What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-12-09 compared with 2024-06-06 · 93 added, 163 removed, 53 unchanged (83% of the section changed)

3 unchanged sentences

Our actual results may differ materially from the results discussed in the forward-looking statements.

Factors that might cause a difference include, but are not limited to, those discussed herein under "Forward-Looking Statements" and "Risk Factors," and those discussed under Part I, Item 1A, "Risk Factors," of our Annual Report on Form 10-K for the fiscal year ended July 31, 2023 and those discussed under Part II, Item 1A, "Risk Factors," of our Quarterly Report on Form 10-Q for the fiscal quarter ended January 31, 2024.

We develop, mine, manufacture and market sorbent products principally produced from clay minerals, primarily consisting of calcium bentonite, attapulgite and diatomaceous shale.

Our principal products include agricultural and horticultural chemical carriers, animal health and nutrition products, cat litter, fluid purification and filtration bleaching clays, industrial and automotive floor absorbents and sports field products.

Our principal products include agricultural and horticultural chemical carriers, animal health and nutrition products, cat litter, fluids purification and filtration bleaching clays, industrial and automotive floor absorbents and sports field products.

Our products are sold to two primary customer groups, including customers who resell our products as originally produced to the end consumer and other customers who use our products as part of their production process or use them as an ingredient in their final finished product.

3 unchanged sentences

RESULTS OF OPERATIONS

The three and nine months ended April 30, 2024 continued to be strong with growth in our net sales and gross profit across both the Retail and Wholesale Products Group and the Business to Business Products Group.

Both operating segments grew due to higher prices and favorable mix compared to the same periods in fiscal year 2023.

Consolidated net sales increased $1.4 million or 1% in the third quarter and $18.3 million or 6% in the nine months ended April 30, 2024 compared to the same periods of fiscal year 2023.

Gross margin grew to 28% for the three and nine months ended April 30, 2024 compared to 26% and 24% for the three and nine months ended April 30, 2023, respectively.

Higher third quarter SG&A expenses resulted in a $4.0 million decrease in consolidated income from operations for the three months ended April 30, 2024 compared to the same period in fiscal 2023.

However, consolidated income from operations in the first nine months of fiscal year 2024 increased by $10.4 million compared to the same period in fiscal year 2023.

Consolidated net income for the three and nine months ended April 30, 2024 was $7.8 million and $30.9 million, respectively, compared to $8.5 million and $17.6 million in the three and nine months ended April 30, 2023, respectively.

Our Condensed Consolidated Balance Sheet as of April 30, 2024 and our Condensed Consolidated Statement of Cash Flows for the nine months ended April 30, 2024 show an increase in total cash and cash equivalents from fiscal year-end 2023.

The increase was driven by higher earnings and the issuance of a $10 million in aggregate principal amount of notes to finance a portion of the purchase price paid for the acquisition of Ultra Pet.

Quarterly net sales, gross profit and net income reached all-time highs in the three months ended October 31, 2024.

Net sales grew across both the Retail and Wholesale Products Group and the Business to Business Products Group.

Both operating segments grew due to higher volumes and favorable mix compared to the same period in fiscal year 2024.

Consolidated net sales of $127.9 million increased $16.5 million, or 15%, in the three months ended October 31, 2024 compared to the three months ended October 31, 2023.

Gross margin grew to 32% for the three months ended October 31, 2024 compared to 28% for the three months ended October 31, 2023.

Despite higher SG&A and other expenses including tax, consolidated income from operations increased $8.0 million, or 61%, and net income increased $5.6 million, or 52%, for the three months ended October 31, 2024 compared to the three months ended October 31, 2023.

Our Condensed Consolidated Balance Sheet as of October 31, 2024 and our Condensed Consolidated Statement of Cash Flows for the three months ended October 31, 2024 show an decrease in total cash and cash equivalents from fiscal year-end 2024.

The decrease was driven primarily due to the use of cash in investing and financing activities which included capital expenditures, partial payment on our revolving credit facility, dividend payments and treasury stock repurchases.

These were partially offset by positive cash flow from operations.

Refer to the "Liquidity and Capital Resources" section below for more details.

NINE MONTHS ENDED APRIL 30, 2024 COMPARED TO

NINE MONTHS ENDED APRIL 30, 2023

THREE MONTHS ENDED OCTOBER 31, 2024 COMPARED TO

THREE MONTHS ENDED OCTOBER 31, 2023

CONSOLIDATED RESULTS

Consolidated net sales for the nine months ended April 30, 2024 were $323.9 million, a 6% increase compared to net sales of $305.6 million for the nine months ended April 30, 2023.

Net sales increased due to higher prices and improved product mix partially offset by lower volumes across both product groups.

Consolidated gross profit in the nine months ended April 30, 2024 was $92.1 million, an increase of $19.3 million, or 27%, from gross profit of $72.8 million in the nine months ended April 30, 2023.

