Total sales were down 10% in the month compared to last year, and same-store sales declined 18.2%. Our share repurchase program was suspended in the second half of March. Results in Q2 show an overall limited impact from the COVID-19 pandemic. We estimate that in Q2, COVID-19 reduced sales by approximately $28 million and had no net impact to EBITDA, including a $14 million reduction to incentive compensation expense recorded in unallocated and other. Now let me turn the call over to Sam.

Thanks, Sean. Good morning, everyone. I hope for all those joining us today that you and your families are doing well and staying healthy and safe. But like most businesses, Valvoline has been significantly impacted by the COVID-19 crisis. For our business, in particular, the biggest impact has been the abrupt and substantial decline in vehicle miles driven that has accompanied the shelter-in-place and lockdown restrictions that are important to prevent the spread of the virus. Prior to COVID-19, we were making progress on our strategy with Quick Lubes growing same-store sales at a double-digit rate. Core North America performance was stabilizing with benefits from our operating expense savings program, and we returned to profitable volume growth in our International segment. The fundamentals of our business were healthy and allowed us to enter the crisis from a position of strength. As the crisis began to unfold, we emphasized the health and safety of our people, customers and business partners while taking decisive actions to increase our financial flexibility and leverage our operational flexibility. With automotive services deemed essential in nearly all areas, the majority of our Quick Lubes stores and most of our customer locations are open and operating. Since mid-March, COVID-19 has had a substantial impact on our volume and sales, but recent trends show signs of improvement. Across all segments, there are elements of operations that are steadily getting better. Despite these encouraging signs, we anticipate that Q3 will see the biggest effects of the crisis on our results. Our strong brand, the competitive advantages and resiliency of our business model, along with the flexibility of our balance sheet, position us for a rapid recovery and to capture new opportunities. Let's review some of our initial responses to the crisis on the next slide. At Valvoline, all starts with our people. First, we've taken the necessary steps to keep our team members safe at work while enhancing our sick leave benefits to better support employees potentially impacted by the virus. We've also provided premium pay to our customer-facing service center personnel. To help our franchisees keep their stores open, we provided short-term financial support, including loans and temporary royalty abatement. In addition, we remain connected to the communities where we operate through both financial and protective equipment donations to benefit those most impacted by the crisis. The health and safety of our employees, customers and business partners is our first priority during the crisis, and we will continue to run the business with a strong commitment to all our stakeholders. One of the advantages of our business model is its resiliency. Lubricant demand generally remains steady through economic recessions and growth cycles. A key driver behind this demand is that preventive maintenance is nondiscretionary. Reflecting on our performance during the Great Recession, our volumes declined by around 6% in fiscal 2009. This decline was short-term and focused in the first two quarters of the year. Throughout the recession, we continued to grow transactions in our Valvoline Instant Oil Change stores and premium mix across the company made steady upward progress. When consumers are less focused on their next vehicle purchase, they pay more attention to taking care of the one that they have. We perform the important preventive services for the safety and maintenance of vehicles in our stores and support our customers in doing the same. The nature of our business model creates a more stable, noncyclical demand profile as vehicle maintenance continues across economic cycles. Combined with our diversified portfolio of products and services, this creates a powerful combination to win even in times of uncertainty. Let's review some recent trends in our Quick Lubes segment on the next slide. The Quick Lubes segment entered the COVID-19 crisis from a clear position of strength. Same-store sales grew 11.6% system-wide over the first two months of the quarter, building on roughly 10% growth rate last year. Then as most areas in North America began to implement shelter-in-place and lockdown restrictions around mid-March, there was an abrupt decrease in the number of passenger vehicles on the road. Some third-party service providers estimate that miles driven declined by around 40% to 50% at the end of March and into early April compared to the end of February. The scale and speed of this decline in miles driven is unprecedented and had significant impact on same-store sales across the system, which went from a growth rate of about 10% at the end of February to a decline rate of just over 40% at the end of March. In early April, we began to see an improvement in same-store sales trends. The rebound gained strength throughout the month. Same-store sales in the first half of the month were down about 39%, while during the second half, they declined by roughly 16%. For the most recent week, same-store sales were down only 14%, a dramatic improvement from the lows just a month earlier. Even at the low point in the first half of April, we were still performing, on average, 25 oil changes per store daily, a testament to the strength of our model going into the crisis and still well above our cash flow breakeven. In response to lower volumes, we focused on lowering our costs where possible, including flexing our labor and being cautious with marketing spend. Our franchise systems are mirroring our results as they execute the model consistently. Our ability to keep our stores open with positive economics is a competitive advantage. A recent survey we conducted showed that two of our larger competitors had store closures of about 10% to 20%. Another encouraging sign is that our contribution from new customers is higher now than it was before the pandemic. We believe the strength of the system before COVID-19, combined with our stay-in-your-car drive-thru service model is allowing us to capture share during the crisis. Let's take a closer look at our competitively advantaged service model on the next slide. Our customer promise is to provide a quick, easy and trusted preventive service experience. A key element in delivering this promise is our stay-in-your-car service experience. It allows us to complete services faster and to interact with customers