Good day, welcome to Valvoline's Business Update Conference Call. At this time, all participants are in listen only mode. After the speakers' remarks, there will be a question and answer session. To ask a question during the session, please press star one on your telephone keypad. I would now like to hand the conference over to Sean Cornett. Please go ahead. Thank you. Good morning, and welcome to Valvoline's Business Update Call and Webcast. Valvoline published a press release after market close yesterday, May 18th, describing changes to its financial reporting. A copy of the press release and the presentation materials for today's call have been furnished to the SEC on a Form 8-K. A copy of these materials is also available on our investor relations website at investors.valvoline.com. As a reminder, there are slides in the appendix of the presentation that provide further information. With me on the call today are Valvoline's Chief Executive Officer, Sam Mitchell, and Mary Meixelsperger, Chief Financial Officer. As shown on Slide 2, any of our remarks today that are not statements of historical fact are forward-looking statements. These forward-looking statements are based on current assumptions as of the date of this presentation and are subject to certain risks and uncertainties that may cause actual results to differ materially from such statements. Valvoline assumes no obligation to update any forward-looking statements unless required by law. In this presentation and in our remarks, we will be discussing our results on an adjusted non-GAAP basis, unless otherwise noted. Non-GAAP results are adjusted for key items which are unusual, non-operational, or restructuring in nature. We believe this approach enhances the understanding of our ongoing business. A reconciliation of our adjusted non-GAAP results to amounts reported under GAAP and a discussion of management's use of non-GAAP measures is included in the presentation appendix. The non-GAAP information provided is used by our management and may not be comparable to similar measures used by other companies. As we turn to Slide 3, I'll turn things over to Sam. Thanks, Sean. Today, we'll be walking through our Business Update, details on our segment realignment, related reporting changes, and our financial projections through 2024. There are four key messages we want to communicate to you today, including a reminder of who Valvoline is, how our segment repositioning, reporting changes, and capital allocation strategy will unlock value, why we are optimistic about our business, and the power of our vertical integration, which we expect will lead to double-digit top and bottom-line growth for Valvoline over the next few years. We believe the changes that we've made will help investors better understand our company and strategy by providing a simplified reporting structure and more visibility into the underlying business fundamentals. Let's turn to Slide 5. As a 150-year-old brand that stands for quality, trust, and convenience, Valvoline has been a leader in the automotive aftermarket service and products industry. Our transformative story advances today as we continue our shift from a products-focused company to a service-driven business model. At Valvoline, we expect to continue generating high revenue growth, high EBITDA margins, and exceptionally high returns on capital. Given our resilient, non-discretionary demand model with a long runway for growth, we are differentiated from most retail peers. Our low capital intensity business model is expected to continue generating significant discretionary free cash flow that will provide optionality for self-funded long-term growth, while our vertical integration remains a distinct competitive advantage. As shown on Slide 6, our brand is a key competitive differentiator for Valvoline. The strength of our brand and history of innovation has kept us relevant for over 150 years. We are synonymous with quality, high performance, and customer service that is leveraged by our two exceptional business segments, Retail Services and Global Products. Retail Services, the former Quick Lubes segment, is a high-growth, high-margin business with significant reinvestment opportunities. Global Products, the former Core North America and International segments, is a capital-light, strong free cash flow generating segment that we anticipate will continue substantially funding Valvoline's transformation. Later in the presentation, we will discuss these segments and their long-term outlook. Let's turn to the next slide. Valvoline has delivered best-in-class operating margins and financial returns since our IPO in 2016. In each of the past five years of operation, we have achieved 20%+ EBITDA margins and 25%+ returns on invested capital. Additionally, we are targeting a prudent capital structure and have achieved enviable market positions in our segments. We are significantly ahead of the goals that we communicated at our 2019 Investor Day and believe Valvoline represents a compelling investment opportunity. On Slide 8, you can see how we have progressed. We believe this year is an inflection point as our Retail Services business now makes up half of our adjusted EBITDA. This and the strength of our business overall allowed us to raise guidance at our most recent earnings call despite an inflationary raw material environment. We expect Retail Services EBITDA to continue its rapid growth in the years ahead due to the segment's proven repeatable and disciplined growth model, leading to lower earning volatility, faster cash conversion, and an increase in our total addressable market, driving