Thank you for standing by, and welcome to Oil-Dri Corporation Q2 Fiscal Year 2022 Investor Teleconference. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. I would now like to hand the call over to Dan Jaffee, President and CEO. Please go ahead. Thank you very much. Welcome to our first six months teleconference. With me today, Susan M. Kreh, CFO, Molly VandenHeuvel, COO, Chris Lamson, our Group Vice President of Retail and Wholesale, Jessica Moskowitz, Vice President and General Manager of our Consumer Products Division, Fred H. Kao, Vice President of our Global Sales for Amlan International, W. Wade Robey, Vice President of our Amlan Marketing and Product Development, Tony Parker, Vice President, General Counsel & Secretary, and Leslie Garber, Director of Investor Relations. Leslie, will you walk us through the safe harbor? 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. Thank you for joining us. Thank you. Before I turn it over to Susan, I just wanna give some 50,000-foot comments. I can tell you, no one has been prepared for what we're all dealing with. You know, anyone, literally, it goes back to 1979 and 1980 for inflation, but when you factor in the global pandemic, the supply chain crunch that's going on, labor shortage, and then a war, I mean, this is other than that, how'd you like to play, Mrs. Lincoln? I mean, it's very dynamic times. I'm very proud of the Oil-Dri team. As I tell them, we are being graded on a curve, and we are doing very well. I mean, you can go to the shelves, you can see our products. Yes, there's some thinning in certain product lines, but the other guys are seemingly doing worse than we are, and that's, you know, really exemplified by the fact that we delivered 17% organic sales growth in the quarter. You know, just a fantastic job by our team. Obviously, we're not keeping up with the cost increases. We're getting price increases, but it's like catching a falling knife at this point in time, and we're just chasing a moving target. The good news is, we're in a rational market, and our customers understand it, and, you know, and we're just passing through price increases left and right, and it's gonna keep happening. I mean, I just don't see this inflation abating anytime soon. Susan, I'm gonna turn it over to you for some highlights. We're assuming you guys have read the Q and the K, so take us through the highlights. Thanks, Dan. Right, we're going to change it up a little bit this time in order to leave more time for questions. Just a couple of key highlights. Dan mentioned the continuing cost pressure. Taking a look at the results, it was an exciting quarter during the Q2. We see the benefit of our growth strategies coming through our financials. A particular highlight was an all-time record Q2 for Amlan, our animal health business, an all-time record Q2 for retail and wholesale and for the company as well. Our strategies are working, and Dan mentioned, we're chasing the cost. A little bit about pricing and costs. We get a lot of questions around that. We do have one major customer that has a pricing reset clause, based on a major economic indicator that's embedded in the contract, and by definition, that's backward-looking. Most of our pricing tends to be backward-looking. We're in a rational marketplace, and our customers don't want us to set pricing based on forward projection, but really wanna be factually based. So we continue to chase it because the costs continue to move at an unprecedented rate. Now, our processes are better and tighter, and you see us going to market much more quickly with these cost increases. In fact, we've announced several here for April 1 for our domestic cat litter business and our sports product businesses. We continue to monitor these and work them into the market as quickly as we can. That being said, I wanted to switch a little bit to capital allocation. During the quarter, we issued a 10-year note for $25 million at an interest rate an annual interest rate of 3.25%, so a nice rate. We have that note set so that we make $5 million each repayments in years six through 10. One of the primary reasons we took out this, and there's multiple reasons, but is to support our growth. If you think about our repayment schedule being scheduled down the road, that gives us time to actually make investments in our plans and in other initiatives which we're pursuing, and for them to become accretive before we have to start paying back the principal. It was a very opportunistic but nice placement for us. In the near term, we're supporting our growth through inventory builds. If you had a chance to read our 10-K, you saw that we're investing more in inventory as both prices go up and as we increase our inventory levels in order to better serve our customers during these times when there are many disruptions in the supply chain. We're also making investments in our plants. Normally, our plant investment, our capital