Sensient Technologies Corporation

Good morning and welcome to the Sentient Technologies Corporation 2022 Second 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 touchtone 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 Censian's second quarter earnings call. I'm Steve Rolfs, Senior Vice President and Chief Financial Officer of Censian Technologies Corporation. I'm joined today by Paul Manning, Censian's Chairman, President, and Chief Executive Officer. Earlier today, we released our 2022 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. We did not make any adjustments to our GAAP results for 2022. The adjusted results for 2021 remove 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 the 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 today. I would also like to remind everyone that comments made during this call, 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, our first quarter 10-Q, 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 and good afternoon. We had a great second quarter with each group reporting outstanding revenue and operating profit growth. This growth was in line with our expectations and occurred in almost all of our businesses across the company. We achieved our eighth straight quarter of mid to high single digit revenue growth and our consolidated adjusted local currency EBITDA growth this quarter exceeded 25%. Our performance this year follows a great year we had in 2021. Our top line growth is a direct result of our focus on sales execution, technical support, and product delivery. We continue to deliver a high level of sales wins while working to expand our already strong sales pipeline. We have proven to be a reliable supplier to our customers, and with our exceptional technical support and robust product portfolio, we are well positioned for continued growth in the future. As we've discussed on prior calls, we're still experiencing increases in our input costs, including raw materials, transportation, energy, and labor, along with logistical delays. We're addressing the input costs of pricing actions, and we are addressing the logistical delays by maintaining a higher inventory position. We expect these higher costs and supply chain challenges to continue throughout 2022 and into 2023. There's a lot of uncertainty in the global economy, as well as the concern about a potential recession. Despite this uncertainty, our sales order patterns remain strong, our customer sample activity is healthy, and we remain actively engaged with our customers. I remain optimistic about the balance of the year and the future of our company. Turning to our group results, the color group had a spectacular second quarter. The group delivered 22% adjusted local currency revenue growth and 24% adjusted local currency operating profit growth. Operating profit margin in the second quarter was 20%. Food and pharmaceutical colors and personal care both delivered double-digit local currency revenue and double-digit local currency operating income growth in the quarter. A portion of the group's revenue increase was driven by a high single-digit price increase. The food and pharma businesses have performed very well in the first half of the year. The business has a high level of new sales wins as a result of its innovative natural color portfolio and its focus on customer service. I believe the business is well positioned for future growth. Personal care business delivered double-digit local currency revenue and double-digit local currency operating profit growth in the second quarter. The business continues to rebound well from the impact of COVID-19. We are focused on building safety stock to support this rebound and the projected growth in this market. The business's focus on continued product line diversification into skin and body care, as well as other categories, is a key part of the business's current growth and also provides the foundation for growth in years to come. With an outstanding first half, the Color Group is now on track for the year to deliver double-digit revenue growth and an operating profit margin at or above 20%. Our previous guidance called for mid to high single-digit revenue growth in 2022. Over the long term, I expect the color group to deliver mid-single-digit revenue growth and an operating profit margin at or above 20%. The flavors and extracts group also had another strong quarter, delivering 9% adjusted local currency revenue growth and 24% adjusted local currency operating profit growth. This is the ninth consecutive quarter of mid single-digit or better adjusted local currency revenue growth. Our operating profit margin this quarter was 15.9% of 210 basis points versus the prior year. The higher adjusted local currency revenue growth in the group was primarily a result of volume growth and pricing in flavors, extracts, and flavor ingredients, as well as favorable pricing in natural ingredients. Flavors extract and flavor ingredients business had another nice quarter delivering double-digit revenue growth. As mentioned during our last few calls, the natural ingredients business has faced a volume headwind in the first half of 2022 as we await the new onion crop. The 2022 onion harvest is currently underway, and we do expect improvement in the supply of onion as the year progresses. Overall, the group's pricing was up 10% for the quarter. The flavors and extracts group had a great first half of the year. I now expect the group to deliver high single-digit revenue growth and operating profit margin improvement of approximately 100 basis points this year. Previously, we had estimated a mid to high single-digit revenue growth and a 50 to 100 basis point operating profit margin improvement. The growth in the group's operating profit margin is a result of more sales wins, a focus on more value-added product solutions, a lower overall cost structure as a result of the group's past restructuring and divestiture activities, and recent pricing actions. The group is well-positioned for the future. Over the long term, I still 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 for the next couple of years. In Asia Pacific, on an adjusted local currency basis, the group achieved its fifth consecutive quarter of high to double-digit revenue growth and its sixth consecutive quarter of double-digit operating profit growth. The Asia Pacific group delivered 23% adjusted local currency revenue growth and 43% adjusted local currency operating profit growth. The operating profit margin in the second quarter rose 280 points to 20.7%. The group grew revenue by double digits in almost all regions. A portion of the group's revenue increase was driven by a mid-single digit price increase. The group continues to achieve a high level of new sales wins and is benefiting from the capital and technical investments we have made in the region. The group is now on track to deliver double digit revenue growth for the year. Our previous guidance called for a mid to high single-digit revenue growth in 2022. Over the long term, I continue to expect the group to deliver mid-single-digit revenue growth. Our growth is fueled by our high level of new sales wins across the company. These new wins span a range of product categories and offerings, including natural color conversions, ice cream flavor solutions, specialty natural ingredient blends, and beverage flavors. Our focus on product technologies and technical support is a critical component of these new sales wins. Our ability to help our customers develop great new products is the foundation for our growth now and into the future. We've had a great 2022 so far. We are well on track to meet and potentially exceed our full year guidance. I remain optimistic about the year and the future of our business. Steve will now provide you with additional details on the second quarter results.