Mister Car Wash (MCW) Q3 2025 Earnings Transcript

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Date

Oct. 29, 2025 at 4:30 p.m. ET

Call participants

Chief Executive Officer — John Lai

Chief Financial Officer — Jed Gold

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Takeaways

Revenue -- Revenue of $263 million in Q3 2025, up 6% year over year, driven by 3.1% comparable store sales growth, and contributions from 26 net new stores opened over the past twelve months.

Adjusted EBITDA -- $87 million, up 10% year over year, resulting in an adjusted EBITDA margin of 32.9%, the highest third-quarter adjusted EBITDA margin reported by the company.

Comparable store sales -- Comparable store sales grew 3.1% in Q3 2025, marking ten consecutive quarters of positive comps, led by strong UWC gains.

UWC membership -- Ended the quarter with approximately 2.2 million members, a 6% year-over-year increase in revenue; subscription represented 77% of total wash sales.

Titanium 360 penetration -- Achieved approximately 25% penetration of the total membership base, with certain markets exceeding 35% mix.

Express revenue per member -- Rose approximately 4% year over year to $29.56, supported by tier mix shift, and base membership price increases.

Churn -- Held stable at roughly 5%, with minimal increase following the price hike, and a quick normalization within four to six weeks.

Store count -- Opened five Greenfield locations, acquired five stores in Lubbock, Texas, ending the quarter with 527 stores across 21 states.

Unit growth goal -- Reiterated long-term target of over 1,000 stores, with approximately 30 Greenfield openings planned for the year.

Operating expenses -- Total operating expenses were $177 million for the quarter; as a percent of revenue, improved 130 basis points to 67.1% due to cost management.

Free cash flow -- Generated $202 million in free cash flow (excluding growth CapEx) for the nine months ended September 30, 2025, equaling 26% of sales for the same period, up from $174 million in the prior year period.

Long-term debt -- $827 million in outstanding long-term debt as of quarter end, reflecting a $22 million sequential reduction, with a leverage ratio of 2.4x adjusted EBITDA as of quarter end.

Adjusted EPS -- Adjusted EPS was $0.11 for the quarter, a 38% year-over-year increase.

Sale-leaseback transactions -- Completed one for $5 million; seven car wash locations in the Q4 2025 pipeline.

Full-year guidance -- Revenue, comp store sales, and adjusted EBITDA (non-GAAP) are all expected at the high end of prior guidance ranges for the year due to the current sales trajectory.

Marketing investment -- $2 million committed in Q4 2025 for expanded marketing testing; prior pilot programs yielded a mid-single-digit comp sales lift in select markets during Q2.

Retail comps -- Reported a low double-digit decrease in the quarter, with stores in lower-income demographics underperforming portfolio averages.

M&A activity -- Lubbock acquisition considered financially immaterial, but more than doubled local market share; management remains opportunistic about additional bolt-on deals.

Bonus depreciation impact -- Majority of capital expenditures qualify for 100% bonus depreciation, with net operating losses expected to reduce federal cash tax liability to nearly zero for the next several years.

G&A improvements -- General and administrative expense improved 100 basis points to 6.4% of revenue through disciplined expense control.

Summary

Mister Car Wash (NASDAQ:MCW) reported increased revenue and profitability in the quarter, driven by membership growth, execution of price increases, and operational leverage. Titanium 360 achieved strong adoption, supporting higher revenue per member, while churn remained steady. Management reiterated guidance at the high end across key metrics and outlined continued expansion via Greenfield development and selective M&A, with a focus on optimizing returns through data-driven site selection and marketing.

Jed Gold stated, "Overall, we are pleased with our third quarter results, and the performance of the business. We exceeded the high end of our expectations with comp store sales growth of 3.1%, and adjusted EBITDA of $87 million for the quarter."

John Lai confirmed, "Our UWC performance was led by our Titanium 360 tier, which reached approximately 25% penetration of our total membership base during the quarter."

Management noted that "retail comps performed in line with our expectations for a low double-digit decrease," with underperformance concentrated in lower-income demographic locations.

The CFO emphasized that the majority of the base membership price increase was rolled out from late Q3 to early Q4 in large markets for the fiscal year ending December 31, 2025, and "roughly a quarter to one-third of that total base price increase will roll into 2026."

Store comp growth was strongest in newer locations during the quarter, while mature interior clean sites posted a negative 1.6% comp during the quarter, acting as a headwind to portfolio growth.

Sales lift from Q2 2025 marketing pilots was in the mid-single digits in select markets; Q4 tests are ongoing, with incremental benefit assumed to be limited near term.

Interest expense improved by 32% to $14 million for the quarter due to lower rates and reduced borrowings, with total outstanding debt reduced by more than $100 million over the past twelve months.

The sale-leaseback environment improved following recent legislation, leading to better cap rates and higher transaction demand.

Management described the M&A environment as opportunistic and "lumpy," with asking multiples having "dropped precipitously" compared to a year or two ago.

Industry glossary

UWC: Unlimited Wash Club, Mister Car Wash's subscription-based car wash membership program.

Greenfield: New store locations constructed from the ground up, as opposed to acquiring existing sites.

Sale-leaseback: A transaction in which a company sells a property and simultaneously enters into a lease to continue using the property long-term.

Titanium 360: A proprietary, premium membership tier at Mister Car Wash, offering enhanced service levels within the UWC program.

Churn: The monthly rate at which members cancel their subscriptions.

