VALVOLINE INC

Overview

The Company closely manages its liquidity and capital resources. Valvoline’s liquidity requirements depend on key variables, including the level of investment needed to support business strategies, the performance of the business, capital expenditures, borrowing arrangements, and working capital management. Capital expenditures, acquisitions, and share repurchases are components of the Company’s cash flow and capital management strategy, which to a large extent, can be adjusted in response to economic and other changes in the business environment. The Company has a disciplined approach to capital allocation, which focuses on investing in key priorities that support Valvoline’s business and growth strategies and returning capital to shareholders, while funding ongoing operations.

Continuing operations cash flows

Valvoline’s continuing operations cash flows as reflected in the Condensed Consolidated Statements of Cash Flows are summarized as follows for the six months ended March 31:

Operating activities

Cash flows provided by operating activities modestly increased from the prior year due to higher cash earnings that were moderated by the impact of the refranchising transactions, coupled with lower interest payments, which were generally offset by unfavorable net working capital. Interest payments declined primarily due to the repayment of the 2030 Notes in the prior year, while unfavorable changes in net working capital were attributed to an decrease in payables and accrued liabilities largely driven by milestone payments related to product supply, which were partially offset by the favorable impact of receivables year-over-year as the collection cycle improved from the prior year billing delays associated with the implementation of the new enterprise resource planning system.

Investing activities

The decrease in cash flows from investing activities of $220.3 million was substantially driven by proceeds from investments of $344.0 million received in the prior year and increased capital expenditures of $18.2 million in the current year to support store growth. These year-over-year changes in investing cash flows were partially offset by increased proceeds from the sale of operations, net of cash disposed, of $124.7 million primarily driven by completing a refranchising transaction in the current year, in addition to $11.7 million less in acquisition activity during the current period.

Financing activities

Cash flows used in financing activities decreased $133.2 million from the prior year. Of this decline, $151.8 million was driven by lower share repurchases, which were higher in the prior year due to the completion of the remaining authorization available from the Board of Directors (the “Board”) for the Company to repurchase up to $1.6 billion of its common stock in connection with returning a substantial portion of the net proceeds from the sale of Global Products to its shareholders. This decrease was partially offset by $16.4 million in current year payments of excise taxes on share repurchases and a $5.1 million increase in net repayments on borrowings.

Continuing operations free cash flow

The following table sets forth free cash flow and free cash flow excluding growth capital expenditures reconciled to cash flows from operating activities. As previously noted, these free cash flow measures have certain limitations, including that they do not reflect adjustments for certain non-discretionary cash expenditures, such as mandatory debt repayments. Refer to the “Use of Non-GAAP Measures” section included above in this Item 2 for additional information regarding these non-GAAP measures.

The decrease in free cash flow from continuing operations over the prior year was driven primarily by the refranchising transactions. Capital expenditures were higher in the current year primarily to support growth, including new store construction and certain store remodeling expenditures. Valvoline continues to focus the majority of its capital spend toward growth, which is expected to drive a high return on invested capital.

Debt

Approximately 49% of Valvoline's outstanding borrowings at March 31, 2025 had fixed interest rates, with the remainder bearing variable rates. As of March 31, 2025, Valvoline was in compliance with all covenants of its debt obligations and had borrowing capacity of $351.5 million remaining under its Revolver.

Refer to Note 4 of the Notes to Condensed Consolidated Financial Statements for additional details regarding the Company’s debt instruments.

Share repurchases

In July 2024, the Board approved a share repurchase authorization of $400.0 million (the “2024 Share Repurchase Authorization), which has no expiration date. During the six months ended March 31, 2025, the Company repurchased 1.6 million shares of its common stock for $59.8 million. As of March 31, 2025, $325.0 million remained available for repurchase under the 2024 Share Repurchase Authorization.

The timing and amount of any repurchases of common stock will be solely at the discretion of the Company and is subject to general business and market conditions, as well as other factors. The share repurchase authorization is part of a broader capital allocation framework to deliver value to shareholders by first, driving profitable growth in the business, organically and through acquisitions and franchise development; second, to remain within a ratings agency target adjusted EBITDA net leverage ratio of 2.5 to 3.5 times; and third, to continue returning excess capital to shareholders.

Valvoline announced in the second quarter of fiscal 2025 that it was pausing share repurchase activity to accelerate debt repayment in connection with a Term Loan B that will be issued and effective commensurate with closing the Breeze Autocare acquisition.

Summary

Valvoline had cash and cash equivalents of $61.9 million, total debt of $1,075.7 million, and total remaining borrowing capacity of $351.5 million as of March 31, 2025. Valvoline’s ability to continue to generate positive cash flows from operations is dependent on general economic conditions, the competitive environment in the industry, and is subject to the business and other risk factors described in Item 1A of Part I of the Annual Report on Form 10-K for the fiscal year ended September 30, 2024.

Management believes that the Company has sufficient liquidity based on its current cash, cash equivalents, cash generated from business operations and existing financing to meet its pension and other postretirement plan, debt servicing, tax-related and other material cash and operating requirements for the next twelve months.