Ladies and gentlemen, thank you for standing by, and welcome to the Valvoline, Inc. 2Q 2021 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions]. I would now like to hand the conference over to your speaker today, Sean Cornett. Thank you. Please go ahead, sir.

Thanks, Christy. Good morning, and welcome to Valvoline's second quarter fiscal 2021 conference call and webcast. Valvoline released results for the quarter ended March 31, 2021, at approximately 5:00 p.m. Eastern Time yesterday, April 28. 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 press 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 assumption 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 is included in the presentation Appendix. The non-GAAP information provided is used by our management and may not be comparable to similar measures used by other companies. If you turn to Slide 3, let's review our financial results for the quarter. For the fiscal second quarter, Valvoline delivered reported operating income of $131 million, net income of $68 million and EPS of $0.37. Year-to-date cash flow from operating activities was $190 million. The key items in the quarter were $27 million of after-tax expenses related to a new debt issuance and retiring our 2025 senior notes, Nonservice pension and OPEB income of $10 million after-tax and business interruption insurance recovery of $2 million. Excluding key items, results for the quarter included adjusted EBITDA of $152 million and adjusted EPS of $0.46. Year-to-date free cash flow was $116 million. Now as we turn to Slide 4, let me turn the call over to Sam to discuss our results and operations in more detail.

Thanks, Sean. Our results in Q2 were outstanding, exceeding our expectations and part of an exceptional performance in the first half of the fiscal year. Sales grew 21% in the quarter, and adjusted EBITDA increased by 38%, excluding large unfavorable changes and variable compensation and LIFO inventory accounting. We continue to benefit from decisions that we've made to drive growth. Q2 was the first quarter, where Quick Lubes contributed more than half of our total adjusted EBITDA as our strategy of shifting to a more service-driven business model takes hold, supported by the strong cash generation of our products business. We're also benefiting from an improved macro environment, including stimulus and broader economic reopening. Our strong top and bottom line growth and outperformance so far this year gives us the confidence to raise our 2021 guidance. We now expect adjusted EBITDA to be $590 million to $610 million, representing high-teens growth at the midpoint and free cash flow to be roughly $260 million. Turning to the next slide. The top-line improved across all segments in Q2. Quick Lubes and International each saw sales growth in the mid-30% range and adjusted EBITDA growth of roughly 60%. Core North America had solid top-line growth and had a 4% decline in adjusted EBITDA due to price/cost lag, excluding the LIFO inventory accounting impact. Let's discuss Quick Lubes in more detail on the next slide. Quick Lubes had an outstanding quarter. Same-store sales growth was more than 20% with a balanced contribution from transactions and average ticket. Some of this growth is related to the onset of COVID-19 impact in the second half of last March. However, our normalized same-store sales grew more than 10% driven by our strong digital marketing performance and excellent in-store execution of our preventive maintenance model. Same-store sales growth,…

Thanks, Sam. Our adjusted results for Q2 are shown on Slide 12. Year-over-year growth in sales of 21% was led by International and Quick Lubes. Acquisitions and favorable foreign exchange added 500 basis points to sales growth. The 60 basis point decline in gross margin was primarily the result of year-over-year changes in LIFO inventory accounting driven by raw material cost changes, which were declining last year and have risen this year, primarily the result of impacts from the global pandemic. Most comparable peers use a FIFO accounting approach. We believe excluding the noncash LIFO impact is important to better understand the underlying business performance and for better comparability. The increase in SG&A was primarily related to changes in variable compensation as we significantly reduced variable comp accruals in Q2 last year due to the pandemic, driving a $21 million year-over-year change. The remaining increase in SG&A was driven by acquisitions, inflation, increases in advertising and marketing and foreign exchange impacts. In Q2, Quick Lubes made up just over half of our adjusted EBITDA for the first time. This favorable segment mix, along with top-line growth and a higher contribution from unconsolidated joint ventures, resulted in a 13% year-over-year increase in adjusted EBITDA to $152 million. Excluding the unusual LIFO impact and variable compensation changes, adjusted EBITDA grew 38% and adjusted EPS grew 49%. Let's move to Slide 13 to discuss the balance sheet and cash flow. We continue to generate strong cash flow with year-to-date cash flow from operating activities of $190 million. CapEx totaled $74 million, leading to free cash flow of $116 million. Our discretionary cash flow, defined as operating cash less maintenance CapEx, was $175 million. 80% of our year-to-date capital expenditures were growth-related investments, which is our highest priority for allocating capital. The cash-generative nature…

