You ready? Mm-hmm. All right, we'll get started. Thanks, everyone. My name is Peter Keith, Senior Research Analyst at Piper Sandler, covering broad lines and hard lines retail. Very happy to have Valvoline with us today. So as you may or may not know, Valvoline is the nation's largest quick lube operator in the U.S. Also have stores in Canada. There are 2,000 total stores today. The company did come public in 2016, but importantly, in 2023, it sold off its global products business. Valvoline today is a pure-play, high-growth, quick lube chain operator. I happened to initiate coverage in mid-June of this most recent year, and we're very happy to have Valvoline make their debut performance at the conference. A debut appearance, excuse me. I was thinking ahead to my next sentence, which I was excited to say, we had about 30 investors here in Nashville visit a local Valvoline chain, and it was a fantastic visit, where we really got to see the nuts and bolts of the operation. So with that, I'd like to introduce Lori Flees, who is with me on stage today as CEO. In the back, I did wanna point out, Mary Meixelsperger is here, CFO. Elizabeth Russell is here, Senior Director of Finance, and of course, Jordan Denny, the Treasurer and Vice President of Investor Relations. So thank you, Valvoline team. Thank you. Let's dig into it. So Valvoline, the oil services, we'll call it recession-resistant. I think there's a lot of questions on the consumer right now. So what is Valvoline seeing in terms of consumer performance? Are you seeing any trade down, maybe lack of attachment services? What's going on out in the field today? Yeah, I mean, for Valvoline, we see really strong demand for our services. Preventative maintenance has been a pretty resilient part. We don't, we don't actually suffer or benefit from broad macro trends. It's considered more a non-discretionary or spend relative to other retailers. And, our business continues to grow really strongly. We do not see customers deferring their maintenance. We also don't see them trading down for lesser value lubricant. I think some of that is because, the car park is a lot older, and people want to spend a little bit of money to maintain their vehicles for a longer period of time than spend a lot more money upgrading their vehicles. You know, we still get a benefit of miles driven. Some of the interval in terms of, drain intervals stay very consistent. So overall, the business is very healthy from a customer perspective. Okay, great. And so I wanted to dig into your role. So you took over the CEO chair in October of 2023. You had been at the company for about a year and a half as President of Retail. You have a long tenure from Walmart, and so I know there hasn't been a huge strategy shift, but I'm always interested, someone... Now, you've been in the chair for almost a year, what are some areas of focus of yours as you've taken the reins here that we should be aware of? Yeah, when I came to the business two and a half years ago, we really did step back and put together a very clear strategy for our business, which built on an amazing track record of growth. And so I came to the team excited about to be a part of the growth story and continuing it. As I came from the world's largest retailer, there are certain things that I think I saw as opportunities that I with the team continued to lead into. First is, the company has an amazing track record to drive growth, both same-store sales and new unit growth. But the focus on efficiency of that growth was less a focus. And so I think, you know, when you work for a retailer who focuses on price and winning on price, they have to focus on cost. Now, at Valvoline, we don't focus on price. We are more expensive in the market than the lowest cost preventative maintenance service providers, but we provide tremendous value, and that's really in making our service high quality for the vehicles that are, you know, an important asset on the balance sheet, but also just driving speed and convenience for the customer. People are willing to pay more to save time. And so, but that doesn't mean, as an operator, we can't focus on cost and efficiency, both in terms of how we drive leverage from labor as well as store expenses, but also in marketing. In our channel, we spend a lot of money in marketing, and we used to compare ourselves to others, our other competitors, who are not very sophisticated. Coming in from other retail, there are a lot more sophistication in marketing spend and performance marketing that we are just seeing the early stages of, so there's a lot of opportunity there. I think the other thing is, in my past life, trying to leverage technology to drive efficiency that can provide some real step change, benefits from efficiency and/or customer engagement or employee engagement. Valvoline did invest a lot of money in the mid-2000s, creating a state-of-the-art at the time SuperPro technology, which really aids the service experience for those that were able to come to our store, can see the value that that creates in ensuring that the person serving the customer handles exactly what that customer needs for their make and model, year, and mileage requirements. And it also speeds up the process. But that technology is relatively old, and there's a lot more that we could do to modernize it and re-engineer our process. So how do you re-engineering the service process? How do you use more technology to make the store more efficient? So that's a great opportunity to lean into. Second is, as capital costs were rising for new units, construction costs, general contracting, and subcontracting costs were rising, Valvoline wasn't in the business of relooking at their store design, relooking at the new unit capital costs. Other retailers, with such as the one I've been in, they're constantly reevaluating, How do I strip capital costs out of new units to actually make my proposition viable in more markets and to maintain a fantastic return? So that's been another area that our team has really leaned into. Pulling in experience from other