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Item 2. Management’s Discussion and Analysis

2025-06-05 compared with 2025-03-11 · 125 added, 127 removed, 114 unchanged (69% of the section changed)

11 unchanged sentences

RESULTS OF OPERATIONS

For the Six Months Ended

For the Three Months Ended

For the Nine Months Ended April 30, For the Three Months Ended April 30,

(in thousands)

13 unchanged sentences

$ 34,414 $ 34,080 $ 334 1% $ 9,709 $ 10,872 $ (1,163) (11)%

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.

Fiscal year 2025 continues to be a strong year with consolidated net sales, gross profit and net income growing in the nine months ended April 30, 2025, when compared to the nine months ended April 30, 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.

These were partially offset by positive cash flow from operations.

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

Consolidated net sales of $360.4 million increased $36.5 million, or 11%, in the nine months ended April 30, 2025, compared to the nine months ended April 30, 2024.

Gross margin grew to 30% for the nine months ended April 30, 2025, compared to 28% for the nine months ended April 30, 2024.

Despite higher SG&A and other expenses consolidated income from operations increased $13.8 million, or 36%, and, including the impact of tax, consolidated net income increased $10.0 million, or 32%, for the nine months ended April 30, 2025, compared to the nine months ended April 30, 2024.

Our unaudited Condensed Consolidated Balance Sheet as of April 30, 2025 and our unaudited Condensed Consolidated Statement of Cash Flows for the nine months ended April 30, 2025, show an increase of $12.0 million, or 49%, in total cash and cash equivalents from fiscal year-end 2024.

The increase was driven primarily by positive cash flow from operations partially offset by cash used in investing and financing activities.

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

4 unchanged sentences

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

NINE MONTHS ENDED APRIL 30, 2025 COMPARED TO

NINE MONTHS ENDED APRIL 30, 2024

CONSOLIDATED RESULTS

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.

Consolidated net sales for the nine months ended April 30, 2025, were $360.4 million, an 11% increase compared to net sales of $323.9 million for the nine months ended April 30, 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, stronger demand for our products, and higher prices.

Consolidated gross profit in the nine months ended April 30, 2025, was $108.3 million, an increase of $16.2 million, or 18%, from gross profit of $92.1 million in the nine months ended April 30, 2024.

Our gross margin (defined as gross profit as a percentage of net sales) in the nine months ended April 30, 2025, increased to 30.0% from 28.4% in the nine months ended April 30, 2024.

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

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.

However, for the nine months ended April 30, 2025, the 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 nine months which resulted in higher overall per ton transportation and material costs, which increased 8% and 7%, respectively.

These increases were slightly offset by a 2% decrease in packaging costs for the nine months ended April 30, 2025, when compared to the same period of fiscal year 2024.

Total SG&A expenses of $55.7 million for the nine months ended April 30, 2025, were $2.4 million, or 5%, higher compared to $53.3 million for the nine months ended April 30, 2024.

The increase was primarily driven by operating segment SG&A, which increased by $3.8 million, partially offset by a $1.4 million reduction in corporate unallocated expenses.

SG&A expenses at the operating segments level are discussed below in the discussion of our segments' operating income.

The decrease in corporate unallocated for the nine months ended April 30, 2025, was primarily due to a decrease in acquisition-related expenses incurred in the same period of fiscal year 2024.

Total other expenses, net were $1.9 million for the nine months ended April 30, 2025, compared to $1.1 million in the same period of fiscal year 2024.

This increase was mainly due to an $0.8 million increase in interest expense.

We had tax expense of $9.8 million for the nine months ended April 30, 2025, compared to $6.7 million for the nine months ended April 30, 2024.

$2.3 million of the increase was due to higher pre-tax income and $0.7 million of the increase was due to the change in the estimated annual effective tax rate ("ETR").

For the nine months ended April 30, 2025, we used an estimated annual ETR of 19% compared to an ETR of 18% for the nine months ended April 30, 2024.

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

1 unchanged sentence

(in thousands)

For the Six Months Ended January 31,

For the Nine Months Ended April 30,

Business to Business Products Group 2025 2024 $ Change

5 unchanged sentences

Operating Income $ 44,814 $ 32,713 $ 12,101 37 %

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 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.

Net sales of the Business to Business Products Group for the nine months ended April 30, 2025, increased $22.9 million, or 21%, compared to the nine months ended April 30, 2024, with growth in all three principal products within this segment.

Net sales of our fluids purification products for the nine months ended April 30, 2025, increased $14.9 million, or 22%, compared to the nine months ended April 30, 2024, primarily driven by the increase in demand for products used in renewable diesel filtration.