Bonus depreciation: A tax incentive allowing immediate expensing of certain capital investments, as referenced under recent federal legislation.

Cap rate: Capitalization rate, a metric used to assess the yield on real estate investments, particularly relevant in sale-leaseback transactions.

ROAS: Return on Advertising Spend, a measure used by management to assess marketing effectiveness.

Full Conference Call Transcript

John Lai: Thanks, Eddie. Good afternoon, everyone. Thanks for joining our third quarter 2025 earnings call. We are very pleased with our performance in Q3. Our team delivered strong growth with revenue up 6% to $263 million and adjusted EBITDA increasing 10% to $87 million. In addition, our 3.1% comparable store sales growth marks the tenth consecutive quarter of comp gains. These results were fueled by strong UWC growth and exceptional execution from our Powerhouse operations team, who consistently raised the bar and reset our high standard for excellence. We ended Q3 with approximately 2.2 million UWC members, a 6% increase year over year. I'm particularly pleased with the continued strong capture rates experienced across our stores.

Our UWC performance was led by our Titanium 360 tier, which reached approximately 25% penetration of our total membership base. During the quarter, we completed the rollout of our base membership price increase and are encouraged by the member adoption and retention trends to date. These initial results demonstrate the strong price-to-value relationship and speak to future opportunities to drive revenue growth. Importantly, our commitment to delivering high-quality service at an accessible price point continues to be a key objective for our brand. Separately, after the quarter closed, we announced the acquisition of five stores in Lubbock, Texas.

This expands our footprint in this market to nine locations, more than doubling our market share and offering customers greater convenience and more choices, amplifying our network effect. We have a strong track record of successfully acquiring and integrating businesses and look forward to reopening under the Mister Car Wash, Inc. brand. The industry continues to lead to some capacity exiting the market, creating room for strong operators like Mister Car Wash, Inc. to capture incremental market share and drive growth. Ultimately, we are setting the stage for meaningful, sustainable performance by investing strategically, driving innovation, and sharpening our competitive edge, all while delivering on our mission to produce a clean, dry, shiny car with unparalleled customer service.

With the largest subscription base in the industry, strong unit economics, and a long history of innovation, we are exceptionally well-positioned to accelerate growth and elevate our brand for the long term. Now let's discuss the progress we have made on our strategic imperatives during the third quarter. Let me start with expanding our footprint. During the quarter, we opened five new Greenfield locations, bringing our total store count to 527 stores across 21 states. And just a few days ago, we celebrated the grand reopening of one of our flagship stores in Tucson at the corner of Speedway Boulevard and Country Club, which we fundamentally transformed to deliver an even better customer experience.

With one quarter left in 2025, we remain on track to open approximately 30 new stores this year, in addition to the five stores we recently acquired. What is most exciting is that we are about halfway to our long-term goal of more than 1,000 Mister Car Wash, Inc. locations across the U.S., underscoring the growth opportunity in front of us. Moving on to increasing our innovative solutions. At Mister Car Wash, Inc., innovation is more than just ideas. It is a launchpad for growth and delivering differentiated solutions that further separate Mister Car Wash, Inc. from other operators in the marketplace.

From improving the quality of the water we use, to fine-tuning our chemistry and tunnel equipment, to introducing proprietary extra services like Titanium 360, innovation is at the heart of who we are at Mister Car Wash, Inc. We continue to put our capital to work where it will have the biggest impact on sales, our stores, and improving the customer experience. And we remain committed to investing in technology and R&D to further differentiate and extend our lead. Our innovation pipeline is strong. And although it's too early to discuss details, we aim to bring our newest major innovation to market in 2026. Next, driving traffic and growing membership.

We were encouraged by the results of our marketing tests in Q2, and in Q4, we are stepping up our marketing investment and expanding our testing program in a select number of markets. Our goal is clear: build a strong foundation where marketing becomes a scalable growth engine for Mister Car Wash, Inc. in 2026 and beyond. This phase is all about focus and precision, zeroing in on what matters most to understand which channels and tactics drive efficient, incremental sales growth. Once we have established that baseline, we will look to broaden our efforts, exploring new channels and creative promotional offers that generate a meaningful return on our advertising investments.

With a long runway of opportunity ahead, we are excited about what this program can unlock for Mister Car Wash, Inc.'s long-term growth, particularly within our retail business. Finally, building a best-in-class team. We have the best team in the industry, and it shows. From our frontline team members in the stores all the way up to our senior leadership, our people and culture are woven into every layer of the business, driving performance, innovation, and customer experience. Our team has been the high-octane fuel behind our success. As we continue to scale, we remain fully committed to investing in their growth and development and long-term potential.

Before I wrap up my prepared remarks, I want to thank our amazing people across the entire company for their ongoing contributions and commitment to our customers, which allows us to deliver solid results. In summary, this is an exciting time for Mister Car Wash, Inc. We are energized by where our business stands today and where we are going tomorrow. Industry headwinds are clearing. We are actively managing variability in our retail performance, and we are capitalizing on M&A opportunities to fuel additional growth. By strengthening our core, driving innovation, and expanding both organically and inorganically, we're not only meeting strong customer demand, we're reshaping our category for the future.

We have laid a strong foundation for sustainable growth and are well-positioned to lead both our business and the broader industry into its next chapter. I'll now turn the call over to Jed to provide more commentary on our financial results.

