Ladies and gentlemen, thank you for standing by, and welcome to Valvoline's First Quarter 2020 Earnings Conference Call. [Operator Instructions]. I would now like to turn the call over to Sean Cornett, Head of Investor Relations. Mr. Cornett, please go ahead.

Thanks, Carol. Good morning, and welcome to Valvoline's First Quarter Fiscal 2020 Conference Call and Webcast. Valvoline released results for the quarter ended December 31, 2019, at approximately 5:00 p.m. Eastern Time yesterday, February 3. And this presentation and remarks should be viewed in conjunction with that earnings release, a copy of which is available on our Investor Relations website at investors.valvoline.com. These results are preliminary until we file our Form 10-Q with the Securities and Exchange Commission. A copy of the news release has been furnished to the SEC on a Form 8-K. With me on the call today are Valvoline's Chief Executive Officer, Sam Mitchell; and Mary Meixelsperger, Chief Financial Officer. As shown on Slide 2, any of our remarks today that are not statements of historical fact 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. Valvoline assumes no obligation to update any forward-looking statements unless required by law. In this presentation and in our remarks, we will be discussing our results on an adjusted basis, unless otherwise noted. Adjusted results exclude key items which are unusual, nonoperational or restructuring in nature. We believe this approach enhances the understanding of our ongoing business. A reconciliation of our adjusted results to amounts reported under GAAP and a discussion of management's use of non-GAAP measures was included in our earnings release. The non-GAAP information provided is used by our management and may not be comparable to similar measures used by other companies. As we turn to Slide 3, let's review our reported financial results for the quarter. For the fiscal first quarter, Valvoline delivered reported operating income of $104 million, net income of $73 million and EPS of $0.39. Cash flow from operating activities was $59 million. Beginning this fiscal year, Valvoline adopted the new lease accounting standard. The impact of the standard resulted in roughly $220 million of incremental lease-related assets and liabilities on the balance sheet and had a negative $1 million impact to EBITDA and cash flow from operations in the quarter. Non-service pension and OPEB income of $7 million after-tax was the primary key item in the current quarter, with legacy and separation impacts offsetting restructuring. In Q1 of fiscal 2019, non-service pension and OPEB income of $2 million after-tax was the one key item. Now as we move to Slide 4, we can review our adjusted results. Our adjusted EBITDA in Q1 was $120 million, growing 19%. Adjusted EPS for the quarter grew 30% to $0.35. The strong start to the year was driven by a robust contribution from Core North America, ongoing strength in same-store sales and top line growth in Quick Lubes and profitable volume growth in International. Now let me turn it over to Sam to discuss our segment results.

Thanks, Sean. Quick Lubes had a good start to 2020 with strong system-wide same-store sales growth of 8.3% and solid unit additions in the quarter. The 106 net new stores added since last year helped drive overall sales growth of 15%. EBITDA growth was limited due to the impact of these ramping new stores, short-term labor cost increases and higher SG&A. Core North America had a very strong quarter, building off a weak Q1 last year. Branded retail volume grew year-over-year, but was offset by weaker volume in the installer channel. This favorable channel mix and increased sales of premium products, along with the benefits of our operating expense reduction program contributed to the significant growth in EBITDA. We saw a return to volume growth in International, primarily from our Eastern European acquisition completed last year. The 7% growth in volume, improved margins and solid contributions from our JVs drove 10% growth in EBITDA. Let's take a closer look at performance in Quick Lubes on the next slide. System-wide same-store sales grew 8.3% in Q1, company stores grew 6.2% in the quarter and franchise growth was 9.8%. Our superior in-store experience continues to resonate with customers and drive growth in transactions. Increases in premium oil changes and penetration of non-oil-change services are contributing to growth in average ticket. EBITDA growth of 4% in Q1 lagged year-over-year top line increases of 15%. We saw some temporary labor deleveraging in the quarter with an increase in labor hours versus traffic. We have taken actions to address these temporary labor impacts and expect they will subside in Q2. Continuing to grow our retail service -- services business is a key focus of the company and so more of our corporate resources are allocated to the segment, increasing its share of indirect SG&A versus…

