Valvoline Inc.

I will now turn the call over to our host, Elizabeth Russell. Please go ahead, Elizabeth.

Thanks. Good morning and welcome to Valvoline's fourth quarter fiscal 2023 conference call and webcast. This morning at approximately 7 a.m. Eastern time, Valvoline released results for the fiscal year and fourth quarter ended September 30th, 2023. 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-K with the Securities and Exchange Commission. On this morning's call is Lori Sleese, our President and CEO, and Mary Michaelsberger, our CFO. As shown on slide two, any of our remarks today that are not statements of historical facts 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 the 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 a reminder, the retail services business represents the company's continuing operations, and the former global product segment is classified as discontinued operations for the purposes of GAAP reports. On slide three, you'll see the agenda for today's call. We'll begin by discussing our best-in-class retail services platform and proven formula for growth. We will then look at a review of our financial results and guidance. Now, I'd like to turn the call over to Lori.

Thanks, Elizabeth, and great to be with you all today. Fiscal 2023 was a transformational year for Valvoline as it was our first year as a peer play retail business. In addition to delivering the expected results for the year, we completed the sale of global products and made substantial progress on our promise to return the sales proceeds to shareholders. with $1.5 billion in share repurchases this year. With both a strong results track record and a clear strategy, our retail services platform is well positioned for long-term growth. Valvoline is the quick, easy, trusted leader in automotive preventive maintenance and also is a best-in-class retail services provider. We have a proven track record of growth, Fiscal year 2023 marked our 17th consecutive year of positive same-store sales, with system-wide sales growing to $2.8 billion. Our network of 1,852 stores is over 50% franchised, and Valvoline has been named the top franchisor in our category by both Entrepreneur and Franchise Times. We also have a proven track record of strong profit and returns with mid-teens IRR and EBITDA margin growing to 26.3% for the year. As we've laid out previously, Valvoline offers a best-in-class value proposition to investors based on growth, brand, and performance. With a 150-year-old brand and a scaled platform of over 1,850 locations. Valvoline is a proven leader that has created significant revenue and EBITDA growth in recent years through store additions, same-store sales growth, and accretive M&A. The market we serve is large and non-discretionary, with an estimated 470 million Do It For Me oil changes performed annually in the United States. While we've delivered an 18% compound annual growth rate in our system-wide sales since the IPO, Valvoline still has significant opportunity to build upon our estimated 5% market share. We have confidence in our ability to grow to 3,500 plus stores while lowering our capital requirements through accelerated franchise growth. Our model of quick, easy, trusted service will allow us to continue winning market share and generate attractive returns and significant cash flows in the years to come. This creates an incredible value proposition for investors. Slide eight shows our key metric performance over recent years, demonstrating our strong history of financial performance, including fiscal year 2023. With 137 stores added in 2023, including 51 franchise stores, Our total store count is now 1,852. System-wide sales grew to about $2.8 billion in 2023, an impressive 18% compound annual growth rate from our IPO in 2016. System-wide same store sales also saw strong and consistent growth across the network with 11.9% growth for both company and franchise systems in 2023. And from a profit perspective, adjusted EBITDA grew 20% to 380 million in fiscal 2023, resulting in a 32% compound annual growth rate since 2020. Turning to slide nine, you can see our full year FY23 results along with our FY23 guidance and long-term guidance we provided last year. Valvoline delivered strong growth across all metrics. Not only did we deliver against our fiscal 23 guidance, our performance was aligned with our long-term algorithm across all metrics as well. In addition to strong sales and store growth, our EBITDA growth outpaced the top line sales growth, capturing leverage across the business and improving margins to 26.3% for the year. For FY23, we saw 62% growth in adjusted EPS to $1.18, which was significantly impacted for the year by items related to the sale of global products, including share count reductions due to share repurchases and interest income from the investment of the net proceeds. Mary will discuss the FY24 guidance in more detail in a moment, but we do anticipate fiscal year 2024 results to fall within our long-term algorithm guidance as well. Turning to slide 11, we have a simple but highly effective formula for delivering long-term value to our shareholders. I first shared our three pillar strategy last year, which includes one, driving full