Okay. Good morning, everyone. My name is Mark Jordan. I'm an analyst here at Goldman Sachs. Thank you very much for joining us today at the Goldman Sachs 32nd Annual Global Retailing Conference. It's my pleasure to introduce Valvoline and to moderate our fireside chat. Today, we have with us here Lori Flees, Chief Executive Officer and Director, and Kevin Willis, Chief Financial Officer. Lori and Kevin, thank you very much for joining us today. Thanks [crosstalk] Thank you, Mark. Great to be here. I think a good place to start might be because some in the audience may not be familiar with how the quick lube model is different from the auto service that they see at the local garages on the corner, right? And so can you describe how it differentiates from that service, and maybe talk about what's offered at a Valvoline Instant Oil Change store, what makes Valvoline stand out, and what the value proposition is for your customers? Yeah, sure, so Valvoline is a leading provider of preventative automotive maintenance. That includes a significant amount of that includes an oil change, but not limited to an oil change or other preventative maintenance that an OEM manufacturer of the vehicle recommends, whether it be lubricants and/or parts replacement that keep the vehicle safe to drive but also maintain the value of the engine and the parts and the overall mobility of the vehicle, that's where we're focused. Our proposition is to provide our guests quick, easy, trusted service, quick meaning less than 15 minutes in and out, which is very different than the broader automotive services business. Easy in that we provide very convenient locations where our customers are doing other business, and easy in that they drive in, stay in their car, and then drive off. Don't have to make an appointment. It's literally a convenient, in-and-out service, not dissimilar to going through a drive-through for a Chick-fil-A. And then third, trusted, and where we differentiate on that is that we offer a really great and consistent experience for our customers, which our customers rate us a 4.7 out of 5 stars, over 2,100 + stores. So no matter what location you go with our brand, you get quick, easy, trusted, high-quality experience that people wanna come back to. When we look at what differentiates us, not just within automotive services but also within our category, you know, we have a brand, Valvoline, which is almost a hundred and sixty years old, that denotes quality, and that really underpins the trust part of our value proposition, but we've also built a process enabled by technology that our stores utilize, and that really creates the recipe for the consistent and consistently great experience for our customers, and that's a proprietary set of technology that underpins that process, and training for all of our technicians, then we keep longitudinal data on every customer and every vehicle that we see, and we use that data. We use that data both to perfect the service and make sure that we have all the supply that we need to do the necessary services on those vehicles. But we also use it to keep in touch with our customer and market and retain, as well as use it to know how to acquire the next customers. Well, I've been getting reminded by Valvoline that I'm overdue on my oil change, so you'll see me come in the bay in the next couple of days here. I look forward to it. Yeah, yeah. And I, you know, I would say, I think the biggest thing that resonates with investors is oil changes are, for most vehicle owners, a very inconvenient, scheduled maintenance. But your model introduces convenience to this. On their time, they come in, like as you said, don't leave their vehicle. It's quick, it's easy, it's trusted. Same service at every location. And so it's really winning share, in my mind, from those garages where you have to call and schedule an appointment, and maybe they're not ready for you when you get there, and you have to drop your car off or wait in a waiting room, which is maybe not as clean as you might like, right? Yeah. And so it's really helping the customer and introducing convenience. Okay. And as we think about the broader market for oil change services, there's a couple different components, but one of the big things is the shift from do it yourself to do it for me. There's not many DIYers left, but there's still quite a few that do it for budget reasons or because they're enthusiasts. But over the long term, there is a shift to that do it for me. So can you maybe size those two markets? What's left in DIY, and how big is the DIFM market? Yeah, sure. I mean, this shift has been happening for a while, and it really is driven by technology. As vehicle technology is getting more complicated, owners are less comfortable and less confident doing that maintenance themselves, and when you are looking at the largest or the second-largest asset that you own, you certainly wanna make sure that you're confident in doing the services, so this shift has been happening. Now, I will say during COVID, when many folks were nervous about waiting in the waiting rooms or what locations they were going to, the do-it-yourself market did grow back, and now it's coming back in line with pre-COVID levels. But when you look across all preventative maintenance, not just oil changes, all preventative maintenance, which is some of the data that we've been able to validate through external sources, about 20% of the total spend on automotive maintenance