retailers to lead that team, from McDonald's, from Wingstop, and others, who are used to relooking at their box, relooking at their material costs, and really driving down construction costs for new units. Okay. So it was interesting to me visiting the store. I think Jordan was pointing out to me, like, I think you paint the ceiling of the garages. We even have a ceiling. Right, yeah. I mean, that's, that's the part- Yeah ... that you don't even need. Yeah. As you drive into the bay, and you don't get out of your car, but we have a ceiling. It looks very nice. We pay to put a ceiling in place. Yeah. And we make it look nice, and there's extra cost in that. Yeah. There are extra costs that our team has put in place because they want it to be a beautiful facade and a beautiful experience for the customer. But the reality is, the customer doesn't notice it. Yeah. And so you have to really ask yourself, is that incremental capital cost giving you a return, either in the employee experience, which leads to better retention, or the customer experience, which leads to a higher ticket or higher retention or something that you can monetize? Otherwise, you have to question why you do it. Yeah. Yep, okay. So, on that point, so I think one of your value propositions is the customer stays in the car. Mm-hmm. That's why they wouldn't necessarily notice the nicely finished ceiling. Ceiling. Just talk about your differentiation in marketplace, how long it takes to get the oil change at other peers that might be doing what you're doing. Sure. Our business is a comprehensive preventative maintenance. The base service, which would be the oil change and an 18-point safety check, takes 15 minutes or less. Now, we have some stores that are doing it in nine, eight, or nine minutes, but the average is around fifteen. The reality is that we have a SuperPro process, which those that were in our store, there's technology that guides that service experience. It imports all of the data that we have on the customer, but also all of the manufacturer's specs in terms of what's required at what mileage intervals, and then anything that that customer or whoever owned the vehicle before had done and had been uploaded into CARFAX data. All of that gets pulled into our technology and on the screens for both the customer to see and our employee to walk them through it. Okay, great. So, maybe on the competition, who are you competing against? Mm. I think you've historically provided a little bit of a breakdown around share by industry group. Could you provide that for us today, and then where you see the biggest share opportunity? Sure. When we look at where you can go to get your oil changed, now, there are about 470 million oil changes done in the U.S. every day. There's also some- Every year. Every year. Yeah. Not every day. Thank you. Every year. There are some people that still do it themselves, but as technology in the vehicles is getting more complicated, that is growing into the do-it-for-me category, where we compete. But in the 470 million, about 40% of those are still done at a dealership. Most of the biggest penetration dealership comes from vehicles that are less than three years old, so they're still under a three-year, 36,000-mile warranty. And a lot of consumers believe that they can only trust the dealer when it's under warranty, and some believe that they can only trust the dealer beyond that. Then about 35%-40% of the market is served by general automotive service providers. That can include tire, tire installation locations, but it can also include the general mechanic down the street and/or, collision and repair, so very, very fragmented, both the dealer and that part of the business. 75%-80% of the market is served there. Very, very fragmented, and then about 20%-25% is in the category we operate, which is quick lube providers, and that means it's an independent or chained organization that just primarily focuses on oil change. That's the majority of their business. And within that, we have about 5% of total market share or 25% of that category. Okay. So, yeah, with the dealerships and general service garages, you have to make an appointment or certainly get out of your car and- Incredibly- take an hour or two, so Inconvenient. Yeah. And- Do you think... Is there one segment that you think you're gaining the most share from? We're actually gaining share. I think quick lube's gaining share from both the dealers. Yeah ... and the general automotive. I think more from the general automotive than dealership because of a trust factor. But the reality is most consumers today are trying to solve for convenience and time, and the vehicle is a key gateway to all of the activity, both for income generation as well as kids and school, et c. They can't afford to put the car into a dealership or a general mechanic and leave it there for the day and try to find transportation elsewhere, or to sit in a waiting room and wait, and so it's this whole drive for convenience is shifting people into the quick lube channel. Now, trust is a table stakes for shifting. They have to trust your brand. They have to trust your people, because a vehicle is, if not the most expensive thing on some family's balance sheet, it's definitely the second, at least, and people wanna maintain that asset. So they don't wanna take it to just anywhere to be maintained. They wanna take it somewhere that they trust. Sure. Okay, great. So I wanna dig into some financial questions. More on the big picture, though, 'cause you have this really attractive multi-year sales growth target of 14%-16%. Mm-hmm. About half of that is unit growth, and half of that is same-store sales growth. Let's tackle the unit growth target of 7%-10% first. Sure. So, I looked it up, and historically, you have actually grown at 8% CAGR since 2016, so this is not anything new, but you have the law of large numbers. The two-part question would be: Can you get to 100 company-owned units per year based on real estate availability? And then separately, can you get to 150 franchise openings per year when that's having someone else's capital go to work? Right. Well, as I mentioned, it's an incredibly fragmented market. The quick lube channel is only serving 20%-25% of the business, and really, the barrier is access, and network growth is the way you can provide more access to that quick, easy service. When we stepped back, and we looked at the real estate analytics for our business in terms of where was the population density, demographics, competitive environment, attractive enough for us to build or invest the capital in a store, we easily could get to a number that was double. This was two years ago. It was double where we were at, or 3,500 units. And as we looked at, how do you get to 3,500 units? We operate certain territories or geographies as company territories. That means we are operating company stores in those areas, and we have geographies that our franchisees are operating stores. One of the value propositions that we offer our franchisees is we will allow them to develop a territory if they commit a certain amount of capital to develop a territory exclusively. That really allows them to drive attractive regional economics and scale. With that in mind, as you build up the market for the 3,500, what's the pace that company could get to? The pace will be driven both by our real estate and construction capacity and horsepower, the capability that we have of those teams and our select partners who help us develop efficiently and at the quality standards we have, but it's also developing the team. We have to make sure we build our team from within, so as we add stores, we have to make sure we have the team ready to open those stores. When we buy stores, we use the labor that's there, and we retrain, etc. But when we build, which has a very attractive return, we have to make sure we have the team. So we put a stake in the ground that we would get to a hundred units by next fiscal year, fiscal year 2025, and we're making very good progress to that. When you look at all of those 3,500 potential sites, there was a significant amount of them that were in our franchisees' territories. Now, we have been doing a lot of work with this real estate analytics capability, and we have proven its value to our franchisees. Half of the builds that they're doing today are de novo builds. They used to do almost all acquisitions, very few builds. But with the power of the analytics and the precision that we've been able to forecast, it takes the risk out of the capital investment, and so they have been building more de novo sites. So when you build up that credibility, and you sit down and you look at their territory, and you outline all the opportunities, you can actually talk about how much potential is there and what we require them to develop. We also are willing to support them in developing, but as a year and a half ago, almost a year and a half ago, maybe more than a year ago, we were very clear that we were entertaining new partners, and we have a lot of interest, both from family offices, companies that own quick service restaurants that wanna get into a new vertical or even private equity. And so it's a good discussion to have, where you've proven there's the opportunity, and you go to your franchise partner, which we have fantastic partners we've been in business with for 25 years or more. They believe the economics. You want them to develop more. They're generating the capital to develop, and if they don't wanna do it, you have people standing in line. Creates a very different dynamic. Sure. But it's taken a long time to get here, and so that's what's creating the momentum with our existing franchise partners. Now, when we talk about 150 new units on the franchise side per year by FY 2027, not all of those are gonna come from our existing franchise base. We think about two-thirds of them will come from the existing franchise base, and that will be a doubling for them. So that's very, you know, very aggressive doubling of growth for our existing franchise partners. The rest will come from new partners, and the new partners, we've already begun the process, and we've onboarded a couple is looking at white space opportunities. That's opportunities in regions that neither company or franchisor are operating stores, so completely white space. Instead of saying those are company markets, we've said they're franchise markets, and we're gonna recruit franchise players because it is a more capital-efficient way to grow our network more quickly. We also have some franchise partners that have been in our business for thirty years or more, and they're ready to transition. They haven't been developing, but their market still has opportunity to develop, and we've been working with them to transition their business to new ownership with capital that will develop. And then the last, which we just announced, our first foray into this, is to look at company markets that we're not developing fast enough relative to the population growth and the potential, but we have a franchise partner, existing or new, who wants to expand and put more capital to work. Obviously, you got to get the right partner. You have to make the economics work, so we don't see that being a big swing to all franchise. But where it makes sense, we'll entertain that, and we already know the areas, and we're having conversations, so we are on a path to be at 150 new units by 2027. Okay, great. That's very exciting on the store growth. We've got about five minutes left, and so want to make sure we spend some time on same-store sales. Same-store, that's right. Let's go. Yes. You have a very attractive annual target of 6%-9%. Some would say, "Well, that seems a little too high, like, so very aggressive." Get us through the building blocks and maybe even just to break it down with ticket growth versus transaction growth, and why you feel like that is a very reasonable range to guide the Street to. Yeah, in 2022, two years ago, 2022, we talked about what our growth algorithm would be, and that's when we were coming off of pretty high inflationary periods with