accelerated value creation. Let's turn to Slide 10 to discuss the changes in more detail. As outlined in our press release, we are announcing three structural changes to achieve our goal of increasing the understanding of our business. These changes will lead to a greater focus on our segments, improved transparency, and better comparability to our peer group. Additionally, we will drive shareholder value through a disciplined capital allocation strategy as demonstrated by our new three-year, $300 million share repurchase authorization and by maintaining a prudent capital structure at roughly 2.5x Leverage. We believe these changes will not only create value for our shareholders, but will also propel Valvoline towards a powertrain-agnostic future. Let's move to Slide 11 to discuss our new segments. We are realigning the management of our business into two operating segments, Retail Services and Global Products. We believe this realignment will drive accelerated growth, allow for better comparability, and improve our operational effectiveness. Our realigned segments will provide us the opportunity to better leverage resources and capabilities to execute our strategic priorities. On the next slide, we will show you how we are making further changes to our reporting. Beginning with fiscal Q3, we are shifting from indirect cost allocation to our segments to a direct cost allocation model. Additionally, we are including LIFO accounting impacts as a key item adjustment to EBITDA. Historically, our indirect costs were allocated to our segments based on a formula driven by revenues and profitability. Going forward, indirect expenses not associated with a particular segment will be reported separately in corporate. With our shift to direct cost allocation, we are increasing visibility to the performance of both segments. The second key reporting change is that we will now report adjusted EBITDA without the impact of LIFO accounting. This will increase comparability to our peers and focus investors on the underlying segment economics. We believe that these reporting changes will provide greater visibility and will assist investors in better evaluating our business and its operating performance. Slide 13 highlights the enhancements to our capital allocation policy. We believe our shares remain undervalued. We have announced a three-year, $300 million share repurchase authorization. This comes on the heels of a $100 million share repurchase completed in the first half of this fiscal year, along with a nearly 11% increase to our dividend for fiscal 2021. We are shifting from an opportunistic share buyback strategy to a more consistent approach to optimize our use of excess cash as a more strategic lever for shareholder value creation. Our dividend policy will change from growing in line with earnings to growing in line with share count reduction. This will allow Valvoline to consistently reduce our shares outstanding while increasing our dividend per share and maintaining an optimal capital structure at 2.5x leverage. We will continue to utilize future free cash flow first for growth investments and acquisitions, then to shareholder returns. Let's turn to Slide 15. Let's shift the discussion to provide more detailed overviews of our realigned segments. I will also provide a long-term financial outlook for our segments and overall business. Beginning with Retail Services, I want to remind investors why we love this business. We've realized 14 consecutive years of same-store sales growth, consistent unit growth, and strong four-wall unit economics of over 30% returns at maturity. This has led to a system-wide sales growth CAGR of 17% over the last five years. The investments we've made in growing our Retail Services business have created a best-in-class automotive aftermarket service provider. Slide 16 highlights our confidence in our long-term guidance of 6%-8% same-store sales growth. If we break down our growth drivers into transactions and ticket, you can see why we continue to be bullish on our future. The fundamental performance metric for a retail service business like ours is winning new customers and growing share. Our transaction count or oil changes per day continues to climb as we leverage our proprietary data, customer analytics, and digital marketing strength to gain share. There are four structural levers driving ticket growth, the shift to synthetics, growth of our non-oil change revenue, our pricing power, and our new stores entering our same store base. Within Retail Services, as the industry shifts to synthetic, we see a more than 100% increase in the posted price that is 3x the margin of a conventional oil change, a clear driver of revenue growth and margin expansion. As detailed in our recent earnings call, we offer more than just oil changes, including numerous services as part of our non-oil change revenue, which currently composes nearly 25% of overall average tickets. Given our customer value proposition that focuses on convenience and quality service, we believe we have demonstrated pricing power with the ability to raise prices while maintaining customer loyalty. Slide 17 highlights the second aspect of our revenue growth algorithm, namely unit growth. We continue to believe that annual growth of 5%-7% is sustainable. With more than 1,500 stores across the U.S. and Canada, we believe we have the opportunity to increase household penetration, which is currently less than 15%. Additionally, the market is highly fragmented and ripe for consolidation. Scale matters in this industry, and our vertical integration from products to service enhances returns on