Valvoline Inc.
11/19/2024
Hello everyone and welcome to Valvoline's fourth quarter fiscal 2024 conference call and webcast. My name is Lydia and I'll be your operator today. After the presentation, there'll be an opportunity to ask questions. If you'd like to participate in the Q&A, you can do so by pressing star followed by one on your telephone keypad. I'll now hand you over to Elizabeth Clevenger with investor relations to begin. Please go ahead.
Thank you. Good morning and welcome to Valvoline's fourth quarter fiscal 2024 conference call and webcast. This morning, Valvoline released results for the fourth quarter and fiscal year ended September 30th, 2024. 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 Fleece, our President and CEO, and Mary Meichelsberger, 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. Family 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 GAAP to adjusted non-GAAP results 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 reporting. With that, I will turn it over to Lori.
Thanks, Elizabeth, and good morning, everyone. Thank you for joining us. On today's call, we'll cover our financial results for the quarter and fiscal year, provide a progress update on our strategic priorities, and give guidance for fiscal year 2025. Let me start with a few key messages. First, we delivered compelling growth and results in fiscal 2024 that were largely in line with our expectations. Our performance is driven by a market-leading position and important competitive advantages. including a quality and well-recognized brand, well-capitalized franchisee partners, operational excellence, proprietary technology, and marketing expertise. A robust and differentiated business model positions us to deliver strong and durable profit growth fueled by a compounding of same-store sales growth and new store additions. Our value creation is supported by strong capital discipline focused on growth investments that generate high returns, a commitment to a healthy balance sheet, and consistent share repurchases to return excess cash to our shareholders. Let's look at some key highlights for fiscal year 2024 on slide four. System-wide store sales were $3.1 billion, a 12% increase over the prior year. We also delivered our 18th consecutive year of system-wide same-store sales growth with 6.7% growth for the year. The network continued to grow at a strong pace, and we ended the year with 2,010 stores. From a profit perspective, adjusted EBITDA was up 17% to $443 million, and adjusted EBITDA margin improved 100 basis points to 27.3%. This year, we completed over 28 million customer transactions across the network. In October, we were pleased to be ranked number 18th overall in best customer service by Forbes as we continue to focus on delivering a quick, easy, trusted experience to our guests. I'd like to thank our team of over 11,000 and our strong franchise partners for all the work that went into driving these results. Slide five shows our performance over time on key metrics. Since our IPO in 2016, we have seen strong and stable growth in new stores, system-wide same store sales, and profit. Our growth in financial performance as a pure play retail service provider sets us apart within our category and within retail services overall. Turning to slide six, we'll take a look at our FY24 results compared to our FY24 guidance. Net revenues and same store sales came in just below the midpoint of the guidance range. Adjusted EBITDA, adjusted EPS, and store additions all came in at or just above the midpoint of the range. Our capital expenditures were modestly above the range driven by the timing of certain payments related to CapEx versus what we had planned. Overall, we're pleased with our fiscal 2024 results and the continued growth of our business. Now I'd like to provide an update on the progress we've made on our strategy. We remain committed to our three strategic priorities of driving full potential in the existing business accelerating network growth, and targeting customer and service expansion. Actions across these three areas will enable us to deliver financial growth, both in the near and longer term. On slide nine, we'll start with a look at the progress we've made in driving the full potential in our core business. About 20% of the customers we serve are new, and the majority come from outside the QuickLube channel. Convenience and speed are the main differentiators we offer to these new customers. The remaining 80% of customers we serve are returning. Our brand, which stands for quality and trust, combined with our best in class customer experience, network scale, and the investments we're making in marketing and technology continue to be key differentiators and reasons why we have high customer loyalty. Our stores typically take about three to five years to ramp to maturity. We continue to increase vehicle serve per day each year that a store is open. And our mature stores continue to grow their top line while improving margins with a top line growth and better cost management. With a significant portion of our stores being immature, we expect a meaningful lift to profit as these stores mature. Taking into account our re-franchising efforts, we would expect to add about 70 million of an additional EBITDA with the maturing of this immature store base. The strength of our brand increasing scale and operational excellence continue to drive the full potential of the core business. Now I'd like to talk about accelerating network growth. We closed the year with strong delivery of 49 new stores in Q4 bringing our total to 158 new stores for the year. As we close fiscal 2023, we recognize the need to improve the consistency of delivery of the new store additions. The company and franchise teams continue to work together through our Franchise Development Council to share experiences and best practice, which is driving process improvements for both. We also improved our pipeline visibility as we increase the number of new stores that are ground up additions. In fiscal year 2024, over 100 of the new store additions were ground ups. This is a testament to our real estate analytics capability and our marketing and operational learnings on how to successfully open new build locations. Two years ago, we established a target of reaching 250 new stores per year by 2027. and accelerating our franchisee store growth. We've taken significant actions to accelerate our network on the franchise side. During the fourth quarter, we completed two re-franchising transactions, which converted 28 company stores to franchise in the growing markets of Las Vegas and Denver. As we announced this morning, in October, we signed a definitive agreement to re-franchise an additional 38 stores in Central and West Texas. The franchisees for these three markets have committed to significant development, which will drive market share gains more quickly and deliver long-term benefits to shareholders as we accelerate the network growth in a more capital-efficient manner. We've welcomed several new franchise partners into our network this year, including Velocity Auto Care, Fluid Automotive, and Yellowstone Investment Group. In addition, Interstate Auto Care recently joined us with the purchase of stores from a retiring franchisee. All of these partners have committed to meaningful growth in their respective markets. We look forward to working with our new franchise partners and continue to have encouraging discussions with additional parties who have expressed interest in joining our network. With the new stores our franchisees have planned or committed to and the ongoing interest, we remain confident in our ability to deliver 250 new stores per year by fiscal year 2027. We are very pleased with our overall store growth. The momentum building in our franchise network this year, along with the sustained growth of company stores, gives us continued confidence in our path to a 3500 plus store network. Let's turn to the third priority of targeting customer and service expansion. Our fleet business continues to grow at an attractive pace with transactions growing at over a 14% compounded annual growth rate over the last three years. Our focus on business to business sales across both company and franchise markets is delivering strong growth in new accounts, as well as improving activation within those accounts. With a large addressable market and fleet owners looking for a quick, easy, trusted way to keep their vehicles productive, we see a long runway for growth in our fleet business. On the services side, our franchise and company stores have seen great success in improving non-oil change revenue service penetration this year. System-wide, we have seen an impressive 17% compound annual growth rate over the past three years. The investment in our teams, best in class training, and super pro process execution allows us to present these services to our guests in an effective way. Before I turn it over to Mary to discuss our financial results in more detail, I'd like to comment on our recent announcement of Mary's intention to retire. We've started a comprehensive search to identify a successor that will include both internal and external candidates. We very much appreciate that Mary has agreed to continue to serve as our CFO until a successor is selected and successfully on boards. I want to personally thank Mary for her continuing leadership. With that, I'll turn it over to Mary.
Thanks, Lori. It's an honor and a privilege to be part of the Valvoline team. I'm grateful for the opportunity to work with amazing teammates and franchisees, and I'm committed to ensuring a smooth and successful transition. Now let's turn to look at our financial performance for Q4 in fiscal year 2024. On slide 13, we'll start with the top line performance. For the fourth quarter, net sales grew to $436 million, an almost 12% increase over the prior year. System-wide same-store sales grew 5.4% and 15.4% on a two-year stack. We saw positive transaction growth despite a 40 basis point impact from CrowdStrike and the hurricanes that occurred during the quarter. For the fiscal year, net sales grew just over 12% to 1.6 billion. System-wide same-store sales grew 6.7% and 18.6% on a two-year stack. For the year, ticket drove the majority of the comp. Non-oil change revenue service penetration was the largest contributor along with a balanced contribution from net price and premiumization. I'd also like to call out that we intend to update our approach to determining same store sales beginning in fiscal 2025 to be more consistent with common retail practices. With the updated approach, stores will enter the comp at the beginning of the month after 12 full months in operation within the system. For fiscal year 2024, the change would increase the system-wide same store sales 40 basis points to 7.1%. Slide 14 looks at the other drivers of the financial results for the quarter. For Q4, we saw a 110 basis point increase in year-over-year gross margin rate driven by lower product costs and store expenses offset by business mix. Adjusting