Mister Car Wash, Inc. (NYSE:MCW) Q1 2024 Earnings Call Transcript

Mister Car Wash, Inc. (NYSE:MCW) Q1 2024 Earnings Call Transcript May 1, 2024

Mister Car Wash, Inc. reports earnings inline with expectations. Reported EPS is $0.08 EPS, expectations were $0.08. Mister Car Wash, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good afternoon. And welcome to Mister Car Wash’s Conference Call to Discuss Financial Results for the First Quarter ending March 31, 2024. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. Please note that this call is being recorded and a reproduction of this call in whole or in part is not permitted without written authorization from the company. Speaking from management on today’s call are John Lai, Chairman and Chief Executive Officer; and Jed Gold, Chief Financial Officer. After John and Jed have made their formal remarks, we will open the call to questions. During this conference call, references to non-GAAP financial measures will be made.

A complete reconciliation of these measures to the most comparable GAAP measures have been included in the company’s earnings press release issued earlier today and posted to the investor relations section of the company’s website at mistercarwash.com. As a reminder, comments made on today’s call may include forward-looking statements which are subject to significant risks and uncertainties that could cause the company’s actual results to differ materially from management’s current expectations. Please be advised that the statements made today are current only as of this call and are based on the company’s present understanding of the market and industry conditions. While the company may choose to update these statements in the future, they are under no obligation to do so unless required by applicable law or regulations.

Please review the forward-looking statements disclaimer contained in the company’s latest annual 10-K and 10-Q reports, as such factors may be updated from time to time in other filings with the Securities and Exchange Commission. I will now turn the call over to Mr. John Lai. Please go ahead.

John Lai: Good afternoon and thank you for joining our first quarter earnings call. Our overall performance in the first quarter was in line with our expectations and the trends were a continuation of what we saw in the previous quarter. In the first quarter, sales increased 6% to $239 million. Adjusted EBITDA increased 6% to $75 million. Comp store sales increased 1% and we opened six new greenfield stores and ended the quarter with 482 locations. We added 35,000 UWC members and ended the quarter with over 2.1 million members. Our subscription business, which accounted for about 74% of sales in the first quarter, remains incredibly resilient. But this has been offset by a softer retail environment, which has been driven by a combination of increased competition, intentional greenfield growth, cannibalization and a lower-income customer cohort that’s been under more pressure.

The reason why we enjoy industry-leading AUVs is because we offer tremendous value, execute with efficiency and get you in and out fast. Our value proposition begins with delivering a clean, dry, shiny car and the cherry on top is the elevated customer service delivered from our amazing team members. The headline for Mister Car Wash is the ongoing progression and momentum we’re experiencing after the rollout of Titanium and the incredible response that we’re seeing from our customers. Penetration levels are continuing to grow and I’m happy to report that we’re above the 20% level at the end of the first quarter. As promotions are now rolling off, we’re beginning to see a healthy lift to revenue per member and expect that to continue throughout the remainder of the year.

After testing various Titanium price points, we’ve settled in on $39.99 and are in the process of standardizing this across all regions in a deliberate and measured way so that we don’t unnecessarily rattle our customers. With the launch of Titanium, we have taken a step back and looked at our service and price offerings. We know that there is a large and growing market for premium products and our Titanium and Platinum wash packages offer a level of shine and protection that are superior to anything in the market today. As a result, we believe we have some room to migrate our Platinum program to $32.99 from $29.99 in most markets. Raising Platinum pricing to $32.99 not only reinforces the premium nature of our Platinum package, but it simultaneously decreases the gap between the two programs, which will help incent customers to trade up to Titanium.

When we tested the elasticity of $32.99, even after a slight uptick in churn, we found it to be highly accretive. When you factor in our Platinum and Titanium mix, our premium penetration is now north of 60%, with about 5% of our lift coming from base members. Our Unlimited Wash Club program continues to perform nicely, with capture rates at historic highs, relatively flat core churn and wash frequency of existing members remaining consistent. As previously noted, we have elected to prioritize upgrading existing members over focusing on growing our member base, which will result in more modest net member growth this year, but the lifetime value improvements we’re seeing in revenue per member has got us super excited. Zooming out, we still believe the market for subscription plans is underpenetrated and our opportunity to grow our member base is strong.