acquisition. Valvoline has a successful and effective three-pronged unit growth strategy. This includes building company stores, supporting franchise growth, and acquiring high-quality systems. We will leverage this approach for continued share gains and growth, and we expect to add approximately 100 units annually for the foreseeable future using internally generated free cash flow. Pulling it all together, Slide 18 shows our long-range financial outlook for Retail Services, along with recast historic EBITDA and margins. Retail Services is expected to grow revenues and EBITDA at double-digit rates through 2024. We expect to see margin leverage over time due to continued strong same-store sales growth with some modest offset as we add new stores. The change in expense allocation is anticipated to add 400- 500 basis points to segment margins. On Slide 20, let's shift to discuss the segment that enables our transformation to a service-driven model. Our new Global Products segment combines our former International and Core North America segments. We are excited about this segment and believe this change is the right thing to do for the business and provides clarity and transparency for investors to better understand the opportunity that we have in the global products market. As this is a capital-light segment, we expect to generate significant free cash flow and strong returns, enabling us to continue funding our transition towards a more service-driven business model. Valvoline has averaged a roughly 10% market share in the U.S. and Canada, yet commands less than a 3% share internationally. Key international lubricants markets are modestly growing, driven by the growth in passenger car and heavy-duty vehicles on the road and miles driven. At the same time, the trend toward premiumization in many emerging markets is an opportunity. The realigned segment will leverage Valvoline's leadership, brand, and marketing expertise on a global basis. Slide 21 illustrates how we can leverage our Global Products segment to provide greater operational effectiveness. Individually, our former two segments have substantive strengths that, when combined, are expected to accelerate share gains. Core North America brings strength in its effective forward-looking digital approach that can be harnessed in our international operations. Likewise, our International segment brings significant experience in the heavy-duty sector, which can further strengthen our market position in North America. We already have global relationships like our long-term technology, marketing, and product supply partnership with Cummins. In addition, we are building our capabilities in global marketing with our Original Motor Oil campaign as the latest example. Managing these businesses together is expected to build on and strengthen these global aspects of our model. Let's turn to Slide 22, where we highlight key operating and financial statistics that reinforce our positive views on our Global Products segment. It is rare to find a business with a large runway of global market share potential that is self-funding with consistent strong returns. For greater perspective, the majority of our dividend and share repurchases are funded by free cash flow from Global Products. Its strong performance makes it an important contributor to our overall profitability. Slide 23 highlights the long-range financial outlook for Global Products. As discussed previously, we expect this to continue to be a free cash generating source with anticipated top-line growth of low to mid-single digits and EBITDA margins of nearly 20%. Let's move to Slide 25 to talk about the power of our vertical integration. We believe our vertical integration is a competitive advantage. Our strategy for both Retail Services and Global Products is formulated around the strength of our brand. With our 150-year history of providing leading-edge automotive lubricants, our shift to services is a logical extension of that brand. Our vertical integration enhances returns from product sales at our company stores to our franchise locations and from acquisitions, driving higher margins and higher returns than our competitors. We are also positioned to provide future service capabilities to meet the needs of an evolving car parc. Our global lubricant relationships with OEMs allows Valvoline to be an emerging leader within the EV fluids category. Electric vehicles require significant technology upgrades from fluids, coolants, and greases. Our long-standing history in lubricants and product innovation has positioned us well to continue partnering with OEMs on electric vehicle fluids. This should ultimately allow us to service all vehicles in our retail network independent of how they are powered. Let's move to the next slide to discuss how our updated segments and vertical integration allows us to capture secular shifts in the market. There are three distinct secular dynamics. First, the continued shift from DIY to DIFM for global lubricants. Second, the premiumization or industry trend to synthetics, and third, the growing addressable market for preventive auto maintenance. We believe our vertically integrated strategy is primed to extract maximum value from these trends for both segments and for Valvoline. Let's move to the next slide to discuss our overall long-range outlook. Realignment is expected to allow each segment to reach its full growth potential, while our updated financial reporting will allow the underlying earnings power to be more visible and apparent. Over the next three fiscal years, we expect to deliver, on average, double-digit top-line growth with double-digit