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 $14.5 million, or 3.7% for the three months ended March 31, 2025 compared to the same period last year. System-wide SSS grew 5.8% over the prior year primarily from increased average ticket due to premiumization, net pricing benefits, and continued non-oil change service penetration. Transaction growth also contributed to system-wide SSS growth reflecting an expanding customer base, while net revenue growth was also supported by the addition of 150 net new stores over the prior year. These increases were partially offset by reduced net revenues due to the recent refranchising transactions. The following reconciles the year-over-year change in net revenues:

Net revenues increased $55.4 million, or 7.3% for six months ended March 31, 2025 compared to the prior year period largely due to higher volume, favorable service mix, continued store expansion through net new openings and acquisitions, as well as pricing benefits. System-wide SSS grew 6.9% compared to the prior year due to an increase in average ticket supported by growth in premiumization, pricing improvements, and non-oil change service penetration, while transaction growth drove the remaining improvements from an expanding customer base. These benefits were partially offset by lower net revenues as a result of the refranchising transactions. The following reconciles the year-over-year change in year-to-date net revenues:

Gross profit

Gross profit increased $4.3 million, or 2.9%, for the three months ended March 31, 2025 compared to the prior year period. The increase was primarily driven by volume expansion and improvements in service mix. These benefits were partially offset by increased product costs and the impacts from refranchising transactions. The following reconciles the year-over-year change in gross profit:

Gross profit margin declined in the three months ended March 31, 2025 compared to the prior year. The decrease was driven by higher store operating expenses, primarily depreciation due to investments in store growth, modest deleverage in product costs, and the impact of recent refranchising transactions. These impacts were partially offset by efficiency in labor costs, including strong workforce management, scheduling and moderating wage inflation, in addition to benefits from service mix.

Gross profit improved $22.4 million, or 8.0% for the six months ended March 31, 2025 compared to the prior year period, driven by top-line growth and improvements in mix. These benefits were partially offset by increased store operating expenses, including depreciation and the impacts from refranchising transactions. The following reconciles the year-over-year change in year-to-date gross profit:

Gross profit margin modestly improved in the six months ended March 31, 2025 compared to the prior year. The improvement was driven by labor efficiency through effective management and scheduling that was partially offset by higher operating expenses, including 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 increased by $14.0 million and $22.3 million for the three and six months ended March 31, 2025, respectively, compared to the prior year periods. These increases reflect investments to support the Company’s continued growth and scaling of the business. The primary drivers of the increase were technology, including outside services, talent, and advertising which combined to increase expense by $11.7 million and $19.5 million in the three and six month periods ended March 31, 2025, respectively.

The Company currently expects to incur approximately $20 million in selling, general and administrative expenses during the second half of fiscal 2025 for transaction fees, integration costs, and legal support to obtain regulatory approval and support completion of the Breeze Autocare acquisition.

Net legacy and separation-related expenses increased $0.8 million and $1.1 million for the three and six months ended March 31, 2025, respectively, compared to the prior year periods primarily due to certain limited realignment costs incurred to support the stand-alone retail business following the sale of the former Global Products reportable segment.

Other income, net increased $1.0 million and $72.5 million for the three and six months ended March 31, 2025, respectively, compared to the prior year periods. The increase in the three months ended March 31, 2025 was primarily driven by higher rental income from subleased properties. For the six months ended March 31, 2025, the increase was largely due to the $74.2 million gain on sale of operations recognized commensurate with closing a refranchising transaction during the first quarter of fiscal 2025 to sell certain 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 by $4.5 million and $8.8 million for the three and six months ended March 31, 2025, respectively, compared to the prior year periods as a result of 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 $1.4 million and $5.3 million for the three and six months ended March 31, 2025, respectively, compared to prior year periods. The increase was driven by a $5.5 million and $12.4 million decline in interest income in the three and six months ended March 31, 2025, respectively, due to the maturity of invested net proceeds from the sale of Global Products. These net proceeds were utilized to repurchase the 4.250% senior unsecured notes in the third quarter of fiscal 2024, leading to lower interest expense of $4.1 million and $7.0 million during the three and six months ended March 31, 2025, respectively.

Income tax provision

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

The changes in income tax expense year-over-year for the three and six months ended March 31, 2025 were principally driven by pre-tax earnings. Additionally, the modestly higher effective tax rates year-over-year were primarily attributed to decreases in the favorable impact of discrete tax benefits compared to the prior year periods.

Loss from discontinued operations, net of tax

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

Loss from discontinued operations, net of tax decreased $1.2 million and $0.9 million in the three and six months ended March 31, 2025, respectively, compared to the prior year periods primarily due to lower costs associated with the separation of processes and systems related to the sale of the former Global Products reportable segment.

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 declined $0.7 million in the three months ended March 31, 2025 and increased $11.9 million for the six months ended March 31, 2025. The decrease in three months ended March 31, 2025 was primarily due to continued growth investments in selling, general and administrative expenses and the unfavorable impact from the refranchising transactions. While the refranchising transactions and growth investments also moderated EBITDA growth in the six months ended March 31, 2025 compared to the prior year, given the timing of the largest refranchising transaction late in the first quarter of fiscal 2025, gross profit expansion from strong operational performance including improvements in volumes and mix more than offset these impacts in the year-to-date period.