When we first gave our outlook for fiscal 2021, we anticipated this year to be an inflection point for growth. Based on our progress so far and our updated guidance, we remain convinced of that expectation. Quick Lubes should make up half or more of our adjusted EBITDA as our investments in store growth and improved operations continue to deliver benefits. Importantly, Quick Lubes' high-margin, high-growth profile continues as it becomes the biggest segment in the company. At the same time, supply chain enhancements and investments in brand building are generating growth in International. And we continue to generate strong cash flow in Core North America as well. The Valvoline team is working incredibly well across businesses and functions to drive growth and bring innovative solutions to our customers. This gives us the confidence that we have the right plans and capabilities to deliver high-return growth in the years ahead. With that, I'll turn it back over to Sean to open the line for Q&A.

Thanks, Sam. [Operator Instructions]. And with that, Christy, please open the line.

Your first question comes from the line of Laurence Alexander with Jefferies.

Good morning. I guess two quick ones then. Can you give a sense for the raw material pass-throughs in both your core business and the international JVs? Where would EBITDA be at the current run rate of business if you fully caught up on the known pass-throughs? And then secondly, can you talk a little bit -- give a little bit of perspective on the longer-term target for the mix of non-oil change revenue per tech heads? And do you see sort of the CAGR slowing down after it crosses a certain point? Or does it become more difficult to layer in additional services?

Yes. First, Laurence, with regard to the cost increases, as I noted, they have been quite significant. We've had particularly base oil cost increases over each of the last four to five months. And so what we see as we progress through the fiscal year is that we'll be taking a series of price increases to the negotiated accounts, both in the U.S. and International. And so while we expect to recover those costs over time, we will fill a price lag impact in the business, in particular, more in the DIY retail channel, where we've got scheduled promotions throughout the spring and summer period. So we have to have a balance between how hard we push on price, the timing of those price increases with protecting those promotions, which are important to continuing the volume momentum that we have in DIY right now. So we will feel some lag impact. But nonetheless, when we take a look at our forecasted unit margins in Core North America, International, we'll see certainly some pressure in Q3 and Q4, but we do expect to be in pretty good shape as we start the new fiscal year. As you know, a lot of our volume, particularly on the installer side of the business, is based on negotiated index pricing. And so that pricing adjusts automatically every quarter. So you really get very little lag impact on that side of the business. So that's where we stand from a margin perspective. We'll feel some pressure there. Last year, of course, we had the opposite effect, where we had tailwinds of falling raw material costs. This year, we're seeing that shift back in part of rising crude. Also, the weather impacts from February has had some disruption effects in the base oil and additive supply…

Your next question is from the line of Simeon Gutman with Morgan Stanley.

Hey guys. This is Michael Kessler on for Simeon. Thank you for taking the questions.

Hey, Michael.

First I wanted to ask about -- hey, good morning guys. I wanted to ask about the guidance, the raised guidance. Just, I guess, relative to our expectations for the industry to the increase to guidance still trails a little bit the magnitude of how much you guys outperformed in Q1 and Q2. So I just want to ask about that, the puts and takes as far as your expectations for the back half. It seems like quickly has kind of outperforming should probably continue to trend maybe better than expectations earlier in the year. But you have some profitability, a little bit more uncertainty on the Core North America side. So just if you could talk through that, I guess? Is that kind of the right way to think about the back half? Is there an implication as far as how those are going to offset going forward? Thank you.

