Sensient Technologies Corporation

Good morning and welcome to the Sensium Technologies Corporation 2021 fourth quarter and year-end 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 Sentient's fourth quarter earnings call. I'm Steve Rolfs, Senior Vice President and Chief Financial Officer of Sentient Technologies Corporation. I am joined this morning by Paul Manning, Sentient's Chairman, President, and Chief Executive Officer. Earlier this morning, we released our 2021 fourth 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 results of the operations divested, the impact of the costs and income related to our operational improvement plan, and the 2020 one-time employee COVID payment. 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 logistic challenges. We urge you to read Sentient's previous FCC filings and our forthcoming 10-K 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. Thank you, Steve.

Good morning. Earlier today, we released our fourth quarter results. and I'm very pleased to report that we delivered adjusted fourth quarter local currency revenue growth of 11% and adjusted local currency EBITDA growth of 15%. We continue to have outstanding growth from each of our groups in the fourth quarter. Our full year adjusted local currency revenue, adjusted local currency EBITDA, and adjusted local currency EPS were all at or above the top end of our guidance and exceeded the guidance we communicated at the start of 2021. Overall, the company had strong operating and financial performance in 2021, following a very good 2020. The flavors and extracts group had an outstanding year in 2021, achieving 9% adjusted local currency revenue growth and 15% adjusted local currency operating profit growth. The group's performance follows the exceptional performance it had in 2020, of 9% adjusted local currency revenue growth and 13% adjusted local currency profit growth. The Color Group finished 2021 with 9% adjusted local currency revenue growth and 5% adjusted local currency operating profit growth. Asia Pacific reported adjusted local currency revenue growth of 10% and adjusted local currency profit growth of 22%. We completed the last of our three divestitures in the second quarter of 2021, and we completed the acquisition of flavor solutions during the third quarter of 2021. Our focus on sales execution, customer service, and product delivery have been significant factors for our growth over the last few years. Our portfolio of natural flavors and colors and our robust product technologies has positioned us for continued growth. Each of our groups are delivering high sales win rates, and our sales pipelines remain strong. As mentioned during our last couple calls, we continue to see a number of supply chain challenges, including higher input costs such as raw materials, energy transportation, and labor. We continue to experience delays in logistics. We are managing through these issues by investing in key raw materials and holding more safety stock to support our customer lead times. We also continue to work through price increases to cover the higher costs. We expect these supply chain challenges to continue throughout 2022, but I have no doubt that we will overcome these challenges. I'm very pleased with our solid on-time customer product delivery. The flavors and extracts finished 2021 reporting 8% adjusted local currency revenue growth in the fourth quarter and 11% adjusted local currency profit growth in the fourth quarter. This is the seventh straight quarter of mid-single-digit or better local currency adjusted revenue growth. This growth is generated across almost all product lines. The growth in the flavors and extracts group is a direct result of strong new sales wins and more value-added product solutions. For the full year of 2021, the group's adjusted operating profit margin increased 60 basis points from 12.9 to 13.5%. The group is well positioned for another good year in 2022. The product portfolio is robust and the group is executing on its strategy. I expect continued growth in our flavors and extracts and flavor ingredients product categories. The group's natural ingredients business will have a modest headwind in the first half of 2022 as the yield on the most recent onion harvest was lower than hoped for and we exceeded our sales targets in 2021. In 2022 and for the foreseeable future, I expect the flavors and extracts group to deliver mid single digit revenue growth and operating profit margin improvement of 50 to 100 basis points annually. The color group also had an outstanding fourth quarter in 2021. The group delivered 16% adjusted local currency revenue growth and 19% adjusted local currency profit growth in the quarter. We saw a double-digit revenue and profit growth in both food and pharmaceutical colors and personal care. The growth in the food and pharma business was driven by new product launches and solid demand for natural colors. We continue to expand our already robust natural color portfolio to ensure we fully support our customers and their ongoing product conversion needs. I anticipate our food and pharma business will have another good year in 2022. The personal care business had a strong fourth quarter, delivering double-digit revenue and double-digit profit growth. In the first half of 2021, the personal care business continued to be impacted by COVID-19. However, in the second half of 2021, the business has rebounded nicely. The group continues to focus on product line diversification into skincare, body care, and other categories. Our expansion of the personal care product portfolio should help fuel consistent growth for the foreseeable future. In addition to the rebound in personal care, we believe that the growth in the Color Group is a direct result of its focus on innovation, sales execution, and customer service. I continue to expect the Color Group to deliver mid-single-digit revenue growth and an operating profit margin at or above 20% in 2022 and over the long term. Asia Pacific had an outstanding 2021. The group delivered 15% adjusted local currency revenue growth, and 25% adjusted local currency profit growth in the fourth quarter. We continue to see high sales win rates as a result of our focus on sales execution, customer service, and new flavor and color technologies. In the fourth quarter of 2021, the color had strong demand in almost all regions. I expect Asia Pacific to deliver mid to high single-digit revenue growth in 2022 and over the long term. I'm very pleased with our performance in 2021. Our focus on sales execution, product diversification, and customer service are driving the growth and new sales wins we're experiencing in each group. We have seen an increase in our customers ordering in advance in response to the global supply chain challenges. This benefited our growth in the fourth quarter. We have implemented pricing actions, which I expect to have more significant impact in 2022, to offset the increases in our input costs. As a baseline, we expect we will continue to deliver mid-single-digit revenue growth in 2022 and beyond. With the completion of our previously announced divestiture activity in 2021, our product portfolio is strong and we remain focused on our key customer markets, food, pharmaceutical, and personal care. We have very good internal investment opportunities that should drive future growth. As a result, I expect our capital expenditures to be in the range of $80 to $90 million in 2022 with a large number of investment opportunity projects. We completed the acquisition of Flavor Solutions in the third quarter of 2021, and the integration of this business is proceeding as planned. We also continue to evaluate other sensible acquisition opportunities. Absent an acquisition, excess cash will be used to pay down debt and we have the option to buy back stock. I'm very happy with our financial performance in 2021. We're at the top end of our adjusted local currency guidance for the year, and I'm optimistic about 2022 and the future of our business. Steve will now provide you with additional details on the fourth quarter results.