Oil-Dri Corp of America

Previous wording

The following discussion and analysis of our financial condition and results of operations should be read together with the financial statements and the related notes included herein and our Consolidated Financial Statements, accompanying notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the fiscal year ended July 31, 2023. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from the results discussed in the forward-looking statements. Factors that might cause a difference include, but are not limited to, those discussed herein under "Forward-Looking Statements" and "Risk Factors," and those discussed under Item 1A, Risk Factors of our Annual Report on Form 10-K for the fiscal year ended July 31, 2023.

Current wording

The following discussion and analysis of our financial condition and results of operations should be read together with the financial statements and the related notes included herein and our Consolidated Financial Statements, accompanying notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the fiscal year ended July 31, 2023. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from the results discussed in the forward-looking statements. Factors that might cause a difference include, but are not limited to, those discussed herein under "Forward-Looking Statements" and "Risk Factors," and those discussed under Part I, Item 1A, "Risk Factors," of our Annual Report on Form 10-K for the fiscal year ended July 31, 2023 and those discussed under Part II, Item 1A, "Risk Factors," of our Quarterly Report on Form 10-Q for the fiscal quarter ended January 31, 2024.

Previous wording

The three and six months ended January 31, 2024 continued to be very strong with top line growth in both the Retail and Wholesale Products Group and the Business to Business Products Group. Within Retail & Wholesale, higher prices continued to drive the increases in net sales. Within Business to Business, revenue continued to grow driven by a combination of higher prices and increased volumes. Consolidated net sales increased $4.0 million or 4% in the second quarter and $16.9 million or 8% in the six months ended January 31, 2024 compared to the same periods of fiscal year 2023. Consolidated income from operations in the second quarter and first six months of fiscal year 2024 increased by $7.9 million and $14.4 million, respectively compared to the same periods in fiscal year 2023.

Current wording

The three and nine months ended April 30, 2024 continued to be strong with growth in our net sales and gross profit across both the Retail and Wholesale Products Group and the Business to Business Products Group. Both operating segments grew due to higher prices and favorable mix compared to the same periods in fiscal year 2023. Consolidated net sales increased $1.4 million or 1% in the third quarter and $18.3 million or 6% in the nine months ended April 30, 2024 compared to the same periods of fiscal year 2023. Gross margin grew to 28% for the three and nine months ended April 30, 2024 compared to 26% and 24% for the three and nine months ended April 30, 2023, respectively.

Previous wording

Our Consolidated Balance Sheets as of January 31, 2024 and our Consolidated Statements of Cash Flows for the six months ended January 31, 2024 show a decrease in total cash and cash equivalents from fiscal year-end 2023. The decrease was driven mostly by capital expenditures on property, plant & equipment and dividend payments offset by increases in cash from operations. Refer to the "Liquidity and Capital Resources" section below.

Current wording

Our Condensed Consolidated Balance Sheet as of April 30, 2024 and our Condensed Consolidated Statement of Cash Flows for the nine months ended April 30, 2024 show an increase in total cash and cash equivalents from fiscal year-end 2023. The increase was driven by higher earnings and the issuance of a $10 million in aggregate principal amount of notes to finance a portion of the purchase price paid for the acquisition of Ultra Pet. Refer to the "Liquidity and Capital Resources" section below for more details.

Previous wording

Consolidated gross profit in the six months ended January 31, 2024 was $61.9 million, an increase of $16.6 million, or 37%, from gross profit of $45.3 million in the six months ended January 31, 2023. Our gross margin (defined as gross profit as a percentage of net sales) in the six months ended January 31, 2024 increased to 29% from 23% in the same period of fiscal year 2023. Our domestic cost of goods sold per ton increased 6%, driven primarily by per ton increases in non-fuel manufacturing and freight offset by lower per ton natural gas and packaging costs. Non-fuel manufacturing costs per ton increased 10% during the six months ended January 31, 2024 compared to six months ended January 31, 2023, mainly due to higher per ton costs of labor, repairs, and depreciation, offset by a decrease in the per ton cost of purchased materials. Domestic freight costs per ton increased 11% in the six months ended January 31, 2024 compared to the same period of fiscal year 2023 due to a significant customer in our cat litter business that altered shipping terms in January 2023 from collect to delivered which increased our overall freight cost. Excluding the impact of this specific customer, per ton domestic freight costs would have decreased 7% in the six months ended January 31, 2024 compared to the same period of fiscal year 2023. Ocean freight costs have also decreased due to both lower rates and export fees. In addition, our overall freight costs can vary between periods depending on the mix of products sold and the geographic distribution of our customers. Packaging costs per ton decreased 5% in the six months ended January 31, 2024 compared to the same period of fiscal year 2023. Many of our contracts for packaging purchases are subject to periodic price adjustments, which trail changes in underlying commodity prices. Per ton cost of natural gas decreased 42% in the six months ended January 31, 2024 compared to the same period of fiscal year 2023 due to a decrease in natural gas prices.

Current wording

Consolidated gross profit in the nine months ended April 30, 2024 was $92.1 million, an increase of $19.3 million, or 27%, from gross profit of $72.8 million in the nine months ended April 30, 2023. Our gross margin (defined as gross profit as a percentage of net sales) in the nine months ended April 30, 2024 increased to 28% from 24% in the nine months ended April 30, 2023. Our domestic cost of goods sold per ton increased 5%, driven primarily by per ton increases in non-fuel manufacturing and freight costs offset by lower per ton natural gas and packaging costs. Non-fuel manufacturing costs per ton increased 9% during the nine months ended April 30, 2024 compared to nine months ended April 30, 2023, mainly due to higher per ton costs of labor, repairs and depreciation, offset by a reduction in purchased material costs. Domestic freight costs per ton increased 8% in the nine months ended April 30, 2024 compared to the same period of fiscal year 2023 due to a significant customer in our cat litter business that altered shipping terms in January 2023 from collect to delivered which increased our overall freight cost. Excluding the impact of this specific customer, per ton domestic freight costs would have decreased 5% in the nine months ended April 30, 2024 compared to the same period of fiscal year 2023. Ocean freight costs have also decreased due to both lower rates and export fees. In addition, our overall freight costs can vary between periods depending on the mix of products sold and the geographic distribution of our customers. Packaging costs per ton decreased 4% in the nine months ended April 30, 2024 compared to the same period of fiscal year 2023 due to lower commodity costs, particularly as it relates to resin and pallet costs. Many of our contracts for packaging purchases are subject to periodic price adjustments, which trail changes in underlying commodity prices. Per ton cost of natural gas decreased 34% in the nine months ended April 30, 2024 compared to the same period of fiscal year 2023 due to a decrease in natural gas prices.

Previous wording

Total selling, general and administrative expenses of $15.8 million for the second quarter of fiscal year 2024 remained nearly flat compared to $15.7 million for the same period of fiscal year 2023. Unallocated corporate expenses were down by $1.4 million, or 16%, compared to the same period in fiscal year 2023 due to a reduction in corporate bonus accrual. The discussion of the segments' operating incomes below describes the changes in SG&A expenses that were allocated to the operating segments.

Current wording

Total SG&A expenses of $53.3 million for the nine months ended April 30, 2024 were higher by $8.9 million, or 20%, compared to $44.5 million for the nine months ended April 30, 2023. Corporate unallocated expenses increased $4.6 million, or 20% mainly due to higher anticipated compensation costs including increased performance-based incentives and acquisition-related expenses incurred in the current period. Additional expenses related to the integration of Ultra Pet are expected to be incurred in the fourth quarter of fiscal year 2024. The discussion of the segments' operating incomes below describes the changes in SG&A expenses that were allocated to the operating segments.

Previous wording

Total other expenses were $0.8 million for the six months ended January 31, 2024 compared to $2.4 million in the same period of fiscal year 2023. The decrease was mainly due to the $2.5 million accrual for the landfill modification charged in the second quarter of fiscal year 2023 offset by the increase in the landfill modification accrual in second quarter of fiscal year 2024 and higher interest income. Refer to Note 7 of the Notes to the unaudited Condensed Consolidated Financial Statements for additional details regarding the landfill modification accrual.

Current wording

Total other expenses were $1.1 million for the nine months ended April 30, 2024 compared to $6.9 million in the same period of fiscal year 2023. The decrease was mainly due to the $4.9 million loss from the termination of the Company's pension plan in the third quarter of fiscal year 2023 and the $2.5 million accrual for the landfill modification charged in the second quarter of fiscal year 2023, partially offset by higher interest income. Refer to Note 7 of the Notes to the unaudited Condensed Consolidated Financial Statements for additional details regarding the landfill modification accrual.

Previous wording

Consolidated net income before taxes for the six months ended January 31, 2024 was $27.5 million compared to $11.5 million for the six months ended January 31, 2023. Results for the six months ended January 31, 2024 were driven by the factors discussed above.

Current wording

Consolidated net income before taxes for the nine months ended April 30, 2024 was $37.7 million compared to $21.5 million for the nine months ended April 30, 2023. Results for the nine months ended April 30, 2024 were driven by the factors discussed above.

Previous wording

We had a tax expense was $4.4 million for the six months ended January 31, 2024 compared to $2.4 million for the six months ended January 31, 2023. Our tax expense was driven primarily by higher net income. We used an estimated annual effective tax rate ("ETR") of 16% in determining our provision for income taxes, which is based on expected annual taxable income and the assessment of various tax deductions, including depletion.

Current wording

We had tax expense of $6.7 million for the nine months ended April 30, 2024 compared to $3.9 million for the nine months ended April 30, 2023. Our tax expense was driven primarily by higher net income. We used an estimated annual effective tax rate ("ETR") of 18% in determining our provision for income taxes, which is based on expected annual taxable income and the assessment of various tax adjustments, including depletion.

Previous wording

Net sales of the Business to Business Products Group for the six months ended January 31, 2024 were $75.4 million, an increase of $6.6 million, or 10%, from net sales of $68.8 million for the six months ended January 31, 2023, driven by sales of our fluid purification products. Net sales of our fluids purification products increased $7.9 million, or 21%, in the six months ended January 31, 2024 compared to the six months ended January 31, 2023. The increase was primarily driven by new customers in the renewable diesel business in North America, as well as continued demand for our products used in the filtration of edible oil and jet-fuel and to a lesser extent pricing. Net sales increased in North America, our subsidiary in the UK, and Asia, partially offset by a decrease in Latin America and in the Europe, Middle East, and Africa ("EMEA") region. Net sales of our animal health and nutrition products decreased $1.1 million, or 10%, during the six months ended January 31, 2024 compared to the same period of fiscal year 2023. The decrease was driven by Latin America and our subsidiary in Mexico, partially offset by an increase in net sales in North America. Both in Latin America and Mexico, net sales were down due to softer demand, while North America sales increased due to a combination of higher prices and stronger demand by existing customers when compared to the same period in fiscal year 2023. Net sales in Asia, including sales by our subsidiary in China, remained flat. Net sales of our agricultural and horticultural chemical carrier products decreased $0.2 million, or 1%, for the six months ended January 31, 2024 compared to the same period in fiscal year 2023. This was a result of softer volumes offset partially by higher prices.

Current wording

Net sales of the Business to Business Products Group for the nine months ended April 30, 2024 were $111.6 million, an increase of $7.3 million, or 7%, from net sales of $104.3 million for the nine months ended April 30, 2023, driven by sales of our fluid purification products. Net sales of our fluids purification products increased $12.4 million, or 23%, in the nine months ended April 30, 2024 compared to the nine months ended April 30, 2023. The increase was primarily driven by new customers in the renewable diesel business in North America, as well as continued demand for our products used in the filtration of edible oil and jet-fuel, and to a lesser extent higher prices. Net sales increased in North America, our subsidiary in the UK, and the Asia region partially offset by a decrease in Latin America and the Europe, Middle East and Africa ("EMEA") regions. Net sales of our agricultural and horticultural chemical carrier products decreased $2.8 million, or 9%, for the nine months ended April 30, 2024 compared to the same period in fiscal year 2023 as a result of softer volumes offset partially by higher prices. This decline in volume was primarily due to reduced demand from a key customer that was still working through inventory from last year. Net sales of our animal health and nutrition products decreased $2.3 million, or 12%, during the nine months ended April 30, 2024 compared to the same period of fiscal year 2023. The decrease was driven by Latin America, our subsidiary in Mexico, and Asia (including China), partially offset by an increase in net sales in North America. Net sales were down in most regions due to softer demand, while North America sales increased due to higher prices when compared to the same period in fiscal year 2023.

Previous wording

SG&A expenses for the Business to Business Products Group remained flat for the six months ended January 31, 2024 compared to the same period of the prior fiscal year as higher compensation expenses were offset by lower allocated technical service support costs from the Innovation Center and Microbiology Lab and broker commissions.

Current wording

SG&A expenses for the Business to Business Products Group decreased by $0.3 million, or 3%, for the nine months ended April 30, 2024 compared to the same period of the prior fiscal year. The decrease was mainly driven by a reduction in technical service support costs from the Innovation Center and Microbiology Lab.

Previous wording

The Business to Business Products Group’s operating income for the six months ended January 31, 2024 was $22.1 million, an increase of $7.1 million, or 47%, from operating income of $15.0 million for the six months ended January 31, 2023. The increase in operating income was mostly driven by higher sales and favorable product mix.

Current wording

The Business to Business Products Group’s operating income for the nine months ended April 30, 2024 was $32.7 million, an increase of $7.9 million, or 32%, from operating income of $24.8 million for the nine months ended April 30, 2023. The increase in operating income was mostly driven by higher sales and favorable product mix.

Previous wording

Net sales of the Retail and Wholesale Products Group for the six months ended January 31, 2024 were $141.7 million, an increase of $10.3 million, or 8%, from net sales of $131.4 million for the same period of fiscal year 2023, mainly driven by higher net sales from our cat litter products. Total global cat litter net sales for the six months ended January 31, 2024 increased $9.6 million, or 9%, compared to the six months ended January 31, 2023, of which $9.5 million of the increase was due to pricing actions in North America. Domestic net sales increased across all products except for private label heavy weight litter, with the greatest increase driven by sales of private label coarse litters and branded light weight scoopable. Net sales of co-packaged cat litter products increased $0.1 million compared to the same period in fiscal year 2023. The increase was driven by price as volumes were still down as a result of the 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 cat litter by our subsidiary in Canada increased period over period, as discussed in "Foreign Operations" below. Net sales of our global industrial and sports products increased $0.7 million, or 4%, compared to the six months ended January 31, 2023, primarily driven by increased demand of our synthetic absorbent products and higher prices of our clay-based floor absorbent products, partially offset by a decrease in sports products. This was further supplemented by an increase in net sales of industrial products by our subsidiary in Canada.

Current wording

Net sales of the Retail and Wholesale Products Group for the nine months ended April 30, 2024 were $212.3 million, an increase of $10.9 million, or 5%, from net sales of $201.4 million for the same period of fiscal year 2023, mainly driven by higher prices from our cat litter products. Total global cat litter net sales for the nine months ended April 30, 2024 increased $10.5 million, or 6%, compared to the nine months ended April 30, 2023, driven by higher pricing and favorable product mix. Domestic net sales increased across all products except for private label heavyweight litter. Net sales of co-packaged cat litter products increased $0.1 million, or 1%, compared to the same period in fiscal year 2023. The increase was driven by price as volumes were impacted by the cyberattack on one of our customers in the first quarter of fiscal year 2024. Net sales of cat litter by our subsidiary in Canada decreased slightly period over period, as discussed in "Foreign Operations" below. Net sales of our global industrial and sports products increased $0.4 million, or 1%, compared to the nine months ended April 30, 2023, primarily driven by increased demand of our synthetic absorbent products and higher prices of our clay-based floor absorbent products, partially offset by a decrease in volume of sports products. This was further supplemented by an increase in pricing of industrial products by our subsidiary in Canada.

Previous wording

SG&A expenses for the Retail and Wholesale Products Group were $2.0 million, or 29%, higher during the six months ended January 31, 2024 compared to the six months ended January 31, 2023, primarily due to advertising spend. We anticipate total advertising expense in fiscal year 2024 to be higher than fiscal year 2023, though spread more evenly throughout the year.

Current wording

SG&A expenses for the Retail and Wholesale Products Group were $3.6 million, or 36%, higher during the nine months ended April 30, 2024 compared to the nine months ended April 30, 2023, primarily due to increased advertising spend and compensation related costs. We anticipate total advertising expense in fiscal year 2024 to be higher than fiscal year 2023 as we continue to focus on marketing our retail and wholesale product lines.

Previous wording

The Retail and Wholesale Products Group's operating income for the six months ended January 31, 2024 was $23.2 million, an increase of $7.0 million, or 43%, from operating income of $16.3 million for the same period of fiscal year 2023. This was driven primarily by the increase in gross margins due to price increases, partially offset by higher cost of goods sold as discussed above.

Current wording

The Retail and Wholesale Products Group's operating income for the nine months ended April 30, 2024 was $34.1 million, an increase of $7.1 million, or 26%, from operating income of $27.0 million for the same period of fiscal year 2023. This was driven primarily by the increase in gross margins due to price increases and favorable product mix, partially offset by higher cost of goods sold and elevated SG&A expenses, as discussed above.

Previous wording

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 for the six months ended January 31, 2024 were $11.5 million, an increase of 2%, compared to net sales of $11.2 million during the six months ended January 31, 2023. All of our foreign operations, with the exception of our subsidiaries in Mexico and Indonesia, experienced an increase in net sales during the six months ended January 31, 2024 compared to the same period of fiscal year 2023. Net sales of our subsidiary in the United Kingdom increased by $0.4 million, or 33%, compared to net sales in the same period in fiscal year 2023. The increase was driven by a combination of higher demand of edible oil filtration products and price increases. Net sales of our subsidiary in China increased $0.4 million, or 29%, in the six months ended January 31, 2024 compared to the same period of fiscal year 2023 due to the sell off of all existing inventory to the new master distributor, which occurred in the first quarter of fiscal year 2024. Future sales to China will be directly through the Company and not through our subsidiary in China. Total net sales of our subsidiary in Canada increased $0.2 million, or 3%, in the six months ended January 31, 2024 compared to the same period in fiscal year 2023, driven by higher net sales of floor absorbents and private label cat litter. The increase in floor absorbent sales was driven by a combination of higher prices and volume while the increase in cat litter sales was mainly due to price increases instituted in response to rising costs. Net sales of our subsidiary in Mexico decreased $0.7 million, or 44% in the six months ended January 31, 2024 compared to the same period of fiscal year 2023. Net sales by our foreign subsidiaries represented 5% of our consolidated net sales for six months ended January 31, 2024 compared to 6% for the six months ended January 31, 2023.

Current wording

Foreign operations include our subsidiary in Canada, which is 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 nine months ended April 30, 2024 were $16.0 million, a decrease of 5%, compared to net sales of $16.8 million during the nine months ended April 30, 2023. The decrease was driven by all of our foreign operations, with the exception of our subsidiary in the UK which experienced higher net sales when compared to the same period in fiscal year 2023. Net sales of our subsidiary in the UK increased by $0.5 million, or 29%, compared to net sales in the same period in fiscal year 2023. The increase was driven by a combination of higher demand of edible oil filtration products and price increases. Net sales of our subsidiary in China decreased $0.3 million, or 16%, in the nine months ended April 30, 2024 compared to the same period of fiscal year 2023 due to the sell off of all existing inventory to the new master distributor, which occurred in the first quarter of fiscal year 2024. Sales to China are now directly through the Company and not through our subsidiary in China. Total net sales of our subsidiary in Canada decreased $0.1 million, or 1%, in the nine months ended April 30, 2024 compared to the same period in fiscal year 2023, driven by softer sales volumes of cat litter partially offset by higher net sales of floor absorbents due to pricing. Net sales of our subsidiary in Mexico decreased $0.9 million, or 42% in the nine months ended April 30, 2024 compared to the same period of fiscal year 2023. Net sales by our foreign subsidiaries represented 5% of our consolidated net sales for the nine months ended April 30, 2024 and 2023.

Previous wording

Our foreign subsidiaries reported net income of $0.7 million for the six months ended January 31, 2024, compared to $0.6 million in the six months ended January 31, 2023. The increase in net income was primarily driven by increases in Canada and the UK as discussed above.

Current wording

Our foreign subsidiaries reported net income of $0.6 million for the nine months ended April 30, 2024, compared to $1.1 million in the nine months ended April 30, 2023. The decrease in net income was primarily driven by revenue decreases in China and Mexico partially offset by increases in net income within Canada and the UK, as discussed above.

Previous wording

Identifiable assets of our foreign subsidiaries as of January 31, 2024, were $11.9 million, compared to $14.6 million as of July 31, 2023.

Current wording

Identifiable assets of our foreign subsidiaries as of April 30, 2024, were $11.1 million, compared to $14.6 million as of July 31, 2023.

Previous wording

Consolidated gross profit for the second quarter of fiscal year 2024 was $30.9 million, or 29% of net sales, compared to $23.0 million, or 23% of net sales, for the second quarter of fiscal year 2023. The increase was driven by higher selling prices across multiple products and improved product mix. Domestic per ton cost of goods sold increased 1%, driven primarily by per ton increases in freight and non-fuel manufacturing costs offset by a decrease in natural gas and packaging costs. Per ton non-fuel manufacturing costs rose 5% in the second quarter of fiscal year 2024 compared to the second quarter of fiscal year 2023, due to higher per ton costs of labor, repairs, and depreciation, offset by a decrease in per ton costs of purchased materials. Domestic freight costs per ton increased 8% in the second quarter of fiscal year 2024 compared to the same period of fiscal year 2023 due to a significant customer in our cat litter business that altered shipping terms in January 2023 from collect to delivered which increased our overall freight cost. Excluding the impact of this specific customer, per ton domestic freight costs would have decreased 11% in the second quarter of fiscal year 2024 compared to the same period of fiscal year 2023. Ocean freight costs have also decreased due to favorable rates and reduction in export fees when compared to the same period in fiscal year 2023. In addition, our overall freight costs can vary between periods depending on the mix of products sold and the geographic distribution of our customers. The cost of natural gas per ton used to operate kilns that dry our clay was 24% lower in the second quarter of fiscal year 2024 compared to the second quarter of fiscal year 2023 as fuel prices have decreased. Packaging costs per ton decreased 11% in the second quarter of fiscal year 2024 compared to the same period of fiscal year 2023 due to lower commodity costs, particularly as it relates to resin and pallet costs. Many of our contracts for packaging purchases are subject to periodic price adjustments, which trail changes in underlying commodity prices.

Current wording

Consolidated gross profit for the third quarter of fiscal year 2024 was $30.1 million, or 28% of net sales, compared to $27.5 million, or 26% of net sales, for the third quarter of fiscal year 2023. The increase was driven by higher selling prices across multiple products and improved product mix. Domestic per ton cost of goods sold increased 3%, driven primarily by per ton increases in non-fuel manufacturing and freight costs, partially offset by a decrease in natural gas and packaging costs. Per ton non-fuel manufacturing costs rose 7% in the third quarter of fiscal year 2024 compared to the third quarter of fiscal year 2023, due to higher per ton costs of labor, repairs, depreciation, and purchased materials. Domestic freight costs per ton increased 2% in the third quarter of fiscal year 2024 compared to the same period of fiscal year 2023 due to mix of products sold and additional railcar usage to support our growing renewable diesel business. Ocean freight costs have decreased due to favorable rates and reduction in export fees when compared to the same period in fiscal year 2023. In general, our overall freight costs can vary between periods depending on the mix of products sold and the geographic distribution of our customers. The cost of natural gas per ton used to operate kilns that dry our clay was 2% lower in the third quarter of fiscal year 2024 compared to the third quarter of fiscal year 2023 as fuel prices have decreased. Packaging costs per ton decreased 2% in the third quarter of fiscal year 2024 compared to the same period of fiscal year 2023 due to lower commodity costs, particularly as it relates to resin and pallet costs. Many of our contracts for packaging purchases are subject to periodic price adjustments, which trail changes in underlying commodity prices.

Previous wording

Consolidated net income before taxes for the second quarter of fiscal year 2024 was $14.7 million compared to $5.0 million for the same period of fiscal year 2023. Results for the second quarter of fiscal year 2024 were driven by the factors discussed above.

Current wording

Consolidated net income before taxes for the third quarter of fiscal year 2024 was $10.1 million compared to $10.0 million for the same period of fiscal year 2023. Results for the third quarter of fiscal year 2024 were driven by the factors discussed above.

Previous wording

We had a tax expense was $2.3 million for the second quarter of fiscal year 2024 compared to $1.2 million for the second quarter of fiscal year 2023. Our tax expense was driven primarily by higher net income. We used an estimated annual ETR of 16% in determining our provision for income taxes, which is based on expected annual taxable income and the assessment of various tax deductions, including depletion.

Current wording

Tax expense was $2.4 million for the third quarter of fiscal year 2024 compared to $1.5 million for the third quarter of fiscal year 2023. The year-over-year increase in tax expense was driven primarily by the increase in the estimated annual ETR in the third quarter and higher pre-tax income. Conversely, during the third quarter of fiscal year 2023 we decreased our annual ETR which decreased tax expense for the third quarter of fiscal year 2023. We adjust our ETR quarterly based on expected annual taxable income and our assessment of various tax adjustments.

Previous wording

Net sales of the Business to Business Products Group for the second quarter of fiscal year 2024 were $36.2 million, an increase of $1.1 million, or 3%, from net sales of $35.2 million for the second quarter of fiscal year 2023, driven by an increase in net sales of our fluid purification products. Net sales of our fluids purification products increased $3.7 million, or 19%, compared to the second quarter of fiscal year 2023 driven primarily by the North America region. The increase in North America was due to new customers using our products for renewable diesel filtration as well as higher demand by existing customers in edible oil and jet-fuel filtration. There was also an increase in Asia driven by higher volume and timing of orders. The increase was partially offset by softer sales volumes in EMEA and Latin America. Net sales of our agricultural and horticultural chemical carrier products decreased $0.5 million, or 5%, for the second quarter of fiscal year 2024 compared to the same period in fiscal year 2023, primarily due to softer volumes. Net sales of our animal health and nutrition products decreased $2.1 million, or 33%, during the second quarter of fiscal year 2024, compared to the same period in fiscal year 2023. The decrease was driven by lower demand and timing of orders in Latin America, Asia (including China), and Mexico, partially offset by an increase in net sales in North America. The increase in North America driven primarily by price as customers transition from trial to full price and to a lesser extent volume.

Current wording

Net sales of the Business to Business Products Group for the third quarter of fiscal year 2024 were $36.2 million, an increase of $0.8 million, or 2%, from net sales of $35.4 million for the third quarter of fiscal year 2023, driven by an increase in net sales of our fluid purification products. Net sales of our fluids purification products increased $4.6 million, or 26%, compared to the third quarter of fiscal year 2023 driven primarily by the North America region. The increase in North America was due to new customers using our products for renewable diesel filtration as well as higher demand by existing customers in edible oil and jet-fuel filtration. There was also an increase in EMEA driven by higher volume and timing of orders. The increase was partially offset by softer sales volumes in Latin America and Asia. Net sales of our agricultural and horticultural chemical carrier products decreased $2.6 million, or 24%, for the third quarter of fiscal year 2024 compared to the same period in fiscal year 2023, primarily due to softer volumes. This decline was primarily due to reduced demand from a key customer that was still working through inventory from last year. Net sales of our animal health and nutrition products decreased $1.2 million, or 17%, during the third quarter of fiscal year 2024, compared to the same period in fiscal year 2023. The decrease was driven by lower demand in all regions and timing of orders to some foreign countries.

Previous wording

Total SG&A expenses for the Business to Business Products Group in the second quarter of fiscal year 2024 increased $0.2 million, or 7%, compared to the same period of fiscal year 2023. The increase was mainly driven by compensation-related expenses to teammates and consultants, offset by a decrease in allocated technical service support costs from the Innovation Center and Microbiology Lab.

Current wording

Total SG&A expenses for the Business to Business Products Group in the third quarter of fiscal year 2024 decreased $0.3 million, or 7%, compared to the same period of fiscal year 2023. The reduction was mainly driven by a decrease in technical service support costs from the Innovation Center and Microbiology Lab offset by an increase in compensation-related expenses to teammates and consultants.

Previous wording

The Business to Business Products Group’s operating income for the second quarter of fiscal year 2024 was $11.0 million, an increase of $3.3 million, or 42%, from operating income of $7.7 million for the second quarter of fiscal year 2023. The overall increase in operating income was primarily due to higher net sales and favorable product mix.

Current wording

The Business to Business Products Group’s operating income for the third quarter of fiscal year 2024 was $10.6 million, an increase of $0.8 million, or 8%, from operating income of $9.8 million for the third quarter of fiscal year 2023. The overall increase in operating income was primarily due to higher pricing and favorable product mix.

Previous wording

SG&A expenses for the Retail and Wholesale Products Group increased by $0.8 million, or 25%, during the second quarter of fiscal year 2024 compared to the same period in fiscal year 2023. The increase was primarily driven by an increase in advertising spend, compensation-related expenses, offset by a reduction in broker commissions. We anticipate total advertising expense in fiscal year 2024 to be higher than fiscal year 2023, however spread more evenly throughout the year.

Current wording

SG&A expenses for the Retail and Wholesale Products Group increased by $1.6 million, or 51%, during the third quarter of fiscal year 2024 compared to the same period in fiscal year 2023. The increase was primarily driven by an increase in advertising spend and compensation-related expenses, partially offset by a reduction in broker commissions. We anticipate total advertising expense in fiscal year 2024 to be higher than fiscal year 2023.

Previous wording

The Retail and Wholesale Products Group's operating income was $11.9 million for the second quarter of fiscal year 2024, an increase of $3.2 million from operating income of $8.7 million for the same period of fiscal year 2023. This was driven primarily by the increase in gross margins due to selling price increases, partially offset by higher per ton cost of goods sold as discussed above.

Current wording

The Retail and Wholesale Products Group's operating income was $10.9 million for the third quarter of fiscal year 2024, an increase of $0.1 million from operating income of $10.7 million for the same period of fiscal year 2023. This was driven primarily by higher prices, partially offset by higher SG&A expenses, as discussed above.

Previous wording

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 2024 were $4.5 million, a decrease of $1.0 million, or 18%, compared to net sales of $5.5 million during the same period of fiscal year 2023, driven primarily by decreases in net sales in China and Mexico. Sales of our subsidiary in China were down $0.5 million as a result of transitioning to a distributor model in China rather than sales through our subsidiary. Future sales to China will be directly through the Company and captured the Asia region, and not through our subsidiary in China. Net sales of our subsidiary in Mexico decreased during the second quarter of fiscal year 2024 compared to the same period of fiscal year 2023 by $0.5 million, or 62%. Total net sales of our subsidiaries in Canada, the UK, and Indonesia remained flat in the second quarter of fiscal year 2024 compared to the same period in 2023. Net sales by our foreign subsidiaries represented 4% and 5% of our consolidated net sales during the second quarter of fiscal years 2024 and 2023, respectively.

Current wording

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 third quarter of fiscal year 2024 were $4.5 million, a decrease of $1.0 million, or 19%, compared to net sales of $5.5 million during the same period of fiscal year 2023, driven primarily by decreases in net sales in China, Canada and Mexico, partially offset by an increase in net sales in the UK. Sales of our subsidiary in China were down $0.7 million as a result of transitioning to a distributor model in China rather than sales through our subsidiary. Sales to China are now sold directly through the Company and captured the Asia region, and not through our subsidiary in China. Net sales by our subsidiary in Canada decreased $0.3 million driven by lower cat litter sales, partially offset by an increase in industrial product sales when compared to the same period of fiscal year 2023. Net sales of our subsidiary in Mexico decreased during the third quarter of fiscal year 2024 compared to the same period of fiscal year 2023 by $0.2 million, or 36%, due to softer volumes. Total net sales of our subsidiary in the UK increased by $0.1 million in the third quarter of fiscal year 2024 compared to the same period in 2023 due to higher pricing. Net sales by our foreign subsidiaries represented 4% and 5% of our consolidated net sales during the third quarter of fiscal years 2024 and 2023, respectively.

Previous wording

Our foreign subsidiaries reported net income of $0.1 million for the second quarter of both fiscal year 2024 and 2023. This was driven by the decrease in sales in China and Mexico, offset by the increase in net income in Canada through the reduction of manufacturing costs.

Current wording

Our foreign subsidiaries reported net loss of $0.1 million for the third quarter of fiscal year 2024 compared to net income of $0.5 million in the third quarter of fiscal year 2023. This was driven by the decrease in sales in China, Canada and Mexico, offset by the increase in net income in the UK due to higher net sales.

Previous wording

Our principal liquidity needs are to fund our capital requirements, including funding working capital needs; purchasing and upgrading equipment, facilities, information systems, and real estate; supporting new product development; investing in infrastructure; repurchasing stock; paying dividends; and, from time to time, business acquisitions, and funding our debt service requirements. During the six months ended January 31, 2024, we principally funded these short and long-term capital requirements using cash from current operations as well as cash generated from previous borrowings under our Series C Senior Notes.

Current wording

Our principal liquidity needs are to fund our capital requirements, including funding working capital needs; purchasing and upgrading equipment, facilities, information systems, and real estate; supporting new product development; investing in infrastructure; repurchasing stock; paying dividends; and, from time to time, business acquisitions, and funding our debt service requirements. During the nine months ended April 30, 2024, we principally funded these short and long-term capital requirements using cash from current operations as well as cash generated from previous borrowings under our Series C Senior Notes. To meet cash requirements for the Transaction we issued $10 million in aggregate principal amount of Series D Senior Notes during the third quarter of fiscal year 2024. See Note 15 of the Notes to the unaudited Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q for further information relating to the cash requirements for the Transaction.

Previous wording

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, 2024 were as follows:

Current wording

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, 2024 were as follows:

Previous wording

Inventory increased by $3.7 million in the six months ended January 31, 2024 due to a combination of rising costs, specifically due to labor and repairs and the building of inventory levels for anticipated demand and to avoid any potential supply chain disruptions.

Current wording

Inventory increased by $3.0 million in the nine months ended April 30, 2024 due to a combination of rising costs, specifically due to labor and repairs and the building of inventory levels for anticipated demand and to avoid any potential supply chain disruptions.

Previous wording

Prepaid expenses increased by $3.2 million in the six months ended January 31, 2024. The increase is mainly due to the timing income tax payments.

Current wording

Prepaid expenses increased by $3.7 million in the nine months ended April 30, 2024. The increase is mainly due to the timing of income tax and insurance payments.

Previous wording

Accounts payable decreased by $3.2 million in the six months ended January 31, 2024. The decrease was mainly due to the timing of payments, cost of goods and services we purchase, production volume levels and vendor payment terms.

Current wording

Accounts payable decreased by $1.0 million in the nine months ended April 30, 2024. The decrease was mainly due to the timing of payments, cost of goods and services we purchase, production volume levels and vendor payment terms.

Previous wording

Accrued expenses decreased $7.6 million in the six months ended January 31, 2024. The decrease was mainly due to the payout of annual bonuses and taxes, and other miscellaneous expenses which fluctuate due to timing of payments, changes in the cost of goods and services we purchase, production volume levels and vendor payment terms including freight.

Current wording

Accrued expenses decreased $3.9 million in 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.

Previous wording

Cash used in investing activities of $15.5 million in the six months ended January 31, 2024 was driven by capital expenditures. During the six months ended January 31, 2024 we expanded our plant equipment and improved our facilities to support increased demand for our products.

Current wording

Cash used in investing activities of $23.5 million in the nine months ended April 30, 2024 was driven by capital expenditures. During the nine months ended April 30, 2024 we expanded our plant equipment and improved our facilities to support increased demand for our products.

Previous wording

Cash used in financing activities of $6.5 million in the six months ended January 31, 2024 was primarily used for dividend payments and treasury stock repurchases.

Current wording

Cash provided by financing activities of $1.5 million in the nine months ended April 30, 2024 was primarily driven by the issuance of a $10 million note offset by cash used for dividend payments and treasury stock repurchases.

Previous wording

Total cash balances held by our foreign subsidiaries of $5.4 million as of January 31, 2024 increased compared to $5.2 million as of July 31, 2023. See further discussion in "Foreign Operations" above.

Current wording

Total cash balances held by our foreign subsidiaries of $5.0 million as of April 30, 2024 decreased compared to $5.2 million as of July 31, 2023. See further discussion in "Foreign Operations" above.

Previous wording

As of January 31, 2024, we had remaining authority to repurchase 382,404 shares of Common Stock and 262,092 shares of Class B Stock under a repurchase plan approved by our Board. Repurchases may be made on the open market (pursuant to Rule 10b5-1 plans or otherwise) or in negotiated transactions. The timing, number and manner of share repurchases will be determined by our management pursuant to the repurchase plan approved by our Board.

Current wording

As of April 30, 2024, we had remaining authority to repurchase 380,753 shares of Common Stock and 262,092 shares of Class B Stock under a repurchase plan approved by our Board. Repurchases may be made on the open market (pursuant to Rule 10b5-1 plans or otherwise) or in negotiated transactions. The timing, number and manner of share repurchases will be determined by our management pursuant to the repurchase plan approved by our Board.