Good afternoon, everyone. It's my pleasure to introduce Valvoline. Today, we have with us Lori Flees, Chief Executive Officer and Director of Valvoline. Lori was named Chief Executive Officer on October 1st, 2023, and we thank you for joining us today. Thank you. Thanks for having me. We're gonna start out asking about the consumer, of course. There just seems to be a lot of noise in figuring out what is going on with, with the consumer. So I thought it would be great if you could maybe talk through just customer behavior. Obviously, there's a defensive element to your business, but it is something that could be deferred if a customer was feeling really stretched. So we were curious just if you've seen any change in behavior from maybe when you started the year to today, and what is the customer telling you about how they're feeling? Sure. And it's something I think all retailers are closely watching. Luckily, for Valvoline, our business is fairly resistant to economic swings. Preventative maintenance is a non-discretionary spend item now, at least in the space that we operate. You know, when you think about an average household, a vehicle is either the first or second biggest asset in their portfolio. And when folks are talking about, you know, do you see a trade down or deferral? I think the trade down that we see, which is a benefit to us, is that customers are deferring buying a new vehicle, and they're keeping the vehicles that they have. And as they keep them, and the age extends, the need for preventative maintenance and additional services gets higher. We don't see customers deferring on their basic preventative maintenance oil change service. We don't see intervals extending, and for us, we're educating. We spend a lot of time educating the customer on what the OEM recommends and how to keep their vehicle safe for the road and for their families, and so we're seeing increased penetration in the added services, and some of that is because, when we look at some of our service portfolio, OEM-recommended services, not all of our peers offer that, and we compare ourselves to dealerships and provide a 25%-40% value. And so this year, with better training, higher retention of staff, we're educating customers, and the trade down could be to us in terms of value for those added services, so we see that the demand in our space is fairly resilient. And when we do talk about your core customer, I do think with some of the other auto part retail companies, there is a skew towards a lower-income consumer. I don't think that's the case with, with Valvoline. So could you maybe just talk about your addressable market, who you define as your core customer, and how has the company's ability to grow the customer file impacted the below normal vehicle sales in the last few years? Yeah. So our customer base looks like the demographic of the store that it operates. So about 60% of our customers come within a 10-minute drive of the stores. Now, we get a catchment area much broader than that because traffic patterns to and from work can bring more customers in our vicinity. And when you look at our core customer or average customer, they're slightly higher in income household but not significantly so. They tend to have vehicles that are outside of a warranty period. We do see vehicles in the first three years of their life, but our penetration rate really rises, starting in year four through year eight, and our average vehicle age is about the same as the overall car parc because we see a higher penetration in the later years. We and really, our customer is a convenience seeker. This is, you know, the vehicles are something that often enable the income for the household, or enable the activities of the household. And so, you know, it just becomes a part of the core service, and they'd rather spend money than time in order to get their vehicle maintained. They wanna go to someone that they trust so that the vehicle will remain operational and in good, you know, in good working condition. If we could talk a little bit about the competitive landscape, it's actually a question we get from investors quite a bit just regarding the quick lube segment. The concern, I think, stems from the fact that there are just so many locations where you can get your oil changed, local independent mechanics, regional, national, chains, auto dealers. How do you view the risk of concentration in the broader market for oil changes, and what gives Valvoline the confidence that you can keep growing and taking share from competitors? Yeah, so you're right. This market or the market that a customer has to choose from or the locations is highly fragmented. About 40% of customers still go to a dealership to get their oil changed. About 35% to up to 40% are going to a general automotive repair, a local mechanic, even a tire installer, to get their oil changed. And then about 20% to maybe 25% is what we call the quick lube channel, and even within that, it's very fragmented. So Valvoline is the market leader. We have almost 2,000 locations, and we have the highest number of vehicles on average across those locations of 50. You know, there is a flight to quality, there is a flight to convenience. And so when we open new locations, we're pulling more from the other channels because of the quick, easy, trusted service that we provide. People want transparency, they want to be in and out quickly. And those other channels, you have to leave the vehicle, you have to wait in a waiting room or get a ride to work and back. It is not convenient. And, and so really, when they say it's incredibly fragmented, it is, but only 25% max of the business is served in a quick, easy fashion. And that's the fleet that you see. It's really a drive towards convenience. So there's still a