ODC

Capital Investment & Margin Dynamics

• Over the past five years, the company has averaged $32 million in annual capital expenditure, double the $15 million annual average from fiscal 2017 to fiscal 2021, to upgrade facilities.
• Depreciation, a lagging indicator, has risen from a historical average of $13 million to a current run rate of ~$22.5 million annually, and will continue to rise as it catches up to new capital spending, creating ongoing near-term margin pressure.
• Despite margin pressure, operating cash generation remains very strong: the quarter generated $25 million in net cash from operating activities.
• Upgraded facilities enabled 99.9% order fill rate during Winter Storm Fern, when many competitors faced major disruptions, earning the company multiple Supplier of the Year awards.

Operational and Financial Highlights

• YoY operating income increased 23% as top-line growth offset gross margin pressure, paired with a reduction in selling, general, and administrative costs.
• The Board of Directors approved a 10% dividend increase to 22.5 cents per share, the second dividend increase in less than a year, reflecting confidence in sustained cash flow generation.
• Gross margin decreased 190 basis points YoY due to 6% higher domestic cost per ton of goods sold, driven by increased purchased materials, labor, packaging, and transportation costs. The company is offsetting pressure via internal productivity initiatives, customer collaboration, and targeted pricing adjustments.

Core Growth Initiatives

• Consumer Products: Expanded co-packaging offerings to include lightweight cat litter, launched new branded products including an e-commerce exclusive Cast Pride variant, and grew private label crystal litter distribution via existing customer relationships.
• Amlin International: After losing a key account earlier in fiscal 2026, the business has regained a foothold at the account and expanded its overall customer base across all regions, leveraging vertical integration and quality control as competitive advantages.
• Fluids Purification: Higher jet fuel refining output driven by Middle East supply disruptions has lifted current sales, and upcoming SAF (sustainable aviation fuel) capacity additions are expected to drive future growth.

Management reaffirmed prior guidance that the first half of fiscal 2026 would face difficult YoY comparisons to the robust first half of fiscal 2025, and that YoY growth momentum would pick up in the second half of fiscal 2026. This expectation has been realized in Q3, in line with prior guidance. No changes to long-term financial or operational guidance were announced.

Overall Q3 fiscal 2026 net sales hit $126 million, a 9% increase year-over-year (YoY). Revenue contribution by segment:

1. Retail and Wholesale Products Group: This segment saw significant growth, with core cat litter sales up 13% YoY. Coarse, lightweight, co-packaged, and crystal cat litter products drove this growth, with crystal litter reaching record quarterly sales volumes.
2. Business-to-Business Products Group: This segment delivered substantial demand-driven top-line growth across its agricultural/animal health (Amlin International) sub-segment. Fluids purification products saw a 1% slight YoY sales decline, driven by lower export volumes, while North American fluids purification sales grew strongly in the quarter.

• Ongoing cost inflation for materials, labor, packaging, and transportation continues to pressure gross margins, with varying impact across different product segments.
• The cat litter category faces elevated competitive promotional activity, trade spending, and pricing pressure. There is also risk of increased consumer shift from branded to private label products amid continued weak consumer sentiment.
• Global supply chain disruptions related to geopolitical conflicts (including the Middle East conflict) could impact input shipping costs and supply availability in the future, though no material impact was seen in Q3.

Q: What factors are driving the current elevated demand for cat litter? / A: Domestic cat litter sales (excluding co-packed products) rose 10% YoY. Growth comes from broad industry expansion tied to rising national cat ownership, plus stronger performance of the company's high-growth product lines: crystal, lightweight, and coarse litter. Some demand also shifted into Q3 from Q2 due to order delays from an earlier winter storm. The company has expanded distribution for both branded and private label products, and launched new health-focused crystal litter products that drove record crystal sales this quarter.

Q: Are new Amlin International accounts likely to become repeat, growing customers, and what is the 12-18 month outlook for the business facing competitive constraints? / A: After losing a key account earlier this year, the business has already regained a foothold and is growing again at that account, while also adding new customers across all served regions and expanding penetration at existing accounts. Amlin's competitive advantages, including vertical integration from mine to end customer, consistent quality control, and differentiated core mineral, create a strong value proposition that supports ongoing growth. The company will continue focusing on building relationships with distribution and end-user partners to drive expansion.

Q: How has the Middle East conflict impacted demand for Oil Dry's products from biofuel and jet fuel producers? / A: Refinery margins for conventional jet fuel are currently very high, so refiners are increasing production, which has already lifted sales of Oil Dry's processing minerals. For sustainable aviation fuel (SAF), existing SAF production customers are also seeing increased demand, which has driven higher current sales. Additional sales growth is expected over the next 12 months as new SAF production capacity comes online, though current global SAF capacity remains insufficient to meet all existing demand.

Q: How does the company leverage its proprietary mineral reserve advantage for R&D and adjacent market growth? / A: The company's long-standing vertical integration strategy gives it 40 years of reserves for every product line and over 100 years of total reserves, enabling deep, long-term investment in understanding its core calcium bentonite mineral. Past experience has shown that new high-value applications often emerge from ongoing exploration of the mineral's properties; for example, the fluids purification business grew out of a facility originally built for an unrelated application. Management does not disclose specific pipeline projects to avoid tipping off competitors, but remains focused on expanding value-added applications for its core mineral rather than chasing low-margin volume growth.