Thanks, Sam. Our adjusted results for Q1 are summarized on Slide 11. Sales grew 9% on volume growth of 3%. Overall favorable volume and mix were the primary drivers of the sales increases. Mix and benefits from our operating expense reduction program helped to drive growth in our gross margin rate. We also had favorable true-ups to our promotion-related cost estimates, totaling roughly $4 million in the quarter, primarily in the Core North America segment. Roughly half of the increase in SG&A was due to higher incentive and deferred comp expense. The transition to the new lease accounting standard increased rent expense in SG&A by approximately $1 million. Investments in the Quick Lubes and International businesses made up of the remainder of the increase. Our shared corporate expenses are fully allocated to the operating segments. As Sam mentioned earlier, Quick Lubes is growing significantly as a percentage of our business, which is driving a higher expense allocation to the segment. In Q1, this was a $5 million year-over-year increase to Quick Lubes SG&A, which was partially offset by a lower allocation of roughly $1 million to Core North America. Let's move to Slide 12 to discuss corporate items. Our reported effective tax rate for the quarter was 24.7%. Adjusted for key items, our effective tax rate was 25%. Cash flow from operating activities was $59 million, down $26 million versus last year, primarily due to an increase in working capital. Capital expenditures were $28 million, leading to free cash flow of $31 million for the quarter. Net debt was flat to last quarter at $1.2 billion. We increased our cash dividend per share by roughly 7%, consistent with our approach to grow the dividend in line with earnings as we discussed at our Investor Day last year. Now let's turn to the next slide and take a closer look at guidance. We are raising our full year guidance for adjusted EBITDA and EPS based on better-than-anticipated results in Q1. We now expect EBITDA in the range of $495 million to $515 million and EPS of $1.40 to $1.51. Our expectations for Core North America have improved based on performance this quarter, and we now expect full year EBITDA to be in the low- to mid-single-digit range. We are working to mitigate the impact of rising raw material costs through pricing actions and negotiations with our suppliers. We expect Quick Lubes to continue its strong pace of same-store sales growth within our guidance of 6% to 8% for the year, and that EBITDA growth will improve more in line with top line growth beginning in Q2. Excluding the evolving macro risks in China, we anticipate volume growth in International to continue. We are maintaining our guidance for our overall volume and revenue growth as well as Capex. We are raising our free cash flow outlook to $160 million to $180 million. Now let me turn it back over to Sam to wrap up.

Thanks, Mary. We're pleased with our start to the year. The Quick Lubes team is still driving same-store sales growth at a high rate, while also focusing on delivering new stores. Our operating expense reduction program is taking hold, strengthening our margins and helping to drive stability in Core North America. International returned to profitable growth this quarter. We're executing on our strategic initiatives, aggressively growing our retail services business, maintaining healthy cash generation in Core North America and developing our opportunities in International. This keeps us on track to become a more service-driven business, fueled by products and enabled by technology. And with that, I'll hand it over to Sean for Q&A.

Thanks, Sam. Before we open the line for Q&A, I'd like to remind everyone to limit your questions to 1 and a follow-up so that we can get to every. Carol, please open the line.

[Operator Instructions]. Our first question today comes from Simeon Gutman from Morgan Stanley.

This is Joshua Kamboj for Simeon. Can you talk about the wider gap between the owned and the franchise comps and Quick Lubes in the quarter? Should we expect that to persist just throughout the year as your stores lap your price increases or do you maybe have some other pricing actions that you might have in the pipeline that could narrow the gap sooner?