in a convenient, transparent way. It also creates a minimal contact environment where customers don't need to walk through the service center to a waiting room. With the need to increase social distancing to help prevent the spread of the COVID-19 virus, we made some health and safety focused changes to our drive-thru service approach. We have minimized points of contact between our team members and customers. We are focusing more on touchless payment options and e-mailing instead of printing receipts. We've also distributed PPE to our store teams, including nitrile gloves and masks where needed or required. These changes help keep both our customers and store team members safe and are another reason why we can keep our stores open. Importantly, they've been noticed and appreciated by our customers. Across our top-box customer satisfaction metrics, we've seen an average improvement of approximately 300 basis points in our stores after the crisis versus before. The recent improvements in our scores are nearly twice what we typically see on an annual basis. The enhancements that we've made to our in-store experience are clearly important to consumers and add a new competitive advantage to an already superior model. We believe that we're seeing the start of a strong recovery in the Quick Lubes segment. Given the margin benefit and operational leverage in this segment, this gives us confidence in the potential for a rapid recovery across the company. This, of course, assumes that miles driven continues to improve. If you turn to the next slide, you can take a look at recent trends in Core North America. The Core North America segment had a strong start to Q2 with performance running ahead of expectations. Due to the timing of sales through the channels, the impact of COVID-19 came closer to the end of March and generated a limited effect on segment results. Compared to the January average, weekly shipments hit a bottom around mid-April, down nearly 55%. We've seen a steady improvement in trends since the trough, creating a much better second half of April versus the first. In the most recent week, shipment trends were down just under 30%. Year-over-year volume in April was down approximately 47% with differences between channels. Let's first focus on the retail channel and the DIY category. Retail channel volume was down roughly 26% in April. Most DIY auto parts retail locations remained open. Our latest view of category POS data showed that non-oil sales trends improved noticeably in the second half of April. Based on our experience in the last recession, we expect our DIY sales to recover quickly with increases in miles driven. In the installer channel, April volume declined roughly 68% with a significant impact from distributor destocking, which should reverse going forward. Based on the trends we saw in the last recession, we expect a slower recovery in the installer channel. Partially offsetting this impact, heavy-duty demand should be more stable, and we continue to win new installer customers through our value creation selling approach. In Q2, we continue to make progress toward our goal of stabilizing core North America's performance. You could see in the ongoing strength of unit margins, we saw a favorable mix of channel volume driven by lower installer volume, primarily due to the conversion of consignment inventory at one of our distributor partners, which will allow more effective management of channel inventories. Premium mix continued to increase across the segment, and our operating expense reduction program continued to provide meaningful benefits. We also saw positive price-cost lag benefits as raw material costs moved lower at the end of the quarter. We'll pass through these lower raw material costs to our index-based accounts in Q3. We also expect to adjust selling prices to our nonindexed accounts as the broader market adjusts to lower cost. Combined with a more normalized volume mix between retail and installer, we anticipate that unit margins will remain healthy but move more in line with our previous full-year guidance in the second half of the year, albeit at lower volumes due to the COVID-19 impacts. Slide 11 shows volume trends since December for our International segment, including joint ventures and isolates China from the rest of the regions. COVID-19 began to impact results in China in January. With more severe lockdown restriction, the volume decline at peak in February was substantial. The rebound from the lows in China was rapid with the latest trends showing volume approaching pre-COVID-19 levels. We've learned a lot from our experiences in China from how to prepare to keep employees safe while staying focused on our customers, to how a recovery might evolve once restrictions are eased. COVID-19 impacts in China were roughly six to eight weeks ahead of most other regions. Given the disparity in the number of virus cases and severity of shelter-in-place restrictions, we expect the timing of maximum impacts and subsequent recovery will vary by region and/or country. For example, parts of Europe are beginning to relax their lockdowns and starting to increase volumes, while more severe restrictions remain in place in parts of Latin America and India, where our joint venture plant has been shut down and only recently reopened at minimal capacity. In Q2, year-over-year volumes, including joint ventures, declined by just over 30% in China and 6% across all other regions. It's worth noting that in Q2, EMEA volumes grew 1% as the impact of COVID-19 were offset by our Eastern European acquisition. In April, volumes, including JVs, were up 36% in China and down 50% across all other regions. The most recent sales trends show continued increases in China and there are initial signs that some other regions are stabilizing and could improve in May. An offset to lower passenger car demand is heavy-duty, which makes up over 40% of our international volume across the segment. Most on-road heavy-duty traffic, such as logistics and delivery, and most off-road as well, like agriculture, mining and construction, are ongoing services. Demand in these areas is anticipated to be more steady and less affected by a reduction in miles driven. We expect unit margins to hold up fairly well. Though based on current rates, foreign exchange headwinds are anticipated to increase. Based on our experiences in China, we've taken actions to support and prepare for recovery in other regions, including making adjustments and contingency plans in our supply chains so that we can meet current and future customer needs. We've won some new business recently that should start generating results toward the end of the fiscal year, and we stay engaged in local markets and close to our customers. Now as we move to the next slide, let me pass it over to Mary to review our financial responses to COVID-19.

Thanks, Sam. As the COVID-19 pandemic began to spread globally in March, we took quick action to strengthen our liquidity position. We drew a total of $540 million from our existing credit facilities without impacting our net debt. We also recently amended our trade receivable facility to increase its capacity by about $50 million. With this increase, our available undrawn credit is now roughly $100 million. We are deferring approximately $20 million in capital spending. We continue to invest in our long-term, high-return projects, including expanding our Quick Lubes store network and building our plant in China, which is only about four weeks behind the original schedule and still set to open later this calendar year. We also recently completed a $40 million five-year loan facility in China to finance the completion of the plant. While COVID-19 had a significant impact on April volume, our cash position was unchanged. We ended April with approximately $775 million in cash and cash equivalents on hand. Our pension and OPEB net liability was $374 million at the end of Q2. This is an improvement in the funded status versus the end of last fiscal year when the net liability was $399 million. The actions we took in prior years to derisk the pension are benefiting us now. We are pleased with the plant performance during this period of extreme volatility and don't anticipate any incremental cash contributions to the plans until 2023. We also don't have any meaningful debt maturing until fiscal year 2024. Our balance sheet remains strong with total liquidity of more than $875 million. We believe that we are well positioned to weather the COVID-19 crisis. We continue to pursue options to further enhance our financial flexibility and liquidity position. Let's move to the next slide. We've also taken actions to reduce spending. We've reduced certain advertising expenses across all segments. We've implemented a broad hiring freeze with the exception of our in-store talent and other critical roles, and significantly reduced our expected variable compensation expense. However, in the Quick Lubes segment, we introduced additional wage and benefit programs, including increased paid sick leaves and temporary premium pay to recognize the efforts of our frontline employees. We've also substantially eliminated travel and related expenses and are reviewing all discretionary and nonessential project spending. While these decisions to reduce spending are difficult, all of these actions are important and expected to help preserve cash during these challenging times when volumes and sales are pressured. Let's review our preliminary top-line results for April on the next slide. We previously withdrew our guidance for fiscal year 2020, and we are not providing formal guidance for the full year or for Q3 at this time as the duration and severity of COVID-19 impacts remain unclear. However, we wanted to provide some color on April and some thoughts on Q3. Total April volume was down just under 40% versus last year, with significant distributor destocking impacts in Core North America. As you saw in the segment discussions, the second half of April showed improvement compared to the first half in nearly all areas. Assuming miles driven continues to increase, we would expect these improving trends to persist though we anticipate a noticeable decline in volume versus last year. To translate volume changes sensitivities around EBITDA, it's helpful to understand our fixed versus variable cost structure. Our cost of goods sold are highly variable in the 70% to 80% range with Quick Lubes having a higher portion of fixed cost than Core North America or International due to store expenses and minimum staffing levels at stores. SG&A across the segments is largely fixed, though some level of advertising, compensation and discretionary expenses are variable. The high variability of our cost structure allows us to be profitable even at the lower volume levels we saw in April. As Sam mentioned, Q3 will likely have the biggest impact from COVID-19. We expect volume and profitability to decline significantly, both sequentially and year-over-year in the quarter, though our results should generally track changes in miles driven. We believe that the actions we've taken to increase liquidity, preserve cash and adjust our operations give us ample flexibility to weather this crisis while we're preparing for the next phase of recovery. Let's review the expected drivers of near-term cash flow on the next slide. Our deferral of capital expenditures will improve cash flow over the next several months. Our loan for the China plant also offsets the related CapEx that we expect for its completion. We partnered with our vendors to provide temporary extensions to our payment terms. At the same time, some of our customers have requested extensions of their payment terms to us, many of which we have approved as we partner across the value chain during this unprecedented time. We've temporarily extended terms on product purchases to our franchisees and implemented a short-term royalty abatement. We also committed $30 million in franchisee loans. Leveraging our strong balance sheet to support our customers and franchisees is in the long-term best interest of the company, but will create a near-term use of cash. We continue to fund projects with strong expected returns that meet our strategic growth goals. Our dividend remains an important capital allocation priority for us with our Board recently approving our upcoming Q3 payment. With that, I'll hand it back over to Sam to wrap up.