SG&A as a percentage of sales is flat year over year. Excluding depreciation, SG&A had deleverage of 70 basis points. We continue to make investments in advertising and technology. Overall, adjusted EBITDA margin increased 50 basis points over prior year, driven by the improvements at the gross margin line. Turning to the next slide, we'll take a look at the financial drivers for the full fiscal year. Our adjusted EBITDA margin of 27.3% is 100 basis point improvement over prior year. We've been pleased with the progress we're making in scaling the business and managing costs, which are driving benefit to our operating margin rates. Gross margin increased 50 basis points to 38.2% driven by the labor efficiency we saw in the front half of the year and lower product costs, partially offset by modestly increased star expenses due primarily to the growth of the immature base. On slide 16, we'll take a look at overall profitability. In fiscal 2024, adjusted net income increased 7% to $206 million, driven by operating income growth of 16% partially offset by higher adjusted net interest expense of $27 million due to utilizing cash for share buyback versus prior year interest income generation. We saw record adjusted EBITDA of $443 million, an increase of 17% fueled by top line growth and margin expansion. Adjusted EPS increased 33% to $1.57 per share from both the growth in the overall business and lower share comp. Turning to slide 17, we'll look at the balance sheet and cash position. We ended fiscal 24 with $1 billion of net debt. During the year, we reduced our net leverage ratio to 3.4 times adjusted EBITDA on a rating agency adjusted basis at the end of the year. Full year cash flows from operating activities were $283 million, which is $70 million lower than the prior year, which had the one-time benefit from establishing the payment terms for the supply agreement with Valvoline Global Operations. Share repurchases totaled $15 million and $227 million for the quarter and full year, respectively. As a reminder, We reported a material weakness in the second quarter of fiscal 2024, primarily related to IT general controls. While we have made significant progress in our remediation efforts, there is still more work to be done. With that, I will turn it over to Laurie to summarize and provide our outlook for fiscal year 2025.
Thanks, Mary. Valvoline delivered compelling growth in financial results demonstrating the attractiveness of our customer value proposition and the robustness of our business model. We're pleased with the progress we're making to accelerate our network growth. Adding 158 new stores in fiscal year 2024, the re-franchising transactions, and welcoming new franchise partners will all increase our growth momentum. We are well positioned to deliver strong and durable growth in fiscal year 2025. So let's take a look at our guidance for the upcoming year. On slide 19, we've laid out our outlook and have provided additional information on the impact of the re-franchising efforts to demonstrate the underlying growth of the business. We expect same store sales growth of 5% to 7% and overall network growth of 160 to 185 new stores. Because the stores included in the re-franchising transactions contributed approximately $100 million in revenue and $24 million in adjusted EBITDA for fiscal year 2024, we've shown the impact as pro forma results on this slide. Adjusting for this impact, we expect the underlying business to deliver top line growth of 10 to 14% and adjusted EBITDA to grow to $450 million to $470 million. This EBITDA growth includes technology modernization and talent investments necessary to scale the business to the next level and deliver profitable growth into the future. Similar to prior years, we would anticipate approximately 40 to 45% of adjusted EBITDA dollars to come in the front half of the year based on the typical seasonality of our business, along with the timing of certain expenses, such as our annual store meeting expense, which occurred during the first quarter. Due to the lapping of the pricing and NOCR actions we took in fiscal 2024, combined with some volume push from the hurricanes in September, we do expect a higher comp in the first quarter of fiscal year 2025 compared with other quarters. And it is possible we experience a quarter below the provided range. The same store sales guidance we're providing is for a full year result. Our fiscal year 2025 guidance reinforces the underlying strength and trajectory of our business. We're excited to continue to deliver best-in-class financial results and performance within our industry. With that, I'll turn it over to Elizabeth to begin the Q&A.
Thanks, Lori. Before we start the Q&A, I want to remind everyone to limit your question to one and a follow-up so that we can get to everyone on the line. Operator, please open the line.
Thank you, Elizabeth. Please press star followed by the number one if you'd like to ask a question and ensure your devices are muted locally when it's your turn to speak. Our first question comes from David Bellinger with Mizuho. Your line is open.
Hey, good morning. Thanks for the question. Just focusing on Q4 first, comps are getting a little light this quarter. Maybe they were higher if we back out some of the external factors, but bigger picture, how should we think about the 6% to 9% longer-term comp sales algorithm? You just mentioned you might have a quarter below 5% for next year. So how do we square all that together and just give us more confidence in the 6% to 9% going forward?