Net sales of our agricultural and horticultural chemical carrier products for the nine months ended April 30, 2025, increased $4.7 million, or 17% compared to the nine months ended April 30, 2024, mainly as a result of stronger demand, primarily as key customers resumed purchasing after working through inventory surpluses.

Net sales of our animal health & nutrition products for the nine months ended April 30, 2025, increased $3.3 million, or 20%, compared to the nine months ended April 30, 2024, with growth across all regions mainly driven by favorable product mix.

SG&A expenses for the Business to Business Products Group increased by $0.6 million, or 5%, for the nine months ended April 30, 2025, compared to the nine months ended April 30, 2024.

The increase was mainly driven by a preliminary foreign value-added tax ("VAT") assessment recognized in the first quarter of fiscal year 2025, and higher research and development costs and marketing spend, partially offset by cost reductions across other general and administrative expenses.

The Business to Business Products Group’s operating income for the nine months ended April 30, 2025, was $44.8 million, an increase of $12.1 million, or 37%, from operating income of $32.7 million for the nine months ended April 30, 2024.

The increase in operating income was mostly driven by higher net sales as described above.

RETAIL AND WHOLESALE PRODUCTS GROUP

(in thousands)

For the Six Months Ended January 31,

For the Nine Months Ended April 30,

Retail and Wholesale Products Group 2025 2024 $ Change % Change

3 unchanged sentences

Operating Income $ 34,414 $ 34,080 $ 334 1 %

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.

Net sales of the Retail and Wholesale Products Group for the nine months ended April 30, 2025, increased $13.6 million, or 6%, compared to the nine months ended April 30, 2024, primarily driven by the introduction of crystal cat litter products.

Domestic cat litter net sales, excluding co-packaged cat litter, were $168.4 million for the nine months ended April 30, 2025, an increase of $12.0 million, or 8%, when compared to the nine months ended April 30, 2024.

This increase was primarily driven by $15.2 million of net sales from the introduction of crystal cat litter products, partially offset by a $3.3 million decrease in clay-based cat litter products.

$2.6 million of this decrease was driven by customer bankruptcies and $2.0 million was due to the loss of a private label account.

These losses were partially offset by other revenue gains.

Net sales of co-packaged cat litter products increased 4% in the nine months ended April 30, 2025, compared to the nine months ended April 30, 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.

Net sales of our domestic industrial and sports products were $33.2 million for the nine months ended April 30, 2025, an increase of $1.2 million, or 4%, when compared to the nine months ended April 30,

2024, mainly driven by the higher pricing to offset elevated costs.

Net sales by our subsidiary in Canada, which include both our cat litter and industrial products, decreased $0.2 million, as discussed below.

SG&A expenses for the Retail and Wholesale Products Group increased $3.2 million, or 24% during the nine months ended April 30, 2025, compared to the nine months ended April 30, 2024, primarily due to incremental SG&A expenses related to the recently acquired crystal cat litter business.

These elevated costs were partially offset by lower advertising expenses compared to the same period of the previous fiscal year.

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 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.

The Retail and Wholesale Products Group's operating income for the nine months ended April 30, 2025, was $34.4 million, an increase of $0.3 million, or 1%, from operating income of $34.1 million for nine months ended April 30, 2024.

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 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.

Net sales by our foreign subsidiaries for the nine months ended April 30, 2025, were $14.9 million, a decrease of 7%, compared to net sales of $16.0 million during the nine months ended April 30, 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.

Net sales of our subsidiary in China decreased $1.7 million, or 100%, in the nine months ended April 30, 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 $0.3 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

Total net sales of our subsidiary in Canada decreased $0.2 million, or 2%, in the nine months ended April 30, 2025, compared to the nine months ended April 30, 2024, primarily due to the impact of foreign exchange rates.

However, excluding the impact of foreign currency translation, net sales in local currency increased 2%, driven primarily by revenues from cat litter sales.

Total net sales of our subsidiary in Mexico increased $0.6 million, or 47%, in the nine months ended April 30, 2025, compared to the nine months ended April 30, 2024, driven primarily by higher demand.

Total net sales of our subsidiary in the UK increased $0.2 million, or 10%, in the nine months ended April 30, 2025, compared to the nine months ended April 30, 2024, primarily due to higher prices.

Net sales by our foreign subsidiaries represented 4% and 5% of our consolidated net sales for the nine months ended April 30, 2025, and 2024, respectively.

Our foreign subsidiaries reported net loss of $0.1 million for the nine months ended April 30, 2025, compared to net income of $0.6 million in the nine months ended April 30, 2024.

The decrease in net income was primarily driven by the preliminary foreign VAT assessment recognized in the first quarter of fiscal year 2025 and the impact of foreign exchange in Canada.

Identifiable assets of our foreign subsidiaries as of April 30, 2025, were $9.7 million, compared to $8.7 million as of July 31, 2024.

THREE MONTHS ENDED APRIL 30, 2025 COMPARED TO

THREE MONTHS ENDED APRIL 30, 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.

Consolidated net sales for the third quarter of fiscal year 2025 were $115.5 million, an 8% increase compared to net sales of $106.8 million for the third 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, higher volumes, and higher prices.

Consolidated gross profit for the third quarter of fiscal year 2025 was $33.0 million, an increase of 10% when compared to $30.1 million for the third quarter of fiscal year 2024.

Our gross margin (defined as gross profit as a percentage of net sales) increased to 28.6% from 28.2% in the third quarter of fiscal year 2025 compared to the third quarter of fiscal year 2024.

This increase was mainly driven by higher net sales partially offset by higher per ton costs of goods sold.

Domestic per ton cost of goods sold increased 5%, primarily driven by higher material and transportation costs partially offset by a reduction in packaging costs.

Per ton material costs increased 7% driven primarily by product mix and certain higher expenses such as labor, natural gas and depreciation.

Domestic transportation per ton costs increased 8% due to product mix and additional railcar usage to support our growing renewable diesel business.

Packaging costs decreased 5%.

Total SG&A expenses of $19.1 million for the third quarter of fiscal year 2025, decreased by $0.6 million, or 3%, compared to $19.7 million for the same period of fiscal year 2024, primarily due to the decrease in corporate unallocated expenses, partially offset by an increase in operating segments' SG&A expenses.

Unallocated corporate expenses were $9.2 million, a decrease of

$1.9 million, or 17%, compared to the same period in fiscal year 2024, primarily as a result of acquisition-related expenses incurred in the third quarter of fiscal year 2024.

SG&A expenses at the operating segments level are discussed below in the discussion of our segments' operating income.

Total net other income was $0.3 million for the third quarter of fiscal year 2025, compared to net other expenses of $0.3 million for the third quarter of fiscal year 2024 mainly due to foreign exchange gains offset by higher interest expense, and lower interest income.

Tax expense was $2.6 million for the third quarter of fiscal year 2025 compared to $2.4 million for the third quarter of fiscal year 2024.

$1.0 million of the year-over-year increase in tax expense was driven by higher pre-tax income partially offset another $0.7 million decrease due to changes in the annual ETR for the quarter.

For the third quarter of fiscal year 2025 we used an estimated ETR of 18% compared to an ETR of 23% for the third 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.

1 unchanged sentence

(in thousands)

For the Three Months Ended January 31,

For the Three Months Ended April 30,

Business to Business Products Group 2025 2024 $ Change % Change

4 unchanged sentences

Operating Income $ 13,382 $ 10,605 $ 2,777 26 %

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.

Net sales of the Business to Business Products Group increased $6.5 million, or 18%, in the third quarter of fiscal year 2025, compared to the same period in 2024, driven by an increase in net sales of our agriculture and horticultural products and fluids purification products.

Net sales of our agricultural and horticultural chemical carrier products in the third quarter of fiscal year 2025 increased $3.5 million, or 43%, compared to the third quarter of fiscal year 2024, primarily due to higher volumes.

Net sales of our fluids purification products in the third quarter of fiscal year 2025 increased $2.9 million, or 13%, compared to the third quarter of fiscal year 2024, primarily driven by the increase in demand for products used in renewable diesel filtration.

Net sales of our animal health and nutrition products in the third quarter of fiscal year 2025 remained flat compared to the third quarter of fiscal year 2024.

Total SG&A expenses for the Business to Business Products Group in the third quarter of fiscal year 2025 increased $0.3 million, or 8%, compared to the same period of fiscal year 2024.

The Business to Business Products Group’s operating income for the third quarter of fiscal year 2025 was $13.4 million, an increase of $2.8 million, or 26%, from operating income of $10.6 million for the third quarter of fiscal year 2024.

The overall increase in operating income was primarily due to higher net sales as described above.

RETAIL AND WHOLESALE PRODUCTS GROUP

(in thousands)

For the Three Months Ended January 31,

For the Three Months Ended April 30,

Retail and Wholesale Products Group 2025 2024 $ Change % Change

3 unchanged sentences

Operating Income $ 9,709 $ 10,872 $ (1,163) (11) %

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.

Net sales of the Retail and Wholesale Products Group increased $2.2 million, or 3%, in the third 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, excluding sales of co-packaged cat litter, were $52.8 million for the third quarter of fiscal year 2025, an increase of $1.6 million, or 3%, when compared to the third quarter of fiscal year 2024.

This increase was driven by $4.8 million in net sales from the introduction of crystal cat litter products, offset by a $1.4 million decrease due to the loss of a private label account, $0.8 million driven by customer bankruptcies, and the remainder due to other net decreases in revenue from sales of clay-based cat litter products.

Net sales of co-packaged cat litter products decreased 2% compared to the third quarter of fiscal year 2024, due to softer volumes.

Net sales of our domestic industrial and sports products in the third quarter of fiscal year 2025 were $12.3 million, an increase of $0.6 million, or 5%, when compared to the third quarter of fiscal year 2024, mainly driven by the higher pricing to offset elevated costs.

Net sales by our subsidiary in Canada, which include both our cat litter and industrial products, in the third quarter of fiscal year 2025, increased $0.1 million, or 4%, compared to the same period in 2024, as discussed below.

SG&A expenses for the Retail and Wholesale Products Group increased by $1.0 million, or 21%, during the third quarter of fiscal year 2025, compared to the same period in fiscal year 2024.

This increase was driven by incremental SG&A expenses related to the recently acquired crystal cat litter business.

These elevated costs were partially offset by lower advertising expenses compared to the same period of the previous fiscal year.

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.

The Retail and Wholesale Products Group's operating income was $9.7 million for the third quarter of fiscal year 2025, a decrease of $1.2 million from operating income of $10.9 million for the same period of fiscal year 2024.

This was driven primarily by a $3.4 million increase in operating costs, which offset the $2.2 million 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.

Foreign operations include our subsidiaries in Canada and the Netherlands, which are 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 2025 were $4.8 million, an increase of $0.3 million compared to net sales of $4.5 million during the same period of fiscal year 2024, driven primarily by increases in net sales in Canada, the UK and Mexico.

Net sales by our subsidiary in Canada increased $0.1 million, or 4%, driven by higher volumes of cat litter sales, partially offset by a $0.2 million negative effect of foreign exchange rates.

Net sales of our fluids purification products by our subsidiary in the UK during the third quarter of fiscal year 2025 increased $0.1 million, or 12%, compared to the same period in fiscal year 2024, primarily due to higher volume.

Net sales of our animal health and nutrition products by our subsidiary in Mexico during the third quarter of fiscal year 2025 increased $0.1 million, or 24%, compared to fiscal year 2024, due to higher volume.

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

Our foreign subsidiaries reported net income of $0.2 million for the third quarter of fiscal year 2025 compared to a net loss of $0.1 million in the third quarter of fiscal year 2024.

LIQUIDITY AND CAPITAL RESOURCES

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

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.

During the nine months ended April 30, 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.

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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.

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.

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

For the Six Months Ended January 31,

For the Nine Months Ended April 30,

Net cash provided by operating activities $ 54,988 $ 36,929

Net cash used in investing activities (24,509) (23,536)

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

Net cash (used in)/provided by financing activities

(18,523) 1,462

Effect of exchange rate changes on cash and cash equivalents 38 212

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

Net increase in cash and cash equivalents $ 11,994 $ 15,067

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 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.

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, 2025, were as follows:

Accounts receivable, net of allowances increased by $3.8 million in the nine months ended April 30, 2025, as compared to the nine months ended April 30, 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 $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.

Inventory increased by $2.5 million in the nine months ended April 30, 2025, as compared to the nine months ended April 30, 2024, mainly due to the building of finished goods inventory to meet anticipated demand.

Prepaid expenses decreased by $1.2 million in the nine months ended April 30, 2025, as compared to the nine months ended April 30, 2024, mainly due to the timing of tax and insurance payments.

Excluding the impact of payments related to capital expenditures, accounts payable increased by $0.5 million in the nine months ended April 30, 2025, as compared to the nine months ended April 30, 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 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.

In the nine months ended April 30, 2025, there was a $2.3 million decrease in accounts payable related to capital expenditures recognized as cash used in investing activities as compared to the nine months ended April 30, 2024.

Excluding the impact of payments made related to capital expenditures, accrued expenses decreased $2.3 million in the nine months ended April 30, 2025, as compared to the nine months ended April 30, 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 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.

In the nine months ended April 30, 2025, there was a $4.6 million decrease in accrued expenses related to capital expenditures recognized as cash used in investing activities as compared to the nine months ended April 30, 2024.

Net cash used in investing activities

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.

Cash used in investing activities of $24.5 million in the nine months ended April 30, 2025, was driven by capital expenditures.

During the nine months ended April 30, 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 $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.

Cash used in financing activities of $18.5 million in the nine months ended April 30, 2025, was primarily driven by a $10 million payment of our borrowings under the Credit Agreement, as well as $6.3 million used for dividend payments and $2.2 million for treasury stock repurchases.

Total cash balances held by our foreign subsidiaries of $5.2 million as of April 30, 2025, increased $0.7 million compared to $4.5 million as of July 31, 2024.

See further discussion in "Foreign Operations" above.

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.

As of April 30, 2025, we had remaining authority to repurchase 362,938 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.

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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