Valvoline Inc.

Ladies and gentlemen, welcome to the Babylon Inc. 3Q 2021 Earnings Conference Call. My name is Nadia and I'll be coordinating the call today. If you would like to ask a question at the end of the presentation, please press star, followed by one on your telephone keypads. I will now hand over to your host, Sean Cornett from Investor Relations to begin. So Sean, please go ahead.

Thanks, Nadia. Good morning, everyone, and welcome to Valvoline's third quarter fiscal 2021 conference calls and webcasts. Valvoline released results for the quarter ended June 30, 2021, at approximately 5 p.m. Eastern time yesterday, August 4th, and this presentation and remarks should be viewed in conjunction with that earnings release, a copy of which is available on our investor relations website at investors.valvoline.com. As a reminder, there are slides in the appendix of our presentation that provide further information. These results are preliminary until we file our Form 10-Q with the Securities and Exchange Commission. A copy of the press release has been furnished to the SEC on a Form 8-K. With me on the call today are Babylon's Chief Executive Officer, Sam Mitchell, and Mary Michaelsberger, Chief Financial Officer. As shown on slide two, any of our remarks today that are not statements of historical fact are forward-looking statements. These forward-looking statements are based on current assumptions as of the date of this presentation and are subject to certain risks and uncertainties that may cause actual results to differ materially from such statements. Valvoline assumes no obligation to update any forward-looking statements unless required by law. In this presentation and in our remarks, we will be discussing our results on an adjusted, non-GAAP basis unless otherwise noted. Non-GAAP results are adjusted for key items, which are unusual, non-operational, or restructuring in nature. We believe this approach enhances the understanding of our ongoing business. A reconciliation of our adjusted non-GAAP results to amounts reported under GAAP and a discussion of management's use of non-GAAP measures is included in the presentation appendix. The non-GAAP information provided is used by our management and may not be comparable to similar measures used by other companies. Now, as we turn to slide three, I'll turn things over to Sam.

Thanks, Sean. Our transformation to a service-driven business model has reached an inflection point this year, with our retail services business generating 52% of segment-adjusted EBITDA on a year-to-date basis. We expect this ongoing transformation to continue driving faster growth, higher margins, and stronger returns on capital. Our exceptional Q3 results across the business reflect the continued strong momentum we have experienced this year and clearly demonstrate that our strategy is working. we saw outstanding year-over-year performance, including a 75% increase in adjusted EBITDA and 40% system-wide same-store sales growth, as COVID-19 impacts have lessened. Compared to a more normal base of Q3 of 2019, system-wide same-store sales grew 27% and adjusted EBITDA grew 35%. We anticipate continued strong cash generation to fund our long-term growth strategies and drive shareholder value. Let's turn to the next slide. As a reminder from our business update in May, we announced a realignment of our business segments to drive accelerated growth, allow for better comparability, increase transparency, and improve our operational effectiveness. Our realigned segments will provide us the opportunity to better leverage resources and capabilities to execute our strategic priorities. We anticipate continuing to drive shareholder value through a disciplined capital allocation strategy. Beyond investing in high-return projects, we expect to buy back shares with our three-year, $300 million share repurchase authorization and maintain a prudent capital structure at roughly 2.5 times leverage. Let's move to the next slide to discuss our new segments. We've realigned the management of our business into two operating segments, retail services, formerly our QuickLube segment, and global products, our former international and core North America segments. Both segments benefit from key industry drivers, including an increasing car park, expanding miles driven, and growing vehicle age. Additionally, our retail services segment also benefits from the ongoing shift from DIY to BIFM, as well as from the industry trend towards synthetics, reinforcing our transformation towards a more service-driven business. Let's turn to slide six. Our strategy is to transform from a product-centric to a service-driven business model. We are redeploying the cash generated by our global product segment to accelerate the growth of the retail services segment through acquisitions and company store builds. Additionally, we generate sufficient free cash flow for opportunistic M&A and shareholder returns via dividends and share buybacks. Shift to services is expected to drive faster growth, higher margins, and stronger returns. Our transformation story is now driving an acceleration in our financial results as shown on slide seven. The investments we have made in new store growth and acquisitions for our retail services business began bearing fruit in 2020 and have driven an inflection point in our growth this fiscal year. We expect our high return investments to continue driving growth in the future. Moving into segment highlights, let's discuss retail services on slide nine. Our retail services segment, which focuses on preventive auto care, delivered outstanding results for the quarter. Our growth algorithm of driving same-store sales and expanding our unit count was in full effect as the segment delivered sales growth of 66% year-over-year and 56% versus Q3 of 2019. Key drivers of our top-line performance were system-wide same-store sales growth of more than 40% year-over-year, as well as system-wide unit growth of 10%. Our same-store sales strength was driven first by transactions. We believe that we are capturing significant market share, as well as high single-digit growth rate and average ticket. Versus Q3 2019, same-store sales grew 27% and system-wide unit growth was 16%. Adjusted EBITDA grew substantially versus last year and versus 2019 as margins benefited from fixed cost leverage. Going forward, we expect transactions and average ticket to drive annual growth of 6% to 8% in system-wide same-store sales. Combined with unit growth, sales are expected to increase 14% to 16% per year. We forecast annual EBITDA margins at or above 30%, highlighting why we remain bullish on the growth prospects for this segment. Shifting to the next slide, we can discuss global products, which continues to generate strong cash flow, helping to fund growth in retail services. I want to highlight the solid results in our global product segment. Sales grew 46% year-over-year, driven primarily by volume growth of 37%, as well as pricing. Sales were also up in the mid-teens versus Q3 of 2019. Segment adjusted EBITDA grew in the mid-high teens compared to last year and was up 3% versus 2019. Discretionary free cash flow generation grew 20% year-over-year and was up modestly from 2019. an exceptional performance considering the raw material backdrop and highlighting the resiliency of the segment. Global Products remains on track to generate an estimated $200 million of discretionary free cash flow for fiscal 2021. We have witnessed an unprecedented increase in raw material costs, as well as limitations in raw material availability over the past few quarters. We have had success passing through the earlier rounds of these cost increases, as evidenced by sales growing faster than volume. However, significant cost increases announced in the past quarter are anticipated to have the biggest impact on global products results in Q4. We are in the process of executing further pricing actions to the balance of this calendar year. Bottom line, we believe the fundamentals of a global products business are solid and expect that cost inflation is a short-term impact. Now I'll turn things over to Mary to review our financial results in more detail.