Jed Gold: Thanks, John, and good afternoon, everyone. Overall, we are pleased with our third quarter results and the performance of the business. We exceeded the high end of our expectations with comp store sales growth of 3.1% and adjusted EBITDA of $87 million. Additionally, we delivered adjusted EPS of $0.11, a 38% increase year over year. The team remains focused on the task at hand, aligned on delivering results. From a channel mix perspective, UWC was the primary growth driver, representing over 75% of total sales. This large and predictable base of subscription revenue continues to be the cornerstone of our resilient business model and a key contributor to our strong free cash flow.

As noted in our earnings press release, we started reporting free cash flow in discretionary terms to highlight the strength of our cash generation and provide greater transparency into the non-discretionary CapEx needs of the business. I'll expand on this shortly. We also successfully completed the rollout of our base membership price increases, which contributed to the uplift in Express revenue per member during the quarter. As previously shared, this rollout was phased across markets and positions us well to drive continued revenue per member growth into next year. Importantly, churn has remained in line with expectations, with a modest initial increase followed by a reversion to the mean within four to six weeks.

Across the industry landscape, we see encouraging signs of normalization. First, the pace of new competitor store openings within a three-mile radius of existing Mister Car Wash, Inc. locations has moderated compared to recent years, with an estimated 40% fewer new builds year to date versus last year, contributing to a healthier, more balanced environment. Second, as we've noted in prior calls, Mister Car Wash, Inc. locations that experienced competitive pressure continue to show year-over-year growth within eighteen to twenty-four months of the competitor opening, ultimately outperforming the chain-wide average.

During the third quarter, for example, the 49 sites facing competition less than a year old comped down low single digits, while sites with competition older than two years or no competition comped up mid to high single digits on average. This underpins what we've long believed: while customers may explore alternatives, they consistently return to Mister Car Wash, Inc. for the superior customer experience we deliver. These two trends give us confidence in the quality of our model and optimism about our ability to accelerate growth moving forward. Now let me provide some more details on the third quarter numbers.

For simplicity, I'll 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 filings and earnings press release. Net revenues increased 6%, driven by a combination of 3.1% comparable store sales growth and the contribution of incremental revenue from the 26 net new stores opened over the last twelve months. UWC comps increased high single digits, while retail comps performed in line with our expectations for a low double-digit decrease. We achieved a 6% increase in UWC over the prior year while maintaining retention rates consistent with our long-term averages.

Overall, we remain pleased with the performance and productivity of our store fleet and believe that the combination of decreasing competition and more data-driven site selection methodology will drive higher returns on our invested capital moving forward. Sales growth was the strongest in July, cycling a relatively easier lap, but nonetheless positive through each month of the quarter. UWC sales represented 77% of total wash sales, and we ended the quarter with more than 2.2 million UWC members. At the end of the quarter, the membership split among base, platinum, and titanium was approximately 41%, 34%, and 25%, respectively. I'd like to point out that our subscription members remain resilient, and we're not seeing trade down to lower price packages.

Finally, we continue to see strength in Express revenue per member, which increased approximately 4% year over year to $29.56. This was driven by our base membership price increases and additional mix shift into titanium, given the strong consumer response to our targeted trial promotion over the summer. Total operating expenses were $177 million in the quarter. As a percentage of revenue, total operating expenses improved 130 basis points to 67.1%, primarily due to sales leverage and disciplined cost management as the team continues to find ways to optimize costs and maximize operational leverage.

Within total operating expenses, labor and chemicals improved 40 basis points to 28%, as leverage on our stronger sales along with some savings in chemical costs more than offset higher labor expenses. Other store operating expenses increased modestly by 10 basis points to 32.7%, driven by higher cash rent tied to our strategic new store investments and elevated utility costs, particularly electricity, where rates have been trending upward. G&A expense improved by 100 basis points to 6.4% as a result of better expense management. Looking ahead, we plan to invest approximately $2 million in Q4 to support the next wave of marketing tests.

Building on the encouraging results from Q2, we're optimistic about how this next phase will resonate with consumers and excited to fine-tune our approach to marketing and advertising going into 2026. EBITDA increased 10% to $87 million, and EBITDA margin increased 130 basis points to 32.9%. Of note, this is on top of a 100 basis point increase last year and represents the highest Q3 EBITDA margin that we have ever reported. Third quarter interest expense improved by 32% to $14 million, primarily due to lower average interest rates year over year and lower borrowings compared to last year, as we've reduced our total outstanding debt by more than $100 million over the last twelve months.

Finally, third quarter net income and net income per diluted share were $37 million and $0.11, respectively. Moving on to some balance sheet and cash flow highlights. At the end of the quarter, cash and cash equivalents were $36 million, and outstanding long-term debt was $827 million, a $22 million sequential improvement as we voluntarily paid down debt during the quarter. Importantly, our leverage ratio stands at 2.4 times adjusted EBITDA, well within our stated target of two to three times, and our liquidity position remains strong, positioning us well to continue investing in future growth opportunities while reducing debt when feasible. In addition, we were active in the sale-leaseback market.

During the third quarter, we completed one sale-leaseback transaction involving one car wash location for an aggregate consideration of $5 million. In addition, our pipeline for Q4 is strong, with seven car washes currently under LOI or contract. The passage of the One Big Beautiful Bill Act and the restoration of the 100% bonus depreciation incentive have sparked a notable increase in demand, which, along with the high quality of our assets, is allowing us to negotiate deals on very favorable terms, and we are seeing a material improvement in cap rates as a result. Further easing of interest rates will likely provide an additional tailwind to cap rate trends.