From a unit growth standpoint, we’re on a good path and a healthy cadence with six new greenfields in Q1, which is a record for any Q1. We remain confident that we can open approximately 40 this year. Our stores are opening with strength and helping us to densify existing markets, and with each new store we open, we continue to create a network effect and offer more options for our members, strengthening our value proposition and extending our competitive moat while simultaneously growing our market share. On the people front, I’m thrilled to announce the appointment of our new Vice President of Marketing, Matt Marakovitz, who fills a critical seat for Mister as we look to advance our efforts across customer acquisition, engagement, loyalty and subscription.

Matt’s background at General Mills, Walgreens and Target brings a wealth of experience and knowledge around digital strategy, customer insights and omni-channel program development. As we look to double and then triple our footprint, we’ll need to double and triple our field leadership team, which will create a number of amazing career opportunities for so many of our talented team members who are hungry for more. We’re proud of the fact that every general manager of each of our stores receives equity in the form of restricted stock units, which strengthens our ownership like mentality and entrepreneurial spirit, while allowing them to participate in the financial success of the company. We continue to change lives for the better and because of that, I’m extremely proud of what we have built and extremely excited about our future ahead.

I’d also like to take this opportunity to give a big high five to all the men and women who are representing us so well and working so hard as we fulfill our mission of becoming the preeminent car wash operator in the world. With that, I’ll now turn the call over to Jed to provide more commentary around our financial results.

Jed Gold: Thank you, John, and good afternoon, everybody. As John indicated our results in the first quarter way in line with expectations and the trends were relatively consistent with what we saw in the previous quarter. Let me touch on a few highlights before we run through the numbers. Our subscription business remains strong and core churn levels remained within our historic range. We are very pleased with the performance of our new Titanium package. Customers traded into Titanium faster than we expected in the first quarter and we are confident in meeting or exceeding our penetration target of 15% going forward. The Titanium promotions that we ran in the first quarter are rolling off in April and May, and we expect to see be largely promotion free by the end of the second quarter.

Similar to prior periods, we continued to see pressure on the retail side of the business and the pressure was slightly more pronounced in stores that are in lower income areas where consumers may be more constrained. Our 2024 greenfield pipeline is solid and we are encouraged by the results. We are experiencing in our ability to open approximately 40 locations during the year. Each of our greenfield locations ramps a little differently depending on the market, but we continue to see solid year two cash-on-cash returns of about 50% and seeing paybacks of under three years. Greenfield development, densifying and expansion into adjoining markets continues to be the highest and best use of our capital. Finally, we tightly managed our expenses during the quarter, which allowed us to lever SG&A and drive strong cash flow and adjusted EBITDA levels.

With that said, let me run you through the first quarter numbers. During the first quarter, net revenues increased 6% and comparable store sales increased 1% compared to last year. UWC sales represented nearly 74% of total wash sales and we added 35,000 net new UWC members in the first quarter. On a year-over-year basis, the number of UWC members increased by 106,000 members or 5%. Adjusted net income and adjusted net income per diluted share, which add back stock-based compensation and certain non-core operating expenses were $27 million and $0.08, respectively, in the quarter. Adjusted EBITDA was $75 million, up 6% from the first quarter of last year. Adjusted EBITDA margin remained flat at 31.4%. On the expense side of the business, we remain focused on finding efficiencies and optimizing investments we are making to support the long-term growth and development of the business.

Total costs and expenses were $197 million in the quarter and included $7 million in stock-based compensation and related taxes and $5 million of one-time professional fees. Excluding these items, total operating expenses as a percentage of revenue was flat at 77.4%. The main drivers were labor and chemicals increased 20 basis points to 28.9%, other store operating expense increased 90 basis points to 40.5% and G&A expense decreased 50 basis points to 8.7%. Commenting on each of these a little further, the increase in labor and chemicals was primarily driven by the increase in stores we operate and higher average hourly wages, which was partially offset by efficiencies and sourcing of our proprietary chemical program. The increase in other store operating expenses was primarily from an increase in rent expense related to our store growth and sell leasebacks.

We entered the first quarter with 47 more car wash leases compared to the same time last year and cash rent expense increased 12% to $26.5 million. The decrease in G&A expense was driven by our increased focus on doing more with less, tightly managing expenses and optimizing the G&A structure of the business. In the first quarter, interest expense increased to $20 million from $18 million last year due to higher interest rates. Moving on to some of the balance sheet and cash flow highlights. At the end of the quarter, cash and cash equivalents were $11 million and outstanding long-term debt was $920 million. Our balance sheet remains healthy and we continue to self-fund our growth and expansion. Late during the first quarter, we completed the refinance of our credit agreement, which consisted of upsizing, amending and extending the maturity of our first-lien term loan and revolving commitment to $925 million due in 2031 and $300 million due in 2029, respectively.