spending in the plants runs in that $14-16 million annual run rate. Year-to-date, we have spent $10.6 million, so a run rate that's a little higher. We anticipate that run rate to continue for the second half of the year as the increase in volume of our sales continues to push on capacity constraints. The opportunities in some of the businesses with newer products also offers us opportunities for growth. That's one thing. During the quarter, we've also continued to repurchase shares of our stock. The pricing's pretty favorable right now. Year-to-date, we've done that to the tune of $6.2 million. As we've said before, and we'll continue to say, is we opportunistically repurchase our shares to offset dilution. Those are just some of the highlights, but Dan, I'll hand it back to you, and we can open it up for questions. Yeah, thank you. First of all, I wanna thank people who submitted questions in advance, and so we have a bunch to go through, but I encourage you, if you're online, Leslie, how do they give us questions? There's a field, a Q&A field, and if you submit your question in that field and then push Submit, you should be able to quickly submit it, and we'll be able to see it right away. Great. Um- Well, good luck. I mean, we've only used up 10 minutes, and so, we've been listening, we'll be able to dedicate the final 20 minutes to Q&A. Leslie, let's go through the questions that were submitted. Okay. The first question was submitted by Ethan Starr, a private investor. It's really a two-part question. I'm gonna read the first question. Last quarter, you spoke very optimistically about the prospects for Amlan International and said you're shipping to major companies that are very sophisticated. What kinds of results are your Amlan customers seeing, and are you still optimistic that a tsunami is coming? Ethan, thank you for your question. You know, You know, tsunami, I'm not sure I'm going there just 'cause that's, you know, that could be a forward-looking comment. I will tell you, I couldn't be more happy with where we are at. We are making a lot of progress. We are putting on new accounts. We're getting traction. As we said, we had a record quarter for Amlan. I can tell you know, in the U.S., which has been a focus, the team we've put together has contacts from coast to coast with every major producer. Our clays work. We had the IPPE show down in Atlanta. We had all the major players into our booth. It couldn't have been more positive, and they all get it. We lead with our clay, and we finish with our clay. Our clay, you know, as we say, you know, the minerals by nature and then performance by design, we take this selectively mined mineral, we process it very carefully to do specific things. We believe we have the absolute best all natural, non-antibiotic solution to the replacement of antibiotics in food production. We're very excited about it. Couldn't be happier with where we're at this point in time. Let's go to part two. Part two is, could you please explain Amlan's product strategy for the United States? Are you seeing orders already, and how did Amlan's presence at IPPE make a difference? Yeah, I covered some of that, but I'd love Wade Robey to take it head on. Yeah. Thank you, Dan, and thank you, Ethan, for that question. As Dan mentioned, we just did our U.S. rollout at the IPPE show in January of this year. It's the world's largest show for poultry, meat, and animal food. Even with the pandemic, we had over 20,000 registered attendees. Normally, it's about double that, 1,000 exhibitors. There was a great opportunity to demonstrate the Amlan technology and to meet with our customers. As Dan mentioned, we're already taking orders in the United States. That's after the last six to nine months of field trials with some of the largest integrators in the poultry industry. We're also beginning to make sales in the dairy side in the U.S. as well as swine, so really cross-species interest in our products. When you look at our strategy, it's really the same as we look around the world. Our products, as Dan mentioned, are non-antibiotic, non-pharmaceutical, and they provide a range of benefits in animal production to improve the economic performance, and doing that through helping to ensure good gastrointestinal tract health, helping to maintain the productivity, the microbial ecology of the animal have generalized benefits for the animal that promote optimum growth. Our product line in the U.S. is a new branded product line that we're launching for sale here, and it's been very well accepted by our customers. Hey, Wade. Great. You know what, Fred? I'd love your perspective on the IPPE from a sales perspective. I know the attendance was down, but we felt the impact was actually equal or greater. I'd love to hear from you. Yeah, that's true, Dan. You know, good morning, and thanks for the question. Yeah, I mean, we have a lot of interest, right? You know, attendance was down