Sensient Technologies Corporation

Good morning and welcome to the Censium Technologies Corporation 2022 First 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 and then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded, and at this time I'd like to turn the conference over to Mr. Steve Rolfs. Please go ahead, sir.

Good morning. Welcome to Censient's first quarter earnings call. I'm Steve Rolfs, Senior Vice President and Chief Financial Officer of Censient Technologies Corporation. I am joined this morning by Paul Manning, Sentient's Chairman, President, and Chief Executive Officer. Earlier this morning, we released our 2022 first 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. we did not make any adjustments to our GAAP results for 2022. The adjusted results for 2021 removed the impact of the divestiture-related costs, the results of the operations divested, and the impact of the costs and income 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 from those that may be expressed or implied due to a wide range of factors, including those set forth in our SEC filings. We urge you to read Sentient's previous SEC filings, including our 10-K 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.

Paul Manning Thanks, Steve. Good morning and good afternoon. I'm pleased to report 8% consolidated adjusted local currency revenue growth and 16% adjusted local currency EBITDA growth. During the first quarter this year, each of our groups continued their strong performance from 2021. Players and extracts group achieved 5% adjusted local currency revenue growth and 15% adjusted local currency profit growth. Our color group had an outstanding quarter reporting 12% adjusted local currency revenue growth and 18% adjusted local currency operating profit growth. Asia Pacific Group achieved 14% adjusted local currency revenue growth and 31% adjusted local currency operating profit growth. We had an outstanding first quarter and we were off to a great start to the year. Our continued focus on sales execution, customer service, and product delivery are driving the growth in each of our groups. Each group is generating a high level of new sales wins and continues to build on an already strong sales pipeline. Our exceptional customer service, broad product portfolio, and our robust technologies have positioned us as a reliable supplier for our customers and have also positioned us for future success. As discussed during our last couple of calls, we continue to experience an increase in input costs, including raw materials, transportation, energy, and labor, along with logistical delays. We are addressing the higher input costs with pricing, and we are addressing the logistical delays with a higher inventory position. While we expect these supply chain and inflationary challenges to persist throughout 2022, we will continue to provide robust customer service and on-time product delivery, and we will conduct additional pricing actions as required. Turning to the lockdowns in China and the war in Ukraine, the current situation in each of these regions has not had a significant impact on our revenue in the first quarter, and we do not expect these situations to impact our guidance. Any impact on Centian as a result of the events in China or Ukraine will most likely be on raw material availability, shipping, and logistics. We continue to work through these supply chain issues and we believe we can manage each of these situations. Now turning to our group results. Flavors and Extract Group had another strong quarter delivering 5% adjusted local currency revenue growth and 15% adjusted local currency operating profit growth. The operating profit margin in the first quarter rose to 15.1% The higher adjusted local currency revenue is primarily the result of favorable pricing and volume growth in flavors, extracts, and flavor ingredients, as well as favorable pricing in natural ingredients. Overall, the flavors and extract group achieved a mid-single-digit price increase in the first quarter. During our last call, I mentioned that the natural ingredients business would face a modest volume headwind in the first half of 2022. primarily as a result of strong 2021 demand and a more limited supply of onion. I anticipate the situation to begin to improve in the second quarter and into the back half of the year. Excluding natural ingredients, the flavors and extract group experienced double-digit sales growth across all of its product lines. This is a direct result of the group's focus on more value-added products and customer service. Flavors and Extract Group's operating profit margin increased 140 basis points in the quarter. The growth in the group's operating profit margin is a result of a focus on more value-added product solutions, lower overall cost structure as a result of the group's past restructuring into divestiture activities, and recent pricing actions. Flavors and Extract Group is off to a good start to the year. I expect the group to deliver mid to high single digit revenue growth in 2022 and operating profit margin improvement of 50 to 100 basis points for the year. The group is well positioned for the foreseeable future. Over the long term, I expect the flavors and extract group to deliver mid single digit revenue growth and operating profit margin improvement of 50 to 100 basis points annually. The color group had an outstanding first quarter. The group delivered 12% adjusted local currency revenue growth and 18% adjusted local currency operating profit growth. The operating profit margin in the first quarter rose to 20.7%. The group saw double-digit growth in both food and pharmaceutical colors and personal care. A portion of the group's revenue increase was driven by a mid-single-digit pricing increase. The food and pharmaceutical business has a high level of new wins as a result of the group's innovative natural color portfolio and its focus on customer service. The food and pharmaceutical business is off to a great start in 2022, and I expect this to continue for the year. The personal care business continues to rebound nicely from the impacts of COVID-19. The business delivered double-digit local currency revenue and double-digit local currency operating profit growth in the first quarter. The business continues to focus on customer service and building appropriate safety stock to support its rebound and growth. Furthermore, the focus on product line diversification into skin, body, hair, and other categories is a key component of the business's growth in 2022 and will be for the foreseeable future. Long-term, I expect the color group to deliver mid-single-digit revenue growth and an operating profit margin at or above 20%. The group has had a great start to 2022 and is on track to deliver mid to high single-digit revenue growth and an operating profit margin at or above 20% for the year. Asia Pacific had another outstanding quarter, delivering 14% adjusted local currency revenue growth and 31% adjusted local currency operating profit growth. Operating profit margin in the first quarter rose to 22.5%. The group experienced solid demand in almost all regions. In addition, the group implemented a low single digit price increase in the first quarter. The investments we have made in the group's technical leadership team are key factors to our growth and success. The group continues to have a high sales win rate and is on track to deliver mid to high single digit revenue growth in 2022. Over the long term, I expect the group to deliver mid-single-digit revenue growth. We've had a great start to 2022. We are operating at or above the previous guidance we outlined for the year. As Steve will discuss, we are raising our guidance. I'm very excited about our new sales wins, and I'm confident that our focus on customer service and new product development will provide us a foundation for continued growth in the years to come. I remain very optimistic about the year and the future of our business. Steve will now provide you with additional details on the first quarter results.