Both amendments removed a 10-basis-point credit adjustment spread. Under the newly refinanced credit agreement and at our current leverage levels, our $925 million term loan will be priced at SOFR+ 300 basis points and our revolving credit facility will be priced at SOFR+ 250 basis points. The transactions extend Mister’s debt maturities and increased liquidity in line with company growth. We do not expect any increase in interest expense as a result of the refinance. We completed one sell-leaseback transaction involving one car wash location in the first quarter for an aggregate consideration of $5 million. We continue to see healthy demand at favorable rates in the sell-leaseback market. In conclusion, we are reiterating the full year guidance ranges previously provided for fiscal 2024, which is included in today’s earnings press release.

We are optimistic about the business’s long-term outlook. We have the best operations and management team in the industry with more collective experience operating car washes than anybody else. The combination of our great brand, our great team, subscription business model and strong unit economics will enable us to deliver growth and shareholder value creation for years to come. With that, Operator, we’re ready to take any questions.

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Q&A Session

Operator: [Operator Instructions] And our first question will come from David Bellinger of Mizuho. Please go ahead.

David Bellinger: Hey, guys. Thanks for taking the question. Can you give us some more detail on trends through the quarter? Any quantification on how much the adverse weather shaved off the comp number? And then just second, any changes you’ve seen into April as more of the initial Titanium promos roll off and even with some of the noise from that lower end customer?

John Lai: Yeah. Hey, David. Thanks for joining. So we have a saying internally that we never blame missing budget or not hitting our numbers on the weather. That said, it was a soft winter across the board. Our northern climate stores really got one, maybe two big dumps and that was followed quickly with rain that washed all the snow away. So for us, snow is like liquid gold and it really blankets the vehicles. So without that, that did have some effect, but we’re not blaming it on the weather.

Jed Gold: Yeah. I think, David, just a little bit of color around the comp, right? So comp store sells pretty consistent when you look at it by month throughout the first quarter. March was slightly above the average that we saw through the quarter. It was the highest month during the quarter. But we did see momentum carry into April and we saw sequential improvement in the comp when we look at April versus March, and then March compared to the balance of the quarter, and that’s being driven largely by the Titanium. As the promotions roll off, we’re seeing that revenue per member continue to pick up momentum throughout the quarter.

David Bellinger: Got it. That’s very helpful. And then just a follow-up on the membership count. So up 5% year-over-year this quarter. I know there’s been a change in the strategy on going after this higher return T360 customer. So just taking that into account, is a mid-single-digit type run rate, is that a good growth number we should look for over the balance of the year or is there something different as trends move through Q2 and Q3 as we get further out?

John Lai: Yeah. David, I think, that’s right. There’s a little bit more focus around trading members up into Titanium and last year we grew membership by low double digits. We would expect this year to be less than that, that the way we’ve got it modeled and the way we’re thinking about it is kind of that mid-single-digit range.

David Bellinger: Very good. Thanks guys.

Operator: The next question comes from John Heinbockel of Guggenheim. Please go ahead.

John Heinbockel: Hey, John, I wanted to start a philosophical question, right? You guys have always used retail as a feeder for membership. Is there a thought now, right, given softness in that cohort, that maybe you go a different route and try to market directly to a different demographic that might be receptive to the premium offering, and if so, how do you think you execute that and when do you do that?

John Lai: Yeah. Hey John. Good question. So this time last year, we were really looking at building out our brand and we’re focusing on brand — broader brand awareness campaigns, but we realized midway through that we really couldn’t justify the return on ad spend and given just the size of our footprint and the amount of dollars involved, we pivoted and shifted our action plan towards more targeted approaches to driving customer acquisition. And to your point, we’ve done such a great job. You didn’t say that we did a great job, but we’ll give ourselves a pat on the back here. We’ve done such a great job over the years of converting retail customers into members. Really, the focus now is bringing in those less frequent users into our mix by offering a promotion that has tremendous value and getting them in the door.

When we get them in the door, though, we still have a goal of trading them into membership and so we’ve got a number of things in the hopper right now that are very early stage but are promising, and if this holds true, we expect to deploy that as we continue our march. To an earlier question, though, as we are enjoying — we are exceeding our expectations on Titanium mix and this upgrade to both Platinum and Titanium. There will be a point where we re-shift our focus towards member conversion and that’s more on a regional, and in some cases, store-specific basis, because each store has kind of a unique profile. But just to underscore, we’re very, very focused on retail customer acquisition and the marketing team, and we’re really, really thrilled, by the way, to have Matt Marakovitz in his seat, to have the leader that we’ve really needed for a long time to help take us to the next level.

