MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the Annual Report on Form 10-K for the fiscal year ended September 30, 2025, as well as the condensed consolidated financial statements and the accompanying Notes to Condensed Consolidated Financial Statements included in Item 1 of Part I in this Quarterly Report on Form 10-Q. Unless otherwise noted, disclosures within Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations relate solely to the Company's continuing operations.
BUSINESS OVERVIEW AND PURPOSE
As the quick, easy, trusted leader in automotive preventive maintenance, Valvoline Inc. ("Valvoline" or the "Company") is creating shareholder value by driving the full potential of its core business, delivering sustainable network growth, and continuing to innovate to meet the evolving needs of customers and the car parc. With average customer ratings that indicate high levels of service satisfaction, Valvoline and the Company's franchise partners simplify vehicle care so customers can do what drives them. This includes approximately 15-minute stay-in-your-car oil changes; battery, bulb and wiper replacements; tire rotations; and other manufacturer recommended maintenance services. The Company operates and franchises more than 2,400 service center locations through its Valvoline Instant Oil ChangeSM ("VIOC"), Valvoline Great Canadian Oil Change, and Oil ChangersSM retail locations and supports over 240 locations through its Express CareTM platform.
BUSINESS STRATEGY
As a pure play automotive retail services provider and the trusted leader in preventive automotive maintenance, Valvoline is well positioned to create long-term shareholder value through executing the Company's strategic initiatives, which include:
•Driving the full potential of the core business through strategic reinvestment and improving operational efficiency in existing stores by building on Valvoline's strong foundation in marketing, technology, and data insights;
•Delivering sustainable network growth with company-operated store expansion and accelerating the momentum of franchisee store growth; and
•Innovating to meet the changing needs of customers and the car parc, targeting customer and service expansion with a focus on fleet business, and driving non-oil change service penetration.
RECENT DEVELOPMENTS
Breeze Autocare
On December 1, 2025, the Company acquired 100% of the equity interests in Breeze Autocare ("Breeze") for total cash consideration of $637.4 million, subject to certain customary post-closing adjustments. Breeze is a provider of automotive quick lube and other preventive maintenance services operating predominantly under the Oil ChangersSM brand with stores in California, Texas, and the Midwest. The acquisition initially included 204 service
center stores and aligns with the Company's strategy to expand the store network in key markets. The Company funded the Breeze acquisition with an amendment to its Senior Credit Agreement to add a seven-year $740.0 million term loan facility (the "Term Loan B") commensurate with the closing of the transaction with excess proceeds used to pay down outstanding debt.
Dispositions
Immediately following the acquisition, 45 of the acquired Breeze stores were sold in accordance with the Federal Trade Commission ("FTC") Decision and Order that required the disposal of certain acquired locations for the Company to receive regulatory clearance to close the Breeze acquisition. The fair value of the net assets divested was $90.0 million. As a result, the Company recognized a $57.9 million pre-tax loss on sale within Other loss (income), net in the Condensed Consolidated Statement of Comprehensive Income for the six months ended March 31, 2026.
Valvoline completed the sale of 10 company-operated service center stores to a franchisee during the first fiscal quarter of 2026 and completed the sale of 39 company-operated service center stores to a new franchisee during the first fiscal quarter of 2025. Valvoline recognized pre-tax gains on sale of $14.8 million and $74.2 million within Other loss (income), net in the Condensed Consolidated Statements of Comprehensive Income related to these transactions during the six months ended March 31, 2026 and 2025, respectively. These transactions, together with executed development agreements are expected to provide significant growth in the respective markets and deliver long-term value to shareholders. The impact of these dispositions on year-over-year comparability of financial results is discussed further herein.
SECOND FISCAL QUARTER 2026 OVERVIEW
The following were the significant events for the second fiscal quarter of 2026, each of which is discussed more fully in this Quarterly Report on Form 10-Q:
•Net revenues grew 25% compared to the prior year period, primarily driven by network expansion of 331 net store additions, including the impact of acquisitions and dispositions. The increase was further supported by system-wide same-store sales ("SSS") growth of 8.2%, as well as favorable service mix and pricing.