potential of our existing business, two, accelerating network growth, and three, expanding services to meet the needs of an evolving customer base and car park. This proven formula will drive higher revenue, strong margins, free cash flow, and attractive return on invested capital. Let's take a look at each of those in more detail, starting with the potential in the core business. As you can see in slide 12, we've seen significant operational improvements in recent years. Our marketing sophistication continues to be a standout in the automotive services industry. We continue to build brand awareness and optimize the cost to acquire new customers. Our quick, easy, trusted service consistently delivers a strong customer experience and drives customer retention. Our average ticket continues to increase, demonstrating our pricing power, as well as strong execution of non-all change revenue service penetration and premiumization. As we see costs increase, notably in product and labor, we take pricing actions, which we have already done in FY24. We do this with confidence in our pricing power as we continue to look for but not see trade downs or service deferrals at this time. Our growth in customers and ticket drive four-wall profitability improvement. This can be seen in our mature store performance, and we anticipate an additional 70 million of EBITDA as current non-mature stores mature. Next, let's look at an update on new units. As I mentioned earlier, we finished the year with a strong delivery of store additions, bringing our new store additions for the year to 137. After a challenging Q3, our franchise partners delivered 26 total units in Q4. We mentioned in Q3 that we expected some of the delayed units in Q3 to push into Q4 or Q1, but our franchise partners were able to deliver most of the delayed units in Q4. We also had a record number of new builds for the year for both company and franchise systems with 47 and 24 units respectively, with nearly 50% of the new units being new builds. This demonstrates that our franchisees see the value in continuing to take advantage of both M&A and ground-up opportunities. While we expect the challenges we saw in Q3 in construction and permitting continue, our company and franchise teams are finding new ways of partnering to improve processes across the development cycle. For example, in fiscal 2023, Valvoline formed a development council which includes our corporate real estate and developing franchise partners across the system. Our development council is highly engaged and focused on pipeline execution strategies, capital reduction plans, and reinvestments into the business. As we turn to slide 14, I'm proud of our progress toward accelerating network growth. Both our team and our franchise partners recognize the significant opportunity we have to expand our store footprint. Auto care remains a growing, highly fragmented market with significant white space for expansion. As we set out in FY22, we see potential to grow our retail system to over 3,500 units. We continue to target 250 new units per year by 2027, with 150 coming from franchise. We see multiple levers to fuel new growth, including partnering with our existing franchisees, adding new franchise partners, which we continue to pursue, and opportunistic M&A. We anticipate taking a step towards that goal with the projected 140 to 170 total unit additions for fiscal 24, with 55 to 70 coming from additional franchise units, largely from our existing partners. On slide 15, we turn to the third pillar of our strategy, customer and service expansion. Today, I'd like to highlight our progress in the fleet business and non-old change revenue service penetration. Currently, Fleet is less than 10% of our total system-wide business and continues to grow at a faster rate than the consumer business. In fiscal 23, the Fleet business saw 25% sales growth as we added over 3,000 new accounts and increased our business within existing accounts. The Fleet business ticket averages about 20% higher than the average consumer ticket based on company store performance. This is largely driven by the fleet owners taking advantage of the non-oil change services we offer in order to maintain their important business assets. For fleet customers, our proposition is compelling. The quick, easy, trusted service is not only convenient, but it helps fleet owners keep their vehicles safe and on the road. We're excited about the progress of the business and the growth potential it offers. Now let's take a look at non-oil change revenue across the system. the growth in the fleet service business is certainly a contributor to our improvements in non-old change revenue service penetration. But we're also seeing that improvement within our consumer base. The system-wide non-old change revenue has grown consistently with an increase of $1.93 this year, our largest dollar increase in four years. For company stores, about half of this was driven by service penetration, which was enabled by an increase in training and new tools deployed to increase the consistency of our presentation of these services, as well as ensuring a quick, easy, trusted delivery. Now I'll turn it over to Mary to discuss our financial results.