Yes, good question. And that we had talked about this at our last call, too, that early in the fiscal year, we expect to see a little bit of a separation here because of pricing actions that we took a year ago in our first quarter of fiscal '19. And so not having those same increases in our first quarter resulted in the company stores being less than what we delivered last year and that also is the difference between the GAAP and franchise stores because they were taking pricing actions in Q1. To the second part of your question, there are a number of services that we're adjusting prices on during Q2, and that will help in terms of narrowing the gap, but as we look throughout the balance of the year, we do expect company stores, franchise stores to be performing more closely to each other.

All right. And then just as a quick follow-up, Mary, could you maybe quantify the benefit of the cost reduction program between gross margin and SG&A in Core North America for the quarter? You might have said it, I might have missed it, I apologize.

Yes, we have talked about the overall benefits of the program on an annualized basis to be in the $40 million to $50 million range. And we still believe that we're tracking well in terms of that target. We haven't disclosed specifically how those benefits break out by segment, but they are primarily benefiting the Core North America and Quick Lubes business, and it's -- the majority of the benefit is certainly within the Core North America business.

Our next question comes from Olivia Tong from Bank of America Merrill Lynch.

Can you talk a little bit about the -- how long you expect the cost pressures to last in Quick Lubes, putting aside the change to the allocation of corporate expense, I get that. If your store base is increasing, is it fair to assume that there will be continued pressure on margins as those businesses get -- sort of get to a steady state? And then on the labor issues, what exactly happened there? Did you just have higher expectations and staffed accordingly? Or was there a disruption of some sort?

Yes. So breaking down the increase in our cost in the Quick Lubes business. First was the increase in indirect allocation of some of the corporate expenses. So that's a significant factor, but importantly, in those costs that we're managing within the Quick Lubes business, we called out some labor deleveraging in our stores and what that was, was a change in -- that we had made in our labor model, which helps our stores plan their labor, and this was a change that we had made late in Q4. And it turned out that, as we dug into it -- as we're looking at our trends that our model was overestimating labor needs in our stores and so on a per-store basis, it resulted in over-scheduling, costing us about $1,600 per store. So even a small adjustment across the company store system had a fairly significant impact. As we discovered this, we were able to make the adjustment by the December month. And so we feel like we've addressed the issue with regard to making sure our labor model is working as accurately as possible as we enter Q2 here. So we feel good about that aspect. We do have some increases in our advertising expense as the store base continues to grow. So ultimately, we still continue to feel very good about the leverage that exists in our company stores and same-store sales performance as we continue to grow that. That does create excellent leverage in our profitability. That said, the new stores that we're adding, does create a drag on overall segment performance. And so we're calling that out to make sure investors and analysts understand that there is some deleveraging with the store growth. And we just -- we're trying to become just more transparent in sharing both the difference in the company stores and then the impact of -- that the new stores will have on overall margin performance. Do you have anything to add to that, Mary?

No. The only other -- well, actually, there is one other thing I'd like to add, which is we expect, with that new store deleveraging from the newly constructed stores. They have about a 3-year ramp, Olivia. So once we are building 50-plus new stores a year, and we are doing that consistently, we should see that fully baked into our operating margins and have that deleverage kind of level out, but it'll be a couple more years before we get to that consistent run rate of new stores. So I expect that we'll continue to see some new leverage -- some deleverage from those newly built stores over the next couple of years.

Got it. If I could ask one on Core North America. Can you talk a little bit about the sustainability of that improvement? Comps were fairly favorable in Q1, so as we look to Q2 to Q4, I think you talked about volume potentially being a little bit lighter relative to Q1. Also, just wondering if the milder winter so far has helped you in any way.

First, with regard to the volume trends, the DIY retail volume was up significantly versus last year, where we had a very weak quarter due to some both promotional issues and inventory issues that we had at certain large retail accounts. So we're certainly comparing versus a weak Q1 last year, but nonetheless, we did see better promotion scheduling that helped drive the performance improvement in Q1 in retail for us, but not to the levels of previous trends, if you look back to prior fiscal years, and this has to do with the growing price gap that we've seen in private label. And so what we're sharing today is that the -- this -- the expanded price gap versus private label for the premium brands versus private label is having a negative impact on our business, and that's built into our forecast as we look out for Q2 through Q4. It's really going to take us this fiscal year before we kind of lap these changes in the pricing strategy at the major retail accounts.

