Good day, and thank you for standing by. Welcome to the Third fiscal '24 Earnings Discussion. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speakers today, Dan Jaffee, President and CEO. Please go ahead.

Great. Thank you, and welcome, everybody. With me today in a variety of different places to the miracle of modern science, we have Susan Kreh, CFO and CIO; Aaron Christiansen, VP of Operations; Wade Robey, VP of Ag and President of Amlan International; Chris Lamson, Group VP of Retail and Wholesale; Laura Scheland, Chief Legal Officer and Vice President and General Manager of the Consumer Products Division; Bruce Patsey, VP of our Fluids Purification Group; and Leslie Garber, Director of Investor Relations, and she will walk us through the Safe Harbor provision.

Thank you, Dan. Welcome, everyone. On today's call, comments may contain forward-looking statements regarding the company's performance in future periods. Actual results in those periods may materially differ. In our press release and in our SEC filings, we highlight a number of important risk factors, trends and uncertainties that may affect our future performance. We ask that you review and consider those factors in evaluating the company's comments and in evaluating any investment in Oil-Dri stock. Before we begin, I'd like to note that we posted two slides on our website that can be found on both the investor landing page as well as under our Events tab for this webcast. We will be referring to these slides during the call, so please pull them up on your screens. Now, I'll turn the call back to Dan.

Okay. Great. Thank you, Leslie. Before I turn it over, I would like to have some general remarks. First of all, we're going to be here for 45 minutes today, which is a -- allow us to cover our acquisition in detail. So, Chris Lamson will walk us through that after Susan walks us through some highlighted financial results, and then we'll have the full Q&A like we always do. So, that's fantastic. I want to highlight one thing because I don't want to steal Susan's thunder, but we have made $30.901 million in net income through nine months, which is more than any fiscal year we've ever had in our 84-year history. And last year was an all-time record of $20.551 million and that was for all 12 months. So, we're 4.5% ahead of last year and we're playing with the house's money in the fourth quarter. So, the team has continued to do a fantastic job of creating value from sorbent minerals. We want to thank our customers who allow us to provide that value to them. And, obviously, those strategies are working. And what you'll see is that our legacy business is really carrying the day and, our focus on animal health, our commitment has never been stronger. We're completely committed to the business. It takes a while to get it up and running. And while we are confident we'll finish ahead of last year, we're still not seeing the year-over-year growth that we know will hit once that snowball starts rolling, but we're also making advances. So, still very confident in animal health. Susan, at this point, I'd like to turn it over to you to walk us through the financial results.

Thank you, Dan, and good morning, everyone. It's really exciting to be here today and to share with you some of the details of our strategic acquisition of the Ultra Pet business. On several of our previous investor calls, we've been asked about our appetite for acquisitions, and we've consistently stated that we're financially prepared to execute an acquisition that is aligned with our core strategies. On an ongoing basis, we've been monitoring the market and assessing various acquisition opportunities as they've become available. And in the case of Ultra Pet, strategic alignment and the value of the acquisition vis-a-vis the price we paid made this business very interesting to Oil-Dri. I'll touch more on the Ultra Pet acquisition in a few minutes, but first, I will highlight a couple of brief financial points from our fiscal third quarter, knowing that most of you have read our press release. If you do have any questions on our reported results following my comments, please feel free to ask them during our question-and-answer session that will follow Chris Lamson's remarks. For our fiscal third quarter, consolidated net sales reached $106.8 million, a 1% increase over the prior year, making this the 12th consecutive quarter of year-over-year sales growth. Higher prices and improved product mix were partially offset by lower volumes. In prior calls, Dan has discussed our focus on producing and selling higher-value products, such as renewable diesel products, under the initiative that we refer to internally as [Miningball] (ph), or our mining company version of Moneyball. Our fiscal third quarter benefited from this ongoing focus as we experienced elevated sales of higher-value fluids purification and cat litter products, including co-packaged items. The third quarter of fiscal 2024 consolidated gross profit was $30.1 million, a 10% increase over the prior year. Gross…

Thanks, Susan, and good morning, everybody. I'd like to spend some time discussing Ultra Pet as Susan just did more from a financial perspective, we'll shift gears to more of an operational perspective. We've received really through Leslie a good amount of questions regarding the transaction. So, my comments are really based on weaving the answers to your questions through the comments as I proceed. We posted two slides on our Oil-Dri Investor website under the Events tab. In a few minutes, I'll actually be referring to those slides, just really two slides. So, take a look, pull them up if you can, and it'll help the story come to life a bit. Let me first tell you a little bit more about Ultra Pet. They're a small privately-held company located in Anderson, South Carolina, actually not far from Clemson, and we have new -- 18 new teammates down there. Ultra Pet is a prominent supplier of silica gel-based cat litter with net sales of approximately $24 million. Some of you have asked about Ultra Pet's EBITDA. But as you know, we really don't disclose operating earnings at a principal product level. So, we won't be disclosing that number as it will really be a principal product level under our consumables cat litter division. For some background, Ultra Pet was a pioneer in the alternative cat litter market and really the pioneer of the crystal cat litter market with their Litter Pearls brand, which they introduced in the US all the way back in 1998. So, already a strong similarity to Oil-Dri, who innovated the lightweight category some 10, 12 years later. Ultra Pet has expanded its product portfolio to include additional brands such as Ultra Pearls, Neon Litter, which is kind of fun, as well as many private label…

Great. Thank you, Chris. Yes. And please submit your questions using the Ask a Question field on the webcast and click Submit. We have a few in the queue right now. So, I'm going to read them off. The first question comes from [Ethan Starr] (ph), individual investor. He asks, "Given the inflation of the last couple of years, is there any evidence that more consumers are switching to private label cat litter?" Chris, can you answer that, please?

Yeah. Really, it's a good short answer, Ethan. The answer is, yes. The private label is showing across the litter category, the greatest share gains of any other manufacturer.

Okay. Great. The next question comes from John Bair from Ascend Wealth Advisors. And he asks, "Are you experiencing any headwinds of sales or adoption of your animal health products due to the ongoing outbreaks of avian flu domestically or elsewhere?" Wade, can you answer that, please?

Yes. Thank you, Leslie, and thank you, John. Excellent question, and it's not just been avian influenza, but also African swine fever as well, which has predominantly impacted the swine markets globally. Neither one of those conditions are ones that our products specifically would address in the case of AI specifically, which I know was part of your question, that is actually what is called a Type A virus, which -- there really is no treatment for other than depopulation. So, in terms of product adoption, no, other than our products generally improve the productivity of animals and improve bottom-line performance. So, a side opportunity, but really not direct. In terms of headwinds of sales, it has made it a little more difficult to visit customer locations, customer farms. Biosecurity is obviously very important in the animal production industry. And with outbreaks like AI, which domestically have caused already depopulation of about 96 million birds, it does restrict our access sometimes to company farms. And so that makes the sales cycle sometimes more challenging, but we've been able to overcome that by calling on customers in different ways.

Great. Thank you. We have another question from Ethan Starr. He asks, "Do you see continued growth for your products in the renewable diesel market." Bruce?

Yes, there's going to be continued growth in this marketplace. There are several plants being built right now. And we expect over the next two to four years, new plants coming in that will drive sales of our bleaching clay products. So, we're excited about the new industry and it should help drive growth in our business.

Great. Thank you. Next question again is from John Bair. How did the Ultra Pet deal unfold? What was the catalyst for them to join the Oil-Dri family versus any of your larger competitors? Chris, can you answer that, please?

Yeah, you bet. John, I'm actually really excited you asked the question because I think it's a good story for us to tell. First, I'll go back to our thought processes. We obviously have various management routines, but once a year, Dan gets us together off-site for some strategic planning and I'll give Susan props. We're looking at market data and obviously, our largest category in which we compete across the company, which is cat litter. And Susan was really pressing the issue of, "Hey, how do we get into this segment?" So, really, we did some work around how could we enter either on our own or via acquisition. And candidly, we identified Ultra Pet as an acquisition of Ultra Pet is probably the best way to do that. Ironically and kind of a crazy maybe it was meant to be, within a week, we actually got their book. So, they were -- they had put themselves on the market for sale. On the softer side, which may have been what you're -- so proud that our strategic planning process generates those conversations and gets us thinking, and proud of Susan's push. Then, on the softer side, and now that they're our teammates, we've had some more candid conversations around how things transpired on their end. And I'd say the insight is we actually weren't necessarily the highest payer that have presented themselves. But we really spend a lot of time in our LOIs and our management meetings talking about culture, expressing how they would fit in and how we will grow the business together. And they would tell you that, that's what pushed us to the top of the list. And particularly that cultural overlap and symbiotic cultures as Dan has talked about a few times with them, certainly, is playing out. So, proud of the way we -- I think Oil-Dri value shines through. They appreciated them, saw the fit and we rose on top of the list.

Great. Thank you. The next question is from Ethan Starr. What progress is Amlan making? How are trials of Amlan products with potential customers going? Wade, I'm going to turn that one over to you.

Yeah. Thanks, Leslie. Thanks again, Ethan, for that question. I would say even though we've had kind of challenging markets in ag over the last 12 months, certainly, we've not seen that slow down interest of customers in our products, especially the new products that we're bringing out like Phylox internationally, Amsure, and NeutraPath as well. We have trials going on currently in all world areas. And each time we've entered trials with customers we've seen good positive response. It's what's part of what is the longer sales cycle in animal health. It takes customers' use of the products in the field, generally to get to adoption and then commercial activity. And we're excited that those have been continuing with high degree of customer interest.

Great. Thank you. The next question is from John Bair. Are there other crystal litter manufacturers or larger competitors developing this type of product? Chris?

Yeah. Thanks, again, John. So, Clorox with their Fresh Step brand has actually been in crystal litter, I will give you a kind of a rough number, for over a decade. And give or take, a few years if you don't mind there. Pretty Litter, which was an independent company that really started with an online direct-to-consumer subscription model really candidly lit the segment on fire, I think with a lot of digital consumer interaction with a big push starting about four of five years ago, and a lot of that growth you see reflected was really what they lit. And with that growth, Ralston with the Tidy Cat brand has also entered the segment, much like the lightweight segment. Candidly, we want to see that growth. And our unique positioning is a fantastic price value with great efficacy in the segment, both from a branded perspective and a private label perspective, which is aligned with Cat's Pride. So, we like the big guys playing. The big guys are playing and helping fuel the growth of the segment.

Great. Our next question is from [Sean McMahon] (ph). Can management please discuss the cash flow ROI or ROIC expected from the recent acquisition? If not, how should we evaluate if this acquisition is successful if we won't provide the EBITDA estimates? What was the hurdle rate return expectation IRR for this deal? Susan, can you comment on that?

Actually, Leslie, I think I'm going to take this. But Susan has teed me up with some of the details. So, yeah, our weighted average cost of capital is just under 9%. It's more of an opinion than a fact, but that's basically the number. And what we always target is an IRR in excess of 15% when we make a major capital investment. And this one meets that criteria. The good news is that I would say there were very few cost synergies put in the model. And really, what we expect is to have 1 plus 1 equal 3 on the market side. And we are seeing that already. We're seeing a lot of positive responses from our existing customer base, one in crystals. And so, I think the combination of Ultra Pet and Cat's Pride has been pretty powerful that they know the supply chain very well. They've got some very established customers and brands out there but they had some holes in their distribution network and kind of where they're weak, we are strong. And so together, it should work pretty well, and very well actually, but I always have to caution due to the safe harbor. But I would say, if anything, we are more pleased than we thought it would be from a market receptivity.

Great. Thank you. The next question is from Ethan Starr. How much goodwill or intangibles were added to the Oil-Dri balance sheet with the Ultra Pet acquisition?

So, Leslie, you want me to take that one, right?

Yeah. Sorry. Can you take that?

Absolutely. Thanks, Ethan, for your question. Well, we just acquired it this quarter. So, we will go through the process -- we have gone through the process of the acquisition accounting. We've engaged a third party to do the valuations for us. But as an asset-intensive business, is probably why you're asking the question, Ethan, we expect a good amount of this purchase price to be goodwill. But until we go through the valuations, I'm not really comfortable giving a definitive number. So, we can update more on where we are in that process when we have our call, our next call in October.

Great. Thanks, Susan. Next question is from Sean McMahon. How much of management's bonuses could be based on meeting Ultra Pet's financial expectations? Dan, I'll have you answer that one?

Sure, Sean. Thank you. Good question. And for fiscal '23, with Gen 731, I would say none whatsoever that we are tracking against our original plan. And while this one is immediately accretive, the team won't really get benefit from it this year. We're keeping it out. But it will be fully in the F '24 bonus and budget would start a one. And with all of the expected synergies moment minor on the cost side, the major on the market side, all in the planning numbers. And so we will have to meet or exceed those in order to achieve a good bonus in fiscal '24. And we're feeling confident about it, but we will hold ourselves accountable as will the compensation committee of the Board of Directors for sure.

Okay. So, there are no other questions in the queue. So, we do have just a few minutes left. If anyone would like to submit any additional questions via the webcast portal, please do so. And we'll wait about a minute or so. And if not, we'll conclude the call. Okay. I don't know -- here's -- no. Okay. So, all the questions have been answered. Dan, do you want to close it out?

Sure. I'm always passionate about our business, but I'm not going to be falsely optimistic. This I'm sincerely optimistic is the team and I truly believe the best is yet to come. We're going to see continued growth in the next fiscal year, which starts August 1 in renewable diesel. We're going to have the Ultra Pet acquisition moving in. And we believe very strongly in the animal health business, and we'll continue to see growth there. And then, our core businesses are all doing well. So, it's a good time to be creating value from sorbent minerals. And as I've said numerous times over the years, if there's no value in sorbent minerals, you should run because that's what we focus on. But if there is, we're a great investment because that's what we focus on. I hope you all saw that we gave a larger than usual increase to our dividend, which is a further commitment and an example of our confidence in the future of the business. We usually raise it every June $0.01 a share for a quarter, $0.04 for the year, we've done that for 20 great years, 21 straight years. And now this year, we actually raised it $0.02 in the quarter and $0.08 for the year. So, we're feeling good, and we were happy we were able to finance the acquisition with zero equity and over half of it in cash. And so again, as Susan said, we still have a lot of dry powder, and we will be disciplined. But if the right deal comes along, we will certainly give it a hard look and hope to bring it in. So, thank you. We'll look forward to talking to you guys soon after the next quarter.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.