•Income from continuing operations grew 18% to $45.3 million and Diluted earnings per share increased 17% to $0.35 compared to the prior year period. The increase was primarily driven by profit expansion from operations, partially offset by investments in Selling, general, and administrative expenses and increased interest expense associated with the Term Loan B.
•Adjusted EBITDA increased 28% over the prior year period due to strong operational performance, including improvements in mix and pricing, along with contributions from network growth. This increase more than offset the impacts of dispositions and higher Selling, general, and administrative expenses to support growth.
Use of Non-GAAP Measures
To aid in the understanding of Valvoline's ongoing business performance, certain items within this document are presented on an adjusted, non-GAAP basis. These non-GAAP measures have limitations as analytical tools and should not be considered in isolation from, or as an alternative to, or more meaningful than, the financial statements presented in accordance with U.S. GAAP. The financial results presented in accordance with U.S. GAAP and reconciliations of non-GAAP measures included within this Quarterly Report on Form 10-Q should be carefully evaluated.
The following are the non-GAAP measures management has included and how management defines them:
•EBITDA - net income/loss, plus income tax expense/benefit, net interest and other financing expenses, and depreciation and amortization;
•Adjusted EBITDA - EBITDA adjusted for the impacts of certain unusual, infrequent or non-operational activity not directly attributable to the underlying business, which management believes impacts the comparability of operational results between periods ("key items," as further described below);
•Free cash flow - cash flows from operating activities less total capital expenditures, comprised of growth and maintenance, further described below;
•Free cash flow excluding growth capital expenditures - cash flows from operating activities less maintenance capital expenditures; and
•Net debt - total debt less cash and cash equivalents.
Non-GAAP measures include adjustments from results based on U.S. GAAP that management believes enables comparison of certain financial trends and results between periods and provides a useful supplemental presentation of Valvoline's operating performance that allows for transparency with respect to key metrics used by management in operating the business and measuring performance. The manner used to compute non-GAAP information used by management may differ from the methods used by other companies and may not be comparable. For a reconciliation of the most comparable U.S. GAAP measures to the non-GAAP measures, refer to the "Results of Operations" and "Financial Position, Liquidity and Capital Resources" sections below.
Management believes EBITDA measures provide a meaningful supplemental presentation of Valvoline's operating performance between periods on a comparable basis due to the depreciable assets associated with the nature of the Company's operations as well as income tax and interest costs related to Valvoline's tax and capital structures, respectively. Adjusted EBITDA measures enable comparison of financial trends and results between periods where certain items may not be reflective of the Company's underlying and ongoing operations performance or vary independent of business performance.
Management uses free cash flow and free cash flow excluding growth capital expenditures as additional non-GAAP metrics of cash flow generation. By including capital expenditures, management is able to provide an indication of the ongoing cash being generated that is ultimately available for both debt and equity holders as well as other investment opportunities. Free cash flow includes the impact of capital expenditures, providing a supplemental view of cash generation. Free cash flow excluding growth capital expenditures includes maintenance capital expenditures, which are uses of cash that are necessary to maintain the Company's existing business operations, including its retail service center store network, service portfolio, and support functions. Free cash flow excluding growth capital expenditures provides a supplemental view of cash flow generation before investments in growth capital, which expand future business operations, including the opening or expansion of retail service center stores and service capabilities. Free cash flow and free cash flow excluding growth capital expenditures have certain limitations, including that they do not reflect adjustments for certain non-discretionary cash expenditures, such as mandatory debt repayments.
The non-GAAP measures used by management exclude key items. Key items are often related to legacy matters or market-driven events considered by management to not be reflective of the ongoing operating performance. Key items may consist of adjustments related to: legacy businesses, including the separation from Valvoline's former parent company, the sale of the former Global Products reportable segment, and the associated impacts of related activity and indemnities; non-service pension and other postretirement plan activity; restructuring-related matters, including organizational restructuring plans, significant acquisitions or divestitures, debt extinguishment and modification, and tax reform legislation; in addition to other matters that management considers non-operational, infrequent or unusual in nature.