Yes. No, we're pleased to raise guidance. And a lot of that is from the strength that we saw in the first half of the year. And most importantly, it is the continued strength in the Quick Lube business. And so we fully expect the Quick Lube business to perform very strong in the second half of the year. So obviously, the same-store sales growth that we saw -- even on a normalized basis in Q2 being double-digits, we're seeing that momentum carry into the beginning of Q3. So that is our biggest profit driver. It's important to note, too, though, that the International business has been delivering outsized growth over the last couple of quarters. And so we're excited about that and the fact that we're seeing growth across all of our regions tells us that some of the investments that we've been making in building our capabilities on the supply chain side, building our channels to market, strengthening our distribution, strengthening our teams that this is a business that is going to deliver sustainable growth into the future. However, I mean the top-line growth was exceptional. And we do think there is some benefit to the COVID recovery process, where we benefited from inventories building back up. So I would expect growth in the International business to continue for sure into the back half of the year but not at the same rate that it contributed to the first half performance. And so back to guidance then. You've got very strong performance coming from Quick Lubes. International will continue to be good, but it will feel a little bit that price lag impact because raw material costs are rising across the product business. And then Core North America will be a bit more challenged as we execute pricing and we'll feel some price lag effect in the back half of the year. But all in all, adding up to just a truly phenomenal year for the company.

Yes. The other thing I would add to that, Sam, is we are monitoring carefully some of the increased incidence of COVID that we're seeing in India, where we operate a joint venture with Cummins as well as in some parts of Asia, where we have strong business within the International segment. And we expect that to create some additional pressure in the back half of the year. So we are concerned about our teams in India and certainly hopeful that they'll be able to get ahead of this rise in their COVID incidents and be able to see some of the improvements that we've seen here and experienced in the U.S. and other parts of the world. And that also has a little bit of a negative outlook for us in relationship to the back half of the year in terms of our guidance.

Yes. Got it. I was actually just about to ask about India. So thanks for addressing that as well. I guess one other question on Quick Lubes and thinking more, I guess, bigger picture, longer term about the mix over time as far as where the EBITDA is coming from. I think you guys have had the kind of the majority being generated by Quick Lubes out there as a target for a couple of years now, I think going into really next year. Is there any updated thoughts on how -- where that could go in the next call two to three years? Or has any kind of thinking changed, given what we saw this quarter with a record high as far as the mix of Quick Lubes?

Yes. The good news is that the trends that we see in Quick Lubes, we definitely feel that they're sustainable. And so we're bullish on the long-term performance of the business as it relates both to the same-store sales growth, where there's just tremendous leverage and value in how we care for our customers and how we capture more of the service opportunities with those customers and continue to build market share. That's number one. We're also building market share by adding more stores. And we've got three important levers for adding stores. We've been investing in new store growth. And they're beginning to contribute significantly this year and even an expanded contribution in fiscal 2022, making acquisitions and then working with our franchisees on their growth programs, too, to make sure that they're adding stores. And we're positioning ourselves to reach more and more households. So long-term growth looks good, and we're very confident in that. We are looking at those long-term forecasts. And we look forward to providing updates on that in the near future. So hopefully, that helps.

Yes, it does. Thank you very much and good luck toward the year.

Your next question comes from the line of Stephanie Benjamin with Truist.

I had just a quick follow-up from an earlier question. And Sam, you kind of walked through your unit margin expectations for Core North America. And I just wanted to confirm kind of your thoughts as you look at unit margins in the back half of the year. So just given what we're seeing with the rise in base oil and just the price lag impact, we really shouldn't see that return to your target, call it, high 3s, low four margin until to really early next year or -- I mean early fiscal 2021. Is that -- I'm sorry, early fiscal 2022. Is that the right way to think about it?

