Q1 2022 Valvoline Inc Earnings Call

Speaker 1: The information provided is used by our management and may not be comparable to similar measures used by other companies. Now to turn the slide free.

Can provide and is used by our management and may not be comparable to similar measures used by other companies.

Now as we turn to slide three I'd like to turn the call over to Sam.

Speaker 1: Thanks, Sean, and thank you everyone for joining us today. Our Q1 results were strong, headlined by 31% growth in total sales. Both segments contributed to this top-line performance, with retail services achieving 36% sales growth, including nearly 25% same-store sales growth.

Thanks, Sean and thank you everyone for joining us today.

Our Q1 results were strong headlined by 31% growth in total sales both segments contributed to this top line performance with retail services, achieving 36% sales growth.

Including nearly 25% same store sales growth.

Speaker 1: Mobile products sales increasing by 28%. Top line growth in both segmented continued strong demand for Valveline's products and services.

Global products sales increasing by 28%.

<unk> line growth in both segments continued strong demand for valvoline products and services.

Overall, we achieved 5% growth in adjusted EBITDA and 12% growth in adjusted EPS.

Speaker 1: Overall, we achieved 5% growth and adjusted EBITDA and 12% growth and adjusted EPS.

Speaker 1: We're pleased with how our business performed given the supply chain challenges and increased raw material cost environment we have mentioned on recent calls.

We're pleased with how our business performed given the supply chain challenges and increased raw material cost environment. We have mentioned on recent calls.

Speaker 1: We believe we're well positioned to continue to gain share moving forward. Let's turn to the next slide.

We believe we're well positioned to continue to gain share moving forward.

Let's turn to the next slide.

We have two strong market, leading segments that are each gaining share and delivering results based on our guidance. This year, we expect a 14% revenue CAGR and a 13% adjusted EBITDA CAGR since 2019.

Speaker 1: We have two strong market-leading segments that are each gaining share and delivering results. Based on our guidance this year, we expect a 14% revenue Kagger and a 13% adjusted EBITDA Kagger since 2019.

Speaker 1: We believe retail services and global products are each positioned exceptionally well with their unique abilities to bring value to our customers, leveraging the capabilities of our team.

We believe retail services the global products are each positioned exceptionally well with their unique abilities to bring value to our customers.

Leveraging the capabilities of our team.

Speaker 1: The separation we're pursuing is expected to support continued growth, success, and ability to lead in the respective markets.

The separation, we're pursuing is expected to support continued growth success and ability to lead in their respective markets move.

Speaker 1: Moving into highlights, let's discuss retail services on slide six.

Moving into highlights, let's discuss retail services on slide six.

Speaker 1: Our retail services segment delivered outstanding top line growth with Q1 sales increasing 36% year over year and nearly 60% versus the pre-pandemic first quarter of fiscal 2020.

Our retail services segment delivered outstanding top line growth with Q1 sales, increasing 36% year over year, and nearly 60% versus the pre pandemic first quarter of fiscal 2020.

Speaker 1: System-wide store sales grew 31% over last year and continue to be driven by the combination of same store sales and unit growth

System wide store sales grew 31% over last year and continued to be driven by the combination of same store sales and unit growth.

Speaker 1: Same-store sales growth was exceptional, increasing nearly 25% year-over-year, led by transactions and a solid contribution from average ticket.

Same store sales growth was exceptional increasing nearly 25% year over year led by transactions and a solid contribution from average ticket.

Speaker 1: We expect our pace of same store sales growth to moderate through the year as we compare against impressive growth that began in Q2 of fiscal 2021.

We expect our pace of same store sales growth to moderate through the year as we compare against impressive growth that began in Q2 of fiscal 'twenty one.

Based on our full year guidance of 9% to 12% same store sales growth we expect our.

Speaker 1: Based on a full year guidance of 9 to 12% same store sales growth, we expect our two years to be in the low 30% range.

Two years to be in the low 30% range.

Top line growth top line results were also driven by the addition of new stores.

Speaker 1: Top line growth, top line results were also driven by the addition of new stores.

Speaker 1: We continue to aggressively add units and anticipate ending the fiscal year with well over 1,700 stores.

We continue to aggressively add units and anticipate ending the fiscal year with well over 700 stores.

Speaker 1: I'm pleased with the strength of our acquisition and new store pipelines, as well as the work we're doing in partnership with our franchisees to increase their store base.

I am pleased with the strength of our acquisition and new store pipelines as well as the work we're doing in partnership with our franchisees to increase their store base.

Retail services delivered tremendous growth in adjusted EBITDA versus last year, and two years ago outpatient sales growth in both periods and driving margin expansion.

Speaker 1: Turning to the next slide, we will examine our exceptional transaction growth.

Turning to the next slide we will examine our exceptional transaction growth.

Speaker 1: Increased transactions have fueled our outstanding same-store sales performance over the past 12 months.

Increased transactions have fueled our outstanding same store sales performance over the past 12 months.

Speaker 1: Since 2016, our retail services segment has nearly doubled its number of system-wide transactions. Outpacing the growth of the DIVM oil...

Since 2016, our retail services segment has nearly doubled its number of systemwide transactions outpacing.

Outpacing the growth of the <unk> oil change market.

Do you have that broader market, which is in the low to mid single digit range leaves us significant room for future growth.

Speaker 1: Here at that broader market, which is in the low to mid single digit range, leaves us significant room for future growth.

Speaker 1: with the ongoing consumer trend in the convenience, are quickly the entrusted approach positions us well to gain share.

With the ongoing consumer spend and the convenience are quick easy and trusted approach positions us well to gain share.

Speaker 1: Our capabilities and data analytics continue to strengthen, allowing us to develop predictive models to drive ongoing customer acquisition.

Our capabilities in data analytics continue to strengthen allowing us to develop predictive models to drive ongoing customer acquisition.

Speaker 1: With the superior in-store experience our teams deliver, we've done well retaining these new customers, in addition to our existing customers.

With the superior in store experience our teams deliver we've done well retaining these new customers. In addition to our existing customers.

Speaker 1: As we continue to add new stores, we'll reach more customers and drive more data. We can leverage this competitive advantage to market our current and future services accelerating share gains.

As we continue to add new stores will reach more customers and drive more data. We can leverage this competitive advantage to market, our current and future services accelerating share gains.

Let's move to the next slide.

Speaker 1: As you may have seen in our press release earlier this week, we've begun piloting an electric vehicle service package.

As you may have seen in our press release earlier. This week, we've begun piloting an electric vehicle service package.

Speaker 1: This experiment is our first to focus on consumers that own battery electric vehicles.

This excitement is our first focus on consumers that own battery electric vehicles.

Speaker 1: The pilot will begin in a limited number of stores to develop our operational readiness and capabilities before expanding the company-owned markets as we evaluate additional service offerings.

The pilot will begin in a limited number of stores to develop our operational readiness and capabilities before expanding the company owned markets as we evaluate additional service offerings.

Speaker 1: We're focused on delivering quick, easy and trusted services.

We're focused on delivering quick easy and trusted services.

For both EV owners and as a partner to EV Oems and fleets.

Speaker 1: to both EV owners and as a partner to EV OEMs and fleets.

Speaker 1: We previously announced being named a service partner for a rival in early-entrant EV manufacturer.

We previously announced being named a service partner for a rival and early entrant EV manufacturer.

Speaker 1: The installed pilot leave announced now represents progress on both fronts.

The in store pilot, we've announced now represents progress on both fronts.

Speaker 1: As we've always done with new services, technology and programs, we're taking a disciplined approach to rolling out EV services as we continue to focus on delivering a superior experience for our customers.

As we've always done with new services technology and programs, we're taking a disciplined approach to rolling out <unk> services as we continue to focus on delivering a superior experience for our customers.

Speaker 1: Ultimately, and our customers purchase EVs in the future, we'll be ready to serve them across our system of conveniently located stores.

Ultimately as our customers purchase evs in the future, we will be ready to serve them across our system of conveniently located stores.

Lets review results in global products on the next slide.

The momentum in our global products business continued in Q1 with sales up 28% year over year and up 32% versus the pre pandemic period of fiscal Q1 2020.

Speaker 1: The momentum in our global product business continued in Q1 with sales up 28% year over year and up 32% versus the pre-pandemic period of fiscal Q1 2020.

We're seeing a solid contribution to sales growth across regions.

Speaker 1: We're seeing a solid contribution to sales growth across regions. We continue to gain share despite supply chain challenges evidenced by volume growth.

We continued to gain share despite supply chain challenges as evidenced by volume growth.

Speaker 1: Demand signals for our lubricants products and solutions are strong. We believe we're well positioned to capture incremental opportunities as the supply chain normalizes.

Demand signals for our lubricant products.

<unk> solutions are strong we believe we're well positioned to capture incremental opportunities as the supply chain normalizes.

Speaker 1: just as EBITDA declined versus last year, driven primarily by price-cost lag, which impacted margins.

Adjusted EBITDA declined versus last year, driven primarily by price cost lag which impacted margins.

Speaker 1: Even with margin pressure, discretionary free cash flow is solid, and we expect the segment to deliver another year of steady cash generation. Let's take a closer look at...

Even with margin pressure discretionary free cash flow was solid and we expect this segment to deliver another year of steady cash generation.

Let's take a closer look at margins on the next slide.

Speaker 1: Like many other industries, we are experiencing cost pressures from two main sources, raw materials and disruptions in the supply chain.