In addition, the majority of our capital expenditures qualify for 100% bonus depreciation under the bill. Coupled with our existing net operating losses, we expect these deductions to fully offset taxable income and reduce our federal cash tax liability to near zero for the next several years. Now I'd like to take a moment to highlight our free cash flow. While we continue to believe that our greenfield development program remains the most effective use of capital, growth CapEx represents nearly 90% of our total capital expenditures. As such, we believe it's important to emphasize the strength of our underlying cash generation.

Excluding growth-related investments, we generated free cash flow of $202 million for the nine months ended September 30, compared to $174 million in the same period last year. This represents 26% of sales and highlights the cash flow performance of our core operations and our ability to generate meaningful cash flow while investing to maintain our existing fleet of core stores. It also underscores the financial flexibility we have to pursue strategic opportunities beyond our greenfield development program. Finally, regarding the Lubbock acquisition announced shortly after we closed the third quarter, the addition of these five stores strengthens our market position and enhances the value proposition for our subscription members.

From a financial and membership standpoint, we expect the impact to be immaterial. We do expect the five stores to be incremental to our previously communicated guidance of approximately 30. Now I'll provide an update on our full-year outlook. We are reiterating our previously provided guidance ranges for the fiscal year ending December 31, 2025. To assist with your modeling, I'll add some additional context and color. First, on comparable store sales, given our stronger-than-anticipated Q3 results, we now expect to finish the year at the high end or slightly above our guidance range of 1.5% to 2.5%.

This reflects quarter-to-date trends through October, which, as we noted on our last call, represented the toughest year-over-year comparison of any month in Q4. Second, on revenue, we expect full-year revenue to land near the high end of our guidance range of $1.046 billion to $1.054 billion. This outlook incorporates approximately 17 new store openings in Q4, up from 14 in 2024, and the timing of revenue contribution from those stores. We are also factoring in a modest sales uplift from our ongoing marketing tests.

Finally, on adjusted EBITDA, we expect to be at the high end of our guidance range of $338 million to $342 million, as increased spend on our Q4 marketing test is largely offset by a corresponding sales lift. For even more details, the full list of our outlook ranges for 2025 can be found in the table in today's earnings press release. In summary, we remain committed to investing in our growth initiatives while continuing to deliver strong profitability and cash flow. Looking ahead, we are encouraged by the strength of our markets, the resilience of our business model, and the consistent execution by our teams.

We are well-positioned to capitalize on the favorable tailwinds emerging in the car wash industry, achieve our financial objectives, and create lasting value for our shareholders. Operator, that concludes our prepared remarks, and we will now open the call for questions.

Operator: Thank you. We will now begin the question and answer session. To ask a question, if you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question comes from the line of David Bellinger with Mizuho. Please go ahead.

David Bellinger: Yes. Good afternoon. Nice quarter. Maybe the first one is a couple of parts. So could you just help us understand where the sales upside materialized within Q3? And then on the October comments, I know there was a more difficult comparison, but just anything you've noticed from your core customers, a lot of noise out there with the government shutdowns, some of these SNAP benefits potentially going away for a period. So anything that you've noticed on the start to Q4, just that's been a little different than your expectations?

Jed Gold: Yes, David, it's Jed. Thanks for the question. So first of all, the first part of your question about just what materialized and helped drive the strength in Q3. Overall, when we look at the trends by month, all months were positive. As we talked about on our last call, it was a little bit softer lap in July. So July was the stronger of the three months. But each month was positive. Really happy with the revenue per member growth that we saw during the quarter, which was fueled by titanium. Titanium mix was just a little bit stronger than what we had expected at just over 25% during the quarter.

As we look at October, as we've talked about, it is going to be the most difficult lap of the year. We're lapping a positive low double-digit comp. We knew this was going to be a challenge. It's in line with what we've expected, and it's been factored into the full-year guidance that we provided.

David Bellinger: Very good. And then second question, I appreciate all the cash flow commentary. It seems like a lot of things are moving in your favor with the accelerated depreciation, some of the leaseback demand picking up. So my question is, what's the pecking order of your cash flow usage from here? Is it leverage pay down? Is it new units? Could you even buy back some stock directly from your private equity sponsor, possibly? Just help us think about the pecking order of your cash flow usage.

Jed Gold: Yes, really happy with the free cash flow that's being generated from the business. It does present, as you highlighted, a lot of optionality for us to drive shareholder value. As we look at the uses of cash, greenfield is certainly the highest and best use of capital. So we're not looking to pull out the gas in any way on continuing to build new units, infill within our existing markets, and expand our footprint. And then some of the other alternatives that you laid down, it gives us some alternatives, right, for potential share buyback, debt pay down. But also, we continue to look at different M&A opportunities. So really hard to say because it's not a static analysis.

It's something that we're going to continually look at and optimize that cash deployment.

David Bellinger: Great. Thanks, Jed. The next question comes from Justin Kleber with Baird. Please go ahead.

Justin Kleber: Hey, good afternoon, everybody. Thanks for taking the questions. First one, just on, I guess, a couple of questions on pricing. I wanted to understand how the base price increase wraps into 2026. And then secondly, how do you guys think about the ability to opt pricing at a local level? I know some of your markets have a slightly different pricing architecture, but I think most are fairly consistent. So just wondering if there's an opportunity to create, you know, price zones based on local market dynamics.

John Lai: Yes, I'll start. Good question. So listen, the way we approach pricing is on a market-specific basis. We would always love to get to a national pricing structure, but we think that's not the right approach. So today, we're continuously evaluating our strategy, and, you know, we look at it through the lens of the value that we're providing to our customers. We keep, you know, a finger on the pulse of competitive activity. I think, you know, the fact that we're delivering a premium experience, you know, justifies us perhaps moving up the ladder on pricing when we see that opportunity present itself. But we've been very measured with respect to our approach.

Typically, we're not going to telegraph any future price moves on a call like this. So we like to keep that close to the vest.

Jed Gold: And then I think the first part of your question, Justin, about how that base price increase will flow into 2026. So the rollout is, as we had talked about in our prepared remarks, it's been in line with our expectations where we'll take the base price increase for a short period. We'll see for four to six weeks, we'll see a period of elevated churn, but then churn comes back within its historic average. But it was, as you know, a phased rollout of that base price increase, and some of our larger markets, that base price increase didn't get rolled out until late Q3, early Q4.

So most of the benefit from those markets will be realized in 2026. Roughly, as we think about the total base price increase and how much is going to impact 2025 versus 2026, it's roughly a quarter to one-third of that total base price increase will roll into 2026.

Justin Kleber: All right. Thanks, both of you, for the response. And then Jed, just based on your comments around full-year comp, it seems like you're not planning for a negative comp in the fourth quarter. Just wanted to confirm that. Thank you.

Jed Gold: Justin, that is correct. We are not planning on a negative comp, at least on the full quarter, but keep in mind October, as we've highlighted, is a little more difficult lap. November, December, it softens up a little bit. So we expect to be positive on the quarter.

Justin Kleber: All right. Thanks, guys. The next question comes from the line of Peter Keith with Piper Sandler.

Alexia Morgan: Hi. This is Alexia Morgan on for Peter. Thanks for taking our question. We were wondering if you could provide some more color on membership trends as we calculate members per store in Q3 decline from Q2, and it looks like the total member count was either flat sequentially or possibly saw some slight decline if my math is correct. Any insight you could provide into that trend would be appreciated. And do you expect this trend to continue over the coming quarters?

John Lai: Yeah. Thanks for the question. This is John. So you're absolutely right. So sequentially, our membership base has been relatively flat. And that also is kind of in line with what we expected when we look at retail volume. And so for us, retail volume is the top of the funnel. As we get more retail traffic in the door, we've proven that we can convert them at north of a 10% capture rate into membership. So really for us, it's solving for this retail traffic and getting more retail customers in the door to increase our member base.

I will say that when we look at the utilization of our current member base, it's remained steady, and so their level of engagement has not waned. And we're also looking to deepen the relationship that we have with our members to improve that engagement level, primarily focused on how we onboard that new member, which is a really critical time to establish a different habit of behavior. We think that first ninety days is absolutely critical. Some additional color on UWC, though, and that I think are important from a KPI perspective. Our churn has remained steady at roughly 5%. So no uptick in churn, which is always a good thing.

And, you know, when we look at the shape of that retention curve as our member base matures and they stay in the program longer, that churn rate decreases for those folks that stay in longer. So for us, it's all about getting them in, getting them used to washing their car, ideally once a week. And once we establish that behavior, they tend to stay in the program. So today, we're super happy. Think contextually, when you look at our member base, you know, we're definitely in the upper quartile on an industry-wide basis with approximately 5,000 members per store for our mature stores.

We have a number of stores that have 7,000 members, a bunch of stores that have 10,000 members, so it just emboldens us that we have organic growth inside of our existing customer base. If I were to just zoom out for a second, when we think about the TAM for subscription, we think that the market is undersubscribed. And that there is a whole lot more potential for our industry to grow their membership base. And we look at other sectors like the gym space that has north of a 25%, you know, US 25% of the US population belongs to some gym membership. And we think that customer parallels the Car Wash customer very, very closely.

So to that end, you know, that is what our potential is. So if we can double the TAM potential of our membership universe, that would be a really awesome tailwind for our business.

Alexia Morgan: Okay. That's really helpful. Thank you. And then my second question is on your marketing test. Is there any update or quantification on the comp list in the markets experiencing those market tests? And then or just anecdotally, any new marketing forms that are resonating with these tests?

John Lai: Yeah. So as we noted in the last call, in Q2, we had a mid-single-digit uptick in comp store sales for the six pilot markets that, on average, we tested in. And then we took the learnings from that and leveraged those learnings to deploy in our Q4 test, which is currently underway. We don't have anything to share with you in terms of how that is currently trending because it's relatively new. But for us, it was breaking down channel offer, the different types of image, and building upon the good and then also discarding the stuff that wasn't moving the needle.

Jed Gold: And then as we think about Q4, Alexia, we did factor in a very small sales lift, but it's a limited test. We're still calling it a test. And it's going to take a little bit of time to get some traction, just limiting the amount of sales benefit that we expect to see during the fourth quarter.

Alexia Morgan: Okay. Thank you so much. The next question comes from Michael Asher with UBS.

Michael Asher: Good evening. Thank you so much for taking my question. So the competitive intensity within the industry is moderating, yet retail remains down low double digits. So is there a case where economic sensitivity is rising? Or, alternatively, as you raise the base price membership, the appeal of becoming an a la carte member looks a little bit more attractive. Maybe you could just give us a sense of what you think those dynamics are playing out.

John Lai: Yes. Hey, Michael. Good question. So listen, while we believe or we're that the amount of new entrants into the space is abating and receding from the high of 2023, which is a good trend for us, those businesses are out there. Ones that have been built. And so we have, you know, 80% of our portfolio has a competitor within a three-mile radius. And so, as we look at the types of promotional offers that they're deploying, most of them are in the introductory subscription trial offers. We haven't seen a whole lot of discounting on retail.

I will say that I think to your question around the price sensitivity for our retail base price, you know, it's a $10 car wash. And so that's within reach, I think, of most Americans. That said, we are sensitive to the bottom quartile of the income bracket. And those folks certainly are under a little bit more pressure, which we think is having an impact on frequency.

Jed Gold: Yeah, Michael, just putting a little bit finer point on that is when we look at, and it's been pretty consistent over the last few quarters, when we look at those stores that are in the lower-income demographic, they are underperforming the balance of the portfolio. Speaking to that lower-end consumer being under just a little bit more pressure and their wallet not going quite as far in their spend.

Michael Asher: Okay. Very helpful. And then has there been a change philosophically within the Mister Car Wash, Inc. organization where the company would be willing to accept fewer members per location with the offset being you can harvest more revenue per member? And how does that, if that's the philosophy now, how does that look heading into 2026? Because the pipeline is going to have probably been under some pressure, the pipeline for new members, given the low double-digit retail decrease in March if you're pointing to a flat overall comp, in April, that's probably going to suggest that retail remains under pressure in April.

John Lai: Yeah. Hey, Michael. So philosophically, I think there's never been a primary thrust on maximizing profitability per customer. To your point, we were more about driving membership early on in our life cycle. But where we sit today, we're definitely looking more at how we can increase the value of that member. So when we look at revenue per member, which is a really important KPI for us, you know, that's shown a really healthy uptick over the last year and a half, primarily driven by titanium. So we were really pleased with how we were able to take an existing very large installed base and increase the value of that base.

And one could argue without taking a price increase, was introducing a new top tier. So that was terrific. But as we also noted, though, after roughly eighteen years of holding the line on base membership, rising input costs were kind of kicking and screaming to the table going, hey, need to take our membership price up, which we did the base, and that flowed through rather nicely. So I think to your question, today we want our cake and eat it too. We want to grow our member base, but we also want to increase the value of that member. And we're trying to do both of those simultaneously.

Michael Asher: Thank you very much, and good luck. The next question comes from the line of John Heinbockel with Guggenheim. Please go ahead.

Jake Nevaash: Hi there. This is Jake Nevaash on for John. Quick question. Just wanted to go back to the marketing test. The expanded marketing test will go from four from what four markets to double that? And I guess, you know, what lift are you getting on brand awareness and, you know, sense of what the right level of spend you guys think might be, you know, I guess, near term or just, you know, going forward here. Thank you.

John Lai: Yeah. Thanks for the question. So we're just in the throes of the Q4 test right now. So too early for us to share anything of substance, although we are excited about the potential. So we just point back to the results that we had in Q2, which were promising and embolden us to want to turn up the market more. As we've noted on previous calls, our ad spend as a percentage of revenue is minuscule. And we love to be able to turn up the knob, but we want to be able to justify the investment and not just throw money at it.

So, we're holding ourselves internally to a high bar from a ROAS perspective and making sure that every incremental dollar that we spend is going to generate ideally three times return in revenue.

Jed Gold: And Jake, a little bit more to build on that, right? You talked about brand awareness and looking using that as a measure for success. While we are looking at that, I think the focus really is around how do we drive incremental sales and incremental return on invested ad spend. So truly looking at this, want to make sure that we know what works, what doesn't work, looking at messaging, looking at channels, looking at the amount of spend, the combination of different channels. There's a lot that goes into this and make sure we're really getting smarter about it and building this disciplined marketing muscle that will continue to drive the top line going forward.

So really optimistic about what we saw in Q2. It's what's emboldened us as we look to this test to continue to refine our learnings in Q4.

Jake Nevaash: Perfect. Thank you very much, guys. The next question comes from the line of Simeon Gutman with Morgan Stanley. Please go ahead.

Simeon Gutman: Hey, John. Hi, Jed. Hey. I wanted to ask, can you remind us on Titanium? How long, I guess, when was the first several markets rolled out? Are we in, like, a year two in some places or just one point years? And then can you talk about what's happened to membership in some of those wellness markets, what you're seeing in terms of Titanium membership, you know, growing on growth? And then what's happening in other tiers, in some of those longer markets? Thanks.

John Lai: Yes. Hey, Simeon. Thanks for the question. So it launched in 2023, and it's a rolling rollout, I'd like to say. So we don't do it all in one day. We roll it out by region and make sure that we're reducing it. So we've had this benefit of month-over-month sequential growth that has been helpful. The membership, I think it's hovering in the 25% range. And again, that has exceeded our expectations. We look at the blend of the premium mix, which is our platinum and titanium. That's roughly 60% of our overall member base. And again, we're very pleased with that number. We'd like to see it grow for sure.

And so internally, you know, we're working on some techniques to elevate the premiumization of our membership universe. But the way we go about it has been very kind of what we call slow burn in that we don't want to become overly promotional in trying to get people into those tiers. But the fact that they've adopted it and they're sticking in the program is really a testament to the value that they're driving from the service that we're providing.

Jed Gold: Yeah. And Simeon, when we look at it by market, there are some markets that are 35% plus mix, which is what gives us hope that there's still some continued opportunity to drive Titanium Mix in this membership premiumization, but it's not going to be at the same accelerated rate that we've seen over the last year and a half. It's going to take some concerted focus from the particular frontline team members in really helping elevate in their communications with members for us to start to realize that higher member or higher titanium mix across even more of our markets.

Simeon Gutman: And then a follow-up, I want to talk ask about the greenfield markets. Can you talk about anything that surprised you? Can you talk about market development? Are approaching it the same way in terms of number of stores? Anything either on membership or the retail customer in greenfield? Thanks.

John Lai: Yes, listen, the Greenfield has been a lot of learnings for us. I think I'm going to start by saying that the bulk of the greenfields that we've opened are hitting it out of the park. We're absolutely crushing it. But that said, there's been another bucket of stores that have come under some competitive intrusion. And those stores are ramping at a different trajectory as a result. There's another kind of bucket as we break them into different categories of stores that we're calling the early stores that were intentionally early.

Where we went in to establish our position in a trade area that hadn't been fully built out, but we expect that it will and getting that beachhead will hopefully prevent others from coming in. So again, we're optimistic about the long-term potential of those locations. But then there's also a smaller segment of stores where we just made some site selection errors. And we learned a lot from those mistakes. And we bake that into a lot of new protocols. One of those is we're becoming a lot more data-driven and rigorous in our site selection process.

And I will say our real estate team going forward is really, really focused on quality, making sure that we have a super high degree of confidence in the success of the future pipeline.

Simeon Gutman: Thank you. Good luck. The next question comes from the line of Philip Lee with William Blair. Please go ahead.

Philip Lee: John, Jed, thanks for the question. Quick one on unit growth. You previously brought down your expectations for this year by a bit to 30 greenfields. Should we expect this to be your new run rate going into 2026? And does changes in the M&A environment impact your greenfield plans at all?

Jed Gold: Yes, Philip. So as we think about 2025, the guidance of approximately 30, as we shared in our prepared remarks, is important to note that's just greenfields. That does not factor in any M&A. So the Lubbock acquisition would be incremental to that. And then as we think about 2026, we expect the greenfield development to be in line with what we see in 2025.

Philip Lee: Okay. Very helpful. And then, previously, I believe you had mentioned that Lubbock was a market that was largely built out. So did something change in that assessment? How are you viewing the incremental opportunity to grow that total market? And then are there other cities that you maybe thought were a bit saturated from a store perspective, but maybe are then reassessing the potential for further density? Thank you.

John Lai: Yeah. Hey. This is John. So great question. So listen. We had an established presence in Lubbock, albeit a small one with four stores. And we have the opportunity to double our footprint with a five-store acquisition to get to nine locations. It put us clearly in the number one seat for that market. But to your point, it is a competitive market. There's a lot of good operators in that market that we have the highest regard for. But at the end of the day, it's not a market that we would add a greenfield to. Given, to your point, the market is mature and kind of at capacity.

But this really again speaks to the strength that we have from a growth perspective as a company. And that we're agnostic in unit growth. We can buy businesses or we can build stores. And the fact we have a two-pronged approach to strengthen our position. So again, our primary objective is to densify and fortify each of the markets that we're in, elevate our market share, and if there's a good opportunity to do that through M&A, we will pull the trigger, and that's exactly what we did in Lubbock. We're very optimistic about it.

Philip Lee: Excellent. Thank you, guys. Best of luck. The next question comes from the line of Mark Jordan with Goldman Sachs. Please go ahead.

Mark Jordan: Thank you very much for taking my question. You know, with the recent acquisition, should we expect M&A to accelerate going forward? Or is this acquisition just more opportunistic in nature?

John Lai: Yes. It's hard for us to predict M&A. It's, as you know, lumpy. Oftentimes, it's predicated when those opportunities come to market, and so we can't project that. But we have remained open for and evaluating opportunities as they come across the table. And we're out there pounding the pavement right now looking for the onesie twosies that we're calling bolt-ons that can strengthen our position in each market. So we're very bullish big picture on what we think will be a really nice setup for perhaps larger scale combination opportunities in the future. But trying to predict that is difficult.

So I will say that over the next two to five years, I expect the industry to skinny down a little bit in terms of the number of folks, particularly the platforms that are in the space, the PE-backed platforms specifically, that will look to monetize and exit. And it's our prediction that most of them will probably exit at a lower multiple than what they paid to get in.

Mark Jordan: That's perfect. And then that kind of dovetails into my next question is, like, what are asking multiples in the M&A market, how does that compare now to maybe what you were seeing a year or two ago?

John Lai: It's dropped precipitously.

Mark Jordan: Great. Thanks very much.

John Lai: You're welcome. The next question comes from the line of Bobby Griffin with Raymond James. Please go ahead.

Bobby Griffin: Good afternoon, guys. Thanks for taking my questions, and congrats on a good quarter. Guess, John, for me, I just wanted to circle back to think it was in your prepared remarks that you mentioned something about speaks to further opportunities to drive revenue growth when you're talking about price, which is a little bit different. Is that more one-off? Or is that honestly putting in that, like, price now as part of the consistent wheel as we think about multiyear comp drivers for this business?

John Lai: Yes. So I think a couple of things that cadence of our price increases have been, we characterize them as episodic and definitely lagging inflation. But no more frequent than once a year and ideally once every two years. I think if you start moving pricing more frequently than that, it could rattle the customer, and we certainly don't want to do that. And we want to be careful about how we approach it. That said, as we look inside of our business down to the regional level, down to the store level, there are a number of opportunities today for us to optimize pricing.

And so we kind of hold that in reserve, but as we selectively look at where those opportunities are, we will pull the trigger on them at the appropriate time, but again, we're not going to telegraph those moves on this call.

Bobby Griffin: Yep. Completely understandable. That's very helpful though in the way to think about it. And I would agree with you on the opportunity as well. And I guess the second one I want to ask is just maybe to cut the store comp a little differently. But if you look at your mature markets that aren't experiencing competitor growth, but also aren't experiencing densification from you guys themselves, what is that mature market profile comp look like versus the company average?

Jed Gold: So, Bobby, as we think about that ramp curve, you really see the majority of the comp store sales growth coming from those stores that are open within the first five years, which isn't unique to other retailers. Have a little bit of an accelerated comp or a little bit of an outsized comp. Then as you move into the mature stores, tend to lag those stores that are in the first five years. I do think we're in a little bit of a unique position given that we have 63 interior clean locations, and all 63 of those interior clean locations sit in the most mature vintages.

And as we look at those interior clean locations during the quarter, they comped at a plus or, excuse me, at negative 1.6%, serving as a headwind to the overall comp, thus a headwind to the overall mature store.

Bobby Griffin: Okay. That's helpful. I appreciate the details, and good luck here on the fourth and some of the marketing tests.

Jed Gold: Thanks. The next question comes from Robbie Holmes with Bank of America.

Vicky: Hi. This is Vicky on for Robbie Holmes. Thank you for taking our questions. In the markets where you have tested marketing spend, have you seen any competitive responses?

John Lai: We have nothing out of the ordinary.

Vicky: Got it. And titanium penetration is now 25%. For the markets that have above-average titanium penetration, you mentioned some locations have around 35%. What's the primary driver of the outperformance?

Jed Gold: Yeah. So just one clarification. Some markets are at 35%. We have some stores, some locations that are even more than that. So that's markets, and so as we look at those markets and what's driving the outperformance, always going to be a number of factors, good economic tailwind, but this is where great operations leadership really shines and being able to align the team on the task at hand and being able to help drive that titanium mix even higher. And so different ops, some of our different operators in different markets are better at that than others, but the leadership at that market level does have a player role.

Vicky: Thank you. The next question comes from Christian Carlino with JPMorgan. Please go ahead.

Christian Carlino: Hi. Good afternoon. Thanks for taking our question. How are you thinking about the retail comps in the fourth quarter? It seems like you can hit the high end even if retail gets a bit worse. So is that just conservatism given the consumer is about to absorb tariffs in other areas of their wallet? I know you have the tough comp in October, but just any help on the puts and takes into the fourth quarter? Thanks.

Jed Gold: Yes. So as we think about the Q4 comp, we'll have obviously the continued tailwind of the base membership price increase helping drive revenue per member. Can continue to stay focused on titanium penetration and look for opportunities to drive that a little bit further. The high end of the guide, it does when we look at UWC revenue per member looking at positive low single digit to mid single digit. But that retail comp sells it would be negative. It implies a negative high teens. So it implies getting worse from what we saw in Q3. And Q3 was slightly better than what we saw in Q2.

So forecasting retail continues to be the more difficult line to forecast and so wanted to make sure we gave ourselves just a little bit of room, especially given how well October strong October was last year.

Christian Carlino: Got it. That's helpful. And could you talk about how comps trended by region? Any big outperformers or underperformers? I know there were some hurricane noise last year with some lost days and then a lot of pent-up demand releasing afterwards. Any comments there? And do you think weather was a tailwind in the third quarter after being neutral in the second quarter?

Jed Gold: Yeah. Weather was certainly a tailwind as we look at Q1. Really, really good weather patterns in Q1 of this year. Then as we talked about Q2, it was moderated and was more in line with what we historically see, hence the moderation in the comp. Q3, nothing significant in the aggregate. There's right given how many markets we operate in, there's always going to be benefit in some markets. But there's going to be a tailwind in others.

I mean, one of the biggest factors that impacts comp when you look at it on the regional level is just the number of stores that are moving from their freshman year into their sophomore year and just the existing base of stores that we may already have in the region. If we are running a marketing test, that also will drive a little bit of outperformance in the particular regions. Weather, strength of the operating team, there's a lot of different variables that will come into play when we start looking at regional trends. We could have a whole half-day session going through all of the different regions and the variables that are impacting them.

Christian Carlino: Got it. Thank you very much.

Operator: Thank you. 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: Well, thanks, everyone, for joining us for the Q3 call. We had a great quarter, as we noted. We're super optimistic about how the year is shaping up. We have a lot of momentum in the business right now. More importantly, we're very excited about the long-term opportunity to double our footprint. And I think as the noise from some of the underperforming car wash chains dies down, emerging from that will be a handful of very well-run, well-capitalized, growth-oriented car wash platforms that will ultimately prevail, and we expect to be one of them. So thank you, guys. Look forward to talking to you on the next call.

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

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