significant amount of opportunity. And across our locations, we have incredibly consistent customer experience that rates 4.6 stars out of five-star rating consistently across the locations, regardless of whether the company's operating the store or a franchisee is operating the store, which means that you can trust coming in, having a quick, easy service of high quality. That gives us the right to open more stores. It doesn't matter the competitive intensity. We can open a new store or acquire and convert a store and deliver, you know, really strong return on invested capital well over our cost of capital. Maybe could we talk a little bit about the non-oil change revenue? You mentioned it in some of your earlier comments, that there is a menu of non-oil change services that are offered to customers. Can you talk about the overall penetration rate today of those services, and what some of the key drivers of attachment are and how you're marketing that? Sure. In terms of non-oil change revenue, we break that down into three different types of services. First is visuals. It's things that we visually inspect. We visually share with the customer the quality of the part that is necessary. We have OEM-recommended services, which are tire rotations and fluid exchanges, like a radiator flush. Those, the manufacturer of the vehicle is recommending on a specific interval. It might be 50,000 miles or 100,000 miles. Those are OEM-recommended. And then there are Valvoline-recommended, which really enhance the performance of the vehicle. That could be fuel injection services or air conditioning service to really improve the performance of the vehicle. When you take all of those things together, not every vehicle needs every service, every visit, so they are needed on an interval basis. Our non-oil change revenue makes up about 25% of our ticket, but that's not consistent across all our stores. Some of our stores are much lower than the average, and some obviously much higher. What we've been really focused on in the last year is: How do we increase penetration? By ensuring our team follows the process that we've outlined, to explain what those services that are required, explains what our pricing is, and especially in the visuals, which has the highest penetration. If you show what an air filter looks like new versus the one in their vehicle, they actually can tell whether or not that's something that should be replaced. Same thing with a cabin air filter. We test batteries. Every customer that comes in, we tell them when they don't need to look at their battery. Their battery is green, it looks great. When their battery changes to yellow, caution, meaning there's not as much life in the battery, we start to talk about the longevity of the battery and the fact that probably the next time they visit, they probably want to consider changing the battery so that when the cold months come, they don't have a dead vehicle in the middle of the cold. So those are the things that we're doing. It's not... We don't incent our people to sell services. It's really about educating the customer, and making sure they know what services their vehicles need. Is there a difference in attachment rate between company-owned stores and franchisee stores? There is always differences by geography. You know, in Vegas, we have a higher penetration of battery- just given the more extreme conditions, or in Arizona, for example. But in general, there is, there's not. It's really around execution and when we look at the tenure of the team. So it's about the execution and the experience of the team that actually drives more of a difference in the penetration of services. People say, "Why?" Well, first of all, if you've got a team that understands the process, one, the execution of just the basic oil change is faster when you have an experienced team serving the guest. And when the service is faster, the customer is more apt to get more things done. Again, they want to be in and out quickly. So if they're waiting or the base service is taking too much time, they don't want to add anything more cause they need to get on their way. So a really experienced team is gonna do that faster. The second thing is, some of these services do require additional training and additional equipment. And so when you have a team that understands what the service is, one, they can explain it to a customer in a way that that customer will understand, and two, they know how to perform the service because their experience rate is much higher. And so all of those things combined, we see a very strong correlation between the average tenure of the workforce in a store and the non-oil change revenue penetration. Visuals, you asked about what has the highest penetration. Visuals has the highest penetration because it's the one that's most frequently needed and it's the one that's the easiest comparison. It's not a complicated thing to share with the customer. Versus when you're talking about a rear differential. I didn't even know what a rear differential was before I joined, or a radiator flush. I didn't know why those things were necessary, and I certainly couldn't have explained them to my mom but I can tell you, our technicians know how to explain them in a way that, you know, anybody can understand. Any additional services that you look towards to add, a certain number a year, when do you know maybe it's too much to offer versus maybe just giving a little bit more choice for your customer? Yeah. I think the reality is, we have a lot of opportunities in the service menu that we have today, but we do have an R&D team that is looking at additional services. As hybrids become a higher percentage of the car parc, there are certain things in maintenance that we could provide a hybrid owner, and