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 nine months ended June 30:

Operating activities

Cash flows provided by operating activities increased $10.0 million from the prior year period driven by higher cash earnings, that were moderated by the impact of the Refranchising Transactions, and lower interest payments of $16.4 million. These increases more than offset unfavorable changes in net working capital that were attributable to a decrease in payables and accrued liabilities largely driven by milestone payments of approximately $20 million related to product supply, which were partially offset by a $13.8 million favorable impact from receivables primarily as a result of the improved collection cycle from prior year billing delays associated with the implementation of the new enterprise resource planning system.

Investing activities

Cash flows from investing activities decreased $233.3 million from the prior year primarily driven by a decline in proceeds from investments of $344.0 million that was partially offset by increased net proceeds from the sale of operations of $124.7 million. Lower proceeds from investments were due to maturities in the prior year of short-term investments of the remaining net proceeds from the sale of Global Products, while higher net proceeds from the sale of operations was largely a result of completing a Refranchising Transaction in the first quarter of fiscal 2025 to sell 39 company-operated service center stores to a new franchisee. Further contributing to the increased use of investing cash flows year-over-year were higher capital expenditures of $7.3 million to support store growth and an increase in current year acquisition activity of $4.2 million.

Financing activities

The year-over-year decrease in cash flows used in financing activities of $568.8 million was substantially due to lower net repayments on borrowings of $430.0 million primarily driven by the prior year tender offer to purchase the outstanding 4.250% senior unsecured notes due 2030 with an aggregate principal amount of $600.0 million. Also contributing to this decrease was lower share repurchase activity of $151.8 million, partially offset by excise tax payments of $16.4 million that were largely due to share repurchases completed in fiscal 2023 under the modified “Dutch auction” tender offer subject to the 1% excise tax of the Inflation Reduction Act that became effective in calendar 2023.

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 increase in free cash flow from continuing operations over the prior year was due to by higher cash flows provided by operating activities as described above, partially offset by increased capital expenditures in the current period. The Company continues to focus the majority of its capital spend toward growth, which is expected to drive a high return on invested capital. The increase in capital expenditures over the prior year period was primarily driven by higher maintenance capital expenditures, principally attributed to facility and equipment expenditures due to the growing store count.

Debt

Approximately 49% of Valvoline's outstanding borrowings at June 30, 2025 had fixed interest rates, with the remainder bearing variable rates. As of June 30, 2025, Valvoline was in compliance with all covenants of its debt obligations and had borrowing capacity of $341.5 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 nine months ended June 30, 2025, the Company repurchased 1.6 million shares of its common stock for $59.8 million. As of June 30, 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 $68.3 million, total debt of $1,079.7 million, and total remaining borrowing capacity of $341.5 million as of June 30, 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.