Oil-Dri of America(ODC) - 2023 Q1 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1: Financial Statements Quarterly financial statements show significant increases in net sales and net income year-over-year Condensed Consolidated Balance Sheet Total assets remained stable at $249.1 million, with lower cash offset by higher inventories Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | October 31, 2022 | July 31, 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $10,470 | $16,298 | | Inventories, net | $40,419 | $35,562 | | Total Current Assets | $114,336 | $114,681 | | Total Assets | $249,113 | $249,611 | | Total Current Liabilities | $45,292 | $48,515 | | Total Liabilities | $95,085 | $99,262 | | Total Stockholders' Equity | $154,028 | $150,349 | Condensed Consolidated Statements of Operations Net sales for the quarter grew 19.5% year-over-year, leading to a substantial surge in gross profit and net income Quarterly Statement of Operations (in thousands, except per share data) | Metric | Q1 FY2023 (ended Oct 31, 2022) | Q1 FY2022 (ended Oct 31, 2021) | Change | | :--- | :--- | :--- | :--- | | Net Sales | $98,539 | $82,460 | +19.5% | | Gross Profit | $22,310 | $13,818 | +61.5% | | Income from Operations | $6,569 | $445 | +1376% | | Net Income Attributable to Oil-Dri | $5,241 | $585 | +796% | | Diluted EPS (Common) | $0.78 | $0.08 | +875% | Condensed Consolidated Statements of Cash Flows Net cash from operations improved significantly, though overall cash decreased due to increased capital expenditures Quarterly Cash Flow Summary (in thousands) | Cash Flow Activity | Three Months Ended Oct 31, 2022 | Three Months Ended Oct 31, 2021 | | :--- | :--- | :--- | | Net Cash Provided by (Used in) Operating Activities | $3,668 | $(596) | | Net Cash Used in Investing Activities | $(7,521) | $(6,736) | | Net Cash Used in Financing Activities | $(1,943) | $(4,156) | | Net Decrease in Cash and Cash Equivalents | $(5,828) | $(11,536) | Notes To Condensed Consolidated Financial Statements Notes detail key accounting changes, including inventory increases, debt agreement amendments, and pension plan termination - Inventories increased to $40.4 million from $35.6 million due to rising costs and building inventory for anticipated demand[50] - On August 30, 2022, the company amended its debt agreements to replace the LIBOR-based reference rate with an adjusted term Secured Overnight Financing Rate (SOFR)[48][60] - The company's Board of Directors approved a resolution to terminate the company's defined benefit pension plan, with the process expected to take eighteen months[67] - A change in management organization resulted in the reclassification of segments, with prior year figures adjusted accordingly[71] Management's Discussion and Analysis of Financial Condition and Results Of Operations Management attributes a 19% sales increase to price hikes that offset cost inflation, boosting segment performance - Consolidated net sales rose 19% in Q1 FY2023 compared to Q1 FY2022, driven by strategic pricing increases and strong product demand[87] - Gross profit margin improved to 23% from 17% in the prior year, as price increases began to offset rising costs, particularly a 97% increase in the per-ton cost of natural gas[91] - The company successfully reduced its order backlog by 17% from the end of fiscal 2022 by increasing personnel, expanding production shifts, and utilizing alternative transportation[90] Results of Operations Consolidated net sales grew 19% year-over-year, driven by strong performance in both business segments Segment Net Sales (in millions) | Segment | Q1 FY2023 | Q1 FY2022 | % Change | | :--- | :--- | :--- | :--- | | Business to Business Products Group | $33.7 | $24.8 | +36% | | Retail and Wholesale Products Group | $64.9 | $57.7 | +12% | | Total Net Sales | $98.5 | $82.5 | +19% | Segment Operating Income (in millions) | Segment | Q1 FY2023 | Q1 FY2022 | % Change | | :--- | :--- | :--- | :--- | | Business to Business Products Group | $7.3 | $5.5 | +31% | | Retail and Wholesale Products Group | $7.6 | $1.3 | +491% | Liquidity and Capital Resources Cash decreased due to inventory and capital investments, but liquidity remains sufficient with an undrawn credit facility - The net decrease in cash was driven by a $5.1 million increase in inventory and $7.5 million in capital expenditures[107][109][114] - The company has a $45 million unsecured revolving credit facility and was in compliance with all debt covenants as of October 31, 2022, with no borrowings outstanding[117] - Management expects capital expenditures in fiscal 2023 to be greater than in fiscal 2022 to support increased product demand[121] Item 4: Controls and Procedures Management concluded that disclosure controls and procedures were effective with no material changes in internal controls - The CEO and CFO concluded that as of the end of the period, disclosure controls and procedures were effective to provide reasonable assurance of timely and accurate reporting[124] - No material changes to internal control over financial reporting occurred during the fiscal quarter ended October 31, 2022[126] PART II – OTHER INFORMATION Item 1A: Risk Factors No material changes to the company's risk factors were reported since the last annual filing - No material changes to risk factors were reported since the company's last Annual Report on Form 10-K[130] Item 2: Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 3,360 shares of Common Stock and did not sell any unregistered securities during the quarter Issuer Purchases of Equity Securities (Common Stock) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | August 2022 | — | $— | | September 2022 | — | $— | | October 2022 | 3,360 | $27.40 | - As of October 31, 2022, 433,166 shares of Common Stock remained available for repurchase under the authorized plan[120][132] Item 4: Mine Safety Disclosures Mine safety violation information is provided in Exhibit 95 of this quarterly report - Mine safety disclosures required by Regulation S-K are provided in Exhibit 95 to this Form 10-Q[133] Item 6: Exhibits This section lists all exhibits filed with the report, including certifications and XBRL data files - Filed exhibits include certifications pursuant to the Sarbanes-Oxley Act, Mine Safety Disclosures, and XBRL data files[134]