And as it relates to cost, Olivia, those cost benefits in terms of the operating expense reduction program are solid, and we expect to see those continue through the balance of the year. We mentioned some true-up of promotional costs that incurred -- that happened in Q1 that will not repeat itself. And then in the balance of the year, we've got some negative impact of mix -- of a more normalized mix between installer channels and our DIY retail channel as well as some pressure from the recently announced base oil cost increases that we factored into the balance of the year. So looking for the full year in Core North America, as Sam mentioned in his remarks, we're expecting to see a full year unit margin in the $3.75 to $3.85 a gallon range within the core North America business.

Got it. That's helpful. If I could just add one last one on International. Just if you could give us a little bit more color on China. How big is it? Whether you have manufacturing in affected areas and sort of what the game plan is there. And I know, obviously, still very, very fluid.

Yes. First, with regard to potential impact on our business. And how when you look at total Valvoline while China is a very profitable region for us in terms of its contribution to overall Valvoline profitability, it's still in the low-single-digit range. So it shouldn't have a measurable impact on overall Valvoline results. That said, we're concerned about the slowdown, the potential slowdown in the economy, and how long it will take to return to normal business. So we're going to be keeping a close eye on it. Of course, we're in the process of constructing our blending and packaging facility, which originally has been scheduled to open up this fall. So there's a chance that we'll see a little bit of delay in the construction there. So we'll keep everyone up-to-date as the situation develops.

Our next question comes from Jason English from Goldman Sachs.

This is actually Cody on for Jason. I appreciate the detail that you guys gave on the Core North America gross profit per gallon. That was very helpful. One thing that did surprise us was the premium sales in Core North America. You had a significant jump. What drove that? And how sustainable do you think that is? And I have one follow-up after that.

Yes, the premium sales have been a source of strength in Core North America, as they continue to grow both on the DIY side and on the installer side, too. And so the continued penetration of new vehicles, which are requiring synthetics is the big driver behind that. And so I think we're -- this year, in 2020, we expect the new cars to -- roughly 75% of new car production to require full synthetic. So that's why this trend is sustainable. We'll continue to see growth in synthetics, particularly on the installer side. The DIY side is actually a bit ahead of where we might expect it to be, but that's because the retailers do see the profit benefit of selling more synthetic too. So for our strategies, definitely, when it comes to innovation and thinking about how we defend our share, we're very much focused on how to do that in the synthetic category. And when we look at our share losses that we've had in DIY to private label, it's really been more at the conventional high mileage segment. So while that's -- it's still painful to have any share loss, we're more pleased with some of the progress that we've made on the synthetic side. And that, again, will continue to be our focus.

Great. That's helpful. So it sounds like you guys expect to be in the mid-50s to high 50s for the rest of the year in that segment, if I'm not understanding that correct?

That's right.

Okay, great. And then last follow-up question. Just drilling into the International segment. You said that the Eastern acquisition drove a lot of the volume gains there. Can you quantify that for us? How much gallons the Serbia acquisition does on a quarterly or annual basis? Or how much of the 6.5% lubricant volume growth it actually added this quarter?

Yes, the business we acquired is in just over 0.5 million gallons a quarter, so it was probably 70% of the growth overall. We did see really nice growth in Asia and China and a few other regions, but it was offset somewhat by some of the weakness we saw in Latin America, but over 50% of the volume growth did come from the Eastern European business we acquired last year.