Like many other industries, we are experiencing cost pressures from two main sources raw materials and disruptions in the supply chain.

After declining at the at the onset of the pandemic in 2020 raw material cost increases were primarily driven by the significant and rapid increases in base oil costs beginning in fiscal 2021.

Speaker 1: After declining at the onset of the pandemic in 2020, raw material cost increases were primarily driven by the significant and rapid increases in basal costs beginning in fiscal 2021.

Speaker 1: We have experienced more stable raw material costs over the past several months and continue to monitor mar... We have experienced more stable raw material costs over the past several months and continue to monitor mar...

We have experienced more stable raw material costs over the past several months and continue to monitor.

Market activity.

Speaker 1: We began to pass through raw materials cost increases with pricing in the second half of fiscal 21 and continued in Q1 this year. As you can see in the chart on slide 10, we've made good progress in passing through price increases and expect to continue these efforts to recover our costs moving forward. As a reminder, in a rising raw material environment, we're impacted by price cost lag.

We began to pass through raw material cost increases with pricing in the second half of fiscal 'twenty, one and continued in Q1 this year.

As you can see in the chart on Slide 10, we've made good progress in passing through price increases and expect to continue these efforts to recover our costs moving forward.

As a reminder, and a rising raw material environment were impacted by price cost lag.

Speaker 1: But in the falling part of the cycle, we've historically been able to structurally improve our unit margin.

In the falling part of the cycle, we've historically been able to structurally improve our unit margins.

Speaker 1: More recently, supply chain challenges have also led to increased costs and inefficiencies, including higher logistics costs and lower levels of inventory than we typically carry, resulting in manufacturing inefficiencies.

More recently supply chain challenges have also led to increased costs and inefficiencies, including higher logistics costs and lower levels of inventory than we typically carry.

Resulting in manufacturing inefficiencies.

Speaker 1: Our team has done an extraordinary job of managing through these challenges and meeting customer demand. Although at temporarily higher cost than what we would normally experience.

Our team has done an extraordinary job of managing through these challenges in meeting customer demand, although at temporarily higher costs than what we would normally experience.

Speaker 1: We have a long history of success in recovering cost increases with pass-through pricing, leveraging the strength of our brand and our focus on customer service.

We have a long history of success in recovering cost increases with pass through pricing leveraging the strength of our brand and our focus on customer service.

Speaker 1: pandemic induced volatility has extended our typical recovery cycle, but has not changed our confidence in recovering our cost over time.

The pandemic induced volatility has extended our typical recovery cycle that has not changed our confidence in recovering our cost over time.

Speaker 1: As you can see on slide 11, our global products business has been successful at gaining shared globally. We've grown share in international markets using our proven growth drivers. First, we build and optimize our routes to market, develop a robust platform of products and solutions to service our channels, and then add marketing spend to drive brand equity and consumer demand. Our value-added sewing approach enables us to win with mechanics, installers, and fleet owners.

As you can sleep see on slide 11, our global products business has been successful at gaining share globally.

We've grown share in international markets using our proven growth drivers first we build and optimize our routes to market.

<unk>, a robust platform of products and solutions to service our channels and then add marketing spend to drive brand equity and consumer demand are.

Our value added selling approach enables us to win with mechanics, installers and fleet owners.

As we've highlighted before Mexico is a great example of where we've expanded our reach by adding and optimizing our distributor network.

Speaker 1: As we've highlighted before, Mexico is a great example of where we've expanded our reach by adding and optimizing our distributor network.

Speaker 1: We've invested in a digital marketing to increase brand awareness and expand it and relaunched our product portfolio. We're winning in heavy duty where our Mexico share has doubled over the last five years. We're also seeing share gains in other markets in regions such as India, China and Eastern Europe .

We've invested in digital marketing to increase brand awareness and expanded and relaunched our product portfolio, we're winning in heavy duty, where our Mexico share has doubled over the last five years. We're also seeing share gains in other markets and regions, such as India, China and Eastern Europe .

Speaker 1: We have strengthened our position in the US DIY market across our product portfolio, winning additional shelf space at top retailers and picking up distribution in new channels like Farm and Convenient Stories.

We have strengthened our position in the U S DIY market across our product portfolio, winning additional shelf space at top retailers and picking up distribution in new channels like farm and convenience stores.

Speaker 1: Even with the glycine challenges, our team has done outstanding job with supplying our customers outperforming competitors.

Even with supply chain challenges our team has done outstanding job of supplying our customers outperforming competitors.

Speaker 1: We recently launched a new product called extended protection that is proving successful in the market and leading to significant share gains in the premium synthetic category.

We recently launched a new product called extended protection that is proving successful in the market and leading to significant share gains in the premium synthetic category.

Speaker 1: We believe global products is well positioned to continue to gain share, recover costs, and generate steady cash flow.

We believe global products is well positioned to continue to gain share recover costs and generate steady cash flow.

Speaker 1: With that, I'll hand things over to Mary to discuss our financial results in more detail.

With that I'll hand things over to Mary to discuss our financial results in more detail.

Thanks, Sam our Q1 results are summarized on slide 13.

Speaker 2: Thanks, Sam. Our few one results are summarized on slide 13. We continue to see exceptional top line growth both a year over year in versus the pre-pandemic period two years ago.

We continue to see exceptional top line growth both year over year in versus the pre pandemic period two years ago sales.

Speaker 2: Sales growth in the quarter was driven by both segments, highlighting the momentum in each business.

Sales growth in the quarter was driven by both segments highlighting the momentum in each business.

Speaker 2: of standing growth in retail services profitability was tempered by lingering price cost leg and supply chain related cost impacts in global products, as Sam discussed earlier. Our adjusted effective tax rate in Q1 came in lower than prior year, which benefited adjusted EPS.

Outstanding growth in retail services profitability was tempered by lingering price cost lag in supply chain related cost impacts in global products as Sam discussed earlier.

Our adjusted effective tax rate in Q1 came in lower than prior year, which benefited adjusted EPS.

Speaker 2: Let's take a closer look at segment EVA down margins on the next slide.

Let's take a closer look at segment EBITDA margins on the next slide.

EBITDA margin expansion in retail services was driven by stores opened more than three years, where margins improved by 200 basis points to roughly 35%.

Speaker 2: Evidon Margin Expansion in retail services was driven by stores open more than three years. For margins improved by 200 basis points to roughly 35%.

Speaker 2: The results of exceptional top line growth highlight in the anticipated runway from margin expansion as our newer stores mature.

The result of exceptional top line growth highlighting the anticipated runway for margin expansion as our newer stores mature.

Speaker 2: as expected, adjusted EBITDA to client and global products driven by short-term cost pressures in Dean Margin.

As expected adjusted EBITDA declined in global products, driven by short term cost pressures in <unk>.

<unk> margins.

Speaker 2: Despite cost pressure, adjusted EBITDA was flat to pre-pandemic Q1 of fiscal 20, reflecting strong volume growth. Sales growth outpages.

Despite cost pressure adjusted EBITDA was flat to pre pandemic Q1 of fiscal 'twenty, reflecting strong volume growth.

Sales growth outpaced volumes.

Speaker 2: I'm sorry, sales growth outpaced volumes, highlighting continued progress and pass through pricing and setting the segment up for improved profitability and margins over time. Disgressionary treat cash flow generation in the segment remains healthy and on pace for a steady 200 plus million again in this fiscal year.

Hi, excuse me sales growth outpaced volumes, highlighting continued progress and pass through pricing in setting the segment up for improved profit profitability and margins overtime discretionary free cash flow generation in this segment remains healthy and on pace for a steady 200 plus million again this fiscal year.

As you can see on slide 15 maintenance capital in Q1 remained at roughly 1% of sales while total capex was flat versus last year, highlighting our capital light business model.

Speaker 2: As you can see on slide 15, maintenance capital in Q1 remained at roughly 1% of sales, while total cap exosflat versus last year, highlighting our capital-like business model. A timing-related increase in working capital driven primarily by our strong sales growth led to a year-over-year decline in operating cash flow and slightly negative free cash flow in the quarter.

<unk> related increase in working capital driven primarily by our strong sales growth led to a year over year decline in operating cash flow and slightly negative free cash flow in the quarter.

Speaker 2: We still expect to generate strong free cash flow of more than 260 million this fiscal year.

We still expect to generate strong free cash flow of more than $260 million this fiscal year.

Speaker 2: In Q1, we returned $54 million in cash to shareholders, via dividends of $23 million in share repurchases of $31 million. We expect to continue our consistent share repurchase strategy that we previously outlined. Let's review our fiscal 22 guidance.

In Q1, we returned $54 million in cash to shareholders via dividends of $23 million and share repurchases of $31 million. We expect to continue our consistent share repurchase strategy that we previously outlined.

Let's review our fiscal 'twenty two guidance on the next slide.

Speaker 2: We are reiterating our guidance across nearly all our key metrics.

We are reiterating our guidance across nearly all our key metrics. We anticipate total sales growth of roughly 20% driven by continued volume growth and pass through pricing in global products and continued strength in same store sales and retail services were encouraged by the ongoing strength of our pipeline for storage.

Speaker 2: We anticipate total sales growth of roughly 20% driven by continued volume growth and pass through pricing and global products and continued strength in the same store sales and retail services. We are encouraged by the ongoing strengths of our pipeline for store additions, both ground ups and acquisitions on the company side and especially unit growth by our franchisees.

Actions, both ground ups and acquisitions on the company side, and especially unit growth by our franchisees.

Speaker 2: We continue to expect overall adjusted EVA dot to be in the range of 675 to 700 million, representing 6 to 10% year-over-year growth.

We continue to expect overall adjusted EBITDA to be in the range of $675 to $700 million, representing 6% to 10% year over year growth.

Speaker 2: We're modestly lowering our tax rate outlook to 24 to 25%, which flows through to adjusted EPS, where we expect to be in the range of $2.07 to $2.20 per share.

We're modestly lowering our tax rate outlook to 24% to 25%, which flows through to adjusted EPS, where we expect to be in the range of $2 seven to $2 20 per share.

Speaker 2: Now as we turn to slide 18, I'll turn things back over to Sam.

Now as we turn as we turn to slide 18, I'll turn things back over to Sam.

Thank you Mary.

Before we wrap up the call today I wanted to touch on our progress with the separation of our global products and retail services businesses.

Speaker 1: Before we wrap up the call today, I wanted to touch on our progress with the separation of our global products and retail services businesses.

Speaker 1: Both segments are performing well financially and operationally with strong demand tailwinds and ongoing sharegames.

Both segments are performing well financially and operationally, where strong demand tailwind and ongoing share gains.

Speaker 1: each segment is a leader in its markets and has significant scale with the solid foundation to successfully operate as independent businesses.

Each segment is a leader in its markets and has significant scale with a solid foundation to successfully operate as independent businesses.

Speaker 1: We are making great headways since we announced our decision to pursue a separation in October . But teams have done significant work to prepare each business to operate independently and lay the groundwork for a smooth separation.

We're making great headway since we announced our decision to pursue a separation in October our teams have done significant work to prepare each business to operate independently and lay the groundwork for a smooth separation.

Speaker 1: We're working with our external advisors to ensure that each business has the right infrastructure and support to operate independently and to mitigate just energies once a formal separation transaction is announced.

We're working with our external advisers to ensure that each business has the right infrastructure and support operate independently and to mitigate dis synergies once a formal separation transaction is announced.

Speaker 1: We believe the separation will create significant and long-term value for our shareholders, employees, and other stakeholders.

We believe the separation will create significant and long term value for our shareholders employees and other stakeholders.

Speaker 1: We're on track and working with speed to capture this compelling opportunity.

We are on track and working with speed to capture this compelling opportunity.

Speaker 1: Moving to the last slide for today's presentation, we have had a great first quarter across the doubly. And I'd like to express my thanks to our teams around the world who have enabled its success.

Moving to the last slide for today's presentation, we have had a great first quarter across valvoline and I'd like to express my thanks to our teams around the world who have enabled this success.

Speaker 1: Both segments have driven significant top line results and continue to perform well. The results show that the demand for valid leading products in differentiated services is robust.

Segments have driven significant topline results and continued to perform well the results show that the demand for battling the leading products and differentiated services is robust.

Speaker 1: We'll look to leverage this early momentum as we execute over the rest of our fiscal year. Given the growth opportunities we've identified and the trends we're seeing in the market, we are reiterating our strong outlook for fiscal 2022.

We'll look to leverage this early momentum as we execute over the rest of our fiscal year.

Given the growth opportunities we've identified in the trends we're seeing in the market. We are reiterating our strong outlook for fiscal 2022.

Speaker 1: On the capital allocation side, we expect to continue to execute against our share repurchase authorization to support shareholder returns. And I'll turn back to Sean to open the line for Q&A.

On the capital allocation side, we expect to continue to execute against our share repurchase authorization to support shareholder returns now I'll turn it back to Sean to open the line for Q&A.

Speaker 1: Thanks, Sam. I'd like to remind everyone to limit your questions to one and maybe just a few follow-ups so that we can make sure we get to everyone. With that, Victoria, please open on.

Thanks Sam.

To remind everyone to limit your questions to one and maybe just a few follow up so that we can make sure we get to everyone with that Victoria. Please open the line.

Speaker 3: Thank you Sean. We will now start the Q&A portion of the call. If you would like to ask a question, please press start Oliver one on your telephone keypad. If you wish to include your question, please press start on your phone. If you would like to ask a question, please ensure that your line is unmuted locally.

Thank you Sean we will now start the Q&A portion of the call if you'd like to ask a question. Please press star followed by one on your telephone keypad. If you wish to withdraw your question. Please press star followed by <unk> when comparing to ask a question. Please ensure that your line is our need to make any.

Speaker 3: And our first question comes from Simon Plutman from Morgan Stanley . Please go ahead, your line is open.

And our first question comes from Simeon Gutman from Morgan Stanley . Please go ahead. Your line is open.

Speaker 4: Hey, good morning, everyone. I have two questions. My first on the quarter and then second on the separation. The on the quarter, if it's possible, and I know you may not want to do this, but for North America, sales of 29%, are you able to separate price and volume for us?

Hey, good morning, everyone I have two questions my first on the quarter and then second on the separation.

On the quarter, if it's possible and I know you may not want to do this but for North America sales up 29% are you able to separate price and volume for us.

Speaker 2: You have to mean I can give you a little direction there. And I'll talk specifically across the total global products business. The volume benefit we saw in the global products business in total had a benefit of about 28 million. We're on the...

Yes, I mean, I can give you a little direction, there and I'll talk specifically across the total global products business.

The volume benefit we saw in.

And the global products business in total.

We had a benefit of about $28 million.

We're on.

Speaker 2: Price cost side the price cost lag impact was about a negative thirty million dollars Just under for the quarter. So That's the gap that we're working. You know, we've made real progress in in passing pricing through I think we've recovered a little bit better than 65% of our costs and we're continuing to work to recover costs

Price cost side, the price cost lag impact was about a negative $30 million.

Under <unk> for the quarter. So that's the gap that we're working we've made real progress in passing pricing through I think we've recovered a little bit better than 65% of our costs and we're continuing to work to recover costs for the remainder so.

Speaker 2: for the remainder. So really that was about the size of the price cost lag across the overall global products business. About two-thirds of that was in the North America business, Damian. Thank you.

Really.

That was about the size of the price cost lag across the overall global products business about two thirds of that was in the North America business demand.

Thank you that's helpful. Mary and then my second question.

Speaker 4: I don't know if this is theoretical or if it's answerable, but if you look at the retail services versus global products business, and as you think about the separation.

I don't know if this is theoretical or if it's answerable, but if you look at the retail services versus global products business and as you think about the separation.

Speaker 4: I guess which side owned the IP to the brand Valvelin? And I'm thinking, you know,

I guess, which side on the IP to brand Valvoline thinking.

Speaker 4: how retail services will procure the oil, does the brand belong to one side or the other?

How retail services will procure the oil.

The brand belong to one side or the other.

Yes, so we haven't announced any specifics on the relationships with regard to how the brand will be essentially shared and executed for both the businesses or the product supply relationship, but I can add just some context on what we believe in a very calm.

Speaker 1: Yeah, so we have an announcement in specifics on the relationships with regard to how the brand will be essentially shared and executed for both the businesses or the product's supply relationship, but it can add just some context and what we believe in a very competent will accomplish.

We'll accomplish and first is that both sides of the business will have access to the brand name and and that IP for what drives success in our business. The Valvoline brand brings a tremendous amount of value to our product side of the business and it helps us command that premium.

Speaker 1: And first is that both sides of the business will have access to the brand name and that IP for what drives success in the business. The valve and brand brings a tremendous amount of value to our product side of the business and it helps us command that premium margin really across all channels from DIY to installer to heavy duty.

Margin really across all channels from DIY to installer to heavy duty and around the world and of course that big be out in front of our stores.

Speaker 1: and around the world. And of course, you know, that big V out in front of our stores, there was a great symbol of quality and drives customers to our stores with a high expectation of excellent service and product.

Great symbol of quality and drives customers to our stores with a high expectation of above.

Excellent service and products.

Speaker 1: And so that also is important too, is that the retail service side of the business will continue to use and source.

And so that also is important to us that the retail service side of the business will continue to use and source.

Speaker 1: battling products from global products. So what should be clear to investors and analysts is that global products will now in the future own the supply chain. Then there will be a long-term supply contract between retail services and global products.

<unk> products from global products. So it should be clear to investors and analysts is that global products will now in the future one the supply chain and then there will be a long term supply contract between retail services and global products. So the global products can earn a fair margin.

Speaker 1: So the global products can earn a fair margin on that business and retail services can benefit from the high levels of service and using the highest quality products in our service offering and all.

On that business and retail services can benefit from the high levels of service and using the highest quality products in.

In our service offering in all of our stores.

That's helpful. Sam I guess, maybe just a follow up to that is there. So there'll be a cost to procure the oil is there a way to offset that or they're just the cost of business and Thats what you expect.

Speaker 4: That's helpful, Sam. I guess maybe just to follow up to that is there, so there will be a cost to procure the oil. Is there a way to offset that? Or there's just a cost of business and that's what you expect.

Speaker 1: Yeah, I know this is one of the important areas that we've been working on to minimize any disenergies. And so we're with the arrangement that we're evaluating, again, not yet announced in terms of how exactly it will work, but we do not see a significant shift in profitability from one segment to the other segment.

Yes, I know this is one of the important areas that we've been working on to minimize any dis synergies and so we're.

With the arrangements that we're evaluating again not yet announced in terms of how exactly it will work, but we do not see a significant shift in profitability from one segment to the other segment.

Speaker 1: So more to come on that, but what's important, I think, for you and others is to understand that we've got a great plan in place to minimize any of those disenergies.

So more and more to come on that but.

What's important I think for for you and others to understand that we've got a great plan in place to at a minimum minimize any of those dis synergies.

Okay. Thanks Pam.

Speaker 3: Thanks, thank you for your question. And our next question comes from Mike Harrison from Seaport Research Partners. Please go ahead, your line is open.

Perfect. Thank you for your question and our next question comes from Mike Harrison from Seaport Research Partners. Please go ahead. Your line is open.

Speaker 5: Hi, good morning. Congratulations on my start to the year.

Hi, good morning, congratulations on a nice start to the year.

Speaker 5: Next slide. You can talk a little bit about what you're seeing in terms of gross margin. There were a couple hundred basis points of sequential gross margin decline. We watched basal oil prices, and I think you mentioned that you've seen some stability in basal oil pricing. Maybe talk a little bit more about what you're seeing in terms of

Thanks, Brian I was wondering if you could talk.

Maybe talk a little bit about what youre seeing in terms of gross margin. There were a couple of hundred basis points of sequential gross margin decline.

We watch base oil prices and I think you mentioned that you've seen some stability in base oil pricing.

Maybe talk a little bit more about what youre seeing in terms of additives and other raw materials outside of base oil.

Speaker 5: Adderatives and other raw materials outside of the soil

Speaker 5: And also, what kind of impact you saw from... I know you mentioned some supply changes for option and the lower inventory levels leading to some inefficient seeds.

And also what kind of impact you saw from I know you mentioned, some supply chain disruption and the lower inventory levels, leading to some inefficiencies.

Speaker 5: Just looking for a little bit more color on the sequential growth margin decline, and if we've seen the bottom.

Just looking for a little bit more color on the sequential gross margin decline.

We've seen a bottom.

Speaker 5: in terms of kind of the price cost and back down close margin. Thank you.

In terms of kind of the price cost impact on gross margin. Thank you.

Yes.

Speaker 1: Why don't I cover a big picture? Mary can add some color to it as necessary. While we have seen some stabilization in recent months, we have also seen crude move up more recently into the $90 range. And so I think we're nearing the top of the inflationary cycle, but maybe not quite fully out of it.

Why don't I cover Big picture and Mary can add some color to it as necessary.

So while we have seen some stabilization in recent months.

We have also seen crude move up more recently into the $90 range and so I think we're nearing the top of the inflationary cycle, but maybe not quite fully out of it.

Speaker 1: So it's been a challenging period that we've been in because these are some of the most significant increases and costs that we've seen and over a longer duration and in the past, I think we've seen roughly seven basal market increases over the last nine months.

So it's been.

A challenging period that we've been in because these are some of the most significant increases in costs that we've seen in over a longer duration than in the past I think we've seen roughly seven base oil market increases over the last nine months and those base oil costs in the range of plus 80% from when we started.

Speaker 1: and those basal costs, you know, in the range of, you know, plus 80% from when we started the cycle. So, you know, pretty significant. So, nonetheless,

The cycle, so pretty significant.

So nonetheless.

Speaker 1: You know, we've been making moves appropriately in adjusting our finished loop pricing to the market to help us cover those costs. You know, as we've explained in the past, we have a good portion of our business in the US on quarterly contracts or long-term contracts that adjust pricing on a quarterly basis.

We have been making moves appropriately in adjusting our finished lube pricing to the market.

To help us cover those costs.

As we've explained in the past.

We have a good portion of our business in the U S on quarterly.

Contracts are long term contracts that adjust pricing on a quarterly basis, and so that's able to help us mitigate.

Speaker 1: And so that's able to help us mitigate price cost lag effects for some of those large national install accounts, for example.

Cost lag effect for some of those large national installer accounts for example.

Speaker 1: But we do tend to have a larger lag impact in the DIY market where it's more of a negotiated price increase. And what happens for us again is that we have scheduled promotions throughout the year, our merchandising events at our big retailers.

But we do tend to have larger lag impact in the DIY market, where it's more of a negotiated price increase and what happens for US again is that we have scheduled promotions throughout the year, our merchandising events at our big retailers and so we're kind of locked into when we can adjust prices when it's appropriate to adjust prices.

Speaker 1: And so we're kind of locked into when we can adjust prices, when it's appropriate to adjust prices. So, you know, we look both.

So we look both at.

Speaker 1: at our March and I think schedule our competitors to make the appropriate moves at the right time.

At our merchandising schedule, our competitors to make the appropriate moves at the right time, so definitely feeling some lag there in the current quarter and I would say in the upcoming quarter.

Speaker 1: So definitely feeling some lag there in the current quarter and I would say in the upcoming quarter, but over the course of 2022, we'll be taking the appropriate pricing actions to recover those costs. So again, confident that we'll get back to where we need to be. And if you go back to...

But over the course of 2022 will be taking the appropriate pricing actions to recover those costs. So again confident that we will get back to where we need to be and if you go back to I think it was page 10 in the presentation.

Speaker 1: was page 10 in the presentation you know it kinda lays out you know that that trend in pricing and and how we are adjusting pricing appropriately to cover those costs

It kind of lays out that that trend in pricing and how we are adjusting pricing appropriately to cover those costs.

Speaker 1: But it is widespread. It's not just basal, it's the additive market, packaging, logistics. There's inflationary pressures across the board. And so the pricing actions that we take are meant to recover all those costs as we move through this period. And then we're optimistic as we think about the strength of the business long term.

But it is widespread its not just base oil its the additive market packaging logistics, there's inflationary pressures across the board and so the pricing actions that we take our our mentor.

However, all of those costs.

As we move through this.

Period.

And then we're optimistic as we think about the strength of the business long term.

Speaker 1: because as we peek in this inflationary period, then as we catch up, you look at the strength of our demand right now, and I think we're outperforming the category in general both.

Because as we as we peak in this inflationary period.

Then as we catch up if you look at the strength of our demand right now.

And I think we're outperforming the category in general both here in the U S and in international markets and I think we're really well positioned to benefit from that driving share growth and driving increased profitability.

Speaker 1: here in the U.S. and in international markets. And I think we're really well positioned to benefit from that driving share growth and driving increased profitability.

Speaker 1: over the long term. So again, a challenging period seems to do an amazing job. I think outperforming competitors in our ability to supply our existing customers.

Over the long term so.

Again, a challenging period team is doing an amazing job I think outperforming competitors and our ability to supply our existing customers.

Speaker 1: But it's, we're not out of the woods yet. I mentioned in the presentation that our inventories are pretty tight. And so we'll be working our tails off to continue to keep up with customer demand for valent product.

But it's we're not out of the woods, yet I've mentioned in the presentation that our inventories are pretty tight.

And so we'll be working our tails off to continue to keep up with customer demand for <unk> products, and then hopefully put ourselves in a great position to benefit from longer term share gains and Sam it's not only our inventories that are tight it's all the way through the supply chain, so our customer inventories.

Speaker 1: and then hopefully put ourselves in a great position to benefit from long-term share gain.

Speaker 2: And Sam is not only our inventories that are tight, it's all the way through the supply chain, so our customer inventories.

Speaker 2: are running at very low levels as well. So the safety stock that's been kind of taped to plead it from the end to end from the inventory perspective has been pretty significant and that creates a future opportunity for us as well. Those inventories as the supply chain kind of normalizes, we'll get replenished and there'll be some demand benefits.

Our running that at.

Very low levels as well so again, the safety stock thats been kind of tape depleted from the from the end to end from the inventory perspective has been pretty significant and that creates a future opportunity for us as well.

Those inventories as the supply chain kind of normalizes, we'll get replenished and there'll be some demand benefits.

Speaker 2: that will be coming at us from that as well. But the one thing that Sam didn't mention, Mike, is that, you know, that because of the lower inventory levels, we are seeing

That will be coming at us from that as well, but the one thing that Sam didn't mentioned.

Mike is that that.

But because of that lower inventory levels, we are seeing.

Speaker 2: We mentioned in our remarks some manufacturing challenges related and higher, modestly higher costs associated with more frequent.

We mentioned in our remarks some manufacturing.

Challenges related and higher modestly higher costs associated with more frequent.

Speaker 2: production runs more over time, just overall demands that are being placed on our manufacturing operations to be able to meet.

Production runs.

More.

Overtime.

Just overall demands that are being placed on our manufacturing operations to be able to meet demand.

Speaker 2: demand in this environment where there are lower inventory. And so that's creating some incremental costs that we're dealing with as well. But Sam's right, we are seeing cost increases and additives and cost increases in...

In this environment, where there are lower inventories and so that's creating some incremental costs that we're dealing with as well but the.

Sam's right, we are seeing cost increases in additives and cost increases in.

Speaker 2: logistics in particular that are also driving some of the sequential decline in margins that we saw relative to fourth quarter.

Logistics in particular.

That are also driving some of the.

The sequential decline in margins that we saw relative to fourth quarter.

Speaker 5: All right, thanks. I appreciate all the color there. One of the ask also about the announcement on the pilot program for electric vehicle services at your VIOC location.

Alright, Thanks, I appreciate all the color there.

Wanted to ask also about the announcements on.

The pilot program for electric vehicle services that youll be IOC location, maybe talk a little bit more broadly about all of the steps that you're taking to expand your EV customer base.

Speaker 5: Maybe talk a little bit more broadly about all of the steps that you're taking to expand your EV customer base. And can you also provide some sense of how the revenue from EV services that they need in a year or in some period compares to the revenue that you would see from maintenance on an internal combustion engine vehicle.

And can you also provide some sense of how the revenue from <unk> services.

Need in a year in some period compares to the revenue that you would see for maintenance on an internal combustion engine vehicle.

Mhm.

Yes, Mike.

Speaker 1: Yeah, like, you know, as we presented, we're gonna be focused on our service offering for those EV vehicles and those owners in passenger car market, but we'll also be working with OEMs and making sure that, you know, we're pursuing strong relationships there that are also supplemented by some of the product work we're doing with EV OEMs and heat transfer fluids, for example. But on the OEM side, partnerships brakes our co Prague

As we presented we are going to be focused on our service offering for those EV vehicles and those those owners and fashion to your car market, but will also be working with Oems and making sure that we're pursuing and strong relationships there.

<unk> are also supplemented by some of the product work, we're doing with EV Oems.

In heat transfer fluids for example.

But on the OEM side partnerships like arrival not only.

Speaker 1: Not only can help position us for incremental sales through our stores with fleet customers like Arrival, but also help us learn and strengthen our offering in our stores and where we need to make additional investments, say, in our technical capabilities in the stores. So I think it's gonna be a great partnership to be learning and growing with them. So we're really pursuing that on both sides. Fleet.

<unk> helped position us for incremental sales through our stores.

With fleet customers like arrival.

But also help us learn and strengthen our offering in our stores and where we need to make additional investments in our technical capabilities in the stores. So I think it's going to be a great partnership to be learning and growing with them. So we're really pursuing on a both sides fleets.

Speaker 1: cash and your cars, you know, that it's going to take some time for, you know, the EV market to be significant in size, but what we're doing now is to prepare for that future. And to make sure one, you know, we do the job with excellence and that's, you know, what we're known to do that our teams are highly trained and qualified to provide any of those preventive maintenance services. And

<unk> of cars.

It's going to take some time for the EV market to be significant in size, but what we're doing now is to prepare for that future and to make sure.

One we do the job with excellence.

And Thats, what we are known to do that our teams are highly trained and qualified.

To provide any of those preventive maintenance services.

And and then.

Speaker 1: Regarding the longer term, we want to make sure our devling customers know well in advance of making that EV purchase. When they do make that purchase, if they decide to go that route, that they know that that car can be serviced at bobbling. And we know our big advantage is being quick, easy-trusted, we're going to heck a lot more convenient than going back to our dealership location.

Regarding the.

But longer term, we want to we want to make sure our valvoline customers know well in advance of making that EV purchase that when they do make that purchase if they decide to go that route that they know that that car can be serviced at valvoline and we know are big advantages being quick easy trusted a heck of a.

Lot more convenient than going back to a dealership locations.

Speaker 1: consumers look for that convenience in their preventive maintenance and we're gonna continue to strengthen our advantage there no matter how that car is powered.

Consumers look for that convenience in their preventive maintenance and we're going to continue to strengthen our advantage there no matter how that cars powered going back to your the second part of your question.

Speaker 1: Going back to your, you know, the second part of your question is around like the revenue per vehicle on an annual basis. And that's a really important question. And that's one that, you know, we're working on. And that's part of this pilot program is to better understand, know what that revenue per vehicle looks like, the frequency of service, and then modify or service offerings appropriately too.

The.

Per vehicle on an annual basis, and that's a really important question and that's one that we're working on and that's part of this pilot program is to better understand what that revenue per vehicle looks like the frequency of service.

And then modify our service offerings appropriately too.

Speaker 1: I would say based on some of our insights as we've been studying EVs over the last few years, is that it could be that frequency might be a bit less versus an internal combustion engine, but the service offering and the revenue from that transaction might be very attractive for us too. But we'll learn in the context.

I would say based on some some of.

Our insights as we have been studying evs over the last few years is that it could be that frequency might be a bit less versus an internal combustion engine, but the service offering and the revenue from that transaction.

It might be very attractive for us too.

But we will learn.

In the coming year and years, so that we're positioning valvoline to continue to grow and thrive no matter. How those vehicles are powered and that's our approach to evs and hybrid market combustion engine and the opportunities that we have in the fleet market et cetera.

Speaker 1: year and years so that we're positioning valvling to continue to grow and thrive no matter how those vehicles are powered. And that's our approach to EV, the hybrid market, the conventional combustion engine, the opportunities that we have in the fleet market, et cetera.

Alright, thanks very much.

You bet.

Yes.

Speaker 3: Perfect. Thank you, Mike, for your question. Our next question comes from Jeffrey Zakaskar from JP Morgan's Please Go ahead.

Perfect. Thank you Mike for your question. Our next question comes from Jeffrey Zekauskas from Jpmorgan. Please go ahead.

Thanks very much.

Speaker 1: In the retail business, your operating income was very strong year over year.

In the retail business. Your operating income was very strong year over year.

Speaker 4: but really was down from the second and third quarters of last year.

But that really was down from the second and third quarters of last year.

I'm, sorry from the third and fourth it kind of flat with the second quarter.

Speaker 6: I'm sorry from the third and fourth thing, kind of slot with the second quarter.

Speaker 6: Do you have to increase prices in retail? It looks like your margins are getting squeezed there. What are you gonna do about that?

Do you have to increase prices in retail.

Looks like your margins are getting squeezed there what are you going to do about that.

Yes.

Speaker 1: American adds some color with regard to detail in the margin, but the pricing is an important part of the equation, Jeff, and the inflationary pressures hit our retail services too.

American add some color with regard to detail on the margin but.

Yes pricing is an important part of the equation, Jeff and.

The inflationary pressures by hit our retail services too.

Speaker 1: They're twofold in that product prices are going up and we need to reflect that in our pricing for our services and labor costs are moving up too. And so everyone is very familiar with some of the labor challenges and we wanna be on top of that and we're adjusting our entry level wages appropriately. And

They're they're twofold and that product prices are going up and we need to reflect that in our pricing.

For our services.

Labor costs are moving up too and so everyone is very familiar with some of the labor challenges.

And we want to be on top of that and we're adjusting our entry level wages appropriately and.

Speaker 1: and making sure that we're competitive. We typically pay above other retailers on entry-level wages. And so pricing actions do have to cover those investments that we're making in our team.

And making sure that we're competitive we typically pay above other retailers on entry level.

Wages and and so pricing actions to have to cover those investments that we're making in our team.

Speaker 1: We have a very disciplined approach to adjusting prices, where we're evaluating different price points in pilot markets around the country. We separate markets too in terms of some of their competitive dynamics and also locations. But I can tell you that we've taken some pricing actions. Some of those take effect in fact this month. Some of them will take place a little bit later this year. But it allows us to make sure that we're...

We have a very disciplined approach to adjusting.

Adjusting prices, where we're evaluating different price points.

Pilot markets around the country, we separate markets too in terms of some of their competitive dynamics and also locations.

But I can tell you that we've taken some pricing actions some of those take effect.

In fact this month some of them will take place a little bit later this year, but it allows us to to make sure that we're.

Speaker 1: you know protecting our margins on the way up when we've got somebody's inflationary pressures.

Protecting our margins on the way up when we've got some of these inflationary pressures.

Speaker 2: very specifically anything out to add on the margins themselves. Yeah, I would tell you Jeff that, you know, our adjusted EBITDA for the business, for the quarter at 98 million, I think a record for us and substantially better than any quarter that we saw last year. In fact, if you look at it compared to two years ago, our adjusted EBITDA is up 72%.

And very specifically anything else to add on the margins themselves, Yes, I would tell you Jeff that.

Our adjusted EBITDA for the business for the quarter at $98 million is I think a record for us.

Substantially better than any quarter that we saw last year. In fact, if you look at it compared to two years ago, our adjusted EBITDA is up 72%.

Speaker 2: relative to the first quarter, two years ago. So we're continuing to see great momentum there. Our EBIT down margins were down a little bit.

Relative to the first quarter three years ago. So we're continuing to see great momentum there are EBITDA margins word.

Down a little bit.

Speaker 2: And that's really a factor of just the higher product cost being passed through to our franchisees. Our franchisees operate under similar type of indexed arrangements that we do with our other installer channel customers. And so from a unit margin perspective, there's a little bit of lag. We pass that through on a quarterly basis.

And that's really a factor of just higher.

Costs being passed through.

On to our franchisees.

Our franchisees operate under <unk>.

Similar type of indexed arrangements that we do with iron other installer channel customers.

And so from a unit margin perspective, there is there is a little bit of lag we pass that through on a quarterly basis.

Speaker 2: But if you look at the absolute margin from a rate perspective, it causes some deflationary impact on the margin rate. But if you look at the unit margin perspective, that stays whole. So you are, I think, when you're looking at those margins, just seeing some impact of that pass-through pricing on the product side of our product sales to our franchisees.

But if you look at the absolute.

Margin.

From a rate perspective, it causes some deflationary impact on the margin rate, but if you look at the unit margin perspective that that stays whole so.

<unk> I think when you are looking at those margins just seen some impact of that pass through pricing on the product side of our product sales to our franchisees.

Okay.

Speaker 6: So you're just to deep at the A and the quarter was one,

Your adjusted EBITDA in the quarter was 156, so if we annualize that that's about 625.

Speaker 6: So if we annualize that, that's about 625.

Speaker 6: And so to get to your guidance, you need, I don't know, 50 to 75 million more in EBITDA.

And so to get to your guidance you need I don't know, 50% to $75 million more in EBITDA.

Speaker 6: Where are you going to get that from? Is that mostly price recovery that you think you can capture in the course of 2022?

Where are you going to get that from is that mostly price recovery that you think you can capture in the course of 2022.

Speaker 1: Would Jeff Q1 tends to be our lowest quarter at times involving them both in global products and retail services. So you have, I mean, there's not a lot of sickle-coast facts, but Q1 is lower than the other three quarters. That's your biggest driver right there. So we expect to see stronger profitability in the balance of the year.

Jeff Q1 tends to be.

Our lowest quarter and at times.

Volume both in global products and retail services. So you have I mean, theres not a lot of cyclical effect, but Q1 is lower than the other three quarters. That's your biggest driver right. There. So we expect to see stronger profitability in the balance of the year.

Okay, and then lastly.

Speaker 6: And then lastly, do you think you'll separate your businesses this year? And in terms of...

Do you think you will separate your businesses this year and in terms of.

Speaker 6: talking to your investor base, will we know what you're going to do before you do it? Or will we find that, you know, one of the businesses sold or something happens to it, or what you're going to do is say, this is our plan and then you're going to execute it. So sort of two parts. You know, what is it that we're going to know? Do we know it before you do it or after? And does it get done this year?

Talking to your Investor base will we know what youre going to do before you do it or will we find that one of the businesses sold or something happens to it.

Youre going to do with say this is our plan and then youre going to executed so sort of two parts.

Is it that we're going to know do we know what before you do it or after and does it get them this year.

As a base case.

Speaker 1: Great questions. You know, they said earlier, we feel very good about the progress that we're making. It's a discipline process that you go through when you're separating into business. And of course, we've had some experience when we separated from Ashland five years ago. So we're working through that process.

Great questions.

As I said earlier.

Feel very good about the progress that we're making it's a disciplined process that you go through when you're separating the business and of course, we've had some experience when we separated from Ashland five years ago.

So we're working through that process.

Speaker 1: Our board is working with us too to make sure we're evaluating different ways to accomplish the separation.

Our board is working with us to to make sure we're evaluating.

Different ways to accomplish a separation.

Speaker 1: And so I think we've been pretty clear on that too, that we're looking to drive shareholder value and making a separation as effective as possible. We're excited about what it means for the future of each of these two businesses.

So I think we've been pretty clear on that too that we're looking to drive shareholder value and making the separation as effective as possible. We're excited about what it means for the future of each of these two businesses.

Speaker 1: but we're going to do it in a way that drives sureholder value. And there's different ways to accomplish that, and there's not one answer that we can give you today. And

But we're going to do it in a way that drive shareholder value and there is different ways to accomplish that and there's not one answer that we can give you today and to be clear when we.

Speaker 1: to be clear, you know, when we are able to share news on it, we'll be very forthright and be clear on it, but it's unlikely that we'll be indicating.

We're able to share news on it will be very forthright and be clear on it but.

It's.

Unlikely that we will be indicating the.

Speaker 1: the method of separation prior to an important announcement for the market for how we'll be accomplishing that. And as far as the timing goes, I think it's important for us to move quickly. And so we've got a very disciplined schedule that we're following and we've got two amazing businesses that we're very bullish on. And so I expect good outcomes in a timely fashion. And so yes, I would expect that in this fiscal year.

The net debt of separation.

Prior to an important announcement for to the market or how we'll be accomplishing that and as far as the timing goes.

I think it's important for us to move quickly.

And so we've got a very disciplined schedule that we're following and we've got two amazing businesses that were very bullish on and so I expect good outcomes in a timely fashion and so yes, I would expect that in this fiscal year.

Okay, great. Thank you so much.

Yes.

Perfect. Thank you Jefferies for your question.

Speaker 3: Perfect. Thank you Jeffrey for your question.

Speaker 3: Our next question comes from Laura Alexander from Jeffries. Please go ahead.

Our next question comes from Laurence Alexander from Jefferies. Please go ahead.

Hi.

Speaker 7: Hi, this is Maria Milina for Lawrence. I just have one question.

Lina for Laurence.

I just have one question.

Based on the guidance you gave in the range I'm wondering what happens if you land on the high end of the guidance or what has to happen.

Speaker 7: based on the guidance that you gave in the range, I'm wondering what has to happen that you land on the high end of the guidance or what has to happen for the lower end?

Hello Ann.

I think.

Speaker 1: you know margins will have a big impact on it. It will be the biggest driver. You know, again, what you heard in our presentation today is we're really bullish on the strength of demand for both sides of the businesses. But there is real margin pressure and we may still have some inflationary...

Margins will have a big impact on it.

It will be the biggest driver.

Again, what you heard in our presentation. Today is we're really bullish on the strength of demand for both sides of the businesses, but there is real margin pressure in.

We may still have some inflationary.

Cost issues that will deal with during the balance of the year and we have pricing to execute so.

Speaker 1: cost issues that will deal with during the balance of the year and we have pricing to execute. So it's the timing of those cost increases and price increases that will determine where we are in that guidance range.

The timing of those.

Cost increases and price increases that will determine where we are in that guidance range.

Speaker 2: And Sam, the continued stability of the underlying raw material environment as well. If we see more inflation coming at us and base oils or additives or logistics, I think that could push us to the bottom of the range.

And Sam the continued stability of the underlying raw material environment as well if we see.

More more inflation coming at us.

And base oils are additives.

Our logistics I think that could.

Push us to the bottom of the range.

Okay. Okay. Thanks.

Perfect. Thank you so much.

Speaker 3: Now, thanks. Thank you so much. And we will now move on to Jason English question from the Goldman Sachs. Please go ahead.

I'll now move on to Jason English question from Goldman Sachs. Please go ahead.

Hey, good morning folks thanks for slipping me in.

Speaker 1: Okay, quick questions. It seems like you refill services, but it may have faced a number of how to win.

Good questions.

Hey, there it seems like your retail services may have faced a number of headwinds so far this quarter between omicron market seamless payments weather disruptions et cetera. So in that context can you give us some more real time color on how the business is performing quarter to date.

Speaker 1: So in that context can you give us some more real time color and how the

We're seeing good momentum continue.

Speaker 1: Yeah, we're seeing good momentum continue into the second quarter. We definitely, in January , feeling the effects of Amcron with staffing in the stores. And yet...

Into the second quarter.

Definitely in January feeling the effects of omicron with staffing in the stores.

And yet.

Speaker 1: You know, our team's done a great job in terms of been able to...

Our team has done a great job in terms of being able to move resources around within the market to keep our store staff to be opening on time and providing the services necessary for our customers and I don't think that's true for the industry. So big kudos to our ops team and our ability to.

Speaker 1: to move resources around within market to keep our store staff to be opening on time and providing the services necessary for our customers. And I don't think that's true for the industry. So big kudos to our ops team and our ability to handle this level of destruction.

To handle this.

This level of disruption in January .

Speaker 1: One of the things we do is keep a close eye on our customer satisfaction scores, is it impacting the service quality and...

One of the things we do is keep a close eye on our customer satisfaction scores is it impacting the service quality and just really pleased with that too over the past quarter.

Speaker 1: just really pleased with that too over the past quarter.

Speaker 1: our overall satisfaction scores have even picked up. So I'm excited about moving forward and we are moving past, say that tremendous disruption in the first part of January with Omicron, in fact, on the stores.

Our overall satisfaction scores of even ticked up so I'm excited about moving forward.

We are moving past say that tremendous disruption in the first part of January with omicron impacts on the stores.

Speaker 1: And now, you know, it's back to like...

And now.

It's back to like.

Speaker 1: the efforts to increase the staffing in our stores, instability, reducing turnover, and we've got a good plan in place to do that. Our success long term is gonna be dependent on our ability to be an employer of trust.

The efforts to increase the staffing in our stores and stability, reducing turnover and we've got a good plan in place to do that our success long term is going to be dependent on.

Our ability to be an employer of choice and to have stability in the stores and what are the ways in which we win is the quality of people that we hire and the tools that we give them the training that they go through and that those first six months on the job to get up to speed quickly and when we do that not only are they providing better service, but we've got.

Speaker 1: and to have stability in the stores. And one of the ways in which we win is the quality of people that we hire and the tools that we give them, the training that they go through, and that those first six months on the job to get up to speed quickly.

Speaker 1: And when we do that, now they're providing better service, but we've got...

Speaker 1: you know, fully engaged employees who begin to see the opportunities with battling for a great career too.

Fully engaged employees, who begin to see the opportunities with valvoline for a great career too. So that's our formula We've got more work to do there, but couldn't be more pleased with the progress that we're making and Jason the other thing I would just call out for you is that if you look at last year's.

Speaker 1: So that's our formula. We've got more work to do there, but couldn't be more pleased with the progress that were made.

Speaker 2: And Jason, the other thing I would just call out for you is, you know, the, if you look at last year's cadence of our comp store sales increases.

Cadence of our comp store sales increases by quarter, the first quarter was.

Speaker 2: By quarter, the first quarter was the relatively smallest cop at 6% last year. So when you take our almost 25% this year, the two-year stack is just over 30%.

The relatively smallest comp at 6% last year. So when you take our almost 25%. This year. The two year stack is just over 30%.

Speaker 2: And then, as we mentioned in our script, in our remarks, the full year, we expect that two years stack.

And then as we.

As we've mentioned in our script.

In our remarks.

The full year, we expect that two year stack to be better than 30%. So.

Speaker 2: to be better than 30%. So I think if you think about the cadence of our future comps, you need to take that into account as we're up against much stronger comps than the remainder of the year.

If you think about the cadence of our future comps you need to take that into account as we're up against much stronger comps in the remainder of the year because those quarters were up against significantly weaker comp two years ago. So it's just kind of an odd phenomenon because of the pandemic and so I think if youre if youre.

Speaker 2: because those quarters were up against significantly weaker cops two years ago. So it's just kind of an odd phenomenon because of the pandemic. And so I think if you're thinking about

Thinking about your models, if you're thinking about better than 30% on a two year stack can be thinking about it right.

Speaker 2: your models if you're thinking about, you know, better than 30% on a two-year stack, you'll be thinking about it right.

Got it yeah that makes sense I think you mentioned that in the release of it too.

Speaker 1: The next question is like global products. You spend a lot more time talking in more detail than usual on global products. So I want to come back to quick and really in context of your long-term targets. I get the numerator denominator impact of price and cost and appreciate that your long-term EBITDA margin targets as a percentage rate, probably a bit antiquated at this point. But from a penny profit perspective, last five years your EBITDA per gallon has been on average sort of made the high of bucketties.

The next question is a global products you spent a lot more time talking in more detail than usual in global products I want to come back to quick.

Really in context of your long term targets I get the numerator denominator impact of price and cost and I. Appreciate that your long term EBITDA margin targets as a percentage rate probably a bit antiquated at this point, but from a from a penny profit perspective last five years. Your EBITDA per gallon has been on average sort of mid <unk>.

Hi, Buck <unk>.

Speaker 1: Is that the right way to think about what you're going to get back to? How long does it take to get back there? And then second part of the question, I apologize. I'm low down a lot in here. It's the revenue target you guys put out there.

Is that the right way to think about what you're going to get back to how long does it take to get back there and then second part of the question I apologize I'm moved a lot in here.

Is the revenue target you guys put out there.

Speaker 5: Sam, most people I talk to look at this piece of your business and say, well goodness, it's a secondally declining business. But the damn just doesn't.

Sam most people I talk to look at this piece of your business.

Secondly, declining business.

The Tam just doesn't have much growth.

Speaker 1: and that obviously contrasts family with the one to talk to you about their what when people speak those those more bearer statements what do you think they're missing what gives you the confidence that this business has inherently much more growth characteristics than many of the skeptics would argue

Yes, obviously contrasts substantially with the launch of targets you have out there.

When people speak those more bearish statements why do you think they are missing what gives you the confidence that this business is inherently much more growth characteristics than many of the skeptics would argue.

Yes.

Speaker 1: You know, first part of your question, we could dive into more details, but you're right to look at it on a profit per unit basis. We do look at it that way, and again, we've always been able to get back to our profit per unit at the end of the inflationary cycles. This one is a little bit longer and steeper, but doesn't change our confidence and our ability to get there.

First part of your question, we can delve into more details but.

Youre right in to look at it on a profit per unit basis, we do look at it that way and again, we've always been able to get back to our profit per unit at the end of the inflationary cycles. This one is a little bit longer and deeper but it doesn't change our confidence in our ability to get there.

Speaker 1: It does impact the EBITDA margin on a percentage basis. So you're right, that longer term target will have to adjust with these elevated prices.

It does impact.

EBITDA margin on a percentage basis, so you're right.

That longer term target will have to adjust with these elevated prices.

Speaker 1: for the eva dot margins for the business. But the profitability we expect.

For the EBITDA margins for the business, but the profitability we expect.

Speaker 1: has got a really bright future for growth. And that's...

<unk> has got a really bright future for growth and Thats based on some of the momentum that we're seeing in the business and we saw it before this quarter two we saw.

Speaker 1: based on some of the momentum that we're seeing in the business. And we saw it before this quarter too. We thought even going back a couple years disrupted by COVID, but we saw the fruits of our labors internationally.

Even going back a couple years disrupted by Covid, but.

We saw the fruits of our labors internationally.

With really solid volume growth across all of our key regions and so we've been investing in our teams and our capabilities from China to India to Europe to Latin America, and as a result, we're seeing.

Speaker 1: really solid volume growth across all of our key regions. And so we've been investing in our teams and our capabilities from China to India to Europe to Latin America. And as a result, we're seeing much...

Much.

Speaker 1: you know, very significant in steady volume growth, share growth in those markets, as we really become a more global company. And when we think about our product portfolio, how we manage pricing, the marketing plans, it's exciting to see the excellent progress that we're making as our international regions, increase their capabilities, and increase their penetration in the markets. That, number one, is one of our biggest drivers.

Very significant and steady volume growth share growth in those markets as we really become a more global company and when we think about our product portfolio, how we manage pricing the marketing plans, it's exciting to see the excellent progress that we're making as our international regions.

<unk>.

<unk> increased our capabilities and increase our penetration in the markets that number one is as one of our biggest drivers.

Speaker 1: you know, and then back here in the US market, we're seeing some new sprouts of growth.

And then back here in the U S market.

<unk>.

Our new sprouts of growth.

Speaker 1: You're very familiar with the product side of the business and even some of the challenges that we had and the DIY market back in 18 and 19, we made some changes.

You are very familiar with the product side of the business and even some of the challenges that we had in the DIY market back in 2018 and 19, we made some changes to strengthen that business to make sure remains the price cap appropriately versus private label to invest in synthetic category and again, we're seeing the fruits of our labor and.

Speaker 1: to strengthen that business, to make sure we're managing the price gap appropriately versus.

Speaker 1: private label to invest in synthetic category. And again, we're seeing the fruits of our labor and have just an excellent plan for developing that business steadily over time.

Have just an excellent plan for developing that business steadily over time, so that the share gains that we're now seeing with incremental distribution are sustainable.

Speaker 1: so that the share gains that we're now seeing with incremental distribution are sustainable.

Speaker 1: And the confidence that we have that they are sustainable has to do with, again, those relationships with the key accounts, building plans that are working for them that are driving results for our retailers for some of the new distribution that we're picking up where we're.

And the confidence that we have that they are sustainable has to do with again those relationships with the key accounts building plans that are working for them that are driving results for our retailers for some of the new distribution that we're picking up where we're.

Speaker 1: bringing on some of this new seastore and farm business. We know from our customers business that we're improving their volumes and their margins in the categories with the Balvin product line up. So you should sense like a new sense of confidence about the strength of the DIY business. And then the other big component is of course our capabilities with independent installers.

And on some of this new C store and farm business.

We know from our customers business that we are improving their volumes and their margins and the categories with the valvoline product lineup. So you should sense like a new sense of confidence about the strength of the DIY business and then the other big component is of course, our our capabilities.

With independent installers.

Speaker 1: And we operate very differently from our competitors. You know, we have a full line of products, not just lubricants, but coolant.

We operate very differently from our competitors, we have a full line of products not just lubricants, but coolants chemical products, a broader product lineup and.

Speaker 1: chemical products, a broader product line up, and a much more developed suite of marketing programs and how we work with those installers. We made a heavy investment in our digital platforms for how we communicate with that install database, how we execute their plans, how we train their teams out in their stores to help them drive.

A much more developed suite of marketing programs and how we work with those installers, we made a heavy investment in our digital platforms for how we communicate with that installed base, how we execute their plans how we train their teams out in their stores to help them drive ticket and performed.

Speaker 1: ticket and performance. And today, we've moved the vast majority of that business. 80% plus of our volume onto a digital platform that is driving increased loyalty among that installer base. And so very confident about the future of that business too. Again, DIY installer, the way I look at it is slow, steady, growth, low single digit growth rates.

<unk> and.

And today, we've moved.

The vast majority of that business, 80% plus of our volume onto a digital platform that is driving increased loyalty among that installer base and so very confident about the future of that business to again.

<unk> installer the way I look at it is slow steady growth low single digit growth rates, but solid margin performance because of how we compete how would your business. There and then accelerated growth really strong growth high single digit growth rates in the international business.

Speaker 1: but solid margin performance because of how we compete, how we do business there, and then accelerated growth.

Speaker 1: really strong growth, high single digit growth rates in the international business.

Speaker 1: And so this is a business that we're bullish on, wherever we can go with this business, and not just the next year, but the next decade. Good stuff.

And so.

This is a business that we're we're bullish on wherever we can go with this business and not just the next year, but the next decade.

Good stuff and they'll be incremental color. Thanks, a lot I'll pass it on.

You bet.

Speaker 3: Thank you so much, Jason, for your question. And as your mind, if you'd like to ask a question, please press start following the one you're currently at. If you want to do a question, please press stop.

Thank you very much Jason for your question.

As a reminder, if you'd like to ask a question. Please press star followed by one telephone keypad.

Understood. What your question. Please first of all T.

Speaker 3: And our next question comes from Stephanie Morphal, Trist, please forehead.

And our next question comes from Stephanie Miller.

Please go ahead.

Hi, good morning, Thank you.

Speaker 8: Perfect, definitely. My friend. Hi, everybody. My first question is actually to follow up to Jason here, but maybe you could expand or give a little bit more color on the strengths of seeing it international. You know, in your prepare remarks, continue to see strong momentum, continuing to gain share. Maybe just kind of like what's the North America color, just a little bit more incremental substance there would be helpful. Thank you.

Stephanie.

Hi, My first question, if I can follow up Jason here, but maybe you could expand or give a little bit more color on the strength you're seeing in international.

In your prepared remarks, continuing to see strong momentum continuing to gain share.

Maybe just.

Kind of like with the North America, a little bit more incremental.

Since there would be helpful. Thank you.

Speaker 1: Yep. So, you know, some of the tools are in the...

Yes.

So.

Some of that.

The tools and the.

Speaker 1: how we bring value to our US customers, particularly we're talking about our installer and fleet business too. What we're doing is globalizing that strategy, so that we're moving faster to bring the service support that goes along with our product.

How we bring value to our U S customers, particularly we're talking about our installer and fleet business too.

What we're doing is as globalizing that strategy. So that we're moving faster to bring the service support that goes along with our products and so.

Speaker 1: And so, in the international business, like one of the characteristics of the international businesses is first, and then you have to have strong channel to market. And that means having really strong distributor partners. And what we've been able to do over the last five years is better penetrate the markets to have stronger distribution networks to reach more of those installer customers and based more of those coroners and fleet owners.

In the international business like one of the characteristics.

The international businesses is first you have to have strong channel to market.

And that means having a really strong distributor partners and what we've been able to do over the last five years is is.

Better penetrate the markets to have stronger distribution networks to reach more of those installer customers and base more of those car owners and fleet owners.

Speaker 1: And so that's like step one for us, is building a channel to market. Mexico was an example we like to call out because five years ago, we were probably reaching at best half the market. And today, we're closer to 90% penetration to get our products to where they need to be, where we can provide excellent customer service to install us across the country.

And so that's like step one for US is building the channels to market Mexico. As an example, we like to call out because five years ago, and we were probably reaching at best half the market and today, we're closer to 90% penetration to get our products to where they need to be where we can.

Can provide excellent customer service to installers across the country.

Speaker 1: And then the second step are tools for the installers to help them improve their business. And international installers tend to be smaller and

And then in.

Then the second step of our tools for the installers to help them improve their business and international installers tend to be smaller and.

And.

Speaker 1: both in terms of like the number of units that they have. So in the US we do have some very large national accounts that we serve as a make up a big part of our business. In the international markets, they tend to be smaller, more mom and pop locations or small regional players with a handful of stores. And so what we're doing is we bring this sophistication to them with the marketing programs, the training programs that other competitors aren't providing to them.

Both in terms of like the number of units that they have so in the U S. We do have some very large national accounts that we service that make up a big part of our business in the international markets. They tend to be smaller more mom and pop locations or small REIT smaller regional players with a handful of stores and so what we.

We're doing as we bring the sophistication to them with the marketing programs that training programs.

That other competitors are providing to them.

Speaker 1: And then even now the digital platform that we built in the US.

And then even now the digital platform that we built in the U S. There's real synergy for us to now leverage that into new markets are still some investments to make there.

Speaker 1: There's real synergy for us to now leverage that into new markets. There's still some investments to make there, but we'll briefly bring in those digital tools for our international customers that, again, drive that oil pin and better penetrate our product line up internationally. And so these are some of the things that are giving us momentum in each of these markets. And...

But we will be bringing those digital tools for our international customers that again drive that loyalty and better penetrate our product lineup internationally and so these are some of the things that are giving us momentum in each of these markets and are.

Speaker 1: Our local teams, the regional teams that we have, and what's unique about Malveing's business internationally too, or what gives me confidence in the future, is that each of our regions are solidly profitable. Good solid profit margins, very clear strategies, on how they're going to continue to grow share, penetrate the market, and then strengthen the product lineup, particularly as the international markets also rely more heavily on synthetic-based lubricants products. So it's a very...

Our local teams the regional teams that we have and whats unique about <unk> business internationally to or what gives me confidence in the future is that each of our regions are solidly profitable with good solid profit margins very clear strategies on how theyre going to continue to grow share penetrate the market and then strengthen the product lineup, particularly as.

International markets also rely more heavily on synthetic based lubricants products.

It's a very.

Speaker 1: you know, it's a clear formula for us. And what we're seeing in the growth in international, you know, we're not talking about a quarter, we're looking at over the last couple of years, you know, we're seeing solid penetration with some disruptions of COVID along the way, managing through that. But as we move beyond...

It's a clear formula for us.

And what we're seeing and the growth in international.

Talking about a quarter, we're looking at over the last couple of years, we're seeing solid penetration with some disruptions of COVID-19 , along the way managing through that but as we move beyond.

Speaker 1: some of those disruptions and of course the supply chain disruptions that we talked about, those are impacting the international markets too. We're very bullish on the long-term prospects for that business.

Some of those disruptions and of course, the supply chain disruptions that we've talked about those are impacting.

The international markets too.

We're very bullish on the long term prospects for that business.

Speaker 8: And then let's say you're shifting order the retail segment. Maybe you could just get us a brief update on the progress of some of those non-oil change services. You did come in on the ED pilot, but some of those other services that are part of your long-term growth algorithm. Thanks.

Got it and then lastly, the shipping under the retail segment, maybe you could just give us a brief update on the progress with some of those non oil change services you did comment on the EV pilot, but some of those other services that are part of near and long term growth algorithm.

Yes.

Speaker 1: Yeah, we're, as a reminder to everyone, you know, close to 25% of our ticket is coming from non-al-change revenues.

Okay.

As a reminder to everyone close to 25% of our ticket is coming from non oil change revenues and we expect that to grow in the years ahead.

Speaker 1: and we expect that to grow in the years ahead. And we do that by improving one, our presentation to our customers to help them understand what their car needs. And this-

And we do that by.

Improving one our presentation to our customers to help them understand what their car needs and this is.

Speaker 1: is back to leveraging that database. So in addition to having the history of that customer services with babbling, we integrate services that have been done elsewhere, and also their owner's manual for what services are required. So when we're talking to our customer, we're able to make recommendations to them on the services that are recommended by their...

As back to like leveraging that database so and.

In addition to having the history of that customer services with Valvoline, we integrate services that had been done elsewhere and also the owner's manual for what services are required. So when we're talking to a customer we're able to make recommendations to them on the services that are recommended by either.

Speaker 1: the cars manufacturer and what Dowling sees is necessary too. So our focus is on training our teams to be prepared for those conversations so that our customers are confident they're making good choices and how they're maintaining their vehicle. And that's where we see a lot of upside still. We've made incremental progress as we strengthen our training programs and help customers understand what the car needs.

The car's manufacturer and what <unk> see this necessary too so.

Our our focus is on training our teams to be prepared for those conversations so that our customers are confident theyre, making good choices in how they are maintaining their vehicle.

That's where we see a lot of upside still we've made incremental progress as.

As we strengthen our training programs and help customers understand what the car needs.

Speaker 1: But we still know we have a ways to go there. And to be honest, like some of the...

But.

We still know we have a ways to go there.

To be honest some of the changes some of the disruptions that we've had with Colgate and the staffing in our stores.

Speaker 1: changes some of the disruptions that we've had with COVID and the staffing in our stores, does impact our ability to make those consistent presentations. We're doing well, but what I'm trying to get across is that there's a lot of upside- here as we get better at it.

Does impact our ability to make those consistent presentations.

We're doing well, but what I'm trying to get across is that theres a lot of upside here as we get better at it one program that we've highlighted over the last year as our battery.

Speaker 1: One program that we've highlighted over the last year is our battery programs so we're replacing those 12 volt batteries, making sure we're testing every battery that comes in to let our customers know what kind of light the battery has left in it.

Graham.

Placing those 12 volt batteries, making sure. We're testing every battery that comes in to <unk>.

Our customers know.

What kind of like the battery has.

Left in it.

Speaker 1: enables us to increase our sales of our bowing batteries. And we've seen our sales.

<unk> enables us to increase our sales of.

Our evolving batteries and we've seen our sales essentially double over the last year in our company stores and that program is now rolled out through our franchise stores and there is still quite a bit of upside too as we get better and better at both testing the batteries and helping.

Speaker 1: Fincially double over the last year in our company store, so that that program has now rolled out through our franchise store.

Speaker 1: And there's still quite a bit of upside-2 as we get better and better at both testing the batteries and helping our customers understand battery life and battery performance and why go up into great place to have that service perform because again, we can do it more conveniently than any other option that they have in the market.

Helping our customers understand battery life and battery performance and why valve is a great place to have that service perform because again, we can do it more conveniently than any other option that they have in the marketplace. So.

Speaker 1: So, expect us to continue to talk about the non-alchange revenue opportunity as we think about kind of trading the services that we offer today, and I'm very capable with, and then considering adding to that offering over time.

<unk> is to continue to talk about the non oil change revenue opportunity as we think about penetrating the services that we offer today very capable with and and then considering adding to that offering over time.

Again with a focus on remaining.

Speaker 1: Again with the focus on remaining fast, quick, easy trusted.

Fast quick easy trusted.

Great. Thank you guys so much.

Great. Thank you Stephanie for your question and at this time there are no further.

Speaker 3: Great, thank you Stephanie for your question. And at this time, there are no other questions. I'd like to thank everybody for joining today's school and you may now disconnect your mind.

Questions I would like to thank everybody for joining today's call and you may now disconnect your lines.

Yes.

Speaker 9: So fact.

Yeah.