Oil-Dri Corporation Of America

Welcome to the 2020 Annual Meeting for Oil Dry Corporation of America. Our host for today's call is Leslie Garber, Manager of Investor Relations. At this time, all participants will be in a listen-only mode. I will now turn the call over to your host. Leslie Garber, you may begin.

Good morning. Due to the current pandemic, we are conducting this meeting virtually to ensure everyone's health and safety. By hosting this meeting via live webcast, we are able to be more inclusive, reach a greater number of our stockholders, and save costs. On your screen, under meeting materials, you will find the meeting agenda, rules of conduct, list of stockholders of record, and Oil & Dry's proxy statement and annual report. During the meeting today, we will be covering the election of directors and two other proposals. Next will be the business presentations and financial review, followed by time for Q&A. We ask that you submit your questions online under the Ask a Question field on your screen. Only stockholders of record are able to ask questions during the meeting. Stockholders will also be able to vote online by clicking on the Vote Here button on your screen. Now it is my pleasure to introduce our General Counsel and Secretary, Laura Shieland, who will conduct the formal portion of today's meeting.

Good morning, ladies and gentlemen. I now call to order the 2020 Annual Meeting of Stockholders of Oil Dry Corporation of America to conduct the formal business set forth in the Notice of Meeting and Proxy Statement. Commencing on October 27, 2020, a notice regarding the availability of proxy materials or a copy of the proxy materials was mailed to all Oil Dry stockholders of record as of the close of business on October 9, 2020. which is the record date fixed by Oil Dry's board of directors for the determination of stockholders entitled to notice of and to vote at the meeting. Broadridge Financial Solutions, Inc. has delivered an affidavit confirming the foregoing. Oil Dry has appointed Peter Soblek of C.T. Hagberg to serve as the inspector of election for this meeting. He is present and has taken the oath of office. As of October 9th, 2020, the record date for this meeting There were 5,384,560 shares of oil-dried common stock and 2,077,599 shares of oil-dried Class B stock outstanding. Holders of our common stock are entitled to one vote per share, and holders of our Class B stock are entitled to 10 votes per share, and generally vote together without regard to class. A quorum is present at this meeting if holders of a majority of our common stock and Class B stock outstanding and entitled to vote are present in person or webcast or represented by proxy. Thus, the number of voters necessary to constitute a quorum at this meeting is 13,080,276 votes. Mr. Slavlik has informed me that there are more than such number of votes represented at this meeting. Therefore, I declare there is a quorum present for purposes of transacting business. Now I will present the matters to be voted upon. If any stockholder would like to make a comment regarding any of the proposals, please submit your comment through the Ask a Question field in the web portal, and we will review any comments on the proposals themselves after all proposals have been presented. I'll move to the first proposal. As described in the proxy statement, the first item of business is the election of eight directors. The proxy statement listed Oil Dry's nominees for directors, each of whom currently serves as a director of Oil Dry. Those nominees are Daniel S. Jaffee, Ellen Blair Shube, Paul M. Hindsley, Michael A. Nemeroff, George C. Roth, Alan H. Selig, Paul E. Succo, and Lawrence E. Washaw. The second item of business is the ratification of the appointment of Grant Thornton LLP as Oil Dry's independent auditor for the fiscal year ending July 31st, 2021. The audit committee of the board of directors of Oil Dry has appointed Grant Thornton to serve as the company's independent auditors for fiscal year 2021 and has directed that the appointment be submitted for ratification by the stockholders at this meeting. The third order of business is the approval on an advisory basis of the compensation of the named executive officers disclosed in the proxy statement. At this time, we'll check for and review any comments on the proposals that have been submitted. It looks like no comments have been received, so we'll proceed with opening the polls. It is now 9.35 a.m. on December 8, 2020, and the polls are now open. Any stockholder who hasn't yet voted or wishes to change their vote may do so by clicking on the Vote Here button on your screen. Stockholders who have sent in proxies or voted via telephone or internet and who do not want to change their vote do not need to take any further action. While we allow time for stockholders who haven't already done so to complete their voting, I'll take the time now to remind you that the business presentation and any other commentary by any of Oil Dry's employees today may contain forward-looking statements of expected future performance. Any such forward-looking statements are subject to certain risks, uncertainties, and assumptions that could cause actual results to differ materially. We highlight a number of important risk factors that may affect our future performance in our SEC filings including our annual report for the fiscal year ended July 31, 2020. We urge you to review and consider those risk factors carefully in evaluating the company's comments and in evaluating any investment in oil dry stock. Copies of our SEC filings are available through the company or online. All right, one last minute to finish voting. Okay, at this point the polls are closed and I will now report the preliminary results of the voting. We'll be reporting the final vote results in a form 8K to be filed within four business days. As described in the proxy statement, a director may only be elected by plurality of votes cast. The eight nominees who receive the largest number of votes will be elected. We have been informed by the inspector of elections that the preliminary Vote report shows that the eight candidates nominated by Oil Dry received the largest number of votes. Regarding the second item of business, an affirmative majority of the votes represented at this meeting is necessary for ratification of the appointment of Grant Thornton as Oil Dry's independent auditor for the fiscal year ending July 31st, 2021. We have been informed by the Inspector of Elections that the preliminary vote report shows that such ratification received more than a majority of the votes represented at this meeting. For the third item of business, we have been informed by the Inspector of Elections that the preliminary vote report shows that an affirmative majority of the votes represented at this meeting approved the compensation of the named executive officers by advisory vote. This completes the business to be conducted at this meeting. There being no further business to come before the meeting, the 2020 Annual Meeting of Stockholders of Oil Dry Corporation is now adjourned. I am now happy to introduce Dan Jaffee, our President and Chief Executive Officer, to kick off our business presentations and financial review.

