Good day, ladies and gentlemen, and welcome to the Q1 2017 Investor Teleconference. My name is Grata I’ll be your operator for today. At this time all participants are in listen-only mode. Later we will conduct a question-and-answer session. [Operator Instructions] I’d now like to turn the conference over to your host for today Dan Jaffee, President and CEO. Please proceed.

Thank you, Grata and welcome everyone to the first quarter teleconference. Joining me today from the Oil-Dri team Dan Smith, our CFO; Doug Graham, our General Counsel; and Reagan Culbertson the Investor Relations Manager. And Reagan will you cover the Safe Harbor.

Sure, thanks Dan. 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 in evaluating any investment in Oil-Dri stock. Thank you for joining us.

Thanks, Reagan and Dan, will you walk us through the quarter.

Sure will Dan. Good morning and happy Friday. Oil-Dri reported EPS of $0.28 per diluted share for the first quarter of fiscal ‘17, which was down substantially from the record quarterly earnings of $0.75 reported in the first quarter of fiscal ‘16. First quarter sales of about $66.6 million were down about 2% from the first quarter of ‘16. Sales grew about 6% for the B2B segment, but declined about 7% for retail and wholesale. Despite the sales and income decline our gross profit percentage for the quarter improved to 31%. The margin was helped by a better product mix and lower packaging cost, but reduced by higher manufacturing and fuel cost. Earnings for the quarter were down compared to last year, primarily due to increased advertising expenses in the retail and wholesale segment. Our retail, wholesale team reported loss of about $500,000 for the quarter, this compares to over $5 million of profit for the first quarter of fiscal ‘16. The loss for the quarter was a direct reflection of the approximate $5.4 million increase in our advertising spending in the first quarter of fiscal ‘17. The spending increase was part of our ongoing marketing campaign to promote our Fresh & Light Ultimate Care lightweight cat litters and was consistent with our fiscal ‘17 advertising plan. We expect our full year advertising expenses to be greater in fiscal ‘17 as compared to fiscal ‘16. The sales decline in retail wholesale segment was primarily driven by our decision to walk away from low margin cat litter sales in fiscal ‘16. B2B our team generated nice sales increase for the quarter, we achieved about a 53% sales growth in our animal health products, the sales of animal health products expanded in most in the international markets were they are sold. We also saw a 6% sales growth in our fluid purification product line, growth was primarily driven by sales to produce edible oil in Europe. The sales increase helped to generate about 3% more segment income for the first quarter of ‘17 as compared to fiscal ‘16. Looking at our balance sheet, our cash and investment balance is about $21.4 million, which was down about $3 million compared to a year ago. The balance was impacted by increased capital and advertising spending in the first quarter of ‘17 versus the same period in fiscal ‘16. We continued our dividend philosophy and paid out about $1.5 million in the quarter through dividends. Our dividend yield would be about 2.6% based on our 10/31/16 closing price of $33.76 per share and our latest quarterly dividend about $0.22. Thanks. I'll turn the meeting back over to Dan Jaffee.

Thank you, Dan. And before we open it up to Q&A, I just want to put a few comments of my own, because the quarter played out pretty much as we anticipated and we continuing the trends we have been communicating for almost a decade now, which is we’re continuing to live up to our mission of creating value from sorbent minerals. And the way we measure that value is to determine how many tons, that’s our unit of measure, how many tons are we shipping out and how many dollars are we getting back. And we continued the positive trend in this quarter. So a year ago we shipped 211,000 tons in the first quarter, this year 194,000 tons and you can do the math yourself, but I’ll make it easy for you on a couple of the key metrics. So our net selling price per ton in the quarter jumped from what was a then record last year of $321 a ton that was a record for the first quarter to $344 a ton this year. So a nice healthy increase, really in a non-inflationary environment, which speaks to the product mix of selling more and more value added items that our customers are receiving value and then are sharing some of that value with us. And then on the gross profit line, last year in the first quarter was the first time we had ever broken $20 million in GP for a quarter and we not only did that again this quarter we actually beat last year. So our $20.725 million in GP was an all-time record and then if you do the math, you can see we made just over $107 ton. That’s the first time we have ever broken $100 a ton in a quarter…

[Operator Instructions] And your first question comes from the line of Ethan Starr. Please proceed.

Good morning, nice increase in the gross profit margin.

Thank you, Ethan.

I am very pleased to see that the foreign subsidiaries generated a profit in the first quarter and I am wondering are there -- are the increased sales and profitability in the foreign subsidiaries sustainable going forward?

You know, not only are they sustainable, I think what you are seeing is a trend line and fortunately the one that I am most -- it’s our biggest foreign unit and it’s the one I am most focused on which is Canada is really benefitting from the lightweight revolution. So lightweight has made its way across the border. Canada, I think it’s something like 80% of the population lives within 100 miles of the U.S. border. And when I lived up there for three years, I was constantly getting U.S. TV and U.S. commercial. So we know our Katherine Heigl TV commercials are spilling over the border and our sales person up there Andrew Jones is doing a great job, getting distribution on Fresh & Light Ultimate Care in Canada. And also Canada is a very private label driven market, 20% of the U.S. is private label, but 40% of the Canadian cat litter market is private label. And so we feel we’re particularly poised to win and gain private label lightweight customers up in Canada. So I think what you are seeing is the beginning and hopefully you will continue to see a positive trend.

Okay. Do you have any private label customers in Canada now?

We do, we’re not going to name them, but we do.

Professionally.

Well private label…

I mean private label, that’s all I am saying, for private label lightweight you have customers already.

We do.

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

Thanks.

And your next question comes from the line of Robert Smith with the Center for Performance Investing. Please proceed.

Good morning, thanks for taking my questions. On business-to-business, Dan could you give us little more color as far as the geography is going, how they divide currently and what you foresee for this fiscal year?

You got to be more specific…

Animal health.

For animal health, yes I am not going to -- I think I am going to stick to the discipline of Ron Cravens will be on pretty much every other teleconference, he is the President of our animal health division and anything I say he know so much better than I do to be honest with you. So I’d rather just defer to him. So let’s save our animal health questions for when Dr. Cravens is on the line. Unless you have something very…

Well can you give me the current data on geographies?

No, I can’t. I mean that’s why I am telling. So I’m not going to make it up.

Right. So in private label lightweight, do you expect to close additional contracts in this fiscal year, of some note I mean.

Yes, so here is how it works. You make the sales calls, you get a commitment and then it takes anywhere from four to six months to create the packaging, get it ready and then start shipping. So we already know when things are going to start happening. So I am not going to name, names yet, but where at the end of this month, we’re going to be shipping a major new account. And then by March we’ll be shipping a second major new account. So yes we are already not only is it just in the inception of it, it’s already in the package design, we’re already making the product, we’re already getting ready to ship the December customer, we’re in the package design phase with the other customer and they are both major national players with thousands of retail outlets and so forth.

Yeah. And of the current lightweight that you are making was private label in your own, what percent is private label? That was your own, of your own lightweight.

So of our sales what percent is private label.

Yes.

Okay. Currently it’s probably 10%, right around, give or take.

Okay. And last time when you discussed that the penetration is about 20%.

Again I am not following, the penetration where?

In lightweight. Lightweight private label I mean.

Yeah, nationally private label represents 20% of the cat litter category.

Got it. Thanks, I’ll get back in the queue.

Okay, thanks Bob.

[Operator Instructions] Your next question comes from Ethan Starr. Please proceed.

Following up on the private label lightweight, what roughly percentage of the, I guess the grocery store universe or the major chain universe do you have. I mean can you give us more color on that?

Well I will tell you that I think I've been communicative on two of the major players we don't have. And I'm not sure if I want to repeat their names on this call. But let's just say we don't have two of the major players, who in the overall category account for a 30%, 35% of the ACV meaning of that they do 35% of all the cat litter sold in the United States, 35% to even 40%. We don't have either of those two accounts. Yet we have about 78% of the sales, which shows that what they're selling is not moving. Because they represent instead of representing 40% of the private label lightweight, they represent these two accounts under 20%, they represent about 16%. So they are literally getting 67% less than their fair share of the private label lightweight segment. And it's not because their consumers particularly loves to carry home heavy products. It's because the products they are offering their consumer in the lightweight private label format are not performing. So they're not getting the repeat, they're getting ones and done.

Okay. So the 78% -- you're selling 78% of the private label lightweight?

In dollars.

In dollars. Okay, make sense. And then to what extent will the new ERP software system improve efficiency and save money for Oil-Dri.

Right, Dan why don't you cover that one?

Ethan first of all we're looking at we're just in the beginning phases of the implementation process. And if you've been involved in those types of systems in the past, it's we're looking at a two year implementation. So really it's too early to give you that kind of answer. Certainly most systems will provide better utilization of your inventory, better utilization of your labor force and understanding where your productivity is on various production lines. But that's typical for most modern systems. But we don't have like a specific number in mind at this time, we're way to really in the process.

Okay thanks. I'll go back in the queue.

Thanks.

And your next question comes from the line of Robert Smith. Please proceed.

So could you give me an idea of the how you measure productivity and the spend for your lightweight?

Yeah. So there is a think all the marketing mix, which helps you determine where you're spending your money and then what's your return on investment is by each area you got digital, you got TV, we're not doing a lot of print, you've got also it's a different marketing things that we're working on integrations. And you can actually get down to granularity of specific events, when we drop an FSI or when we doing an instant redeemable coupon what was the cost of it, what was the redemption and what was the repeat and so forth. So yeah that's -- we're not going to share any of that that's all proprietary at Oil-Dri, but that's exactly the kind of stuff we're looking so that when we go to then invest in the next quarter, we're putting our money on those areas that give us the best ROI.

Dan can you give me an idea where the CapEx is being spend?

Dan do we share that kind of detail?

You’re doing any bricks and mortar?

I'm deferring to Dan Smith on that, I wonder if they dropped off the line. We're all in remote locations today. Dan are you still on the line?

It actually dropped off I'm going to have to get back.

They did drop off the line, well good. Now I can talk about it. I'm not -- we are doing a lot of ROI type projects and then also process improvement type project where for instance, we were recalling ultimate care the relaunch a year ago 3.0 we're now up to 3.2 because we've dramatically reduced the variability and therefore increased the product quality. It was great before, but it's really off the charges now. So a lot of investment in process improvement and then a lot of investment really in high ROI type projects. Nothing like building a new mill or something this year or a new Greenfield plant nothing like that. Did I answer the question Bob? I think we lost everybody.

Apologies I was not able to connect them back into the conference. But you do have another question from the line of Ethan Starr.

Okay, thank you.

Yeah. Following up on Bob's question, how was the upgraded the consumer product manufacturing line going?

Yeah so that’s what I was talking about Ethan. It's going very well. So that's why what I call ultimate care now 3.2 because what we've been able to do is dramatically reduce the variability and increase the performance. So I can tell you when we first launched ultimate care really the benchmark for quality was we wanted to be the best lightweight out there. And so we were benchmarking ourselves at the time against tidy cat lightweight. Now we've up the bar we want to have the product out there period, which we think we did before but that's literally our benchmark now. And now we go right after the number one seller, which is tidy cats they’re heavy formula. So we benchmark our performance and we perform extremely well, if not better in all the major metrics, [indiscernible] dust, tracking, odor control. And so we now position it it's the best litter it's not just the best lightweight litter. We don't even -- it is it's the best litter that happens to be lightweight not the best lightweight litter. So we're very excited about the product quality. And our next wave of advertising, we're still going to run the Katherine Heigl spots where she is the cat therapist. But then our next wave will be more about the general efficacy and communicating the days of use. I think I've talked about this before, but how long does the product last, how many loads can you do in that liquid detergent analogy, and the competition some of them measure very well on that metric. You can guess the guys that aren't selling as much in the lightweight part of it their product doesn't measure up so well. So we're going to make that an issue.

Okay. When can we start seeing these new ads?

Well you're going to see so in the spring, you're going to see heavy on the last run of the -- they're not old, but the current ads let's call them, not call them old. And we're very excited like for instance, we had hopefully you spotted the live with Kelly integration where we sponsored live with Kelly Ripa for the whole week. And ABC was so static with the reaction from their viewing audience the number of people that entered the contest to win and everything. They said it was really off the charts. That they want to come back and do another integration with us in the spring. I'm not going to give you all the details around it, but soon enough we will. But it's going to go longer and be a bigger splash and we're very excited about that that will again with the current advertising. Then sometime in the summer we're going to be -- we're right now working on all the analytics and then the creative behind it on the new spots sometime in the summer we'll be shooting hopefully the new commercials as you may or may not know Katherine Heigl is expecting at the end of this month. And so she has got bigger things on her mind and rightly so. And so she's got to focus on her and her family but hopefully by the summer maybe even early fall we'll be shooting the new commercials. And then they will be the bed rock of our next campaign.

Okay, great. So are you seeing better reviews of the 3.2 on your website, on the Cat’s Pride website?

We're seeing great, great reviews and you can look obviously at walmart.com, you can look at Amazon.com, you can look at our website and see the reviews. And very, very positive on ultimate care and then when you sort them like you can for time periods, they're getting better so that's what you want to see.

Okay, that was my key question. Okay, one last quick question, last quarter you mentioned that you expected a ruling on a motion for reconsideration to the patent trials on appeals board has the ruling being made?

I will defer to Doug for that one.

Yeah that's a publicly filed proceeding. We have not gotten word on that, but that’s something that would be available to everybody when it finally issues.

Okay. But hasn’t issued yet yeah I was looking for that I couldn't find it which is why I couldn’t it. Okay, thank you.

Sure, thanks Ethan.

And your final question comes from the line of Robert Smith. Please proceed.

Do you plan to introduce any new research and development products that are going to come to the market in fiscal ‘17?

We do. I'm not going to tell you what they are, because I don't want to tip off the competition as to what we are doing. I probably not even tell you which divisions. But they'll startle both, we're going to have new lot of good innovation, nothing there sort of product line extensions that make some sound less sexy than they are, but they are in traditional markets, it’s nothing that’s going to get us into a new markets it’s going to get us deeper into the existing markets we’re in. And yes that is definitely in the works.

Okay, thanks so much.

And now I’d like to turn the call back to Dan Jaffee, for its closing remarks.

Great. Well Grata thank you and investors thank you and I think I know our transparency is paying off, the best we can do is kind of tell you what we think is going to happen then go ahead and execute and then tell you what happened and that’s really what the first quarter was all about, when you saw that record gross profit, but obviously also record media spending. And so now we’re getting more transparent on the dollars that we’re actually going to spend and did spend. Because it’s a major commitment by you our investor and by us the company. And so we’re going to continue to be as transparent as we can be without being over transparent where we tell the competition what plays we’re going to run and when we’re run them. So thank you. Happy holidays to everybody. We have our Annual Meeting next week in Chicago for any of those of you who’re going to be there, but if not wish you and yours happy and healthy new year. Thank you.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.