Sensient Technologies Corporation

Good morning and welcome to the Sensing Technologies Corporation 2026 Second Quarter Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the start 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, and to retire your question, please press star then two. Please note that today's event is being recorded. I would now like to turn the conference over to Mr. Tobin Tornehl, Vice President and Chief Financial Officer. Please go ahead, sir.

Good morning. Welcome to Sentience Earnings Call for the second quarter of 2026. I'm Tobin Tornehl, Vice President and Chief Financial Officer of Sentience Technologies Corporation. I'm joined today by Paul Manning, Sentience Chairman, President, and Chief Executive Officer. Earlier today, we released our 2026 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 sencients.com. During our call today, we will reference certain non-GAAP financial measures, which remove the impact of currency movements, cost of the company's portfolio optimization plan from our 2025 results, 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 in isolation from or as a substitute for financial information calculated in accordance with GAAP. A Reconciliation and Non-Gap Financial Measures to the Most Directly Comparable Gap 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 were prepped 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.

Thanks, Tobin. Good morning, good afternoon. Earlier today we reported our second quarter results. We delivered 10% local currency revenue growth, 21% local currency adjusted EBITDA growth, and 26% local currency adjusted ETS growth in the second quarter. These results continue to build on our strong first quarter results and are well above our earlier projections for the year. We continue to have outstanding results from the Telegroup, which delivered 17.6% local currency revenue growth and 36.8% Thank you for joining us today. The age-specific group contributed strongly with local currency revenue growth of 12.3% and local currency operating profit growth of 23.7%. Each of our groups has delivered strong results for the first half, and we expect even stronger results in the second half of the year. During the second quarter, we continue to generate strong new sales wins across each of our groups, and our sales pipelines continue to grow to support our revenue expectations. Our emphasis on sales execution, delivering exceptional customer service, and constant innovation continues to drive our performance. We're delivering very high win rates in natural colors, specifically natural color conversions. Our long-term strategy and preparations have positioned us to support our customers throughout this conversion process and achieve our $1 billion sales targets. Aside from natural colors, our robust and innovative product portfolios across our other food, personal care, and pharmaceutical product lines are enabling us to win across the globe. As I've stated before, despite a choppy macroeconomic environment and sluggish overall food market, we believe we are well positioned to continue our sales momentum. As I've mentioned on previous calls, we made a strategic shift over 15 years ago in anticipation of The conversion of synthetic colors to natural colors in the U.S. and beyond. We're seeing strong conversion activity and newly converted natural color products are already hitting the shelves in the U.S., Canada, and Mexico. I will reaffirm what I have said previously. The U.S. conversion to natural colors is the single largest opportunity in sentience history. We are aggressively pursuing the commercial opportunities while also executing on our considerable investments in our production capacity, supply chains, and product innovation to support us for our $1 billion sales goal. Turning to slide six and our group results. The Color Group had excellent second quarter results delivering 17.6% local currency revenue growth and 36.8% local currency operating profit growth. The group's second quarter adjusted EBITDA margin was 28.3%, up 320 basis points compared to prior year. This included approximately $4.3 million from one-time tariff refunds, which contributed 200 basis points to the group's adjusted EBITDA margin. Excluding the tariff refund, the group's adjusted EBITDA margin would have been 26.3%. Without the tariff refund, the group still had an outstanding quarter and continued our increased investments in support of the natural color conversion opportunity. The group continues to sell technically differentiated products, controls costs, executes pricing, and most importantly, delivers quality new wins. We are seeing acceleration in customer orders for conversions of the synthetically colored products in the U.S. Alongside these conversions, The vast majority of new product launches throughout the world continue to utilize natural colors. I can reaffirm that the pipeline to our $1 billion sales goal looks very promising. As we approach the second half of the year, I now expect the Color Group to deliver local currency revenue growth in the high teens for 2026, with natural color conversion sales building as the year progresses. During the second quarter, the Color Group invoiced approximately $25 million of natural color conversion revenue. This $25 million is in addition to the $20 million of revenue that we cumulatively invoiced through the end of Q1. I also expect that the EBITDA margin for the