He’s hit the ground running and the team is — we have some very interesting things that we hope to share with you guys on the next call.

John Heinbockel: Maybe as a follow-up to that, right, what’s the timing on migrating to $32.99 as a premium? And then, I guess, would you consider $19.99 sacred? And if so, is there any room between $19.99 and $32.99 or that’s being too cute?

John Lai: Yeah. So, in this kind of environment, we’re going to hold sacred the $19.99 for now. Never say never, my mom used to tell me. But offering that value, offering in our membership plan mix, we think is important. But to the $32.99, we are now in all markets at that price point and the promotions have all run off and we are expecting to see lift as we march forward.

Jed Gold: Yeah. And John, just a little bit more nuanced, a little bit more color around that. About 40% of the stores went to $32.99 as of — it was March 1st — April 1st. The other 60%, they had taken Platinum up to $32.99 at the time that Titanium was launched in those particular markets.

John Heinbockel: Okay. Thank you.

Operator: The next question comes from Peter Keith of Piper Sandler. Please go ahead.

Peter Keith: Hey. Good afternoon, guys. Thanks for taking the question. I guess I just want to understand the timing on T360. We’re counting about 1% right now. It doesn’t seem like there’s been that much acceleration. T360’s been out for a while. You said pricing and Platinum. Is there something that’s kind of holding up the T360 list at this point and maybe to that question, how many stores in April are still under the promo pricing?

John Lai: Yeah. So, Peter, good to hear from you. We were holding, holding, holding with respect to keeping the promotions in play until we got to the mixed levels that we were desirous of getting to. Now that we’re hitting the numbers and exceeding those numbers, quite frankly, we pulled the plug on those promotional offers, and as of today, there’s no more of that discount effect that has acted as kind of downward pressure on our comps. And so that is behind us and we’re expecting to see lift going forward.

Jed Gold: Yeah. Peter, I think, one other piece, just to provide a little bit more color there, is Titanium. We’re really pleased with how that’s performing. I think it’s mixing even better than what we had expected. It — retail softness during Q1 was more than what we had expected. And so as we talked about on the Q4 call, what we had modeled in originally was the same negative double-digit trend that we saw in Q4 for the balance of the year. It actually slightly decreased. It worsened just a little bit, softened just a little bit during Q1. So that retail softness is offsetting the upside that we’re seeing in Titanium.

Peter Keith: Okay. Yeah. I guess that makes some sense. I guess, John, I know you’ve talked to a lot of operators out there. Do you feel like you’re comping below a lot of the peers right now or are you being disproportionately impacted by retail? Obviously, you have a higher subscription penetration, so I would think not. But generally what we hear is that a lot of the operators are comping a little bit higher than 1% right now?

John Lai: Yeah. It depends on who you’re talking to. We enjoy a very large network of stores of, close to, by the end of the year we’ll have 500 stores. So if you’re speaking to a platform that is earlier stage, that has a lot of green space in the mix, they’re naturally going to have higher comps, just the use of their network. So we have this blended number, as you know, of stores that have been around for a while, coupled with some of the new stores in the mix. When we look at our Greenfield stores and how those are trending, Jed, do you want to share any data?

Jed Gold: Yeah. I think, Peter, should give some data to support what John’s talking about here, right? So when you look at the comp store performance within our portfolio by vintages, just picking the 2022 vintage 28 greenfield stores, if we look at the performance of just those 28 stores, they’re comping at 40%. So 40%, but we have a larger store base, so that 40% isn’t as pronounced as some of these other operators that may be seeing that really strong comp lift on their recent new builds on a significantly smaller store base. So we don’t believe we’re underperforming. We actually still feel really good about how we’re performing relative to the competition.

Peter Keith: Okay. Thank you. That is a helpful data point. Appreciate it, guys, and good luck.

Operator: The next question comes from Chris O’Cull of Stifel. Please go ahead.

Chris O’Cull: Yeah. Thanks. Good afternoon, guys. John, the numbers added from the fourth quarter to the first quarter period in the UWC program has traditionally been a high-water mark each year. Do you think the lower net additions are the result of slower retail sales over the past several quarters or is the weather the issue or just help me understand what other factors may be causing that?

