question comes from Justin Kleber from Baird.

I wanted to first follow up, Jed, on your churn comment as it relates to the base price increase. I know you're building that into the plan. But just curious about the response you're seeing real-time as this price increase has been implemented more broadly, is it consistent with what you saw in the test markets? Just any color on what you're seeing.

As we analyze the markets where we're implementing changes, I want to provide some insights on the recent price increase. In this industry, when a price increase is enacted, new subscribers immediately start paying the new base price of $22.99. However, existing members need to be notified, which means it takes about 30 days for them to start recharging at that new rate. We're closely monitoring churn, and so far, the results are consistent with what we observed in the trial markets from late last year.

We noticed that you're at a higher price point in Minnesota, around $25.99. I'm curious what factors are driving that decision. Should we expect your pricing to eventually align with that level across the rest of the chain?

Yes, you made a great point; it’s clear you’ve done your homework. Minnesota is one of our strongest regions, and I want to take a moment to acknowledge the fantastic work of our team there, who consistently exceed their membership targets and goals. In this market, the cost of living and wage rates are higher, so our regional pricing reflects that with a slightly elevated price point, contributing to our overall revenue.

Justin, one factor we consider is how our pricing stacks up against competitors, with our price at $22.99 compared to their $25.99. Many of our competitors are already pricing at the higher end. We analyze this regionally, which is part of our pricing strategy. However, Minnesota is an exception. Our goal is for $22.99 to be the average across the system.

But I think if I could just add one more thing. Even at that elevated price point, the fact that they have had high sign-up numbers again emphasizes that while price is important, it’s not the main reason why people decide to enroll in the program.

Our next question comes from John Heinbockel from Guggenheim.

John, when you look at average per member visitation by month, how does that defer by tier of membership and geography? And I'm also curious if you go back, how has that increased over time? I imagine it has increased, right, over the last five years?

So John, I don't have the membership frequency by tier, but I can get back to you on that one…

It's consistent; it's across all tiers, about 3, 3.2 times…

Well, I just got educated by Jed. So it's consistent, if you heard that, across all three segments or three membership peers, I should say. And then with respect to regionality, again, it's oftentimes the time of year. So during the northern climates, we see a higher frequency in the summer months in the northern tiers. But again, it gets even more nuanced in California, for example, in Northern California specifically, the period is the summertime when agriculture is at high. I can go down to love bugs down in the Southeast; I mean, each market, if you have pollen in Georgia, those really act as spikes to demand in a beautiful way.

And John, when you look at that frequency of use over the last four or five years, it's been very consistent at that 3 to 3.2 times per month. You do see, to John's point, a little bit of fluctuation just based on seasonality in the particular market. So in Q4, we'll see it go from a 3, 3.2 down to a 2.8 to 3 visits per month, but nothing significant.

I just have a quick follow-up regarding how the price increase will be implemented. When you announce a 30-day notice for the price hike, will you give that notice all at once, or will it be staggered throughout the year? Considering a 15% increase on 40% of your business, you likely won't see the benefits immediately. Will that be realized over a 12 or 15-month period or will it happen sooner?

It's a bit more complex than that. We divided the country into five subcategories, and training the frontline team is crucial; we want to ensure we don't compromise on that. We're being very methodical and deliberate about equipping our team with the necessary tools so they can handle any questions that may arise. Regarding the rollout, I want to clarify something Jed mentioned. We typically see the lift approximately 30 to 60 days after the initial communication. For our members, during the 30-day notice period, there's a steady distribution from day one to day 30. After the notice, existing members who signed up initially will experience a price increase within that 60-day window. Essentially, John, we expect to start seeing the impact in May, and Jed may have missed a step in his explanation.

Our next question comes from Bobby Griffin from Raymond James.

I have two quick questions. Have you noticed any competitive reactions in the markets where you've adjusted your pricing? I believe you mentioned that some competitors haven't yet taken similar actions. Have they responded, or is there anything you can share on that front?

So for the competitors that we compare ourselves against, we were getting to their median. There are certainly other players out there that have different pricing strategies, and I can't speak to every single one of them. But we're definitely not the leader in price at $22.99 in almost every market where there are a whole bunch of folks that were already there.

I was curious if there have been any changes in the operating costs of this industry, which seem higher than they were a couple of years ago. Are competitors now pricing more rationally? Did they adjust their pricing upward in response to a peer like you, or did they keep their prices the same?

I think it's too early to tell. We continue to monitor and gather as much competitive data as we can. But I'm not in a position to comment on every region.

So as we had talked on the Q4 call, we have realized most of that chemical optimization and labor optimization during Q1. So the year-over-year improvement that you've seen, we do not expect that to continue in Q2, 3, and 4, at least at this point. It's all been flow through on a year-over-year basis.

Your next question comes from Tristan Thomas-Martin from BMO Capital Markets.

Just one question from me. You called out comp trends moderating a little bit in April. Anything else to kind of flag whether it's consumer income demographics or geographic trends in the specific markets would be helpful?

I think that the neat thing about our business is that it has universal appeal across all segments of motoring public. And when we break down the different average household income cohorts, we see consistency across the entire portfolio, and that's terrific. So you would think that the lower end might be under more pressure, which again, we're not saying that they're not, but it really hasn't impacted our business. So for that, we feel very fortunate.

To highlight a couple of key points from the prepared remarks, UWC sales in April continue to be strong and resilient, consistent and predictable sources of sales as we have mentioned. The timing of Easter affects the month by about 100 basis points, which results in a 30 to 40 basis point effect on the quarter. Looking back to 2024, there was some weather-related impact in the first quarter, but April rebounded strongly, especially on the retail side. Overall, total comparable store sales remain positive in April, trending in the low single-digit range.

Our next question comes from Thomas Wendler from Stephens.

Just one quick one from me. I want to go back to the base membership churn one more time. Do you expect to see those customers returning as they shop around and kind of see your updated pricing is in line with the market, and what would the timeline look like for those customers to return? Would it be similar to the two-year time frame to outperform when a new competitor moves into the market?

We saw, in the first month post-announcement, a slight uptick in churn, and then it came back down to historic levels literally in the second month. So immaterial in the overall scheme of things. And again, the very slight uptick in churn was offset by the benefits that we enjoyed from the price increase.

Keep in mind, it's the first time we've taken a UWC price increase in years, 15 years. And so we don't have a lot of data points to say if after six months, a year, two years, these customers eventually come back. So we did not build any of that into the guidance or the model. But I think it's plausible to say that somewhere over time, if they had a good experience with Mister, they're eventually going to find their way back.

And I always have to add, Jed, that unlike the gym, when you cancel your membership, you can't get back into the gym. Mister Car Wash, oftentimes, people will temporarily suspend their membership if there are seasonal issues or reasons when they're going to their lake house, what have you, but then they'll come back. And so for us, a churn customer is not a lost customer in most cases. And many times, they default to retail.

This concludes our question-and-answer session. I'll now turn the conference back to John Lai for closing comments.

Well, thank you all again for joining us today. We appreciate your interest in Mister and look forward to speaking with you again when we report our second quarter results.

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