Valvoline Inc.

Good morning or good afternoon all and welcome to the Valvoline first quarter FY23 earnings webcast. My name is Adam and I'll be your operator for today. If you'd like to ask a question in the Q&A portion of today's call, you may do so by pressing star followed by one on your telephone keypad. I will now hand the floor over to Elizabeth Russell to begin. So Elizabeth, please go ahead when you are ready.

Thanks, Adam. Good morning and welcome to Valvoline's first quarter fiscal 2023 conference call and webcast. On February 7th at approximately 7 a.m. Eastern Time, Valvoline released results for the first quarter ended December 31st, 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 Securities and Exchange Commission. On this morning's call is Sam Mitchell, our CEO, Lori Sleece, our President of Retail Services, and Mary Meitensberger, 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. Badland 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 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 a reminder, the announcement that Valvoline signed a definitive agreement to sell its global products business resulted in the former global product segment being classified as discontinued operations for purposes of GAAP reporting, with the retail services segment becoming the company's continuing operation. On slide three, you'll see the agenda for today's call. We'll begin by providing an update on the sales global products that we announced in August of 2022. We will then talk about our first quarter highlights, share operational insights, and end with a review of our first quarter results and guidance. Now I'd like to turn the call over to Sam.

Thanks, Elizabeth, and thank you all for joining us today. Today's call will focus on the results of the continuing operations of our retail services business, but first I want to share an update on the progress we are making to complete the sale of the global products business. Our team is working diligently to finalize the separation, and we still anticipate the closing to occur early this calendar year. We expect total proceeds from the transaction to be $2.65 billion in cash and approximately $2.25 billion after tax and other adjustments. We expect to return the majority of the proceeds to shareholders through share buybacks. The remaining portion of the net proceeds will be used for debt reduction, which will further strengthen our capital structure and position our company for long-term success. With the anticipated closing of the sale of the global products business, we are excited to focus on driving growth and increasing value of the new Valvoline. The new Valvoline is a high growth, high margin business with lower capital intensity. Our strong balance sheet will allow us to make more targeted investments to capture attractive growth opportunities in an evolving car park, while returning excess cash to shareholders. As we laid out in our November call, we are focusing a significant acceleration, forecasting a significant acceleration in our five-year financial outlook, with top-line revenue growing 14 to 16 percent and an adjusted EBITDA compound annual growth rate of between 16 and 18 percent. Our retail business model is simple but highly effective and has repeatedly proven to deliver growth. Turning to slide eight, I'd like to share some key highlights from the quarter that demonstrate our positive continued performance. We are focused on driving strong top line growth for both company operated and franchise locations with $644 million in system wide store sales for the quarter, which is nearly a 17% increase over prior year. For same store sales, we saw just under 12% growth with company operated units having 13% year over year growth and 11% for franchise units. Our profits performed slightly ahead of the strong quarter we posted in fiscal 2022. We anticipate the profit growth to accelerate in the balance of the year, and we remain confident in our EBITDA guidance target of between $370 and $390 million for fiscal year 2023. Let's turn to slide nine. Our simple growth algorithm of driving same-store sales plus adding units and incremental services continues to deliver. We have an impressive long-term track record of driving same-store sales performance and unit growth, and our Q1 results are in line with that continued growth trajectory. However, adjusted EBITDA grew only 1.2% year over year. While Q1 is typically our lowest profit quarter of the year due to a seasonality effect, which I'll explain on the next slide, there were also short-term factors impacting this quarter, which Laurie will address in a moment. Turning to slide 10, as the new Valvoline transitions to being a pure-play retailer in the preventive maintenance space, the seasonality of the business is an important dynamic to understand. For Q1, our retail services business performed in line with the typical seasonality that we have come to expect. We generally see volumes following the driving patterns of our customers, which tend to increase throughout the spring and summer, coinciding with the second half of our fiscal year. It is also typical for us to see profit and margin improve as the fiscal year progresses. The margin improvement is driven by the leverage of fixed costs as volumes increase with our customers' increased driving. Accounting for the appropriate seasonality in the later quarters of the year, we remain confident in our $370 to $390 million EBITDA guidance. Now I'd like to turn the call over to Lori to discuss more details from our first quarter.