it really gets down to, can we offer quick, easy, and trusted? Meaning, can we build a repeatable process that drives efficiency and speed in delivering the service without compromising the quality? Second, can we have the right technology and tools to enable our technicians in the store to deliver it? So we have really clear guidelines around what it has to fit within, and we have to be able to deliver it at a high repetition and a high-quality way across all of our stores in order for us to add it. But we are looking at additions, we're just not. And we're piloting a few things. We're just not ready to declare it's something that we can deliver consistently, quick, easy, and trusted. My final question around non-oil change is just, what its contribution has been to the P&L? How much do you see this lifting comp? What does the profitability look like? Right. So the profitability of most of the non-oil change revenue services is incredibly high. Part of it is, any of those visual items, there is a material cost, but there's no additional labor. So, for example, if I'm pulling the air filter out of the vehicle to show the customer whether or not it needs to be changed, the customer then decides, "Do I wanna replace the one that was there or get a new one?" Takes me the same amount of time. So there's no incremental labor, which means that margin is higher than the margin overall for the transaction. On the OEM services, it's a fluid exchange, so we're taking fluid out, putting in clean fluid. Again, the material cost is very low, and it often doesn't need a technician babysitting it, so the technician can be doing other things. So it is a very attractive margin. I think the biggest thing is we have to make sure that we don't erode the speed part of our proposition. If you put too many services in the bay and you're not moving people through, it becomes a Chick-fil-A problem, where you're having to continue to move the flow of cars, otherwise, you limit the growth of the store. T hat's part of the equation, is really thinking about how we provide the services, and not erode the base proposition. If we could maybe spend a little bit of time on unit growth. This is another area that I feel like we talk quite a bit with investors. Your current algo is suggesting high single to low double-digit annual store growth, and you're targeting 250 new stores per year, starting in 2027, with the growth expected to come from franchises. So when we think about the balance between company-operated stores and franchises, do you have a preference, and over the long term, should we expect growth to continue favoring franchise locations? Yes, I think it's important to step back. A couple of years ago, we used some very robust real estate analytics that we have built to actually figure out where the most attractive target trade areas would be, given the operating costs, the composition of the car parc and demographics, and then our value proposition in that market to create a really strong return. It became very clear we could see a path to doubling our units to get to three thousand five hundred. And we did that both, you know, market build-up, as well as just top-down sanity check. Today, we have 5% of the market. Our stores only are within a 10-mi radius of 30%-35% of the population. So we knew we had opportunities to double, but it's really using that target trade analysis around capital cost and return on capital that really is what you want to rely on. The top-down can be deceiving. You can build a lot of stores and not get the return, but it was really a combination of the both, and as you map out where we have franchise operators and where we have company operators, we could start to see how much opportunity there was to grow the network. We laid out and had been on a path to increase the number of new builds on the company side. We put a stake in the ground and said that by fiscal 2025, we wanted to be at 100 new units. We felt like it was a way for us to build the pipeline of talent to support that kind of growth, and also realistic from a real estate and construction, you know, capacity standpoint, just managing that process. On the franchisee side, there was a lot of opportunity. And our franchisees, we had never shared that bottom-up analytics with them, and I think had the data to prove that it was very robust, and we started to build that credibility. And as soon as you do that, you can look at the white space within their markets and have a much different conversation. And the conversations are great because, one, we had an opportunity to change our incentives to be more geared towards growth. We had the opportunity to talk about how we could support them in driving more unit growth, and start relooking at development agreements. Now, for our top five franchisees or top five developing franchisees, three of them, we gave them more territory because they wanted to spend more capital building out the Valvoline business that they owned, and two of them, we needed to contract. They had too much space for the capital that they were willing to deploy. That allows us to bring in new partners. So to get to 150 on the franchise side, which is why I think you mentioned more weighted to the franchise side, we see about 100 coming from our existing franchisees, and then realigning territories, looking at white space, and even considering refranchising some company store areas, which we haven't fully developed out. That'll give us the last 50 or 1/3 of the target in FY 2027. But from a capacity, just again, detailed analytics, top-down, and driving that through, it's been a lot of work to get started, but the momentum has been fantastic. Lori, you've brought a lot to the table. I feel like when it comes to the franchisees and communicating