is done in the DIY channel. That is going down, and we're now at pre-COVID levels. Really, the shift is around both the technology and the complexity, but also convenience. To actually figure out what your vehicle needs and to actually find a place that you can do it and environmentally take care of the waste and the other things, it is not a convenient thing to do, and it takes a lot of time. So, a lot of people want to make it quick and easy, and the reality is, in our channel and specifically with us, there isn't a better or an easier experience that you're gonna have getting that done. Yeah, I've, I've done DIY myself, and it is messy. Yeah. Got oil all over me, so it was a good learning experience, though. Okay, so it sounds like Valvoline, over time, continued to benefit from this channel shift in general. But then as we think about quick lube, the last stat I saw was it's still only about a quarter of the do-it-for-me oil change market. So what's that remaining 75% look like between service operator, maybe dealers, local garages, and whatnot? Yeah, it's pretty fascinating. Less than 25% is in the quick lube channel, and 75% is still with the dealer. About 35%-40% of customers go back to the dealer to get that done. A higher percentage of that is in the early years of a vehicle ownership, perhaps because the dealer offers a free oil change. A lot of them offer the first free oil change. Some of them offer more packages or service bundles with the purchase of the vehicle. So dealers continue to do that. They also get to do the oil changes when somebody comes back for a 100,000 mi checkup or those key intervals where more substantive maintenance is required that is not offered in our channel, for example. But then about 35%-40% are done in other automotive services providers, so tire installation, brake replacement, or just a general mechanic or the guy I know down the street, and so that, that's really where the channel shift is coming from. From the data that we've seen post-COVID, a significant shift has come from the dealer channel, but there's, when we open a new store, we tend to acquire commensurate with where customers are, so we take a lot from the dealerships, and we take a lot from general automotive. quick lube, other quick lube providers are not the place that we actually gain share from, so there's still a lot of opportunity. It's very fragmented, and when you look at Valvoline, we only have 5% market share. Our stores are proximate, you know, convenient to about 35%, at most, of the population, and so that share of 25% is limited based on convenient locations that customers trust. Mm-hmm. That's excellent, and you make a good point, right? So that 30 to 35 to 40% that's not at the dealers but other service channels, there's a great opportunity there because your convenience, right? It's not convenient. Yeah. Exactly, and so the convenience helps win that customer over, and anyone I've recommended go to Valvoline has never gone anywhere else. So maybe I should get paid as a spokesman here for the brand, get a commission. I appreciate it. Yeah, but I think, you know, one question for investors, and skipping around a little bit, it's always top of mind, is battery electric vehicles- Yeah ... and the threat to the business model. I think the concern now is a little, or actually, it's much less than it was a couple of years ago, right? Three years ago. Yeah. Yeah, it used to be a larger topic of discussion, and now it's just kind of, "Well, this... You know, maybe it'll come back. Maybe more of a concern," but as we think about it, can you kind of walk through your approach, your framework to thinking about it longer term, and how you expect your addressable market to perhaps evolve over the coming decades? Yeah, so Valvoline has evolved its business as technology has changed. What's interesting is, as our customers even have started to shift to hybrid vehicles, we have a higher percentage of the hybrid car park than we do of the ICE car park. And what that really is, is that as technology becomes more complicated, again, people are looking for service providers that they trust. Now, there has been a slowdown in the enthusiasm around EVs, and a lot of that is infrastructure cost and just the innovation of the technology. There's still many more chapters to unfold, but we know customers are gonna move to where the technology is the best. And so we know that the car park will evolve. We also know that these, whatever vehicle technology consumers choose, it's not gonna come down in price such that they don't wanna maintain that vehicle. They're gonna wanna continue to maintain it. They also are driving more towards convenience. I mean, when I was sixteen, I won't say how many years that was, I worked at Taco Bell, I never in a million years would've thought people would spend $10 to get tacos delivered. This push for convenience and speed is unlike anything for my generation and several generations, and it's not gonna slow down. The expectations are going up, and when you look at the other service providers who have the 75% of the market, they are not offering convenience. Some of them are not as trusted, and when you're talking about an asset that is highly complex, more technology-based, still a significant value, that they want to maintain, they're gonna wanna seek out service providers, and Valvoline has that reputation. We do invest in research, in looking at what maintenance requirements EVs will have, and while they won't have lubricant-based base maintenance, they will have other maintenance requirements, and when you look at our network scale and how convenient we are and will continue to be to customers and the brand and the trust that we create, we will continue to evolve our model to meet the customer in whatever technology choice they have, so we're excited 'cause we're well-positioned, and if you look at any industry that has gone through change. The market leader who is investing appropriately, not too far ahead, but not behind, can move with the consumer and maintain their position. Perfect. Perfect, and then thinking about the consumer, oil change intervals, generally pretty regular, right? Based on mi driven or months that have passed since the last oil change. And as you mentioned, it's a regularly scheduled maintenance for people. It's second most valuable asset most people have. Mm-hmm. So you don't wanna skip that oil change or lengthen it. But, you know, if we think about periods of economic stress in the past, have there been times where you've seen a temporary increase in that oil change interval? People say, "Well, I'll defer it for a couple months" or whatnot, or have you seen that in the past? Yeah, so we've been obviously, with the current uncertainty that we've been talking about for at least the past year, we do look back, and so during the financial crisis in 2008 and 2009, it, it's a good. It's a more extreme situation from an economic standpoint. When we look at our customer, our customer volume and frequency, one, we were growing in transactions during that time. So while a lot of folks saw a significant decline, that's part of our eighteen years of same-store sales, includes that period and we continued to grow. When we look at the intervals of customers, they didn't defer. And part of the thesis around why our business is so resilient is because when you defer, the cost that you could incur would be much higher, and ultimately, you have, you wanna hold onto your vehicle during times like this. So when you're holding onto your vehicle, the maintenance cost that you may incur is much less than the cost of trying to put yourself in a newer or new vehicle. And so the trade-down is, I wanna maintain and hold the asset that I have, so I'm gonna pay a fraction of a new vehicle cost to maintain it and hold on to that asset longer. At the time of the downturn, so we didn't see any deferral. Frequency of service was maintained relative to the car park recommendations. Now, at that time, full synthetic was a very small percentage of the OEM recommendations, whereas now it's very different. So we did see a little bit of trade-down in the lubricant type, not significant. But the car park is so different now, where, the number of vehicles as the new vehicles are moving into the car park that require or recommend full synthetic, has gotten to be a lot higher. So we just don't see the trade-down. And with the life of the vehicle being longer and then, total number of miles, that a vehicle has on it, they do tend to trade up to maintain that vehicle as it gets more mileage or becomes older. Perfect. Perfect. That ties in nicely to how. Well, one of the core drivers of your business, and maybe it's one of the more important ones, is car counts, right? Or cars per day. I know you've been doing some work with your real estate and marketing teams to help improve that. Can you talk about some of the initiatives you're doing with that to try and position the stores in the right place to get the traffic, and then once the stores are up and running, market them appropriately to get the traffic? Sure. I'll start off on that. Lori may have some things to add, but I would say that both our real estate analytics and the process around that, as well as marketing, are actually very core to who we are and what we do and how we grow, first of all, so those are more platform-enabling things that we do today. As we think about that from more specifically on the transaction side, the traffic side, you know, the traffic first of all, Q3, we were really pleased to see that we had improved traffic year over year across our system, the franchise system as well, including mature stores, which can be certainly one of the challenges as the stores mature. We, we've been able to, we've been able to drive that transaction growth. You know, you think about it, the sources of transaction growth, first of all, it's gonna be new stores. We continue to add new stores. Our franchisees add new stores, and we continue to see good transaction growth from that process as well. Fleet sales has been a tailwind. It's a small part of the business today, but it's growing, and so we would expect to continue to see transaction growth via fleet sales as well. Specific to marketing, some of the things that the team has done, we've moved all of our customer data into the cloud. We're able to be much more specific and targeted around what we do and how we do it. One example of that would be certain times of the day, certain days of the week, stores are more busy or less busy. And so using our marketing technology and the sophistication that we have there to help drive traffic to certain times of the day, certain days of the week, getting an inactive customer to reactivate via that, particularly again, on a day or a time that's less busy, is another source. And I would say the technology, and we've talked a lot about technology spend this year. Some of that's been more on the SG&A side, but we've also done a lot of what I would call infrastructure technology upgrades to our store base. The point of that is to give our teams there better capabilities around helping to drive volume. Cut the time down for a car in a bay, greet a customer earlier in the process, maybe in the parking lot, et cetera, to again help drive that transaction growth. And there continues to be share shift. Lori talked about that, and that also continues to be a source of transaction growth for us. Lori, I don't know if you'd add to that, but- That was good. Perfect. And you mentioned greeting customers while they're out in the queue. Is that one of the things where if someone sees three or four cars ahead of them, you can kinda get ahead of that, where they might turn around and say, "Ah, you know, this, I thought this was gonna be a quicker trip," you can get them onboarded, tell them what they need, then they'll, you'll retain them faster? Correct. So, we learn a lot from quick service drive-through, and the reality is when you see those brands like Chick-fil-A that have long lines, they've moved their people, or In-N-Out Burger, they move their people out well in advance of the podium, you know, the menu board and the traditional ordering point. And the reason is because they get the order in and started while the car is moving around, and that's exactly what we do in our busiest stores. We call it an outback process, where we go out back and greet the customer as they drive in, and we start the service on the lot. Now, when the lines get really long, the benefit of that is you could have a customer drive up and be ready to drive off. You could intercept. You can offer them, you know, some kind of incentive to come back at another time. So you've had that interaction to give them a reason to come back versus just drive off. We do have a few stores that are proximate with one another, they even, you know, that they even know, like, "I can direct them to the other store, which typically is less busy than this one." So they do work together as teams as well to serve as many guests as we can. Perfect. Perfect, and then on the flip side of transactions, you have ticket. It's been a strong driver of same-store sales in recent years, but as we think about ticket, there's many more drivers except just net price, so can you talk about the various drivers there and maybe, just in terms of price, how you approach price relative to the broader market? Sure. Net prices is an important part of ticket. I think it's important to think of it as net price because there's the posted price, and then there's discounting that we do. And I'll give a shout-out to our marketing process and sophistication again here because we're much better able today, based on the changes that have been made to how we do our marketing, where our marketing resides in the cloud, customer information in the cloud, we are able to be much more targeted in terms of the discounting that we offer, so that it's much closer to what the customer needs versus just assuming a number. And so that we found that to be helpful. We think that's gonna continue to be, you know, to be a source of improvement. On an overall basis, we're constantly in the market doing pricing tests. We do benchmarking as well, both for oil change and non-oil change services. But we're constantly in the market doing price tests to understand what's possible, what the market will bear, what we can do, where we are, et cetera. And those are just part of the process that we execute from a price perspective. Premiumization, we've talked about it a lot. 80% or so of the transactions that we do involve a premium lubricant. That's a semisynthetic or a full synthetic lubricant, and today, that's call it roughly split about 50/50 between those two, with the remaining around 20% being more conventional oil changes. There's a natural tailwind. Lori talked about the evolution of the car park. That's going to continue. More OEMs are requiring more premium lubricants, and we're benefiting from that today. We'll continue to benefit from it in the future, and you think of the 80% as, okay, so you're here, and you've got this much to grow. Well, even within the premium piece, given that it's more like a fifty-fifty split between semi and full, over time, we will see more vehicles, more OEMs move up the scale to requiring a full synthetic. And so even the semisynthetic that we do today, we will continue to see improvement from there. Another piece of the equation is we have top-quartile stores in our system, and we have stores that are not top quartile. So we continue to see the top-quartile stores get better, and we spend a lot of time and attention moving the lower-quartile stores closer to the middle. I think that's on non-oil change revenue services. That's right. Yeah. Thank you, Lori. Yeah, I got into the next part of it, which is NOCR, another important aspect to ticket. And it's an area that's been focused on a lot, and we've had a lot of success, but there's still room for penetration across the system, improved penetration, and again, the quartiling. The stores that are at the lower end of the spectrum moving, you know, moving them up. And so that all contributes to improve ticket over the course of time. We feel like there continues to be a good bit of runway there. And in terms of premiumization, a big thing is, as you both mentioned, is the OEM requirements, which obviously is just very naturally going to flow through. But I think there's also the trade-up opportunity, where you see a higher-mileage vehicle come in. Maybe the vehicle requires conventional oil, but because it's a higher-mileage, older vehicle, you can trade them up because a synthetic blend or fully synthetic is more appropriate for them, have them last longer. When that happens, do you ever see them trade down, or is that trade-up very sticky? Yeah, normally, people pick a lubricant type, and then they maintain that choice, until the vehicle, you know, hits a milestone or they change vehicles. So customers tend to be very consistent in that. Is there an education component, though, if they're sticky on conventional for price reasons, and you say, "Well, it's better for your vehicle? There is, and we lay out the options for the guests when they come in. Based on the mileage, the person in the window, and if they know the customer a lot of times, we have customers who've been with us for a long time, and they understand perhaps the price sensitivity of those customers. But if they don't, the technology which guides the experience and helps the advisor, the tech in the window, with the customer really talk through their options and what's the merit of each of those options. We really push our people not to oversell, but to let the transparency of what's on the screen and the information guide that discussion, really to educate the customer. Perfect. Okay, and then, Kevin, you were touching on the non-oil change and the different quartiles that you have, you know, the top and the bottom. You know, what is the big driver there? What is the top quartile doing right, and what can the bottom quartile improve on? And my guess is it's a lot to do with training and retention of employees. Yes. It is, and I think that's gonna always be the case. I mean, it's about making sure, first of all, that we have the right equipment in the stores to do all the services that we offer. It's about making sure that we have the techs trained to do those services, they understand how the equipment works, if, in fact, other equipment is required. And then beyond that, it's the process to, as Lori said, educate the customer about, in some cases, what the OEM recommends, if it's an OEM service, like a differential service or a radiator flush or a transmission fluid change, those sorts of things. I think another important aspect of it is executing well, and there are different levels of execution across the system around things like what we call visuals. They're the things that the customer can look at and know whether or not a service needs to be done. Are your wiper blades operating the way you would like for them to? If they're streaking and smearing, then perhaps it's time for a change, so that's something we would offer. We do battery testing, and we do that. We do that every time. That's part of what we do, part of what the technician does. We show the customer the health of their battery, and oftentimes, it's perfectly healthy. Over the course of time, that might change, and so by repetition, we help improve on and enhance that trusted aspect. "No, we're not trying to sell you a battery. We're trying to show you whether or not your battery is healthy," and so over the course of time, once that battery goes from green to yellow or yellow to red, we'll tend to see uptake. It's an infrequent thing, 'cause batteries tend to last a long time, but again, it's just part of the overall process that helps enable that. Air filters, whether it's the air filter under the hood or a cabin air filter, that's another part of the visual aspect. It's either dirty or it's not. It either has leaves in it or it doesn't. And usually, the customer will take the visual cue and make a decision around that. For some of these services, which can be more expensive, much cheaper than what you would pay for them at a dealer, a customer will take time to think about that. You know, come back to marketing. We know that we've offered a service. Perhaps the customer said, "I'll think about it," so we'll follow up on that. They may come back on an individual basis specifically for that service, or they may do it the next time they get their oil changed. We will set that up as a reminder for them that, "Hey, we talked to you about this, and you might want to consider getting this done. Perfect. Perfect. And then I think moving to fleet, you know, I think that's an underappreciated opportunity for growth in the business, right? Mm-hmm. Both in terms of transactions and ticket. Can you just give a broader overview of your fleet business, and maybe how the average fleet transaction differs from retail, and then what you're doing to grow that business? Yeah, so fleet is a very attractive business for us. It's less than 10% of our revenue today but is growing and outpacing our consumer business. About four years ago or so, we actually really professionalized our approach to fleet business, so we treat it like a B2B customer. We deal with all sizes of fleets. We have national fleet accounts, we have regional accounts, and then we just have local. Whether it's, you know, a landscaping company that has a few trucks, they could be one of our fleet customers. And the reality is that we provide a program that allows the fleet manager to go into a system and basically tell us what services they want done and at what intervals, what lubricant type they want done in the vehicle, and