EBITDA growth while maintaining 20% EBITDA margins and 25% returns on invested capital. Our business is performing exceptionally well, and growth is expected to accelerate over the next three years. As we realize the benefits of our strategy and experience the inflection point in 2021, our confidence in our new long-range outlook is strengthened. As shown on Slide 28, Valvoline's top and bottom line growth rates, EBITDA margins, and return on investment outperform our peers in the automotive aftermarket. Whether looking at historical results or future projections, our operational strength is clear. Let's turn to the next slide. We believe our shares provide a compelling investment opportunity, hence the reason for our approach to share buybacks. We also believe our increased transparency and additional disclosure, along with realigned segments, will drive improved comparability to peers and a better understanding of our business. Perhaps most important is our growth opportunity and the confidence we have in our future. Let's review our capital allocation framework on the next slide. We will continue to invest in growing our business and seeking opportunistic acquisitions. We believe our returns on capital, which generate 2x-3x our cost of capital, are extremely attractive, and reinvestment drives significant value creation. Our financial forecast, coupled with a disciplined capital structure, is anticipated to drive $1.3 billion in cash available to continue investing in our business while returning excess cash to shareholders via share repurchases and dividends. Overall capital allocation will be used as a lever to drive shareholder value and to allow us to continue our trajectory of growth and strong returns. Let's summarize on the next slide. Valvoline is a high-return, growth-oriented business that is self-funding its expansion and transformation from strong cash generation. If you've been following us since our separation from Ashland nearly five years ago, you can appreciate all that we've accomplished through disciplined capital deployment to high-return projects that are now accelerating our growth. If you are new to the Valvoline story, this is more than a short-term investment opportunity. We have a great brand and a talented team that is building on our competitive advantages with an intense focus on leveraging great products and delivering a superior customer experience. We believe we are built to win now and long into the future. With that, I'll turn it back over to Sean to open the line for Q&A. Thanks, Sam. Before we open the lines, let me remind everyone to limit your questions to one and a follow-up so that we can get to everyone. With that, operator, please open the line. Certainly. As a reminder, to ask a question, press star, then the number one on your telephone keypad. Your first question comes from Jeff Bekowith of JPMorgan. Thanks very much. Are your cash flow from operations estimates for the year any different than they were before? Jeff, hi. This is Mary. No, our guidance for free cash flow for the current year, updated guidance was a range of $250 million-$270 million, I believe, and we're not changing our cash flow guidance. The recast guidance we're providing for adjusted EBITDA is simply a reflection of treating LIFO, which is a non-cash item, as an adjustment. The recasting of that does not affect our cash flow guidance for the year, Jeff. Why does treating the LIFO inventory adjustment as a non-recurring item or as an exclusionary item, why does that improve your EBITDA this year by $25 million-$30 million? What's the mechanism there? Sure. We saw a LIFO charge. We're in a period of unusual volatility in our base oil cost as well as our additives. As a result of that, we're seeing significant increases in LIFO charges in this current fiscal year, quite unusual relative to our historical LIFO charges or credits. As a result of that, we think it's really important to be able to understand what's really happening in the underlying business to realign LIFO. In addition to that, Jeff, we really think as part of our new Global Products segment, International is on a FIFO accounting basis. As part of our realignment, we really want to be able to measure the business on a consistent profitability basis between North America as well as the International business in our new Global Products business. Adjusting it for that purpose is important as well. Now, we will continue, of course, to report on GAAP and show you exactly what that adjustment is so that you can be able to understand the business under both measures. We think calling it out is important. We have an appendix in the presentation that we posted as part of the 8-K today that shows you by fiscal year what the amount of the LIFO impact. We're expecting the LIFO charge this year to be between $25 million and $30 million. In the first half of the year, we saw just over $9 million of that, but we are expecting a much larger LIFO charge in the back half of the year based on the recent price increases we have seen in our raw material costs. Okay, great. Thank you very much. Thank you. Next question is from Laurence Alexander of Jefferies. Good morning. Could you just clarify here to what degree M&A is assumed in your EPS target range? Is that and some of the growth CapEx including franchise acquisitions? Sure. Our M&A assumptions in the range continue to assume that we will be acquiring independent operators. We have, I believe, in the $50 million-$75 million a year of capital allocated to those M&A activities. Now, of course, we'll be opportunistic if we find more opportunities for tuck-in M&A within our Retail Services business, we'll certainly address that, but that's what the underlying assumption is today, Laurence. Just to clarify, and that's on top of the growth CapEx of 4.5% of sales, correct? That's correct. Okay. Secondly, how large is your non-oil services and non-oil change services business outside North America? The non-oil change revenue services that we called out, particularly in the last earnings call, we're focused on the Quick Lubes business and what we're doing through Valvoline Instant Oil Change. We shared that it's shown significant progression over the years, and we see a lot of opportunity for continued growth there. It's really a metric that we use in evaluating our Retail Services business, not so much our Global Products business. In Global Products, internationally, we sell our coolants and automotive chemicals internationally, it is part of our overall mix, and we see a lot of opportunity for continued growth in expanding our portfolio and our sales internationally of those non-lubricant products. When we speak specifically around non-oil change revenue, we're really talking about Retail Services. Thank you. Thank you. Your next question comes from Mike Harrison of Seaport Research. Hi, good morning. Morning, Mike. I have kind of a dumb question on the FIFO, LIFO thing, which is, if you are currently, your international business is already on FIFO and you are making all these adjustments to eliminate the LIFO impact, why not just change your accounting method to FIFO? We think the LIFO method from a GAAP accounting perspective, provides the business with important benefits. We do have an accumulated tax benefit from using LIFO, and there would be a cash tax expense, not expense, but an acceleration of cash tax payments, because we do receive favorable tax treatment under the LIFO method. We think it makes sense for us to continue to do that in order to be able to maintain those benefits over time. All right. You also talked about the four-wall economics for your company-owned stores. You're currently at about 43% company-owned stores. What do you see as the optimal mix of company versus franchise locations, and how should we think about the differences in the economics of company versus franchise locations? Yeah, as far as an optimal mix, we really don't think about it that way, Mike. We're really focused on how do we work to grow our system, given the opportunities in front of us. We've been obviously investing in growing our company stores through new store builds, through acquisitions, and have had great success there. We're seeing an acceleration too, as we've increased our rate of new store builds from 25- 50 and ultimately towards 75 stores a year. We're certainly, we've added that growth strategy to our mix, but we continue to focus and work with our franchisees on their growth plans, their growth opportunities in their markets. We'd like to see both continue to grow. It's really not a certain mix that we're trying to accomplish right now. When it comes to the economics of company stores versus franchise stores, the company stores generate about 4x the EBITDA at maturity versus the franchise stores. Obviously we're generating a lot of strong cash and returns with the company stores. Franchise stores, though, of course, much smaller investment upfront and generate a very good return for us too, amplified by our product sales to our franchisees. They're both outstanding when it comes to the opportunity to drive economic value for the company. We're really focused on both. Thank you. Next question is from Stephanie Benjamin of Truist. Hi, good morning. Morning, Stephanie. I was wondering if you could talk a little bit about, continuing on the last question about your unit expansion for the services segment, and as you look to enter new markets or as you look to achieve that 100 annual unit growth target, is this more so expanding in new markets, existing markets? What makes a particular market attractive? At the same time, are you seeing any kind of increased competition currently just as you look to expand your base? Thanks. Yeah. Over the last four years, Stephanie, as we've been aggressively investing in this business, we've really filled out a national footprint. We have a presence in most all major markets across the country. This has been through both acquisitions, but also the new store builds. If you look at our progress in the state of Texas, for example, with company stores, we've made both acquisitions and really accelerated our growth in building stores in attractive locations. There's obviously a lot of underlying growth in Texas, and we see it a very attractive market, and we have prioritized that as a company market where we could really control our destiny there. It's a really good example of prioritizing markets and then making those investments. We have plans in place now to continue to then fill out those markets. We have a core presence in a number of markets where four years ago we had a really light presence in the South, in the Southwest, for example. Now it's about leveraging the scale and the opportunities in those markets as we build them out. We look, again, both for acquisitions that can accelerate that growth. Also, we've gotten down to very detailed plans of where we want stores in each of these prioritized markets. Regarding your second part of the question on competition, certainly there's competition in Quick Lubes. I don't think anybody is doing quite what we're doing when it comes to how we execute our customer service proposition with our customers, and we continue to prove that out with the growth that we see in oil changes per day and the share growth that we're achieving and the ticket performance that we achieve. With regard to developing stores, there are other systems that are trying to grow, too. For us, it's very important that we are on our game. Like I said, we've mapped out our plan, and we know where we want stores and how we want to build out markets. We're going to be aggressively moving on that in years ahead. Got it. Thank you so much. Once again, if you would like to ask a question, press star, then the number one on your telephone keypad. Your next question is from Chris Shaw of Monness, Crespi, and Hardt. Go ahead, Chris. I'm sorry. I was on mute. Can you hear me now? Yeah, we can hear you, Chris. Sorry about that. No problem. For someone who doesn't own an electric car, can you just go into a little bit more detail the opportunity and is it going to be agnostic to powertrains in the future, what the opportunity is in fluids? You mentioned coolant and stuff, but are these things you're already providing for the typical combustion engine now, or are these different kind of fluids? I just have no conception really what goes on in electric vehicle repair. Right. Yeah, Chris, a number of the services that we offer now in our Retail Services business are applicable to EVs or hybrid vehicles. We're at a good starting point in terms of growing that opportunity that we have in non-oil change revenue and continue to execute well on that. We also feel that as the car park evolves, it will create opportunities for us to evolve our services. That is part of our strategic plan as we think about continued transformation of our business and this focus that we have in driving our service business. That means both more stores and locations and reaching more households, but also evolving our services so that we're well prepared for taking advantage of the evolving car park. We're very focused on this opportunity that we have. We've got dedicated teams that are working on our strategies for our long-term future, and we'll be piloting different approaches there. We see tremendous opportunity leveraging the strengths that we have in preventive maintenance, and we'll continue to execute on those plans. As we pointed out in the presentation, this is a business that generates a lot of cash, $1.3 billion of available free cash flow over the next three years, and this is certainly going to help us continue to drive transformation and deliver on this shareholder value proposition. Sam. Oh, sorry. I was just going to add, the $1.3 billion that we referenced is not only our free cash flow, but also the balancing capacity we create through our increased earnings over that same time frame while we're targeting that 2.5x Leverage ratio. Understood. Are there any specific things like fluids that an EV uses and hybrids that use that aren't used in a combustion engine? I'm just trying to get a handle of what the future looks like, and I know you'll be prepared for it, but I don't know what that future looks like. Yeah. There are differences and different fluids that are used, different service intervals, but there's some that are very basic, like tire rotations, which are needed on a more frequent basis for an EV. We obviously are the most convenient place to have your tires rotated. We're going to leverage the relationship that we have with the car owners, the fleet owners, and evolve the services that we offer. Part of it's because some of those services that are needed are part of our portfolio today, and other services that we will develop and consider growing our offering will be part of our strategic plan. Those will be the things that we'll be piloting. Got it. Specifically around some of those services, we're not laying out all the detail on that today. We do look forward to bringing investors along as we continue to develop our plans and our pilot approach. All right. Sounds good. Thanks. Thank you. We have no further questions at this time. I'll hand the call back over for any additional or closing remarks. Thank you. Well, obviously, today is a really important day in bringing investors along with the changes that have been taking place at Valvoline. We've had tremendous momentum in this business over the last couple of years, and we've seen that in the performance that we've had through the COVID crisis in 2020 and extending into 2021. We've seen our business performance even accelerate as we move into our fiscal year 2021. It's been a great first half of the year. The changes that we're announcing today really reflect how we're running the business and the opportunities that we have to both keep Retail Services growing at a rapid pace, but also take advantages of the opportunities that we see in Global Products to drive growth in that business, to continue its strong cash generation and continue to work together as one Valvoline. The changes that we've made that highlight these strong businesses and, we think, to better reflect the economics by some of the accounting changes that we've made are going to help with transparency and understanding of the business and proper valuation of these businesses. These changes are made out of a very rigorous strategic review, but also strengthen the business and how we can continue to grow this business and create value for shareholders. We appreciate the time with everyone today and look forward to continuing the conversation as we deliver on a strong fiscal 2021, but importantly, what we believe is a very exciting future. Thank you. Thank you. This does conclude Valvoline's Business Update call. You may now disconnect.