John Lai: Yes. So a combination of lower retail traffic, which gave us less at-bats, our capture rates, though, are at historic highs. So when we get customers in the door, we are — the team is doing an amazing job of trading them into membership. And the other factor, which we’ve shared previously, is that, we’ve really prioritized upgrading existing members into premium versus driving new member growth. But there will be a point when we refocus on net member growth because we’ve done such an amazing job. We’ll continually attempt to try to do both, but it’s hard to have dual priorities at store level simultaneously. So we opted to choose one over the other.

Chris O’Cull: What are some of the tools — marketing tools that you guys could use to help target less frequent retail users?

John Lai: So we’re pulling out all the stops right now and there’s really nothing off the table. We are doing a blend of social, targeted email, some paid digital, all within a 10-mile radius of our existing stores to really try to attract the new customer. Again, so much of our growth year-over-year has been word of mouth and then taking existing members and lifting the lifetime value of those members. But we have prioritized building our brand and driving traffic to our stores. And with the new leadership in marketing and our focus on just that, we expect to, over time, start seeing incremental growth with retail traffic again.

Chris O’Cull: Great. And just lastly, how long did you test the pricing changes and how many markets and locations was that new pricing structure tested in?

John Lai: Oh! Gosh. Jed, you can correct me here. It was about 70 locations during the initial launch and we looked at elasticity and what the — we knew that there was going to be some elevated churn, which we expected. But that was offset by the incremental revenue that we enjoyed from those that were willing to accept it and it all was accretive at the end of the day and highly accretive, I should say, which gave us great confidence to extend this plan or extend that move across the entire network and that’s our strategy.

Jed Gold: Yeah. And Chris, part of that was when we launched Titanium in some of the markets last year. We tried this, taking Platinum to $32.99 and part of that, looking at how Titanium behaved in those markets where you took Platinum to $32.99 and you closed the delta between your Titanium package and your Platinum package. And when you looked at the whole pie, the — obviously Platinum and Titanium, it was accretive. Hence, we went back and we’ve relaunched in those markets or taken this price adjustment in those markets where we launched Titanium without the Platinum adjustment.

Chris O’Cull: Okay. Perfect. Thanks, guys.

Operator: The next question comes from Simeon Gutman of Morgan Stanley. Please go ahead.

Jackie Sussman: Hi, guys. This is Jackie on for Simeon. Thank you so much for taking our question. Just kind of building on that earlier question on Titanium, just in light of the better than expected conversions you guys have had, as well as the raised Platinum pricing, can you talk about the decision to reiterate the comp guide or what would be the scenario in which comps don’t meaningfully exceed guidance in the back half of the year?

Jed Gold: Yeah.

John Lai: Don’t meaningfully exceed.

Jed Gold: Yeah. I think, so, Jackie, I think, when we looked at the guide and just our quarterly comp expectations, that — really there were, I think, where we netted out the plus 1 was in line with expectations, but how we got there was a little bit different, right? We had better than expected increase in UWC sales, which was driven by Titanium, the Platinum price adjustment and so UWC sales were up, but it was offset by a lower than expected retail results. So, net-net, the comp came in line, and as we pushed that through to the balance of the year, largely unchanged from where we were at the beginning of the year. I would say when we look at Q2 relative to Q1, we do expect that sequential improvement. We do expect some sequential improvement in Q2 versus Q1.

Jackie Sussman: Got it. That’s really helpful. And just one quick follow-up. I’m just on the competitive environment. I guess, are there any signs already of competitors that have entered the car wash space that are already exiting it or where capacity is coming out of the market? Any color on that would be really helpful. Thanks.

John Lai: Yeah. We haven’t seen any exits. We have seen a cresting, though, of new units. The rate of new unit growth is cresting and we expect that to abate into 2025. And I think, again, there’s a little bit of rationalization kind of kicking in. Folks are digesting what they’ve bitten off. Folks that have been on building sprees are really now focusing on operations and improving those operations. And a lot of that’s driven by just the cost of capital, their access to capital, some of the debt that they’re currently having to service, et cetera. So this slowdown, if you will, this correction, I think, is long overdue and healthy and good for the space because it has gotten a little crazy over the last several years.

Jackie Sussman: Got it. Thanks. Thanks for the color.

Operator: The next question comes from Justin Kleber of Baird. Please go ahead.

Justin Kleber: Hey. Good afternoon, John and Jed. Thanks for taking the questions. Just a follow up on the price increases for Platinum. In those instances, where the customer, I guess, pushes back, are they leaving the UWC ecosystem or are they trading down to the base plan?

