Earnings Call Transcript
Mister Car Wash, Inc. (MCW)
Earnings Call Transcript - MCW Q4 2021
Operator, Operator
Good afternoon and welcome to Mister Car Wash's conference call to discuss financial results for the fourth quarter of fiscal 2021. 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.
Megan Everett, Senior Director of Communications
Thank you. Good afternoon, everyone, and thank you for joining us today for Mister Car Wash's Fourth Quarter Fiscal Year 2021 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. 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.
John Lai, CEO
Thanks, Megan. Good afternoon, everyone, and thanks for joining us on our fourth quarter and year-end earnings call. We had another great quarter and an extraordinary year that we're excited to share with you. But before I dive in, I'd like to zoom out and talk about the growing nature of our market, some of the trends we're seeing across the industry and how we execute and deliver best-in-class unit-level results. Big picture, the U.S. car park is huge and growing with approximately 285 million vehicles on the road today. When we look at the size of the market, the pond is not only very large, but it's expanding as more consumers come into the category driven by the ease, convenience, and tremendous value of the drive-through express car wash model. More importantly, we're seeing consumption rising as more people sign up to become members of our subscription-based Unlimited Wash Club program, which has made it easy and affordable to keep their car clean all the time while protecting their investment. Even in the face of inflation and rising gas prices, we believe that the joy customers receive from keeping their car clean, coupled with the relative affordability of our service, has created a strong tailwind for expansion. As the largest car wash operator in the United States with less than 5% market share, we believe we're in a great position to expand our footprint by increasing penetration in existing markets while continuing to look for new markets to move into. In short, when we look at the size of our industry, we see demand outpacing supply, which has created a huge growth opportunity for us. Our biggest differentiators are the people and the amazing team we've developed that delivers an elevated level of hospitality across the entire company. As service providers, we take great pride in our service delivery model, which has become arguably our biggest competitive advantage. We talk a lot about technology and systems and the procedures we use to consistently wash lots of cars, but it's our people-first culture that we've developed at scale that's a real key to our success. Watching our teams process 200 cars per hour in a smooth and seamless way is like watching a well-choreographed dance with everyone moving in synchronicity. The perpetual motion of our crews working in unison with a skip in their step and a shared purpose is what makes our day very special. And this results in incredibly strong average unit volumes and customer satisfaction. During 2021, I'm delighted to share that our full year revenue increased 31.9% to over $750 million, and EBITDA of over $254 million. From a unit-level standpoint, we grew our footprint by 55 stores, acquiring 38 locations and opening up 17 greenfields. This set a record for the single-biggest year in unit growth in the history of our company. On the M&A front, late in the fourth quarter of last year, we closed two strategic acquisitions, Clean Streak and the Downtowner, that significantly bolstered our position in Florida. We now have 65 locations in Florida and plan on opening at least 10 more before the end of the year. Greenfields are one of the most important pieces of our growth strategy, and we're thrilled with how well they're performing. We've leveraged all the knowledge we picked up over the years and have developed a car wash model that's all about throughput and volume. We're investing heavily in our new store development and construction teams and see significant opportunity to accelerate our greenfield openings in 2022 and beyond. For the full year, we washed over 75 million vehicles and ended the year with nearly 1.7 million Unlimited Wash Club members. We continue to see healthy membership growth as more and more customers see the value in keeping their car clean all the time, which has fundamentally changed the way people care for their vehicles. We achieve exceptional results by hiring great people, paying them well, and most importantly, treating them well. We invest heavily in training and as a company on the rise, we're in constant leadership development mode as we build out our bench of future managers. In our last earnings call, we talked about our recent launch of our certified trainer program and our operations leadership program. To date, more than 200 team members have completed the training, and this is providing a clear stepping stone for those looking to take on more responsibility within our company. At a time when companies are struggling to staff their operations, we feel very fortunate that we've had no