Valvoline(VVV) - 2025 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION Financial Statements (Unaudited) Unaudited financial statements for March 31, 2025, show increased net revenues and income, driven by store expansion and a refranchising gain Condensed Consolidated Statements of Comprehensive Income For the six months ended March 31, 2025, net revenues and income from continuing operations significantly increased, along with diluted EPS Key Income Statement Data (in millions, except per share amounts) | Metric | Three Months Ended Mar 31, 2025 | Three Months Ended Mar 31, 2024 | Six Months Ended Mar 31, 2025 | Six Months Ended Mar 31, 2024 | | :--- | :--- | :--- | :--- | :--- | | Net Revenues | $403.2 | $388.7 | $817.5 | $762.1 | | Gross Profit | $150.5 | $146.2 | $303.4 | $281.0 | | Operating Income | $66.9 | $76.4 | $210.7 | $139.2 | | Income from Continuing Operations | $38.3 | $43.3 | $132.2 | $77.2 | | Net Income | $37.6 | $41.4 | $129.2 | $73.3 | | Diluted EPS (Continuing Ops) | $0.30 | $0.33 | $1.02 | $0.59 | Condensed Consolidated Balance Sheets As of March 31, 2025, total assets slightly increased, total liabilities marginally decreased, and stockholders' equity grew due to retained earnings Key Balance Sheet Data (in millions) | Metric | March 31, 2025 | September 30, 2024 | | :--- | :--- | :--- | | Total Current Assets | $230.0 | $255.4 | | Total Assets | $2,452.6 | $2,438.7 | | Total Current Liabilities | $315.6 | $353.9 | | Total Liabilities | $2,203.9 | $2,253.1 | | Stockholders' Equity | $248.7 | $185.6 | Condensed Consolidated Statements of Cash Flows For the six months ended March 31, 2025, operating cash flow remained stable, while investing and financing cash flows significantly decreased Cash Flow Summary (in millions) | Cash Flow Activity | Six Months Ended Mar 31, 2025 | Six Months Ended Mar 31, 2024 | | :--- | :--- | :--- | | Operating Activities | $88.4 | $88.2 | | Investing Activities | $10.3 | $230.6 | | Financing Activities | $(104.4) | $(237.6) | | (Decrease) Increase in Cash | $(6.4) | $81.4 | Notes to Condensed Consolidated Financial Statements Key notes detail the discontinued Global Products segment, a significant refranchising gain, total debt, and the pending acquisition of Breeze Autocare - The sale of the former Global Products reportable segment was completed on March 1, 2023, and its results are now reported as discontinued operations[19] - In December 2024, Valvoline sold 39 company-operated service centers to a new franchisee, recognizing a pre-tax gain of $74.2 million[30] - The company signed a definitive agreement to acquire Breeze Autocare for a base price of $625 million, with the transaction currently under FTC review, which has issued a Second Request for information[46][47] Total Debt Summary (in millions) | Debt Component | March 31, 2025 | September 30, 2024 | | :--- | :--- | :--- | | 2031 Notes | $535.0 | $535.0 | | Term Loan A | $427.5 | $439.4 | | Revolver | $120.0 | $125.0 | | Total Debt | $1,075.7 | $1,093.8 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses revenue growth from SSS and network expansion, increased Adjusted EBITDA, strategic retail growth, the pending Breeze Autocare acquisition, and ongoing internal control remediation Business Overview and Strategy Valvoline, a leader in automotive maintenance with 2,100 service centers, focuses on network growth and service expansion, with a key pending acquisition of Breeze Autocare for $625 million - The company operates and franchises approximately 2,100 service center locations[52] - Strategic initiatives include driving core business, accelerating network growth (company and franchise), and expanding services for fleets and non-oil change needs[55] - A definitive agreement was announced to acquire Breeze Autocare, which operates nearly 200 stores, for approximately $625 million, pending FTC regulatory approval[53][54] Results of Operations For the six months ended March 31, 2025, net revenues grew 7.3% driven by SSS and network expansion, with operating income surging due to a refranchising gain and Adjusted EBITDA increasing System-Wide Store & Sales Growth | Metric | Q2 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :--- | :--- | :--- | :--- | :--- | | System-wide SSS Growth | 5.8% | 8.2% | 6.9% | 7.7% | | Company-operated SSS Growth | 4.8% | 8.2% | 6.5% | 7.2% | | Franchised SSS Growth | 6.6% | 8.2% | 7.2% | 8.1% | Store Count at Period End | Store Type | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Company-operated | 950 | 919 | | Franchised | 1,128 | 1,009 | | Total System-wide | 2,078 | 1,928 | - SG&A expenses increased by $22.3 million for the six months ended March 31, 2025, due to investments in technology, talent, and advertising to support growth[80] - Other income for the six-month period increased by $72.5 million, largely due to a $74.2 million gain on the sale of company-owned service centers in a refranchising transaction[85] Adjusted EBITDA Reconciliation (in millions) | Metric | Six Months Ended Mar 31, 2025 | Six Months Ended Mar 31, 2024 | | :--- | :--- | :--- | | Income from continuing operations | $132.2 | $77.2 | | Adjustments (Taxes, Interest, D&A) | $136.7 | $105.2 | | EBITDA from continuing operations | $268.9 | $182.4 | | Key Item Adjustments | $(61.7) | $12.9 | | Adjusted EBITDA from continuing operations | $207.2 | $195.3 | Financial Position, Liquidity and Capital Resources The company's capital allocation prioritizes growth, with operating cash flow at $93.2 million and negative free cash flow due to increased capital expenditures, pausing share repurchases to prioritize debt repayment for the pending acquisition Free Cash Flow (in millions) | Metric | Six Months Ended Mar 31, 2025 | Six Months Ended Mar 31, 2024 | | :--- | :--- | :--- | | Cash flows provided by operating activities | $93.2 | $92.1 | | Less: Maintenance capital expenditures | $(15.6) | $(13.6) | | Free cash flow excluding growth capital expenditures | $77.6 | $78.5 | | Less: Growth capital expenditures | $(89.8) | $(73.6) | | Free cash flow | $(12.2) | $4.9 | - During the six months ended March 31, 2025, the Company repurchased 1.6 million shares for $59.8 million, with $325.0 million remaining under current authorization[103] - Share repurchase activity has been paused to accelerate debt repayment in connection with the pending Breeze Autocare acquisition[105] Quantitative and Qualitative Disclosures About Market Risk No material changes to the company's market risks were identified during the six months ended March 31, 2025 - There were no material changes to market risks in the six months ended March 31, 2025[110] Controls and Procedures Disclosure controls and procedures were deemed ineffective as of March 31, 2025, due to a material weakness in internal control over financial reporting related to a new ERP system, with remediation efforts underway - The CEO and CFO concluded that disclosure controls and procedures were not effective as of March 31, 2025, due to a material weakness in internal control over financial reporting[112] - The material weakness, initially reported in the quarter ended March 31, 2024, following a new ERP implementation, relates to ineffective IT general controls (user access, change management) and the design of certain business process controls[116][117] - The material weakness did not result in any identified material misstatements in the financial statements[113][118] - Management is actively executing a remediation plan, including enhancing access controls, improving change management, and validating control design, with completion expected in fiscal 2025[119][121] PART II – OTHER INFORMATION Legal Proceedings The company is involved in various ordinary course legal proceedings, with management believing pending matters will not materially affect financial statements - The company is involved in ordinary course lawsuits and legal proceedings; for details, refer to Note 7 of the Notes to Condensed Consolidated Financial Statements[123] Risk Factors No material changes to the company's risk factors were reported for the period - No material changes to the Company's risk factors were reported for the period[124] Unregistered Sales of Equity Securities and Use of Proceeds During Q2 FY2025, the company repurchased 573,182 shares for $35.77 per share in January, with $325.0 million remaining for future repurchases Share Repurchases (Q2 FY2025) | Monthly Period | Total Shares Purchased | Average Price Paid | Value Remaining (in millions) | | :--- | :--- | :--- | :--- | | January 2025 | 573,182 | $35.77 | $325.0 | | February 2025 | — | $— | $325.0 | | March 2025 | — | $— | $325.0 | Exhibits This section lists exhibits filed with the Form 10-Q, including CEO/CFO certifications and XBRL data files