Itaconix (LSE:ITX) — Investor Q&A

0:01 Good afternoon, ladies and gentlemen, and welcome to the ITACONIX Investor Q and A Session. Throughout this recorded session, investors will be in listen only mode. Questions are encouraged and can be submitted at any time using the Q and A tab situated on the right hand corner of your screen. Please just simply type in your questions at any time and press send. The company may not be in a position to answer every question we received during today's meeting, but we will review all questions submitted today and publish those responses where it's appropriate to do so. Before we begin, we would like to submit the following poll. And if you give that your kind attention, I'm sure that the company would be most grateful. So thank you to all of those of you who are responding to that poll. John, thank you very much indeed for your time this afternoon. Of course, you know, we've got a number of investors on the call, all of whom had the ability to pre submit questions ahead of today's event, and and we received a considerable number, which you very kindly put into different themes. So we can try and use the thirty minutes that we have with you today to give as much clarity around these certain topics that we can. And, of course, the company's committed to respond to all your questions in the q and a tab where it's responsible to do so. But of course, a number of these will have to be done post this meeting.

1:09 So John, let me start with, I guess, the first topic, which was all around the production status. With your with you ending the year with a disruption in your production, investors also have concerns about your supply chain for raw materials, particularly those coming in from Asia. What's the status of your production and the ability to meet customer demand?

1:30 Well, first, Mark, yes, it's great to great to be here, great to have an opportunity to get in front of investors again. It's been a busy, a busy few months here. Our operations are up and running. Back in November, we did lose a few days of production, due to some water damage, But our engineers really did a great job and able to work around the issues that we had and really only to lose a couple days. We'd still have some parts, some replacement parts into a couple pieces of the production line that we plan to switch out, but, we're really in good shape right now. Really only end up losing a few days. We still do have some insurance claims, that will will be coming out on it. Not a huge amount of money. It's in the tens of thousands of dollars, not in the hundreds of thousands of dollars.

2:18 On our raw material supply side, we have seen an extension in the supply chain of our raw materials from Asia, particularly, itaconic acid. The timeline has gotten extended, but, really, it's kind of long and stable at this point. So we are not seeing any, don't expect any further disruptions in it. What we have seen, the price increases that we have seen come through on our raw materials, we've been able to implement two rounds of price increases in North America and one in Europe. So we've been able to, do that without hurting our competitive position of our products. So in terms of our production status, we're really in good shape at this point.

3:00 That's great, John. Thank you very much indeed. If I may turn to kind of 2021 kind of investors looking in backwards and revenues were off last year with lower sales in two of your three businesses. What happened? Yes. We did announce our our kind of, summary level results for the year, back in, January. It did show that, two areas for us, we had stalled revenues, but we also had great growth, in our odor control area. So in our hygiene, revenues, which included our odor control, we're up 70%, really doing a good job of reflecting the value, the unique value that we're bringing, to odor control. Our cleaning revenues really were clearly hurt by a low in our customer production levels in the middle of the year.

3:48 This is something that was experienced, industry wide, from about May until September, as peep we believe people were, retailers and brands were adjusting their inventory levels. So it wasn't actually specific to us by any means. So we don't believe that we don't believe that the stall in revenues had any change in terms of the value of our ingredient or the consumer demand for it. So if you look at the underlying, fundamentals of our success of being a key ingredient that determines the success, of an end product being used by more brands and our brands getting greater usage into and with more penetration into the retailers, these all remain strong and encouraging on it. And we've seen a significant recovery at the end of the year back to, you know, reflecting more normal levels of demand on it. So it's it was a difficult middle of the year last year, but we're really past it.

4:49 Thank you so much, John. The the next kind of combination of questions that we we saw coming were around cleaning. Your biggest issue last year was in your detergent revenues. They declined for the prior year. Your second half revenues were lower than your first half, which was presumably from poor results from detergent volumes. What's happening to your competitive position, particularly in detergents? Well, the the revenues really reflected that low in demand in the middle of the year. So our competitive position continues to advance in our main focus area of dishwashing detergents. So that the the results that we had, really just reflected that low in it. But in terms of hitting the milestones that we need, to succeed in detergents, we're hitting all of them.

5:39 We had, new new detergent brands that we got into, one in Europe, two in two in North America in the second half, and our volumes, our volumes are recovering, with those increases in it. In the first half of this year, we are adding, we continue to add more brands on it. So our cost and then, on top of it, our customers are succeeding with retailers.

6:05 So the detergent, detergent formulations using our ITACONIX three twenty two polymer are really, becoming a core ingredient for an increasing number of automatic dish detergent brands, particularly in North America where we have a very high share of new formulations. And I expect that we're gonna continue to have major breakthroughs in Europe in the sometime this year as we move forward on it. That's great. Turning to kind of new product development, I think that's another very keen area of interest for investors. Investors. You invested in an expanded management team last year in part for you and doctor Durant to focus on new products and applications. What's the company gained from these efforts?

6:51 Well, first, Helen Cain is our vice president of operations. She's a very experienced operations manager, and she's really taken command of our operations and really advanced the reliability of our of our production here, both here and some that we contract out for that. As we have announced, if you see from our announcement both in December around sustainable fashions, we recently had one in super absorbance, and then we have a new patent at resins. Really, doctor Durant had a very, very productive

7:23 year expanding our products, into large new addressable markets. And you can expect he's gonna have more, results to show, the remainder of this year. These are all really large new opportunities where we've decided to work with major players on the initial commercial success, and we will you continue to see some developments in that area. Because of the nature of the opportunities and and how we're gonna go about them, I did reorganize our sales effort last summer with commercial teams focused on each, each major opportunity. And in doing that, we did take out our VP of marketing and sales, position, to focus on big wins where we where we the the real big wins that we need to realize our potential.

8:10 So you'll see some, continue to see some more results this year, of what was a very productive year last for last year for us, in in doctor Durant's development efforts. John, if I may, let's, let's move on to to hygiene, another keen area. Hygiene revenues grew by 70% last year. So what can we expect for this year?

8:33 The first area in hygienes for us is, what Croda does in home care on odor control. As you saw last year, our overall, revenues grew by by 70% in hygiene. Croda is doing an excellent job for us in finding new customers, new home care applications, both in North America, Europe, and around the world. So we're continuing to to seek, excellent growth there. It's been an excellent partnership for us. Really a win win on both sides, so we expect to see continued success there. But the big news really for ITACONIX are the new products and new applications that we have in the app in the hygiene market. And those are all translating into a much higher revenue potentials for us. So we announced the super absorbent that we are in production trials on that with a major customer. We expect to have be able to report out additional results on that in the coming six months.

9:31 Probably major revenues on that not showing up until 2023

9:36 as we're successful on it. The and then we've so that whole plant based super absorbent area, that was a that's a major opportunity for us. So we will we are also introducing some additional forms of hygiene, of odor control, products this year. We had one, late last year that's just getting out into the market on it, and we expect to have at least one additional form of being able to take our liquid form and go into a dry form that's gonna open up some new applications for us. So 2022 was a really good year for us in hygiene hygiene revenues, but I see lots of potential growth, substantial growth. This year, it'll be good and then even substantially more in 2023.

10:23 It's a very exciting area for us. That's great, John. Thank you so much indeed. Turning to beauty. Again, kind of the sixth theme that we kind of found questions coming in ahead of today's event. Beauty revenues were down in 2021. So what can we expect for this year?

10:40 So the big, issue that we had is at the end of twenty twenty one, we send a very large shipment to fill up the, inventories, with our partner in this area. So in late twenty twenty in late twenty twenty, we had a a a very large shipment to go out. It's taken a good part of the year to work through those inventories, but we do see, the the order patterns are now coming back at more of a steady rate. So I we really are hoping, to continue our work with Neuron on a global marketing level, on the global markets. We do expect, to have at least one new, plant based ingredient, for hair care in 2022.

11:25 It is an area where we see opportunities for our technologies. So we do expect a new one for there that we we will be working on ourselves, on it. And there's future other opportunities in hair care on it. It it'll it's not a it'll it's in the millions of dollars of categories, not tens of million dollars in terms of a revenue opportunity, but it's a highly profitable area for us and highly valued in the specialty ingredient business to have proprietary positions in hair care. Thanks, John. Turning on to BioAsterix. You recently announced new technology for the BioAsterix. What can we expect from you regarding this area?

12:07 So bioastrics covers a a a range of chemistries that we have, that really work as building blocks, and intermediates, to send to other, ingredients producers to improve the value of, of their products. Two years ago, we announced one where we're working in some packaging area with we continue to work in with two companies in that area. There's a very specific opportunity to replace a fossil based ingredient in some packaging materials of it. We are not getting into making existing plastics more biodegradable or anything like that. It's a very specific component with some health concerns where we think we can improve the health and safety, as a component in a packaging, in some packaging films.

12:58 More importantly, we just announced, in in, late January, I believe, a new patent filing, that doctor Durant has done, that gets us into a a very interesting area in composite materials. Again, this is an opportunity for us to have an intermediate that would go into the production of a composite material where we're improving the safety, the health and safety of the composite material during the production process on it. So these are both very these are both long term opportunities for us. We don't have revenues really projected in in anything that we have out there right now on it. But and it's not an area of major spending for us. This is really an ability that we have with our existing technology platform to go out to certain partners and find opportunities to work with them on it. So I would not be expecting any revenues in the next several years, but in the it's not a big area of spending for us. But at the same time, we are able to add on what over periods of time are really large addressable

14:08 markets. I think it's about $600,000,000, that we see in the composite material opportunity for it. So, again, an exciting area for us, but, something that's a little bit more long term in terms of getting to the addressable market market that we see for it. Thank you, John. Kind of moving on, if I may, to expectations and particularly for 2022, what can we expect for revenues this year? What are the key drivers for you in achieving your revenue goals? This year is really about getting our cleaning business, up to the next level. And I think we will meet expectations, out there for us, and it will be around, the growing success in our cleaning business. We have a as I mentioned earlier, we have a very high share of the reformulation of dishwashing detergents, formulations, in North America.

15:03 We are we will add at least a couple new brands in the first half of this year. I think the second half of this year, we see, some major movement, with some larger with some, larger players, in North America on it. So we're gonna, we're gonna get a high share of reformulations of dishwashing detergent in North America. And I think we'll we've had one major success, which was announced, in Europe on a reformulation using our TSI three twenty two formula.

15:33 I expect that, particularly now with the pandemic over and the scientists being back and doing more, active in the reformulation of dishwashing detergents in Europe, I expect that we'll start seeing, some major successes there. And Europe is we really need to to build up the successes in Europe because those are very big volumes, potential volumes for us. So, you know, the brands that we're in are getting more success, in the marketplace. They're into more retailers. We're in, like, pretty every major retail outlet in North America, you'll find a automatic dish formula with with, our based on our formulations. We're expanding that footprint, into Europe, and expect it will continue to generate a significant amount of success around these reformulations this year.

16:27 That's great, John. I guess another area that of concern or the investors raised ahead of today's event was around cash and profitability. And we got a number of live questions coming in from, like, Ariel and and David around around the same topic. So, really, when do you expect to be profitable, and how much cash do you need to get there? Well, if you look at, if if you look at the amount of cash that we use right now and, you you know, we've got the company restructured, finished with the restructuring of the company about two years ago, our cash use has really, been, relatively low. I mean, we're in the less certainly less than $2,000,000 a year, closer to more like a million dollars a year in terms of cash usage. So we are we are not a big, we don't have big cash needs to grow, at this point.

17:16 And particularly relative to what, you look at what our market capitalization is, we're we're just not using much cash on it. But, obviously, when to go hit our our overall goal, our current goal of $75,000,000 in revenues, we are gonna need you know, eventually need more cash to grow. Companies do need cash to grow, and we want those to come, from internally generated, operations to be able to do that in the long run. But as we but we're also in in so we're sitting in a position. We have three current businesses, cleaning, hygiene, and beauty, and we remain on track on those. Really, the hygiene one with the kind of revenues and margins we have there is already really a a profitable business for us. I think the cleaning business with the advances that we expect this year, we will get that into the, into the breakeven range.

18:12 And the beauty, you know, a little bit of growth. That's not a not a big cash user for us on it. So our we really we have a core business that's a a very nice profitable business to work on. Remember, all of this starts in terms of very favorable investor conditions for growth because our underlying production processes are very low capital intensity. So for us to grow, you know, we're we're in our facility here where we we do our production. Remember, we have a million dollar production line, that can do, like, 10,000,000 in sales. That's a very high leverage in terms of capital spending requirements, and that's a a key part a key aspect from our investment case is the ability to grow with very little cash on it.

19:04 So we are, you know, we are, on track, you know, to be profitable in those areas. We don't have a lot of cash requirements on the production side of it. But at the same time, you know, we also are adding you know, we already probably added a billion dollars already in addressable markets, when we look at the what we did in composites and in superabsorbent. Superabsorbent is a massive market. Overall, it's like a $9,000,000,000 market of which, you know, we carve out, some sustainability angle of it. It's still you know, we still think it's in the, you know, billion dollar, addressable market for it, and we're getting lots of interest in it. So I think what people need to remember is that, you know, we have a we have a profitable based business. It's not using a lot of cash. We have a production process that does not require much cash, to grow, to grow our revenues of it.

19:56 And and also to remember that you have a management team led by myself that we are heavily invested in as shareholders in the success of ITACONIX. You know, we sit in the same position as all of our shareholders sit in the same really, our interests align in terms of making sure that, we grow this business, with as, with as little use of cash, but also maximizing, the potential for our shares. So, you know, we do continually assess, you know, what's best for all of our shareholders to generate the most attractive returns possible. When we see large addressable markets, we will assess those to see whether some incremental spending, all very manageable spending, could get us there, larger, faster.

20:47 But it it really depends on each specific situation. There is no general, you know, general, strategy to do that. But if we see an opportunity for, you know, another $100,000,000 in markets, we will, yeah, and it doesn't take a lot of cash to do it. And we think it's investors', overall interest, to grow the company that's much faster. That's just a judicious way of managing the company. And, again, all from the standpoint of we're very conservative in our spending. We don't we but we don't wanna pass up a major turn for our major return for our shareholders and that, you know, we sit, I sit in the same position as all of our shareholders in terms of making sure, that we grow the value of our shares, as as much as possible on it.

21:41 That's great. Thank you very much indeed. If I may just turn to the future and what that looks like, you've stated a goal of $75,000,000 in revenues. Are you on growth to reach these revenues? We're on a great path right now. And I think right now, we're in the best position we've ever been as a company in terms of the success of our products, the customer projects that the that our products are generating, the the the amount of revenues that we can get out of our existing customers as they succeed and as new customers come on. So we have the products and customer successes in place to achieve this goal. But we also have ambitions, and opportunities for much higher revenues.

22:30 So when people ask me, you know, John, what's your you know, where do you see this going in in the in the long term? And I have a very clear vision that, at some point, many years out from now, there'll be a, Iaconic acid fermentation plant somewhere here in North America and one in Europe. And out of that, we will be we will fully integrate our production, right into that itaconic acid fermentation. We we won't do it, but we'll find a partner, on the itaconic acid fermentation side of it. So we'll have a very ample low cost supply of itaconic acid. And what we're gonna work on, is what comes out of that plant in terms of high value added, ingredients that are key, to the success of a wide range of consumer products on it. So the, you know, so these plants, I would expect a plant like that in North America, a plant like that to generate upwards to about a $100,000,000 worth of, of revenues.

23:36 And I can see having one in North America and one in Europe. That's many years out. But as you look at the growth that we have, in our in the our customer projects we we have right now, the reality of that, coming onto our horizon is increasing on it. That's great. Well, John, you were very keen when we spoke to make sure that you didn't take up people's time. You wanted to be addressable and give as many people the opportunity to ask the questions that they have. So firstly, on behalf of ITACONIX and the investment company, thank you for all those investors that submitted questions ahead of today's event. Thank you also to all of those that have submitted questions during today's event, David, David Que, Ariel, John, thank you once again.

24:22 What we're gonna do is I will submit to make these questions available to the company immediately after this meeting. We'll fast track that for you, John, to be able to review those, and we'll get those published back out to investors after the call. John, I know investor feedback is important to you and the company, and I'll shortly redirect investors to give you their thoughts and expectations. But I guess before doing so, I wondered if I may just ask you for a few closing comments just to conclude with, and then I'll let investors give you their feedback. Yeah. First, I think we've tried to do we we did, look through all the questions. I hope I addressed most of the major topics that we had in there. We will go back, and and give more specific responses, where, if we weren't didn't cover them enough on it. But we would really, you know, do wanna make sure that we respond to all investors' questions, about what we can within the scope of what we can, disclose on it. But, you know, to remember what how the world is progressing and it's progressing very favorably for us in terms of the importance of sustainability, the climate change, low carbon economy, and the important role that we have to play. And this is really emerging really every month in terms of opportunities that are coming our way around, our ability to, create a low carbon economy.

25:50 You know? And and I like to think that that our, you know, our shareholders, our employees, our customers, customers, our our vendors, are really, contributing, to the increased use of plant based carbon in everyday, in everyday products. When you think of people spending, you know, $80,000 to go get an electric vehicle, to affect climate change, I look at it and say, well, why don't we just put the plant bay with plant based carbon in everyday products like we're doing? We are capturing, carbon dioxide, and we are sequestering it in everyday products, to reduce, you know, to to reduce carbon usage of it, and to improve the carbon cycle on it. And we're doing it in every in everyday products, and we're not asking consumers to pay large premiums to do that also.

26:43 So, that's really the mission that we're on of using everyday everyday products, for captured carbon and everyday products of it. And I think that the realization of what you can do, is increasing there. To date, and a lot of our peer companies, particularly in the bio based plastic side of it, they're we're they're getting some some big opportunities because a lot of those are are focusing on, plant based carbon going into the packaging, into the plastics on it. Where we're succeeding is replacing what's inside the packaging. We are what's inside the bottle. That is a slower process to reformulate what's inside the bottle what's inside the bottle.

27:29 If you think of a shampoo bottle, you know, there are hundreds of different ingredient formulations that go into shampoo bottles. You replace the shampoo bottle, that's easy. You can also get switched out. The real value and the value that we're pursuing is being is having, being the key ingredient of what's inside the bottle, of of being the key driver to a reformulation, and that's what we're seeing. With the use of over a 120 brands already across cleaning, hygiene, and beauty products and growing, you know, every month having that growing. We are delivering low carbon solutions, across in in every in everyday in everyday products, and we're getting increased recognition for it. And the important part of it is we aren't making this up. We actually are doing it.

28:22 This is science fact, not science fiction. We have a very promising and exciting, future ahead of us. We're in the best position we have ever been in as a company, and I'm really excited, to see, how 2022 rolls out, after a very tough 2021. So, it's a great opportunity to be out back in front of people again. It and it's a make sure that we emphasize, all the positives of where we are right now. And I look forward to addressing legitimate concerns that people have had, over the last six months, based on our results. I, look forward to, addressing all of those and, having you watch all the good news that we we have emerging out of the company.

29:11 That's great, John. Thank you once again for your time this afternoon and your your q and a session. Thank you once again. Can I please ask investors not to close this session as we'll now automatically redirect you for the opportunity to provide feedback in order the management team can better understand your views and expectations? This will only take a few moments to complete, but I'm sure will be greatly valued by the company. On behalf of the management team of ITACONIX PLC, we'd like to thank you for attending today's presentation. Good afternoon, and good morning to you, John, to you all.