Thanks, Mary. Certainly, the pace of the global recovery from COVID-19 and the related return to more normal levels of driving will have an impact on the pace of Valvoline's recovery. What I can tell you with absolute certainty is that Valvoline is weathering this storm very well with our tough, extremely dedicated and resilient people and unique business model. And I know without a doubt, we will continue to do so through any ups and downs that may be ahead of us with the virus. The essential nature of our products and services and the resiliency of our noncyclical business model has put us on the road to recovery. And the competitive advantages we have built in our Quick Lubes business, the progress we have made this year across channels, in addition to our strong balance sheet gives us confidence in the plans we have for Valvoline's growth in the years ahead. We've laid out this in our framework for recovery on the first slide in the appendix. And with that, I'll turn it over to Sean to start the Q&A.

Thanks, Sam. I believe there might have been some audio issues at the very beginning of the call. So I'd like to just remind everyone that in the presentation and in our remarks, we make forward-looking statements. Valvoline assumes no obligation to update those statements unless required by law. Also I'd like to remind everyone to limit your questions to one and a follow-up so that we can get to everyone. So with that, I'll hand it back over to Frida to open the line for Q&A.

Operator: Your first question comes from the line of Olivia Tong.

Great. And I hope you all are well. I wanted to talk about a few things. First, how does the current environment change your store opening plans going into—or pre-COVID-19. You had talked about 100 a year and just kind of thinking through your rejiggering in terms of areas of investment, where that stands?

Yes. First of all, we have quite a few stores in construction that we'll be opening in Q4. So in that respect, in terms of the openings that we're expecting from our ground-up new stores, we really expect to be on track with the guidance that we gave during the year. So it will be a busy Q4 for us. As we think about next year and some of the stores, the store planning that we have in the pipeline for ground-ups, at this point, we don't see any significant change. We are keeping a close eye, of course, on our cash flow and capital spend plans. But with regard to our store growth, that's really one of our highest priorities to continue to protect. With regard to the other aspect of store growth being acquisition, we've really taken a short step back in terms of managing through the crisis first. And then as we are confidently on the road to recovery, we do expect that there's going to be significant opportunities for us in this area. And we expect to be aggressive as we move through the recovery phase, particularly when we think about opportunities that we would expect in fiscal 2021.

That's helpful. Can you talk to—rewind to 2008, 2009 in terms of M&A that you did, run rate prior to the recession and then coming out of it? And then also, just thinking through the components as we kind of exit COVID-19 and then go into a recession, levels of investment that you made in the past, how much of a downshift did you see in DIFM to DIY? And what was the sort of associated margin impact of that and how do you sort of offset that putting aside, obviously, all the COVID-19-related stuff that's clearly going to impact us this time around?

Yes. Yes. First, going back to the recession in 2008, 2009, and, I guess, one of the benefits I have is that I was here for that and helped manage through that. Our Quick Lube business performed very steadily through that whole period. And so when we look at the eight quarters in 2008, 2009, we had same-store sales growth throughout each of those quarters, pretty much in the mid single-digit range. So it kind of speaks to just the point that we're making today, is to remind people that preventive maintenance continues even during a recessionary period. We did feel volume pressure more in the Core North American side of the business during the first part of that recession, and it had less to do with vehicle maintenance and more to do with some of the trade pressure and inventory destocking that we felt. With regard to DIY versus DIFM performance, obviously, with that strong Quick Lubes performance that we had in that time period, it really showed that we didn't see a shift from do-it-for-me behavior back to DIY, and it really speaks to the belief that we have seen in the past that once somebody becomes a full-fledged DIFM customer, they stay there. But DIY did perform very steadily during the recession, too. And so what I really think happens is that DIY-ers are less likely to shift to DIFM during a recession. Or those part-time DIY-ers maybe are a little bit more committed on the DIY side. So I think our DIY business is going to be pretty steady through the expected recession over this next year. And as I mentioned in my comments, the installer piece, particularly those customers that are doing heavier repair, there's some risk of some of those services being delayed and their traffic being down. So that's the one area that we'll watch the most closely. I think you also asked just about development in the last recession. And if you think back for Valvoline as being part of Ashland throughout 2008, 2009, well, first of all, when we were part of Ashland, we really weren't doing any M&A to speak of for the benefit of the Quick Lubes business. So capital allocation was really prioritized towards Ashland, and Ashland definitely went through a very challenging period there in 2008, 2009. So M&A has obviously been more a big part of Valvoline's strategy since the separation.

Next, we have a question from the line of Jason English.

I'm pleasantly surprised, actually, very surprised to see the rapid pace of improvement that you're seeing in Quick Lubes. Very encouraging stuff. That said, I'm equally surprised by the magnitude of weakness in Core North America because it's caught me a bit flat-footed. So can we dwell on that a little bit more. Can you—first, for beginners, can you remind me of the split of the business between DIY retail and the installers and maybe heavy-duty?

Yes. From a volume perspective, you've got a fairly balanced split between the DIY retail channel and the installer/heavy-duty channel. And DIY then is a combination of, of course, our branded sales, but also some of the private label business that we do through the WD channel. And then on the installer side, we're skewed heavily towards passenger car versus heavy-duty. Heavy-duty is in the 20% to 25% range of that side of the business.

Okay. And do you have an indication or an assessment of how much the underlying consumption was down versus destock so we can maybe get a clean read of what the trend line is for that business?

Yes, so when we look at point-of-sale across our—let's first talk on the DIY side of the business. Similar decreases to what we felt in the Quick Lube business during the latter part of March into the first half of April, where you saw the significant decreases down towards 50%. And then since really mid-April, we've seen a steady improvement. Not quite as strong as our Quick Lube improvement, but not that far off, either. So based on some of the recent trends and even as we look at last week, we're seeing a nice progression in DIY point-of-sale. So I think, again, as we said earlier, DIY tends to perform well during recessionary period. I think DIY is going to come out pretty strong here and make a fast improvement in point-of-sale into May and June. That said, we did see a sharp pullback in orders on the DIY side during that mid-March to mid-April, and now we're seeing that start to pick up. On the installer side, we had both a combination of reduced volume at the store level, but also significant pullback in distributor volumes. And so they're managing their inventories down. Of course, they're wanting to benefit from future reduced pricing, too, which will flow through to them. But we also had an inventory buyback with one of our key distributors and one of our larger distributor networks. And so that was about one-third of our decrease during that window.

Okay. That's really helpful. And last cleanup question for me. I think I heard you say that gross profit per gallon for North America for the remainder of the year is going to track in line with your original expectation. Did I hear that right? Or were you saying you're going to end the year kind of in line with your original expectation?

That will be—the second half of the year will be more in line with that guidance. So for the last two quarters, we've been significantly above that for different reasons in this past quarter, especially because of the strong mix that we had, like DIY versus installers. And so as installer shipments were so weak in Q2 that the DIY to installer mix drove that unit margin up well over $4 once again. And so we're expecting that as installer begins to recover, both in Q3 and Q4, that more normalized unit margin will begin to push more towards the high $3 range and under $4 for both Q3 and Q4. But nonetheless, we're doing—Jason, we're doing better there than we expected at the start of the year, and it really speaks to some of the good work that we've done on our expense reduction programs. And so that is benefiting our unit margin and contributing to the overall improvement and improved stability in the Core North American business.

Yes. Well, especially in context of the volume declines, the potential to leverage it is impressive.

Next, we have a question from the line of Simeon Gutman.

Sam, just following up on that last question, why shouldn't we see record gross profit per gallon? And I understand there could be a channel shift within your business. But I guess the setup we look at is you're coming in with pretty strong GP per gallon. It sequentially improved. You've had a rapid decline in WTI. It looks like base oils are generally following it, and it seems like consumers are price taking and haven't had enough time, retailers haven't had enough time to shift. So what are the governors on GP per gallon? And besides the channel mix that you mentioned?

Well, there's a couple of things to think about. One is that with a good portion of our installer channel business, we price off of an index on base oils. So when our costs are moving down, our prices are also moving down without that big of a lag to that side of the business, especially for the larger national accounts. This is also true for our pricing to the Quick Lubes system too, through our franchisees. So the nature of the price reductions for the nonindexed accounts, which would include the DIY retail accounts, that's going to be influenced in part by competitive activity. And one of the most important things for us during this window, this summer window as we go into it in this period of recovery, is we want to make sure that our price gap versus private label doesn't grow during this window. And so we're going to be closely looking at that and making the right adjustments so that we're balancing our volume and share and margin needs, again, with the goal of moving towards greater stabilization in the business. So I think there's an opportunity to incrementally improve margins in a declining base oil environment. But we're not expecting a significant windfall.

Got it. Okay. That's helpful. You mentioned private label. Has there been any—I mean, we haven't paid attention yet to what's happening in pricing. Have there been any pricing changes? I know it took a while to get pricing through when costs had risen over the last couple of years. I guess now it could go the other way if base oils go down, private labels go down. Has there been any movement in pricing to date? And then have you seen any trade down within your product mix within the do-it-yourself segment thus far? I realize it's early, but any trading down within the Valvoline brands?

At this time, Simeon, we haven't seen any real change in either competitive activity, which would include private label providers, or any consumer dynamics of more trade down, either. So the dynamics that we're seeing most recently in point-of-sale are consistent with those that we saw beforehand. So for Valvoline, we're continuing to expect that pressure throughout the summer and managing a bit higher price gap this year versus last year. So that puts some downward pressure on our volumes. And then as we get into the fall in fiscal 2021, we'll be lapping this higher price gap environment. And so we don't expect further downward pressure in fiscal 2021 with regard to an expanded price gap. We're closely monitoring that and managing against that. And as I look ahead at fiscal 2021, and we're in conversation now with our key retail partners and planning for 2021 through the line review process, I think we'll be relatively well positioned with some of the initiatives that we have for our product lineup, for our marketing plan to really continue to make progress towards stabilization in DIY and stabilization in overall Core North America.

We have a question from the line of Laurence Alexander.

This is Dan Rizzo on for Laurence. You mentioned the trade downs a bit, but I was wondering within the Quick Lube business, if you would see or have you seen in past recessions that trade down away from synthetic as consumers are looking to save money, or is it that people who go to Quick Lube aren't as concerned with that?

Yes. For our Quick Lube business, we've seen steady trends towards synthetic growth and premium oil change growth, and that's been true even in signs of slower economic times and how that business has performed recently and in our—and specifically, I mean, we're looking at how about this last month, we're doing really well in terms of just our mix. And our ticket and even sales of the non-oil-change services that can carry a higher ticket, we've been doing quite well. So I really don't see a risk of people trading down from synthetic or more premium oil changes. It also has to do with the fact that newer vehicles, so many of them do require synthetic oil. So we're benefiting from that overall change. And then with regard to our database-driven marketing efforts, too, as we better understand those customers who are more coupon-driven, more price-sensitive, we're able to target them with the right values that help them with their loyalty to Valvoline, too. So we have a good plan and approach to do this, and I couldn't be more confident in the recovery that we're seeing in the Quick Lube business as people begin to drive more and that the dynamics within the store in terms of our service delivery that achieves the solid ticket and ticket growth opportunities, I don't really see any changes there, either. The one point I'd like to reemphasize, too, is that during this period, we have seen a stronger mix of new customers. Now part of that is coming from competitive locations being closed. But I also think part of it is the strength in the stay-in-your-car model. And so what we haven't done in the past is communicate that in a way that talks about the safety aspect of what we do. And so as we prepare for the fourth quarter, and I expect to get back on the gas with regard to our advertising investment, we're going to be aggressive in communicating the competitive advantage of stay-in-your-car from both the transparency and trust point of view, but now also the safety benefit.

Okay. That's actually very helpful. And then you mentioned potential opportunities down the road for M&A. But I was wondering at what point do you think small competitors start to capitulate? In the past, I would think it's not right now, but I would say within the next couple of months, you should see a lot of people trying to just kind of wave the white flag. I was wondering what happened during the last recession? What your thoughts on that are?

Yes. To be honest, I can't recall exactly what we saw in terms of store closures during 2008, 2009. So we don't have anything in our records or in my memory bank, either. With regard to how we are thinking about opportunities moving forward, we certainly believe that based on what we experienced and what we think our competitors experienced in terms of fallback in volume, that unlike the Valvoline system, our competitive systems and operators fell well below their breakevens and certainly under financial pressure. So there's a potential benefit for us through store closures that will benefit Valvoline. And so we're proud of the fact that we're able to keep almost all of our stores open across our system, company and franchise. And by doing so, we're really well positioned to benefit from the pickup that we're now beginning to see. We don't have to go back and try to restart a store and get the employee team back. Our team has been engaged and focused and just doing an awesome job for us. So I'm really encouraged by that. Now some of the stronger operators that are out there, a lot of the mom-and-pops that we've identified that we would like to bring into the Valvoline system, we do think the environment is going to be very attractive for us to further those discussions. So that's going to be a big emphasis in our strategy. We've been real clear that that is a key part of our strategic growth plan, but I think the environment just got better for us, and we're going to take advantage of that into 2021.

Next, you have a question from the line of Mike Harrison.

I was wondering if you can talk a little bit and provide a little bit more color about the programs that you're putting in place to support your franchisees. I guess, I just kind of struggle to understand what the balance sheet impact and what the P&L impact could look like of, say, providing a loan to a franchisee or the royalty abatement that you referred to. Can you give us a sense of how the accounting works around that as well as the magnitude of those programs you're putting in place?

Sure, Mike. On the royalty abatement side, we essentially did an abatement of about one and a half months of royalties. The total impact of that abatement is about $3.5 million, and it's spread pretty equally between Q2 that we just reported on and Q3. So it's a temporary abatement program. On the term loan facility, we basically are providing financial liquidity support for franchisees depending on the size of the franchisee, the number of stores they operate and that program will essentially be a three-and-a-half year program where they repay the proceeds after it's been advanced. It's starting in six months. We will have advanced by the end of this month a total of about $30 million under that program, and they'll pay interest in a way that mirrors Valvoline's cost of debt so it should be P&L neutral, except just to have a cash flow support. Our franchisees are a critical part of our system. We've got just under 900 franchise stores, and we wanted to make certain that our franchisees had the ability to withstand and come out of the crisis very strong. And we've been really pleased with the working relationship we've had with our franchisees throughout this crisis, and I think it was the right thing for us to do to provide them with the financial support during this time to ensure that the system comes out very strong as we come on the road to recovery.

All right. And then also wanted to ask, just in terms of the base oil declines that we have seen. I know how that works through your P&L in normal times, but these are anything but normal times. So just wondering should we think about it that your purchases of base oil are significantly lower than they would typically be? And so maybe that contributes to a little bit of additional lag in getting that base oil benefit through? Can you maybe just talk about the timing of that cost versus pricing benefit that a lot of us are expecting?