Yeah, so, David, I'll start with your comment on fourth quarter comps. We did, in fact, see some impact in the quarter first in July from the CrowdStrike event that we mentioned in our last earnings call. And then in September, toward the end of the month, we saw impact from the hurricanes, specifically impacting some of our franchisees. much more significantly than it did our company stores as the markets in the southeast were primarily driven by those impacted by those hurricanes. So you'll see some of the differences between company store performance and franchise store performance in the quarter that explain, you know, a portion of that gap. We do expect that in the first quarter of fiscal 25, we're going to regain some of that business. Typically when we see weather events, we typically see that push out and we're able to regain the sales from the weather events. So we are expecting our first order in fiscal 25 to demonstrate strong comps overall. And then in terms of the full year, we're expecting to continue to see ticket be the driver of the majority of the same store sales growth with transactions contributing nicely, but still not as balanced as we'd like to see them over the longer term. Lori, do you want to comment about the longer term outlook in comps?
Sure, happy to. So we continue to evaluate our longer term sales, same store sales guide and hope to provide an update in the near future. There are many unknowns related to the change in the political administration that we're trying to factor in, and until we start to see in the first half of the year how some of the actions that were talked about during the election come to fruition, I think we'll have more confidence in a guide beyond fiscal year 2025. Just to give context, there's obviously both tailwinds and headwinds that could come, and there's uncertainty around the magnitude of those on the tailwind side, obviously a lower corporate tax rate would be a benefit for EPS growth. And the more gradual shift to EVs over the longer term obviously benefits us in terms of the timing of investments we make in developing the services required to maintain a customer's vehicles in an electrified car park. But also miles driven could go up just given some of the potential administration actions. On the headwind side, obviously tariffs, depending on the magnitude and breadth and timing, would have an impact on our COGS and we would have to figure out ways that we would pass those through to customers or mitigate those through our own efficiency actions. And then there's just the whether or not the macro consumer environment, whether inflation subsides or increases and how that affects competitive pressure. So we typically see in other automotive players who are seeing their core business have deferral or trade down, they tend to then, and we're seeing it now, start to promote oil changes as a way to drive some traffic into their service centers. And so that environment, if it worsens, obviously will not impact our retention of customers, but could impact our ability to attract customers out of that channel and into the quick loop channel. And also then the labor impact of mass deportation and how broad that is and how quickly that is and how it impacts the lower level wage environment for retail. So there are a number of of unknowns that we're assessing and watching and making sure that we're prepared to mitigate. But those things, I think we have those potential upsides and downsides factored in the guidance for FY25, given the timing of that and the timing of our fiscal year. But beyond FY25, I think it's still a little early to provide a forward guide. But we do hope to do that as soon as some of that gets more clear.
Got it. Appreciate all those details. And then my second question, if we back out the refranchising piece for 2025, that implies adjusted EBITDA is growing at a lesser pace than total revenues. It looks like adjusted EBITDA is up about 10% at the midpoint, revenues up about 12%. Could you just help us unpack that? And in what areas of the business are you expecting some type of margin compression? I think you mentioned tech modernization and talent Uh, maybe just give us more details on those could be helpful. Thank you.
Yeah, David. So consistent with what Lori talked about in terms of the guidance we're providing for 25, um, we, we are taking into account a more uncertain environment overall. Um, that includes, you know, uncertainty around our underlying cost environment. We did recently receive a notification from one of our used oil collection providers suggesting that their collection reimbursement payments to us will go down substantially. And we've yet to fully understand how that will fully play out in terms of the underlying product cost. We're also, you know, closely watching the inflationary environment. You know, labor is our largest component of our foster goods sold, and that inflationary and labor environment could significantly impact us over time. So we're taking what I think is a reasonable and conservative view of our guidance in light of some of those uncertainties. And then we are making investments in our G&A expenses specifically around technology and talent, we do require system modernization. The systems, both financial and our HRIS systems have been in place since prior to the IPO. And, you know, we did update and replace the ERP, the financial ERP system and we're working on the rollout of the updated HRIS system, and that's requiring investments in, you know, cloud-based systems that will allow us to really scale the business from where we are today to the 3,500-plus stores that we're focused on in the future. And then we're very focused on talent and making certain we have the right talent in the right places. to drive the business going forward longer term. So in some ways, 25 is really kind of a reset year with some of those investments that we're making in order for us to scale and drive that continued long-term growth opportunity that we still strongly believe is in the business.