what visual services and what other maintenance items, when they are due, on what interval. Most fleet managers are trying to ensure the safety of the vehicle, 'cause it's a business, and if they don't maintain the safety, then they have a liability. And also, they want to maintain the value of the asset to get as much productivity out of that asset as possible. So they are the least likely to defer, and what that means is the ticket tends to be about 20% higher. We do offer discounts to our fleet based on the volume, but those discounts are not significant. They're not higher than our consumer discounts in general. But we also offer other services. So we provide them data on what services were done at what interval. We can set up consolidated billing, or we can take fleet cards. So we are very flexible based on how they want to do business, but the biggest added value is that they tell us what services they need. We don't have to contact them for approval and have, you know, have the car sit in the bay longer. When it comes in and we scan the VIN, we know exactly what we need to do. We take care of business, and we get it back. We get them back into business, and that is a huge value for our fleet customers. Keeping the fleets running, keeping them in operation. Keeping them productive, making money for their owner is really what we try to do. Perfect. Perfect, and then I think the company has great white space opportunity, targeting over 3,500 locations longer term. More recently, you brought on some newer franchise partners to help accelerate growth on that side of the business. And you know, that remains in the early stages of their development, but can you talk about the progress you're making or they're making, and how you incentivize them to grow? Yeah. About three years ago, we were pretty clear that we had a significant opportunity in our franchise area to grow units and the penetration rate of the stores and the market share that we had in markets that franchisees were running had a lot of opportunities. So we put a fairly ambitious, but we felt very realistic goal to triple the number of new units from 50 to 150, and we were very clear on the approach we would take to get there. First, we would really try to use all of the work we had been doing around real estate analytics and understanding the car park demand and the returns for new stores, even when you're getting to a much higher market share, still very strong. We'd use all that information, as well as the fact that we had interest from other parties to become franchisees, to actually get our existing franchisees to commit to higher growth levels, and so we worked to put new development agreements in place that would really get move the 50 to 100 over time. Now, it does take time to build that pipeline, and so we're starting to see some of that growth now, and it will continue, but that would get us to about 100, give or take. We then said we would look forward to bring in new partners, new partners in white space opportunities, new partners maybe recapitalizing an existing franchisee who was at a later tenure in their career and wanting to cash out and bring new capital in to develop or take territory away and give it to someone else. And then we were open to refranchising, taking company markets that still had significant growth potential, where we were, you know, we didn't have a lot of stores, and there was still a lot more build-out to do, and we didn't have our real estate team focused in those markets. The reality is, we've made progress on all of them. So in the white space opportunities, we've welcomed at least three new partners to develop those areas, and they've already started, you know, they've opened some units, and their pipeline is building. We've had taken territory away from partners, again, with full communication around what it would take to keep that territory. But if they weren't willing to commit to the appropriate amount of capital, we would cede that territory to new partners or help them bring in new capital partners into their business, and we've done that. Those are areas that weren't being developed and now are being developed at a much faster rate. So in one of the partners we had, they developed one store every two years. They've already opened three this year. I think they have a couple more that may open before the end of the fiscal year. So to go from a half a store a year to five in one year, big, big change, and then we did do some refranchising in Q4 of last fiscal year and Q1 of this year. We weren't expecting to do that with existing franchise partners, but when we made that statement, we had franchise partners who had already doubled their commitment and said, "We're willing to put more capital to work in this business if you give us more territory to develop." So we did that in a couple of cases, and then we refranchised and brought a new partner in. In all of those cases, you're looking at doubling or tripling the number of stores. So yes, there's a reduction of revenue in the short term. Obviously, you get a good market rate, but it's the two to three times growth that really is what drives more capital-efficient growth, but a very good return on overall investment and shareholder return. Excellent, excellent. Well, this has been great. I think we're out of time here, but Lori and Kevin, I really appreciate you both. It's been a great conversation. Thank you again. Yeah, thanks, Mark. Appreciate it.