Welcome everyone to Valvoline's Investor Conference Call and Webcast. My name is Lauren and I'll be coordinating your call today. There will be an opportunity for questions at the end of the presentation. If you would like to ask a question, then please press star, lead by one on your telephone keypad. I will now hand you over to host Elizabeth Clevenger with the Investor Relations team to begin. Elizabeth, please go ahead.

Thank you, Lauren. Good morning and welcome to Valvoline's Conference Call and Webcast. this morning babbling issued a press release announcing that the company has signed a definitive agreement to acquire breeze auto care today's presentation should be viewed in conjunction with that release a copy of which is available on our investors relations website at investors.babbling.com the company also filed a form 8k with the securities and exchange commission today with additional information on the transactions on this morning's call we have Lori Sleif, our President and CEO, and Mary Markinsberger, our CFO. As shown on slide two, any of our remarks today that are not statements of historical facts are forward-looking statements. These forward-looking statements are based on current assumptions as of the date of this presentation and are subject to certain risks and uncertainties that may cause actual results to differ materially from such statements. Value assumes no obligation to update any forward-looking statements unless required by law. Now I'll turn it over to Lori.

Thanks Elizabeth. I appreciate everyone joining us today. We are excited to announce that we'll be adding nearly 200 additional stores through the acquisition of Breeze Auto Care. This marks an important milestone for Valvoline on the path towards our target of 3,500 plus stores. Breeze Auto Care is an independent provider of quick lube and other preventative maintenance services, with an extensive footprint across California, Texas, and the Midwest. Valvoline's track record of acquisition integration and operational capabilities will enable meaningful top and bottom line growth and unlock long-term synergies. Let me share why Breeze Auto Care is a strategic fit for Valvoline on slide four. The addition of nearly 200 stores will drive accelerated network growth in highly complementary geographies and expand our customer reach. These additions will bring our total store count to more than 2,200 locations across North America. At Valvoline, we say it all starts with our people, and one of the highlights of this process has been learning that the Breeze team shares this sentiment. Both Valvoline and Breeze Auto Care have a strong commitment to a people-first culture, prioritizing our employees and customers in everything that we do. Another benefit is the advantages that come with scale. Bringing the equivalent of more than a year's worth of store growth in this one step will allow us to leverage many of the investments we've already put in place across a larger store base this includes things such as the retail specific technology investments we've made in our making and the fleet sales expansion valvoline has a long track record of successfully integrating acquisitions into its network including several multi-store acquisitions based on this history we are confident that we can integrate these stores to drive attractive top and bottom line growth and enhance an already strong cash flow profile. We expect the transaction to be roughly neutral to adjusted diluted EPS in the first year and accretive over time. Now let's turn to slide five. Breeze Auto Care is a trusted name in the quick lube industry, recognized for delivering fast, high-quality oil changes and other automotive maintenance services across its markets. The company operates primarily under the Oil Changers brand, which delivers a stay-in-your-car experience focused on quality, speed, and simplicity. The company is led by Eric Frankenberger, a longtime industry veteran who has been recognized multiple times as Operator of the Year by National Oil and Lube News. Breeze Auto Care has a successful track record of growth from both organic same-store sales growth and store additions. This is a strong team with outstanding operational capabilities, and we are excited to have them join the Valvoline team. Slide six illustrates how the addition of these stores will accelerate Valvoline's network growth. The Breeze Auto Care stores are highly complementary geographies. They're in highly complementary geographies with relatively few stores that operate in close proximity to our existing stores or stores in our development pipeline. This acquisition allows us to quickly densify within existing regions and expand in key markets, some of which have high barriers to entry and are largely underserved. All of the stores are company-operated today. However, there may be opportunities for refranchising, which we will explore on a market-by-market basis, particularly in those territories where our franchise partners are already operating. Acquisitions have always been a key component of our network growth playbook. We have a track record of successfully integrating multi-unit acquisitions into our network and generating compelling returns. In fact, nearly 50% of our company store additions since our IPO have been through acquisition. Breeze Auto Care represents an opportunity to accelerate our network growth by adding more than a year's worth of store additions in one step. As such, we expect to take up to two years to integrate Breeze Auto Care into our organization. This timing ensures that we deliver on our current business plans and our existing pipeline while we progress the integration. Initially, the acquired stores will continue to operate under the oil changers brand and with the same technology and processes that they use today. Now I'll turn it over to Mary to discuss the details of the transaction.