interruptions to our business, and our stores are continuing to become even more productive as we set volume records in almost every region. In the second half of last year, we moved to get out in front of the labor challenges that everyone is experiencing right now by increasing hourly wages to retain and attract talented team members. Our path of being a people-centric company began many years ago, and the ongoing investments we've made in wages, benefits, training, and career path progression has put us in a great position during this tough labor environment. On the executive leadership front, I'd like to recognize the retirement of Dave Hale, our VP of Development, who decided after 20 years at Mister and over 40 years in the industry, it was time to ride off into the sunset and spend some quality time with his family. From everyone at Mister Car Wash, we want to say thank you to Dave and wish him happiness. Over the last two years, Dave has been grooming his successor, Ryan Darby, to take over, and I'm happy to report that Ryan and his team are doing a phenomenal job building beautiful stores and increasing our capacity to open up even more. I'm also thrilled to announce the promotion of Mayra Chimienti as our new Chief Operating Officer. Mayra is a 14-year veteran of Mister Car Wash and has served as VP of Ops Services prior to being promoted to a new role. The fact that she's a female and a Latina in a predominantly male-dominated industry is also pretty cool. Before I turn it over to Jed, I'd like to thank our entire team, who've done an amazing job scaling our company and elevating our culture, especially our field and HQ teams, who have been working so hard to deliver on our mission to deliver the best car wash experience. We couldn't do it without our people, and we are grateful to have the best team in the industry. I'd like to now turn it over to Jed to review our fourth quarter and 2021 financial results.
Jed Gold, CFO
Thank you, John, and good afternoon, everyone. 2021 was a record year on many levels, and as John indicated, we're pleased so far with our strong start to 2022. Before going through our results and 2022 guidance, I want to make three comments to help you better understand some of the broader trends in our business. First is around demand. Underlying demand was strong during the fourth quarter. We did see some variability in the middle of the quarter related to weather, specifically impacting our retail sales. But that worked itself out in December, and the trends have remained strong. The second is around input inflation and pricing. As we discussed on our last earnings call, we proactively adjusted hourly labor rates in August of 2021, and that resulted in some modest labor inflation in the fourth quarter. To offset this, we took a modest price increase in our retail wash offerings across the majority of our locations in November. We are happy to report that since December, the increase in pricing has basically offset the increase in labor inflation. But the fourth quarter did experience a little bit of margin compression based on the timing of these two events. More importantly, these investments have helped keep our employee turnover relatively flat since the middle of last year. And we're also seeing improvements in labor productivity measures, such as cars washed per labor hour and store labor dollars per car washed, that are allowing us to maintain very strong margins while continuing to invest in our people and future growth. The third is around acquisitions. We closed two acquisitions late in the fourth quarter. These acquisitions have helped boost our market share and solidify our positioning in Florida, a state that is experiencing strong population growth and demographic trends. Upon the completion of the sale-leaseback process of the acquired locations, the acquisition multiple is expected to be in the low teens. As we have mentioned before, it can take us six months to a year to fully integrate acquired locations. And during this time period, the acquired locations experienced some margin compression as we apply our labor model and processes. Now let me review our fourth quarter results. My comments will include some of our adjusted non-GAAP results. Please refer to today's press release if you would like more details on our financial performance and our methodology in calculating non-GAAP financial metrics. In the fourth quarter, revenue increased 18.2% to $191.5 million driven by comparable store sales growth of 14.6% and unit growth of 15.8%. Please note that last year's fourth quarter included $4.9 million of revenue from the quick lube oil change business that was subsequently divested in December of last year. Excluding this from the comparison, revenue increased 21.8% in the quarter. Our subscription Unlimited Wash Club program remains a key driver of growth. UWC memberships increased 34% to 1.656 million from 1.233 million as of December 31, 2020, and accounted for approximately 67% of total wash sales in the quarter. With respect to unit growth, we added 36 net new locations in the fourth quarter, an increase in units of 