Details with respect to the description and composition of key items recognized during the respective periods presented herein are set forth below in the "EBITDA and Adjusted EBITDA" section of "Results of Operations" that follows.
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 system-wide SSS and store sales. Management believes these measures are useful to evaluating and understanding Valvoline's operating performance and should be
considered as supplements to, not substitutes for, Valvoline's net revenues and operating income, as determined in accordance with U.S. GAAP.
Net revenues are influenced by the number of service center stores and the business performance of those stores. Stores are considered open upon acquisition or opening for business. Temporary store closings remain in the respective store counts with only permanent store closures reflected in the activity and end of period store counts. SSS is defined as net revenues of U.S. VIOC system-wide stores that have been in operation for at least 12 full months within the system, and beginning in fiscal 2026, mobile service net revenues in markets that leverage store marketing channels.
Net revenues are limited to sales at company-operated stores, in addition to royalties and other fees from independent franchised and Express Care stores. Although Valvoline does not recognize store-level sales from franchised stores as net revenues in its Statements of Condensed Consolidated Income, management believes system-wide and franchised SSS comparisons, store counts, and total system-wide store sales are useful to assess market position relative to competitors and overall store and operating performance.
RESULTS OF OPERATIONS
The following summarizes the results of the Company's continuing operations for the periods ended March 31:
| Three months ended March 31 | Six months ended March 31 | |||||||||||||||||||||||||||||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||||||||||||||||||||||||||||||||||||
| (In millions) | Amount | % of Net revenues | Amount | % of Net revenues | Amount | % of Net revenues | Amount | % of Net revenues | ||||||||||||||||||||||||||||||||||||||||||
| Net revenues | $ | 503.8 | 100.0% | $ | 403.2 | 100.0% | $ | 965.6 | 100.0% | $ | 817.5 | 100.0% | ||||||||||||||||||||||||||||||||||||||
| Gross profit | $ | 187.0 | 37.1% | $ | 150.5 | 37.3% | $ | 359.5 | 37.2% | $ | 303.4 | 37.1% | ||||||||||||||||||||||||||||||||||||||
| Net operating expenses | $ | 101.0 | 20.0% | $ | 83.6 | 20.7% | $ | 255.2 | 26.4% | $ | 92.7 | 11.3% | ||||||||||||||||||||||||||||||||||||||
| Operating income | $ | 86.0 | 17.1% | $ | 66.9 | 16.6% | $ | 104.3 | 10.8% | $ | 210.7 | 25.8% | ||||||||||||||||||||||||||||||||||||||
| Income from continuing operations | $ | 45.3 | 9.0% | $ | 38.3 | 9.5% | $ | 13.1 | 1.4% | $ | 132.2 | 16.2% | ||||||||||||||||||||||||||||||||||||||
EBITDA (a) | $ | 124.8 | 24.8% | $ | 96.2 | 23.9% | $ | 177.8 | 18.4% | $ | 268.9 | 32.9% | ||||||||||||||||||||||||||||||||||||||
Adjusted EBITDA (a) | $ | 133.6 | 26.5% | $ | 104.4 | 25.9% | $ | 251.0 | 26.0% | $ | 207.2 | 25.3% | ||||||||||||||||||||||||||||||||||||||
(a)Refer to the "Use of Non-GAAP Measures" and "Continuing operations EBITDA and Adjusted EBITDA" for management's definitions of the metrics presented above and reconciliation to the corresponding GAAP measures, where applicable.
| Three months ended March 31 |
Six months ended March 31 | |||||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||||||||||||
| Sales information | ||||||||||||||||||||||||||
Store sales - in millions | ||||||||||||||||||||||||||
| Company-operated | $ | 450.7 | $ | 352.7 | $ | 859.0 | $ | 718.0 | ||||||||||||||||||
Franchised (a) | 535.9 | 472.8 | 1,051.2 | 927.8 | ||||||||||||||||||||||
System-wide store sales (a) | $ | 986.6 | $ | 825.5 | $ | 1,910.2 | $ | 1,645.8 | ||||||||||||||||||
Year-over-year growth (a) | 19.5 | % | 10.6 | % | 16.1 | % | 12.0 | % | ||||||||||||||||||
System-wide same-store sales growth (a)(b) | 8.2 | % | 5.8 | % | 7.0 | % | 6.9 | % | ||||||||||||||||||
| Number of stores at end of period | |||||||||||||||||||||||||||||||||||
|
Second Quarter 2026 |
First Quarter 2026 |
Fourth Quarter 2025 |
Third Quarter 2025 |
Second Quarter 2025 | |||||||||||||||||||||||||||||||
| Company-operated | 1,210 | 1,196 | 1,016 | 983 | 950 | ||||||||||||||||||||||||||||||
Franchised (a) | 1,199 | 1,184 | 1,164 | 1,141 | 1,128 | ||||||||||||||||||||||||||||||
Total system-wide stores (a) | 2,409 | 2,380 | 2,180 | 2,124 | 2,078 | ||||||||||||||||||||||||||||||
| (a) | Measures include Valvoline franchisees, which are independent legal entities. Valvoline does not consolidate the results of operations of its franchisees. | ||||||||||||||||||||||||||||||||||
| (b) | Valvoline determines SSS growth as the year-over-year change in net revenues of U.S. VIOC system-wide same stores with same stores defined as those that have been in operation within the system for at least 12 full months, and beginning in fiscal 2026, mobile service net revenues in markets that leverage store marketing channels. | ||||||||||||||||||||||||||||||||||
Net revenues
Net revenues increased $100.6 million, or 25.0% for the three months ended March 31, 2026 compared to the prior year period, primarily reflecting network growth of 331 net new system-wide stores, driven by the Breeze acquisition and other openings. System-wide SSS also increased 8.2%, supported by higher average ticket from net pricing benefits, ongoing premiumization, and non-oil change service penetration, along with favorable transaction trends. These increases were partially offset by lower net revenues due to disposition activity. The following reconciles the year-over-year change in net revenues:
For the six months ended March 31, 2026, Net revenues increased $148.1 million, or 18.1% compared to the prior year, driven primarily by network growth, including the Breeze acquisition, as well as improvements in service mix and pricing. System-wide SSS revenue grew 7.0%, reflecting higher average ticket from net pricing benefits, continued premiumization, and favorable transaction trends. These benefits were partially offset by the impact of disposition activity. The following reconciles the year-over-year change in year-to-date net revenues:
Gross profit
Gross profit increased $36.5 million, or 24.3%, for the three months ended March 31, 2026 compared to the prior year period driven by contributions from acquired stores and service mix. These increases were partially offset by higher expenses associated with network expansion, including depreciation, as well as higher labor and other service delivery costs. The following reconciles the year-over-year change in gross profit:
Gross profit margin declined slightly in the three months ended March 31, 2026 compared to the prior year period, primarily reflecting higher store operating expenses, including depreciation related to new store growth, the impact of recent dispositions, and higher labor and other service delivery costs. These impacts were partially offset by improved product cost leverage.
Gross profit improved $56.1 million, or 18.5%, for the six months ended March 31, 2026 compared to the prior year period, primarily driven by volume growth, including contributions from acquired stores, service mix, and pricing. These increases were partially offset by higher expenses associated with network expansion, including depreciation from new stores and other store growth investments. The following reconciles the year-over-year change in year-to-date gross profit:
Gross profit margin improved in the six months ended March 31, 2026 compared to the prior year period, primarily reflecting favorable product costs and labor efficiency, partially offset by higher store operating expenses related to new store growth and the impact of the recent dispositions.