Our gross margin (defined as gross profit as a percentage of net sales) in the nine months ended April 30, 2024 increased to 28% from 24% in the nine months ended April 30, 2023.

Our domestic cost of goods sold per ton increased 5%, driven primarily by per ton increases in non-fuel manufacturing and freight costs offset by lower per ton natural gas and packaging costs.

Non-fuel manufacturing costs per ton increased 9% during the nine months ended April 30, 2024 compared to nine months ended April 30, 2023, mainly due to higher per ton costs of labor, repairs and depreciation, offset by a reduction in purchased material costs.

Domestic freight costs per ton increased 8% in the nine months ended April 30, 2024 compared to the same period of fiscal year 2023 due to a significant customer in our cat litter business that altered shipping terms in January 2023 from collect to delivered which increased our overall freight cost.

Excluding the impact of this specific customer, per ton domestic freight costs would have decreased 5% in the nine months ended April 30, 2024 compared to the same period of fiscal year 2023.

Ocean freight costs have also decreased due to both lower rates and export fees.

In addition, our overall freight costs can vary between periods depending on the mix of products sold and the geographic distribution of our customers.

Packaging costs per ton decreased 4% in the nine months ended April 30, 2024 compared to the same period of fiscal year 2023 due to lower commodity costs, particularly as it relates to resin and pallet costs.

Many of our contracts for packaging purchases are subject to periodic price adjustments, which trail changes in underlying commodity prices.

Per ton cost of natural gas decreased 34% in the nine months ended April 30, 2024 compared to the same period of fiscal year 2023 due to a decrease in natural gas prices.

Total SG&A expenses of $53.3 million for the nine months ended April 30, 2024 were higher by $8.9 million, or 20%, compared to $44.5 million for the nine months ended April 30, 2023.

Corporate unallocated expenses increased $4.6 million, or 20% mainly due to higher anticipated compensation costs including increased performance-based incentives and acquisition-related expenses incurred in the current period.

Additional expenses related to the integration of Ultra Pet are expected to be incurred in the fourth quarter of fiscal year 2024.

Consolidated net sales for the three months ended October 31, 2024 were $127.9 million, a 15% increase compared to net sales of $111.4 million for the three months ended October 31, 2023.

The increase was primarily driven by higher volumes and favorable mix in both our Business to Business and Retail and Wholesale product groups.

Consolidated gross profit in the three months ended October 31, 2024 was $40.8 million, an increase of $9.8 million, or 32%, from gross profit of $31.0 million in the three months ended October 31, 2023.

Our gross margin (defined as gross profit as a percentage of net sales) in the three months ended October 31, 2024 increased to 32% from 28% in the three months ended

October 31, 2023.

This gross margin expansion was mainly driven by volume growth, which led to improved fixed cost coverage, and favorable product mix.

Additionally, we realized production efficiencies at various manufacturing plants which resulted in stronger gross margins for several of our products.

While some per ton costs such as transportation have increased, overall cost pressures have lessened and have been mitigated by the positive impact of volume and mix.

This resulted in overall per ton cost of goods sold, for the three months ended October 31, 2024, to remain flat when compared to the same period last year.

Total SG&A expenses of $19.6 million for the three months ended October 31, 2024 were higher by $1.8 million, or 10%, compared to $17.8 million for the three months ended October 31, 2023.

Corporate unallocated expenses remained flat year over year as the increase was driven by segments' SG&A.

The discussion of the segments' operating incomes below describes the changes in SG&A expenses that were allocated to the operating segments.

Total other expenses were $1.1 million for the nine months ended April 30, 2024 compared to $6.9 million in the same period of fiscal year 2023.

The decrease was mainly due to the $4.9 million loss from the termination of the Company's pension plan in the third quarter of fiscal year 2023 and the $2.5 million accrual for the landfill modification charged in the second quarter of fiscal year 2023, partially offset by higher interest income.

Total other expenses, net were $1.0 million for the three months ended October 31, 2024 compared to $0.3 million in the same period of fiscal year 2024.

The increase was mainly due to higher interest expenses an increase in the estimated landfill modification cost.

Refer to Note 7 of the Notes to the unaudited Condensed Consolidated Financial Statements for additional details regarding the landfill modification accrual.

Consolidated net income before taxes for the nine months ended April 30, 2024 was $37.7 million compared to $21.5 million for the nine months ended April 30, 2023.

Results for the nine months ended April 30, 2024 were driven by the factors discussed above.

We had tax expense of $6.7 million for the nine months ended April 30, 2024 compared to $3.9 million for the nine months ended April 30, 2023.

Consolidated net income before taxes for the three months ended October 31, 2024 was $20.2 million compared to $12.8 million for the three months ended October 31, 2023.

Results for the three months ended October 31, 2024 were driven by the factors discussed above.