with the franchisees, could you maybe talk to that a little bit? Yeah, I wouldn't say I grew up in a franchise model. It's interesting, my first job at General Motors, I was at GMC Truck, and I did a lot of work in their dealer business. I started my career understanding kind of a B2C model through a non-owned channel. But then I haven't spent as much time on that until I came back. But I would say in my previous life, doing strategic partnerships with you know, two elephants trying to dance, it's the skills around creating a win-win partnership. We have fantastic franchisees. The average relationship we have is 25 years. I'm hoping to pull that down with some of the new franchisees that we've been talking and working to onboard. But these are folks that, one, they've made our business better, and they continue to want to invest to grow the business. And it's about, you know, they're operating scale chains, and then some of them are doing better than our company stores, so we can learn a lot from them. We were in a mindset of, "We're doing this on the company side. We're doing it best. We know better." But the reality is, when you look at the numbers, some of our franchisees were operating businesses that were performing even better. And so part of it is being humble enough to recognize everybody can contribute to a much healthier network, and that's been the focus. And I think, you know, really understanding what do they need? How can we make it a win-win? We've come a long way in a couple of years. And Adam Worsham, who leads our franchising, has been an amazing leader in developing, you know, trust and relationships and a little bit of that win-win problem-solving. And then, could you maybe talk about the profile of some of the new franchisees that you're talking to? Are they ones with experience and maybe other verticals or are they kind of brand new to the business of being r eally interesting. We have a couple of franchisees who exited our business but now want back. You know, they've cashed in a little bit. They realized that the grass was not greener, and they want to come back and build another system. You know, it's always fun. I wasn't here when they exited, but it's always fun when they feel like they're coming back home. That's been a real treat, and these are, you know, franchisees who were with Valvoline for fifteen years and have exited and been out for five years or so. We also have family-operated businesses that are in other franchise businesses, whether it's hotel, rental car, QSR. And they may be focused on a specific geography that they have completely maximized the potential of the existing brand that they have and may be landlocked in terms of growth there. So they're looking to deploy capital in another attractive, you know, high cash-on-cash return business. And so, you know, we've had great time talking with them. And we also have private equity. Some of the private equity sponsors who have cash to put to work and have invested in franchise businesses are, you know, interested in working with us. And so it's actually come in multiple flavors. I think the reason why they're attracted is the returns are very attractive. But we create a model which is easier to operate. It doesn't take a lot of figuring out. One, we provide a very robust training system, we provide a real estate design, and we provide support if they need it, in terms of developing a pipeline. We also provide marketing support. If they want it, they can opt into programs that we have tested and tried. And we have the SuperPro technology, which guides the process that guides the system and feeds into the customer relationship marketing system, which feeds the marketing channel. So it's. I mean, sorry, I didn't invent that. That I inherited. But it is an amazing business model that any franchisee coming in recognizes that, "If I operate this in the way intended, the standard deviation of return is very narrow, and it's very attractive. And just to kind of round out the conversation on franchisees, are there requirements for unit growth over a certain period included in the franchise agreements to ensure unit? So we have a franchise agreement, which is for every single site, a nd it's fairly consistent in the industry. And then a franchisee will create a development agreement. And the development agreement, on average, is five years. It commits to a certain number of units over that five years, and it gives them certain rights to the territory. And this is where I think the depth of retail analytics that we've built in the last six to seven years has allowed us to ask for more with data behind it. And we have had conversations, as I said, with a couple of franchisees that said, "If you're not willing to develop to this level, that's okay but we're gonna bring somebody else who will. And you can't have all the territory that you did before, unless you're gonna develop it at the right pace." I think, because we've established the credibility of the analytics, and because the returns are so strong, and we have a lot of demand for new franchisees wanting in our system, it creates a more robust discussion with our partners. Now, we would prefer to stay with the partners we have. They're great operators. They understand the business. We would prefer them develop the territories they have, but if they don't, we have options. I wondered if I could ask a little bit about ticket, and then kind of get into your long-term algo for the business. But when we think about the drivers of your comp growth, we typically break it down traffic first ticket. And Valvoline's opportunity to grow ticket has been more nuanced, I would say, other you know, rather than or compared to a typical retailer. So can you talk about the various drivers of ticket, outside of price, outside of absolute price, and how we should think about each of those drivers going forward? Yeah. So you know, it is pretty special to be part of a business that's been driving 17 years of same store sales and approaching its 18th year. And it is a combination of ticket and transaction. On the ticket side, there are three primary drivers that we look at. First is premium mix, and this is around the percentage of our customers who use full synthetic versus a semisynthetic or conventional. And this is really a tailwind that's helping us and the industry because, about 75% of all new vehicles sold requires full synthetic which is at a higher price point. So as the car parc evolves and that becomes a higher percentage of the car parc, we will get 100-150 basis points just with that shift. Now, that assumes that we don't add another tier or higher quality- Which we continue to look at and work with our supplier on. And that could give us additional lift. Really, premiumization just within what we offer today, 100-150 basis points. Second is non-oil change revenue. We've been performing very well on that, but we still have opportunities, and we did a deep dive around in each market, what's the penetration rate relative to the car parc that market serves? And that allows us to pinpoint training opportunities, supply chain opportunities, equipment opportunities, just to continue to ratchet. We went through an entire retraining program and process in this last year and we sort of activated a little bit of a competition, and it was almost like a NCAA tournament style, and it wasn't for money it was for honor, which is, our teams are very competitive, and what we found is the top quartile stores still had room to grow. And the bottom quartile grew by a higher dollar amount, less, you know, a lower percent. A good percentage amount, but still a lot of opportunity. So NOCR, we see being continuing to offer, you know, very good same store sales comp. And then there's net price, which is the posted price, and then more optimization of the discount. And we always wanna be careful around price. We are in a competitive marketplace, as you mentioned, and you have to make sure that you're priced appropriately relative to the market. And so we benchmark our pricing three times a year. We look at it on a regional basis, and we make changes. And when we acquire stores, we don't automatically shift those stores to our target pricing for each product, because we wanna have the customer see the value and the difference of our service and keep them with us over time. There are other markets where we change it right away. We know in what markets that makes sense from a return on invested capital, and so we're always looking at pricing. So those are the three sides on the ticket. Transaction, we have new stores that are not brand-new stores, but they're maturing stores in the base that add to the transaction growth. We have fleet sales, which is adding and growing faster than our overall business that's growing. And we have some of the marketing optimization, where just optimizing your marketing mix to drive more customers in for the marketing dollars that you have, is the other one. And then we're investing in technology to make the process faster. So we've talked about every minute that you take out can add a car, on the days and the times that are already, you know, where you've already stacked cars. And so if you can get through the line, do services before it ever enters the bay, you can get more throughput in every bay. We have stores that are doing 40 cars a day per bay. Wow! When you look at our overall mix, with an average of 50 cars per store, that's below 20 cars a day per bay. So we know we have capacity, but it's about peak times. How do you create capacity when the customers want to come? Because they're not always willing to come first thing in the morning or at the end of the day or on a Sunday when they're spending time with their family. So how do you get them? You can use marketing to do that, but we also need to make our stores more efficient. And just in the last couple of minutes that we have, we wanted to be sure that we asked about just the longer term algorithm, the bottom line algorithm. We talked about all the drivers of the top line, unit growth, ticket transaction, but there is, you know, a goal of having mid- to high-teens Adjusted EBITDA growth. So could you maybe talk through the bigger drivers of the EBITDA growth from here? Sure. Part of it is as we shift and had more stores on the franchise side, that margin rate, obviously, we use agency accounting, and we only count the agency revenue on the product sales and the royalty. So that margin rate is very high. And as we shift to get to that 150 new stores on the franchise side per year, that will provide some very attractive tailwinds. Second is our new store contribution starts to become a smaller part of the base. The mature stores have a much higher margin profile than the on the company side than the newer stores. That will give us some nice tailwinds on the margin. Then overall, while there are investments that we have to make in SG&A, over the next three to five years, we'll not be investing in SG&A at the same rate as our sales are growing, and that will allow us to enhance margin. Now, all of that comes while you're still trying to mitigate wage inflation, you're trying to manage your marketing spend, and, as you get more sophisticated, but you have to assume your competitors are gonna get more sophisticated. All of those things factored in, we still expect really strong EBITDA growth, and to deliver that kind of growth in EBITDA year-over-year. Well, thanks for joining us today. Thank you. Appreciate the time. Thank you. Thank you.