Sensient Technologies Corporation

Good morning and welcome to the Censium Technologies Corporation 2021 Third Quarter Earnings Conference Call. All participants will be in a 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 telephone keypad. 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 third 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 third 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 improves 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, including impacts on our business related to current logistics challenges. We urge you to read Sentient's previous SEC filings and our forthcoming 10Q, 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. Earlier today, we released our third quarter results, reported strong consolidated adjusted local currency revenue growth of 13% and double-digit adjusted EBITDA growth for the quarter. Each of our groups contributed to our positive performance in the quarter. Flavors and Extract Group had another outstanding quarter, reporting 12% adjusted local currency revenue growth and 16% adjusted local currency profit growth. Color Group had a strong quarter, delivering 18% adjusted local currency revenue growth and 15% adjusted local currency profit growth. with our food and pharmaceutical colors business and our personal care businesses, both contributing to the color group's strong quarter. Asia Pacific delivered 10% adjusted local currency revenue growth and 11% adjusted local currency operating profit growth. Despite some headwinds related to raw materials and logistics, I'm very pleased with our results this quarter and our performance so far this year, and we are well above our expectations. Our positive performance in each group is a direct result of our ongoing focus on customer service, product on-time delivery, and sales execution, which continue to drive a very high level of new product wins for the year. We are focused on gaining share in our customers, and our sales attrition rates remain low. The overall sales pipelines are strong and continue to build. We are seeing a resumption of larger new product launches and we are optimistic that these will continue to increase in the quarters ahead. As mentioned during our past quarterly calls, we are encountering numerous supply chain challenges. There's been an increase in certain input costs including labor, transportation and raw materials. We're still experiencing delays in shipping and logistics. Despite these challenges, we believe our overall supply chain is strong and we can manage through these issues with pricing increases and by holding more safety stock to support continued good performance of on-time delivery and customer lead times. We expect transportation constraints and higher input costs to remain with us throughout the end of the year and well into 22, but we are confident that we will continue to mitigate both. Overall, we're generating strong growth in each of our businesses and expect this momentum to continue well into the fourth quarter and next year. Turning to the group results, flavors and extract group had another great quarter with 12% adjusted local currency revenue growth and 16% adjusted local currency profit growth. The performance this quarter is on top of last year's strong third quarter performance of 13% adjusted local currency revenue growth and 24% adjusted local currency operating profit growth. During the third quarter of this year, the group completed the acquisition of Flavor Solutions. This business brings a portfolio of technology platforms including functional flavors and taste modulation, a library of savory flavors, and good customer relationships. The integration of this business is proceeding as planned, and the business contributed approximately $2.4 million of revenue to the flavors and extract group in the third quarter. Flavors and Extract Group experienced growth in almost all product lines during the quarter, including sweet, beverage, and savory flavors, bio-nutrients, and natural ingredients. The group continues to benefit from its transition to more value-added product solutions, as well as a robust sales and customer service focus. The group's adjusted operating profit margin increased 50 basis points in the quarter and has increased 70 basis points year-to-date. We are well on track to achieve the 50 to 100 basis point improvement that we forecasted for the year. And we expect good performance in the fourth quarter and into next year. The color group had a terrific quarter delivering 18% adjusted local currency revenue growth and 15% adjusted local currency profit growth. The group benefited from strong growth in food and pharmaceutical colors and the personal care business. Revenue in the food and pharmaceutical product line was up double digits in the quarter. The group continues to see solid demand for natural colors in each of our key product lines and regions. The group's product portfolio, production capacity, and innovation pipeline are well positioned to support this continuing demand. I anticipate our food and pharmaceutical business to continue this strong growth in the fourth quarter and into next year. The personal care business continued to rebound, delivering double-digit revenue growth in the quarter. The group is focused on product line diversification, and we are seeing good progress on expanding our revenue in skin care, body care, and other categories. I anticipate good growth in personal care in the fourth quarter and next year, and ongoing success in our diversification strategy. The Asia Pacific Group delivered 10% adjusted local currency revenue growth and 11% adjusted local currency profit growth in the quarter. The group's focus on sales execution, customer service and new technologies related to natural colors and flavors continue to be the main drivers for the group's growth. The group has also created a solid infrastructure, local technical support and a strong local sales force across the region. During the quarter, the group had growth in almost all regions, and I anticipate the group to continue to grow into the fourth quarter and next year. Overall, I'm very pleased with the results of our group so far this year. Our flavors and extract group is having another great year, as is our Asia Pacific group. Our color group is achieving solid revenue growth in food and pharmaceutical and personal care. The growth in all of our businesses results from our exceptional customer service model, diverse technology platforms, and our strong new product wins. With the completion of our divestitures this year, we were able to focus on our key customer markets, food, pharmaceutical, and personal care. We are on track for the year and operating above our previous guidance for adjusted revenue, EBITDA, and EPS. The strong growth we saw this quarter across our businesses came primarily from higher volumes. In looking at our volume growth, while we are likely seeing some benefit as customers are ordering ahead and building larger safety stocks, the vast majority of our volume growth is coming from new wins, share gains, and ongoing positive market trends in natural colors and flavors. We have implemented pricing actions, but the impact of higher pricing has not yet had a significant impact on our results. We expect that trend to improve moving forward. I continue to expect the Flavors and Extract Group to deliver mid single digit revenue growth and 50 to 100 basis points of annual improvement to the operating profit margin for the foreseeable future. I also expect the Color Group to deliver mid single digit revenue growth along with an operating profit margin above 20%. I expect the Asia Pacific Group to deliver mid to high single digit revenue growth over the long term. I'm very optimistic about this year and the future of our business. Steve will now provide you with additional details on the third quarter results.