Yes. Stephanie, in terms of the margin compression, we'll see short-term from the price/cost lag in the Core North America business. We do expect it to be a more significant impact on margins in the back half of the year, given the recent increases that we've seen in base oil costs. Having said that, if you look at our forecast for the back half, excluding the impact of the LIFO changes, we actually think that we're going to be in the high 3s. And yes, we'll see a full recovery into the first half of next year as we're able to get our pricing through over time here in the next six months. But with the impact of LIFO, it will be lower than that. But without the noncash LIFO impact, which had a significant difference this year versus last year, given the shorter term decline in costs last year with the increases that we're seeing this year, excluding that LIFO impact, we expect to be in the high 3s.

Great. And that's really helpful. And then switching gears, I'd love to hear your thoughts on some of the underlying industry growth that you're seeing, both in Quick Lubes and North America. So if you could kind of frame how you think your Quick Lube business has performed? You called out a low double-digit sort of normalized basis? With Quick Lubes, how you think that compares to what's going on in the overall market? And then also on Core North America, particularly looking at the DIY channel, I think another quarter of unit growth. Where do you think the industry is at the moment? Was there a more favorable comp in March just as you lap the pandemic? And kind of what's your outlook going forward just from industry growth in Core North America as well as how you're outperforming with Quick Lubes. Thanks.

Yes. I'll address Core North America first and come back to Quick Lubes. But in Core North America, what we've seen over the past year and the COVID impact is that DIY remain pretty steady in terms of like overall category demand has been very solid. And we've seen that in our results, too. So that's been really encouraging. And then on the installer DIFM side of the business, that's where demand has been off pretty substantially, probably in line with miles driven. So if you look over the last 12 months, miles driven has been off around 10% versus normalized driving if you go back to comparing to 2019, for example. And so the industry and segment has definitely felt that. We've been outperforming the overall industry, I think, in terms of how our volume has held up. But we think as miles driven begins to improve in the U.S. that installer channel will start to benefit from improved traffic. And so that will create some opportunity to start to see more consistent growth in installer channels in the back half of the year and into 2022. So that's how we see Core North America in terms of like the industry outlook is very much influenced by miles driven with DIY, again, healthy versus installer, which has, of course, been hurt more. Regarding Quick Lubes though, obviously, we've been growing share for quite some time. And so when you look at our same-store sales performance over the past year, where miles driven been off 10% but yet our traffic continues to be up, we're taking share. And it's -- it's certainly within Quick Lubes, we have a business model that outperforms our competitors pretty substantially. When you look at the traffic, the car counts that we have, I mean…

Your next question comes from Jeff Secaucus [ph].

Thanks very much. It looks like base oil prices went up $0.40 a gallon this week, not at Motiva, but at everybody else. Is that incorporated in your guidance? Or how do you read the current movement in base of oil prices?

Hi Jeff, good morning. Yes, we did see an increase in base oil costs ranging from 30% to 40% depending on -- excuse me, $0.30 to $0.40, depending on the grade. And we've considered that in relationship to our guidance. And we believe that it's -- our guidance is still appropriate with the raise that we provided, even with the impact that we might see from that change -- recent change. So it's likely to have an impact more toward our -- toward the end of our fourth quarter. And as Sam mentioned, it might take us a little longer to get all of our pricing through and into the first quarter of next year, but that is fully considered in terms of our updated guidance, Jeff.

Okay. And then when I look at your waterfall charts, I don't see like a raw material element where you say raw materials did this or that? Maybe in the future, you might include that. But my last question is you bought 16 stores in Texas. What did you pay for that? And what was the multiple of EBITDA?

Sure. We recently announced a transaction to convert 16 franchise stores to company-owned in a market that where we've been investing in building a strong company-owned presence. It was the last kind of outlier. And we believe there's substantial opportunities for us to leverage our field sales force and our marketing across company-owned stores by concentrating that market in company-owned stores. We typically see a really strong mid-teens return outlook. And we typically pay from a price multiple across most deals that we do in the high-single-digit range before synergies that we can bring to the business. So that's consistent with this most recent acquisition as well. And on your first question on the waterfalls, we breakout volume mix from margin, and we started to breakout the LIFO impact as well in those waterfalls. That margin impact is primarily related to the price cost lag on the waterfalls, Jeff.

Your next question comes from the line of Chris Shaw with Monness, Crespi.

I just want to parse out if you got -- so the ticket, the higher ticket, the non-oil change piece and, I guess, the sequential improvement in same-store sales. Do you have a sense how much you benefit from stimulus checks? I just thought maybe the non-oil change ticket piece might be people spending the little extra on -- because they have more money in their pockets? Or do you have any sense of that? I mean did you do any work around that, any work or -- I'm not sure how you would actually be able to figure that out, but just curious.

Yes. No, it's a great question. And we do try to understand the different impacts and what that benefit has been. With regard to non-oil change revenue, though, we've seen a pretty steady progression. And it wasn't like there was a big pop in non-oil change revenue performance with the ticket so that, all of a sudden, people felt like they could afford more services. We think it's more dependent on how consistent we are and how effective we are presenting the services that our customers are due for. So we think it's more in our control. That said, both in January and in April with the stimulus checks that did provide a boost to our overall traffic. And so we think it's been very helpful to us. And so when we think about the health of the consumer right now and miles driven beginning to improve -- I mentioned over the past 12 months, we've been down roughly 10%. But if you look at over the last month, the last four weeks or so, we're looking at fuel cells being down in the 3% to 4% or 5% range versus 2019. So I think we're close to seeing miles driven return to normal. And as people look to hit the road this summer, I think some of that pent-up demand -- we're always busy before the driving holidays of the Memorial Day and July 4. I think it's going to be particularly exciting and challenging for our stores to keep up with the volume that's coming their way this summer. So I feel really good about that.

Yes. Chris, the other thing I would add is we certainly do think we saw benefits from stimulus. But even as we move further out from consumers receiving those checks, we continue to see really strong momentum. So I do think there's the miles driven impact and the reopening, combined with our incredibly effective marketing and customer satisfaction with our service levels when convenience is continuing to drive really strong demand.

Thanks. And Sam's commentary on the upcoming driving season being pretty robust. Maybe taking a couple of things. One, I forget -- can you still wait times at your retail locations on the app?

Yes. So the app, which provides consumers the opportunity to see what the expected wait time would be before they come to the store, that is a program that's in place for all of our company stores. It has been for the past year now. And now it has rolled to our franchisees. So now, fortunately, across all of our markets, consumers can download the app and see what those wait times are before they get to the store. There's a lot of benefit of course to the consumer there, they can target their timing of their trips to the store or even decide that if they're the store closest to them has a 20-minute wait time, but a store that might be a couple of miles down the road in another direction has no wait time, they may decide to go to that store. So it actually works to our benefit, too, in helping spread out the demand, particularly during the busiest times of day. So there's a real nice benefit there. We're excited about the fact that it's now rolled across the whole system. And so this app, we're still in the process of bringing more and more customers on the app as we bring more value to the app for the consumers to use that as a way for convenient transactions with traveling. So it's an exciting new tool for us, and we hope to report on some really good progress in the years ahead.

What's your strategy? If you get really busy in a location or in a market and wait times are up a lot, is it easier for you? Or what's the strategy? Do you add days at a certain location? Or would you just add another location if you could, either through a franchisee or yourself?