Yeah, I'll just add the infrastructure around ERP and HRIS, the The systems that we have in place prior to the implementations we've either done on the financial system side or will do on the HR side are systems that were in place within Ashland when we spun out. And those are not fit for retail. They also are going end of life. And we have partial year fees for those that were in last year's financial but not full year. And we also have the development cost of implementing those systems, which will start to come through in depreciation. So those are the most significant increases in G&A investment that we're doing. And then I think a few areas of talent investment, specifically around the things that our franchisees are asking us to invest in as they're committing to more unit growth. And we want to make sure that we have the right infrastructure support and talent in place to ensure that they can do that successfully.
And Laurie, just a clarification on my comments. I did mention that we had started the ERP in 23. We actually implement in calendar 23. We actually went live with that system in January of 24 and our second quarter of fiscal 24. So I just wanted to clarify that.
Got it. Thank you both.
Thank you. Our next question comes from Stephen Vangeli with Citi. Please go ahead. Your line is open.
Hey, great. It's Steve Vicknell from Citi. Thanks for taking my question. I wanted to follow up on the prior question because I think, can you guys hear me? Yes. Okay, great. Sorry. I wanted to follow up on the prior question because You know, the guide for five to seven same-store sales this year, and then the uncertainty of, you know, when you're going to address the algorithm. Maybe help us think through, you know, what you view as the market growth rate for the industry, right? And then, like, the overall ticket versus transaction, because we used to have a formula to get to that 6% to 9% growth, right? Has anything changed there? Because I think, you know, we're all going to kind of come off this call and, you know, is 5% to 7% the right run rate for the business? Could it be potentially a little bit lower than that? I guess, like, that's where I think we're trying to just understand as we go forward.
Yeah, Steve, you know, the 5% to 7% guide relative to, you know, the 7.1% on a restated basis that we did for, fiscal 24, really the biggest difference is more moderate net pricing in the comp. You know, we're assuming with a more challenging overall environment and some continuing challenges in the consumer environment, that will likely not be as required to be able to take pricing at the same level that we have in the past, especially given the historical inflation that we've seen in pricing. We do expect to see, as I mentioned earlier, transaction growth. We expect to continue to see strong benefits from premiumization. We are lapping in the second quarter of 25 actions we took to drive stronger non-oil change revenue penetration, and so we think that that will be a little bit more modest on a year-over-year basis as well. Laurie, anything that you'd add to that?
Sure, Steve. I think what I would step back and reflect on is that we fully expect that with our competitive advantages, we're going to outperform the industry and deliver strong absolute and relative same-store sales for retail. When you look at our industry overall, it's been trending three to four percent in the post-COVID environment. And we have outperformed that. When you look at the inflation levels, you know, when you go back to 2022, when we set the algorithm, we had significant double digit same store sales comps, which came from pricing pass through of inflationary costs. And so I think when you look at a different labor and sorry, a different macro in inflationary environment, we're not as confident in that the inflationary passers are going to be included to the extent they were back in 22 and even 23. I think when you do that combined with the competitiveness we're seeing from outside the quick loop segment, and that could be short lived, but at least it's what we're seeing now. it ends up having a factor in the ability to drive the new customer acquisition. Because as you'll note from the presentation, significant part of our new customer acquisition comes from channels outside the quick loop space, 75%. And as those channels are trying to keep the traffic in discount or bundle, provide bundled pricing on preventative maintenance, it makes it harder for us within a reasonable cost to acquire those customers to try our channel. Once they try our channel, see the quality and the convenience, we have years and years of history that would suggest once they shift, they stay. And so it's just really factoring in those two things. One, inflationary cost pass-through. And two, just a little bit more intensifying of the competitive environment and that impact on new customer acquisition.
Okay. Okay. That's helpful detail. And then the follow-up I had is just on the decision to re-franchise some stores. You know, what's the decision criteria to potentially do more of these as we go over the course of the year? And then even, you know, on a multi-year basis, just, you know, why does this make sense for you? Like, you know, how do you think about potential additional ones in the future?
