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 2025 marked the 19th consecutive year for system-wide SSS growth and the addition of 170 net new stores, bringing the system to 2,180 stores. The table below highlights the growth over the last year:

Net revenues

Net revenues increased $91.3 million, or 5.6% over the prior year period primarily attributable to higher volume, mix, and pricing. System-wide SSS growth increased 6.1% reflecting growth in average ticket from premiumization, pricing, and non-oil change service penetration, as well as higher transactions supported by an expanding customer base. Year-over-year system-wide store growth of 8.5% also contributed to net revenues and volumes through the addition of 170 net new stores. These benefits were partially offset by reduced net revenues due to the recent Refranchising Transactions. The following reconciles the year-over-year changes in Net revenues:

Gross profit

Gross profit improved $39.7 million, or 6.4% year-over-year. The improvement was driven by higher volume, reflecting continued store expansion, and a favorable mix from continued traction in premiumization and non-oil change services. These gains were partially offset by the impacts from the recent Refranchising Transactions, and increased store operating costs, including depreciation related to ongoing store investments. The following reconciles the year-over-year changes in gross profit:

Gross profit margin rate improved compared to the prior year. This margin expansion reflects improved labor efficiency from effective management, along with benefits from service mix. These gains were partially offset by the impacts from the Refranchising Transactions, and higher operating expenses, including deprecation.

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 $44.8 million compared to the prior year period. This increase reflects continued investments to scale the business and support long-term growth. The primary contributors were technology, including outside services, talent, and advertising, which combined to increase expense by $25.8 million. Additionally, investment and divestiture activity increased SG&A expenses by $15.8 million, primarily related to consulting fees and professional services to support legal, regulatory, diligence and integration efforts.

Net legacy and separation-related activity increased $2.1 million. The increase was primarily driven by expenses associated with legacy businesses and employee related costs, as well as certain limited realignment costs incurred to support the Company’s transition to a stand-alone retail business following the sale of Global Products.

Other income, net increased by $29.9 million compared to the prior year primarily due the Refranchising Transactions whereby a larger gain on sale was recognized in the current year of $73.9 million compared to the prior year gains of $41.8 million.

Net pension and other postretirement plan expenses (income)

Net pension and other postretirement plan expenses increased $11.9 million from the prior year, primarily due to a loss on pension and other postretirement plan remeasurement of $26.6 million in the current year compared to a gain of $2.4 million in the prior year. The loss in fiscal 2025 was driven by lower-than-expected performance of plan assets in the current year, which more than offset the gain attributable to the increase in discount rates.

Net interest and other financing expenses

Net interest and other financing expenses increased $2.1 million during fiscal 2025 driven by lower interest income partially offset by reduced interest expense. Interest income in the current year declined by $13.9 million from the prior year maturity of invested net proceeds from the sale of Global Products. The proceeds from the maturity of these short-term investments were utilized to repurchase the 4.250% senior unsecured notes due 2030 with an aggregate principal amount of $600.0 million (“2030 Notes”) in the third quarter of fiscal 2024. The repurchase of the 2030 Notes drove lower interest expense of $11.8 million in the current year from reduced base interest expense of $9.7 million and lower debt modification charges and related fees of $2.1 million.

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 2025 primarily reflects decreases in the favorable impact of return to provision adjustments and valuation allowance activity.

(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:

Loss from discontinued operations, net of tax increased $1.1 million compared to the prior year primarily due to increased income tax expense.

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 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 directly related to the Company’s information technology transitions, primarily efforts related to implementing stand-alone enterprise resource planning and human resource information systems that generally began in fiscal 2023 following the sale of the former Global Products reportable segment. These expenses include data conversion, training, redundant expenses incurred from duplicative technology platforms, and temporary support, which includes consulting fees and professional services to support certain enhanced manual procedures and material weakness remediation efforts. These incremental costs are 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 directly associated with specific significant acquisitions, investments and divestitures, including professional and consulting fees for legal and advisory services, in addition to gains or losses recognized upon disposition, temporary financing costs directly associated with expected transactions, acquisition-related incentive compensation costs, and expense recognized to reduce the carrying values of investments determined to be impaired. This activity is not considered to be reflective of the underlying operating 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.

Adjusted EBITDA increased $24.2 million, or 5.5%, for the year ended September 30, 2025 compared to the prior year. This growth was primarily attributable to strong gross profit expansion from strong operational performance including improvements in volumes and mix, in addition to efficiencies in labor management, which more than offset the impacts from refranchising and growth investments in SG&A expenses.