Valvoline Inc. · NYSE:VVV
Valvoline — Q3 2021 Earnings Presentation
32 slides from Valvoline's earnings presentation, Aug 5, 2021
Slide 1: Third-Quarter Fiscal 2021 Earnings
Third-Quarter Fiscal 2021 Earnings August 5, 2021 Sam Mitchell, CEO Mary Meixelsperger, CFO Sean Cornett, Investor Relations 1
Slide 2: Safe Harbor
SAFE HARBOR Forward-Looking Statements Certain statements in this presentation, other than statements of historical fact, including estimates, projections and statements related to Valvoline’s business plans and operating results, are forward-looking statements within the meaning of the Private Secu
Slide 3: Third Quarter Highlights
THIRD QUARTER HIGHLIGHTS1 53% 64% 66% Growth in total sales Growth in reported net income Growth in reported EPS 40.5% 75% 112% Growth in system-wide Growth in adjusted2 EBITDA Growth in adjusted2 EPS SSS2 10% 37% 52% Growth in system-wide Volume2 growth in Global Retail Services contribution units2
Slide 4: Takeaways from May 19th Business Update
TAKEAWAYS FROM MAY 19TH BUSINESS UPDATE Changes to Unlock Value Long-Term Goals • Realign business to drive strategic focus • Increase market understanding of our segments • Increase transparency, disclosure and comparability to peers • Expand $ TAM1 to focus on auto services and global • Drive shar
Slide 5: Two Operating Segments, United by Our Brand
TWO OPERATING SEGMENTS, UNITED BY OUR BRAND Secular Shifts in Auto Services towards DIFM, Shift to Synthetics Retail Services Global Products (Quick Lubes) (Core NA & International) Unit-based, preventive auto care services Automotive lubricants and products Increasing Increasing Key Industry Driver
Slide 6: Driving Shareholder Value with Our Transformation Strategy
DRIVING SHAREHOLDER VALUE WITH OUR TRANSFORMATION STRATEGY Leverage FCF1 from Accelerate Retail Reinvest for Growth and Global Products Services Transformation Shareholder Returns • International investments are paying • 627 net new stores since 2015 through • Investing in growth while returning exc
Slide 7: Benefits of Transformation Are Emerging
BENEFITS OF TRANSFORMATION ARE EMERGING Revenue Adjusted EBITDA1 ~9% (Millions) ~8% (Millions) CAGR CAGR $620 - $640 ~$2,900+ $2,390 $2,353 $495 $2,285 $473 $478 $452 $2,084 $437 $1,929 2016 2017 2018 2019 2020 2021E 2016 2017 2018 2019 2020 2021E2 Outlook through 2024: 9 – 11% revenue CAGR, 21 – 23
Slide 8: Valvoline
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Slide 9: Retail Services: Q3 Results Ahead of Long-Term Guidance
RETAIL SERVICES Q3 RESULTS AHEAD OF LONG-TERM GUIDANCE System-Wide Store Sales2 (Millions, except store Growth from (Millions) Q3 YoY count) 3Q19 ~18% ~$1,900+ CAGR Segment Sales $330 66% 56% $1,419 $1,520 SSS2 Growth $1,161 N/A 40.5% 27.1%3 (system-wide) Store Count2 1,569 10% 16% (system-wide) Adj
Slide 10: Global Products: Consistent Performance and High FCF Generation
GLOBAL PRODUCTS CONSISTENT PERFORMANCE AND HIGH FCF GENERATION (Millions) Q3 YoY Growth ~3% Discretionary FCF1 from 3Q19 (Millions) CAGR $200 - $210 $197 $202 Segment Sales $462 46% 15% $190 Volume1 (gallons) 41.8 37% 9% Adjusted1 EBITDA $81 17% 3% Discretionary FCF1 $53 20% 2% 2018 2019 2020 2021E2
Slide 11: Valvoline 3Q Earnings
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Slide 12: Third Quarter Results
THIRD QUARTER RESULTS Growth (in millions, except per-share data) 3Q21 YoY from 3Q19 Sales $792 53% 29% YoY Changes in Adjusted EBITDA1 (Millions) Gross Profit $259 39% 25% Adjusted1 Gross Profit $276 53% 29% Operating Income $131 49% 28% Adjusted1 Operating $149 82% 32% Income Net Income $97 64% 49
Slide 13: Third Quarter Results - Margins
THIRD QUARTER RESULTS - MARGINS Retail Services Growth Key takeaways (Millions) 3Q21 YoY from 3Q19 • SSS growth driving fixed cost leverage; offsetting impact of new store ramp Segment Sales $330 66% 56% • Pricing power expected to be balanced with Adjusted1 EBITDA $112 107% 78% transaction growth o
Slide 14: Free Cash Flow Drives Future Growth
FREE CASH FLOW DRIVES FUTURE GROWTH (in USD, millions) YTD Cash Flow from Operating Activities $296 Less: Maintenance Capital Expenditures $21 Discretionary Free Cash Flow $275 Less: Growth Capital Expenditures $85 Free Cash Flow $190 Note: Discretionary Free Cash Flow and Free Cash Flow are non-GAA
Slide 15: YTD Investment in Retail Services Growth
YTD INVESTMENT IN RETAIL SERVICES GROWTH $267M $60M $327M Store acquisitions New Store Capital invested in Development Retail Services Growth Significant investments with high returns expected to drive long-term EBITDA growth 15
Slide 16: Outlook
OUTLOOK 2021 Outlook Operating Items • Sales growth 25 – 26% • Retail Services system-wide store additions1 140 – 160 • Retail Services system-wide SSS1 growth 19 – 21% TBD – Normalized2 system-wide SSS1 growth 10 – 12% • Adjusted3 EBITDA $620 – $640 million Corporate Items • Adjusted3 effective tax
Slide 17: Long-Term Growth Expectations
