VALVOLINE INC

The following summarizes the results of the Company’s continuing operations for the years ended September 30:

(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.

Fiscal 2024 marked the 18th consecutive year for system-wide SSS growth with 158 net store additions to the system. The table below highlights the growth over the last year:

Net revenues

Net revenues increased $175.5 million, or 12.2% over the prior year period primarily driven by improvements in volume, mix, and pricing. System-wide SSS growth increased 6.7% with the majority of the gains coming from ticket growth, driven by higher non-oil change penetration, pricing adjustments, and premiumization while transaction growth accounted for the remaining balance. Year-over-year system-wide store growth of 8.5% also contributed to net revenues and volumes through the addition of 158 net new stores. The following reconciles the year-over-year changes in Net revenues:

Gross profit

Gross profit improved 13.6% year-over-year, largely driven by strong top-line growth from higher transaction volumes, increased average ticket, and continued store expansion. These benefits were partially offset by increased store operating costs, including depreciation, as well as higher labor and material expenses. The following reconciles the year-over-year changes in gross profit:

Gross profit margin rate improved compared to the prior year, driven by increased labor efficiency from effective management, along with lower product costs as a percentage of sales. These benefits were partially offset by business mix and higher depreciation.

Net operating expenses

Details of the components of Net operating expenses are summarized below for the years ended September 30:

Selling, general and administrative (“SG&A”) expenses increased $40.6 million compared to the prior year period. This increase reflects ongoing investments in growth, particularly related to the expansion of the stand-alone retail services business following the sale of Global Products in fiscal 2023. The higher costs were primarily driven by investments in stand-alone technology platforms, outside services, and implementation costs which together contributed an increase in expense of $23.8 million. Additionally, increased spending on advertising to attract and retain customers as well as investments in talent combined to increase expense by $16.8 million.

Net legacy and separation-related activity was favorable compared to the prior year by $33.5 million as a result of prior year expenses that generally did not recur. In fiscal 2023, $25.7 million of expense was recognized due to the amendment of the tax matters agreement with Valvoline’s former parent company that resulted in an increased indemnity obligation for the utilization of certain legacy tax attributes. Additionally, expense was recognized in the prior year associated with the modification of certain unvested performance-based stock awards for the continuing operation in connection with the sale of Global Products.

Other income, net increased by $52.8 million primarily driven by a $41.8 million gain on sale of operations recognized from the sale of company-operated service center stores to franchisees and higher rental income of $1.7 million from subleasing portions of certain properties to Global Products, which only included a partial year of income in the prior year. The prior year also includes impairment charges of $9.2 million related to suspended operations and an investment that did not recur.

Net pension and other postretirement plan expense (income)

Net pension and other postretirement plan income decreased $39.3 million from the prior year, primarily due to a lower current year gain on pension and other postretirement plan remeasurement of $2.4 million compared to a gain of $41.6 million in the prior year. The lower remeasurement gain was primarily attributed to a decline in discount rates, which was moderated by higher actual returns on plan assets in the current year compared to the prior year.

Net interest and other financing expenses

Net interest and other financing expense increased $33.6 million during fiscal 2024, primarily due to a $26.9 million decrease in interest income following the maturity of invested net proceeds from the sale of Global Products. These investments began maturing in late fiscal 2023 and fully matured in the second quarter of fiscal 2024 and were utilized to complete the tender offer to repurchase 27.0 million shares of its common stock for $1.024 billion (the “Equity Tender Offer”) in fiscal 2023. They were also utilized in fiscal 2024 to complete a tender offer (the “Debt Tender Offer”) for $598.3 million, or 99.7%, of the outstanding principal amount tendered by the holders of the 2030 Notes. Additionally, debt modification charges and related fees were $6.2 million higher, driven by the current year’s repurchase of the 2030 Notes, which resulted in the write-off of previously capitalized debt issuance costs and discounts, as well as third-party fees associated with the execution of the Debt Tender Offer, which were higher than those recognized in the prior year modification of the Senior Credit Agreement.

Income tax expense

The following table summarizes Income tax expense and the effective tax rate during the years ended September 30:

The higher effective tax rate in fiscal 2024 is primarily due to more normalized activity compared to the prior year period, which included a $29.0 million income tax benefit. This benefit resulted from 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.

