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Item 2. Management’s Discussion and Analysis

2025-03-11 compared with 2024-12-09 · 188 added, 93 removed, 53 unchanged (84% of the section changed)

8 unchanged sentences

We have two reportable operating segments based on the different characteristics of our two primary customer groups:

the Retail and Wholesale Products Group ("Retail and Wholesale" or "R&W") and the Business to Business Products Group ("Business to Business" or "B2B"), as described in Note 10 of the Notes to the unaudited Condensed Consolidated Financial Statements.

the Retail and Wholesale Products Group ("Retail and Wholesale") and the Business to Business Products Group ("Business to Business"), as described in Note 10 of the Notes to the unaudited Condensed Consolidated Financial Statements.

Each operating segment is discussed individually below.

RESULTS OF OPERATIONS

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.

For the Six Months Ended

For the Three Months Ended

(in thousands)

Consolidated Results

$ 244,859 $ 217,106 $27,753 13% $ 116,914 $ 105,668 $ 11,246 11%

$ 75,228 $ 61,933 $13,295 21% $ 34,448 $ 30,942 $ 3,506 11%

Operating Income

$ 38,672 $ 28,321 $10,351 37% $ 17,482 $ 15,165 $ 2,317 15%

$ 29,297 $ 23,124 $6,173 27% $ 12,921 $ 12,382 $ 539 4%

Business to Business

$ 91,831 $ 75,395 $16,436 22% $ 43,416 $ 36,234 $ 7,182 20%

Operating Income

$ 31,432 $ 22,108 $9,324 42% $ 14,322 $ 10,985 $ 3,337 30%

Retail & Wholesale

$ 153,028 $ 141,711 $11,317 8% $ 73,498 $ 69,434 $ 4,064 6%

Operating Income

$ 24,705 $ 23,208 $1,497 6% $ 11,328 $ 11,877 $ (549) (5)%

Fiscal year 2025 continues to be a strong year with consolidated net sales, gross profit and net income growing in the six months ended January 31, 2025 when compared to the six months January 31, 2024.

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

Both operating segments grew due to stronger demand, favorable product mix and higher prices compared to the same period in fiscal year 2024.

Consolidated net sales of $244.9 million increased $27.8 million, or 13%, in the six months ended January 31, 2025, compared to the six months ended January 31, 2024.

Gross margin grew to 31% for the six months ended January 31, 2025, compared to 29% for the six months ended January 31, 2024.

Despite higher SG&A and other expenses consolidated income from operations increased $10.4 million, or 37%, and including the impact of tax consolidated net income increased $6.2 million, or 27%, for the six months ended January 31, 2025, compared to the six months ended January 31, 2024.

Our Condensed Consolidated Balance Sheet as of January 31, 2025, and our Condensed Consolidated Statement of Cash Flows for the six months ended January 31, 2025 show a 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.

1 unchanged sentence

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

THREE MONTHS ENDED OCTOBER 31, 2024 COMPARED TO

THREE MONTHS ENDED OCTOBER 31, 2023

On October 9, 2024, the Company announced that our Board approved a two-for-one stock split in the form of a stock dividend.

Stockholders of record as of the close of business on December 20, 2024 received a distribution of one additional share of Common Stock for each share of Common Stock held by such stockholder and one additional share of Class B Stock for each share of Class B Stock held by such stockholder as of the record date.

The additional shares were distributed on January 3, 2025, and our Common Stock began trading on a post-split basis on January 6, 2025.

The stock split did not affect the par value of the Common Stock or Class B Stock, however, in order to implement the stock split we amended our Certificate of Incorporation on December 11, 2024 to increase the number of authorized shares of Common Stock from 15 million to 30 million.

Proportionate adjustments were made to the number of shares that remain available for issuance pursuant to the 2006 Plan, as well as to the outstanding awards under the 2006 Plan.

