Valvoline Inc.

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.