John Lai: Yeah. We think the bulk are trading down to the more affordable plan. There have been some that have chosen to leave, but it’s a very small number. So, again, and then when we look at churn through a historical lens or a traditional lens, the way we define it, some folks that choose to cancel out of their subscription remain customers, so they’re technically not a lost customer. And we do see a lot of customers that then, or excuse me, members that come back after they’ve canceled, because once you get used to having your car clean all the time and then having to pay as you go, you really miss it. So we have a large percentage of member growth that are former members that come back and they’re kind of coming in and out of the program.

Jed Gold: Yeah. Justin, I would add, I mean, while you see a little bit of elevated churn, it’s not much. I mean, this is a — it’s relatively price inelastic when you look at this price adjustment on Platinum, especially when it’s done in conjunction with the rollout of Titanium.

Justin Kleber: Okay. Yeah. That makes sense. Maybe an unrelated follow-up, Jed, for you on the new store economics. You just talked about the 22 vintage growing 40% in that first comp year. Where are or how should we think about year one AUV? Like, where are those shaking out for new stores today? How long before those stores hit that, the $2 million chain average? Just trying to understand the same-store sales waterfall. As it would seem to me like new store maturation should probably be giving you a couple points of comp as we sit here today. So any color there would be helpful? Thanks.

Jed Gold: Yeah. So, I mean, just taking a step back and just reminding folks of net investments on a greenfield of about $2 million, right, consisting of about $6.3 million of gross investment offset by a sell leaseback of $4.3 million to $4.5 million. And if you look at that revenue build, it will grow from about $1 million to $1.3 million in year one and it will increase up to about $2 million to $2.3 million by year three.

John Lai: But again,

Justin Kleber: All right. Got it. Thanks guys.

John Lai: Okay. I was going to say, we had a back half weighted kind of new build as well.

Jed Gold: That’s right.

Operator: The next question comes from Phillip Blee of William Blair. Please go ahead.

Phillip Blee: Hi, guys. Thanks for the question. There’s been a lot of discussion around the lower income consumer starting to really show signs of distress, which you touched on around some weakness in your retail customer. But can you provide maybe an updated view on the composition or demographics of your membership base and maybe just some thoughts on the stickiness of the subscription, what the key drivers are there, especially during periods of volatility? Thanks.

John Lai: Yeah. I’ll start by saying, we feel very fortunate to be in a space where we have universal appeal across all demographics and so everyone loves a car wash, everyone likes to keep their car clean. And in some cases we see in our lower demographic, stores in our lower demographic markets, enjoy some of the highest ticket averages and highest capture rates, which is kind of a unique phenomenon. But they’re also the ones that are also under more pressure when their budgets are spread thin. And so we have seen in that bottom quartile cohort elevated churn and more of an impact on retail volume, which we think is cyclical and will, as the economy improves and consumer confidence comes back, we’ll get them back, because they’re very quick to come back once they become a little bit more flush.

Jed Gold: Yeah. And just putting a little bit finer point on that, when you look at the 80 stores in the lower two income demographic, the stores within the lower income demographics, there are two lowest performing segments across the portfolio, which is why we believe that this is, there’s certainly some macro pressure on the consumer right now, particularly a lower income consumer.

Phillip Blee: Okay. Great. That’s very helpful. Thanks for the color. And then just on the retail customer, maybe, do you think that this quarter’s decline is reflective of what we can expect for the remainder of the year or are there any changes, such as potentially maybe going the other way on pricing and elevating promotional offerings to drive traffic that we should consider where we could see a bigger inflection here?

John Lai: Without tipping our hand to our competitors, as I mentioned earlier, we are turning up the dial on promotional offers for customer retail — customer acquisition for retail customers. So that will, part of that game plan, part of that action plan is going to be getting a little bit more aggressive on some of those offers, but we have enough room. And again, given the margin profile of our services, we can lean in a little bit on those offers without it being overly dilutive.

Jed Gold: Yeah. This is where we’re grateful that roughly 75% of our sales are subscriptions, because it’s much more predictable, it’s consistent, a little easier to forecast. That retail side of the business is a little more difficult to predict. What we’ve modeled is we took that Q1 trend and that Q1 retail comp and we extrapolated that out over the back half of the year. So to the extent retail improves from what we saw in Q1, we would expect — and everything else staying constant, we would expect improved comp performance.