Just to add to Mary's comments there. We do feel good about the acquisition of this business. It's going to help us in Eastern Europe. But overall, for the international business, we feel good about trends in the majority of our regions, maybe with the one exception of Australia, which is being impacted by the fires, and that's slowed down business in Australia, but the other regions, we're feeling good about Latin America really picking up and being a significant contributor to the balance of the year in our growth, and good progress in Asia, as we noted earlier in our comments, and again, overall in Europe and parts of Middle East, Africa, too, are all sources of growth for us. So good progress in terms of developing our channels to market, working with distributors, but also, we've got an increased emphasis on our marketing plans in our international business. So we've increased our spend plan and support for the brand. And we're pleased with some of the early progress there and also the opportunities that we have with the higher level specifications that become required on the heavy-duty side of the business across regions, and we think that's going to really help our heavy-duty business, our co-branded product line with Cummins, all should be performing well throughout 2020 and especially as we enter 2021.

Our next question comes from Laurence Alexander from Jefferies.

This is Kevin Estok on for Laurence. My first question has to do with the timing issues that you guys mentioned in the installer channel in North America. I guess, I was just wondering if you could talk a little bit more about that. And I guess, also how, I guess, how much of the shift in orders may benefit the balance of the year?

Sure. So within the installer channel, about half of the -- a little over half of the volume decline related to the timing of when we recognize orders within our distributor business, or what we call our channel partners business. That impact was largely just related to having higher deliveries in last year versus this year related primarily -- they -- the channel partners deliver that business on to our Quick Lubes stores in our national accounts. And so we think there was some inventory rebalancing going on there, along with some -- just the broader growth that we're seeing in both the Quick Lubes and national account business that drove higher volumes resulting in essentially a higher deferral of those under revenue recognition we -- for the recognition of those shipments month-to-month. And so that was the primary driver of the timing differences. Sam, do you want to talk about the underlying business in?

On the installer side, there's both some challenges that we're dealing with on the lower-priced product lines and lower-priced accounts and then also opportunities. And what I mean by that is we have seen some volume softness and lost a couple of accounts, mainly due to pricing, and yet those are -- tend to be our lower-margin accounts that we've lost. And so the thing to take away from that is that we're not going to pursue volume at all cost, we're going to focus on that business, which is profitable for us, where we can bring real value to that installer in the fleet account. And in those cases, that's where we're seeing some positive trends too where our platform continues to strengthen, the ability of our operations team working with our customers in the field, the online training programs that are improving their store level performance of those installer accounts. And even some of the marketing that's helping to drive traffic. We're seeing good progress there. So I like the work that we're doing there, but the point is, we're still seeing some challenges when it comes to the consistent price pressure, particularly for the lower end of the business. So all-in-all, when you think about Core North America, it's still a challenging environment, but this focus that we have on earnings stabilization and strengthening this foundation, running this business very efficiently. I feel like we're making solid progress there. And you see that in our forecast.

Okay, great. That's really helpful. And then my follow-up question has to do the International segment. I guess, specifically about Asia, what drove that volume growth?

So volume growth in Asia was a combination of improved results in China. And we -- we've made some solid progress there, too, working with our distributors, primarily on the passenger car side of the business. So that -- I was really pleased with that. And then beyond China, we also saw good solid results across a number of the countries where we're kind of in the channel building phase. In other words, developing our distributors to have a broader distribution of Valvoline -- Valvoline's product portfolio. I also mentioned marketing is being more and more important than with some of the leadership changes that we've made. We've got a stronger focus on marketing and some of the plans that we've put in place, we're seeing good progress. And one that I noted with mechanics week is just a strategy to really get at grassroots marketing, where we're talking to the installers directly through training programs and focused on, not just the lubricant education, but automotive maintenance, some of the changing technology trends. These are programs that we're expanding and I think improving our effectiveness and growing our brand, growing our brand awareness in developing markets like Asia.

Our next question comes from Jeffrey Zekauskas from JP Morgan.

Recently, base oil prices have gone up, but oil, whether it's brands or it's WTI, has done nothing but go down. What do you make of the recent base oil lift? What do you think the sources of that were? And how do you see it going forward in such a weak oil price environment?