We had tax expense of $3.8 million for the three months ended October 31, 2024 compared to $2.1 million for the three months ended October 31, 2023.

Our tax expense was driven primarily by higher net income.

We used an estimated annual effective tax rate ("ETR") of 18% in determining our provision for income taxes, which is based on expected annual taxable income and the assessment of various tax adjustments, including depletion.

We used an estimated annual effective tax rate ("ETR") of 19% in determining our provision for income taxes, which is based on expected annual taxable income and the assessment of various tax adjustments, including depletion and discrete items.

Consolidated quarterly net income reached a record $16.4 million in the three months ended October 31, 2024, an increase of $5.6 million or 52%, from $10.7 million for the three months ended October 31, 2023.

BUSINESS TO BUSINESS PRODUCTS GROUP

Net sales of the Business to Business Products Group for the nine months ended April 30, 2024 were $111.6 million, an increase of $7.3 million, or 7%, from net sales of $104.3 million for the nine months ended April 30, 2023, driven by sales of our fluid purification products.

Net sales of our fluids purification products increased $12.4 million, or 23%, in the nine months ended April 30, 2024 compared to the nine months ended April 30, 2023.

The increase was primarily driven by new customers in the renewable diesel business in North America, as well as continued demand for our products used in the filtration of edible oil and jet-fuel, and to a lesser extent higher prices.

Net sales increased in North America, our subsidiary in the UK, and the Asia region partially offset by a decrease in Latin America and the Europe, Middle East and Africa ("EMEA") regions.

Net sales of our agricultural and horticultural chemical carrier products decreased $2.8 million, or 9%, for the nine months ended April 30, 2024 compared to the same period in fiscal year 2023 as a result of softer volumes offset partially by higher prices.

This decline in volume was primarily due to reduced demand from a key customer that was still working through inventory from last year.

Net sales of our animal health and nutrition products decreased $2.3 million, or 12%, during the nine months ended April 30, 2024 compared to the same period of fiscal year 2023.

The decrease was driven by Latin America, our subsidiary in Mexico, and Asia (including China), partially offset by an increase in net sales in North America.

Net sales were down in most regions due to softer demand, while North America sales increased due to higher prices when compared to the same period in fiscal year 2023.

SG&A expenses for the Business to Business Products Group decreased by $0.3 million, or 3%, for the nine months ended April 30, 2024 compared to the same period of the prior fiscal year.

The decrease was mainly driven by a reduction in technical service support costs from the Innovation Center and Microbiology Lab.

The Business to Business Products Group’s operating income for the nine months ended April 30, 2024 was $32.7 million, an increase of $7.9 million, or 32%, from operating income of $24.8 million for the nine months ended April 30, 2023.

The increase in operating income was mostly driven by higher sales and favorable product mix.

Net sales of the Business to Business Products Group for the three months ended October 31, 2024 were $48.4 million, an increase of $9.3 million, or 24%, from net sales of $39.2 million for the three months ended October 31, 2023, driven by sales of our fluids purification and agricultural products.

Net sales of our fluids purification products increased $8.2 million, or 37%, in the three months ended October 31, 2024 compared to the three months ended October 31, 2023.

The increase was primarily driven by new and growing demand in the renewable diesel business and, to a lesser extent, higher prices.

Net sales increased in all regions except for our subsidiary in the U.K.

which is further discussed below.

Net sales of our agricultural and horticultural chemical carrier products increased $1.3 million, or 12%, for the three months ended October 31, 2024 compared to the three months ended October 31, 2023 as a result of stronger demand and, to a lesser extent, higher prices.

The volume growth was primarily due to key customers who resumed purchasing after working through inventory surpluses.

Net sales of our animal health & nutrition products decreased $0.2 million, or 3%, during the three months ended October 31, 2024 compared to three months ended October 31, 2023.

The decrease was driven by the Asia region (including China) and our subsidiary in Mexico, partially offset by higher sales in North America and Latin America.

Net sales in Asia were down due to the sell off of existing inventory that occurred in the first quarter of fiscal year 2024 as we transitioned to a master distributor in China.

Net sales in Latin America grew due to higher demand of exiting and new customers specifically in Brazil while net sales in North America grew due to higher prices and, to a lesser extent, growth in demand.

SG&A expenses for the Business to Business Products Group increased by $0.7 million, or 20%, for the three months ended October 31, 2024 compared to the three months ended October 31, 2023.

The increase was mainly driven by a preliminary foreign value-added tax ("VAT") assessment and higher research and development costs.

The Business to Business Products Group’s operating income for the three months ended October 31, 2024 was $17.1 million, an increase of $6.0 million, or 54%, from operating income of $11.1 million for the three months ended October 31, 2023.

The increase in operating income was mostly driven by higher sales in our fluids purification and agricultural products.

RETAIL AND WHOLESALE PRODUCTS GROUP

Net sales of the Retail and Wholesale Products Group for the nine months ended April 30, 2024 were $212.3 million, an increase of $10.9 million, or 5%, from net sales of $201.4 million for the same period of fiscal year 2023, mainly driven by higher prices from our cat litter products.

Total global cat litter net sales for the nine months ended April 30, 2024 increased $10.5 million, or 6%, compared to the nine months ended April 30, 2023, driven by higher pricing and favorable product mix.

Domestic net sales increased across all products except for private label heavyweight litter.

Net sales of co-packaged cat litter products increased $0.1 million, or 1%, compared to the same period in fiscal year 2023.

The increase was driven by price as volumes were impacted by the cyberattack on one of our customers in the first quarter of fiscal year 2024.

Net sales of the Retail and Wholesale Products Group for the three months ended October 31, 2024 were $79.5 million, an increase of $7.3 million, or 10%, from net sales of $72.3 million for the three months ended October 31, 2023.

This increase was mainly driven by sales of our new crystal cat litter products and stronger demand for our co-packaged cat litter and industrial products.

Total global cat litter net sales for the three months ended October 31, 2024 increased $6.8 million, or 11%, compared to the three months ended October 31, 2023, driven primarily by sales of our new crystal cat litter products and higher demand in our co-packaged business partially offset by a decrease in our clay based cat litter sales.

Net sales of co-packaged cat litter increased $2.1 million, or 78%, compared to the three months ended October 31, 2024 due to higher demand.

In the first quarter of fiscal year 2024, a cyber-attack disrupted a key customer’s ability to place and receive orders, which negatively impacted sales of Oil-Dri’s co-packaged coarse litter.

However, the cyber event boosted sales of the Oil-Dri’s branded and private label coarse items, and is currently influencing year-over-year comparisons for both domestic clay and co-packaged litter products.

Although total domestic clay litter revenues declined, Oil-Dri continued to experience topline growth of its EPA-approved Cat’s Pride Antibacterial Clumping Litter which is currently sold at large brick and mortar and e-commerce retailers.

In addition, new distribution of other clay products and accessories was achieved at new and existing customers.

Net sales of cat litter by our subsidiary in Canada decreased slightly period over period, as discussed in "Foreign Operations" below.

Net sales of our global industrial and sports products increased $0.4 million, or 1%, compared to the nine months ended April 30, 2023, primarily driven by increased demand of our synthetic absorbent products and higher prices of our clay-based floor absorbent products, partially offset by a decrease in volume of sports products.

This was further supplemented by an increase in pricing of industrial products by our subsidiary in Canada.

SG&A expenses for the Retail and Wholesale Products Group were $3.6 million, or 36%, higher during the nine months ended April 30, 2024 compared to the nine months ended April 30, 2023, primarily due to increased advertising spend and compensation related costs.

We anticipate total advertising expense in fiscal year 2024 to be higher than fiscal year 2023 as we continue to focus on marketing our retail and wholesale product lines.

The Retail and Wholesale Products Group's operating income for the nine months ended April 30, 2024 was $34.1 million, an increase of $7.1 million, or 26%, from operating income of $27.0 million for the same period of fiscal year 2023.

This was driven primarily by the increase in gross margins due to price increases and favorable product mix, partially offset by higher cost of goods sold and elevated SG&A expenses, as discussed above.

Net sales of our global industrial and sports products increased $0.4 million, or 4%, compared to the three months ended October 31, 2023, primarily driven by increased demand of our clay-based floor absorbent products by new and existing customers.

SG&A expenses for the Retail and Wholesale Products Group were $1.0 million, or 21%, higher during the three months ended October 31, 2024 compared to the three months ended October 31, 2023, primarily due to higher compensation related costs, a credit reserve for several customer bankruptcies, amortization of the customer list acquired with Ultra Pet and higher research and development costs.

These higher expenses were partially offset by lower advertising expense in the first quarter of fiscal year 2025 compared to the first quarter of fiscal year 2024.

We anticipate total advertising expense in fiscal year 2025 to be lower than fiscal year 2024.

The Retail and Wholesale Products Group's operating income for the three months ended October 31, 2024 was $13.4 million, an increase of $2.1 million, or 18%, from operating income of $11.3 million for three months ended October 31, 2023.

This was driven primarily by higher volumes including new crystal cat litter sales, partially offset by elevated SG&A expenses, as discussed above.

FOREIGN OPERATIONS

Foreign operations include our subsidiary in Canada, which is reported in the Retail and Wholesale Products Group, and our subsidiaries in the United Kingdom ("UK"), Mexico, China and Indonesia, which are reported in the Business to Business Products Group.

Net sales by our foreign subsidiaries for the nine months ended April 30, 2024 were $16.0 million, a decrease of 5%, compared to net sales of $16.8 million during the nine months ended April 30, 2023.

The decrease was driven by all of our foreign operations, with the exception of our subsidiary in the UK which experienced higher net sales when compared to the same period in fiscal year 2023.

Net sales of our subsidiary in the UK increased by $0.5 million, or 29%, compared to net sales in the same period in fiscal year 2023.

The increase was driven by a combination of higher demand of edible oil filtration products and price increases.

Net sales of our subsidiary in China decreased $0.3 million, or 16%, in the nine months ended April 30, 2024 compared to the same period of fiscal year 2023 due to the sell off of all existing inventory to the new master distributor, which occurred in the first quarter of fiscal year 2024.

Foreign operations include our subsidiaries in Canada and Netherlands, which are reported in the Retail and Wholesale Products Group, and our subsidiaries in the United Kingdom ("UK"), Mexico, China and Indonesia, which are reported in the Business to Business Products Group.

Net sales by our foreign subsidiaries for the three months ended October 31, 2024 were $5.1 million, a decrease of 27%, compared to net sales of $7.0 million during the three months ended October 31, 2023.

The decrease was driven mainly by our subsidiary in China and, to a lesser extent, all other subsidiaries.

Net sales of our subsidiary in China decreased $1.7 million, or 100%, in the three months ended October 31, 2024 compared to the same period of fiscal year 2024 due to a sell-off of all existing inventory to a new master distributor, which occurred in the first quarter of fiscal year 2024.

Sales to China are now directly through the Company and not through our subsidiary in China.

Total net sales of our subsidiary in Canada decreased $0.1 million, or 1%, in the nine months ended April 30, 2024 compared to the same period in fiscal year 2023, driven by softer sales volumes of cat litter partially offset by higher net sales of floor absorbents due to pricing.

Net sales of our subsidiary in Mexico decreased $0.9 million, or 42% in the nine months ended April 30, 2024 compared to the same period of fiscal year 2023.

Net sales by our foreign subsidiaries represented 5% of our consolidated net sales for the nine months ended April 30, 2024 and 2023.

Our foreign subsidiaries reported net income of $0.6 million for the nine months ended April 30, 2024, compared to $1.1 million in the nine months ended April 30, 2023.

The decrease in net income was primarily driven by revenue decreases in China and Mexico partially offset by increases in net income within Canada and the UK, as discussed above.

Identifiable assets of our foreign subsidiaries as of April 30, 2024, were $11.1 million, compared to $14.6 million as of July 31, 2023.

THREE MONTHS ENDED APRIL 30, 2024 COMPARED TO

THREE MONTHS ENDED APRIL 30, 2023

CONSOLIDATED RESULTS

Consolidated net sales for the third quarter of fiscal year 2024 were $106.8 million, a 1% increase compared to net sales of $105.4 million for the third quarter of fiscal year 2023.

Mainly driven by product mix and pricing in our Business to Business operating segment, and to a lesser extent higher pricing in our Retail and Wholesale operating segment, partially offset by softer volumes across both products groups.

Further analysis of the segment sales are discussed below.

Consolidated gross profit for the third quarter of fiscal year 2024 was $30.1 million, or 28% of net sales, compared to $27.5 million, or 26% of net sales, for the third quarter of fiscal year 2023.

The increase was driven by higher selling prices across multiple products and improved product mix.

Domestic per ton cost of goods sold increased 3%, driven primarily by per ton increases in non-fuel manufacturing and freight costs, partially offset by a decrease in natural gas and packaging costs.

Per ton non-fuel manufacturing costs rose 7% in the third quarter of fiscal year 2024 compared to the third quarter of fiscal year 2023, due to higher per ton costs of labor, repairs, depreciation, and purchased materials.

Domestic freight costs per ton increased 2% in the third quarter of fiscal year 2024 compared to the same period of fiscal year 2023 due to mix of products sold and additional railcar usage to support our growing renewable diesel business.

Ocean freight costs have decreased due to favorable rates and reduction in export fees when compared to the same period in fiscal year 2023.

In general, our overall freight costs can vary between periods depending on the mix of products sold and the geographic distribution of our customers.

The cost of natural gas per ton used to operate kilns that dry our clay was 2% lower in the third quarter of fiscal year 2024 compared to the third quarter of fiscal year 2023 as fuel prices have decreased.

Packaging costs per ton decreased 2% in the third quarter of fiscal year 2024 compared to the same period of fiscal year 2023 due to lower commodity costs, particularly as it relates to resin and pallet costs.

Many of our contracts for packaging purchases are subject to periodic price adjustments, which trail changes in underlying commodity prices.

Total selling, general and administrative expenses of $19.7 million for the third quarter of fiscal year 2024 increased by 51% compared to $13.0 million for the same period of fiscal year 2023.

Unallocated corporate expenses were up by $5.0 million, or 81%, compared to the same period in fiscal year 2023 due to higher anticipated compensation costs, as well as acquisition-related expenses incurred in the current period.

In addition to elevated wages and benefits, the expected annual payout percentage for our performance-based incentives increased in the third quarter resulting in higher compensation costs.

Additional expenses related to the integration of Ultra Pet are expected to be incurred in the fourth quarter of fiscal year 2024.

The discussion of the segments' operating incomes below describes the changes in SG&A expenses that were allocated to the operating segments.

Total net other expense of $0.3 million for the third quarter of fiscal year 2024 decreased compared to $4.5 million in the same period of fiscal year 2023 mainly due to the loss in connection with the pension termination that occurred in the third quarter of fiscal year 2023.

Consolidated net income before taxes for the third quarter of fiscal year 2024 was $10.1 million compared to $10.0 million for the same period of fiscal year 2023.

Results for the third quarter of fiscal year 2024 were driven by the factors discussed above.

Tax expense was $2.4 million for the third quarter of fiscal year 2024 compared to $1.5 million for the third quarter of fiscal year 2023.

The year-over-year increase in tax expense was driven primarily by the increase in the estimated annual ETR in the third quarter and higher pre-tax income.

Conversely, during the third quarter of fiscal year 2023 we decreased our annual ETR which decreased tax expense for the third quarter of fiscal year 2023.

We adjust our ETR quarterly based on expected annual taxable income and our assessment of various tax adjustments.

BUSINESS TO BUSINESS PRODUCTS GROUP

Net sales of the Business to Business Products Group for the third quarter of fiscal year 2024 were $36.2 million, an increase of $0.8 million, or 2%, from net sales of $35.4 million for the third quarter of fiscal year 2023, driven by an increase in net sales of our fluid purification products.

Net sales of our fluids purification products increased $4.6 million, or 26%, compared to the third quarter of fiscal year 2023 driven primarily by the North America region.

The increase in North America was due to new customers using our products for renewable diesel filtration as well as higher demand by existing customers in edible oil and jet-fuel filtration.

There was also an increase in EMEA driven by higher volume and timing of orders.

The increase was partially offset by softer sales volumes in Latin America and Asia.

Net sales of our agricultural and horticultural chemical carrier products decreased $2.6 million, or 24%, for the third quarter of fiscal year 2024 compared to the same period in fiscal year 2023, primarily due to softer volumes.

This decline was primarily due to reduced demand from a key customer that was

still working through inventory from last year.

Net sales of our animal health and nutrition products decreased $1.2 million, or 17%, during the third quarter of fiscal year 2024, compared to the same period in fiscal year 2023.

The decrease was driven by lower demand in all regions and timing of orders to some foreign countries.

Total SG&A expenses for the Business to Business Products Group in the third quarter of fiscal year 2024 decreased $0.3 million, or 7%, compared to the same period of fiscal year 2023.

The reduction was mainly driven by a decrease in technical service support costs from the Innovation Center and Microbiology Lab offset by an increase in compensation-related expenses to teammates and consultants.

The Business to Business Products Group’s operating income for the third quarter of fiscal year 2024 was $10.6 million, an increase of $0.8 million, or 8%, from operating income of $9.8 million for the third quarter of fiscal year 2023.

The overall increase in operating income was primarily due to higher pricing and favorable product mix.

RETAIL AND WHOLESALE PRODUCTS GROUP

Net sales of the Retail and Wholesale Products Group for the third quarter of fiscal year 2024 were $70.6 million, an increase of $0.6 million, or 1%, from net sales of $70.0 million for the third quarter of fiscal year 2023, driven by higher prices of domestic and co-packaged cat litter product offerings.

Global cat litter net sales were $0.9 million, or 2%, higher compared to the third quarter of fiscal year 2023 driven by higher prices.

Domestic cat litter net sales were $51.1 million, an increase of $1.2 million driven mainly by higher prices.

Higher net sales of coarse cat litter were partially offset by softer revenue from total lightweight scoopable litter.

The decline in lightweight scoopable litter sales was primarily due to reduced demand from a key customer that had temporarily increased purchases last year to avoid out-of-stock items from another supplier.

However, Oil-Dri achieved lightweight litter sales gains at several new and existing customers, including the growing e-commerce, dollar, farm & fleet and drug distribution channels, which partially offset these declines.

Net sales of co-packaged products remained flat compared to the same period in fiscal year 2023, as higher prices offset the decrease in volume.

Net sales of our global industrial and sports products were $12.4 million for third quarter of fiscal year 2024, of which $11.8 million represented domestic net sales.

Domestic industrial and sports sales were down $0.4 million due to softer sales across all products except for synthetic floor absorbents, partially offset by higher prices.

Net sales by our subsidiary in Canada decreased $0.3 million, as discussed below.

SG&A expenses for the Retail and Wholesale Products Group increased by $1.6 million, or 51%, during the third quarter of fiscal year 2024 compared to the same period in fiscal year 2023.

