Valvoline Inc.

Ladies and gentlemen, hello and welcome to Velvoline's 2Q 2022 Earnings Conference Call webcast. My name is Maxine and I'll be coordinating the call today. If you would like to ask a question during the presentation, you may do so by pressing star followed by one on your telephone keypad. I will now hand you to your host, Sean Cornett from Investor Relations to begin. Sean, please go ahead when you're ready.

Thanks, Maxine. Good morning and welcome to Valvoline's second quarter fiscal 2022 conference call and webcast. On May 9th at approximately 5 p.m. Eastern time, Valvoline released results for the second quarter ended March 31, 2022. This presentation should be viewed in conjunction with that earnings release, a copy of which is available on our investor relations website at investors.valvoline.com. Please note that these results are preliminary until we file our Form 10-Q with the Securities and Exchange Commission. On this morning's call is Sam Mitchell, our CEO, and Mary Michelsberger, our CFO. 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 and key business measures is included in the presentation appendix. The information provided is used by our management and may not be comparable to similar measures used by other companies. As we turn to slide three, I'd like to turn the call over to Sam.

Thanks, Sean, and thank you, everyone, for joining us this morning. The strength of our top line results continued in Q2, highlighted by a 26% increase in sales. Both segments contributed to the strong performance, with retail services sales growing 23% and global product sales up 29%, as demand for our products and services remains robust. Global products volume growth of 9%, and retail services same-store sales growth of 13%, led by an increase in transactions, demonstrate that we continue to gain share. Profitability in the quarter was impacted by an inflationary environment that remained challenging, with adjusted EBITDA increasing 1%. Our team is managing well through these supply chain and raw material cost challenges, positioning us for improved profit growth in the second half of the fiscal year. Let's turn to the next slide. Given our share gains and our pricing actions, we are raising our guidance for sales growth, and we are reaffirming our guidance for adjusted EBITDA, reflecting confidence in our business plans, margin recovery, and continued volume growth. Let's take a closer look at segment highlights, starting with retail services on slide six. The momentum in our retail services segment continues, with Q2 sales increasing 23%. System-wide store sales increased 19%, driven by 13% same-store sales growth and a 7% increase in units. For the fiscal year, we expect system-wide store sales in excess of $2.2 billion. We added 113 stores to the network year over year. Our system-wide store growth is accelerating, and we are raising our full-year guidance for store additions to 140 to 160 new units, driven by outperformance in our franchisee store growth. The partnership with our franchisees remains strong, and we're encouraged by their continued investment and growth. Our confidence in ongoing share gains combined with the pricing actions that we executed in April has led us to raise our same store sales growth guidance to 12 to 14%. Let's review our transaction growth across the system on the next slide. Our transactions are increasing faster than the broader do it for me oil change market. and growth continues to be broad-based. Our store-level car counts, measured as oil changes per day, are increasing across the system in company and franchise stores, across performance levels, and among mature and new stores. We are also seeing strength across geographies with all regions delivering growth in transactions year-to-date. Our quick, easy, trusted experience continues to win new customers. Given the competitive advantages of our model, we are confident that our momentum and transaction growth will continue. Let's turn to the next slide. We've taken action to improve profitability and margins in retail services. We have increased pricing to address inflationary pressures from both rising labor rates and higher product-related costs. Based on April's performance, our new pricing is already benefiting Q3, and we are seeing continued transaction growth. Optimizing our staffing levels is important to drive continued share gains and further penetration of non-old chain services, especially as we move into the summer driving season. We've pulled forward important labor investments to retain and attract key talent, and we've reinvigorated our training and onboarding programs for the post-COVID environment. These actions in combination will improve average ticket performance. While we focus on adding value for our customers, we anticipate our pricing power to enhance profitability in Q3 and Q4. Let's move to the next slide. Our confidence in our long-term margin outlook of 30% to 32% for retail services is based on the performance of our mature stores. which continue to drive strong margin leverage. Our mature stores have improved margins by nearly 300 basis points since 2018, and we expect further expansion going forward as we continue to grow share and average ticket. As a reminder, our total segment margins include the dilutive effects from new stores, as well as from price pass-through of product sales to our franchisees. In Q2, these effects combined were a nearly 300 basis point impact versus last year. Let's review global product on the next slide. Q2 demonstrated the ongoing top line strength in global products. Sales grew 29% year over year with all regions contributing to this impressive increase. Sales growth outpaced a strong volume increase of 9% highlighting our continued success in passing through cost increases with pricing. While price pass-through is currently dilutive to our margin rates, adjusted EBITDA grew modestly in the quarter versus last year, overcoming significantly higher raw material costs. Discretionary free cash flow generation remains steady and on track for roughly $200 million this fiscal year. Let's take a closer look at demand and cost recovery on the next slide. Demand signals for our products and solutions are robust, highlighting ongoing share gains across regions and channels. Performance in DIY, where we have increased our distribution, remains impressive, and the installer channel continues to recover from the impacts of COVID. International volume growth has been strong over the past few years as we focused on building our channels and brand. The current supply chain environment has created both challenges and opportunities. We believe that we are outperforming competition in our ability to supply customers, which is contributing to our volume growth and share gains, as our team continues to do an outstanding job of keeping up with demand. A core differentiator for our business is our ability to deliver added value for our customers while providing outstanding customer service. We believe this approach, coupled with our ability to meet demand, positions us well to continue to capture, share, and expand margins. As we anticipated, Q4 of last fiscal year and Q1 of this year were low points for unit margins. We saw a meaningful sequential impact in unit margins for Q2 as we continue to pass through raw material cost increases from 2021. While cost inflation has continued this year, we remain confident in our ability to recover costs as we have in previous inflationary periods. With that, I'll hand things to Mary to discuss our financial results in more detail.