Yes, it's interesting in that some of our top-performing stores; they -- they're -- they show us that we have a lot of capacity within our existing stores to handle more customers. So when you say look at the top quartile of our stores, they do well into the 60 oil changes per day, so the number of transactions that they're doing compared to an overall system-wide average just under 50. So there's plenty of capacity in the stores. And we also see that some of our top-performing stores can do both very well on transactions and ticket. So it's not a matter of that we focus on volume over ticket and these other services. We can do both. That said, we're looking to fill in and add stores where there's opportunity. And so where -- when you have stores that are at the high-end of transactions, we know that typically, there's going to be an opportunity to add another store in that neighborhood, where the market has been expanding. So there's opportunity, plenty of opportunity for us to continue to add stores and better penetrate the market. As I mentioned, we really only have a four share of that overall do-it-for-me market when it comes to oil changes. We do have the best model. And so how do we -- and where do we add these stores and so that we're growing at a steady pace to better reach more and more household? And so we've invested and been developing a very sophisticated real estate model that gives us the confidence when we add a new store, of that store being well above average in terms of its potential for growth. So as we've been penetrating new markets, Mary talked about our investments that we've been making in Texas, we're also looking at like the historical corporate markets and looking for those fill-in opportunities and making sure that we're making those investments, too, and working with those franchisees on their filling opportunities, which, of course, are significant. So the opportunity for store growth is a long-term opportunity for us. We -- we -- this year, we're going to be adding, I think, at the high-end of the guidance that we gave, 140 to 160 new stores this year, with the combination of new store builds, franchise growth and the acquisitions that we've made. We want to be adding more than 100 stores every year.

Our next question comes from the line of Wendy Nicholson with Citi.

Hi, good morning. A couple of questions. Mary, just a follow-up on India. Can you remind us how big India is for you and given the joint venture structure? Is it disproportionately profitable for you? So if things get worse there, how much should we worry about that? That's my first question.

Sure. It's -- we don't provide detailed specific disclosure. But if you look at the overall international business, we're talking about, historically, India providing mid-teens to 20% of the overall profit contribution. So International overall contributes 20% or so to the overall business. And so it's a smaller percent, but it can be a few million dollars if we continue to see degradation there because of the shutdowns with the rise of the incidence of the pandemic there. So it could have a small impact but not material.

Perfect. Perfect. Okay. And then also, Mary, this is for you. In terms of the VIOC business, how much are you still spending on PPE, the elevated COVID cost? I know you do a great job and a big priority of keeping people safe. But are you beginning to see that abate just as people get vaccinated? I'm just wondering kind of as we look at on a normalized basis, your margin expansion -- your margin trends are good, but can they get even better as some of that extra or incremental spending maybe fades away?

Yes. We've already seen significant improvements in some of the labor spending related to quarantining because of the substantial reduction in the COVID incident. So that's -- we had unproductive labor. We talked about it in the first quarter and certainly, last year, as we were ultra-cautious with our teammates to ensure if there had been any exposure to someone who had tested COVID positive that we paid those teammates to quarantine and moved people around. That has substantially abated. Having said that, we think it's the right thing to do to continue to invest in PPE for our teammates. And I expect that to be a continued part of our ongoing operating expenses as long as we see active COVID incidents. Keeping our employees and our customers safe continues to be a very high priority for us, Wendy. But the unproductive labor costs have substantially been eliminated.

Terrific. And then if I can, sorry for asking so many. But Sam, on the NOCR business, I mean I know, historically, part of your strategy from a marketing perspective has been to email people, "Hey, it's been six months," or, "Hey, we think you've probably driven 10,000 miles. Come back in." So the marketing has been really heavily oriented toward the oil change side of things. Do you think there's an opportunity to broaden that or expand that? Or is there a risk in sort of walking too far away from the historical oil change heritage? Just from a marketing perspective, how you get the message out that like, "Hey, we offer so much more"?

