Sensient Technologies Corporation

Good morning, everyone, and welcome to the Sentient Technologies Corporation 2025 First 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 and one on your touch-tone telephones. To withdraw your questions, you may press star and two. Please also note today's event is being recorded. At this time, I'd like to turn the floor over to Mr. Tobin Tornel. Please go ahead, sir.

Good morning. Welcome to Censian's earnings call for the first quarter of 2025. I'm Tobin Tornel, 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 2025 first quarter results. A copy of the earnings release and the slides we will be using during today's call are available on the investor relations section of our website at sentient.com. 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 filings. 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 and slides. We encourage investors to review these reconciliations in connection with the comments we made 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 filings, 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. We'll start on slide five of our deck. Now we'll hear from Paul Manning. Thanks, Tobin. Good morning and good afternoon.

Earlier today we reported our first quarter results. I'm pleased that we started the year strong, delivering 4% local currency revenue growth, 10% local currency adjusted EBITDA growth, and 11% local currency adjusted EPS growth. These results align with our expectations and position us to deliver on our full year guidance. As we continue to build on a strong 2024, our performance is a direct result of our continued focus on sales execution, customer service, and commercialization of new technologies. In the last 90 days, we have experienced some profound changes. First, and most notably, bans on synthetic colors in the United States. As I've said before, this is an outstanding development and is the most significant revenue opportunity in Sentient's history. A second noteworthy development in the last 90 days is the U.S. implementation of a series of tariffs. Based on current information, we expect the impact of tariffs to be around $10 million annually. We believe we will be able to address the impact of tariffs by taking price. In the face of these regulatory developments and trade and tariff uncertainty, we remain committed to our strategy and we believe we are well positioned to grow our business long term. During the quarter, we generated strong new sales wins across each of our groups, and our sales pipelines continued to support our growth expectations. The continued sales wins momentum is a result of our innovative product portfolio, which has a wide array of natural flavors and colors, as well as personal care products. We are seeing particularly strong new wins in natural colors and a synthetic color conversion pipeline that continues to grow daily. Furthermore, our customer service levels remain robust and we are well positioned to capitalize on these substantial market trends. As I mentioned, the current trade and tariff landscape has introduced additional complexity and uncertainty to our businesses. This situation remains dynamic. We will continue to position our supply chain organization to minimize any disruptions to our customers and to optimize the flow of goods. I would also emphasize that we continue to focus on optimizing our cost structure throughout our groups. Our portfolio optimization plan remains on track to be completed by the end of this year, and we still anticipate annual cost savings of approximately $8 to $10 million. Now, turning to slide six and our group results. The Color Group began 2025 with excellent first quarter results, delivering 8.2% local currency revenue growth and 13.5% local currency operating profit growth. The group's first quarter adjusted EBITDA margin improved to 24.4% from 23.2%, an increase of 120 basis points versus the prior year. In the first quarter, the group saw strong growth across all product lines and is benefiting from its strong new sales wins, particularly in natural colors. The color group is progressing nicely and we have an outstanding future ahead of us. Turning to slide seven, flavors and extracts group delivered 1.7% local currency revenue growth and 6.2% local currency operating profit growth in the quarter. The group's adjusted EBITDA margin was 16.9% up 70 basis points versus the prior year's comparable quarter. The flavors extracts and flavor ingredients product lines reported very strong new sales wins, which drove the group's strong operating leverage improvement. The natural ingredients product line, which consists of dehydrated onion, garlic, capsicums, and other vegetables, saw a decrease in sales during the quarter, primarily due to a challenging prior year comparable and lower demand stemming from a number of factors. We anticipate the lower volumes and higher costs persist throughout most of the year for the sentient natural ingredients business. On a positive note, the business continues to substantially optimize its manufacturing process, and this will improve our cost position significantly for the next crop year. Also, the impact of tariffs on imported Chinese dehydrated products that compete against our U.S. grown products has the potential to improve demand as companies evaluate their ongoing purchasing activities. Despite these dynamics in the natural ingredients business, I expect the flavors and extracts group to deliver solid results for the year. Now turning to slide eight, the Asia Pacific group had a solid first quarter delivering 4.8% local currency revenue growth and 7% local currency operating profit growth. The group's adjusted EBITDA margin was 23.9%, up 50 basis points versus the prior year's comparable quarter. The group continues to experience growth in almost all regions, primarily driven by new sales wins. Turning to slide 9, we remain committed to our guidance for the year. As we previously communicated, we expect consolidated annual local currency revenue to grow at a mid-single-digit rate. We expect this revenue growth to deliver mid to high single digit local currency adjusted EBITDA growth, which should result in high single digit to double digit local currency adjusted EPS growth for the year. While we navigate the shifting tariff landscape and general market volatility, we believe that our annual versus quarterly consolidated guidance provides a better understanding of the state of the business. On the capital allocation front, While we had previously indicated that excess cash would be used in 2025 to buy back stock, we now feel, as a result of the accelerated natural color conversion activity and regulatory timelines that I'll speak about shortly, it is more prudent to increase our capital expenditures for the year and to defer any buyback program to a later date. We previously had expected capital expenditures to be between 70 million and 80 million U.S. dollars, and we now expect CapEx to be between $80 and $90 million. We feel that these internal investment opportunities will drive growth and position us well in the current environment. Given the sudden legislative change on natural color conversions in the United States, we anticipate our capital expenditures to remain elevated for the next several years as we continue to invest in our natural color capabilities. Beyond capital expenditures, we will continue to evaluate sensible acquisition opportunities. Now before I turn the call over to Tobin, I'd like to revisit some of my commentary from the last call with regard to the news headlines around synthetic and natural colors. Turning to slide 10, as discussed during the last conference call, several U.S. states and the federal government have taken action to ban all or certain synthetic colors. Ultimately, we believe that a ban in one state will lead to a ban across the U.S., since it is unlikely that CPGs will manufacture product for a specific state. Various state deadlines for the removal of synthetic colors from school meals have been set as early as August 2025. Also, the FDA has banned Red 3 with an effective date of January 2027. The state of West Virginia's complete ban on synthetic colors goes into effect on January 1, 2028. In addition to the conversion of the U.S., we believe that this change will also drive substantial conversion activity in Latin America. As I have said repeatedly, the conversion from synthetics to naturals is the largest revenue opportunity that we have seen in our company's history. In the United States and selectively throughout Latin America, our synthetic colors revenue for the food and beverage market is approximately $110 million. With a conversion factor of about 10 to 1 on revenue in order to maintain the same color shade, there is a significant opportunity for sensing to outpace our midterm outlook on natural colors in the coming years. Turning to slide 11. The conversion from synthetic to natural does not come without its challenges for sensing and our customers. We have dedicated resources working with our customers on everything from product design and formulation development, customer facility investment considerations, and crop planning. We are investing in further botanical seed development, expanding our supply chain to diversify our crops and our growing regions, and investing in our processing capabilities to ensure our manufacturing capacity is able to support the increased demand in the years to come. It is important to note that while some synthetic colors can be replaced relatively quickly, other conversions require a longer lead time to scale crops to the levels that would support the conversion. Our teams are busy working on production capital and supply chain expansion to help our customers prepare for this conversion. and we continue to expand our natural color portfolio. To that end, I'd like to turn to slide 12 and highlight two natural color innovations stemming from our multi-year research and development program. First, we are excited to announce a new natural blue color, Marine Blue Capri. This new product answers the need for a low pH, light, stable, bright blue for the beverage market that provides a replacement for synthetic color blue one. Marine blue capri can also be used to achieve greens, closing a major gap in the natural color rainbow. Once thought to be the holy grail of the natural color conversion market, we have met this challenge after more than 10 years of research and development in our labs in the U.S., It is one of the most significant technological breakthroughs that we have achieved as a company. Second milestone launch is Ciena Fortis. This product launch allows our customers to achieve a natural dark brown shade replacing Class III and IV caramel color. Delivering this product to the market allows customers to remove caramel color from their product in order to avoid a Prop 65 labeling requirement in California. In addition, with cocoa prices rising dramatically, this product allows customers to reduce cocoa usage and avoid all of the related sustainability concerns with that crop while maintaining a consistent visual appearance in their product. With the current tariff environment, this solution also offers a cost-competitive alternative. We're very excited about these new product launches and the opportunities that these and the rest of our robust natural color portfolio affords Sensian at this pivotal moment in the market. If you'd like more information on natural color technologies, please take a look at our website. Overall, I am pleased with our financial performance in the first quarter. I'm excited about the growth opportunities within each of our groups. The growth we are experiencing is a direct result of the implementation of our strategy and the opportunities from the markets we have planned for and prioritized. I remain optimistic about 2025 and the future of the business. Tobol will now provide you with additional details on the first quarter results.