Thanks, Lori. We have entered into a definitive agreement to acquire Breeze Auto Care for approximately $625 million, subject to the satisfaction of customary closing conditions and regulatory approvals. This purchase price implies a 10.7 times multiple based on Breeze's pro forma adjusted EBITDA for the trailing 12 months ended October 31, 2024. We intend to fund the acquisition with a newly issued term loan B facility. Our long-term capital allocation priorities remain the same. First, to continue funding our growth. Second, to maintain a target net leverage ratio of 2.5 to 3.5 times on a rating agency adjusted basis. And third, to return value to shareholders through share repurchases. In light of the new debt to fund this acquisition, we will be pausing our store, excuse me, we will be pausing our share repurchases to accelerate that repayment. On a combined basis, we anticipate strong cash flow generation to allow us to return to our target net leverage ratio within 24 months post-closing. As Lori mentioned, we expect the transaction to accelerate our network growth and expand our geographic and customer reach. With integration of the new stores within a two-year time frame, we expect the transaction to be relatively neutral to EPS in the first year and then accretive over time. Accelerating operating profit and cash flow will support increased capital allocation optionality once financial leverage returns to targeted levels. Now I'll turn it back over to Lori for some closing remarks.

Thanks, Mary. This transaction supports our strategic priority to accelerate network growth, bringing us closer to our 3,500-plus network target more quickly. Breeze is aligned well to the Valvoline culture, both focused on great employee and customer experiences. The addition of these well-operated stores and strong team give us confidence in the value creation opportunities of this transaction. I'm really excited to welcome the Breeze team to Valvoline. This transaction will enable us to deliver top-line sales and profit growth while enhancing an already strong cash flow profile. Breeze AutoCare is a natural fit for Valvoline and presents a compelling opportunity for shareholder value creation. We look forward to sharing additional updates in the coming months. Now I'll turn it back over to Elizabeth to open the line for Q&A.

Thanks, Laurie. Before we open the line, we'd like to remind everyone to limit your questions so that we can try to get to everyone on the line. Lauren, can you now open the line for Q&A?

Thank you. If you'd like to ask a question, then please press star followed by one on your telephone keypad. To withdraw your question, please press star followed by two. Please also ensure that your phone is unmuted locally. As a reminder, that is staff 8.1 to ask a question. Our first question comes from Thomas Wendler from Stevens Inc. Thomas, please go ahead.

Hey, good morning, everyone. Good morning, Thomas. I wanted to start off with just maybe some of the additional business lines that Breeze Auto Care had, the car wash locations, and then the oil changers plus repair locations. Do any of these additional business lines kind of interest you that you would want to build out further?

Yeah, thanks for the question. Breeze does have a very small number of stores that do not do any oil change or preventative It would be less than a handful of their locations. This was not a material driver of value in our assessment, and it was not the reason for our interest in the business. I think you should not expect to see this as an indication of any change in our strategy. Our focus remains in private and preventative maintenance.

Perfect. Thank you. And then just kind of on the thoughts around refranchising, should we expect pretty much all the locations to be rebranded before any refranchising occurs? Or is that going to be kind of an ongoing process?

You know, I think the re-franchising growth overall has been a key element of our network growth strategy, and that's, you know, not impacted by this acquisition. We'll be working with our franchise partners on a market-by-market basis, particularly for the locations that reside in the territories they're already operating, to confirm whether or not there's an opportunity for those stores to be re-franchised. I'd say there's no specifics to share with you on that today but conversations have already started with our partners who obviously are eager to learn more about a breeze and the business that they've been operating all right thank you for answering my questions and congratulations on the acquisition thank you thank you thank you our next question comes from steven secone from city steven please go ahead great good morning uh congrats on the um acquisition um couple questions so um first maybe can you help us understand what was the appeal of doing this deal?

I guess I'm trying to understand why now, right? Because you've done acquisitions since you've come public, but in theory, the last one was in December of 2020. So it's been some time. So was there a process being run for Breeze? Just help us understand why now.