because of COVID. However, we got a lot of people coming to our booth asking very specific questions and have specific interest on our product. I don't think they're going, but I just believe that the interest level was so high, even though customers that did not intend to join the show, they did show up and just, you know, surprised us. We had a lot of interest, not just in North America, but across, you know, across the world. You know, South America specifically have a lot of people attending the show as well. Dan, you're absolutely right. You know, the show was not very well attended, but our booth was very busy the entire time. Great. Hey, before we open up to the next question, I think I forgot to mention at the start that our support of the boycott of Russia. So I just wanna let you know that we have suspended all shipments to Russia. Let you know it's not material in our grand scheme of things. We've never done that much business, but we did. As a show of unity and trying to help with the horrific situation in Ukraine, we will be supporting that boycott. Leslie? Okay, thanks. The next question comes from John Bair from Ascend Wealth Advisors. He asks, "Your press release indicates higher sales for cat litter product lines that is as much, if not more, a unit volume increase rather than just a price increase. If that is correct, to what do you attribute the increased demand for your lightweight cat litter products given your lower advertising spend? New customers, high market penetration? I would think the stay-at-home, get-a-cat or pet surge is largely past us. All right. Yep. This is Chris. I'll take that question. Thanks, John. Really, it's about distribution. We're growing distribution, points of distribution, actually in a market where, and you see this across categories, where retailers are really tightening up. Total points of distribution as tracked by Nielsen are down in the category, but our points of distribution are up. As importantly, or maybe even more importantly, our points of distribution are up most with retailers that are winning, okay? Retailers where traffic is growing, where they're growing share themselves. Sort of said differently, we're winning with retailers that are winning or end-game retail winners. Second half of that question. Um- Well, we partner with Ethan Starr's question. Okay, right. Yeah. The second part is from Ethan Starr: What new business are you adding in the cat litter area? In light of the inflationary environment, to what extent do you see customers switching to lower priced brands such as Cat's Pride or private label brands? I think the second half of that question, you know, as Dan talked about to begin the call, such unprecedented times that, you know, I don't think we're prepared to say, "Yeah, private label and value brands are gonna get a huge tailwind in this market." We just don't know. Again, if you look at the data at this point, the most recent quarter would show private label and value-oriented brands growing share modestly. Really the upper end of the market, the alternatives that are at a premium price on a per use basis are also growing. A bit of a barbell effect in the market. We are seeing that modest growth in value, but not to an extraordinary extent to this point. Perfect. Jessica Moskowitz, I didn't know if you wanted to add a little color to Chris Lamson's play-by-play. Great answer, but Jessica Moskowitz, anything you wanna add? No, I think he covered it. Thanks. Okay, great. Okay, great. The next question is from John Bair. Your 10-Q references that manufacturing capabilities are strained due to age of equipment, availability of repair parts, and may limit production capabilities to meet your product demand. Do you anticipate increased CapEx spending on new equipment this year? Molly? Yep. Yeah, this is Molly. Thanks for the question. Susan alluded to this, but I really don't expect capital to increase significantly this year, and partly because we've been investing in the business as required this current year. Whether that be repairs, as you mentioned, but also for business growth and cost reduction. We'll be doing that for this last year plus this coming year, which should keep our capital investments relatively flat. Our business growth investment is to meet current demand, but also planned growth. We are seeing some inflationary pressures on parts and equipment, but we're seeing it this year, so I expect to see something similar next year. Great. Thank you. Great. The next question is also from John Bair. Recognizing that avian flu is a respiratory issue rather than an intestinal issue, has there been any uptick in Amlan product interest due to the recent and growing number of avian flu outbreaks in the United States? Is there any R&D focus on products to address avian flu? Wade? Yeah, John, thank you for that. So a couple of things, if I could. First, as you appropriately indicate, avian flu is a respiratory issue, so our current product line would not be effective in treating or mitigating that condition. Our products are not absorbed by the animal and don't work systemically, so there really is no tie-in or opportunity for us to benefit with AI. In general, AI has a suppressive effect on the market, frankly. Really, there's only the option of destroying or depopulating flocks that become infected with AI. The net result is you do see at times a downward movement in the total number of birds produced per year as poultry companies try to replace those with new hatch. No, there won't be any direct application of our products. We're also not a pharmaceutical company or drug company, so we don't anticipate developing vaccines or antiviral products that would work for respiratory-type diseases. Thank you. Well said. Okay, great. The next question is from John Bair. Can you speak to the progress of Amlan product sales as it relates to the U.S. swine market? Yeah, I mean, this'll be simple. You know, we're focusing heavily on poultry. Not to say we would turn away opportunities, and there may be some in other animals. The team we've put together in the U.S. has incredible contacts, reputation in poultry. It's I don't know, Fred, you can or Wade, my understanding, it's about 40% of the opportunity is in poultry, and that's plenty big for Oil-Dri to get up and running and going. We're really leaning heavily into poultry. Fred, any comment you have? Yeah, I would like to add something, Dan. Yeah. You know, I mean, we are focusing on poultry just so, you know, that's where our bread and butter is. But at the same time, we are not, you know, like Wade mentioned earlier, we are still doing business in other markets as well, right? We're not overlooking the swine and the dairy market. You know, as we discussed, China is a huge dairy opportunity. Yeah. -so is, uh- Right. swine opportunity, right? That's all. In the U.S., this question was specifically targeted to the United States. Yeah. U.S. is the same like, you know, Wade mentioned earlier. We do have, you know, sales in the swine and dairy market in U.S. as well. That's a lot more focus in poultry. That's a big chunk of the business opportunity for us in the poultry market and sectors in U.S. alone. I just wanna say that we are not only focusing on poultry and not looking at other opportunity as well. We are trying to do, you know, the business opportunities there. They're targeting all of the poultry is a primary focus. Yeah. Okay, good. Well said. Thank you for the question, John. Okay, next question is from John Bair. Do any of your clay deposits have associated lithium in them, which might lend themselves for extraction for the EV battery market? There are several USGS bulletin special reports that discuss lithium association in clay deposits. I sent this question, I phoned a friend, to Dr. Mark Hupfer, who is a Ph.D. in clay mineralogy. He's been with us for forever. He answered me back. "Unfortunately, both our Georgia attapulgite and Mississippi, Illinois calcium bentonite deposits do not contain any lithium-bearing clay mineral phases that would be of any conceivable economic value as a trace source of lithium metal. There are some well-known clay deposits in the Western U.S. that contain smectite clays with a fairly high trace lithium concentration as part of their mineral structure. These are the lithium hectorite and saponite located in California. However, the current technical and economic viability of such clays as a significant domestic source for this metal is very low, especially compared to the abundance of currently mined lithium brine salts and lithium silicate rock deposits in many parts of the world." Great answer, Mark, and he's available for parties and bar mitzvahs if you need entertainment, because he's very. No, I'm teasing you, Mark. You know I love hearing from you, but holy cow, do you know your stuff. Thank you for your answer. Great. Thank you. The next question comes from Larry Richards. He asks, "I have seen a product named PrettyLitter advertised lately that purports to track the health of cats through changing colors based on the color of the litter after the cat uses the litter box. Have you heard of this product, and does Oil-Dri have any reaction to it? Yes, we've heard of it. I'll take part of this. If you guys wanna jump in, you can. We've worked on indicator litter for years. The problem is the cost of using that product all year round for what could be a very specific time-sensitive problem. The cost is greater than the benefit. If you look, I think it's retailing for $24.99 at Walmart. You compare that to our Cat's Pride jug, and they both provide about the same volume of material, which I think is at $6.48, but Jessica, you can confirm that. You're talking, it's almost 4x the cost. At the end of the year, you'd be spending hundreds or maybe even a thousand dollars more to try and figure out if your cat had a urinary tract infection. You're better off if the cat, you know, has an issue, take him to the vet. We just have never seen that it's worthwhile from a cost-benefit standpoint to put those kind of indicators in a litter every single day. It's very expensive. It would be like taking a health test every day, even when you feel good. There's no point to doing it. Not a fan, as you can tell. Very expensive. Jessica, I don't know if you have any comments. Yeah, I can build on that. I mean, I think, like you, very much consistent with what you said, Dan. As we evaluate innovation, obviously, we need to continue to look at the size of the market and the overall appeal with consumers, and we always keep a pulse on innovation that we see, but at the same time, need to make sure that it's strategic for Oil-Dri and aligns with our long-term strategy of pursuing lightweight. Yeah, I would just echo what Dan said, and obviously continue to see these things and market them to look and see for future opportunities and where we can grow. That's it. Thank you. Great. Our next question comes from Ethan Starr. How is the cat litter business in Canada doing, and what are the growth opportunities? In the United States, are you adding new customers for cat litter that you had not previously sold to? Litter in Canada is doing great. Actually, top line's slightly ahead of the really strong growth in the U.S. You know, it's a lightweight market. We're the leading share brand up there. Nestlé's product has gone lightweight across the board, and so we're, you know, very well positioned, particularly with our private label business, to grow. We're seeing that growth today. Second half of the question, as I mentioned earlier, I think we've really, you know, the majority of our growth in the U.S. is from distribution growth at existing customers. That said, you know, we have a few tests at various customers that are performing well. We're expanding distribution, you know, going forward based on those tests performing well. You know, we're optimistic about that. Okay, great. We don't have any more questions. Well, I'll ask a question, and then I'll answer it. I think we've mentioned this before, but, you know, renewable diesel is starting to hit in the U.S., which is another demand source for our bleaching earths, which is great. What is happening is demand's gonna exceed supply in a hurry. You know, whether we get the renewable diesel business or just continue to support ADM and Cargill on the fluids purification side, either way, there's a lot of incremental demand coming in the U.S. for our bleaching earths, which is great. We're gonna continue to play Moneyball like we've always done, where we will lean into those customers that are long-term partners, where we can make an acceptable margin and supply them with the value they need to then, you know, purify whatever fuel or oil they're purifying. It's really an exciting time for Bruce Patsey and his division, because, you know, the edible oil business grows by 2%-3% a year, usually with population. Now when you layer in this renewable diesel, it's really exciting. We're definitely looking to play Moneyball as this thing starts to hit. Well, good. Well, listen. Thank you, guys. I love the format. I appreciate your questions. You can tell we have a lot of optimism for our business. You know, we're not happy with the margins, obviously. I mean, we're chasing a moving target, and we're gonna keep doing it. I will just tell you the good news is it's a rational market. We're able to get price increases. We're trying to work closely with our partners so that if they're a consumer, they can get their retail up. If they're a B2B, they can pass those along. You know, it doesn't seem like it's abating either. Every month I read it, and every month, the CPI and the PPI keep setting record levels dating back to 1982, 1981, 1980. This is a first-time thing in 40 years, so it's. These are dynamic times, but I'm very proud of the Oil-Dri team. I appreciate our long-term, loyal investors. Again, we're continuing to generate cash and do well there. You know, we're a value stock with a growth potential, which, you know, doesn't happen all that often. Certainly, we're definitely focused on the value side and protecting that dividend and then hopefully getting a big chunk of organic growth on top of it would be fantastic. I think we'll close by just saying, I think we referenced it in the news release, but we did buy back shares last open window. The window will open again. At this stock price and at this dividend yield and the cash that we got sitting earning not a whole lot in our bank, you know, we'd be crazy not to be continuing our stock repurchase program. I'm sure that we will be opportunistic there. Thank you, everybody. We'll talk to you again in three months. Now, this concludes today's conference call. Thank you for participating. You may now disconnect.