VALVOLINE INC

The following summarizes the results of the Company’s continuing operations for the periods ended December 31:

(a)Refer to the “Use of Non-GAAP Measures” and Continuing operations EBITDA and Adjusted EBITDA for management’s definitions of the metrics presented above and reconciliation to the corresponding GAAP measures, where applicable.

Net revenues

Net revenues increased $40.6 million, or 12% for the three months ended December 31, 2023 compared to the prior year period. Store operations drove top-line expansion with system-wide SSS growing 7.1% from both ticket and transaction improvements, in addition to store growth with 144 net new stores from openings and acquisitions contributing the balance of the increase. Ticket contributed about 75% to the system-wide SSS growth where half of this benefit was driven by premiumization and non-oil change service penetration with the balance from increased pricing. Transaction growth contributed the balance to the system-wide SSS growth driven by increased customer base as well as modest contributions from miles driven. The following reconciles the year-over-year change in net revenues:

Gross profit

Gross profit increased $16.0 million, or 14%, for the three months ended December 31, 2023 compared to the prior year period. Profitability improved due to cost efficiencies, primarily within labor and increased non-oil change service penetration, premiumization and pricing actions driving expansion in line with those from store and transaction growth. More efficient labor costs were partially offset by pressures in materials and store operating expenses, including higher depreciation for technology placed into service late in the prior year.

The following reconciles the year-over-year change in gross profit:

Gross profit margin improved modestly in the three months ended December 31, 2023 compared to the prior year primarily due to labor efficiency from effective management, including improved retention rates where Valvoline saw low attrition consistent with the Company’s experience before the COVID-19 global pandemic. Improved retention rates resulted in staff with more tenure providing efficient best-in-class customer experiences and contributing to improved service mix.

Net operating expenses

Details of the components of Net operating expenses are summarized below for the periods ended December 31:

Selling, general and administrative expenses (“SG&A”) increased $8.5 million for the three months ended December 31, 2023 compared to the prior year period. This was principally driven by costs from transitioning to stand-alone information technology platforms, higher travel expenses related to the Company’s annual meeting and store growth, as well as increased advertising for supporting attraction and retention of customers. Additionally, SG&A as a percentage of net revenues was relatively flat year-over-year as leverage from right-sizing the stand-alone organization was offset by technology transition and travel costs.

Net legacy and separation-related expenses decreased $25.3 million for the three months ended December 31, 2023 primarily due the recognition of expense in the prior year that did not recur. During the prior year period, Valvoline recognized expense of $24.4 million to increase the indemnity obligation and reflect the utilization of certain legacy tax attributes associated with the amendment of the tax matters agreement with its former parent company.

Other income, net increased $0.7 million in the three months ended December 31, 2023, compared to the prior year primarily due to higher rental income from subleasing properties in connection with the sale of Global Products.

Net pension and other postretirement plan expenses

Net pension and other postretirement plan expenses decreased $0.3 million for the three months ended December 31, 2023 compared to the prior year period. The decrease was generally attributable to higher recurring expected returns on plan assets partially offset by higher interest costs of the rate environment as a result of the most recent annual remeasurement of the plans.

Net interest and other financing expenses

Net interest and other financing expenses decreased $5.1 million during the three months ended December 31, 2023, compared to the prior year period. Interest income of $7.8 million earned on the net proceeds from the sale of Global Products more than offset by increased interest expense from higher rates on outstanding borrowings in the current year period.

Income tax provision

The following table summarizes income tax provision and the effective tax rate for the current and prior year periods:

The increase in income tax expense and effective tax rate for the three months ended December 31, 2023 was driven by more normalized activity in the current year period as compared to the prior year. The prior year period included the recognition of a $26.5 million income tax benefit for the release of a valuation allowance due to the change in expectations regarding the utilization of certain legacy tax attributes as a result of the terms of the amended tax matters agreement with Valvoline’s former parent company. This amendment also resulted in higher Net legacy and separation-related expenses of $24.4 million for the related increased indemnity obligation.

(Loss) income from discontinued operations, net of tax

The following summarizes (Loss) income from discontinued operations, net of tax for the current and prior year periods:

Earnings from discontinued operations declined $56.9 million in the three months ended December 31, 2023 compared to the prior year primarily due to the sale of the Global Products business in March 2023 resulting in the current year period reflecting costs associated with the separation of processes and systems and no longer reflecting operational results from the underlying business.

Continuing operations adjusted net revenues

The following table reconciles Net revenues to Adjusted net revenues for the current and prior year periods:

(a)Represents the results of a former Global Products business where operations were suspended during fiscal 2022 that were not included in the sale.

(b)Adjusted net revenues is defined as Net revenues adjusted for key items.

(c)Represents a non-GAAP measure. Refer to “Use of Non-GAAP Measures” for management’s definitions of the metrics presented above.

Continuing operations EBITDA and Adjusted EBITDA

The following table reconciles Income from continuing operations to EBITDA and Adjusted EBITDA for the current and prior year periods:

Adjusted EBITDA from continuing operations increased $16.9 million for the three months ended December 31, 2023 compared to the prior year period driven by increased profitability in store operations driven by labor efficiency, higher ticket and increased transactions as well as unit growth. These benefits were partially offset by increased SG&A investments to support future growth.