Yes, that's a great question. And certainly, there's been plenty of discussion with the base oil producers as they've announced this increase because it has been pretty broad in terms of the market moving and implementing the increase despite the fact, to your point, that crude prices have come down. So they're really focused on what they see is a tightening base oil market due to some of the turnarounds that will take place this spring, -- early spring and that having a tightening effect on the base oil market. So that certainly is a factor, but how it plays out over the balance of the year, I think it will be more determined by how base oil is trading later in the year. So as far as the impact on the Valvoline business, we think there's some modest headwinds there that we have to manage through. But based on the good work that our team is doing and negotiating with suppliers and also, even on the finished Lube market, with most of our competitors announcing price increases, we feel like this issue is something that's manageable for us, and that's built into the forecast and the confidence that we have in raising guidance.

So as my follow-up, can you compare the performance of the branded business in North America sequentially? That is, if you take out the true-ups and you take out the cost reduction, was there an incremental positive change? Or did it stay the same? In other words, I'm trying to figure out what's the difference in the performance of the business year-over-year versus a depressed result and versus the fourth quarter, which was maybe a more normal result.

Particularly on the margins, Jeff?

Yes, exactly right. The difference in the branded percentage, for example, or you know that sort of the quality of the branded business.

Yes, I believe it's more stable is the way to look at it. And so when you factor out some of those onetime benefits that were in Q1 that had to do with the channel mix and the promotion true-ups on a unit basis so unit margins are relatively stable across the different channels. And yet the cost reduction program that we put in place is helping us at the unit margin level, too. And so we're seeing that in the guidance that we're giving. But when you look at the full year guidance of $3.75 million to $3.85 million and you factor out that bump that we had in Q1, it's really saying that we expect our Q2 through Q4 unit margins to be in that $3.60 million to $3.70 million range. And so that is reflecting an improvement versus where we were at the beginning of the year as we gave guidance in the $3.50 million to $3.60 million range and that's largely due to the operating expense reduction program that we put in place.

Okay. And then lastly, in 2019, how much of your cost reduction program did you accomplish? And how much do you expect to accomplish incrementally in 2020?

Yes. So in the fourth quarter, we outperformed on the cost reduction program relative to what our expectations were. So if you think about what we saw in the fourth quarter, my estimate is that we saw $5 million to $10 million of cost reduction benefits in the quarter relative to the full year run rate of the $40 million to $50 million that I mentioned. So I think initially, we thought that it would be more modest than that, probably less than $5 million, but we were able to accelerate the implementation of several of those efforts that resulted in better results. So we'll start lapping some of those benefits in the fourth quarter.

[Operator Instructions]. Our next question comes from Stephanie Benjamin from SunTrust.

I wanted to follow-up on the prior question, just the base oil environment. Maybe if you could dig a little deeper in terms of just how much flex there is in the guidance? If it does get a little bit more volatile or kind of if you can bracket the range you expected for the year that's incorporated in the earnings outlook? That would be really helpful.

Well, again, given where crude is trading, it's -- I don't see the base oil environment necessarily getting more volatile, if anything. I think it's going to be relatively stable. That said, we do have this increase that we need to manage through. But our guidance reflects our confidence in our ability to do that. So we think it's going to have -- it's a modest headwinds of probably a few million dollars, but that's built into the back half of the year and how we expect to manage through that, both with our cost savings, negotiating efforts, but also with pricing actions that we'll take to move with the rest of the market. So I don't know if I can provide any more than that, but I just -- we don't see it as a major issue based on current market dynamics. And yes, we do have to see how this short-term plays out with the turnarounds.

Got it. No, that's helpful. I appreciate it. And then just -- my real question here is, just to kind of go back to the DIY channel. I think it would be great to get an update. I know when we spoke for the fiscal 4 quarter results, I think you talked about how you felt pretty comfortable with shelf placements, and we're continuing to work on the merchandising strategy. Maybe if you could kind of update us on both of those initiatives for that channel. You still remain comfortable with shelf placements? And then if you could just walk through any tough or variability in promotional schedules overlapping from last year that could cause outperformance or underperformance in a given quarter, just so we have some idea on quarterly fluctuations. That would be helpful.