(Loss) income from discontinued operations, net of tax

(Loss) income from discontinued operations, net of tax for the years ended September 30 are as follows:

Earnings from discontinued operations declined $1.223 billion compared to the prior year primarily due to the recognition of an after-tax gain of $1.147 billion from the sale of the Global Products business in the prior year period, along with partial-year results from the underlying business in the pre-closing period. In contrast, the current year no longer reflects operational results from the underlying business and includes certain remaining costs to facilitate the separation of processes and systems, which were partially offset by favorable tax adjustments to the gain on sale.

Continuing operations adjusted net revenues

The following reconciles Net revenues to Adjusted net revenues for the years ended September 30:

(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 revenue 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 reconciles Income from continuing operations to EBITDA and Adjusted EBITDA for the years ended September 30:

(a)EBITDA from continuing operations is defined as income from continuing operations, plus income tax expense, net interest and other financing expenses, and depreciation and amortization attributable to continuing operations. Adjusted EBITDA from continuing operations is EBITDA adjusted for key items attributable to continuing operations.

(b)Includes several elements impacted by changes in plan assets and obligations that are primarily driven by the debt and equity markets, including remeasurement gains and losses, when applicable; and recurring non-service pension and other postretirement net periodic activity, which consists of interest cost, expected return on plan assets and amortization of prior service credits. Management considers these elements are more reflective of changes in current conditions in global markets (in particular, interest rates), outside the operational performance of the business, and are also legacy amounts that are not directly related to the underlying business and do not have an impact on the compensation and benefits provided to eligible employees for current service. Refer to Note 10 in the Notes to Consolidated Financial Statements in Item 8 of Part II in this Annual Report on Form 10-K for further details.

(c)Activity associated with legacy businesses, including the separation from Valvoline’s former parent company and its former Global Products reportable segment. This activity includes the recognition of and adjustments to indemnity obligations to its former parent company; certain legal, financial, professional advisory and consulting fees; and other expenses incurred by the continuing operations in connection with and directly related to these separation transactions and legacy matters. This incremental activity directly attributable to legacy matters and separation transactions is not considered reflective of the underlying operating performance of the Company’s continuing operations. During fiscal three months ended September 30, 2023, the Company recognized $25.7 million of pre-tax expense to reflect its increased estimated indemnity obligation which also resulted in an income tax benefit of $29.0 million to reflect the release of valuations allowances in connection with the amendment of the Tax Matters Agreement with Valvoline’s former parent company.

(d)Consists of expenses incurred related to the Company’s information technology transitions, primarily related to implementing stand-alone enterprise resource planning and human resource information systems during fiscal years 2023 and 2024. These expenses include data conversion, temporary support, training, and redundant expenses incurred from duplicative technology platforms, which are incremental costs directly associated with technology transitions and are not considered to be reflective of the ongoing expenses of operating the Company’s technology platforms.

(e)Consists of activity associated with significant acquisitions, investments and divestitures, including legal, advisory and consulting fees, such as diligence costs, in addition to gains or losses recognized upon disposition and expense recognized to reduce the carrying values of investments determined to be impaired. These costs are not considered to be reflective of the underlying performance of the Company’s ongoing continuing operations.

(f)Represents the results of a former Global Products business where operations were suspended during fiscal 2022. This business was not included in the sale of the Global Products business in March 2023. It was classified as held for sale and impaired as of September 30, 2023, and subsequently sold during the first fiscal quarter of 2024. These results are not indicative of the operating performance of the Company’s ongoing continuing operations.

(g)Adjustments to employee termination benefits recognized over remaining employee service periods as a result of company-wide restructuring activities that are not considered reflective of the underlying operating performance of the Company’s ongoing operations.

(h)Adjustment associated with the Company’s change in its policy for benefits associated with compensated absences, the results of which are not indicative of the operating performance of the Company’s underlying operations.

Adjusted EBITDA increased $62.6 million, or 16.5%, for the year ended September 30, 2024 compared to the prior year. This growth was primarily attributable to strong gross profit expansion, which benefited from higher average ticket driven by non-oil change service penetration, net pricing benefits, and increased premiumization, along with increased transactions and unit growth, in addition to operational efficiencies, primarily in labor management, that further contributed to the increase. These benefits were partially offset by investments in SG&A expenses to support the stand-alone business and future growth.