color group in Q3 will be similar to prior year's Q3 EBITDA margin of 24.7%. Overall, the color group is progressing very nicely in 2026 and remains on a great sales trajectory. Turning to slide 7. Flavors and extracts groups saw local currency revenue growth in the second quarter of 3.8% and increased local currency operating profit by 6.1%. The agricultural ingredients business in particular had nice volume growth in the quarter. The group's adjusted EBITDA margin was 18.1%, up 30 basis points versus the prior year's comparable quarter. The results align with our expectations for the second quarter. The group continues to optimize its costs and focus on new and defensible flavor wins, and these factors have fueled the favorable profit leverage. Overall, for the flavors and extracts group, we expect local currency revenue growth of mid-single digits for the year. Now turning to slide eight. The Asia Pacific Group had a very strong quarter delivering 12.3% local currency revenue growth and 23.7% local currency operating profit growth. The group's adjusted EBITDA margin was 24.4%, up 210 basis points versus the prior year's second quarter. Overall, the Asia Pacific Group got off to a substantially faster start than we anticipated in the first half and is set up nicely for the rest of the year. The age-specific group continues to generate strong new sales wins across all geographies. Expect the group to deliver high single-digit revenue growth for the full year. Turning to slide 9, regarding our full-year guidance, we expect our local currency revenue to be up high single to low double digits. Based on our strong starts of the year, we now expect local currency adjusted EBITDA and ETS growth in the mid to high teens for the year. Our previous guidance called for high single to double-digit growth rates. On the capital allocation front, we previously communicated expectations for consolidating capital expenditures in 2026 of between $150 to $170 million to ensure that we are prepared for forthcoming natural color conversion activity. I would anticipate we still land within that range, but trending toward the top end. continue to expect to spend around $250 million for natural color capital over the next few years. We also continue to anticipate an increase in our natural color working capital requirements. We are full steam ahead on this multi-year plan to add the necessary capacity and allow for future growth in the future. Sorry, further growth in the future. Beyond capital expenditures, we will evaluate sensible acquisition opportunities, but we do not anticipate any share buybacks in the near term. Now, before I turn the call over to Tobin, I'd like to provide some information on two of our more innovative natural color technology platforms shown on slide 10. To provide a little background, Mexico, like the U.S., recently announced an official ban on Red III. Brands will have until mid-2028 to replace Red 3 with alternative solutions. As we have discussed, the U.S. ban goes into effect in January of 2027 for food, beverage, and pet products, with a slightly later date of January 2028 for pharmaceuticals. Our technical teams have been working with our customers to convert their products, and this slide depicts some of our most successful technologies to enable this conversion. First, UberBeat is our stable and concentrated beet platform designed for pink bakery items that undergo heat processing. This technology offers benefits to mitigate taste impact and potential bakery rise issues. Secondly, our microphone technology excels in pink icings, fat-based coatings, and frothings, which mitigates the bleeding of color into the baked good items. Lastly, Watermelon Rose is an ultra-high temperature stable vegetable-based technology that delivers vivid pink shades that work well in the harsh temperatures used to make strawberry milks and high acid juices. Marine Blue Assure is a natural color innovation which solves many heat stability challenges with standard spirulina-based blue solutions. This technology is especially effective in confection applications such as gummies, Hardboiled Candy, and Fruit Snacks, along with Gelatin. As I said before, the key to a successful natural color conversion for food and beverage brands is to maintain the variety and vibrancy in colors that consumers are used to seeing in their favorite products. To that end, the vast majority of our customers are striving to match their existing synthetic shades through their development. At this point, we observed very few instances where customers are electing to remove color or use less color. Our R&D efforts continue to be focused on removing performance gaps that exist between synthetic and natural colors. If you'd like more information on any of the natural color technologies, please visit our website. Overall, I'm pleased with our financial performance in the second quarter. I'm excited about the growth opportunities within each of our groups. and I'm looking forward to the continued progression towards our natural sales target. The growth we're experiencing is the result of our execution of our long-term strategy. Since 2019, the company's local currency adjusted revenue compounded annual growth rate is approximately 6%. Our growth this year is above this historical rate and I remain optimistic about 2026 and the future of our business. Sobel will now provide you with additional details on the second quarter results.