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 three months ended December 31:

Operating activities

Cash flows provided by operating activities increased $23.4 million from the prior year period primarily driven by higher cash earnings and to a lesser extent, lower cloud computing implementation spend in the current year to-date.

Investing activities

The cash flows from investing activities decrease of $695.4 million was substantially driven by the Breeze acquisition during the first quarter of fiscal 2026 resulting in $631.2 million higher cash flows used related to acquisitions, net of cash acquired, compared to the prior period. In addition, the Company received $57.4 million lower proceeds from sale of operations during the current year related to the sale of 10 company stores that occurred during October 2025 and the Decision and Order from the FTC requiring Valvoline to divest 45 stores acquired in the Breeze acquisition. These declines were partially offset by an increase of $3.8 million in capital expenditures during the current year primarily driven by maintenance expenditures for store technology upgrades.

Financing activities

Cash flows provided by financing activities increased $697.4 million from the prior year substantially driven by an increase in net borrowings, inclusive of payments for debt issuance costs, of $651.3 million. The current year activity is related to the issuance of the Term Loan B that was entered into to fund the Breeze acquisition with excess proceeds used to repay the outstanding Revolver balance. In addition, no share repurchases have occurred during fiscal 2026 to-date to accelerate debt repayment in connection with the Term Loan B issuance commensurate with closing the Breeze acquisition, which resulted in less cash used in financing activities of $45.7 million compared to the prior year.

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 higher cash flow provided by operating activities during the first quarter of fiscal 2026. The increase in free cash flow was partially offset by an increase of $3.8 million in capital expenditures during the current period that was primarily driven by maintenance expenditures related to store technology upgrades. The Company continues to focus the majority of its capital spend toward growth, which is expected to drive a high return on invested capital.

Debt

Approximately 32% of Valvoline's outstanding borrowings at December 31, 2025 had fixed interest rates, with the remainder bearing variable rates. As of December 31, 2025, Valvoline was in compliance with all covenants of its debt obligations and had borrowing capacity of $470.6 million remaining under its Revolver.

In December 2025, Valvoline amended its Senior Credit Agreement to add a seven-year $740.0 million Term Loan B. The proceeds of the Term Loan B were used to fund the Breeze acquisition with the remaining proceeds used to pay down the outstanding balance on the Revolver.

Refer to Note 5 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 three months ended December 31, 2025, the Company repurchased no shares of its common stock. As of December 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 was issued and effective commensurate with closing the Breeze acquisition.

Summary

Valvoline had cash and cash equivalents of $69.9 million, total debt of $1,664.8 million, and total remaining borrowing capacity of $470.6 million as of December 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, 2025.

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.