Sensient Technologies Corporation

Good morning, and welcome to the Senzient Technologies Corporation 2025 Fourth Quarter and Year-End 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, then one on your touch-tone phone. To withdraw your question, please press star and 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.

Good morning and good afternoon. Welcome to Censian's earnings call for the fourth quarter and full year 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 fourth quarter and full year 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 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 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 and slides. 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 Sentience SEC filings, including our 10-K to be filed later today, 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. Now we'll hear from Paul. Thanks, Tobin.

Good morning and good afternoon. Earlier today, we reported our fourth quarter and full year 2025 results. I'm very pleased to report for the full year of 2025, we delivered 3% local currency revenue growth, 10% local currency adjusted EBITDA growth, and 15% local currency adjusted EPS growth. Each of our groups had adjusted local currency operating profit growth during the year and improved their EBITDA margins. The company also improved our overall adjusted EBITDA margin by 100 basis points. Our operating and financial performance in 2025 continues to build on our multi-year strong financial performance. While some tariff-induced customer supply chain disruptions and unforeseen weather events negatively impacted our fourth quarter results, we still reported 2% local currency revenue growth and flat adjusted local currency operating profits in the fourth quarter. The quality group had another exceptional quarter, and the natural color conversion momentum continues to be very strong and building. Our performance this year is the direct result of our focus on sales execution and customer service as well as our broad product portfolio. We continue to prove that we are a technical leader in this specialty ingredient space, a reliable supplier to our customers, and as a result, we continue to achieve new sales wins at customers across each of our groups. Our innovative natural colors, flavors, and personal care products continue to position us for future growth and capitalize on opportunities in the markets that we operate in. This is paying off in our results. Since 2019, the company's local currency-adjusted revenue compounded annual growth rate is approximately 6%. With regard to the natural colors conversion momentum that I just mentioned, the industry continues to push forward aggressively on this activity in the United States, Canada, and parts of Latin America. I will repeat what I've stated before. This conversion to natural colors is the single largest opportunity in the company's history, and we continue our preparations to capture a substantial portion of the commercial opportunities. Over the last 15 years, we have invested considerably around the world and we have pioneered many of the industry's leading natural color technologies. We have also invested substantially in production and supply chain capacity, quality control, and our commercial organizations. I feel very good about our sales pipeline, and we will continue to aggressively pursue the natural color conversion opportunities as they unfold over the next two years. We believe long-term investors are well-positioned to benefit substantially from our executions. We will continue to emphasize investment in research and development, production capacity, and a resilient supply chain in order to be ready to support our customers throughout this conversion process. Now turning to slide seven and our group results. The color group had excellent results in 2025, delivering 7.4% local currency revenue growth and 16.9% local currency operating profit growth for the year. The group's adjusted EBITDA margin improved to 23.7% from 22.1%, an increase of 160 basis points versus the prior year. This margin improvement clearly speaks to our efforts to sell technically differentiated products, control costs, execute on our pricing strategy, and deliver quality new wins. In the fourth quarter, the group saw record new sales wins and delivered 7% local currency revenue growth. but we are still only in the early stages of natural color conversions. The group also delivered adjusted local currency operating profit growth of 7.2% in the final quarter of 2025. The color group remains in a great position for the future, and I am very pleased with the progress we are making in our sales pipeline along with the ongoing and substantial R&D and capital investments. We expect the color group to get off to a strong start to the year in terms of revenue growth, but profit leverage will be challenged due to the investments in natural colors we are making to position ourselves for our $1 billion sales goal. Turning to slide nine, the flavors and extracts group saw a local currency revenue decline for 2025 of 1.3%, but a 3.4% increase in local currency operating profits. The group's adjusted EBITDA margin was 16.7%, up 60 basis points versus the prior year. Flavors, extracts, and flavor ingredient product lines reported 3.4% local currency revenue growth and significant local currency operating profit growth for the year. The growth in these product lines continues to be the result of our innovative flavor technologies and our emphasis on new and defensible flavor winds across North America, Europe, and Latin America. The future continues to look very bright for flavors growth in each of our regions. Focusing on the fourth quarter, the flavors and extracts group reported a revenue decline of 2.4% and adjusted local currency operating profit decline of 11.6%. The fourth quarter results were negatively impacted by severe rains in California late in the year, including what is described as an unprecedented atmospheric river event. These rains severely disrupted the harvesting activities for our agricultural ingredients business. These weather-related impacts further compounded some disruptions to our plants. Together, these issues led to a one-time inventory loss at agricultural ingredients of approximately $3 million in the quarter. Aside from these weather and production impacts, as we stated throughout the year, our agricultural ingredients business, which consists of dehydrated onion, garlic, capsicums, and other vegetables, was also impacted by lower sales volumes and significantly higher crop costs throughout 2025. As expected, we have now reached our revenue inflection point and expect a much improved top line for agricultural ingredients in 2026. Overall, we expect a slower start to the year for the flavors and extracts group, with strengthening revenue and profit performance as we move through 2026. Now turning to slide 11. The Asia-Pacific group delivered local currency revenue growth of 2.4% in 2025 and adjusted local currency operating profit growth of 3.8% in the year. In the fourth quarter, local currency revenue was down 1.9%, and local currency operating profit was flat, primarily due to supply chain disruptions caused by significant tariff activities. The group's adjusted EBITDA margin was 22.6% for the quarter, up 90 basis points versus the prior year's fourth quarter. The age-specific group is equipped to bounce back from some of the regional demand disruptions that it experienced in 2025. We expect this bounce back to be heavily weighted towards the back half of 2026, as some of these disruptions linger into the first quarter, where we still expect flat revenue versus the first quarter of 2025. Turning to slide 12, I'm very pleased with the trajectory we have been on over the last six years. As we begin 2026, I expect consolidated annual local currency revenue to grow at a mid to double digit rate. Significant natural color conversion sales activity will drive us to the top end of this range. The color group local currency revenue growth should be in the high single-digit to double-digit range. The flavors and extracts and Asia-Pacific groups should both be in line to deliver mid-single to high single-digit revenue growth in 2026. Both flavors and extracts in Asia-Pacific will start out with flat revenue and profit in the first quarter and will accelerate in the second quarter into the back half of the year. Based on those revenue expectations, I expect adjusted EBITDA for the company to grow at a mid-single-digit to double-digit rate and our adjusted EPS to grow at a mid-single-digit to high single-digit rate. Overall, our profit leverage for the company will be challenged in the first half of 2026 as we forge ahead with the necessary investments in research and development expansion of our production capacity, and supply chain investments to position us to maximize our natural color conversion opportunities. We do anticipate our natural color conversion revenue to increase substantially in Q3 and Q4. Consequently, for the company, we anticipate low single digit to mid single digit consolidated local currency adjusted EBITDA growth in the first half, which will turn to high single digit to double digit growth in the second half. On the investment front, we are currently planning for consolidated capital expenditures of $150 million to $170 million in 2026. We expect to be north of $125 million again in 2027. Our total natural color conversion related capital expenditures are expected to be between $225 million and $250 million between 2025 and 2028. which will position us to capture the $1 billion sales goal. Beyond capital expenditures, we will continually evaluate sensible acquisition opportunities, but we do not anticipate any share buybacks during the year. We also anticipate that we will see a ramp-up in our natural color inventory throughout 2026 and into 2027 as well. Our focus is to capitalize on the natural color opportunity with a goal to significantly improve our ROIC to the mid-teens As I've stated before, we have approximately $100 million of synthetic color revenue today that has the potential to be converted to natural colors. These conversions to natural colors result in revenue multiples of approximately 10 to 1 on average to achieve similar color shade. Turning to slide 13, as we've done for the last several quarters, I would like to now highlight some of our innovative technologies. Currently shown on the slide is some information about two of our most successful natural color platforms, UberBeat and our Advanced Emulsion Technology, or AET. UberBeat is a global platform of high-performance heat-stable beet solutions. These products allow food and beverage manufacturers across multiple segments to attain vivid red 40 synthetic-like color by using natural ingredients. This platform can be utilized to achieve a variety of shades from light pink to dark red velvet and to withstand baking or high heat processing. Like many of our natural color solutions, we can provide uber beat products in many different formats from liquids to powders and customers appreciate the performance attributes while meeting their cost and use targets for conversion. Next, I'd like to talk about our advanced emulsion technology or AET. This is a platform that utilizes uniquely proprietary technology to deliver vibrant, consistent natural colors and outstanding performance across numerous applications. What makes these products unique is the ability to maintain their shade across various pH, heat, and light conditions, as well as to provide a degree of formulation stability that is unmatched in the industry. The need for strong performance across various conditions is where converting from synthetic colors to natural colors can be the most complex. Our technical and application teams are incredibly knowledgeable in assisting our customers in finding the right solution to meet their needs in the most demanding applications. In summary, our products, R&D activities, and supply chain development are centered around providing safe, consistent, and high-performing products that can be tailored to meet the needs of each customer across multiple applications. If you'd like more information on our natural color technologies, please visit our website. Overall, I'm pleased with our financial performance in 2025. I'm excited about the growth opportunities within each of our groups. Our pipeline for natural color conversions continue to build, and I grow more confident each day in our ability to achieve our sales goal. As customers continue to refine their launch timelines, we will provide updates throughout the year in our quarterly calls. Our growth is a direct result of the execution of our strategy and seizing the opportunities in the markets in which we operate. Our product portfolio is strong, and we remain focused on our key segments within the food, pharmaceutical, and personal care segments. Sobel will now provide you with additional details on the fourth quarter results.