Good day, and thank you for standing by. Welcome to the Q2 Fiscal 2025 Earnings Discussion via Webcast Conference Call. At this time, all participants are in a listen-only mode. After the speakers presentation there will be a question-and-answer session over the web. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Dan Jaffee, President and CEO of Oil-Dri. Please go ahead.

Thank you, and good morning, everyone, and welcome to our second quarter and six month investor teleconference. Joining me via the web in all sorts of different ways, we're all in different rooms, but we will function as a team like we always do. Susan Kreh, CFO and CIO; Aaron Christiansen, VP of Operations; Chris Lamson, Group VP of Retail and Wholesale; Laura Scheland, Vice President and General Manager of our Consumer Products Division; Bruce Patsey, VP of Fluids Purification. Joining us this time is Heath Wessels, our Vice President of Sales for the Americas, Amlan International. He will be sitting in for Wade Robey, who is traveling internationally and unable to attend today's call. So Heath, thank you for joining us. And then also Tony Parker, our Vice President and General Counsel and Secretary; and as always, Leslie Garber, Director of Investor Relations.

Good morning, 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. Thank you for joining us, and I'll turn the call back to Dan.

Great. Thank you. And I heard a great quote recently that said, if you're the smartest person in the room, you're in the wrong room. Well, I'm in the right room. I'm surrounded by very smart and talented people on my team who make this happen, and you're seeing incredible results. And they're really going to do the majority of the speaking today as well they should because they're doing the majority of the work. So it's only fair. But I do want to start with some 50,000-foot comments, and I'll try not to get too detailed because I know there could be a lot of numbers flying around. But if you follow me at all on LinkedIn, you'll see one of the themes of Oil-Dri is we like to play what we call Mini ball. It's our spin on moneyball. And it's all about our teammates who are turning data into dollars. And of course, Susan, I just stole your tag line. So sorry about that, I couldn't help it. But here's what's amazing about this quarter. So in 2025, the quarter we just closed, our tonnage was 30% less than our all-time record, which was set back in 2006. But in that very quarter back in 2006, we only did $51 million in sales. So we 2x-ed our sales on 30% less tonnage. And again, if you had the news releases, you'd see we only made $9.8 million in gross profit back in 2006, and we made $75 million this quarter. So you're talking about 7.5 times the gross profit on 30% less tonnage. And that is Mini ball. We are selling a non-renewable resource, and we focus every day on turning datas into dollars -- data into dollars, and it's working. So I'm going to turn it over to Susan, I stole some of your thunder, but I got to keep you on your toes.

Thanks, Dan. It's a pleasure to be here this morning. In order to preserve the most time for questions, I'm just going to highlight a few financial matters, and then I'll address any of your other questions in the Q&A portion of this call. During the second quarter of fiscal 2025, Oil-Dri continued to experience growth momentum in some of the key strategic areas of our business, as sales grew at double-digit rates in our Fluids Purification, Animal Health products groups, and we continue to successfully integrate our crystal cat litter products. The growth in these high value-added products provided a positive boost in our product mix, which, when combined with our pricing initiatives, drove our gross margin growth up 11% year-over-year. The addition and growth of our crystal cat litter products has had an impact on our effective tax rate because we do not get a depletion deduction for these highly value-added products. For the second quarter of fiscal year 2025, we used an estimated effective tax rate of 21% compared to an effective tax rate of 16% for the second quarter of fiscal 2024. Now we adjust our estimate of this rate every quarter based on expected annual taxable income and our assessment of various tax adjustments, including depletion and discrete items. Bottom line, our diluted earnings per common share of $0.89 reflects a 5% increase year-over-year in the quarter after updating the prior year's number to reflect our stock split. And to recap that split, on October 9, 2024, we announced that our Board of Directors approved a two-for-one split in the form of a stock dividend. Stockholders of record as of the close of business on December 20th, 2024, received a distribution of one additional share of common stock per share for each share of common…

Okay. Great. Thank you. And before I open it up to Q&A, I just want a special shout out to Susan, who during the quarter was named CFO of the Year for mid-sized public companies in the city of Chicago, a richly deserved award. And as she always rightly points out, it's a team thing, but she's leading the team, and I was going to be stunned if she didn't win and she did win. So congratulations to Susan. And at this point in time then, I will open it up for Q&A. Leslie, you're going to read the questions, and then we'll have our relevant teammate answer them.

Yes. So for everyone please, submit your questions using the ask a question field on the webcast and click submit. So our first question comes from [Ethan Star] (ph). How is Ultra Pet doing? Are the number of SKU shelf placements continuing to increase? How is retail sell-through? So Chris Lamson, I'll have you answer that one.

Yes. Good morning, Ethan and thanks for checking in on Ultra Pet and the Ultra Pet acquisition. So we remain really extremely pleased with the Ultra Pet business. In fact, I can share that our acquisition economics are essentially exactly aligned. In fact, I chuckle a little bit Leslie was our financial person on the deal, and she may be the most amazing forecasters. They're really extremely well aligned with the business case acquisition to date from a bottom line perspective. Regarding those distribution builds that you allude to, the majority of our retail customers really reset their shelves in the fall going into winter. So we're back into the selling cycle. We don't expect much in the way of further major distribution gains like we experienced a few months ago in the immediate term, but we're pushing to achieve those same strong results again this next fall. And really, we're pleased with the early reads that we're getting from customers in terms of adding further distribution, both further distribution with existing customers and getting distribution with new customers. Velocities vary a bit by customer, but I'd say, as we look across those velocities, the items that we got in most recently are doing well [Technical Difficulty] shelf space going forward. Back to you, Leslie.

Thank you. The next question comes from Robert Smith for the Center for Performance Investing. And he has a question on fluids purification in terms of the U.S. versus international demand. What is the competitive treatment landscape? And what are the puts and takes over the next six months? Bruce, I'm going to have you take that one.

Sure, Robert. Thanks for the question. Both North America and Europe are probably the two leading regions that produce renewable diesel fuel. And today, the business is strong in both those regions. As we look out for six months, we expect use of absorbents in this market to stay stable, and there will be some growth as we move forward as some new plants come on. But at this point, the landscape is competitive, but both regions are doing well.

Great. Thank you. We actually received many questions on the Amlan business, so I'm going to consolidate them. So as it relates to Amlan, is the level of sales that Amlan achieved in the second quarter sustainable going forward? And can you elaborate on the drivers behind this performance? And what were the geographical strength? So I'm going to have Heath answer that for us.

Yes. So, always excited to talk about Amlan and our growth and the team that we're building in Animal Health at Oil-Dri. And so what I would tell you is if you look back to March of last year, so March of 2024, you start to see our business really start to take off and our sales start to increase. So we've been really excited with the sales volumes we've had. I will tell you, I give that credit to not only our sales and technical team, but also our supply chain. The product quality has been really good. The performance of the product once it gets to the customer has been solid, adding value to their business. And really, what we're seeing is that our technical teams are able to go in and add value to our customer relationships as well. So excited about what we've seen in Q2, really excited about the commitment that Oil-Dri has to Animal Health and Amlan business moving forward.

Great. Thank you. Next question is from John Bair at Ascend Wealth Advisors. And he asks or he notes, you noted several times in the press release of significant investment in manufacturing infrastructure. On a percentage completion basis of what you have targeted, how far along are you in those effort? Over what time period have you projected to get those upgrades done? And what are you seeing as far as costs involved to do so? Have you considered any prebuying of materials equipment to head off inflationary pressure? So I'm going to turn that over to Aaron Christiansen.

John, happy to answer your question. Difficult one to answer directly, I'll take it in some general terms. First, we envision a long-term sustained commitment to reinvesting back in our manufacturing base, actually looking at replacement asset value and a proportioning a percentage of our capital plan every year to sustaining the asset base. So it's a long-term commitment, John. Ongoing, we are also continually looking at where there's overlap between needs for infrastructure replacement, but also adding capacity or cost compression. I think I presented maybe a year ago or so a similar specific piece of work that was just completed in December, where we were able to revitalize the heart of one of our factories that produces our agricultural products and at the same time, add significant capacity. The last piece of your question, we definitely look at places to forward buy equipment. Unfortunately, for us, there are not a lot of opportunities given that a lot of the construction costs are a very large portion of the capital cost, and it's really difficult to prebuy construction services. So I hope I've answered your question?

Great. We have a question from Tyler Ventura from Diamond Hill Capital. And he says, given your continued investment in manufacturing infrastructure while paying down debt and maintaining dividend, what are your capital allocation priorities for the remainder of fiscal 2025 and beyond? Are there any additional M&A opportunities you're considering to complement your organic growth strategy? I'm going to have Susan Kreh take that.

Absolutely, and thanks for the question. Let's start with 2025. We're halfway through the year. We had the priority to pay down our revolving credit facility, which we've done across the first two quarters to open up additional financing capacity because we are always opportunistically looking at opportunities to add to our portfolio. So I think that gets to the M&A aspect of your question. Yes, we are open to that. We want something that is the right fit for our business and we're very careful in assessing those opportunities. And of course, we've had the success with the Ultra Pet crystal cat litters. And as Chris mentioned, that is right on target based on the business case that we established for that acquisition. As I look to the rest of the year, there's continued funding for Aaron and his team in the plants to fund some strategic growth initiatives so that we've got capacity to grow beyond FY 2026, and that's how we're looking at it for now.

Great. We have a question from Ethan Star. Are there any actions by the Trump administration that would either positively or negatively affect the renewable diesel market? Bruce, you take that.

Yes. I think as far as the renewable diesel market today, there's -- these plants that have come on are new. So they're going to continue to produce. There'll be ups and downs in terms of the credits that they get from the government, which will help those companies be more profitable or less profitable. But the competitive landscape is, they're going to continue to produce and this industry is going to be stable as we move forward in the years to come.

Okay. Next question is from Robert Smith. Headwinds from cost of natural gas rising prices, any actionable offsets? Aaron, will you take that one, please?

Robert, we don't actually view the rising cost of natural gas as a headwind. I'll kind of take the opportunity to remind our shareholders that we do forward purchase natural gas for a reasonable percentage of our gas consumption needs that helps buffer and anchor prices. In addition, we monitor markets multiple years ahead and evaluate our pricing and financial models based on where we expect natural gas to go. Nothing that is currently underway with the mild to modest rise in natural gas prices was unexpected and unplanned for, both in our forward purchases that go out as far as five years, as well as the way we financially model gas prices.

Okay. Thank you. John Bair has a question. You noted softer sales of cat litter and industrial floor absorbent products for the Canadian subsidiary. Is your view that this is a seasonal issue or is more related to economic pressures in Canada that could become more prolonged due to the trade arguments now underway? Chris, will you take that?

Yes. I would say, first, relative to the quarter, there were some unique challenges. Some of them were actually weather-based, some of them were timing with retailer based. In fact, we had a new distribution going into a major retailer in Canada, a very major retailer that was intended to ship in the second quarter and has shifted to the third quarter. In fact, it shipped this past week. So I would not say that there is anything particularly systemic there. In general, we do fill our litter in Canada and have a facility near Montreal. That gives us actually a unique opportunity relative to most of the players in the category to speak to Made in Canada, which is quite popular up there, as I'm sure you have gathered and may have driven your question. So in general, relative to what's going on relative to tariffs with our friends to the north, we see this as a bit of an opportunity and the team is working on how to highlight where our product is manufactured. To be clear, it's U.S. clay coming north of the border that is not currently impacted by tariffs, but ultimately finished and manufactured in Canada, and we're going to celebrate that.

Great. Okay. Thank you. Tyler Ventura has another question. He asked, you've received 10 consecutive quarters of margin expansion despite rising input costs, what specific operational improvements or pricing strategies have been most effective? And how sustainable do you view today's margins in the context of past company history and looking ahead to the new normal? So I'm going to have both Aaron Christiansen and Chris Lamson add some comments on that question. Aaron, do you want to go first in terms of operational improvements?

Yes. I mean I loosely alluded to it earlier. We're constantly looking at ways to use our reinvestment in capital plan to drive cost compression and operational efficiency. And there are definitely are those. So we find places where we're reinvesting back in our facilities to drive cost compression and capacity at the same time to provide our commercial teams opportunity to sell more. Chris will talk there in a second. And then I'll close with before handing the baton to Chris, look, in addition, our manufacturing team every single day is looking for ways to make tomorrow better than today through traditional manufacturing operational efficiency improvement.

Yes, I'll just chime in, then kind of the other half of that equation, and I will say, and I've emphasized this a number of times, I think Aaron and his team, even coming out of the supply chain malaise that was on the back end of COVID have really enabled us to sell when your service levels, say, in our division -- our consumables division up against the retailer are north of 99%, it's a heck of a lot easier to have a pricing conversation with the retailer. So that's brass tacks. Relative to really creating value from sorbent minerals and playing mining ball, as Dan talked about at the beginning, I'd say there's really kind of three buckets that we work against that's driving some of that margin improvement or a big contributor to that margin improvement. So the pricing opportunities that you talk about specifically, Heath alluded to it, we really work to understand the value that we're creating for our customers and in certain of our businesses, our consumers as well. That may be understanding the value of substitutes. That would be a good example in our ag business, for instance. In the litter business, if you double-click on that, you've got a dynamic where really the category is not terribly elastic. People are not going to get rid of their cats nor their cat is going to go to the bathroom less because cat litter got more expensive, right? But fundamentally, especially as a value player, our value gaps versus our competitors are key. We study the heck out of those. We understand how our business reacts when those gaps change, and we make adjustments in our pricing strategies to really optimize value there. Dan really talked about at the beginning, a big piece of playing mini ball is really driving the mix and driving the strategic businesses, and Susan hit on exactly that. It's our fluids purification business, our Amlan business and our lightweight litter business specifically, which now includes Crystals. One of the reasons we bought Crystals, as I've told you before, is because it's lightweight. And all those businesses create additional value for our consumers and ultimately create additional value for us. And then lastly, I'd say, even within the business units, our sales teams have become very adept at understanding margin structure and where we can drive the most value, and they're out managing the mix with their respective customers. So three key components there and a lot of focus being put against all three.

Thank you. All right. We have a question from Bill Anderson at Bard Associates. And he asked is, lightweight cat litter still gaining share? And I'm going to have Laura Scheland answer that one.

Sure. Hi, Bill, thanks for the question. On the lightweight cat litter, we're really pleased that the lightweight segment is growing. There's some new products and a lot of promo activity and which is really helping the segment grow. Our share has declined slightly, but a little chip in the short time out of our share is good for our long-term strategy of growing the segment. I think as Chris kind of explained during our annual meeting presentation, we'd always prefer to have a slightly smaller share of a larger pie. And as we see the lightweight segment growing, it's a great opportunity for both our branded and private label products and feel great about the fundamentals of our clay business.

Great. Next question is from John Bair. You noted strategic investment in data analytics. Can you elaborate on what that means? For example, are those expenditures internal for AI applications or alternatively engaging third parties in those efforts? Susan?

Absolutely. Thanks for the question, John. And you heard Dan talk a little bit about this at the beginning. As we evolve our game of mini ball, as we call it here at Oil-Dri, we realize that there's more value if we can turn data into dollars. And so what that looks like is a multi-year effort that has really kicked off in earnest here in fiscal 2025. It involves investments in people and skill sets. It involves investments in platforms and investments in tools that make it easy to mine the data. To your question about internal versus external, it's actually made up of both of those components. We are adding a new leader of data analytics to our company starting next week, actually. So excited about that. But we also use third-party offshoring to help build out some of what we're doing here. So it's a combination that will move across fiscal 2025 and fiscal 2026.

Great. Okay. Susan, I'm actually going to have you answer the next question from John Bair. What are you seeing as far as customer payment trends for your accounts receivable? Do you see any slowdown or stress on customers to pay as expected? Any easing of reorder volumes by customers?

So I do see a shift in our trends in that as we sell more in certain businesses, especially those outside the U.S. as they become a bigger part of our portfolio, our day sales outstanding tend to be a bit higher. But if I turn that on its head and say, well, what about our percent current, that is actually as strong as it's been, and that continues to trend even more favorably. So no, I don't see any stress, just a change in the actual overall trend.

Great. Okay. Next one from Tyler Ventura. In a recessionary environment, do you expect your litter brands to take share on consumers trading down in price? Or are consumer habits and brand loyalty pretty resilient for the category overall? Laura Scheland?

Sure. Tyler, thanks for the question. We don't necessarily see the trend in the trade down of brands, but we see the trade down in channels, which is where our products perform really well. As Chris mentioned, we kind of always are focused on our value proposition for consumers and our branded and private label products are well poised in the value channels to set us up for success in a recessionary environment.

Great. Okay. We have time for one last question, and this is again from Tyler Ventura. How large -- sorry, let me go back. The fluids purification business is benefiting from new renewable diesel plants in North America. How large is this market opportunity? And what competitive advantages does Oil-Dri possess in this space? And what investments might be needed to fully capitalize on this growth?

Thank you for the question, Tyler. This market will continue to grow over the next 3 to 5 years as more plants come on. You'll also see some business, I think, in Latin America we'll start to get into this market later in 2026 and 2027. Our unique mineral really efficiently removes metals and contaminants that the customer wants remove to protect downstream catalyst beds. And then in addition, we've built capacity to take advantage of the future growth. So right now, as we sit today, we're in a very good place. And if the market continues to grow in three to five years, we may have to look at expanding our operation. But at this point, we're in a very good position to service the market.

And I'll just add to that because I can't help myself because of some recent investments that Aaron and his team have made.

Yes. We prepared for this market.

Great. Okay. So we are out of time. Dan, do you want to conclude with any last-minute remarks?

No. Just again, the team is functioning at a very high level. It was great for me to sit back and listen to you guys, field all the questions. I am Mr. irrelevant. Just call me Brock Purdy, if you want. Those who sports fans will know what I'm talking about. So great job team, great job Oil-Dri, and thank you, our long-term shareholders, and we will be back at you in another 90 days-ish. So be well. Thanks.

This concludes today's conference call. Thank you for participating and you may now disconnect. Everyone, have a great day.