Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements that reflect management's current assumptions and estimates of future economic circumstances, industry conditions, Company performance, and financial results. Forward-looking statements include statements in the future tense, statements referring to any period after September 30, 2025, and statements including the terms "expect," "believe," "anticipate," and other similar terms that express expectations as to future events or conditions. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for such forward-looking statements. Such forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties, and other factors that could cause actual events to differ materially from those expressed in the forward-looking statements. A variety of factors could cause the Company's actual results and experience to differ materially from the anticipated results. These factors and assumptions include, among others, the Company's ability to manage general business, economic, and capital market conditions, including actions taken by customers in response to such market conditions, and the impact of recessions and economic downturns; the impact of macroeconomic and geopolitical volatility, including inflation and shortages impacting the availability and cost of raw materials, energy, and other supplies, disruptions and delays in the Company's supply chain, and the conflicts between Russia and Ukraine and in the Middle East; industry, regulatory, legal, and economic factors related to the Company's domestic and international business; the effects of tariffs, trade barriers, and disputes; the availability and cost of labor, logistics, and transportation; the pace and nature of new product introductions by the Company and the Company's customers; the Company's ability to anticipate and respond to changing consumer preferences, changing technologies, and changing regulations; the Company's ability to successfully implement its growth strategies; the outcome of the Company's various productivity-improvement and cost-reduction efforts, acquisition and divestiture activities, and Portfolio Optimization Plan; growth in markets for products in which the Company competes; industry and customer acceptance of price increases; actions by competitors; the Company's ability to enhance its innovation efforts and drive cost efficiencies; currency exchange rate fluctuations; and the matters discussed under Item 1A of the Company's Annual Report on Form 10-K for the year ended December 31, 2024. Except to the extent required by applicable law, the Company does not undertake to publicly update or revise its forward-looking statements even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized.

OVERVIEW

Revenue

Revenue was $412.1 million and $392.6 million for the three months ended September 30, 2025 and 2024, respectively. Revenue was $1.22 billion and $1.18 billion for the nine months ended September 30, 2025 and 2024, respectively. The increase in revenue for the three and nine months ended September 30, 2025 was primarily due to higher selling prices. For the three months ended September 30, 2025, the impact of foreign exchange rates increased consolidated revenue by approximately 2%. Foreign exchange rates had an immaterial impact on consolidated revenue for the nine months ended September 30, 2025.

Gross Margin

The Company's gross margin was 34.3% and 33.2% for the three months ended September 30, 2025 and 2024, respectively. The Company's gross margin was 34.1% and 32.8% for the nine months ended September 30, 2025 and 2024, respectively. For the three and nine months ended September 30, 2025, Portfolio Optimization Plan costs totaling $0.6 million and $4.3 million, respectively, decreased gross margin by 20 and 40 basis points, respectively. Portfolio Optimization Plan costs for the three and nine months ended September 30, 2024 had an immaterial impact on gross margin. See Portfolio Optimization Plan below for further information. The Company's gross margins for the three and nine months ended September 30, 2025 were further impacted by the favorable pricing, partially offset by higher raw material costs.

Selling and Administrative Expenses

Selling and administrative expense as a percent of revenue was 20.3% for each of the three months ended September 30, 2025 and 2024. Selling and administrative expense as a percent of revenue was 20.3% and 20.2% for the nine months ended September 30, 2025 and 2024, respectively. For the three months ended September 30, 2025 and 2024, selling and administrative expenses were increased by Portfolio Optimization Plan costs totaling $2.7 and $1.0 million, respectively, which increased selling and administrative expenses as a percent of revenue by approximately 70 and 20 basis points, respectively. For each of the nine months ended September 30, 2025 and 2024, selling and administrative expenses were increased by Portfolio Optimization Plan costs totaling $5.3 million, which increased selling and administrative expenses as a percent of revenue by approximately 50 basis points. See Portfolio Optimization Plan below for further information. The remaining increase, excluding the Portfolio Optimization Plan costs, in selling and administrative expense as a percent of revenue for the three and nine months ended September 30, 2025 was primarily due to higher performance-based executive compensation costs incurred in 2025.

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Operating Income

Operating income was $57.7 million and $50.5 million for the three months ended September 30, 2025 and 2024, respectively. Operating margins were 14.0% and 12.9% for the three months ended September 30, 2025 and 2024, respectively. Portfolio Optimization Plan costs decreased operating margins by approximately 80 and 30 basis points for the three months ended September 30, 2025 and 2024, respectively. The increase in operating margin was primarily due to the higher selling prices, partially offset by higher raw material costs and higher performance-based executive compensation costs incurred in 2025.

Operating income was $168.9 million and $149.6 million for the nine months ended September 30, 2025 and 2024, respectively. Operating margins were 13.9% and 12.7% for the nine months ended September 30, 2025 and 2024, respectively. Portfolio Optimization Plan costs decreased operating margins by approximately 70 and 50 basis points for the nine months ended September 30, 2025 and 2024, respectively. The increase in operating margin was primarily due to the higher selling prices, partially offset by higher raw material costs and higher performance-based executive compensation costs incurred in 2025.

Interest Expense

Interest expense was $7.3 million and $7.7 million for the three months ended September 30, 2025 and 2024, respectively, and $22.1 million and $22.4 million for the nine months ended September 30, 2025 and 2024, respectively. The decrease in expense for the three and nine months ended September 30, 2025 was primarily due to a decrease in the average interest rate.

Income Taxes

The effective income tax rates for the three months ended September 30, 2025 and 2024, were 26.6% and 23.7%, respectively. For the nine months ended September 30, 2025 and 2024, the effective income tax rates were 25.8% and 25.7%, respectively. The effective tax rates for the three and nine months ended September 30, 2025 and 2024 were both impacted by the mix of foreign earnings, changes in estimates associated with the finalization of prior year foreign tax items, and the limited tax deductibility of costs related to the Portfolio Optimization Plan.

Acquisition

On February 14, 2025, the Company acquired Biolie SAS, a natural color extraction business located in France. The Company paid $4.9 million in cash for this acquisition, which is net of $0.2 million in debt assumed. The assets acquired and liabilities assumed were recorded at their estimated fair value as of the acquisition date. The Company acquired net assets of $0.3 million, with the remaining $4.6 million allocated to goodwill. This business is part of the Color segment.

Portfolio Optimization Plan

During the fourth quarter of 2023, the Board of Directors of the Company approved a plan to undertake an effort to optimize certain production facilities and improve efficiencies within the Company (Portfolio Optimization Plan). As part of the Portfolio Optimization Plan, in the Flavors & Extracts segment, the Company evaluated the closure of its manufacturing facility in Felinfach, Wales, United Kingdom, the closure of its sales office in Granada, Spain, and the centralization and elimination of certain selling and administrative positions. In addition, in the Color segment, the Company evaluated the closure of a manufacturing facility in Delta, British Columbia, Canada, the closure of a sales office in Argentina, and centralizing and eliminating certain production positions and selling and administrative positions. The Company reports all costs associated with the Portfolio Optimization Plan in the Corporate & Other segment.

The Company's Felinfach site was shut down in May 2025, and all production activities have been transferred to other locations. The Company began marketing the Felinfach site for sale in June 2025. The Company has substantially completed all other actions contemplated under the Portfolio Optimization Plan in accordance with local laws.

For the three and nine months ended September 30, 2025, the Company incurred costs of $3.3 million and $9.5 million, respectively, related to the Portfolio Optimization Plan recorded in Corporate & Other, primarily for dual plant operating costs, professional services, non-cash inventory charges, decommissioning costs, and employee separation costs. For the three and nine months ended September 30, 2024, the Company incurred costs of $1.2 million and $5.8 million, respectively, related to the Portfolio Optimization Plan recorded in Corporate & Other, primarily for costs associated with employee separation, decommissioning, impairment of fixed assets, and professional services.

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NON-GAAP FINANCIAL MEASURES

Within the following tables, the Company reports certain non-GAAP financial measures, including: (1) adjusted operating income, adjusted net earnings, and adjusted diluted earnings per share, which exclude restructuring and other costs, including the Portfolio Optimization Plan costs, (2) percentage changes in revenue, operating income, and diluted earnings per share on an adjusted local currency basis, which eliminate the effects that result from translating its international operations into U.S. dollars and restructuring and other costs, including the Portfolio Optimization Plan costs, and (3) adjusted EBITDA, which excludes restructuring and other costs, including the Portfolio Optimization Plan costs, and non-cash share based compensation expense.

The Company has included each of these non-GAAP measures in order to provide additional information regarding our underlying operating results and comparable year-over-year performance. Such information is supplemental to information presented in accordance with GAAP and is not intended to represent a presentation in accordance with GAAP. These non-GAAP measures should not be considered in isolation. Rather, they should be considered together with GAAP measures and the rest of the information included in this report. Management internally reviews each of these non-GAAP measures to evaluate performance on a comparative period-to-period basis and to gain additional insight into underlying operating and performance trends, and the Company believes the information can be beneficial to investors for the same purposes. These non-GAAP measures may not be comparable to similarly titled measures used by other companies.

(1)

Tax impact adjustments were determined based on the nature of the underlying non-GAAP adjustments and their relevant jurisdictional tax rates.

Portfolio Optimization Plan costs are discussed under "Portfolio Optimization Plan" above and Note 3, Portfolio Optimization Plan, in the Notes to the Consolidated Financial Statements included in this report.

Note: Earnings per share calculations may not foot due to rounding differences.

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The following table summarizes the percentage change for the results of the three and nine months ended September 30, 2025, compared to the results for the three and nine months ended September 30, 2024, in the respective financial measures.

Note: Refer to table above for a reconciliation of these non-GAAP measures.

SEGMENT INFORMATION

The Company determines its operating segments based on information utilized by its chief operating decision maker to allocate resources and assess performance. Segment performance is evaluated on operating income before share-based compensation (except for share-based compensation expense associated with stock grants to certain business unit leaders); restructuring and other costs, including the Portfolio Optimization Plan costs (which are reported in Corporate & Other); interest expense; and income taxes.

The Company's reportable segments consist of the Flavors & Extracts, Color, and Asia Pacific segments.

Flavors & Extracts

Flavors & Extracts segment revenue was $203.0 million and $203.3 million for the three months ended September 30, 2025 and 2024, respectively. Lower revenue in Agricultural Ingredients was substantially offset by higher revenue in Flavors, Extracts & Flavor Ingredients. The lower revenue in Agricultural Ingredients was due to lower volumes, partially offset by higher selling prices. The higher revenue in Flavors, Extracts & Flavor Ingredients was due to higher selling prices and volumes and the favorable impact of foreign exchange rates that increased segment revenue by approximately 1%.

Flavors & Extracts segment revenue was $599.9 million and $605.6 million for the nine months ended September 30, 2025 and 2024, respectively, a decrease of approximately 1%. The decrease was a result of lower revenue in Agricultural Ingredients, partially offset by higher revenue in Flavors, Extracts & Flavor Ingredients. The lower revenue in Agricultural Ingredients was due to lower volumes, partially offset by higher selling prices. The higher revenue in Flavors, Extracts & Flavor Ingredients was primarily due to higher volumes and selling prices. Foreign exchange rates had an immaterial impact on segment revenue for the nine months ended September 30, 2025.

Flavors & Extracts segment operating income was $28.0 million and $25.9 million for the three months ended September 30, 2025 and 2024, respectively, an increase of approximately 8%. The higher segment operating income was a result of higher operating income in Flavors, Extracts & Flavor Ingredients, partially offset by lower operating income in Agricultural Ingredients. The higher segment operating income in Flavors, Extracts & Flavor Ingredients was primarily due to higher selling prices and volumes. The lower segment operating income in Agricultural Ingredients was primarily due to higher raw material costs and lower volumes, partially offset by higher selling prices. Segment operating income as a percent of revenue was 13.8% in the current quarter compared to 12.7% in the prior year's comparable quarter. Foreign exchange rates increased segment operating income by approximately 1% for the three months ended September 30, 2025.

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Flavors & Extracts segment operating income was $81.5 million and $75.7 million for the nine months ended September 30, 2025 and 2024, respectively, an increase of approximately 8%. The higher segment operating income was a result of higher operating income in Flavors, Extracts & Flavor Ingredients, partially offset by lower operating income in Agricultural Ingredients. The higher segment operating income in Flavors, Extracts & Flavor Ingredients was primarily due to higher selling prices, higher volumes, and lower manufacturing and other costs. The lower segment operating income in Agricultural Ingredients was primarily due to higher raw material costs and lower volumes, partially offset by higher selling prices. Segment operating income as a percent of revenue was 13.6% in the current nine month period compared to 12.5% in the prior year's comparable nine month period. Foreign exchange rates had an immaterial impact on segment operating income for the nine months ended September 30, 2025.

Color

Segment revenue for the Color segment was $178.2 million and $162.1 million for the three months ended September 30, 2025 and 2024, respectively, an increase of approximately 10%. The increase was a result of higher revenue in Food & Pharmaceutical Colors and Personal Care. The higher revenue in Food & Pharmaceutical Colors was due to higher volumes and selling prices and the favorable impact of foreign exchange rates. The higher revenue in Personal Care was primarily due to the favorable impact of foreign exchange rates, partially offset by lower volumes. Foreign exchange rates increased segment revenue by approximately 2% for the three months ended September 30, 2025.

Segment revenue for the Color segment was $525.2 million and $489.8 million for the nine months ended September 30, 2025 and 2024, respectively, an increase of approximately 7%. The increase was a result of higher revenue in Food & Pharmaceutical Colors and Personal Care. The higher revenue in Food & Pharmaceutical Colors was due to higher volumes and selling prices, partially offset by the unfavorable impact of foreign exchange rates. The higher revenue in Personal Care was primarily due to higher selling prices, partially offset by lower volumes. Foreign exchange rates had an immaterial impact on segment revenue for the nine months ended September 30, 2025.

Segment operating income for the Color segment was $37.7 million and $29.8 million for the three months ended September 30, 2025 and 2024, respectively, an increase of approximately 27%. The increase in segment operating income was a result of higher operating income in Food & Pharmaceutical Colors, partially offset by lower operating income in Personal Care. The higher operating income in Food & Pharmaceutical Colors was primarily due to higher selling prices, favorable product mix, and higher volumes, partially offset by higher raw material and manufacturing and other costs. The lower operating income in Personal Care was primarily due to higher raw material costs. Foreign exchange rates increased segment operating income by approximately 3%. Segment operating income as a percent of revenue was 21.2% in the current quarter and 18.4% in the prior year's comparable quarter.

Segment operating income for the Color segment was $111.5 million and $93.0 million for the nine months ended September 30, 2025 and 2024, respectively, an increase of approximately 20%. The increase in segment operating income was a result of higher operating income in Food & Pharmaceutical Colors, partially offset by lower operating income in Personal Care. The higher operating income in Food & Pharmaceutical Colors was primarily due to higher selling prices, favorable product mix, and higher volumes, partially offset by higher raw material and manufacturing and other costs. The lower operating income in Personal Care was primarily due to higher raw material and manufacturing and other costs, partially offset by higher selling prices. Foreign exchange rates had an immaterial impact on segment operating income for the nine months ended September 30, 2025. Segment operating income as a percent of revenue was 21.2% in the current nine month period and 19.0% in the prior year's comparable period.

Asia Pacific

Segment revenue for the Asia Pacific segment was $42.1 million and $41.8 million for the three months ended September 30, 2025 and 2024, respectively, an increase of approximately 1%, primarily from the favorable impact of foreign exchange rates.

Segment revenue for the Asia Pacific segment was $126.7 million and $120.7 million for the nine months ended September 30, 2025 and 2024, respectively, an increase of approximately 5%. The increase was a result of higher selling prices, higher volumes, and the favorable impact of foreign exchange rates that increased segment revenue by approximately 1%.

Segment operating income for the Asia Pacific segment was $9.5 million and $9.3 million for the three months ended September 30, 2025 and 2024, respectively, an increase of approximately 3%. Foreign exchange rates increased segment operating income by approximately 2%. Segment operating income as a percent of revenue was 22.7% in the current quarter and 22.3% in the prior year's comparable quarter.

Segment operating income for the Asia Pacific segment was $27.9 million and $26.0 million for the nine months ended September 30, 2025 and 2024, respectively, an increase of approximately 8%. The increase was primarily a result of higher selling prices and volumes and the favorable impact of foreign exchange rates that increased segment operating income by approximately 3%, partially offset by higher raw material and manufacturing and other costs. Segment operating income as a percent of revenue was 22.0% in the current nine month period and 21.5% in the prior year's comparable period.

Corporate & Other

The Corporate & Other operating expense was $17.6 million and $14.5 million for the three months ended September 30, 2025 and 2024, respectively. For the three months ended September 30, 2025 and 2024, Corporate & Other operating expenses were increased by Portfolio Optimization Plan costs totaling $3.3 million and $1.2 million, respectively. See the Portfolio Optimization Plan section above for further information. The remaining increase in Corporate & Other operating expenses was primarily due to higher performance-based executive compensation costs incurred in 2025.

The Corporate & Other operating expense was $52.0 million and $45.1 million for the nine months ended September 30, 2025 and 2024, respectively. For the nine months ended September 30, 2025 and 2024, Corporate & Other operating expenses were increased by Portfolio Optimization Plan costs totaling $9.5 million and $5.8 million, respectively. See the Portfolio Optimization Plan section above for further information. The remaining increase in Corporate & Other operating expenses was primarily due to higher performance-based executive compensation costs incurred in 2025.

LIQUIDITY AND FINANCIAL CONDITION

Financial Condition

The Company's financial position remains strong. The Company is in compliance with its loan covenants calculated in accordance with applicable agreements as of September 30, 2025. The Company expects its cash flow from operations and its existing debt capacity can be used to meet anticipated future cash requirements for operations, capital expenditures, and dividend payments, as well as potential acquisitions and stock repurchases. The Company's contractual obligations consist primarily of operational commitments, which we expect to continue to be able to satisfy through cash generated from operations and debt. The Company has various series of notes outstanding that mature from 2025 through 2029. The Company believes that it has the ability to refinance or repay these obligations through a combination of cash flow from operations, issuance of additional notes, and sufficient borrowing capacity under the Company's revolving credit facility, which matures in 2030.

As a result of our ability to manage the impact of inflation through pricing and other actions, the impact of inflation was not material to the Company's financial position and its results of operations for the three or nine months ended September 30, 2025. The Company has experienced increased costs for certain inputs, such as raw materials, shipping and logistics, and labor. We continue to expect to manage these impacts in the near term, but persistent, accelerated, or expanded inflationary conditions could exacerbate these challenges and impact our profitability.

The United States has recently implemented significant tariffs on imports from a wide range of countries and has announced the possibility of implementing additional, or increasing current, tariffs. These actions, and retaliatory tariffs imposed by other countries on United States exports, have led to significant volatility and uncertainty in global markets. The Company anticipates incurring incremental tariff costs on certain raw materials to produce our products and certain finished goods shipped to customers. However, the Company expects to manage the impact of the increased tariff costs through pricing actions. To the extent the Company is unable to offset the increased tariff costs, or the tariffs negatively impact demand, the Company's revenue and profitability would be adversely impacted. If additional tariffs are adopted, the Company would incur additional tariff costs that could be material.

On July 4, 2025, the One Big Beautiful Bill Act ("OBBBA") was enacted in the United States. The OBBBA includes a broad range of tax reform provisions, such as the extension of certain expiring provisions, modifications to the international tax framework, and the continuation of favorable tax treatment for certain business provisions. The legislation has multiple effective dates, with certain provisions effective in 2025 and others implemented through 2027. These provisions did not have a material impact on our effective tax rate for the three or nine months ended September 30, 2025. We will continue to assess the OBBBA tax provisions and their impacts on our consolidated financial statements.

Cash Flows from Operating Activities

Net cash provided by operating activities was $83.3 million and $135.8 million for the nine months ended September 30, 2025 and 2024, respectively. The decrease in net cash provided by operating activities was primarily due to an increase in cash used by inventory during 2025 compared to 2024 and an increase in cash used for performance-based compensation payments (which are determined based on prior year performance) made during 2025 compared to 2024, partially offset by an increase in cash provided by accounts receivable.

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Cash Flows from Investing Activities

Net cash used in investing activities was $61.0 million and $37.2 million during the nine months ended September 30, 2025 and 2024, respectively. Capital expenditures were $57.8 million and $36.1 million during the nine months ended September 30, 2025 and 2024, respectively. In 2025, the Company paid $4.9 million for the acquisition of Biolie SAS.

Cash Flows from Financing Activities

Net cash used in financing activities was $13.9 million and $75.1 million for the nine months ended September 30, 2025 and 2024, respectively. Net debt increased by $41.0 million and decreased by $19.8 million for the nine months ended September 30, 2025 and 2024, respectively. The cash proceeds from the increase in net debt in the current period were primarily used to support capital expenditure investments during the nine months ended September 30, 2025. For purposes of the cash flow statement, net changes in debt exclude the impact of foreign exchange rates. Dividends of $52.2 million and $52.0 million were paid during the nine months ended September 30, 2025 and 2024, respectively. Total dividends of $1.23 per share were paid for both the nine months ended September 30, 2025 and 2024.

CRITICAL ACCOUNTING POLICIES

There have been no material changes in the Company's critical accounting policies during the quarter ended September 30, 2025. For additional information about the Company's critical accounting policies, refer to "Critical Accounting Policies" under Item 7 of the Company's Annual Report on Form 10-K for the year ended December 31, 2024.