Yes. Laura, you want to go? I'll start. I think strategically, we've been very clear that we have an opportunity to expand our market share and drive considerable growth. We also, in looking at the overall markets, there's a lot of markets where we have franchisee territories that have opportunity to grow. And then on the company side, we've put together the capability of the team to grow our business on the company side, but there's more growth within those markets. And so we've always said that if we have a well-capitalized partner who wants to deliver the brand standards and has a focus on people which drive this business, and they're willing to commit to significantly higher development of new units in a market than we otherwise would, that we would factor that in to an overall transaction. Obviously, they have to recognize the value of the stores that we're currently operating if we're going to sell those to the franchisee, but it's more about the long-term growth in a more capital efficient way. So while it, it looks, you know, it appears dilutive in the short term, in the long term, it's very accretive given the capital efficient growth at a higher level. And it allows us to drive a more network sort of completeness, which also has an impact on sales, at least as it relates to fleet customers. So there's a circular loop. It's more capital efficient. It drives more growth and reinforces itself. Mary, is there anything I've missed?
The only other thing I would say, Laurie, is we've done three of these transactions, the two we completed in fourth quarter and the one that we announced today that will close relatively soon. We have a lot to absorb with those three transactions. So I think that we'll be monitoring and ensuring that the changes that we've put in place here in just the last six months are going well. And then we'll continue to evaluate what, from a longer term perspective, what's in the best interest of driving longer term shareholder value.
But when you look at the The IRR, you know, the return on these transactions over the period of time and commitments that the partners are given, it definitely is accretive over the long term, delivers very attractive shareholder return. Otherwise, we wouldn't have entertained them.
Okay. Thanks for all the detail. And Mary, all the best on your retirement if this is your last call. Thank you very much.
Oh, it's never last call. I'll say that.
May or may not be. We'll see.
Our next question comes from Simeon Gutman with Morgan Stanley. Please go ahead.
Hi, this is Lauren. I'm on for Simeon. Thank you so much for taking our question. Our first question is, can you just talk a little bit more about the competitiveness in quick oil changes? And separately, As you guys expand, are you finding, you know, same opportunities in new markets versus existing markets? Thank you.
Sure. I think as it relates to the overall market, the quick lube space continues to do, again, 20 to 25% of the total oil changes that are done in the do it for me market. So it's still a very small percentage of the overall TAM. And We continue to see the same competitiveness with our other QuickLube competitors. So there's not a significant change in the environment. I think in the Q3 earnings we talked about some advertising, competitive advertising activity. I think some of that has already moderated. So we're not seeing the competitiveness within our category. increase in any material way or across any geographies. As it relates to the 75% to 80% of oil changes that are done outside of our category or outside of our segment, we're seeing pockets of promotional tactics specific to oil changes or preventative maintenance to drive traffic. And this is not a new, this is consistent with history when there's pressure on the consumer and they're trading down or deferring on other maintenance, like for example, tires, um, that, that those competitors. And again, it's all, it's a very fragmented base, so it's unlikely to be at national scale, but you'll see some discounting that's happened. Same with what we saw previously with dealerships. We're not seeing that as such, but. So I would say the competitive dynamics are relatively consistent in the quick lube space. From a real estate perspective and opportunities for acquisition or new builds, we're not seeing any significant differences in the competitive landscape within our space. If anything, it's the market opportunity outside of quick lubes that we are seeing pockets of promotional tactics. But it's not new and it's not pervasive or at national scale.
Okay, got it. That's helpful. And I guess our follow-up is just on the re-franchising piece, we're starting to see it pick up into 2025. Is there a percentage franchise mix maybe you're comfortable sharing with us? Thank you.
It's a good question and one we get asked a lot. We don't have a target. Um, specifically on shifting our business more to franchise, we do want to accelerate our franchise growth. And I think, you know, we, uh, we're very encouraged by both the plans and commitments that we've gotten from our existing franchise partners, as well as, you know, the, the updated commitments and the new commitments that we've got with the free franchising transactions that we have announced today. and the additional interest that we still have from parties who would love to join our network. And we are entertaining those and looking at white space opportunities to, you know, to bring on, you know, a handful of additional partners.