The increase was primarily driven by an increase in advertising spend and compensation-related expenses, partially offset by a reduction in broker commissions.

We anticipate total advertising expense in fiscal year 2024 to be higher than fiscal year 2023.

The Retail and Wholesale Products Group's operating income was $10.9 million for the third quarter of fiscal year 2024, an increase of $0.1 million from operating income of $10.7 million for the same period of fiscal year 2023.

This was driven primarily by higher prices, partially offset by higher SG&A expenses, as discussed above.

FOREIGN OPERATIONS

Foreign operations include our subsidiary in Canada, which is reported in the Retail and Wholesale Products Group, and our subsidiaries in the UK, Mexico, China and Indonesia, which are reported in the Business to Business Products Group.

Net sales by our foreign subsidiaries during the third quarter of fiscal year 2024 were $4.5 million, a decrease of $1.0 million, or 19%, compared to net sales of $5.5 million during the same period of fiscal year 2023, driven primarily by decreases in net sales in China, Canada and Mexico, partially offset by an increase in net sales in the UK.

Sales of our subsidiary in China were down $0.7 million as a result of transitioning to a distributor model in China rather than sales through our subsidiary.

Sales to China are now sold directly through the Company and captured the Asia region, and not through our subsidiary in China.

Net sales by our subsidiary in Canada decreased $0.3 million driven by lower cat litter sales, partially offset by an increase in industrial product sales when compared to the same period of fiscal year 2023.

Net sales of our subsidiary in Mexico decreased during the third quarter of fiscal year 2024 compared to the same period of fiscal year 2023 by $0.2 million, or 36%, due to softer volumes.

Total net sales of our subsidiary in the UK increased by $0.1 million in the third quarter of fiscal year 2024 compared to the same period in 2023 due to higher pricing.

Net sales by our foreign subsidiaries represented 4% and 5% of our consolidated net sales during the third quarter of fiscal years 2024 and 2023, respectively.

Our foreign subsidiaries reported net loss of $0.1 million for the third quarter of fiscal year 2024 compared to net income of $0.5 million in the third quarter of fiscal year 2023.

This was driven by the decrease in sales in China, Canada and Mexico, offset by the increase in net income in the UK due to higher net sales.

Total net sales of our subsidiary in Canada decreased $0.1 million, or 2%, in the three months ended October 31, 2024 compared to the three months ended October 31, 2023, driven by softer sales volumes of cat litter partially offset by higher net sales of floor absorbents due to higher prices.

Net sales of our subsidiaries in the UK and Mexico decreased slightly in the three months ended October 31, 2024 compared to the three months ended October 31, 2023.

Net sales by our foreign subsidiaries represented 4% and 6% of our consolidated net sales for the three months ended October 31, 2024 and 2023, respectively.

Our foreign subsidiaries reported net loss of $0.2 million for the three months ended October 31, 2024, compared to net income of $0.6 million in the three months ended October 31, 2023.

The decrease in net income was primarily driven by the decrease in China sales as well as the preliminary foreign VAT assessment recognized in the quarter.

Identifiable assets of our foreign subsidiaries as of October 31, 2024, were $9.2 million, compared to $8.7 million as of July 31, 2024.

LIQUIDITY AND CAPITAL RESOURCES

2 unchanged sentences

supporting new product development;

investing in infrastructure;

infrastructure;

repurchasing stock;

1 unchanged sentence

and, from time to time, business acquisitions, and funding our debt service requirements.

During the nine months ended April 30, 2024, we principally funded these short and long-term capital requirements using cash from current operations as well as cash generated from previous borrowings under our Series C Senior Notes.

To meet cash requirements for the Transaction we issued $10 million in aggregate principal amount of Series D Senior Notes during the third quarter of fiscal year 2024.

See Note 15 of the Notes to the unaudited Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q for further information relating to the cash requirements for the Transaction.

During the three months ended October 31, 2024, we principally funded these short and long-term capital requirements using cash from current operations as well as cash generated from previous borrowings under our Series B, C and D Senior Notes and Credit Agreement.

On September 30, 2024 we amended the Credit Agreement to, among other things, increase our line of credit from $45 million to $75 million in order to gain extra flexibility in our cash position.

See Note 8 of the Notes to the unaudited Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q for further information relating to our existing borrowings.

We currently anticipate cash flows from operations and our available sources of liquidity will be sufficient to meet our cash requirements.

1 unchanged sentence

The following table sets forth certain elements of our unaudited Condensed Consolidated Statements of Cash Flows (in thousands):

For the Nine Months Ended April 30,

For the Three Months Ended October 31,

Net cash provided by operating activities $ 10,919 $ 8,564

Net cash used in investing activities (12,817) (8,064)

Net cash provided by (used in) financing activities 1,462 (5,806)

Net cash used in financing activities

(9,080) (2,799)

Effect of exchange rate changes on cash and cash equivalents 3 124

1 unchanged sentence

Net cash provided by operating activities

In addition to net income, as adjusted for depreciation and amortization and other non-cash operating activities, the primary sources and uses of operating cash flows for the nine months ended April 30, 2024 were as follows:

Inventory increased by $3.0 million in the nine months ended April 30, 2024 due to a combination of rising costs, specifically due to labor and repairs and the building of inventory levels for anticipated demand and to avoid any potential supply chain disruptions.

Prepaid expenses increased by $3.7 million in the nine months ended April 30, 2024.

The increase is mainly due to the timing of income tax and insurance payments.

Accounts payable decreased by $1.0 million in the nine months ended April 30, 2024.

The decrease was mainly due to the timing of payments, cost of goods and services we purchase, production volume levels and vendor payment terms.

Accrued expenses decreased $3.9 million in the nine months ended April 30, 2024.

In addition to net income, as adjusted for depreciation and amortization and other non-cash operating activities, the primary sources and uses of operating cash flows for the three months ended October 31, 2024 were as follows:

Accounts receivable, net of allowances increased by $9.0 million in the three months ended October 31, 2024.

The increase in accounts receivable was driven primarily by higher net sales, offset by the level and timing of collections due to payment terms.

Inventory increased by $2.0 million in the three months ended October 31, 2024 due to the building of finished goods inventory to meet anticipated demand.

Prepaid expenses decreased by $2.2 million in the three months ended October 31, 2024.

The decrease is mainly due to the timing of tax and insurance payments.

Excluding the impact of payments related to capital expenditures, accounts payable increased by $1.9 million in the three months ended October 31, 2024.

The increase was mainly due to the timing of payments, cost of goods and services we purchase, production volume levels and vendor payment terms.

In the three months ended October 31, 2024 there was a $3.0 million decrease in accounts payable related to capital expenditures recognized as cash used in investing activities

Excluding the impact of payments made related to capital expenditures, accrued expenses decreased $6.1 million in the three months ended October 31, 2024.

The decrease was mainly due to the payout of annual bonuses and taxes, and other miscellaneous expenses which fluctuate due to timing of payments, changes in the cost of goods and services we purchase, production volume levels and vendor payment terms including freight.

In the three months ended October 31, 2024 there was a $4.5 million decrease in accrued expenses related to capital expenditures recognized as cash used in investing activities

Net cash used in investing activities

Cash used in investing activities of $23.5 million in the nine months ended April 30, 2024 was driven by capital expenditures.

During the nine months ended April 30, 2024 we expanded our plant equipment and improved our facilities to support increased demand for our products.

Cash used in investing activities of $12.8 million in the three months ended October 31, 2024 was driven by capital expenditures.

During the three months ended October 31, 2024 we continued to expand our plant equipment and improve our facilities to support increased demand for our products.

Net cash used in financing activities

Cash provided by financing activities of $1.5 million in the nine months ended April 30, 2024 was primarily driven by the issuance of a $10 million note offset by cash used for dividend payments and treasury stock repurchases.

Total cash balances held by our foreign subsidiaries of $5.0 million as of April 30, 2024 decreased compared to $5.2 million as of July 31, 2023.

Cash used in financing activities of $9.1 million in the three months ended October 31, 2024 was primarily driven by a $5 million payment of our borrowing under the Credit Agreement, as well as cash used for dividend payments and treasury stock repurchases.

Total cash balances held by our foreign subsidiaries of $4.7 million as of October 31, 2024 decreased compared to $4.5 million as of July 31, 2024.

See further discussion in "Foreign Operations" above.

As of April 30, 2024, we had remaining authority to repurchase 380,753 shares of Common Stock and 262,092 shares of Class B Stock under a repurchase plan approved by our Board.

As of October 31, 2024, we had remaining authority to repurchase 368,902 shares of Common Stock and 244,113 shares of Class B Stock under a repurchase plan approved by our Board.

Repurchases may be made on the open market (pursuant to Rule 10b5-1 plans or otherwise) or in negotiated transactions.

1 unchanged sentence

We believe that cash flow from operations, availability under our Note Agreement and revolving credit facility under our Credit Agreement, current cash balances and our ability to obtain other financing, if necessary, will provide sufficient liquidity for foreseeable working capital needs, capital expenditures at existing facilities, deferred compensation payouts, dividend payments and debt service obligations for at least the next 12 months.

See Note 8 of the Notes to the unaudited Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q.

We expect capital expenditures in fiscal year 2024 to be greater than in fiscal year 2023.

We do not believe that these increased capital expenditures will dramatically impact our cash position;

however, our cash requirements are subject to change as business conditions warrant and opportunities arise.

We continually evaluate our liquidity position and anticipated cash needs, as well as the financing options available to obtain additional cash reserves.

10 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis