Dan Jaffee - President, Chief Executive Officer Susan Kreh - Chief Financial Officer Molly VandenHeuvel - Chief Operating Officer Jessica Moskowitz - Vice President, General Manager of the Consumer Products Division Flemming Mahs - President of Amlan International Laura Scheland - VP, General Counsel Leslie Garber - Manager of Investor Relations.

Ladies and gentlemen, thank you for standing by and welcome to the Fourth Quarter 2020 Investor Teleconference. At this time, all participants are in a listen-only mode. After the speakers presentation there will be a question-and-answer session.

[Operator Instructions] I would now like to hand the conference over to your speaker today, Dan Jaffee, President and CEO of Oil-Dri Corporation. Please go ahead..

Great, thank you. Welcome everybody to our fourth quarter and fiscal year end teleconference for Oil-Dri Corporation of America. This is actually our completion of 80th fiscal year.

Joining me today will be our CFO, Susan Kreh; our Chief Operating Officer; Molly VandenHeuvel; our Vice President and General Manager of the Consumer Products Division, Jessica Moskowitz; the President of Amlan International, Flemming Mahs, our VP and General Counsel Laura Scheland; and as always our Manager of Investor Relations, Leslie Garber who will walk us through the Safe Harbor Provisions.

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Thank you, Dan and 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 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. Dan..

Thank you, Leslie. I’d like to turn it over to Susan to go through our financial results for the quarter and fiscal year. Susan. .

Thank you, Dan. Fiscal 2020 was a record year for Oil-Dri, both for net sales and net income. Consolidated net sales for the year of $283 million reflected 2% increase over the prior year. This growth was primarily due to increased demand for our cat litter and animal health products. Total annual cat litter sales within the U.S.

and Canada increased by 9% compared to the prior year. In addition, our co-packaging coarse cat litter business, which is reported in our business-to-business products group also grew 6% over the prior year.

In addition to growth in cat litter, our full year sales of animal health products increased 12% versus the prior year, driven primarily by growth in Latin America, Mexico, Africa, and Asia, excluding China.

On the flip side and to a lesser extent, demand and less revenues in our agricultural, fluids purification, industrial and sports products were all negatively impacted by COVID-19. And while revenue grew by 2%, annual consolidated gross profit increased 16% with margins improving from 24% in the past year to 27% in fiscal 2020.

Now, for those of you who follow us on a regular basis, you might recall that in some of our businesses freight is a prepay and add, and therefore we use gross profit per-ton as our key metric to manage the business, and in fiscal 2020 we set a new record increasing our gross profit per-ton by 15% over the prior year.

This improvement was driven by lower natural gas and freight and warehouse housing costs, which were offset by slightly higher packaging and non-fuel manufacturing costs.

Also called out separately in our financials and included in our operating results was a pre-tax gain of $13 million associated with the fourth quarter prudential intellectual property and licensing agreement.

Our selling, general and administrative costs for the last 12 month period increased 16% over the prior year, primarily due to higher advertising spending of $3 million, higher compensation that was driven by higher year-over-year bonus cost is $6 million and higher benefits costs.

These higher expenses were partially offset by lower legal costs, lower deferred compensation costs and a curtailment gain related to freezing our supplemental executive retirement plan. Our full year net income attributed the Oil-Dri reached a record high of $19 million reflecting a 50% increase over the prior year.

We ended fiscal 2020 with cash and cash equivalents of $41 million. We also have approximately $10 million of debt. Therefore we are in a really strong liquidity position, and that is after we made $8 million of voluntary contributions to our defined benefit pension plan and after executing share repurchases of $5.5 million.

So now that we reviewed our record breaking year, let's shift to our fourth quarter results. Our fourth quarter was coming off an incredibly strong third quarter that benefited from pantry loading of cat litter. Our fourth consolidated net sales declined by 8% compared to last year, while our gross margins remained relatively flat.

Weaker demand for products within all areas of our business, except for our animal health products resulted in this decrease.

The $13 million resulting from the confidential intellectual property license agreement mentioned earlier helped consolidated net income attributed to Oil-Dri reach a quarterly record high of $6 million reflecting a 55% increase over the prior year.

Now, during the quarter we made specific investment decisions based on our strong cash position, as well as the strong income that resulted from the confidential licensing agreement, as well as the fact that our plants were slowing down a bit following the high levels of production that we're required to support unprecedented third quarter demand.

We invested an incremental and pull-forward maintenance and capital for our facilities. We also invested in advertising for our consumer business to stimulate demand for fiscal year 2021, and we invested in some technology initiatives to pride future efficiencies in our plants and our back office function.

Now let’s talk a bit about the fourth quarter results of our product group. Our business to business product group’s fourth quarter revenues decreased 5% compared to last year.

Sales of our agricultural products declined by 10% versus the prior year as a result of COVID-19 related demand delays from a particular large customer, as well as the shift in timing of order for our Verge product.

Sales of our fluid purification products also declined this quarter by 6% compared to the fourth quarter in the prior year, mainly due to the improved quality edible oil in North America, thus resulting in reduced need of our bleaching clay.

COVID-19 has adversely impacted the timing of product testing at edible oil plants and has also resulted in decreased demand for products that are used to process jet fuel since air travel has significantly decreased.

Sales from co-packaging coarse cat litter declined by 8% in the fourth quarter compared to the prior year, which can be attributed to pantry unloading by consumers. These decreases in revenue were partially offset by a year-over-year sales increase of 8% in animal health products.

These increases were primarily in Mexico due to higher customer demand and the sale of animal health related equipment.

Operating income in the B2B Group declined 26% in the fourth quarter versus the same period last year, where lower sales and unfavorable product mix were offset partially by a reduction in SG&A expenses over the previous year’s fourth quarter.

Now let’s talk a little bit about our Retail and Wholesale products group, where revenues decreased by 9% in the fourth quarter compared to the same period in fiscal 2019.

While sales of our cat litter items grew significantly in the third quarter due to the COVID-19 pantry loading, they leveled off in the fourth quarter as a result of decreased demand from consumers who had already stocked up on our products.

But when you look at the net sales for the third and fourth quarters combined, that reflections an increase of 7% over the same six months of the prior year, representing ongoing growth momentum in our cat litter business.

In the fourth quarter demand for private label scoopable products increased, including lightweight litter, when compared to the same quarter last year, while sales of private label coarse litter declined.

Our industrial and sports product included in this product scoop was hit hard during the fourth quarter as these markets continue to be negatively impacted by COVID-19. Decreased demand and the national shutdown of sports fields continued to cause weak sales.

Operating income for the Retail and Wholesale Products Group was $500,000 in the fourth quarter, reflecting a 74% decrease compared to last year. This decline can be attributed to lower sales and the $3 million higher advertising spending that I mentioned earlier when discussing specific investments in our business.

Our targeted digital media campaign will continue into fiscal year 2021, and we currently expect advertising costs for fiscal 2021 to be comparable to fiscal 2020.

In order to position ourselves well for potential opportunistic acquisitions, during the fourth quarter Oil-Dri entered into an amended and restated note purchase and private shelf agreement.

The company issued 10 million of notes payable over a 10 year term as part of the $75 million private placement shelf arrangement that provides Oil-Dri the ability to quickly issue additional note financing in the future to grow our business if needed. And with that Dan, I’ll hand the discussion back over to you. .

Great, thank you. Great recap Susan of great year, so that makes it fun. Before we open up the line for Q&A, I would just like to remind you to please prioritize your questions and ask your most important question first and then after you do get to the end of the queue, so that you allow other investors to ask their most important questions.

So let's go ahead and open the line. .

Thank you. [Operator Instructions]. Our first question comes from Ethan Starr who is a Private Investors. Your line is now open. .

Good morning. .

Hi Ethan. .

You've been hiring more people for Amlan and you increased your ownership in the Mexican subsidiary over last year. So I'm wondering, what are the prospects for Amlan over the next year, particularly with regards to Varium and has Varium been licensed in more countries and U.S.

states?.

Okay, Flemming, why don't you handle that question?.

Sure, thanks for asking. This is exciting ground for us and we're moving quickly with the investment to move Varium and our portfolio into markets that we have not addressed in the past and we see good opportunity for growth opportunity..

Okay..

With regards – let me just add, with regards to Mexico, Susan I don't think we increased our ownership during the year. It might have just gotten more transparent, but our ownership in Mexico stayed the same in fiscal 20.

Susan, is that correct?.

No, we did move up from 51% to 78% during specific year. .

Oh! Alright, so then I stand corrected. Ethan, once again your ahead of me on the curve..

Well, it was in the K..

Oh! I do remember that move. Okay no, now I was forgetting that secondary move. Yeah, it’s there, your right..

Okay, any other color on this?.

I mean, Susan, I don't know if you want to add any color to it. It was a matter of consolidating ownership and taking out some of the lesser players, so that we could have a greater influence on this business..

Okay, any more licenses for Varium in other countries and states..

We're continuing to add more licenses in more countries and we are continuing to add more supports to really push promotion as you've seen on the marketing side. There's been a lot more activity than in the past and that will also continue..

Okay, thanks. I’ll get back in the queue. .

Thank you. .

Thank you. [Operator Instructions] Our next question comes from Robert Smith of Center for Performance. Your line is now open. .

Alright, so thanks and good morning. .

Good morning, Perfo. The Center for Performance Investing, its long [ph]. .

So, alongside Ethan’s query, what are the principal objectives in Animal Health for this current year.

I mean, do you have some targets that you're working against as far as - as the progress you're going to make?.

Very much so, yeah. I mean and Flemming’s kind of bullish [ph] on what I'm going to say, but as we're bringing on new people, salespeople, text service, support team, we've got a metric of revenue per headcount that we're trying to achieve, so that we make sure that we are getting the bang for our buck that we're expecting.

And then as we achieve those, we are then going to roll on more people and keep the snowball rolling. But we're absolutely measuring our progress as we go.

Flemming, anything you want to add to that?.

No, I mean, the opportunity is still material and very exciting and so we're continuing to execute and expand our presence. I mean we've seen in the past where we are present with people. We do a lot better than when we go through a third party, so that's a key to growth, to have a presence and build our brand..

What do you principally have to overcome to move this along more quickly, in your opinion? What are the major things that you have to get over?.

Probably education, you know that we have been a small player in the past and present in the distribution channel primarily, and now we're moving into the key accounts in the industry and getting our presence and brand awareness and our scientific information in front of them, so they can make a – they always make a very educated decision, but get to know us and building those relationships.

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And in the commentary there was a reference to Mexico and equipment in Mexico.

What is the equipment?.

It's primarily swine artificial insemination and swine farm equipment..

Okay, thank you. I'll get back in the queue. .

Thank you, Bob..

Thank you. And our next question comes from Ethan Starr, who is a Private Investor. Your line is now open..

Yes, it's really nice that you got a $13 million one-time payment in the fourth quarter.

But as an investor, no matter how you sugarcoat it in the press release, the bottom line is you’ve lost money on an operating basis, and I'm just wondering – trying to understand why SG&A increased so much in the fourth quarter over last year and I hope it's not a trend. .

No….

I can jump in..

Okay, you go ahead Susan. .

What I would say – what you said is true Ethan, but the reason I was trying to highlight the investments that we made, those were significant. They were about $6 million worth. We wouldn't have done those had we not had that $13 million or maybe likely would not have done that. It was opportunistic for us.

The other thing we have in the fourth quarter is the bonus is significantly higher than it was last year. .

Okay.

Well, how much of that was like investments for the future, like the maintenance and advertising and how much was the bonus accrual?.

They were each about $6 million. .

Oh! So $6 million in an investment and $6 million in bonus accrual. .

Yeah. .

Okay, so the bonus accrual alone now, was the – does the $13 million one-time payment affect the bonus accrual?.

Yes, it does. .

Oh! Okay..

Yeah, and we were a double bonus before that as well. I mean we had already maxed out through the third quarter. So yes in affected it, but really ultimately went back to the shareholders, because we – our bonus program caps out at double bonus and we were a double bonus through three quarters. .

No, the first three quarters were great. [Cross Talk] Go ahead..

No, I was just going to say that last year we didn't pay a full bonus, because as you recall the first two quarters of fiscal ‘19 were a real struggle as we went live on our JVE [ph] ERP. .

Sure.

But you know, I really would appreciate it you know – I don't know, I mean perhaps you didn't know the full extent of the bonus accrual when you had the last conference call, but you know you specifically mentioned in the last conference call that the $13 million had already been received, yet you didn't you know make any mention of the huge increase in SG&A, which would've been appreciated had you known about it then.

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Duly noted. .

Okay, I'll get back in the queue. .

Thank you. And our next question comes from John Bair, Ascend Wealth Advisors. Your line is now open..

Thank you and good morning. Hi there! Can you speak at all to the trends you’re seeing right now with regards consumer de-stocking. Has that kind of stabilized out or you’re starting to see a more normalized trend in that and also I was kind of interested.

In you press release you said there was an increase in the coarse – what was it, co-packaged cat litter business was up and is that trend – I mean that kind of goes counter to what you know we've been seeing over you know the past couple of years.

So I’m kind of curious where that plays out or how that plays out?.

Sure. I’ll let Jessica take the destocking and restocking question and then I'll close with the co-pack answer. .

Yeah, thank you for the questions. So we have seen things start to normalize again as it relates to the loading and then de-loading from COVID. Obviously you know can't predict -- don't have a crystal ball to predict that.

We do expect to see potentially some additional loading again around the holidays as well, but I would say in general we have seen things start to stabilize in terms of you know the big swings up and down from an inventory loading perspective. .

Okay. .

Again, on the co-pack business, our major partner there has done a good job of getting – offsetting the U.S. decline in coarse cat litter as scoopable cat litter has become the cat litter of choice for consumers.

They've done a good job of offsetting that with international business and so we've benefited from that, so that really was the key driver there. .

So are you shipping that internationally or is that internationally sourced?.

No, no, it’s all coming out. We make 100% of it. It's all coming out of our Georgia facility. .

Okay, and then they ship it? I mean how do you – do you bury those costs or how does that [Cross Talk].

We make the product available to them on an [inaudible] basis and they handle all shipping, whether it's domestic or international. .

Okay. Okay, well I've got another question, but I’ll pop back and….

You can ask it – I mean Ethan’s already done a couple. Ask your question and probably Bob will have a question..

It’s a fairly quick one. Just kind of curious on what you're seeing trend wise with orders for product coming through sources such as say Amazon online or Chewy or that kind of demand.

Can you tell us anything about that?.

Sure, I'm going to let Jessica answer that, but I'm first going to give you my 50,000 foot view on e-commerce as it relates to cat litter. If you think about e-commerce, it makes the most sense for things where freight is a very small percentage of the delivered cost of goods.

There's a reason why big box stores and grocery stores have been able to be very competitive on bulky, low priced items, because they can buy in full truck loads and then their distribution model allows the consumer to benefit from that.

When you decide to buy one bag of cat litter and have it stuck in a box and you know overnight it to you, the cost of that is greater per unit than putting it in a truckload, sending it to a distribution center and putting it on the store shelf. So ultimately somebody has to bear that cost in the equation.

It either has to be the manufacturer, the “e-tailer,” the Amazon or Chewy or the consumer.

The consumer has to say, ‘I’m willing to pay an extra 30%, 40% for my litter, because I don't want to be carrying it home.’ So just recognize that while e-commerce is having a major impact and its currently having a major impact in cat litter as well, it's because someone in that equation is making the decision to participate to that extent.

So I'm just going to leave it there. It just doesn't – it will never be as competitive from a cost per unit standpoint as the full truckload of brick and mortar model. Now having said that, especially during COVID it's been going crazy and I'll turn it over to Jessica. .

Yeah, okay. .

Yeah, just to echo Dan’s comment, we have continued to see an increase in e-commerce, you know again driven partially by COVID and partially by kind of a long term consumer trend erring toward buying online. .

I would think certainly within urban areas you would be seeing and I don't know if you're able to determine that or not, but within urban areas I would imagine home delivery through one of those e-tailers would make a lot more sense than outside, just you know, so anyway. Okay, very good, thanks. I'll get back in the queue. .

Thank you. .

Thank you. And our next question is a follow-up question from Robert Smith of the Center for Performance. Your line is now open..

Yeah, so maybe you could say something about the opportunities for animal health here in this country. .

Right, Flemming I'll let you field that. .

Yeah, I mean, it's an untapped market for Amlan and Oil-Dri and the product fits well. We know there's a lot of emphasis in the market for antibiotic alternative, antibiotics reproduction, no antibiotics ever.

It’s something I think Tyson is even taunting saying they are – 60% of their production is no antibiotics ever, and so our product positioning is well fit. We are just leading the feet on the ground to really get our positioning in place with you know the U.S. 80% of wholesale production is probably 10 accounts or less.

So we are just getting the people in place to move forward and it's a great opportunity..

So, is there any particular regulatory matter that has to be overcome?.

No..

Okay, thank you..

Thank you. And our next question comes from Joseph Gabelli of GAMCO Investors. Your line is now open..

Hi guys, thanks for taking the question.

Could you just discuss what drove you to buy back some stock in July and maybe update us on your thinking and strategy around share repurchases going forward?.

Sure.

Susan?.

Sure. Our thinking around the share repurchases in July were just our cash position and honestly, you know we're not making anything on our cash. It’s basically sitting in the bank.

So we did an evaluation around what good buyback share price points were and because the stock price was under what the evaluation said, we decided to go ahead and buy some back..

[Cross Talk] A big part of that calculation is avoiding the dividend or retiring that, not paying the dividend on those shares. So when you're paying almost a 3% dividend and earning nothing on your money, you can definitely benefit from share buyback and it benefits the shareholders.

What's your perspective on the share repurchase? Joe [ph] that was a question for you..

Well, obviously it's another tool for capital allocation depending on where you can get returns and what do you think the stock is worth relative to where it's trading?.

Yeah, we tried to rather do a special dividend when we got that big influx of the one-time licensing. We said lets – this is the way of sort of returning some value to the shareholders and through our share repurchase. So that was part of the overall equation..

Great, thank you..

Thank you. And our final question comes from Ethan Starr, a Private Investor. Your line is now open..

Yes, do you know what's the potential for growth in both of them branded and private label cat litter markets? You know, you’re still adding more accounts there and how is that one going? Are more SKUs in various accounts and new accounts?.

Yeah Jessica – I mean, you can certainly talk about it, because it's out there and it's public. The Blue Jug at Wal-Mart which we're seeing some good results from and any private label lightweights that we’ve – you know if that business is continuing to grow..

Yeah, so Ethan I would just say we do continue to see both growth organically of our existing SKUs as well as kind of creation and expansion of new SKUs and new customer acquisitions.

So we – you know as we have successes with customers and key customers, you know obviously those become great data points to go out and expand the business and private label lightweight has been very successful, both on the private label side, as well as the branded side and really leveraging the trends that we're seeing in lightweight.

So excited to continue to see growth and again go through organic growth, as well as customer acquisitions..

Anything – I'll add just to expand the question and I’ll have to wrap up into all of North America. We're seeing even more rapid growth on private label lightweight north of the border in Canada for two major reasons. Number one, private label’s always been about 20% of the category in the United States, with 80% being branded sales.

Canada being more like Europe, it's more like 40% private label and 60% brand, so you've got a more developed market. You have a consumer more attuned to private label and buying their cat litter that way, so that's been good for us.

And then about a year ago, and I've mentioned this before, you know our largest competitor, Nestlé Purina, went all lightweight in Canada and so they sell only lightweight offerings. They have 17 lightweight SKUs in Loblaws and Walmart Canada and no heavyweight SKUs, zero.

And so they've clearly educated the consumer on the benefits of lightweight and they can buy a brand or they can get a national brand equivalent made by us in the private label, in the own brand.

So we're seeing great results north of the border and we obviously hope that trend will make its way down of the United States and that'll be all good for Oil-Dri. .

So, thank you all for your focus and attention and your loyalty. We had a great fiscal ‘20. I want to thank our frontline workers for making it possible.

You know they came in everyday and Molly and Aaron Christiansen and their team kept them safe and healthy, exercising really strict social distancing, wearing masks, three times daily cleaning, everything we could do to keep COVID out of our facilities. As far as we know, no COVID emanated from our facilities.

We did have a few teammates and not many, who did contract COVID, but all the tracing pointed to spots outside Oil-Dri and because of their work, we were able to deliver a record year and we look forward to you know continued momentum into fiscal ’21. So we'll be back to you in 90-days or so. Thank you very much..

Well, ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect..