VALVOLINE INC

The following summarizes the results of the Company’s continuing operations for the periods ended March 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 $44.2 million, or 12.8% for the three months ended March 31, 2024 compared to the prior year period. Store operations fueled top-line expansion with system-wide SSS increasing by 7.7% largely due to increased ticket from non-oil change service penetration with the balance from net pricing and premiumization. Transaction growth contributed modestly to system-wide SSS growth driven primarily by benefits from day mix. Additionally, revenue growth was bolstered by the addition of 147 net new stores through openings and acquisitions. The following reconciles the year-over-year change in net revenues:

Net revenues increased $84.8 million, or 12.5% for the six months ended March 31, 2024 compared to the prior year period due to volume, mix and price improvements, as well as store expansion through net new openings and acquisitions. System-wide SSS grew 7.4% compared to the prior year with ticket contributing the majority of the benefits from non-oil change service penetration, premiumization, and pricing actions, in addition to increased transactions. The following reconciles the year-over-year change in year-to-date net revenues:

Gross profit

Gross profit increased $19.5 million, or 15.4%, for the three months ended March 31, 2024 compared to the prior year period. Profitability increased primarily due to mix improvements from non-oil change service penetration and premiumization. Additionally, strategic pricing actions coupled with cost efficiencies, particularly in labor and modest benefits from materials increased profitability and were partially offset by increased store operating expenses, including higher depreciation. The following reconciles the year-over-year change in gross profit:

Gross profit margin improved in the three months ended March 31, 2024 compared to the prior year primarily due to labor efficiency resulting from strong schedule management.

Gross profit improved $35.5 million, or 14.5%, for the six months ended March 31, 2024 compared to the prior year period driven by increased average ticket from non-oil change service penetration and premiumization as well as pricing actions. Additionally, increased transactions and unit growth also provided benefits along with improved labor management. The following reconciles the year-over-year change in year-to-date gross profit:

The improvement in gross profit margin in the six months ended March 31, 2024 compared to the prior year was primarily due to pricing actions and labor efficiency which resulted in staff providing best-in-class customer experiences improving overall service mix. These benefits were partially offset by increased store operating expenses, including higher depreciation.

Net operating expenses

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

Selling, general and administrative expenses (“SG&A”) increased $9.7 million and $18.2 million for the three and six months ended March 31, 2024, respectively, compared to the prior year periods. These increases were principally driven by costs from implementing stand-alone information technology platforms, and increased investments in advertising to attract and retain customers and talent to support future growth. Additionally, higher travel expenses related to the Company’s annual meeting and store growth contributed to the increase in the six months ended March 31, 2024.

Net legacy and separation-related expenses decreased $3.8 million and $29.1 million for the three and six months ended March 31, 2024, respectively, compared to the prior year periods attributable to activities that did not recur. In the three and six months ended March 31, 2023, the expense was primarily associated with the modification of certain performance-based unvested stock awards as a result of the sale of Global Products as well as 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 during the six months ended March 31, 2023.

Other income, net increased $1.6 million and $2.3 million in the three and six months ended March 31, 2024, respectively, compared to the prior year periods, primarily due to higher rental income from subleasing properties in connection with the sale of Global Products partially offset by expense associated with an investment impairment of $1.0 million in the prior year period which did not recur.

Net pension and other postretirement plan expenses

Net pension and other postretirement plan expenses were flat in the three months ended March 31, 2024 and decreased $0.3 million in the six months ended March 31, 2024 compared to the prior year periods. 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 increased $2.2 million and decreased $2.9 million during the three and six months ended March 31, 2024, respectively, compared to the prior year periods. While higher rates on outstanding borrowings increased expense during the periods, interest income on invested remaining net proceeds from the sale of Global Products drove benefits. These benefits more than offset the increased expense in the year-to-date period and were lower to partially offset increased expense in the quarter as the investments matured prior to executing the Tender Offer in April 2024.

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 for the three months ended March 31, 2024 was principally driven by higher pre-tax earnings, while the reduction in the effective tax rate was primarily attributed to the favorable impact of discrete tax benefits. The increases in income tax expense and the effective tax rate for the six months ended March 31, 2024 were driven by more normalized activity in the current year period as compared to the prior year period which 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 for the six months ended March 31, 2023.

(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 $1.196 billion and $1.253 billion in the three and six months ended March 31, 2024, respectively, compared to the prior year periods primarily due to the recognition of a gain on the sale of the Global Products business in March 2023 resulting in costs associated with the separation of processes and systems and no longer reflecting operational results from the underlying business for the three and six months ended March 31, 2024.

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 are reported 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 $18.0 million for the three months ended March 31, 2024 and increased $34.9 million in the six months ended March 31, 2024 compared to the prior year periods driven by strong revenue growth primarily due to higher average ticket from pricing actions, non-oil change service penetration, and premiumization. In addition, improved labor cost efficiency was partially offset by SG&A investments to support future growth.