double-digit same-store sales. But when we look forward, and this is really over a three to five-year period, we believe that the balance between ticket and transaction growth will be more balanced than what it has been in the last 12 to 18 months. Now, when you look at the drivers, it might mix out differently in any given year. This year that we're in, it's mixing out higher on the ticket side than the transaction side. But when you look at what's driving it, on the ticket side, if you think fairly balanced, about a third comes from premium mix, which is as the car park evolves to require more full synthetic, that gives us a ticket lift. Second is non-oil change revenue. We've been making significant gains in non-oil change revenue, but I will tell you there's still a lot more opportunity, and I wouldn't call it low-hanging fruit. It's not on the ground. It's not picking it, the fruit off the ground, but it's still low-hanging, and our team is going after it with better training, better tools, and more education around our value proposition and how to talk to customers about the needs of their vehicle. And then the last is net pricing. Net pricing is about optimizing the discount rate, so you're not over-discounting where you don't need to, and then it's the posted price, which we have always raised our prices. We've never reduced our prices, even in slower economic cycles, and we continue to see that as an area of opportunity. Some years, we may move slower on price, just given the competitive environment. We have to be careful not to get too far over the market with our pricing, but make sure that we're priced appropriately while each region by itself. So that those three drivers drive a lot. Yeah, that's, those are three good drivers. Very good drivers. Yeah. Very steady and stable as well. Then on the transaction side, we have the maturing store base that offers a good amount of comp, about 100 basis points of comp for the maturing store base that's in the same stores group. We also have fleet, which is growing faster than our overall customer base. That's adding to the comp. We also have some efficiency or technology that's making the service faster, and when you make the service faster, it means you can get more cars during peak periods, which for us is middle of the day till about 4:00pm in most of our stores. It's on Thursdays, Fridays, Saturdays, and Mondays. So how do you... And then you can use marketing to smooth the demand out to other periods for customers that are less loyal, or they need more incentive or discount to come. You can give them a discount that's only available on Sundays and Wednesdays when you've got the capacity to serve. So there's a lot of things that we're experimenting, we're trialing, both using technology and using sort of, marketing test and learn in order to drive more cars in every location. Okay. All right. And then, yeah, the store yesterday at around 3:30pm -4:30pm, 3-bay location was full the whole time we were there, so we could- It was, but it's a new store. Yeah. It's only been open around 60-65 weeks- That's great ... and that store is very close to a two-bay store that's doing 70 cars a day. We specifically put the store in because there was more demand than the two-bay could do. It's already ramping up, and the two-bay is still doing 70 cars a day. Great. It's, you know, people ask whether or not we're worried about cannibalization or transfers. Again, our real estate analytics will tell us how many customers will transfer, but how many will likely backfill- Okay ... within a short period of time. So, so far, you know, it's proven to be very successful, and our returns are fantastic. Okay. So, we just have a minute left, make it a little longer. I want to get the one question in. What we're getting the most is, you have this 6%-9% comp target. Fiscal Q3, your report came in at 6.5, and then you're guiding this upcoming quarter to be roughly around 6. I think in the call, you talked about some price promotions from competitors. You talked about some a higher ad spend from competitors. And I think the street ran with that as it's getting more competitive, and that sounds awful. Yeah. I don't think that was your intent- No. So just want to clean that up a little bit. Yeah. So the thing that we're seeing from a competitive standpoint is where marketing dollars are spent. The discount level and the amount of share that we're gaining is not changing. It's really around performance marketing and Google search terms, which are in an auction environment. You can actually see when more money flows into that channel because it bids up your pricing. And we've been in that channel for more than a year, and this was a noticeable increase in the bid up. So what that means is that the cost per click or cost per new customer went up slightly more than we would have anticipated. We think that's a new normal as competitors get more sophisticated and learn from what we're doing, perhaps, or what's happening in broader retail. In terms of our same-store sales, I mean, 6.5 in this market- That's great, yeah. And in this economy, is amazing. I think we did have some issues in July that we were quite honest about in terms of CrowdStrike impacted us. We don't think it impacted the broader market to the same extent. That did impact our, that will impact our Q4. We saw the impact in July, in terms of the new customers that we would have acquired on a busy, busy period. We also had, Hurricane Beryl and some other factors. So I think, you know, we always get asked when we share earnings, "How's the current quarter going?" And unfortunately, there are a few things that did impact us in July that will impact the comp in July. But fundamentally, the momentum of the business, the underlying health of the business, there's not a lot that's changing, other than we have to pay a little bit more for some search terms on Google than we used to last quarter. Okay. All right. Well, we'll leave it there. Thank you very much, Lori. It's a great discussion, and thanks for coming. Thank you. Thank you.