Net operating expenses
Details of the components of net operating expenses are summarized below for the periods ended March 31:
| Three months ended March 31 | Six months ended March 31 | |||||||||||||||||||||||||||||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||||||||||||||||||||||||||||||||||||
| (In millions) | Amount | % of Net revenues | Amount | % of Net revenues | Amount | % of Net revenues | Amount | % of Net revenues | ||||||||||||||||||||||||||||||||||||||||||
| Selling, general and administrative expenses | $ | 98.7 | 19.5 | % | $ | 83.6 | 20.7 | % | $ | 205.5 | 21.3 | % | $ | 164.0 | 20.1 | % | ||||||||||||||||||||||||||||||||||
| Net legacy and separation-related expenses | 0.9 | 0.2 | % | 0.8 | 0.2 | % | 6.1 | 0.6 | % | 1.2 | 0.1 | % | ||||||||||||||||||||||||||||||||||||||
| Other loss (income), net | 1.4 | 0.3 | % | (0.8) | (0.2) | % | 43.6 | 4.5 | % | (72.5) | (8.9) | % | ||||||||||||||||||||||||||||||||||||||
| Net operating expenses | $ | 101.0 | 20.0 | % | $ | 83.6 | 20.7 | % | $ | 255.2 | 26.4 | % | $ | 92.7 | 11.3 | % | ||||||||||||||||||||||||||||||||||
Selling, general and administrative expenses increased by $15.1 million and $41.5 million for the three and six months ended March 31, 2026 compared to the prior year periods. The increases reflect continued investments to scale the business and support long-term growth. The primary contributors were outside services, talent, and advertising, which combined to increase expense by $8.3 million and $18.2 million in the three and six months ended March 31, 2026, respectively. Additionally, investment and divestiture activity increased selling, general and administrative expenses by $4.5 million and $18.9 million in the three and six months ended March 31, 2026, respectively primarily related to consulting fees and professional services to support legal, regulatory, diligence and integration efforts.
Net legacy and separation-related expenses increased $0.1 million and $4.9 million for the three and six months ended March 31, 2026, respectively, compared to the prior year primarily due to expenses associated with legacy businesses and an increase in estimated reserves related to certain obligations assumed from the Company's former parent company.
Other loss (income), net was unfavorable by $2.2 million and $116.1 million for the three and six months ended March 31, 2026, respectively, compared to the prior year periods, primarily due to the Company's disposition activity. For the six months ended March 31, 2026, the variance was due in large part to the $57.9 million pre-tax
loss on the FTC-required divestiture of 45 Breeze stores immediately following the Breeze acquisition. Further, in the current year-to-date period, the Company recorded a $14.8 million gain on the sale of 10 company-operated stores, compared to a $74.2 million gain on the sale of 39 stores in the prior year.
Net pension and other postretirement plan activity
Net pension and other postretirement plan activity was favorable compared to the prior year by $0.3 million and $0.6 million for the three and six months ended March 31, 2026, respectively, due to lower interest costs attributed to the decline in discount rates, partially offset by lower recurring expected returns on plan assets as a result of the most recent annual remeasurement of the plans.
Net interest and other financing expenses
Net interest and other financing expenses increased $10.8 million and $18.8 million for the three and six months ended March 31, 2026, respectively, compared to the prior year periods. The increases were primarily driven by higher interest expense of $10.2 million and $12.8 million, respectively, largely attributable to the addition of the Term Loan B.
Additionally, during the six months ended March 31, 2026, the Company incurred $4.7 million of fees to maintain access to the Term Loan B and related financing in advance of the Breeze acquisition closing, at which time the Term Loan B became effective.
Income tax provision
The following table summarizes the income tax provision and the effective tax rate for the current and prior year periods:
| Three months ended March 31 |
Six months ended March 31 | |||||||||||||||||||||||||
| (In millions) | 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||||
| Income tax expense | $ | 14.2 | $ | 12.6 | $ | 40.4 | $ | 45.9 | ||||||||||||||||||
| Effective tax rate percentage | 23.9 | % | 24.8 | % | 75.5 | % | 25.8 | % | ||||||||||||||||||
The year-over-year changes in the effective tax rate for the three and six months ended March 31, 2026 were primarily attributed to the Breeze acquisition and immediate divestiture required for 45 of the acquired stores. The pre-tax loss on divestiture did not generate a tax benefit; rather, nondeductible goodwill drove an unfavorable tax effect of $20.0 million and contributed to a taxable gain on the divestiture that resulted in $6.3 million of income tax expense in the six months ended March 31, 2026. Additionally, certain transaction costs became nondeductible in connection with the acquisition close and increased income tax expense by $4.8 million in the current year-to-date period.
Loss from discontinued operations, net of tax
The following summarizes Loss from discontinued operations, net of tax for the current and prior year periods:
| Three months ended March 31 |
Six months ended March 31 | |||||||||||||||||||||||||
| (In millions) | 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||||
| Loss from discontinued operations, net of tax | $ | (0.5) | $ | (0.7) | $ | (1.1) | $ | (3.0) | ||||||||||||||||||
Loss from discontinued operations, net of tax decreased $0.2 million and $1.9 million in the three and six months ended March 31, 2026, respectively, compared to the prior year periods, primarily due to the reduced level of post-sale activity following the divestiture of the former Global Products business. As time has passed since the sale, separation activities have concluded, and the remaining expenses are largely limited to post-closing tax matters and indemnities.
Continuing operations EBITDA and Adjusted EBITDA
The following table reconciles Income from continuing operations to EBITDA and Adjusted EBITDA for the current and prior year periods:
| Three months ended March 31 |
Six months ended March 31 | |||||||||||||||||||||||||
| (In millions) | 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||||
| Income from continuing operations | $ | 45.3 | $ | 38.3 | $ | 13.1 | $ | 132.2 | ||||||||||||||||||
| Income tax expense | 14.2 | 12.6 | 40.4 | 45.9 | ||||||||||||||||||||||
| Net interest and other financing expenses | 27.7 | 16.9 | 53.2 | 34.4 | ||||||||||||||||||||||
| Depreciation and amortization | 37.6 | 28.4 | 71.1 | 56.4 | ||||||||||||||||||||||
EBITDA from continuing operations (a) | 124.8 | 96.2 | 177.8 | 268.9 | ||||||||||||||||||||||
Net pension and other postretirement plan income (b) | (1.2) | (0.9) | (2.4) | (1.8) | ||||||||||||||||||||||
Net legacy and separation-related expenses (c) | 0.9 | 0.8 | 6.1 | 1.2 | ||||||||||||||||||||||
Information technology costs (d) | 2.7 | 4.9 | 5.8 | 6.4 | ||||||||||||||||||||||
Investment and divestiture-related costs (income) (e) | 6.4 | 3.4 | 63.7 | (67.5) | ||||||||||||||||||||||
Adjusted EBITDA from continuing operations (a) | $ | 133.6 | $ | 104.4 | $ | 251.0 | $ | 207.2 | ||||||||||||||||||
| (a) | EBITDA from continuing operations is defined as income from continuing operations, plus income tax expense, net interest and other financing expenses, and depreciation and amortization attributable to continuing operations. Adjusted EBITDA from continuing operations is EBITDA adjusted for key items attributable to continuing operations. | ||||
| (b) | Includes several elements impacted by changes in plan assets and obligations that are primarily driven by the debt and equity markets, including remeasurement gains and losses, when applicable; and recurring non-service pension and other postretirement net periodic activity, which consists of interest cost, expected return on plan assets and amortization of prior service credits. Management considers these elements are more reflective of changes in current conditions in global markets (in particular, interest rates), outside the operational performance of the business, and are also legacy amounts that are not directly related to the underlying business and do not have an impact on the compensation and benefits provided to eligible employees for current service. Refer to Note 7 in the Notes to Condensed Consolidated Financial Statements in Item 1 of Part I in this Quarterly Report on Form 10-Q for further details. | ||||
| (c) | Activity associated with legacy businesses, including the separation from Valvoline's former parent company and its former Global Products reportable segment. This activity includes the recognition of and adjustments to indemnity obligations to its former parent company; certain legal, financial, professional advisory and consulting fees; and other expenses incurred by the continuing operations in connection with and directly related to these separation transactions and legacy matters. This incremental activity directly attributable to legacy matters and separation transactions is not considered reflective of the underlying operating performance of the Company's continuing operations. | ||||
| (d) | Consists of expenses incurred directly related to the Company's information technology transitions, primarily efforts related to implementing stand-alone enterprise resource planning and human resource information systems that generally began in fiscal 2023 following the sale of the former Global Products reportable segment. These expenses include data conversion, training, redundant expenses incurred from duplicative technology platforms, and temporary support, which includes consulting fees and professional services to support certain enhanced manual procedures and material weakness remediation efforts. These incremental costs are directly associated with technology transitions and are not considered to be reflective of the ongoing expenses of operating the Company's technology platforms. | ||||
| (e) | Consists of activity directly associated with specific significant acquisitions, investments and divestitures, including professional and consulting fees for legal and advisory services, in addition to gains or losses recognized upon disposition, temporary financing costs directly associated with transactions, certain acquisition-related incentive compensation costs, amortization of Breeze acquired intangible assets, and expense recognized to reduce the carrying values of related assets determined to be impaired. This activity is not considered to be reflective of the underlying operating performance of the Company's ongoing continuing operations. | ||||
Adjusted EBITDA from continuing operations increased $29.2 million and $43.8 million in the three and six months ended March 31, 2026, respectively, compared to the prior year periods. The increase was primarily driven by gross profit expansion, including higher volumes, contributions from network growth, and improvements in pricing and cost efficiency. These benefits more than offset the impacts of dispositions and higher selling, general, and administrative expenses.
FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
Overview
The Company closely manages its liquidity and capital resources. Valvoline's liquidity requirements depend on key variables, including the level of investment needed to support business strategies, the performance of the business, capital expenditures, borrowing arrangements, and working capital management. Capital expenditures, acquisitions, and share repurchases are components of the Company's cash flow and capital management strategy, which to a large extent, can be adjusted in response to economic and other changes in the business environment. The Company has a disciplined approach to capital allocation, which focuses on investing in key priorities that support Valvoline's business and growth strategies and returning capital to shareholders, while funding ongoing operations.
Continuing operations cash flows
Valvoline's continuing operations cash flows as reflected in the Condensed Consolidated Statements of Cash Flows are summarized as follows for the six months ended March 31:
| (In millions) | 2026 | 2025 | ||||||||||||
| Cash provided by (used in): | ||||||||||||||
| Operating activities | $ | 160.2 | $ | 93.2 | ||||||||||
| Investing activities | $ | (699.4) | $ | 10.3 | ||||||||||
| Financing activities | $ | 572.3 | $ | (104.4) | ||||||||||
Operating activities
Cash flows provided by operating activities increased $67.0 million from the prior year period primarily driven by higher cash earnings and, to a lesser extent, lower spend on cloud computing implementation in the current year period.
Investing activities
The decrease in cash flows from investing activities of $709.7 million was primarily due to $634.5 million higher net cash consideration paid for acquisitions, mainly related to the Breeze acquisition. In addition, the Company received $57.4 million lower proceeds from sale of operations during the current year compared to proceeds received from disposition activity in the prior year. Finally, higher capital expenditures of $9.8 million from increased maintenance expenditures related to store technology upgrades.
Financing activities
Cash flows provided by financing activities increased $676.7 million from the prior year substantially driven by an increase in net borrowings, inclusive of payments for debt issuance costs, of $601.1 million. The current year activity is driven by the proceeds from the issuance of the Term Loan B offset by net repayments on the Revolver balance. In addition, the Company did not repurchase any shares of its common stock during the six months ended March 31, 2026 as the Company accelerates debt repayment following the Term Loan B issuance, which resulted in less cash used in financing activities of $76.8 million compared to the prior year.
Continuing operations free cash flow
The following table sets forth free cash flow and free cash flow excluding growth capital expenditures reconciled to cash flows from operating activities. As previously noted, these free cash flow measures have certain limitations, including that they do not reflect adjustments for certain non-discretionary cash expenditures, such as mandatory debt repayments. Refer to the "Use of Non-GAAP Measures" section included above in this Item 2 for additional information regarding these non-GAAP measures.
| Six months ended March 31 | ||||||||||||||
| (In millions) | 2026 | 2025 | ||||||||||||
| Cash flows provided by operating activities | $ | 160.2 | $ | 93.2 | ||||||||||
| Less: Maintenance capital expenditures | (27.4) | (15.6) | ||||||||||||
| Free cash flow excluding growth capital expenditures | 132.8 | 77.6 | ||||||||||||
| Less: Growth capital expenditures | (87.8) | (89.8) | ||||||||||||
| Free cash flow | $ | 45.0 | $ | (12.2) | ||||||||||
The increase in free cash flow from continuing operations over the prior year was due to higher cash flows provided by operating activities as described above, partially offset by increased capital expenditures in the current period. The increase in capital expenditures compared to the prior year was primarily driven by higher maintenance expenditures related to store technology upgrades. The Company continues to focus the majority of its capital spend toward growth, which is expected to drive a high return on invested capital.
Debt
Approximately 32% of Valvoline's outstanding borrowings at March 31, 2026 had fixed interest rates, with the remainder bearing variable rates. As of March 31, 2026, Valvoline was in compliance with all covenants of its debt obligations and had borrowing capacity of $470.1 million remaining under its Revolver.
In December 2025, Valvoline amended its Senior Credit Agreement to add a seven-year $740.0 million Term Loan B. The proceeds of the Term Loan B were used to fund the Breeze acquisition with the remaining proceeds used to pay down the outstanding balance on the Revolver.
Refer to Note 5 of the Notes to Condensed Consolidated Financial Statements for additional details regarding the Company's debt instruments.
Share repurchases
In July 2024, the Board approved a share repurchase authorization of $400.0 million (the "2024 Share Repurchase Authorization), which has no expiration date. During the six months ended March 31, 2026, the Company did not repurchase any shares of its common stock. As of March 31, 2026, $325.0 million remained available for share repurchases under the 2024 Share Repurchase Authorization.
The timing and amount of any repurchases of common stock will be solely at the discretion of the Company and is subject to general business and market conditions, as well as other factors. The share repurchase authorization is part of a broader capital allocation framework to deliver value to shareholders by first, driving profitable growth in the business, organically and through acquisitions and franchise development; second, to remain within a net debt to adjusted EBITDA leverage ratio of 1.5 to 2.5 times; and third, to continue returning excess capital to shareholders.
Valvoline announced in the second quarter of fiscal 2025 that it was pausing share repurchase activity to accelerate debt repayment in connection with a Term Loan B that was issued and effective commensurate with closing the Breeze acquisition.
Summary
Valvoline had cash and cash equivalents of $84.7 million, total debt of $1,657.7 million, and total remaining borrowing capacity of $470.1 million under its Revolver as of March 31, 2026. Valvoline's ability to continue to generate positive cash flows from operations is dependent on general economic conditions, the competitive environment in the industry, and is subject to the business and other risk factors described in Item 1A of Part I of the Annual Report on Form 10-K for the fiscal year ended September 30, 2025.
Management believes that the Company has sufficient liquidity based on its current cash, cash equivalents, cash generated from business operations and existing financing to meet its pension and other postretirement plan, debt servicing, tax-related and other material cash and operating requirements for the next twelve months.
NEW ACCOUNTING PRONOUNCEMENTS
For a discussion and analysis of recently issued accounting pronouncements and the impacts on Valvoline, refer to Note 1 in the Notes to Condensed Consolidated Financial Statements in Item 1 of Part I of this Quarterly Report on Form 10-Q.
CRITICAL ACCOUNTING ESTIMATES
The Company's critical accounting estimates are described in Item 7 of Part II in Valvoline's Annual Report on Form 10-K for the fiscal year ended September 30, 2025. Management reassessed the critical accounting estimates as disclosed in the Annual Report on Form 10-K, and determined there were no changes in the six months ended March 31, 2026.