Yes. That's right, Mike. We certainly are seeing—as our demand is lower, we're acquiring less raw material inventories. In addition to that, our inventories are turning slower as well. So we've maintained our inventory levels in order to make certain that to the extent the crisis does have an impact on our supply chain, for example, if we were required to close any of our plants or distribution centers in the U.S., we feel like we've got ample inventories to be able to continue to meet customer demand. But we are seeing slower inventory turns as a result with the lower volumes. So both the decline in our raw material purchases, the lower levels of production and the slower inventory turns means that that benefit takes a little bit longer for us to realize. And it probably is a little bit better matched with our indexing and how we pass through that benefit to our customers.

All right. And if I could sneak one more in. On Slide 8, you guys show the same-store sales growth trajectory. And I apologize if I missed this, but it looks like the franchisees have been significantly lower in terms of their same-store sales growth than the company-owned stores. Can you explain that dichotomy there?

Well, Mike, the good news is that it's tracking along the same trend line. But yes, you're right, they're a bit lower than the corporate stores. And it tends to be an impact from a regional basis because we have some of our strongest systems in the Northeast, which has been the most heavily hit. And so when we look at things on a regional basis, we see that like right now, Pacific Northwest, which was one of the tougher markets early on, was kind of leading the recovery and then the Northeast is lagging. But when we put these factors together, we really feel like our franchisees are doing an excellent job tracking along with us, and we would expect the Northeast to catch up with the balance of the country.

Next, you have a question from the line of Stephanie Benjamin.

I just wanted to touch base on some of the cost savings initiatives that you guys had in place, obviously, well before the pandemic and has there been any change in terms of the timeline or rollout of any of these changes? Anything that might cause an acceleration that really weren't expected this year where we now can kind of move those forward or any additional costs that are more long-term in nature that have been identified?

Yes, Stephanie, thanks for your question. We're actually really pleased with the progress that we've made in our cost reduction programs that we had announced last year and think that they've actually positioned us really well with significantly lower operating expenses. The crisis was unanticipated, but having done the work we did positions us well. We talked last year about total operating expense savings in the $40 million to $50 million range, and we're very comfortable that that's in fact what we're realizing on an annualized basis by the time we exit this year, that's the full value of the benefits that will be seen. So the cost of goods sold component of some of the savings that we put in place we'll see a little bit of a lesser impact as our volume is down. But broadly, I think we're absolutely right on track.

Yes, it feels good that we did the hard work last year, and it's enabled us, as a management team, to be focused really on our customers and on the recovery and what steps we have to take to come out of this more quickly and not going through a major restructuring right now.

Got it. And kind of in that vein in terms of the recovery, obviously, the data that you show on China looks like a pretty strong recovery. Is there anything that—any anecdotes or commentary from some of your partners there that's driving the recovery that might parallel into North America? Just any color that you might have that we can kind of think through as North America comes out of this, that would be helpful.

Well, I think the main similarity is that when you have a shutdown like this that we've never experienced before, it goes beyond just the driving impact to the inventory impact. And so that's where China has some similarities to Core North America, where you have inventories at your distributors, where there's just—it's a deeper trough. But then, ultimately, you do see a faster rebound as those inventories are replenished. The one thing that is really helping us in China, too, is the strong heavy-duty component of our business there; it definitely has rebounded quickly and is really back on track with the plan for the fiscal year. So it's been encouraging to see, certainly.

Operator Instructions. There are no other questions at this time.

Yes. I just wanted to provide clarity on one of the questions we had received earlier this morning from Jason English. We had seen—we talked in the script about seeing a 70% reduction in volume, a 68% reduction in volume in Core North America. More than half of that volume reduction in April was due to the distributor destocking. And so without the distributor destocking, we would have seen a volume reduction in about the 34% range. I just wanted to make sure that all of the callers understood that in Q2, the consignment inventory buyback that we did was about one-third of the volume reduction in Core North America in Q2. But the April numbers we referred to, it was over half of the impact on Core North America related to that distributor destocking.

Thanks, Mary. All right. Well, I think that's it. And so we appreciate everyone listening in today. And obviously, it's been a very challenging time for us to manage through in many respects. But we're seeing some good signs in the business, and we've laid that out today, and we provided that in the appendix with our framework for recovery. We've got a good plan moving forward, and we'll certainly keep everyone abreast with our progress. Thank you.

This concludes today's conference call. You may now disconnect.