Sensient Technologies Corporation

Good morning, and welcome to the Sentient Technologies Corporation 2021 Second Quarter Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your touch-tone phone. To withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to turn the conference over to Mr. Steve Rolfs. Please go ahead, sir.

Good morning. Welcome to Censium's second quarter earnings call. I'm Steve Rolfs, Senior Vice President and Chief Financial Officer of Censium Technologies Corporation. I am joined this morning by Paul Manning, Censium's Chairman, President, and Chief Executive Officer. Earlier this morning, we released our 2021 second quarter financial results. A copy of the release and our investor presentation is available on our website at sentient.com. During our call today, we will be explaining the differences between our GAAP results and our adjusted results. The adjusted results for 2021 and 2020 remove the impact of the divestiture related costs, the operations divested, and the impact of the costs related to our operational improvement plan. We believe the removal of these items provides investors with additional information to evaluate the company's performance and improve the comparability of results between reporting periods. This also reflects how management reviews and evaluates the company's operations and performance. These non-GAAP financial results should not be considered in isolation from or as a substitute for financial information calculated in accordance with GAAP. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures is available in our press release. We encourage investors to review these reconciliations in connection with the comments we make this morning. I would also like to remind everyone that comments made this morning, including responses to your questions, may include forward-looking statements. Our actual results may differ materially, particularly in view of the uncertainties created by the COVID-19 pandemic, governmental attempts at remedial action, and the timing of a return of more normal economic activity. We urge you to read Censian's previous SEC filings and our forthcoming 10-Q for a description of additional factors that could potentially impact our financial results. Please bear these factors in mind when you analyze our comments today. Now we'll hear from Paul Manning.

Thanks, Steve. Good morning. This morning we released our second quarter results. Each of our groups delivered solid adjusted revenue and adjusted operating profit growth in the quarter. Our flavors and extract group had another outstanding quarter, reporting 9% adjusted local currency revenue growth and 13% adjusted local currency operating profit growth. Our personal care business rebounded substantially, contributing to the Color Group's 7% adjusted local currency revenue growth and 5% adjusted local currency profit growth. Asia Pacific had another strong quarter, delivering 11% adjusted local currency revenue growth and over 22% adjusted local currency operating profit growth. On a consolidated basis, we reported 9% consolidated adjusted local currency revenue growth and mid-single-digit adjusted EBITDA growth in the quarter. I'm pleased with our results for the second quarter and for the first half of this year. Last week, we completed the acquisition of a company called Flavor Solutions. This business brings a number of technology platforms and savory flavors, shelf-life extenders, and taste modulations. and it expands our portfolio for clean label flavors. This acquisition aligns with our goal to continue to grow our value-added flavor technologies. We continue to look at other acquisition opportunities that support our strategic initiatives within our core product lines of food, pharmaceutical excipients, and personal care. In each group, our new sales wins, sales pipeline, and sample activity continue to be strong and they are good bellwethers of future product development activity and launches. We are also seeing increased in-person customer visits in many of our markets, and we anticipate that these visits will continue to increase as companies return to in-person work. As mentioned during our first quarter call, we are encountering an increase in supply chain challenges, but we continue to manage through these matters. We're also seeing an increase in certain input costs, including raw material and transportation, and we expect these costs to remain elevated for the remainder of the year. COVID-19 continues to impact certain geographic regions and product lines. Despite the varied impacts of COVID-19 throughout the world, our food colors and flavor product lines continue to see robust growth. As expected and discussed during our last quarterly call, our personal care business has begun to strongly rebound in the second quarter. In pharma, we see headwinds due to tough 2020 comparables in our nutraceutical and pharmaceutical product lines. Overall, I'm pleased with the growth across the company and the more recent improvements in our personal care business, which I anticipate to continue to improve in the second half of this year. Turning to the group results, Flavors and Extract Group had another outstanding quarter with 9% adjusted local currency revenue growth and 13% adjusted local currency profit growth. This growth is on top of the strong quarter the group achieved in last year's second quarter. During the second quarter, the Flavors and Extract Group generated strong growth in almost all product lines. We are benefiting from a robust sales and customer service focus and a continued transition to more value-added product solutions. The group's adjusted operating profit margin increased 50 basis points in the quarter compared to last year's second quarter. We are well on track to achieve 50 to 100 basis point improvement to operating profit margin this year. Noteworthy within the flavors and extract group is our ice cream product line. This product line continues to grow in both the U.S. and Europe as a result of its integrated product sales and strong application capabilities. We continue to invest in this product line, and I'm optimistic about its future growth prospects. Our savory business is also having an outstanding year. This business continues to grow and win new sales opportunities as a result of its strong flavor technologies and exceptional customer service. Our savory business is well positioned in the market, and I expect it to have a strong year and future. The color group had an exceptional rebound this quarter, delivering 7% adjusted local currency revenue growth and 5% adjusted local currency profit growth. The group benefited from success in both food colors and personal care. Revenue in the food and pharmaceutical product line was up mid-single digits for the quarter. The group's focus on sales execution and customer service, as well as its strong technology platforms, positions us to capitalize on the consumer demand for natural colors while continuing to maintain our strong synthetic colors business. The food and pharmaceutical business had good growth in almost all geographies and has experienced improvement in Europe and Latin America, areas in which we had seen softer markets in recent quarters. Revenue within the personal care business was up double digits in the quarter. As noted during our last quarterly call, we are seeing a recovery within this business and anticipate continued improvement in the second half of the year and into next year. People return to travel and other social activities. I continue to be optimistic about the improvement within our personal care business. The Asia Pacific Group delivered 11% adjusted local currency revenue growth and 22% adjusted local currency profit growth. The group continues to drive revenue growth in almost all regions. This growth is the result of our focus on customer service, new sales wins, and utilization of our technology platforms. The group's operating profit growth and margin improvement are a direct result of volume growth. We delivered another good quarter and strong first half of the year. The markets we have chosen to compete in are recent divestiture activity, Our robust customer service model and our technology platform are each providing the foundation for growth with our customers. We are winning new sales opportunities, and our sales pipelines remain very healthy. We are well on track for our full-year guidance, and we are currently operating at or above the top end of this guidance. Over the long term, I continue to expect flavors and extracts to deliver mid-single-digit revenue growth and 50 to 100 basis points annual improvement to operating profit margin over the foreseeable future. I also expect the Color Group to deliver mid-single-digit revenue growth along with an operating profit margin at or above 20%. And I expect Asia Pacific Group to deliver mid-single to high single-digit revenue growth over the long term. We continue to remain very optimistic about the year and the future of our business. Steve will now provide you with additional details on the second quarter results.