LONG-TERM GROWTH EXPECTATIONS ANNUALIZED FINANCIAL TARGETS 2021-24 Retail Services Global Products VVV SSS Growth Unit Growth Topline CAGRs Revenue CAGR 6 - 8% 5 - 7% 4 - 6% 9 - 11% Revenue CAGR Adj. EBITDA margin Adj. EBITDA margin 14 - 16% 17 - 19% 21 - 23% Adj. EBITDA margin Discretionary FCF Adj
Slide 18: Transformation from Products to Services
TRANSFORMATION FROM PRODUCTS TO SERVICES Products Driven Services Driven EBITDA1 CONTRIBUTION Global Products Retail Services 34% 35% 20172 48% 20213 52% 2025E 66% 65% 1. EBITDA contribution as percentage of total business segment Adjusted EBITDA. For reconciliation of adjusted amounts to amounts re
Slide 19: Appendix
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Slide 20: Reconciliation of Recast Adjusted EBITDA
RECONCILIATION OF RECAST1 ADJUSTED EBITDA For the years ended September 30 (In millions) 2016 2017 2018 2019 2020 Net income $ 273 $ 304 $ 166 $ 208 $ 317 Income tax expense 148 186 166 57 134 Net interest and other financing expenses 9 42 63 73 93 Depreciation and amortization 38 42 54 61 66 EBITDA
Slide 21: Pre- and Post Realignment Adjusted EBITDA
PRE- AND POST REALIGNMENT1 ADJUSTED EBITDA 1. Valvoline realigned its global operations and related reporting during the third quarter of fiscal 2021 to manage its business through two operating segments, Retail Services and Global Products. 21
Slide 22: Retail Services – Q3 Results
RETAIL SERVICES – Q3 RESULTS a) Measure includes Valvoline franchisees, which are independent legal entities. Valvoline does not consolidate the results of operations of its franchisees. b) Beginning in fiscal 2021, Valvoline determines SSS growth as sales by U.S. Retail Services stores, with new st
Slide 23: Retail Services – Store Information
RETAIL SERVICES – STORE INFORMATION a) System-wide store count includes franchised service center stores. Valvoline franchises are independent legal entities, and Valvoline does not consolidate the results of operations of its franchisees. b) Certain franchised service center stores temporarily clos
Slide 24: Global Products – Q3 Results
GLOBAL PRODUCTS – Q3 RESULTS a) Valvoline includes the United States and Canada in its North America region. Mexico is included within the Latin America region. b) Segment adjusted operating income is segment operating income adjusted for key items impacting comparability. Segment adjusted operating
Slide 25: Non-GAAP Operating Segment Financial Results Reconciliation
NON-GAAP OPERATING SEGMENT FINANCIAL RESULTS RECONCILIATION a) Income tax expense at adjusted effective tax rate. b) Discretionary free cash flow for Global Products is defined as adjusted operating profit after-tax less maintenance capital expenditures. Maintenance capital expenditures are routine
Slide 26: Key Items Affecting Income
KEY ITEMS AFFECTING INCOME ($ in millions, except per-share data) Third-Quarter Impact Preliminary and unaudited Total Operating Earnings Fiscal 2021 Income Pre-tax After-tax per Share Pension & OPEB income $ - $ (14) $ (11) $ (0.05) Net legacy and separation-related expenses $ 1 $ 1 $ 1 $ - LIFO ch
Slide 27: Reconciliation of Non-GAAP Data – Gross Profit and Operating Income
RECONCILIATION OF NON-GAAP DATA – GROSS PROFIT AND OPERATING INCOME 27
Slide 28: Reconciliation of Non-GAAP Data – Adjusted EBITDA
RECONCILIATION OF NON-GAAP DATA – ADJUSTED EBITDA (a) EBITDA is defined as net income, plus income tax expense, net interest and other financing expenses, and depreciation and amortization. Adjusted EBITDA is EBITDA adjusted for key items, as described in "Use of Non-GAAP Measures" within this Appen
Slide 29: Reconciliation of Non-GAAP Data – Net Income and Diluted Earnings Per Share
RECONCILIATION OF NON-GAAP DATA – NET INCOME AND DILUTED EARNINGS PER SHARE (a) Adjusted net income is defined as net income adjusted for key items. Refer to "Use of Non-GAAP Measures" in this press release for management's definition of key items. (b) Adjusted diluted earnings per share is defined
Slide 30: Reconciliation of Non-GAAP Data – Free Cash Flow
RECONCILIATION OF NON-GAAP DATA – FREE CASH FLOW (a) Free cash flow is defined as cash flows from operating activities less capital expenditures and certain other adjustments as applicable. (b) Discretionary free cash flow is defined as cash flows from operating activities less maintenance capital e
Slide 31: Use of Non-GAAP Measures
USE OF NON-GAAP MEASURES To supplement the financial measures prepared in accordance with U.S. GAAP, certain items within this presentation are presented on an adjusted basis. These non-GAAP measures, presented on both a consolidated and operating segment basis, have limitations as analytical tools
Slide 32: Key Business Measures
KEY BUSINESS MEASURES Valvoline tracks its operating performance and manages its business using certain key measures, including system-wide, company-operated and franchised store counts and SSS; system-wide store sales; and lubricant volumes sold. Management believes these measures are useful to eva