Yes. Marketing to our existing customer base is very sophisticated because we have so much data. We have their service history. We know how many miles they travel. We know how -- when they typically come in for oil changes on a miles basis or time basis. And so with those loyal customers, we definitely market to them with regard to the other services that they're due for and so that kind of helps set them up for the presentation when they come in. So they may not appreciate that their OEM workload [ph] et cetera, are recommending that their cooling system service happens every 40,000, 50,000 miles. But we will provide that email reminder as to what the service is about, why they need it. And then they'll receive that presentation in the store. So it's part of our marketing program. Of course, there'll be a discount attached to that too, which kind of tees them up again for saying yes to that service, getting that service taken care of at Valvoline, where they typically are going to save money versus going back to a dealership. So marketing in ways that benefit ticket is part of our overall approach. When it comes to attracting new customers, that marketing is more about maybe initial savings to have them try Valvoline with the communication around our stay-in-your-car service and the convenience of our service. So that's more geared toward transactions, whereas the existing customer base is both reminding them it's time to come in but also making sure they have the message on the other services.

[Operator Instructions]. Your next question comes from the line of Mike Harrison with Seaport Global Securities.

Hi, good morning. Congrats on the strong quarter. Going back to this battery change offering, I think of that as being a service that's relatively expensive compared to a filter change or a light bulb change or something like that. Does that service still bring the more attractive margin that you suggested? Should we think of it maybe more as good margin on a dollar basis but maybe more dilutive on a percentage basis for that specific service?

No, it's really strong margin, both on a percentage basis and on a dollar contribution basis. So like you said, it is -- people do understand their battery. They don't pay particular attention to it, though. And so we're in the process of making sure that our customers know that we provide that battery service. And that the investment that we made in improved testing equipment, so it's equipment that's only available in Valvoline stores, allows our customers to see their progression or degradation of their battery over time, which we think will lead to more transactions for us when their battery goes from, say, green, yellow to red. And batteries essentially have to be replaced every four to five years. And so we want to be in a position to capture this very high dollar service opportunity with excellent margin.

I can tell you it's something I pay attention to, living in a Northern climate. You don't want to have a battery die when it's super cold out.

That's right.

Other question I had is about the marketing efforts. Obviously, the digital marketing has been very effective in bringing in new customers and helping with retention. Are you going to be increasing your marketing spend in either the Core North America or Quick Lube segments, given the strength that you've seen in your overall earnings in the first half of the year?

On the Quick Lubes front, we've got -- the plans that we put in place at the beginning of the year are the plans that we're executing. So we're not expecting to see, say, an increase in those dollars versus what we had planned. If you look historically over what we've been spending on a per store basis that has gone up over time as we've discovered new marketing programs that can help drive traffic for us. So we've been making those investments on a percent of revenue basis that has not been increasing. And so we're in a really healthy place with our marketing spend. I think that will continue to be the case. We might see small incremental increases in a dollar per store basis but really not seeing it grow as a percent of revenue. We should get some leverage on these programs. In fact, that's what we look for in these programs, is a really high return on investment. And typically, in the Quick Lubes space, those incremental dollars are paying out within the year. If this isn't -- it's different than, say, a traditional advertising spend where the payout is over multiple years. We see that return on investment within the year because of the new traffic that we're generating. So we've been continuing to learn and invest appropriately in that side of the business. The marketing spend in Core North America is important, particularly in the DIY side, particularly to our long-term brand health. And yet we've been more steady with that spend, increased levels versus the depths of the COVID impact, if you go back to last year. But we're more at a normalized spend in fiscal 2021 for that business. And we're pleased with the progress that we've been making and just our consumer marketing approach that I think is helping the performance that we've seen in the DIY channel this past year.

And Mike, I'd just remind you, last year, during our third quarter, we did pull back pretty hard on spending both kind of across the board, across all three segments, as we didn't think that marketing into an economy that was substantially shutdown across the globe was going to be very effective. And so we -- year-over-year, we'll be seeing pretty significant increases in our marketing to back to more normalized levels as a percentage of sales, based on what Sam says. But just a reminder, if you just look at balance of the year, year-over-year comparisons, our advertising will be up, for sure, for the balance of the year.

Ladies and gentlemen, this does conclude today's Valvoline Incorporated 2Q 2021 earnings conference call. You may now disconnect

Thank you.