15.8% year-over-year. Of the 36 new locations, 31 of these were acquired locations that were added in the quarter, and 6 of these were new greenfield build locations. We also closed one location in the quarter, giving us a total of 396 locations at year-end. Turning to the expense side of the P&L for the quarter, the cost of labor and chemicals increased to 19.2% from the fourth quarter of 2020 to $62.1 million, or 32.4% of revenue. The increase was primarily driven by the increased labor and benefits. Cost of labor included $2.3 million of expense related to stock-based compensation. Our chemical costs were well managed in the quarter and were down slightly on a per-car basis. Other store operating expenses were $70.12 million in this year's fourth quarter, or 37.2% of revenue compared with $60.1 million, or 37.1% of revenue last year. The modest increase was primarily driven by the increase in wash locations and volume. General and administrative expenses in this year's fourth quarter were $28.8 million, or 15% of revenue compared with $14.3 million, or 8.8% of revenue last year. Of the nearly $14.5 million increase, $4.4 million was from the debt issuance costs incurred in connection with our financing to acquire Clean Streak, $4 million was from stock compensation expense, $2 million was from public company and professional fees, and $2.6 million was from an increased investment in G&A labor. As we have discussed on earlier calls, our development team is an area we continue to invest and build as we continue to scale our greenfield capabilities and bring more development projects in-house. Interest expense decreased to $6 million from $14.7 million last year due to the majority of the proceeds from the IPO to pay down debt. As a reminder, late in the quarter, we raised an additional $290 million in incremental first lien term loan to help fund our acquisition of Clean Streak. Our GAAP reported effective tax rate for the 2021 fourth quarter was 11.4% compared with 26.6% for the fourth quarter of 2020. The decrease was primarily due to the exercise of employee stock options and favorable tax treatment. Our GAAP tax rate, excluding the benefit of stock options, was 26.3% in the fourth quarter of 2021. Adjusted net income, which adds back stock-based compensation and certain noncore operating expenses, increased 105% to $33.6 million in the fourth quarter, and adjusted net income per diluted share was $0.10 versus $0.06 in the prior year period.The lower taxes that resulted from the exercise of stock options benefited adjusted net income per diluted share by $0.02 in the fourth quarter. We realize the tax benefits from the exercise of stock options are difficult to predict and model, so starting in the first quarter of this year, we plan to begin excluding the tax benefits from the way we calculate adjusted net income and adjusted net income per share in our reported financial table. Lastly, adjusted EBITDA increased 15.9% to $57.3 million in the fourth quarter of 2021 versus $49.5 million in the fourth quarter of 2020. For the full year, we are very happy with what the team accomplished. On top of becoming a publicly traded company, the team delivered impressive results. We added 54 net stores, grew our store count by 16%, and ended the year with 396 car washes. Car wash revenue increased nearly 38% to $758.3 million. Comparable store sales increased nearly 32%. UWC memberships accounted for 64% of total wash sales in fiscal 2021 compared with 62% in fiscal 2020. And we ended the year with nearly 1.7 million members in the UWC program. Adjusted net income was $136.6 million, or $0.44 per diluted share, and adjusted EBITDA increased to $254.3 million. Moving on to some balance sheet and cash flow highlights. At year-end, cash and cash equivalents was $20 million, and long-term debt was $896 million. Net cash provided by operating activities for the year was $173 million. Gross capital expenditures were $126 million, and we generated $96 million in proceeds from sale-leasebacks. Lastly, let me make a few comments around our initial outlook for 2022 as well as some commentary on first quarter trends for the full year 2022. We expect revenue in the range of $875 million to $895 million, an increase of 15% to 18%. This assumes the opening of approximately 30 greenfield locations opened primarily in the second half of the year. Comparable store sales increase of between 5% to 7%. On a GAAP basis, net income is expected to be in the range of $139 million to $149 million. Adjusting for stock-based compensation, acquisition expenses, noncash rent, and other nonrecurring, nonoperating or one-time expenses, adjusted net income is expected to be $144 million to $153 million or $0.44 to $0.47 per diluted share. Adjusted EBITDA is projected to be $284 million to $297 million. Gross capital expenditures are expected to be in the range of $285 million to $315 million, and we are projecting gross proceeds from sale-leasebacks to be between $140 million and $150 million. While we do not anticipate providing quarterly commentary on a regular basis, we wanted to provide some color on trends in the first quarter and how we're thinking about the progression of the year. As indicated earlier, trends in the first quarter have been very strong, specifically January and February. We talked about how weather can have some impact on the business, particularly retail sales, and the weather in the first quarter has been favorable. As a result, we've seen a nice acceleration in the business over the past few months and anticipate first quarter comparable store sales growth to be in the area of 10%. As a reminder, this is on top of almost 19% comparable growth that we reported in the first quarter last year. With this being the case, we see first quarter revenue being in the area of $215 million and first quarter adjusted EBITDA being in the area of $73 million. As a reminder, the second quarter represents our toughest comparison for the year driven by the strong prior year demand and our initial outlook for full year 2022 revenue currently assumes a mid- to high single-digit comparable store sales increase in the first half of the year and a low to mid-single-digit comparable store sales in the second half of the year. In closing, I would like to add my thanks and appreciation to all of our team members who work day in and day out to execute our business and serve our customers. Fiscal 2021 was a historic and record-breaking year for the company. We feel very good about our positioning in the fundamentals of the business going into 2022. 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. On behalf of the team, we look forward to our continued success and delivering consistent earnings growth for our shareholders. With that, I'll turn it over to the operator to begin the Q&A session.
Operator, Operator
Our first question is from Simeon Siegel with BMO Capital Markets.
Simeon Siegel, Analyst
It's a great finish to the year. Congratulations. Jed, it’s fantastic to hear about the positive commentary for the current quarter. This question might be somewhat self-answering, but I'm curious about your thoughts on potential usage impacts, particularly regarding retail or Unlimited Wash Club churn. How do you see inflation and general macro sentiment affecting your customers and their reactions? Additionally, I believe you mentioned that you've raised the expected greenfield estimate for the year, and I would love for you to elaborate on that. You've exceeded the M&A target, so it looks like your unit expansion is really moving forward. Please discuss that and the acceleration you're experiencing.
John Lai, CEO
Yes. Simeon, this is John. Before I hand it over to Jed, I want to provide some overall insights into the state of the business. While there may not be a specific technical definition for 'crushing it,' we strive to stay grounded and adhere to the principles of being humble and hungry. Having a Q4 with a 14.6% increase in comps really speaks for itself. As Jed mentioned, we are confident that we can achieve a 10% growth in comps this quarter. Our business is currently in excellent health, and the demand for our services has been remarkable. We feel fortunate to operate in this segment. Regarding concerns about inflation and consumer spending, we are not experiencing any negative impacts. Despite uncertainties about the future, we are in a strong position right now, with a substantial number of cars ready for processing. I'll now hand it over to Jed for more detailed answers.
Jed Gold, CFO
Yes. So in response to your first question about the broader macro trends, I want to emphasize that the fundamentals and outlook for the business are exceptionally strong. We are very pleased with the business performance and the trends we're observing, but there is considerable uncertainty due to rising interest rates and gas prices, which have increased nearly 30% on a national average year-to-date. Additionally, we must consider the geopolitical risks, even though we operate entirely in the U.S. The indirect impacts and potential fallout are serious considerations. As we formulated our guidance, we believe that our projections accurately reflect the trends we are witnessing while also taking into account the wider macro environment. Regarding your question about greenfields, we anticipate approximately 30 new projects this year. We've made investments in that team and are increasing our development efforts. When we examine the available opportunities for future expansion, we see substantial potential for growth.
Operator, Operator
The next question is from Simeon Gutman with Morgan Stanley.
Jackie Sussman, Analyst
This is Jackie Sussman on for Simeon. Congratulations on a good quarter. Kind of piggybacking off of what you were saying about the strong quarter to date trends. The market is starting to think about a more traditional recession potentially occurring, and your business did have a bit of a decline in the last recession. But as you mentioned, it's a different business now, with a higher recurring revenue mix. So I guess, more specifically, how resilient is the subscription base during a recession? And you're expecting stronger comps going forward throughout the year?