SIX MONTHS ENDED JANUARY 31, 2025 COMPARED TO

SIX MONTHS ENDED JANUARY 31, 2024

CONSOLIDATED RESULTS

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.

Consolidated net sales for the six months ended January 31, 2025 were $244.9 million, a 13% increase compared to net sales of $217.1 million for the six months ended January 31, 2024.

The increase across both our Business to Business and Retail and Wholesale product groups was primarily driven by a combination of stronger demand for our products, favorable product mix and higher prices.

Consolidated gross profit in the six months ended January 31, 2025 was $75.2 million, an increase of $13.3 million, or 21%, from gross profit of $61.9 million in the six months ended January 31, 2024.

Our gross margin (defined as gross profit as a percentage of net sales) in the six months ended January 31, 2025 increased to 30.7% from 28.5% in the six months ended January 31, 2024.

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, 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 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 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.

Additionally, in the first quarter of fiscal year 2025 we realized production efficiencies at various manufacturing plants which resulted in stronger gross margins for several of our products.

However, for the six months ended January 31, 2025 overall domestic per ton cost of goods sold increased 5% compared to the same period of fiscal year 2024.

The increase was primarily driven by our product mix across the six months which resulted in higher overall per ton transportation and material costs, which increased 8% and 6%, respectively.

Total SG&A expenses of $36.6 million for the six months ended January 31, 2025 were $2.9 million higher, or 9%, compared to $33.6 million for the six months ended January 31, 2024.

Corporate unallocated expenses of $17.5 million for the six months ended January 31, 2025, increased $0.5 million, or 3%, as compared to the six months ended January 31, 2024 mainly driven by acquisition-related expenses incurred in the current year as we continue our Ultra Pet integration as well as a strategic investment in data analytics.

The remaining increase was driven by SG&A at the operating segments level as discussed below in the discussion of our segments' operating income including SG&A.

Total other expenses, net were $2.2 million for the six months ended January 31, 2025 compared to $0.8 million in the same period of fiscal year 2024.

The increase was mainly due to higher interest expenses, foreign exchange losses, and lower interest income.

We had tax expense of $7.2 million for the six months ended January 31, 2025 compared to $4.4 million for the six months ended January 31, 2024.

This includes $1.4 million driven by a higher estimated annual effective tax rate ("ETR") and another $1.4 million due to higher pre-tax income.

For the six months ended January 31, 2025 we used an estimated annual ETR of 20% compared to an ETR of 16%, for the six months ended January 31, 2024.

The ETR is based on expected annual taxable income and the assessment of various tax adjustments, including depletion and discrete items.

BUSINESS TO BUSINESS PRODUCTS GROUP

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.

(in thousands)

For the Six Months Ended January 31,

Business to Business Products Group 2025 2024 $ Change

Agricultural and Horticultural $ 20,757 $ 19,593 $ 1,164 6 %

Fluids Purification 57,115 45,115 12,000 27 %

Animal Health & Nutrition

13,959 10,687 3,272 31 %

Net Sales $ 91,831 $ 75,395 $ 16,436 22 %

Operating Income $ 31,432 $ 22,108 $ 9,324 42 %

Net sales of the Business to Business Products Group for the six months ended January 31, 2025 increased $16.4 million, or 22%, compared to the six months ended January 31, 2024, with growth in all three principal products within this segment.

Net sales of our fluids purification products for the six months ended January 31, 2025 increased $12.0 million, or 27%, compared to the six months ended January 31, 2024, primarily driven by growing demand of our products used in renewable diesel filtration in North America and higher prices.

Net sales of our animal health & nutrition products for the six months ended January 31, 2025 increased $3.3 million, or 31% compared to the six months ended January 31, 2024, mainly driven by the increase in demand.

Net sales of our animal health and nutrition products for the six months ended January 31, 2025 increased compared to the six months ended January 31, 2024 in all regions except for Asia (including China).

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.

Net sales of our agricultural and horticultural chemical carrier products for the six months ended January 31, 2025 increased $1.2 million, or 6% compared to the six months ended January 31, 2024 as a result of stronger demand.

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

SG&A expenses for the Business to Business Products Group increased by $0.3 million, or 4%, for the six months ended January 31, 2025 compared to the six months ended January 31, 2024.

The increase was mainly driven by a preliminary foreign value-added tax ("VAT") assessment recognized in the first quarter, higher research and development costs and marketing spend offset by cost reductions across other general and administrative expenses.

The Business to Business Products Group’s operating income for the six months ended January 31, 2025 was $31.4 million, an increase of $9.3 million, or 42%, from operating income of $22.1 million for the six months ended January 31, 2024.

The increase in operating income was mostly driven by favorable product mix, increased demand and lower SGA expenses.

RETAIL AND WHOLESALE PRODUCTS GROUP

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 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.

(in thousands)

For the Six Months Ended January 31,

Retail and Wholesale Products Group 2025 2024 $ Change % Change

Cat Litter $ 130,913 $ 120,187 $ 10,726 9 %

Industrial and Sports 22,115 21,524 591 3 %

Net Sales $ 153,028 $ 141,711 $ 11,317 8 %

Operating Income $ 24,705 $ 23,208 $ 1,497 6 %

Net sales of the Retail and Wholesale Products Group for the six months ended January 31, 2025 increased $11.3 million, or 8%, compared to the six months ended January 31, 2024, primarily driven by the introduction of crystal cat litter products.

Domestic cat litter net sales were $115.6 million for the six months ended January 31, 2025, an increase of $10.3 million, or 10%, when compared to the six months ended January 31, 2024.

This increase was primarily driven by $10.4 million of net sales from the introduction of crystal cat litter products.

Net sales of co-packaged cat litter products increased 7% in the six months ended January 31, 2025 compared to the six months ended January 31, 2024.

This increase was driven primarily by higher prices.

Net sales of our domestic industrial and sports products were $20.9 million for the six months ended January 31, 2025, an increase of $0.7 million, or 3%, when compared to six months ended January 31, 2024, mainly driven by the net effect

of higher pricing to offset elevated costs and new distribution to a national retailer.

Net sales by our subsidiary in Canada, which span both our cat litter and industrial products, decreased $0.3 million, as discussed below.

SG&A expenses for the Retail and Wholesale Products Group were $2.3 million, or an increase of 25% during the six months ended January 31, 2025 compared to the six months ended January 31, 2024, primarily due to higher compensation related costs, amortization of the customer list acquired with Ultra Pet, higher research and development costs, and a credit reserve for several customer bankruptcies.

These higher expenses were partially offset by lower advertising expenses.

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.

The Retail and Wholesale Products Group's operating income for the six months ended January 31, 2025 was $24.7 million, an increase of $1.5 million, or 6%, from operating income of $23.2 million for six months ended January 31, 2024.

This was driven primarily by the introduction of crystal cat litter products, partially offset by elevated SG&A expenses, as discussed above.

FOREIGN OPERATIONS

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.

Net sales by our foreign subsidiaries for the six months ended January 31, 2025, were $10.1 million, a decrease of 12%, compared to net sales of $11.5 million during the six months ended January 31, 2024.

The decrease was driven mainly by our subsidiary in China and to a lesser extent Canada, offset by an increase in net sales in Mexico and the UK.

Net sales of our subsidiary in China decreased $1.7 million, or 100%, in the six months ended January 31, 2025 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 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.

Total net sales of our subsidiary in Canada decreased $0.3 million, or 4%, in the six months ended January 31, 2025 compared to the six months ended January 31, 2024 with a decrease in net sales across both cat litter and industrial products.

Total net sales of our subsidiary in Mexico increased $0.5 million, or 57%, in the six months ended January 31, 2025 compared to the six months ended January 31, 2024 driven primarily by higher demand.

Total net sales of our subsidiary in the UK increased $0.1 million, or 9%, in the six months ended January 31, 2025, compared to the six months ended January 31, 2024, due primarily by higher prices.

Net sales by our foreign subsidiaries represented 4% and 5% of our consolidated net sales for the six months ended January 31, 2025 and 2024, respectively.

Our foreign subsidiaries reported net loss of $0.3 million for the six months ended January 31, 2025, compared to net income of $0.7 million in the six months ended January 31, 2024.

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 first quarter.

Identifiable assets of our foreign subsidiaries as of January 31, 2025, were $8.9 million, compared to $8.7 million as of July 31, 2024.

THREE MONTHS ENDED JANUARY 31, 2025 COMPARED TO

THREE MONTHS ENDED JANUARY 31, 2024

CONSOLIDATED RESULTS

Consolidated net sales for the second quarter of fiscal year 2025 were $116.9 million, an 11% increase compared to net sales of $105.7 million for the second quarter of fiscal year 2024.

The increase across both our Business to Business and Retail and Wholesale product groups was primarily driven by a combination of favorable product mix and higher prices.

Consolidated gross profit for the second quarter of fiscal year 2025 was $34.4 million, an increase of 11% when compared to $30.9 million for the second quarter of fiscal year 2024.

This increase was mainly driven by higher net sales.

Our gross margin (defined as gross profit as a percentage of net sales) increased to 29.5% from 29.3% in the second quarter of fiscal year 2025 compared to the second quarter of fiscal 2024.

However, our domestic per ton cost of goods sold increased 11%, primarily driven by higher material, transportation and packaging costs.

Per ton material costs increased 12% driven primarily by product mix and lower volumes which drove unfavorable fixed cost coverage in the current quarter.

Domestic transportation per ton costs increased 14% due to product mix and additional rail car usage to support our growing renewable diesel business.

Packaging costs increased 4% driven by underlying commodity prices.

Total SG&A expenses of $17.0 million for the second quarter of fiscal year 2025 increased by $1.2 million, or 8%, compared to $15.8 million for the same period of fiscal year 2024.

Unallocated corporate expenses were $8.2 million, up $0.5 million, or

6%, compared to the same period in fiscal year 2024 due to higher anticipated compensation costs, as well as acquisition-related expenses incurred in the second quarter of fiscal year 2025 as we continue our Ultra Pet integration, and a strategic investment in data analytics.

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

Total net other expense of $1.2 million for the second quarter of fiscal year 2025 increased $0.7 million, compared to $0.5 million in the same period of fiscal year 2024 mainly due to foreign exchange losses, higher interest expense, and lower interest income.

Tax expense was $3.3 million for the second quarter of fiscal year 2025 compared to $2.3 million for the second quarter of fiscal year 2024.

The increase includes $0.6 million of the year-over-year increase in tax expense was driven by higher pre-tax income and another $0.4 million was from a higher annual ETR.

For the second quarter of fiscal year 2025 we used an estimated ETR of 21% compared to an ETR of 16%, for the second quarter of fiscal year 2024.

We adjust our ETR quarterly based on expected annual taxable income and our assessment of various tax adjustments, including depletion and discrete items.

BUSINESS TO BUSINESS PRODUCTS GROUP

(in thousands)

For the Three Months Ended January 31,

Business to Business Products Group 2025 2024 $ Change % Change

Agricultural and Horticultural $ 9,175 9,278 $ (103) (1) %

Fluids Purification 26,512 22,709 3,803 17 %

Animal Health & Nutrition 7,729 4,247 3,482 82 %

Net Sales $ 43,416 $ 36,234 $ 7,182 20 %

Operating Income $ 14,322 $ 10,985 $ 3,337 30 %

Net sales of the Business to Business Products Group increased $7.2 million, or 20%, in the second quarter of fiscal year 2025 compared to the same period in 2024, driven by an increase in net sales of our fluids purification and animal health and nutrition products.

Net sales of our fluids purification products in the second quarter of fiscal year 2025 increased $3.8 million, or 17%, compared to the second quarter of fiscal year 2024, primarily due to higher demand of our products used in renewable diesel filtration in the North America region.

Net sales of our animal health and nutrition products in the second quarter of fiscal year 2025 increased $3.5 million, or 82%, compared to the second quarter of fiscal year 2024, in all regions primarily driven by higher volume and favorable product mix.

Net sales of our agricultural and horticultural chemical carrier products in the second quarter of fiscal year 2025 decreased $0.1 million, or 1%, compared to the second quarter of fiscal year 2024, primarily due to softer volumes.

Total SG&A expenses for the Business to Business Products Group in the second quarter of fiscal year 2025 decreased $0.5 million, or 12%, compared to the same period of fiscal year 2024.

The reduction was mainly driven by a decrease in compensation-related expenses to teammates.

The Business to Business Products Group’s operating income for the second quarter of fiscal year 2025 was $14.3 million, an increase of $3.3 million, or 30%, from operating income of $11.0 million for the second quarter of fiscal year 2024.

The overall increase in operating income was primarily due to favorable product mix, increased demand and lower SG&A expenses.

RETAIL AND WHOLESALE PRODUCTS GROUP

(in thousands)

For the Three Months Ended January 31,

Retail and Wholesale Products Group 2025 2024 $ Change % Change

Cat Litter $ 63,237 $ 59,326 $ 3,911 7 %

Industrial and Sports 10,261 10,108 153 2 %

Net Sales $ 73,498 $ 69,434 $ 4,064 6 %

Operating Income $ 11,328 $ 11,877 $ (549) (5) %

Net sales of the Retail and Wholesale Products Group increased $4.1 million, or 6%, in the second quarter of fiscal year 2025 compared to the same period in 2024, driven primarily by the introduction of crystal cat litter products.

Domestic cat litter net sales were $55.8 million, an increase of $5.5 million, or 11%, when compared to the second quarter of fiscal year 2024.

This increase was driven by $4.4 million of net sales from the introduction of crystal cat litter products and favorable product mix within our clay-based cat litter products.

Net sales of co-packaged cat litter products decreased 25% compared to the second quarter of fiscal year 2024.

This decrease was driven by a reduction in volume, as second quarter 2024 experienced higher sales as a result of first quarter sales shifting to second quarter due to a cyberattack on one of our customers, which prevented it from placing and receiving orders during the first quarter of fiscal year 2024.

Net sales of our domestic industrial and sports products in the second quarter of fiscal year 2025 were $9.8 million, an increase of $0.3 million, or 3%, when compared to the second quarter of fiscal year 2024, mainly driven by the net effect of higher pricing to offset elevated costs and new distribution to a national retailer.

Net sales by our subsidiary in Canada, which include both our cat litter and industrial products, in the second quarter of fiscal year 2025 decreased $0.2 million, or 6%, compared to the same period in 2024, as discussed below.

SG&A expenses for the Retail and Wholesale Products Group increased by $1.2 million, or 30%, during the second quarter of fiscal year 2025 compared to the same period in fiscal year 2024.

The increase was primarily driven by an increase in compensation-related expenses, advertising spend and amortization of the recently acquired customer list.

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 was $11.3 million for the second quarter of fiscal year 2025, a decrease of $0.5 million from operating income of $11.9 million for the same period of fiscal year 2024.

This was driven primarily by higher operating costs which offset the increase in net sales in the quarter.

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 second quarter of fiscal year 2025 were $4.9 million, an increase of $0.4 million, or 10%, compared to net sales of $4.5 million during the same period of fiscal year 2024, driven primarily by increases in net sales in Mexico and the UK, offset by lower sales in Canada.

Net sales of our animal health and nutrition products by our subsidiary in Mexico during the second quarter of fiscal year 2025 increased $0.5 million, or 176%, compared to fiscal year 2024, due to higher volume.

Net sales of our fluids purification products by our subsidiary in the UK during the second quarter of fiscal year 2025 increased $0.2 million, or 22%, compared to the same period in fiscal year 2024, primarily due to higher demand.

Net sales by our subsidiary in Canada decreased $0.2 million, or 6%, driven by softer volumes across both cat litter and industrial products.

Net sales by our foreign subsidiaries represented 4% of our consolidated net sales during the second quarter of both fiscal years 2025 and 2024.

Our foreign subsidiaries reported a net loss of $0.1 million for the second quarter of fiscal year 2025 compared to a net income of $0.1 million in the second quarter of fiscal year 2024.

This was mainly driven by the decrease in sales in Canada.

LIQUIDITY AND CAPITAL RESOURCES

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supporting new product development;

infrastructure;

investing in infrastructure;

repurchasing stock;

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

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.

During the six months ended January 31, 2025, 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, providing more financial flexibility.

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.

In addition, we are actively monitoring the timing and collection of our accounts receivable.

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 the foreseeable future.

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

Agreement, depends on our future operating performance, which, in turn, is subject to prevailing economic conditions and to financial, business and other factors.

The timing and size of any new business ventures or acquisitions that we complete may also impact our cash requirements.

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

For the Three Months Ended October 31,

For the Six Months Ended January 31,

Net cash provided by operating activities $ 32,330 $ 17,945

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Net cash used in financing activities (16,358) (6,464)

(9,080) (2,799)

Effect of exchange rate changes on cash and cash equivalents 57 111

Net increase in cash and cash equivalents $ (10,975) $ (2,175)

Net decrease in cash and cash equivalents $ (1,892) $ (3,954)

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 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.

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 six months ended January 31, 2025 were as follows:

Accounts receivable, net of allowances increased by $4.4 million in the six months ended January 31, 2025, as compared to the six months ended January 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.

Inventory increased by $1.4 million in the six months ended January 31, 2025, as compared to the six months ended January 31, 2024, mainly due to the building of finished goods inventory to meet anticipated demand.

Prepaid expenses decreased by $1.0 million in the six months ended January 31, 2025, as compared to the six months ended January 31, 2024, mainly due to the timing of tax and insurance payments.

Excluding the impact of payments related to capital expenditures, accounts payable increased by $2.0 million in the six months ended January 31, 2025, as compared to the six months ended January 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.

In the six months ended January 31, 2025 there was a $2.8 million decrease as compared to the six months ended January 31, 2024 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 $8.4 million in the six months ended January 31, 2025, as compared to the six months ended January 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

In the six months ended January 31, 2025 there was a $5.0 million decrease as compared to the six months ended January 31, 2024 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 $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.

Cash used in investing activities of $17.9 million in the six months ended January 31, 2025 was driven by capital expenditures.

During the six months ended January 31, 2025, 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 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.

Cash used in financing activities of $16.4 million in the six months ended January 31, 2025 was primarily driven by a $10 million payment of our borrowings 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 January 31, 2025 increased $0.2 million compared to $4.5 million as of July 31, 2024.

See further discussion in "Foreign Operations" above.

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.

As of January 31, 2025, we had remaining authority to repurchase 364,483 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.

The timing, number and manner of share repurchases will be determined by our management pursuant to the repurchase plan approved by our Board.

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

Our ability to fund operations, to make planned capital expenditures, to make scheduled debt payments and to remain in compliance with all financial covenants under debt agreements, including, but not limited to, the Credit Agreement, depends on our future operating performance, which, in turn, is subject to prevailing economic conditions and to financial, business and other factors.

The timing and size of any new business ventures or acquisitions that we complete may also impact our cash requirements.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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See the information concerning our critical accounting policies included under "Management’s Discussion of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended July 31, 2024.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There has been no material change in our exposure to market risk from that discussed in our Quarterly Report on Form 10-Q for the fiscal quarter ended October 31, 2024.

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