Sensient Technologies Corporation

Good morning and welcome to the SenCient Technologies Corporation 2024 Second Quarter Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal 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 when you're touched on the 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. Tobin Tornel. Please go ahead, sir.

Good morning. Welcome to Censient's earnings call for the second quarter of 2024. I'm Tobin Tornell, Vice President and Chief Financial Officer of Censient Technologies Corporation. I'm joined today by Paul Manning, Censient's Chairman, President, and Chief Executive Officer. Earlier today, we released our 2024 second quarter results. A copy of the earnings release and the slides we'll be using during today's call are available on the investor relations section of our website at Censient.com. For those of you that joined us by webcast today, you will note that this quarter we are introducing a slide deck with our presentation. If you joined our conference call by telephone and would like to follow along, you can find a copy of the prepared slides on our website. During our call today, we will reference certain non-GAAP financial measures, which remove the impact of currency movements, costs of the company's portfolio optimization plan, and other items as noted in the company's filing. 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. Non-GAAP financial results should not be considered an isolation from or 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 today. I'd 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 filing, including our 10-K and our forthcoming 10-Q, for a description of additional factors that could potentially impact our financial results. Please keep these factors in mind when you analyze our comments today. Now we'll hear from Paul Manning.

Thanks, Tobin. Good morning and good afternoon. Good afternoon. During our call today, we will be introducing a new slide deck that we will reference throughout today's discussion. The slide deck is available on our website. We hope that you find the deck a helpful addition to our presentation. Starting on slide five, Santient's local currency revenue increased by more than 8% in the second quarter. This revenue increase was mostly volume-driven with price contributing about 1%. As expected, the positive customer order trends from the first quarter continued to build into the second quarter. Each of our groups contributed to the volume growth and improved operating profit. The volume improvement is due to our strong new sales wins across each of our groups, our focus on our sales execution, and more stable market dynamics post-destocking. Our sales pipelines remain robust in each of our regions. Each group is focused on expanding new sales win rates and working with our customers to support their development needs and new product launches. Our consolidated local currency, adjusted EBITDA, was up 2% for the second quarter of 2024 and is up 2% through June 30th. As mentioned during our last few calls, with the resumption of volume growth, we expect operating profit improvement to accelerate in the back half of the year. We were also focused on maintaining and improving our cost structure. Now turning to slide six. The flavors and extracts group had another solid quarter delivering 11% local currency revenue growth and more than 7% local currency operating profit growth. For the first six months of 2024, the flavors group local currency revenue is up 9% and local currency operating profit is up approximately 7%. The group continues to benefit from its strong new sales win rate, its innovative product offerings, and its focus on sales execution and customer service. Similar to the first quarter, the group benefited from particularly strong volume growth in its natural ingredients product line. The natural ingredients product line continues to be impacted by elevated costs in certain agricultural ingredients and raw materials. These elevated costs have impacted our operating leverage for the flavors group in the first half of the year. But as these costs moderate, we expect improved operating leverage. I'm now raising our guidance for the flavors and extracts group and expect the group to deliver mid to high single digit local currency revenue growth for the year. I previously expected the group to deliver at least mid single digit local currency revenue growth in 2024. Turning to slide seven, the color group delivered 5% local currency revenue growth and 9% local currency operating profit growth in the second quarter. As expected, customer order patterns improved during the quarter, and we expect continued improvement in the back half of the year. We saw volume growth in all product lines. The group is benefiting from its strong new sales wins, innovative products, and exceptional customer service. I expect this volume growth will continue to improve throughout 2024. The color group's operating income improved during the quarter and I expect this trend to accelerate as the year progresses. I'm now raising our guidance for the color group and expect the group to deliver mid to high single digit local currency revenue growth in 2024. I previously expected the group to deliver mid single digit local currency revenue growth in 2024. Turning to slide eight, the Asia Pacific Group reported 11% local currency revenue growth and 9% local currency operating profit growth in the second quarter. The group continues to experience solid growth in most regions and an increase in new sales wins. Customer order patterns continue to normalize and the group is well positioned for growth. I'm now raising our guidance to the Asia Pacific Group and I expect it to deliver high single-digit local currency revenue growth in 2024. I previously expected the group to deliver mid-single-digit revenue growth in 2024. Turning to slide nine, the portfolio optimization plan that we initiated in the fourth quarter of 2023 is progressing as expected. Once fully implemented by the end of 2025, we expect to generate annual cost savings of $8 to $10 million. We are carefully managing this process to ensure we meet our customers' needs and to minimize the disruption to the business. On the capital allocation front, we continue to focus on strategically managing our inventory positions. We have reduced our inventory balance by approximately $45 million in the first half of the year, and we will work to continually improve our inventory positions. Will we use any excess cash to reduce our debt in an effort to alleviate the higher interest rate headwind? We expect improved financial results in 2024, including growth in sales volume, local currency revenue, and local currency-adjusted EBITDA. Based on the volume growth for the first six months of 2024, we are raising our guidance for 2024 and now expect to deliver on a consolidated basis mid to high single digit local currency revenue growth and mid to high single digit local currency adjusted EBITDA growth. We previously expected mid single digit local currency growth in both revenue and adjusted EBITDA. We're also raising our local currency adjusted EPS. We now expect our local currency adjusted EPS to grow at a mid single digit rate in 2024. Our previous guidance called for a low to mid single digit growth rate in 2024. The growth we are experiencing is a direct result of our strategy and the markets we have chosen to operate in. We will continue to invest in our innovative product offerings as we focus on sales execution and growing our business. I'm excited about the growth opportunities within each of the groups and I remain optimistic about 2024 and the future of our business. Turning to slide 10, Before turning the call over to Tobin, I'd like to highlight some of our more innovative product offerings. Currently, the market faces a number of regulatory challenges in many parts of the world. One example we have discussed in our previous call is the changing regulatory environment around titanium dioxide and REDD3. Titanium dioxide is a widely available, cost-effective ingredient that works well in many applications, and it's been used by our customers for decades. It is extremely challenging to swap out of a product. It requires customized applications to achieve the same degree of effectiveness. Red 3 is a synthetic color dye commonly used in candy and beverages. It too has been used for many food applications for decades. Both are facing bans in the U.S. market. Due to our proactive innovation efforts, we are well positioned to offer a range of high-performing alternatives for both to our customers. Innovation will continue to be a strong emphasis across our company, and we will continue to build our product portfolio in advance of any future regulatory changes. Tobin will now provide you with additional details on the second quarter results.