Thank you, Laura. Hello and welcome, everybody. And first and foremost, thanks for recounting the vote for us. And since it went my way, I will not be making unsubstantiated claims of voter fraud or suing any of our electorates. So I'm happy to hear we were properly voted in, and I will honor the vote. You know, fiscal 2020 is truly a year that none of us will ever forget. And we always say here at the company that winning at oil dry is a team game. And this year, Thank you very much. Thank you for joining us today. Knock on wood, to date, we have had a few COVID teammates who have had COVID, but to our knowledge, they didn't get it at Oil Drive. They got it somewhere else. And because of our policy of letting people stay home and recover and sequester and so forth, quarantine have not brought it into our facility. So I just want to thank everybody for keeping Oil Drive fiscally and physically healthy. Daniel Jaffee, Susan Marie Kreh, Jonathan Blake, And my grandpa Nick used to always say, the harder I work, the luckier I get, whichever led to our luck of being essential. No one thought about that before, and now I don't think anyone will ever forget again whether or not the businesses they happen to be in are essential or the businesses they happen to be investing in are essential. Because you could be the greatest team in the world and the greatest CEO in the world, and if you're running a movie theater business or a cruise line or something like that, your business is hurting. Because nothing, you know, everything is grounded at this point in time. So I feel very fortunate that our products have been tied forever to food and to pets. And, you know, I think we've all seen the trend in pets, and you'll be hearing from Jessica Moskowitz, but, you know, our furry four-legged friends are always important to us, but in times of stress, Thank you for joining us. For our four-legged friends, and that makes us feel good as well. As I said, winning at Oil Dry is a team game, and I always like to highlight the new vice presidents during the year because an investment in Oil Dry really is an investment in our people. We had two new vice presidents during the year, so I'm going to highlight them right now. First is Rachel Belante. She's our vice president of sales for non-foods. And Rachel received her B.A. from Wisconsin, Madison. She cut her teeth getting great brand experience at Miller Brewing Company, PepsiCo, Dannon, Dr. Pepper, my favorite. And Rachel, by the way, if you can get me Diet Dr. Pepper Cherry, I'd be forever in your debt. I can't seem to find it anymore. And Snapple in category management and sales. And she's also had private label experience with Heartland Food Products. And as you well know, we Our reason to be, our unique positioning in the cat litter category is that we not only sell popularly priced and high-performing branded items, but we also partner up with retailers from coast to coast to provide their own brand, their private label. And so her dual experience makes her uniquely qualified to be our VP of sales in non-foods. Also, as many of you know, in the consumer products industry, the days of schmoozing the buyers and wineming and dining them is over. It is now all about data management. It is all about helping them better run their categories so that they can look better and advance their careers. And so her background in syndicated data management analysis and insights with IRI and Nielsen, again, makes her a fact-based seller. And as we always like to say at Oil Dry, everyone's entitled to their opinion, but they're not entitled to the facts. And so fact-based selling is always fantastic. Her role now with us is we're entrusting our largest and most important cat litter business to her, among our most important. She's got Walmart, Target, Meijer, and she's been with us a year and a half, and I look forward to her being with us for years and years to come. So, Rachel, congratulations and thank you. for being our VP of Sales in Non-Foods. And then over on the other side, as you well know, our other incredible growth opportunity is in Amlin International. And Fred Kao has joined us recently as our Vice President of Global Sales. He received his Bachelor of Science in Poultry Science from the University of Arkansas, so he is a Razorback. He has had over 20 years experience in the poultry industry, all with primary breeding companies. He's got global experience, the U.S., Europe, Middle East, Africa, and Asia. He recently, before coming to us, he was the managing director of the Asia-Pacific region for Cobb Vantress, one of the largest poultry producers in the world, if not the largest. And for us, he's already been able to hit the ground sprinting. He's responsible for setting strategy for our sales team globally. This includes sales and technical support. It aligns our regional marketing strategy with Amlin's global strategy. And Fred is like our seal of approval. Because he's joined us, we have been able to recruit and onboard just an incredible what I call a dream team. And we've been able to rapidly enhance our skill set in our sales team thanks to Fred. They initially see us because of Fred, and then they get involved with our lab and our science and our data. And that seals them on the fact that we are sitting on a gold mine and it's up to us to figure out how to monetize that and mine that. And for those of you who saw the news release, I was recently demoted. I am now running the Amblin International business and very excited to do it. I did this same thing when we invented lightweight cat litter and got it up and off the ground and then was... Very happy to hand that off into the able hands of Jessica Moskowitz and her team. And they're doing such a great job, as you can tell from the news release, that now I can focus on Amlin and get that up and off the ground. And so I'm happy to roll up my sleeves, really understand it in a granular way. And then I will be handing that off when it's ready to someone who is better suited than I am to do the daily blocking and tackling that's necessary. But right now, a lot of it is about strategy setting and global positioning, and Fred and I are working daily, if not hourly, together to make that happen. So, Fred, thank you for joining Oil Dry. Like I said, you've hit the ground sprinting, and it's really been a pleasure to work with you And I'm glad we're getting the ability to do that. So those are our two new vice presidents. At this point in time, I would like to turn it over to Susan Kreh, our chief financial officer, and she will walk you through some of our financial highlights.

Thank you, Dan. And I know you love to sometimes add color on the finance stuff, so feel free to jump in. It's a privilege to be here today at our first-ever virtual annual meeting on behalf of my teammates here at Oil Dry to share the financial results of our record fiscal year in 2020, as well as our strong first quarter of fiscal 2021. Fiscal 2020 was a record year for Oil Dry, both for net sales and net income, and the momentum continued to carry into the first quarter of fiscal 2021, which had the highest net sales of any of Oil Dry's first quarters. As I proceed through these slides, I will be sharing a look back at the past decade of performance trends as well as focusing on our first quarter results. So let's start by looking at 10 years of net sales growth, noting the stronger growth in the past two years driven by our retail and wholesale products group where we are seeing the benefit of our strategic focus on the lightweight and the private label segments of the cat litter market. Looking at the first quarter of fiscal 2021, the 76 million in first quarter net sales represents year-over-year growth of 7% and is driven by 9% growth in our retail and wholesale products group, accompanied by 4% growth in our business-to-business products group, where strong sales of our agricultural products were partially offset by a year-over-year reduction in net sales of our AMLIN products. As Dan mentioned, we have made some key organizational changes in our ambulance business to better position us to serve the animal health market, and Dan has refocused the team on the execution of our animal health product strategy. Taking a 10-year look at our tons sold, you can see the downward impact as we very purposefully continue to focus on our mission of creating value through sorbent minerals. We continue to review our product portfolio to wean out products that no longer achieve our mission of value creation while developing new products that do create the additional value for our customers. And as we look at net sales per ton, we see the 10-year impact of focusing on creating value because while volume has decreased 16% over the past 10 years, our net sales per ton has increased from $244 to $375 per ton, an increase of 54%. And that continued focus led to a net sales per ton of $383 in the first quarter of fiscal 2021, an all-time record for oil dry. Right, applause, yeah. And not only are we driving growth in our net sales per ton, we are driving even stronger growth. at a 10-year compound annual growth rate of 6% in our gross profit per ton, a key profitability metric that we use to manage the performance of our business. In fact, the $100 gross profit per ton that we achieved in fiscal year 2020 was an all-time high for oil dry, and we continued that momentum into the first quarter of fiscal 2021, delivering gross profit per ton of $102. Next you can see that our strong growth in gross profit per ton over the past decade has translated into an even stronger 10-year compound annual growth rate of 8.6% on net income per ton. The $25 of net income per ton is another all-time record for oil dry. Looking at our first quarter performance, gross profit of $20.3 million was $400,000 higher than the same quarter in the prior year. At the same time, our selling, general, and administrative expenses were down by $700,000 due primarily to reduced travel and related expenses and some timing shift in advertising. With our first quarter net income attributable to oil dry of $4 million, which is a 5% increase over the same quarter in the prior year, we generated a strong $20 net income per ton in the quarter. On an earnings per basic common share basis, we came off a record year at $2.70 per share to deliver $0.57 per share in the first quarter, up $0.06 per share over the first quarter last year. Next we see the 10-year delivery of dividends per share that are both predictable and are growing. The dividends per share during our first quarter rose to 26 cents from 25 cents per share, marking, as Dan noted earlier, 17 consecutive years of growth in the dividends we paid to our shareholders. We continue to maintain a strong balance sheet, and our solid financial performance enables us to invest on multiple fronts. In addition to the return to our shareholders through dividends, we fund new product development through R&D, We maintain our plants and we fund cost reduction opportunities in those plants through our CapEx. And in fiscal year 2020, we repurchased 5.5 million of our outstanding shares. From a liquidity standpoint, OilDri is well positioned with a low level of debt and with a 75 million shelf financing arrangement that is already in place that should enable us to have quicker access to funding when the right investment opportunity arises. And speaking of opportunities, with the focus and alignment on our key strategies in cat litter and animal health and with some key investments that have been made in technology, in organizational capacity, and in leadership, combined with the strong financial performance of our business, we are eager to pursue the right investment opportunities when they become available. And with that summary, It is my pleasure to turn this over to Molly Vanden Heuvel, our Chief Operating Officer.

Thank you, Susan. Good morning. As Susan mentioned, I'm Molly Vanden Heuvel, the Chief Operating Officer at Oil Drive. And I also want to start the discussion with a COVID recap and impact. Dan did summarize some of this, but I'll get into a little bit more detail. So 2020 was a tumultuous year. But it is times like these where the true values and the core of a company become evident, and at Oil Dry's core is focused on keeping our teammates and our business healthy. And as you heard from Susan, we did keep our business very healthy, and I'll talk about how we kept our teammates healthy and how we kept our business operations running. So first of all, being an essential business was a key component. We are essential through many of our applications, to name a few. We're part of the food supply chain and oil purification. We supply antibiotic alternatives for animal health. And of course, cat litter is still essential for cat owners, more so now that we're all inside and at home. So we needed to make sure that we kept our business running while keeping us healthy. Our teammates have been flat-out amazing, and we have done what we can to support them. Their physical safety, financial health, And emotional well-being have been at the top of our priority list. At the start of a pandemic, we pivoted quickly. Anyone that was not directly needed for production worked remotely. We had a paradigm here before the pandemic that many of these roles in the past just could not be effective remotely, such as our very important customer service representative. But we leveraged Many of our teammates and many of our functions and many of our processes to make the adjustment and break that paradigm. And we ensured a rapid and successful transition that has reinforced to us something we say often, and which Dan even said earlier, is winning at Oil Dry is a team game. So for our teammates still on the front line, some of the things we have done at the production facilities and our R&D lab to keep our teammates safe Include deep cleaning processes, so one shown here, I'll show you here. So one shown in this picture, social distancing requirements and online video meetings, even often when we're at the same location, and of course, mask wearing. And in most cases, this is 100% of the time while on property. As you can see, we have some specific oil dry masks that we have made. So these actions have been successful, and we prevented any outbreak or transmission at Oil Drive. So through this transition, we had no major impact to customer service, and in some cases, we shipped and produced in record quantities. So not only has Oil Drive survived this pandemic, we worked as a team to thrive and will continue to do so. Okay, so with that, let's talk a little bit about operations updates within this past year. So last year, I reviewed the sales and operations planning process we were implementing at Oil Dry. As a reminder, this is a holistic process on how we run the business. It has a regular cadence of meetings at each month and tools and processes to better our end-to-end and cross-functional decision-making. I did that, sorry. So it turns out that having this foundation prior to the pandemic has been instrumental in our success this year. So it has really helped us through the online transition and keeps us organized and focused, and it's a tighter process for communication, data sharing, and overall resolution. So there's a lot of things that we've implemented in the last year, and I want to brag about just a few that we've implemented that I'll talk about that's part of the S&OP process. So the first one is the first review meeting is the portfolio management review. So we spent a lot of time on this and we now have a very robust list of potential new items for all of our divisions in various project stages. We've spent a lot of time redefining the current project success criteria and ideating many new UV breakthrough and growth generating product ideas for this list. Projects still must meet financial hurdles at each stage and have detailed timelines that are managed to keep us on track. We're setting ourselves up for a healthy future growth with new product solutions that create value from sorbent minerals. We also have a monthly demand process. It's a consolidated set of demand forecasts that is forward looking in around the 12 to 18 month horizon and it utilizes the ERP or enterprise resource planning system, JDE, that we implemented two years ago, so we're further leveraging that system that was implemented. That gets fed to supply on a monthly basis. We've also done a lot of improvements in the supply area, and I'm just going to give you one today, is now we actually have what's called a rough cut capacity planning process and tools in place. So this lets us look at how much capacity is needed by product platform by month Looking out in the 12 to 18 month horizon. This has allowed us to see potential capacity gaps quite early and then develop plans to close these gaps. This is one tool that's enabled service level improvements and better utilizes our sometimes expensive capacity throughout the year. So I also want to talk about results in the operations world. So last year I shared, I focused our main areas In supply chain operations around the four Cs, customer, cost, cash, and capability. So how did we do in those areas? So the first one is customer. And as you can see, that's both internal and external. And the internal customer is our teammates. And as I mentioned in the COVID update, we were able to continue to support our teammates through this pandemic. For our external customers, We have new metrics that we are tracking and improving against, including case fill rate, on time as promised, and on time as ordered. And I'm very pleased to say that we saw a step change improvement in all of those metrics in fiscal 20 as compared to fiscal 19. Our focus on quality has also improved with many new metrics And for example, one of them that's been continually improving is our consumer complaints per million units is at a record low and still continuing to improve. The next area is cost. So how did we do in cost? The simple answer here is that we took out $5 million of cost in the supply chain in 2020, helping to improve gross profit with a bottom line adjustment. The not simple answer is that took an incredible amount of effort and coordination from the entire team with hundreds of savings projects completed and still hundreds underway. So really great results in cost helping us overall. The third is cash. So our cash and inventory position as a whole did not significantly change, has slightly reduced. But I will say that mixed and active inventory has improved considerably. We spent a lot of time right-sizing the working capital that we have. We have focused on inventory by few, and we've reduced our obsolete inventory, improving both service and cost. And then last but not least is capability. So the supply chain and operations team and OilDry overall has implemented numerous processes to sustain these results, and really too many to even start to list. Things like cross-functional service meetings and, of course, S&OP, as I talked earlier. And this has really built us a strong foundation for continual improvement in the foreseeable future. So with that, I'd like to hand it off to Jessica Moskowitz, who is our VP and General Manager for our Consumer Products Division.

Thank you, Molly. Hello. Good morning to everyone. My name is Jessica Moskowitz, and as Molly mentioned, I'm the Vice President and General Manager of the Consumer Products Division. Our Consumer Division continues to post strong growth in 2021, coming off of an 8% net sales growth in 2020. Net sales were up 12% in Q1 2021, driven primarily by gains in our brand of scoop cat litter and private label cat litter businesses. These gains reflect continued focus against three key pillars, the first of which is creating value through vertical integration. Our inhibited access to premium lightweight clay mines across the country drives value for oil dry, but it also drives value for our customer partners and our pet parent consumers. Our vertical integration coupled with our 80 plus percent year history and expertise in cat litter have provided us with a real meaningful point of difference. Secondly, we continue to invest resources with a focus on continuous improvement in quality, ensuring that we're delighting consumers by offering them great products at a great value. And thirdly, our team. We celebrate and embrace our role as a cat litter that cares in both the long term through our decades-long commitment to giving back to animal causes, but also in the day-to-day decisions and strategies that we set as a business. From a product perspective on the cat litter side, we've been intentionally focused on expanding and growing the lightweight portion of our business for all of the reasons we've been talking about since we launched Lightweight in 2012. Firstly, lightweight cat litter addresses a key pain point for cat litter consumers. Cat litter is traditionally very heavy. Second, our vertical integration in lightweight materials allows us to uniquely offer this premium benefit to consumers at a value. And thirdly, as you'll see on the right, Lightweight not only benefits the consumer, but also the entire supply chain, meaning less weight, less freight, and ultimately less trucks on the road. Through that focus on Lightweight, we continue to see growth across both our private label cat litter, both via new customer acquisition and organic growth, as well as in our branded portfolio. On the branded side, we continue to focus on our best-performing Lightweight products, Thanks to an impressive cross-functional team effort, this year we launched two new items under our best performing formula, Natural Care and Bacterial Odor Control. Both products combine a 25% lighter formula with a 10-day odor control called out by a newly formed Max Power badge. We're using those wins to further fuel our growth and to help continue to refine our lightweight strategy into the future. Our lightweight learning has been the impetus behind the addition of a new pillar to our strategy surrounding the launch of a new line of flushable cat litter. So you might ask why we're really focused on flushable. Well, let's go back to the foundation of our success in lightweight. As with lightweight, we're starting with a key consumer pain point, handling and disposing of cat litter. We know 30-plus percent of consumers are keeping their litter box in their bathrooms, And with our flushable cat litter, consumers can just scoop and flush. But the reality is today most cat litters aren't flushable. So consumers are scooping, putting it in a bag, bagging up the litter, and then throwing it in the garbage. So, for example, one consumer we spoke with lives in a high-rise apartment. He scoops the cat litter, puts it in a bag, walks the clumps to the other side of his high-rise building to then use the garbage chute. With more consumers at home, close quarters are feeling closer, and consumers recognize now more than ever the value of just scooping and flushing. Second, also like lightweight, we have access to minerals that are inherently flushable, meaning that we can offer this premium benefit to consumers at a value. And finally, being flushable is better for consumers, but it also means less waste in landfills. Just as it sounds, our flushable formula was specially formulated to just scoop and flush. But consumers don't typically think of cat litter as flushable, and that's because traditional litters develop hard clumps that create blockage in a toilet pipe. You can see that in the image on the left. Our flushable litter, shown in the image on the right, is unique in that it clumps and is scoopable, but dissolves once it's dispersed into a toilet pipe, making it safe to flush. As we mentioned before, the consumers are beginning to see the benefits of flushable litters. Today, only about 1.4% of points of distribution are dedicated to flushable products, but 5.6% of buyers are already purchasing flushable products, and 8% of consumers are actually looking for and seeking flushable products. This clearly creates not only an opportunity for distribution upside, but also consumer pull through and velocity upside once these products start to gain distribution. Furthermore, while surveys show that 8% of consumers are seeking flushability, we believe that the percentage in places like urban areas is much higher, where there's no basement or no garage, and that as flushability becomes available and more marketed, this percentage will only go up. Look at the 30% of consumers that already have a litter box in their bathroom and don't even realize that they can flush their cat litter. We plan to support Flashable with a highly targeted marketing campaign geared toward those consumers who are already looking for a Flashable, who are looking for Flashable alternatives. Both the media plans as well as the creative will reflect this focus. Our media plan will be digitally focused with a combination of digital tactics like social media, video, sampling, and social influencers. And our creative will focus on how easy flushable cat litter is to use by just scooping and flushing. Consumers can just flush it and forget it. Further, we'll tie into the insight that many consumers are sharing spaces, sometimes small, with their furry friends, and being able to flush your cat litter leaves more time for the fun stuff. In closing, I'd like to thank the entire Division III team. When we talk about growth drivers, I can't think of a more important and critical one than team. We continue to invest to elevate our team, and I'm so proud and honored to work with such a dedicated, driven, and down-to-earth group of teammates that ultimately has helped us become the cat litters that cares. Thank you. And with that, I'll turn it over to Fred Cao from Amlin International.

Thank you, Jessica, and thank you, Dan, for the introduction earlier. Good morning. I'm Fred Gao. I'm the Vice President of Global Sales for M1. I'm here to talk about opportunity for oil-derived unique mineral to improve global food production by sharing our most exciting animal health product and why it has so much potential to make huge impact in this $3 billion antibiotic world when the trend is going towards no antibiotic ever for many more countries. China, as an example, started that in July of 2020. On the Feature of Building America aired in September, our CEO, Daniel Jaffee, emphasizes the importance of our unique mineral to capture the animal health market for years to come by saying, Mother Nature puts everything on this earth, and we need to survive. And our MLS international business is pioneering the use of mineral technology to reduce and even eliminate antibiotics used to promote growth in animal protein production. So what actually sets Emlyn apart? The key differentiators. Not only does Emlyn has the best scientists working in our innovation center, we have a growing portfolio and we have the most important it factor, which is our mineral technology. We have the minimal technology that is beyond any comparators that we face in the marketplaces. Please allow me to elaborate. The value of vertical integration. Let's take it a little further to know why we have the significant advantages over other similar products in the market by knowing what Oral-Dri represents in this very important integrated business of animal health products. Number one, our mind reserves. We have hundreds of years of reserve that we do not have to worry about running low on our most precious raw material. Number two, not many companies out there can say that control the raw material that we do. This is such an important factor as we are not dependent. We are independent to ensure product quality as well. Number three, we are a mineral company. All we do are evolving around our minerals and with 80 years experiences as a mining company, All we have to do is to do what we do best. Our activated minerals are not only treating the animals from its challenges, but we can actually prevent it from happening by disrupting bacterial communication. This mode of action is called quorum sensing, which inhibits the bacteria from peeing each other and take over the host. Not only does our mineral able to absorb, but they can also absorb by a henshin of the bacterial molecule to the solid particle, our mineral. Of course, it finds the harmful toxins and squeeze them outside of the body to protect the animals, but we can actually try to prevent it from happening in the first place. And all these things are done with only our activated mineral, comparing to other more costly products in the market where combined additives are needed just to do the same job. So how does it work? A simplified way of saying it is our mineral acts as a magnet in the gut of the animal. So mycotoxin, bacteriotoxin, and biotoxin are all very common challenges in animal protein production. What we do is to bind our mineral with the feed and feed it to the animals. We are focusing on how feed additives can help with this. Once fed to the animals, it absorbs toxins within the gut and excretes the bonded toxins to the feces. All natural advantages. When using our product, customers enjoy a nice two-point FCR, which is called feed conversion ratio. This two point FCI advantages is a nice sized company processing roughly 5 million of boilers per week means an additional profit or the saving of $3.12 million US dollars per year. By calculating the total fee saved multiplied by the price of the fee, we get a total saving or additional profits as illustrated in the slide. How will we execute the key tactics To all growth strategy with Amlan, number one, identify opportunities. Number two, grow the team with strategic placement. Number three, target key players, direct customers, or distributors in each country and region. Number four, align marketing initiatives with sales objectives. Number five, accelerate growth with both new and existing product portfolio. This is just a slide showing no antibiotic error that was shown before. The key account opportunities. Why Asia is so important in our growing plan is shown in this slide. That is why in the last few weeks, we're able to get positive feedbacks on our very own variant with the number one and number two animal protein producers in the country of the Philippines. We received a similar response from the top five protein producers in Thailand as well. The soon-to-be 17 million metric fee company in China just doubled our orders in 2021, last month. And our continual push for the North American market just gave us our newest customer with sizable orders the last few weeks to kick off our key account strategy that we set out to do just a few months ago. So growing our team, the size of the circle indicates what the percent of the key account opportunities are in the previous slide. With emphasis on getting the right person for our target area, we hired Dr. Harold Zhou for China, Mr. Heath Wessels for North America Division to boost our existing team on the ground with Ms. Margarita Senta for Latin America and Ms. Claire Toraba for APEC. With our plan to hire the Regional Director of Sales in the Europe, Middle East, and Africa in FY22 to complete the sales team as our next phase of expansion in the world. The growth strategies. We're hiring. We plan to triple our size of team members in the upcoming years. Plus, we recently acquired nine sales licenses from different parts of the world to push through with our B2B sales strategy with accelerating marketing effort and technical service related services provided to the customers. We positioned ourselves in the right place to grow rapidly. Our go-to-market strategy. To ensure that we are not forgetting about the small and medium farmers, we're partnering with three major animal health pharma companies in the world in various different countries to ensure our products can reach every corner of the animal industry by selling both branded and private label products. The diagnostic service And biologics and ones under development will only strengthen our position as we start push forward with direct sales strategy to our key accounts in the markets. The direct sales to key accounts. Starting FY20, Emlyn began targeting key accounts, medium, large, poultry, and swine integrators in approximately 30 strategic countries with approximately 200 different companies. As explained in the last slide, this is just to re-emphasize what was discussed and how important it is to set up our regional business hubs to gain control of the product registration and to support our sales process going forward. Innovation. Mineral technology is our core competency and our competitive advantage. By building upon it, we're developing natural feed additive solution for drug-free protein production. With the last slide here, I would like to show you how ready we are as we show you our long-term development and adoption process. It can take up to 12 years just to get the product developed and out of the door, including product evaluation, meaning the trials and validation periods with different users internationally. And now that one to three years of key account adoption can take the whole product acceptability to a longer than desired period of the time. So the good thing is that we have quite a few products in the pipeline that will release continuously in the upcoming years because we know the importance of keeping something new to meet the animal, the end user, and the customer's needs. Thank you very much. With that, I'll pass it back to our CEO, Daniel Jaffee.

Fred, thank you, and I'm really impressed at your quick grasp of our business. And we're going to turn it over to Q&A. We've had a bunch of questions about Amlin and the changes, and you answered a lot of what's out there. But Leslie, why don't you read the questions, and then we'll...

Yes, we have two related questions. I'm going to read them both together. The first one is from Robert Smith, the Center for Performance Investing, and he asks, Where was the direction failure at Amlin and how will your approach be different? Do you believe you will be able to accomplish substantial progress during the current fiscal year? And then the second related question is from Ethan Star, a private investor. Aside from the pandemic, what are the biggest challenges in growing Amlin sales and why will you succeed where others have not?

Great. Thank you. And I'm going to take the 50,000 foot. I think you heard a lot from Fred, but I'm going to emphasize what he was talking about. And I'm going to analogize it to what went on with lightweight cat litter. Before we revolutionized cat litter, cat litter was denominated on a price per pound basis. Those with the lowest price per pound were perceived to be the best value. Despite the fact that not a consumer in America or the world used it by pound, they all used it by volume. So what that incentivized was a race to the bottom, putting in the most dense materials you could, actually adding rock so that you could get your weight up, your cost down, and your price per pound perceived value to be enhanced. What we did was turn the entire category on its head to the advantage of the consumer who uses it by volume and the environment because we were able to cut the carbon footprint by 50% because we're able to put twice as many units on a truck and cut the number of trucks going into our retailers distribution centers in half. So it's been to their advantage too. So it's been a win-win-win for everybody except the entrenched players in the category and it really took Thank you for joining us. And I had control of the company. And so I could take a $35 million bet that we could turn a $2 billion U.S. market and, frankly, a global market on its head, which, you know, is pretty daunting. And most people, if they were betting their careers, wouldn't do it because the odds of success are low and the odds of ending up with a career-limiting move are high. I was in that unique position. We did it, and you see the results. The best is yet to come. The snowball continues to grow. Over in Amlin, we were again letting the competition define the playing field. They were painting minerals in general as a negative. Our prior regime was sort of getting sucked into fighting the battle on the field that the competition wanted to fight. Well, that's not a winning strategy. You know, the key is we want to make them come to our field. And what we control is what Fred said. We have quality all the way to the source. Nobody can say that. You all hear from farm to table. Well, we control it from mine to farm. And so we're the ultimate in controlling our quality. And our unique mineral is the reason why our products are working so well and do something that really nobody else in the globe is doing. You know, antibiotics, by definition, antibiotics, is killing the bacteria. The bacteria are not the problem. I'm reading a great book that I highly recommend called The Great Influenza, which covers the Spanish flu of 1918, because everything that's happening today happened then, and only worse. And in the book, they literally talk about how, and this is Simon Flexner, who was the first head of the Rockefeller Institute in New York, And they talk about how they figured out it isn't the bacteria that's the problem, it's the toxins they emit. And that's exactly what our clay does. It binds the toxins. It's an add and absorbent. And so when you put it in the animal's gut, it binds the toxins, which would be causing the problem. The animal excretes them out, which is a fancy way of saying poops them out, and the animal thrives. And our dual mode of action is also what Fred talked about, is quorum sensing. These bacteria don't take over the host until they recognize that there are enough of these bad actors in the neighborhood to cause a major problem. And so our clay actually inhibits quorum sensing, and we have intellectual property around that. And so the integrator should be using our clay not only reactively When there's an outbreak, but prophylactically to prevent it in the first place. And so our dual mode of action is a unique reason for us to be successful. And Fred also talked about the feed conversion ratio in 2X. We have to monetize it. Creating value from sorbent minerals means creating value for our customers, not for oil drying. We get the benefit in that value creation because there has to be enough of it for them where they're happy to pay us a price where we can make our margin and they still win in the equation. Well, we are doing a much better job now of making sure we communicate the value to the consumer. We communicate why our clay is not just there but is the essential reason for our success. And then finally, focus. You know, I am maniacally disciplined and focused. And I got involved and immediately it occurred to me, you know, look, yes, there's a $3 billion global opportunity around antibiotic replacement. 40% of that is in poultry. You know, that's a $1.2 billion opportunity for this tiny little less than $300 million company. We've got Fred, who's a poultry expert. He mentioned Heath and Harold, who are both poultry experts. We have a team of existing poultry experts. And yes, we have swine, and we're not going to walk away from those businesses. But clearly, Fred and his team can get sales calls and open doors at every major player around the country. And they understand how our products are used, how the nutritionists and the decision makers are making their decisions in order to decide how to move away from antibiotics and where do they go to. And so we're going to lean heavily into poultry, just like we're leaning heavily into lightweight, even though the majority of the category is still heavy. We are winning every day in lightweight, and now we're going to be winning heavily in flushability. So I hope that answers your question. Really, what I'm bringing to the division, first of all, is rapid decision-making. You know, it cuts out a layer. So it's never going to be as good as if I'm hands-on involved, because I can make the calls, working with Fred, immediately freeing up resources, or working with Molly and the IC, I'm getting decisions made that, frankly, we're stuck in bureaucracy, and we're such a little company. It's ironic that we have bureaucracy, but we did have red tape, and I've been able to immediately cut through that just through common sense and just from decision-making power. No great genius on my own. So I feel very, very confident that you're going to see an improvement. You know, I think Bob's question was, you know, I won't – I hit it exactly. I'll paraphrase it. Are you going to show meaningful benefits this year? And the answer is absolutely yes, but it depends how you define it. I think we're going to be taking a step or two back before we take about 800 steps forward. We've got to fix some things on our go-to-market strategy. We believe our solutions, because we are basic, we are in a great position to sell the big players direct. The key to that is having the right distribution channels so that we can sell the big players direct. And so we've got to own our own licenses. We've got to do all product registrations, things like that. So we've got all sorts of work to do so that we're in a better position to sell the biggest players directly. So we will make huge progress during fiscal 21 while the financial progress is going to come from Jessica and the Kettler business. So that by the time 22, 23, and 24 roll around, you know, then the Amlin team will be coming over the hill to help save the day. So we're, again, always thankful that we have such a diverse business, that we have, you know, everything's doing well. The ag business, you know, and while the pro's choice business has been hurt by COVID, obviously our sports turf, the industrial business is doing well. Our fluids purification business is doing well. So fiscal 21 will be a solid financial year, and it'll be a pivotal year for the future of ANLIN. So Leslie, what else do we got?

Okay, we have the next question from John Bear from Ascend Wealth Advisors, and he says, congrats on a great year and a difficult time. Are there any new markets in animal health outside of poultry and swine that R&D efforts are either being evaluated or being actively pursued? If so, what might they be and how far along in the process are you to possibly launch any new product?

Yeah, and I think, I hope my competition's listening because I'll tell you exactly what we're going to do so that they can thwart all our efforts. John, you know me well. Great question, but I'm not going to answer it. And I think I did sort of answer you that we are really going to be leaning into poultry. So I think being great at one species is better than being average at all species. So we are really leaning into poultry and we're going to continue to do so. So next question. I think we had a question on the supply chain. Let's go there.

We do. Ethan Starr has the next question. The $5 million in savings in the supply chain is very impressive. Could you please give some examples of how this was achieved and what the prospects are for any possible future savings?

Molly, take it away.

Sure.

Yep. So I look at savings in three main buckets, logistics, procurement, and manufacturing. And in fiscal 20, by far, the biggest savings were in logistics. Some of that is market-driven, but I will say that our VP of logistics, JT Harrison, really capitalized on the market last year and then wrote some really great contracts for us. But he also led a considerable amount of savings projects that either reduced miles or extra handling or just additional costs. So, for example, we were able to consolidate some of our ancillary warehouses, reduce mileage, handling some extra costs. And that's the theme that he's driven last year. And then for logistics this year, as we read our first quarter results, we actually are going to have to offset some pretty significant increases in the market. And so we do have some other similar type logistics savings projects where we reduce handling mileage and improve our utilization across the board. For manufacturing, we've really seen some overall process improvement. So Aaron Christiansen, our VP of manufacturing in that team, has really put a foundational process in place, optimized the way we run our business, and will continue to do so. And then in fiscal 21 in the manufacturing area, we actually will be starting up some pretty significant Capital that we spent that we'll see the savings for, the first is we are looking at alternative energy in our cap facility, solar panels and microturbines. It's some pretty great projects. And then we have some automation and optimization in one of our jug lines, so that'll be pretty significant. And then the last bucket is in procurement, and that is, again, a great focus by our procurement team to really look at opportunities either renegotiate, find different suppliers, or in some cases, just redesign the product to better optimize the cost. So we've seen great progress in those last years.

Great. Thank you. Leslie, next question.

Next question comes from Ethan Starr. I'm pleased with the growth in cat litter sales. What opportunities are there for continued sales growth and the addition of new retail customers?

Great. Jessica, you want to take this one?

Sure. Hi Ethan, thanks for the question. So as we look at our business, we definitely continue to see opportunities for both customer acquisition as well as organic growth. How we look at our business in terms of change and reacting to change, clearly consumers are rapidly changing and we need to make sure that we're adapting. But we're also doing so in a very focused, data-driven way. So like we talked about in the presentation, we continue to be keenly focused on lightweight and flushability. And frankly, it's really about looking at what's working and what's not. In today's world, we're very fortunate to have a lot of data and a lot of opportunities to evaluate what's working and what not. And it sounds simple, but it's really about evaluating what's working and doubling down on that, as well as reacting to Consumers and understanding how consumers are changing and then how we can change in a way that's really advantageous to us and that really benefits us and where we have a right to win. Looking at marketing, looking at sales, understanding what's working and then doubling down both from a resource dollars perspective as well as investing against human resources and team against those key efforts that are really working. We think in lightweight, there's a lot more runway in terms of growth, both, again, through customer acquisition, both on the private label side as well as the branded side.

Great. Great answer. Thank you, Jessica. And we are out of questions, and I want to thank you all, and I promise to finish the way I started, which is thanking the Oil Dry teammates globally. For keeping not only ourselves fiscally and physically healthy, but also our investors. I know a lot of people rely on our dividend and appreciate our dividend and keeping oil dry. I saw a lot of companies had to cut their dividend and some cut it just worried that things were going to happen because they had enough debt and so forth. We entered into the pandemic. That's the part that wasn't lucky. We've always run our business very fiscally soundly. And we entered into the pandemic in great financial shape. So we didn't panic. We just said, let's see how this plays out. And it played out very well. We saw a surge in cat litter. We saw a continued demand in almost all businesses. You know, we're starting to see a weakening in, you know, our jet fuel purification business as global miles flown has gone down. And that's not a surprise. And, you know, we are cautiously optimistic that with the vaccine, which I guess is starting in the UK this week, which is exciting, that if that starts to roll out globally, that, you know, it'll come to the US and we will see pitchers and catchers report sometime in April. Maybe they'll push the season back a month. Maybe it'll be May. But then that'll mean that universities and municipalities and park districts will be doing the same. And that our pros choice business will pop back sometime in the late spring, early summer of next year. So thank you for your continued support and we'll look forward to talking to you after our next quarter.

That concludes today's conference. Thank you for your participation and have a pleasant day.