John Lai, CEO
Yes. Terrific question. When we look at '08, '09 and the impact that we received, our portfolio was a lot different back then. We had a majority of our stores were full-service interior clean locations. Today, that ratio has been flipped upside down, where the bulk of our portfolio is Express Exterior, which by virtue of that value proposition, has a very affordable price point of anywhere from $7, $8 or $9 to get in. So it's easily accessible for all motorists. And that affordability, we think, is perfectly positioned and it could be an even tighter environment going forward.
Jackie Sussman, Analyst
Great. And just a quick follow-up, if I can. You guys had a great year in '21. You said you were going to reinvest back into the business. Is there any kind of volatility in your thinking given the inflation and kind of macro backdrop in terms of how you're choosing to invest?
John Lai, CEO
No. For us, it's full steam ahead. We are so emboldened with some of the success that we've been enjoying, particularly with our greenfields, that we're, as we mentioned in previous calls, not just doubling down but tripling down on building out our capabilities there. And really, the focus is on the human capital side, making sure that we've got the right team in place. So we're growing like weeds right now and having a lot of fun doing what we're doing. But we don't anticipate pulling back on the throttle at all.
Operator, Operator
Next question is from Michael Lasser with UBS.
Michael Lasser, Analyst
John, is there a national price per gallon of gas that, if reached, you believe would begin to impact the business? Would that be around $5 or closer to $6? What do you think that level would be?
John Lai, CEO
That's a difficult question to answer. I wish I could accurately predict future gas prices. Historically, from an inflation-adjusted perspective, we've experienced a couple of years since 2012 when the price per gallon exceeded $4, and it didn't affect our business then, nor are we noticing any effects now. However, I want to be cautious. If gas prices were to rise to $5 or higher, I don't want to imply that we believe it wouldn't impact consumer spending. This increase would likely affect those living paycheck to paycheck, significantly affecting their budgets. So far, we haven't faced any threats from rising prices.
Michael Lasser, Analyst
My follow-up question is two parts. One is, how much is the price increase contributing to your same-store sales growth in 2022? And as part of that, you did have a tough compare like, Jed, you pointed out in the second quarter, particularly on the retail side of the business. So to the extent that retail starts to soften in the second quarter, is it going to make it more difficult to recruit additional Wash Club members because that is a key source of new membership?
Jed Gold, CFO
Yes. So Mike, I'll take the first part of your question around the price and what we expect that. So as we've said, we took a price increase of November of last year. And as we look forward and the impact on 2022, we expect that to be just under a 2% benefit on the year coming from that pricing, which will largely offset the cost pressures and the labor inflation in some of the investments that we've made and we are making to support the future growth of the business.
John Lai, CEO
Yes, Michael, I'd add too that for us, the lifeblood of growing our member base is attracting more retail customers into our stores and then working towards educating them to make an informed decision and converting them into membership. So for us, retail traffic is important. We've got this unique phenomenon where because we're doing so well, and we're washing so many cars that our member base is naturally growing. As we've shared previously, we've done a lot to decompress our locations and speed things up and reduce bottlenecks to, quite frankly, cut down the lines and make sure that you can get in and out in 5 minutes. There are certain hours in certain stores where we're bumping up against maximum capacity, which I guess is a good problem to have. But it also then highlights the opportunity that we have to continue to grow our share, increase our penetration and add more stores where when we have people lined up to the street, it's a beautiful thing. And for us then we're saying, hey, there's more cars that we're 'leaving on the street.' Let's add some locations around some of those high-performing stores to decompress them a bit and overall lift our share in that market.
Operator, Operator
The next question is from Chris O'Cull with Stifel.
Chris O’Cull, Analyst
John, given you have made significant investments in the development team and you continue to make those investments, I was hoping you could describe what kind of capacity for greenfield development you're targeting longer term.
John Lai, CEO
Yes, we are redefining our high goals. To provide some perspective, last year we opened 17 stores, and this year we anticipate opening 30 stores, representing nearly a 100% increase. Our aim is to reach about one store per week, which we consider an ideal target. It's crucial to emphasize that while opening stores requires significant effort, the most vital aspect is ensuring we have the right team to operate them effectively and provide an exceptional customer experience. This relates to our investments in management training programs and developing our leadership pipeline. We are committed to simultaneously enhancing our capacity to open new stores while increasing the number of well-trained leaders ready to excel. Therefore, we are pursuing both objectives concurrently, and as I mentioned earlier, we are maintaining our momentum.
Chris O’Cull, Analyst
That's helpful. And then your long-term algorithm calls, I think, for 50 washes to be acquired over 5 years. I mean the Clean Streak acquisition, I think there's 23 units that were opened, 10 under construction. And then you had the other one, I think, had 5-or-so locations. So, should we interpret that to mean that the 50 wash outlook would be conservative? Or should we expect acquisitions to be very limited going forward?
John Lai, CEO
Acquisitions can be unpredictable and vary greatly in size. As we work to expand our market presence, we see several smaller opportunities to increase our market share in existing regions. Additionally, we are pursuing strategic opportunities like the Clean Streak deal, which nearly doubled our presence in the Orlando and Tampa areas. As we navigate this evolving marketplace that is consolidating, we may encounter larger-scale acquisition opportunities in the future, but it's challenging to assess their likelihood.
Jed Gold, CFO
Chris, I want to emphasize that as we focus on our long-term growth strategy of achieving a 50% increase over five years, we are cautious about merely pursuing a number for the sake of it. There's significant investment entering this industry, driving up valuations. Therefore, we aim to avoid paying excessive multiples just to reach a target figure. Additionally, while mergers and acquisitions play a crucial role, we are also expanding our operations. As you mentioned earlier, our investments in greenfield projects contribute to a more predictable and consistent growth through our unit expansion.
Peter Keith, Analyst
Congrats on a great year. I wanted to piggyback off of Clean Streak. So, you guys have now owned it for a couple of months. It's a fairly sizable acquisition compared to what you guys have done in the past? How would you frame it up versus your normal acquisition accretion benefit? You've historically raised four-wall EBITDA by about 55% in 3 years. Do you see a similar opportunity here or maybe a little bit more, a little bit less?
John Lai, CEO
We see significant growth potential in the business and are very optimistic about our position in year 3. It typically takes us at least 6 months to set everything up and often a year to get the team fully trained and operating in our preferred manner. Therefore, we adopt a more conservative perspective in year 1; our focus is not on EBITDA growth for that year but rather on our trajectory by year 3. We are committed to making the necessary investments and changes. We excel at integrating, standardizing, and creating a consistent experience across all our stores. Any customer visiting one of our 75 stores in Florida should expect the same Mister Car Wash experience. While we are not there yet, we anticipate it will take another 90 to 180 days to achieve this goal. This is crucial for us, and we believe that when we accomplish this, everything will improve as we streamline our operations from a standard point-of-sale system to unified procedures. Establishing the right culture is crucial and also challenging, but we are dedicated to it. For the team members we welcome into our family, it is consistently a positive development for them personally and professionally.
Jed Gold, CFO
Peter, I want to provide a bit more detail on that. As we aim to build a national brand, this acquisition is a significant step forward, especially in strengthening our presence in Florida. It's important to note that the EBITDA per unit for this acquisition is higher than what we've experienced in past acquisitions. However, as John pointed out, we see substantial potential for growth, especially in memberships. When we compare subscription members per location, the current figures are significantly lower than the 4,300 we had per store. There are also opportunities to increase throughput and realize cost synergies, although we typically don't factor these into our model. As we transition to our chemical programs and processes, these improvements will take time, as integration does not occur overnight. Another noteworthy aspect is that Clean Streak owns 100% of its real estate, and we are currently exploring sale-leaseback options for the portfolio.
John Lai, CEO
Yes. Jed, I would just add, too, that it's not uncommon for us to acquire businesses that are running leaner labor staffing models than we are. And we're happy to, again, increase that staffing approach because we're able to generate more cars through the turnstile. And we're already starting to see that. So, to your comment on increasing throughput and growing the top line, for us, having more people on the clock, as counterintuitive as it may sound because it's like, 'Well, aren't you increasing labor?' Yes, we're increasing labor, but we're washing more cars. And so overall, we're going to generate more revenue, which will ultimately trickle to the bottom line. And that's a front-end load investment, which we're happy to make.
Peter Keith, Analyst
Okay. Great. That sounds exciting. I just need one last clarification on Clean Streak. I believe there were an additional 10 stores that aren't open yet and are in the process of opening. When you mention 30 unit openings in 2022, do those include your own greenfield stores, or are the 10 Clean Streaks included as well?
Jed Gold, CFO
The Clean Streaks are factored into that, approximately 30.
Operator, Operator
The next question is from Ryan Sundby with William Blair.
Ryan Sundby, Analyst
You ended the year with nearly 1.7 million UWC members. From an operational perspective, does that count members who were active at the acquired locations? If so, how quickly should we aim to increase penetration at this location, given that it seems to be lower than the corporate average?
Jed Gold, CFO
Yes. So the nearly 1.7 million members, it includes all of the members, including the members that we acquired through the acquisitions, yes. But when you look at the membership on a per-unit basis for those acquired stores, it's materially lower than the member per location in our core base business, providing us some opportunity for future we see membership growth. But once again, that's going to take time. We've got to put in place our processes, our team, our training, our development. It's not going to happen overnight.
John Lai, CEO
Yes. I would expect, Jed, that probably the second half of this year, we'll start seeing an uptick in member of growth. There might be some modest growth right now. But there's other things that we're prioritizing before we start educating customers on the value of the membership. We want to make sure the quality is there, speed's there, customer service is where it needs to be. Those are our fundamental building blocks before we turn them on to the Unlimited Wash Club program. So there's a little bit of a chicken and egg. But the second half, I think we're very optimistic about the growth potential.
Ryan Sundby, Analyst
Got it. Makes a lot of sense. And then historically, I think you've talked about roughly 75% of the UWC sign-ups occurred during the first half of the year. 2021 looks a little bit different with bigger gains in Q2 and Q4. Can you just help us think about how we should think about the sequencing of member ahead next year? And I guess there's a different setup here in '21. Did that impact anything like retention rates or frequency compared to the years passed?
Jed Gold, CFO
Yes, Ryan, seasonality can be somewhat challenging in this business, especially as we make acquisitions, because it tends to shift slightly depending on the market. For instance, our increased presence in Florida introduces more seasonality, which is different from what we see in markets like Michigan or Iowa. Historically, we have observed that around 75% of our business occurs in the first half of the year, but predicting this can be difficult. Some years can be quite stable, while in others, like last year, we experienced about 90% in the first half.
John Lai, CEO
Jed, I would add the beauty of our geographic footprint and how diverse our portfolio is. Right now, we're coming into pollen season, which is like gold when it hits the vehicle. Because everyone, particularly in the southern climates, they want to get that pollen off their vehicle. In the summertime in California during the harvest season of almonds, we absolutely crush it. In the winter in Minnesota, we're rocking and rolling. So there's these different demand curves based on each of the regions. And Florida has their love bugs, right? I mean I can go down to each specific market demand comes at different. And that's beautiful because what that has done is smoothed out our growth curve. And I think some of the percentages is we try to triangulate around where do we see the bulk of our growth. I see it smoothing, not clumpy in any one quarter because back historically, it was Q1 and then moving into Q2. But now it's more persistent year-round.
Ryan Sundby, Analyst
Okay. That's helpful. And if I could just squeeze one more. I think at least one of the Clean Streak locations had oil change. Is that something you'd continue to do? Or is that a business or a site that you'd want to access?
John Lai, CEO
Yes. We believe in focusing on doing fewer things well, and our main commitment is to washing cars and providing an excellent experience. Therefore, after selling our lube business last year, when considering a business acquisition that includes a lube shop, we either seek to collaborate with another major oil change provider and sell that segment or we adapt that area to enhance our free vacuum offerings or create more stacking lanes for washing cars. In response to your question, we do not expect to pursue any additional profit centers; our focus is solely on washing cars. From my experience, managing multiple profit centers is challenging, and it's difficult to excel in all those areas.
Operator, Operator
The next question is from Greg Badishkanian with Wolfe Research.
Jake Moser, Analyst
This is Jake Moser on for Greg. I was curious about your guidance, which seems to indicate some margin compression. How much of that is related to the recently acquired Florida stores? Additionally, it appears that pricing is effectively balancing out labor and chemical costs. Aside from the acquisition effect, is the margin compression primarily due to investments in expanding the development team, or are there other factors influencing it?
Jed Gold, CFO
Yes. There are a couple of points regarding the margin. The fundamentals and outlook for our margins remain unchanged. Our target adjusted EBITDA margin is in the low to mid-30% range, as we've stated previously. Last year, we saw exceptional margin rates, especially in the first half, which exceeded our target range. We are mostly offsetting labor inflation and general inflation through a modest price increase we implemented in November, along with various productivity enhancements. Specifically for Clean Streak, it remains neutral in terms of margin relative to the rest of the business. The overall margin compression is partly due to our investments in management training and operation leadership programs designed to support future new unit expansions. Additionally, last year, we incurred only half a year of public company costs, amounting to about $10 million for the year, while this year, we will face a full year of those expenses.
John Lai, CEO
Jed, I would add, too, that as a high-growth company, we have not prioritized margin expansion. And our margins we think are really healthy and strong, and they've grown year-over-year. But to your comment, we are in investment mode and we are in build mode. We could easily, if we ever chose to, dial back on certain investments and increase margins very, very quickly or take pricing if we wanted to, to get our margin profile even higher. But if we're in growth mode, why do we want to do that prematurely? So as a result, we're remaining very conservative. And again, the goal here is to build a national car wash brand, and we're on that path.
Jake Moser, Analyst
That makes sense. I appreciate the color there. And then it sounded like you were seeing some encouraging trends in terms of improving employee turnover. Were those improvements across both manager-level positions and sort of rank-and-file employees? And then did Omicron have any impact on that sort of at the start of 2022?
John Lai, CEO
Yes, definitely. In January, we faced challenges due to Omicron with several employees getting sick, but we managed to navigate through that without any disruptions. In this current environment, maintaining a flat turnover is considered a success. Over the past three years, we've significantly reduced our turnover by implementing the initiatives I discussed earlier to make our workplace an exceptional one. Moving forward, our focus is on enhancing our employee value proposition to create an even more appealing career opportunity. A particularly fulfilling aspect of this journey has been our ability to positively impact thousands of lives. We operate with an egalitarian mindset, and every one of our site managers holds ownership in the company through equity participation, which is a strong advantage for us compared to competitors who do not share their profits with team leaders.
Operator, Operator
This concludes our question-and-answer session. I would like to turn the conference back over to John Lai for any closing remarks.
John Lai, CEO
Well, thank you, operator. Listen, on behalf of the entire team here at Mister Car Wash, we appreciate your interest in our journey. We think we're in the early stages of our life cycle, quite frankly. And even though we've been at this for over 25 years, it feels like the second or third inning. And our opportunity to scale this company to 1,000 stores and even higher, Jed, who came from Yum! Brands, pats me on the head, sometimes in a very condescending way and says, 'John, 1,000 stores. That's cute. Let's get to 15,000,' which might be a little bit big, but 1,000 is in our sight line, and we're thrilled to be on this path. So thank you, everyone, for your support and interest. We're going to get back to washing cars.
Operator, Operator
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.