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 $40.9 million, or 11.0% for the three months ended December 31, 2024 compared to the prior year period. System-wide SSS grew 8.0% year-over-year, driven by balanced contribution from both average ticket and transactions. Average ticket benefited from increased non-oil change service penetration, premiumization, as well as pricing, while transaction growth reflected an expanding customer base. Additionally, net revenue growth was supported by the addition of 155 net new stores over the prior year, which was partially offset by lower net revenues due to the recent refranchising transactions. The following reconciles the year-over-year change in net revenues:

Gross profit

Gross profit increased $18.1 million, or 13.4%, for the three months ended December 31, 2024 compared to the prior year period. Profitability rose largely due to volume expansion from transaction and store growth, in addition to mix improvements from non-oil change service penetration and premiumization. Cost management from labor and materials also supported profit expansion and were partially offset by higher 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 December 31, 2024 compared to the prior year, driven by increased labor efficiency from effective management and scheduling, modestly lower product costs, along with benefits from service mix. This margin leverage was partially offset by higher operating expenses, primarily new store depreciation.

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 increased $8.3 million for the three months ended December 31, 2024 compared to the prior year primarily due to investments to drive continued growth and support scaling of the business. These investments were led by technology, talent and advertising to support the growing stand-alone retail business and its customer base.

Net legacy and separation-related expenses increased $0.3 million for the three months ended December 31, 2024 compared to the prior year due to certain limited realignment expenses incurred to support the stand-alone retail business following the sale of the former Global Products reportable segment.

Other income, net increased $71.5 million in the three months ended December 31, 2024 compared to the prior year primarily driven by the $73.9 million gain on sale of operations recognized commensurate with closing a refranchising transaction to sell company-owned service center stores to a new franchisee.

Net pension and other postretirement plan activity

Net pension and other postretirement plan activity was favorable from the prior year by $4.3 million. The benefits were generally attributable to higher recurring expected returns on plan assets and lower interest cost as a result of the decline in discount rates in the most recent annual remeasurement of the plans.

Net interest and other financing expenses

Net interest and other financing expenses increased $3.9 million for the three months ended December 31, 2024 due to a $6.9 million decline in interest income partially offset by lower interest expense on borrowings. Lower interest income was driven by the invested net proceeds from the sale of Global Products that fully matured in the second quarter of fiscal 2024 and were utilized to repurchase the 4.250% senior unsecured notes with an aggregate principal amount of $600.0 million in the third quarter of fiscal 2024. This repurchase drove lower outstanding borrowings and reductions in interest expense in fiscal 2025 that were partially offset by lower interest expense benefits due to the prior year maturity of interest rate swaps.

Income tax provision

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

The increases in income tax expense and effective tax rate for the three months ended December 31, 2024 is primarily driven by an increase in pre-tax income and unfavorable discrete items compared to favorable discrete items in the prior year.

Loss from discontinued operations, net of tax

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

The loss from discontinued operations, net of tax increased $0.3 million in the three months ended December 31, 2024 from the prior year due to a $2.1 million increase in discrete tax expense and was partially offset by lower costs associated with the separation of processes and systems related to the sale of Global Products in March 2023.

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 $12.6 million for the three months ended December 31, 2024 compared to the prior year period driven by strong operational performance, which was partially offset by increased SG&A investments to support the stand-alone business and future growth.