Yes, it's true. In the DIY channel, you can see because of promotional timing issues, you can see shifts from one quarter, the next, but we do have a really solid understanding of our promotional schedule at the major retailers between now and the end of the fiscal year, and so our -- we feel our ability to forecast that is one reflected in the guidance that we've given. And so as we think about DIY performance, we know our shelf placement, we know our promotional schedule, and we also know that we're dealing with an expanded price gap versus what we were facing in 2019. So that's our challenge, and that's why we're expecting our promotional lifts to be less than what they were in 2019 with the expanded gap. And so we do expect DIY volume to be down on a year-over-year basis through the balance of the year. So that's the headwind we're managing through. And again, that's built into our guidance. And again, with some of the improvements that we've made in our overall cost structure for Core North America, that's helping us maintain the earnings stability for the operating segment. And then as we prepare for 2021, I think there's opportunities for continued improvements in some of our programs with our digital marketing. We have a new agency that's helping us with our targeted media spend. We've got some good work taking place around our overall messaging, around our product performance in those claims around our products will be broadly major part of our message in 2020. And for 2021, we're also working on our product portfolio, and how we can optimize that for the benefit of both Valvoline and our retailers. So that work is taking place. And I'm again, pleased with the progress, and I think what it what it means is that, for us, we're going to continue to defend and strengthen the core of our business, which includes having a strong DIY brand, and then continuing to strengthen those platforms with installers in the heavy-duty business, so that can ultimately be a source of strength for Core North America, too.

Our next question comes from Christopher Bottiglieri from Wolfe Research.

This is Sid Dandekar on for Chris. So just to go back to the guidance again, given the core North America gross profit per gallon this quarter and other segments on track to at least meet the profitability targets despite the raw material increase, it seems like raising your full year EBITDA guidance by just $5 million at the midpoint is a bit conservative. Can you help us understand what the puts and takes are for this updated guidance?

Yes. Yes, certainly, it was a conservative adjustment to guidance given the strong quarter, and the point there is it's certainly into the fiscal year. And as we execute against our Q2 plan, we'll certainly take a look at guidance for the balance of the year, but right now, we feel like the -- what we're seeing in the business is Core North America, some positive news with Q1 and the outperformance there. As I've shared earlier in our comments and Q&A, we're able to model what we think the back half of the year looks like for Core North America, leading to EBITDA growth for the full fiscal year. So that certainly is a positive development for us. And then with regard to the other businesses, quickly, the profit growth was slower in the first quarter for the reasons that we've called out, but we're very bullish on the back half of the year in the next three quarters for the Quick Lubes business, both in terms of driving same-store sales performance, but also getting our expenses right with regard to our labor modeling. And some of the other actions that we're taking with regard to pricing on additional services. We've got an initiative targeting diesel trucks with both new services and stronger [indiscernible] battery program that's rolling out. So there's a lot of good developments behind our confidence in the Quick Lubes business that are both operational and with the continued commitment that we have to both building stores and making acquisitions. So Quick Lubes story continues to be exceptionally strong for us. And so that is a big part of that confidence that we have in our guidance.

That's very helpful. And then just related to that, for the impact to the second half from raw material cost increases. Is that sort of across all the segments? And what does that imply for pricing for the back half of the year?

Yes. So the base oil increase is a North American increase that we'll see having a modest impact on Core North America and the Quick Lubes business. But with regards to overall impact on our profitability, again, it's mitigated by the price adjustments that we make. Our pricing, both for Quick Lubes and also for a good portion of our installer channels business adjust off of index. So it adjusts on a quarterly basis. So that -- the cost impacts are also consistent then with pricing impacts that offset that. So when you add it up, it's -- we just don't see this being a major factor for our performance during the balance of the year.

We would like to thank everyone for attending today. This concludes today's event, and you may now disconnect.

All right. Thank you.