Sure. Acquisitions, as you know, have always been a key component of our network growth plan. Breeze represented an opportunity, you know, to add a number of stores. And when you look at this market, while it is incredibly fragmented, there are a small number of larger players, and even fewer of them are actionable. So when there is an opportunity that presents itself in a market, obviously, regardless of the size. We look at it to see whether or not it would be a good complement to the network that we have and the business growth potential of it. And, you know, we couldn't be more excited about Breeze Auto Care. It is a great business with a very strong operating and management team that has really good tenure. It's 200, you know, nearly 200 stores are very complimentary, highly complimentary to our network with very few of them in close proximity to either stores that we're operating or stores in our pipeline. And the culture fit, you know, we do, we've done a lot of acquisitions. The culture fit here is really great.

Eric and his team have a promote from within, very people-centric focus in order to drive great customer experiences so the alignment of cultures gives us a lot of confidence that this match will work really well okay okay then just two other questions so then um on the financing aspect of this could you could you help us understand what you see as the potential cost of capital for this new debt and then um pausing the share or purchase activity how long do you think that's expected to last?

Yeah, so on the first part of your question in terms of cost of capital on the new debt, my expectation is that we'll see a term loan be pricing consistent with our current credit rating. So I don't think there'll be any surprises there. And as it relates to pausing share repurchases, we do believe that we'll see our leverage ratio fall back within our targeted leverage ratios within 24 months. And so we'll continue to update you as we finalize our operating and integration plans, but would expect that would likely resume within 24 months. And by the way, I would add, Stephen, that really does benefit our cash flow profile as well. So I think that the ability to resume return of capital to shareholders will be benefited substantially from the improved cash flow profile of the business.

Okay. The last was just, we kind of come back into the EBITDA margin, but just, Is there anything you can say around the business, the, you know, profitability? Is there opportunity to maybe scale the EBITDA margin a little bit higher as you sort of integrate it and find some synergies over time?

Yeah, you know, Breeze Auto Care is a really strong operator, as I've mentioned. This is definitely not a turnaround story, but we do expect to build upon their strong foundation. initially they'll continue to operate as oil changers and we will be working with them to figure out how we get the benefit of capabilities on both sides we've invested in some things given our scale and capabilities that that they are early in investing and they have also invested in some some tools for example some of the reporting tools of their stores that are really fantastic that we hope we can leverage more broadly. So, you know, we have a history of taking independent operators and really raising their growth profile, raising their non-all change revenue, you know, penetration, et cetera. And I think together we'll work with Eric and his team and figure out where, you know, we have ideas on both sides where there's opportunity, and we're really excited to get after them.

Okay. Thanks for taking all my questions.

Thank you. Our next question comes from David Bellinger from the ZUHO. David, please go ahead.

Hey, good morning. Thanks for taking my questions. First one, you mentioned the transaction being accretive over time. So why can't this be accretive in year one, just given the margin profile of the business? And can you frame up how much accretion potential we can expect over the next two, three, four-year timeframe and what type of synergies or cost overlap you see and something we can expect going forward?

So thanks for the question, David. We do think it's going to be relatively neutral to EPS accretion in the first year. We're still working to better understand the purchase accounting impacts associated with the transaction and we'll have more details for you as it relates to the specifics of that as we move forward. I also would call out that we'll have the cost of debt associated with the transaction in the first year as well. And then finally, there are one-time costs associated with the transaction that we'll have to deal with in the first year. So beyond that, I would tell you that my expectation is that we'll see nice accretion from the transaction. To the extent that we are able to do some refranchising, I would expect that to accelerate some of the accretion. So I think that we just have work to do in developing that operating and integration plan to be able to give you more details.

Yeah, thanks, Mary. And then just a follow-up, maybe a different version of the why now question, but you've had some concerns in the market around slowing comp sales growth and maybe even a potential reset to your long-term guidance. Can you talk about the growth profile of Breeze and how their business has been comping in recent years and also how that plays into or compares with your 6% to 9% level that you've outlined for the core Valvoline?

Yeah, we're not in a position to give specifics around it, but their business has been comping nicely. Their growth has really been driven by both benefiting from same-store sales growth in addition to benefiting from their new store additions. So we've seen a really nice overall top-line growth at Breeze. Our expectation is that some of the synergies that we bring in terms of our marketing expertise, our fleet sales opportunities, some of those things we've outlined will also help to drive stronger transaction growth in their stores over time as well. So we really do think that there's a nice opportunity.

Great. Thank you.

Thank you. Our next question comes from Simon Gutman from Morgan Stanley. Simon, please go ahead.

Hi, everyone. Simeon Gutman, in case anyone forgot. my first question can you tell us the either the revenue per box on the on the oil change part of the business or the number of oil changes per day can you can you frame that for us and then Mary I wanted to try again at accretion thinking loud is there any is there any potential synergy on buying oil I assume there should be and then what are the other areas besides better revenue growth that could that you may be able to benefit from over time on accretion i think i'll cover the the sales piece and and let mary cover the other components of your question um you know i think

we were clear in our comments that in the in the last year of reported sales um breeze was around 200 million dollars um now that includes all of the stores they operate but i also want to be clear that the number of stores that don't do oil changes and the amount of revenue that is not from preventative maintenance is a very small percentage. And so you can look at the math and be, you know, close approximate around their revenue per store. Do you want to cover the other part, Mary? Yeah.

Yeah. And so, Simeon, as it relates to synergies, we do believe there's multiple levers to driving growth in the business and synergies. So we'll be looking at G&A opportunities. We'll be looking at our marketing efforts and fleet sales expansion. We certainly will be looking at other types of opportunities within the operating costs for the business. Don't have anything specifically to share with you on that. But again, this is an area where we have a lot of experience in integrating acquisitions and expect to have more to report for you as we move forward.

Quick follow-up on refranchising because it made the press release and we're talking about it here and this is maybe broadly about your approach to refranchising. It sounds like you're taking it almost on a store-by-store or regional basis, not on a chain basis. That's how it's seeming to evolve. Is that fair? You know and And then what does that, can you talk about the logic or rationale by looking at it that way, as opposed to doing them, I don't know, is there a certain number and then a number in geography? Like, what is the basis and the approach to how you're going to look at the entire chain, not just this one?

Yeah, so I think as it relates to this acquisition, Simeon, their network, as you can see from the map, is pretty broad. and therefore it's not one you know one region or one set of stores um and and or one franchise partner so given the timing of the process um we have we have started to engage our franchise partners who have stores in operating territories where oil changers have stores operating in territories where our franchisees largely operate. And the reason we do that is because we have really strong operators with strong cultures and the way that we approach a market to ensure that we have, you know, great coordination around marketing and employment and real estate and construction, you know, it provides more scale for all parties involved in our brand. And so that's a reason why we have to take it on a market by market basis because it's not in the way that the breeze network has been grown. It's not one partner where there's an opportunity to consider refranchising certain stores. I would say as your comment or question relates to a broader refranchising of our business, I think our approach and position on that hasn't changed. We believe, one, our company stores still deliver a very strong return on invested capital, but yet our franchising, growing on the franchising side, operates a more asset-light way of driving growth and margin and return on invested capital. And so we continue to push forward on both. The economics around refranchising, given where we trade and how well our stores perform and how much opportunity for additional unit growth is in a specific geography, all play into a discussion around other opportunities for refranchising. We've been pretty clear that based on where we are right now, in order to get to the 150 units per year by 2027, we don't need to undertake any more significant refranchising projects, but we'll remain open for the right partner and the right terms that can drive shareholder value. We'll have to relook at how this acquisition plays into that, and we'll be giving you an update in the coming months. Our first focus is to close the transaction and make sure that we can operate a very strong business within our portfolio. As I mentioned, we want the oil changers team and brand to remain standalone initially and operate much as it is today on day one.

Thanks, Lori.

Thank you. Our next question comes from Chris O'Call from Stifle. Chris, please go ahead.

Thanks. Good morning, guys, and thanks for taking the question. Laurie, I know the team has made acquisitions in the past, but I believe this is the largest one, and I believe the largest one, I guess, was about half this size and done about a decade ago. So I was hoping you could just describe how you're structuring the integration team and its priorities for this first year, and then maybe what are some of the biggest risks that you're watching out for?

Yeah, it's a great question and one that we've been spending a lot of time on you know the most important thing as we undertake an acquisition of this size is to not get distracted with the business and the growth that we have underway and so we've been we have been working really diligently on how to set this up such that both organizations can continue to grow at the pace that they would have been doing individually um we have a team and some outside help um to get us you know to make sure that we can close and get ready for day one of operations underneath our portfolio again that's limited amount of work because we we expect that the oil changers brand is going to operate largely as they do today but obviously starting um you know when is appropriate around the ongoing pipeline that both teams are developing is obviously a key focus. As it relates to longer-term integration, obviously we have franchisee discussions that we need to have, and that's pretty important to get clarity on which certain stores we would be refranchising. And then Eric and I have started some conversations to put together joint teams. to really make sure that we understand how Breeze Auto Care operates all the way down to the technology that they're using and have Eric and his team understand ours. Because we have to do some of that work and make sure that we can deliver against the benefits and the capabilities that each organization is providing. So we have dedicated people that we've pulled out of their day jobs and backfilled or resourced separately. And that's all contemplated in the investment costs around this deal. There's, you know, I don't, I don't want to say that I can't really say much more than that. We're, we're early in, there's much more work to do, but we have used our playbook and our assumptions across many different acquisitions, you know, whether it's oil can henry or great canadian oil change where our approach was very different from a integration a refranchising and a branding um and and we use that playbook to make sure that we're being very conservative in the assumptions around the return that this opportunity presents itself so we feel really good about the return and i think we've been appropriately conservative based on what we know today.

Okay.

Chris, while it's a larger acquisition, you know, it still is straight down the fairway of our sweet spot in operating preventative maintenance stores. So, you know, I would tell you that, that, you know, from a risk perspective, I feel very good about our ability to manage this opportunity and how, you know, will ultimately improve our financial profile driving, you know, faster growth in both top and bottom line over time. But again, you know, this is identical, very, very similar to what we've done in the past with, you know, our store growth, company store growth, more than 50 percent has come through acquisitions.

Okay, that's helpful. Mary, just one last question. The adjusted EBITDA margin seems pretty high given the lower average unit volume. So, is it fair to assume the business ran a fairly lean G&A structure? And I'm just curious if that goes into your calculation on how much cost savings you might be able to take out.

Yes, certainly all of that comes into play in terms of our financial modeling, in terms of cost savings. They absolutely run a well-performing business. They run a lean business from an SG&A, but they also do an expert job and run their stores as well. So, we've been impressed with the oil changers, with Breeze Auto Care as an operator, and look forward to continuing to work together to identify further synergies.

Great. Thanks, guys.

Thank you. We have time for one more question from Justin Klepper from Bird. Justin, please go ahead.

Hi, everyone. Thanks for sneaking me in here. Just a follow-up on the financial profile of Breeze. So it looks like just shy of $60 million of EBITDA, if my math's right. Is that a clean number or are there some pro forma adjustments or synergies built into that figure? Just want to clarify that.

Yeah, so the multiple that we shared in our release today was a 10.7 times multiple of a 12-month October 24 adjusted EBITDA. So, it does include what I would call normal buy-side diligence adjustments.

Okay, got it. Thanks, Mary. And then it looks like Breeze has grown fairly quickly under Greenbrier's ownership.

So, is all the integration work from M&A that they have done historically is that in the rearview mirror like are all these locations running on the same systems already just trying to make sure you know we're not trying to integrate a business that is still in the process of integration itself I think for the most part Eric and the team have done a really good job as they have acquired tuck-in acquisitions and folded them into the oil changers portfolio I think if there were there have been some recent meeting in the last few months acquisitions that would still require some level of integration but i don't think it's significant at least as much as we know today okay and if i could just sneak one

more in here as it relates to the the car wash component of breeze are all the car washes attached to the quick lube locations and maybe if you could just put a finer point on how many of those there are within the portfolio and and i assume you still plan to operate those over time but but any color there uh would be helpful thanks so much yeah so um the breeze team has over 30 locations that have car wash business associated with them i think we'll we'll be evaluating with eric around that business for example we have done acquisitions of independent operators that had a car wash on

the property and or car wash bay where they've actually taken a quick lube bay and they put a kind of a short tunnel wash or automated wash in it. In many of those cases, given the volume that we drive with our marketing and fleet capabilities, as Mary mentioned, we end up needing to convert that bay back to an oil change bay just to handle the upside in volume. So we'll be working with Eric on a site-by-site basis of what that means. But obviously, Obviously, our core focus is and will remain in preventative maintenance.

All right. Very helpful, Laurie. Thanks so much.

Thank you. In the interest of time, that is now the end of the Q&A session, and that is also the end of the call. So thank you for joining everyone. You may now disconnect your lines.