Itaconix plc (ITX.L) Earnings Call Transcript & Summary

Good afternoon, and welcome to the Itaconix plc Interim Results Investor Presentation -- first quarter presentation. [Operator Instructions] The company may not be in a position to answer every question received in the meeting itself. However, the company can review all questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to submit the following poll. I'd now like to hand you over to John Shaw, CEO. Good afternoon, to you, sir.

Good afternoon. We're very excited to be here. So I'm going to take you through a bit of an overview, then our CFO, Laura Denner, will take you through our financial results, and then I'll come back and discuss our strategic progress. Quick overview about our business. It is all based on itaconic acid. Itaconic acid is an outstanding plant-based building block. It's natural. It has high value. It's generally available. It's a raw material for us to use, and it offers a safer profile than the chemistries that we are substituting for, primarily acrylic acid and styrene. Itaconic acid is made with a plant-based feedstock through fermentation. The fermentation is currently done in China. We bring the material -- itaconic acid into our facility here in New Hampshire. We turn it -- polymerize it into valuable functional ingredients that we then sell as specialty ingredients into everyday products. The potential for our itaconic acid technology platform really reflects the current usage for acrylic acid and styrene across many different application areas, totaling a potential market of about $20 billion. To date, we have identified a portion of that in terms of currently addressable with the products that we have available, but it goes into a wide range of potential applications across many industries. In terms of our results to date for the first half, we are really positioning ourselves for growth with profitable customers. We hit $2.8 million in revenues in the first half, which was a decline over the prior first half of 2023, related to a previously announced adjustment with one of our major customers that we announced in April. One of our goals was to increase our profitability. We did do that with higher gross profit margins at 39%. So that actually year-to-year from first half of 2023 to the first half of 2024, we actually had the same amount of absolute gross profits. Our adjusted EBITDA loss was $1 million. One is we had the same gross profits, and we continue to invest our operating expenses in terms of future growth. We really are very focused on future growth in terms of, first, diversifying a profitable -- very profitable revenues across applications, customers and customer types. We are investing our operating expenses to increase our marketing efforts, our new product development efforts and to improve the positioning of our current products through the product stewardship, which we'll talk about later. And we are making judicious spending -- capital spending in both our laboratory and facility upgrades. So we really end the first half, we think, in a very strong position -- positioning our customer base for future growth. To go a little bit more into how we're diversifying our revenues, I want to talk about where and how we get our revenues across different formulation paths. There are 4 primary passages for our revenues that involve both a new formulation using our product as a key ingredient and how the ingredient is sold. And those are not always aligned. The most amount of our revenues do go through our contract lenders. Very few brands actually produce their own products, they usually use third-party manufacturers. So we will work with contract lenders and give them new formulations. They will purchase our ingredients, and then they will work with brands. Sometimes we do know, sometimes we do not know exactly which brands they're working with to deliver a new -- a fully packaged product to the brand. Another big area for us is when we work directly with the brand on the new formulation, we get the product claims that the brand wants. Then when it goes into production, we actually -- the invoice of the purchase of materials actually goes to a contract lender who is producing it for the brand. There are also certain brands that do, do their own formulation and their own manufacturing. We will bring new formulation and they will buy the ingredients from us. And then lastly, we have partners and distributors. In home care, we have an odor control, we have Croda and in hair styling, we have Nouryon, where we assist them with new formulations. We provide them with information on how to formulate with our ingredients, and we sell them our ingredients that they sell either some of the distributors under our own name or the partners under their name. And they're the ones who interface with either the contract lenders or the brands on the sale. So those are the 4 major routes for it. In terms of positioning for future growth, at all times, we're working with new formulations and providing information for how to formulate and get new claims for the brands. One of our goals going forward, however, is that we don't have this intensive process and we can scale larger by having less participation. When you look in first half of 2023, like almost 90% of our revenues, 80% to 90% of our revenues, we had heavy participation in it. We are now able to have less participation and still gain new accounts on it, very important development for us. Across revenue path, where in the past we've relied heavily on the contract lenders, it was almost 80% of our revenues in the first half of 2023. We're diversifying that so that brands and our partners and distributors now made up a significant portion of our revenues in the first half of 2024, a very important step in terms of diversifying our revenue paths. Another important step is to expand the number of customers that we're dealing with. So we -- the concentration of our top 5 customers is -- where before it was a very high percentage, now it's almost down to 50% of our revenues from our top 5 customers. Those customers still are the top -- our top customers are still contract lenders who are then working with multiple different brands. A particular contract lender may be working with 5, 10, 15, maybe even 20 different brands, which we may or may not have full insight into. One thing we have had in terms of our partners and distributors improved. They've actually entered into one of our top 5 customers in the first half. So across both the formulation paths, the revenue paths and the revenue concentration, we believe we have significant advances in terms of diversifying our revenues and having a profitable base -- revenue base going forward. I'll turn over -- financial, refer you to our CFO, Laura Denner.

I'm Laura Denner. I'm the Chief Financial Officer at Itaconix. To just give a quick overview of our financial highlights before we kind of dive into more. We did achieve revenues of $2.8 million. This was a reduction from our first half of 2023 by 30%. As John indicated, we were able to keep our gross profit -- our absolute gross profit at $1.1 million. This was due to improvements in our gross profit margin. Lastly, we did have some judicious spending and we did increase our EBITDA loss to about $1 million. The revenue makeup, we did announce in April of 2024 that we did lose -- we did not renegotiate a agreement with a large merchandiser. That revenue represented a net of $1.8 million. We still do some both volumes with them currently. What we did see was growth in other existing accounts as well as in new accounts, and this was across all of our geographies. So in Europe, we saw a 50% increase. We also saw an increase here in North America. Revenues by segment. We have Performance Ingredients as well as Formulated Solutions. We did see a reduction in both. What we also did see is our gross profit margin improved on both of these segments of our business. The reduction by -- the reduction that we saw was really focused in cleaning. This was due to the merchandiser that we did have. We did see improvement in our gross profit in that segment of the business. It did improve to about 33%. We also saw increased sales in our beauty and hygiene and those gross profit margins remain consistent from half to half. So when we talk about our gross profit margin, the improvements were really due to improvements that we saw in our costs on our raw materials as well as our throughput in our factory. So that represented about 10% improvement in our gross profit margin. We were able to provide better pricing to our customers because we had those improvements, and then due to that product mix that we talked about a little bit in the previous slide, where our beauty and hygiene volumes did increase and our gross -- related to our gross profit margins improving. And we've moved down, our adjusted EBITDA was $1 million. This relates to the fact that we had a flat gross profit for the H1 2023 and H1 2024. We did increase our operating expenses by about $0.5 million, of that $400,000 were cash expenses. These were from improvements in our marketing as well as in our product development that were ongoing costs as well as some nonrecurring expenses. These were some development costs that we had for onetime testing as well as some regulatory approvals that we were searching to get. Some of the noncash items were stock option expenses as well as some changes in our depreciation expenses. Since the fundraise in February of 2023, about 16 months ago, we have deployed the proceeds that we received. A good portion of them were used in our working capital. This was to make sure we were well positioned for our growth in Europe as well as being able to have inventory there and provide attractive terms for accounts receivable and accounts payable for our European customers. We have improved our finished goods globally. So we are well positioned to meet any of our customer needs. That did use a significant portion of those proceeds, but it positioned the company very well for the growth strategy that we have. As for operating expenses, we did have about $1 million increase in our operating expenses over those 16 months, not in just the 6 months but over the 16 months since we did the fundraise. Of that, $400,000 were nonrecurring expenses. So this, again, is the product development expenses, some onetime testing for regulatory as well as product safety. And we are having an ongoing increase in our operating expenses to improve our marketing as well as new product development. Lastly, we did some capital spending. This was for facility upgrades as well as some lab upgrades with equipment. We have capitalized on new product development as well as we've launched our new website. I'll turn it back over to John to speak about the outlook and strategic progress that we've had over the last 6 months.

Thank you, Laura. So we do have an excellent range of products that operate as valuable ingredients for consumer products, [ go across ] cleaning, hygiene and beauty. They work in terms of providing better performance, lowering costs and improving sustainability. We always increase the sustainability, whether or not a customer decides to market that or not. So we really focus in on better performance and lower overall costs. Our major targets to reach the next level is first in terms of our product revenues, is to increase the product stewardship that we need in Europe and with global brands to meet in Europe, the increasing certification demands for certifications around the safety of your product. And for global brands is to make sure across all applications that we have a regulatory footprint so that they can pursue sales everywhere around the world. With that, we also wanted to have a global -- have our global regulatory footprint in the non-cleaning area, particularly as we go into areas like sustainable weather and some of the industrial applications, so that we have that footprint. We do want to -- we are focusing on non-cleaning accounts to expand our hygiene and beauty sales, bringing new value-added products out and also the global brands are really focused on the total carbon footprint of the product and looking at ways we can reduce the carbon footprint. We already have a favorable one, but what can we do to continue to improve it over time. In terms of profit margins, we do want to hit the 36% profit margins in terms of increasing our volumes, having better accounts on -- in updating our pricing on it. And then in terms of diversifying our revenue base with new customers and new applications using our digital marketing capabilities that we're having, adding non-cleaning accounts and applications, adding new EU cleaning accounts, an area of growth for us. In North America, focusing on the purpose-driven kind of second and third tier brands where we do very well and also adding more partners. Our polymers do not persist in the environment. We've known this from the onset, but we have been required to bring more studies forward. We've invested significantly in new studies where we have new study results to show that -- when our product gets put into any sort of composting that we have data study to show that it biodegrades. We also have new studies -- further studies to show that when it makes it out into waterways that is biodegrades. Very important efforts, particularly in Europe in the certification bodies that people looking at -- in those -- that region for safer products and the scrutiny that polymers get. Initial elements in this is that carbon renewable is in the news. You see that in Iceland, they launched a new factory for sucking carbon dioxide out of the air. They've got a lot of publicity. It's now the largest carbon removal process for it. When you look at the -- in North America about the Super Bowl back in February, the biggest one was, how has Taylor Swift then get from Tokyo to Las Vegas and what sort of carbon footprint -- was her private jet going to leave and the carbon credits she was going to have to buy. And even Heathrow Airport, you could now get a bio-based breakfast where the oil is used to make that breakfast is recycled into making jet fuel on it. So carbon renewable is very much in the news. Although it's not something we highlight specifically about it, remember that our polymers are involved in carbon renewable because we -- the plant -- the itaconic acid starts with the sugar, the fermentation of a sugar that did -- was created by the absorption of carbon dioxide into a plant through photosynthesis, that plant turned it into a sugar. The sugar was used as the feedstock for the fermentation of itaconic acid, the itaconic acid gets spit out by the organism and then refined and comes to us. All along the way in that process, there's been carbon removal all the way through until it finally biodegrades. So there is a significant carbon removal opportunity for us, particularly as we look at some of our new products. As we've mentioned several times, we have expanded our regulatory footprint. We're very excited to have regulatory approvals now in China, Australia, New Zealand and in South Korea, very important steps for us. Whereas now we have a pretty much a thorough footprint where we are -- between where we already have approvals, where we've got recent approvals and then there are other countries where no [indiscernible] approvals are required. An important initiative that we've worked on for the last year and announced officially yesterday, was our new Itaconix website for marketing new generation claims to a broad range of customers, that we can reach through the Internet and they can find us through the Internet. That's a very important part with the new formulations that we have and the new claims that we can bring to support our partners, to support our distributors, to support our contract lenders as they go out and that can -- we can get out there and be effective in presenting the benefits of our product with having less participant -- without having to have intensive participation here for us on a day-to-day basis and draw people [ more again ]. A very important step, we're very excited about. It's been a long time in coming. I hope everyone has had a chance to take a look at it. So in terms of our outlook, we reiterate our expectations of $6 million to $6.5 million in revenues for the full year 2024, and we reiterate our expectations for 36% gross profit margins. In terms of our EBITDA loss, we are continuing new investment spending and important revenue-generating initiatives for the future. We are restoring our growth and see great prospects there. And then when Laura talked about the types of investments that we have made with our proceeds from the fund raise, you'll be seeing in the coming 12 months some returns on that. We expect some new IP from product process research, including SAP. We are continuing to in the EU to get the certifications we think we need to continue to go through with our product stewardship. And then getting new customer projects going through both our digital marketing and our regulatory approvals, feeding new projects for us. So it was a somewhat difficult first half in terms of some of the adjustments we've made, but we do believe that we've created a strong foundation and restructured a very strong foundation for a second half of -- a very strong second half going into 2025. So with our -- that tagline, For Nature With Nature, our purpose is to make sure that what we're doing is favorable for nature and for the planet. And we're using nature for it. Nature has provided -- has been around a lot longer than we have. It offers many different chemistries and solutions for our current problems, and that's what we're doing with our itaconic acid platform. We're doing it with performance and cost as the [ lead ] and then find the safe sustainability. We have a large proprietary platform. I think we're at 16 different patent families. Low capital intensity. We still have plenty of capacity in our production facility here. We have an established base, a continuing base of customers using it. No direct competition that we see for itaconic acid. In each particular application area, we may have another formulation that can get to those results that we're competing against, and we continue to have high-quality recurring revenues [ on it ]. We like to remind people that we faced lots of daunting problems in terms of being -- human interaction within the planet. We have to remember that nature is more powerful than any of us have imagined, that nature adapts and life finds a away. And we think that, that's what we're doing with the potential for the itaconic acid offers [ premiere ] solutions. So thank you very much. We look forward to taking your questions.

John, Laura, thank you very much for your presentation. [Operator Instructions] As you can see we've received questions, both pre-submitted and throughout today's presentation. Laura, if I could hand over to you just to share the Q&A, that would be great. And then I'll pick up from you at the end.

Thank you. So from our first submitted questions, we have for long-term investors, it's been a long waiting period. We rely on management to deliver by selling our products at great margins on the [ face ] of it. We've had a turndown in revenues at low margin. Can you please provide a timeline for high-margin revenues to materialize?

Well, I think you see the results that we had in the first half, that we do have higher margins materializing and that with our efforts going forward and the focus that we have in the areas of how we're approaching the market, engaged in the market, we think that will continue to develop. It was a difficult but important step to make in the first half, and we're very pleased with where we are right now.

Second question, there is a lot of excitement amongst private investors about superabsorbents. Please, can you provide more detail about when the product is expected to be ready for market? And what levels of early customer interest has the company received?

We're making important investments into superabsorbents. As I mentioned earlier, we hope to have some new IP available either late -- later on this year, the first quarter of next year. That's the next important step for us. In the efforts that we had a couple of years ago, we had an alternative process where we had a superabsorbent that was suboptimal in terms of performance. There is competition for other plant-based superabsorbents. We think we have equal to better performance than any of those and a better cost position on it. But we did not want to go out with inferior absorption performance in the current [ alkaloid ]. We think that was a very difficult sell. We also found that the path -- the current half of looking -- the current players in trying to get a new superabsorbent in there, replacing out the incumbents can be a very -- could be a very difficult and long process on it. So we're looking at alternative ways when we have the right product to [ get out there on it, alternative pass ] through initial signals on it. Again, I think we are -- it is one of our most important issues we're investing on heavily. We do not expect revenues in the -- certainly not this year, and even next year, if we get any at all, it would be much later in the year of next year on it. I understand that can be frustrating, but we need to make sure that we have a successful product [ that we can give out ].

The next question was, in September 2022, you announced a reviewed agreement with Croda, which included a newly formulated product added to the collaboration. Is this still not -- this is still not available as I have yet to see anything pertaining to it on their website?

We did make a new product available where we took our scale inhibitor, and we added some zinc into it, it was a fairly low level of zinc. So it's primarily a scale inhibitor with a little bit of odor control. That was for them to evaluate. They did have it available to them. I think with the economics [ come out ] if you're actually looking for -- strictly the [ zinc ] but the odor removals is relatively expensive. We found more opportunities for it because of the balance because we're in scale inhibition business already. So I think it was just an alignment with what their core message was to the customers.

The next question is, in the second half of 2022, you announced that you had a hair care polymer to be released. It appears briefly as BR 300. Has this been discontinued?

We did successfully develop the BR 300 from an application performance standpoint. We found some issues in terms of its shelf life stability on it. So we are continuing to work on seeing if we've improved the shelf life stability on it so that it could be a successful product.

Next question is, back in September 2022, you said that there were revenue opportunities with the development of a product with a major paper company for odor control and hygiene products. How is this proceeding?

We had very successful testing of it. We provided samples. The samples were tested by the customer, and we actually got to the stage of implementation. It was going to involve an investment on the customer's part of some equipment for applying our technology onto their product. When it came to that stage and it got up to the higher levels, it came to a stop. There was some new issues that came particularly around some intellectual property that we did not think really was an issue, but they decided it was. I think it's a good example that in the past, particularly with our resource constraints, we rely on our partners to bring new breakthrough products out onto the market. That's been continually -- the process is long. It can be fairly expensive. And at the end, we could find after 2 years of effort that all of a sudden, the project falls apart for some aspect that we really had no control over and that we may not agree with. I think what you'll find in the future is that when we think we have a breakthrough product, we're going to have a little bit of control over our own destiny in those areas, and we will find paths where we -- if we really believe that what we have as a breakthrough, an ingredient that's going to enable a really extraordinary consumer product, then we will do it in a manner where we have better control of our destiny and to get it out on the market, and then go back to the large players into -- to show what's possible on it. It's been a -- it's one of the freedoms that we have now with our resources that we have to be able to take that approach. And I think you can expect to see that in the future.

The next question is, there are a number of positions being advertised at the moment, of which our lab technicians, chemical production operator and overnight chemical production supervisor. Have these -- these have been displayed for some months now. Are these positions being actively sought to be filled? Are we having a difficult time finding the right candidates?

We think the job market has actually improved quite a bit. We did have actually add a chemical production operator who started yesterday. We still have a search going from the overnight chemical production operator. We are currently using our -- moving around some existing staff so we can run 24 hours a day, a number of days a week. The lab technician that -- we're continuing to look for that one. We are also -- we're not referencing, but we are building up our marketing department. Our Communications Director, Bill McClure, retired on Friday actually. We've hired a digital marketing associate, who is actually helping with today's presentation. And we expect to put an offer out for a marketing director in the near future. So we will continue to build our marketing capabilities, to reach new customers on it. In general, we're finding a lot of people attracted to working with us.

Thanks, John. As regards the Operations Director, is this a new position? Or has Helen Cane moved on? Just that her profile is no longer displaying on the website.

Because we announced in our report -- in the interim results today that Helen Cane did retire back in April. We've let that position open. We're going to move it down to an operations director and we hope to fill that in the coming months.

The next question is, congratulations on the new website. It looks really professional, matches the aspirations of the company. With this in mind, there appears to be no mention of any of the superabsorbents for leather applications. Can you comment on this?

Leather applications, we have 3 good customers in that area. In terms of approaching the leather tanning process in market, we're very excited with the partners that we have in that area. We actually don't think we need more customers there. We just think they need to find success with the new chemistries using our ingredient that they're bringing to the market. We probably will, through some efforts on our own, to push our leather out onto the market that you could expect in the future. Superabsorbents, again, we're making progress there. I think you can expect when we do get a product that we're happy with, you'll see some efforts where we actually have an ability to push some application use out of the market on our own.

The next question is in regards to raw material shipments of itaconic acid, [indiscernible] as noted, it's [ fairly ] long ]. Our cash flow [indiscernible] there are [ 60 ] metric tons that have been received since the last trading update, with the [ stated ] cash use reflects higher finished goods inventory from the last trading update. Does this mean that the overall picture has changed for this year, and we are very much busier than anticipated with the sizable reduction in the finished goods inventory? Second question, that is, will this also be reflected in the raising of the revenue expectations for 2024?

We expect a very strong second half. A lot of that growth we expect to be in Europe. So we started in May to increase our production levels, so that we could have plenty of material available for delivery to meet any demand in Europe. So we had a very strong -- our production group did a great job in May, June, July and August, even in the very hot months, of running 24 hours a day -- not every week, but many weeks on it to build up our finished goods inventory. We're very pleased with where we are. We think we're in a position to meet any demand that we have coming in Europe on it. So that being said, I don't -- I think we always caution that I know people track the imports of itaconic acid. We get them from multiple different channels coming to us. So that any one piece of data you're looking at may not be -- fully reflect what we're using.

The next question is, is it possible that we can have an investor relations dedicated person and e-mails us going forward? It is just that it would clear up the sum of the repetitive noncommercial -- the sensitive information at that point where the input received could form part of your presentation/trading companies?

We have added staffing in that area. Laura and I have some chief of staff that is assisting us in our demands on our time. We are expanding our marketing capabilities. So we think we've added a significant amount of capacity there. It will be better at meeting each one of the challenging communications that we have better and faster.

Next question is what will come first, expansion of the U.S. facility or a brand new facility in Europe as we continue to grow the business and move into profitability?

Expansion in the U.S. will come first. We really -- particularly with some of the new products we're looking at, we want to make sure that it's under -- as close to our central R&D capabilities as possible for that next level of expansion. And it really it is not that expensive for us to ship into Europe, even in the shipment of -- particularly in the cleaning market, there's a steady shipment back and forth of key ingredients between Europe. Europe supplies some into the U.S., U.S. supplies some into Europe. We don't see any cost savings with extending that, and we want to develop -- continue to develop our processes as close to central R&D as possible.

So the next question is, Itaconix was a project partner and a funded [ grant ] looking into new branch polymer -- polymers with enhanced drug delivery project partner, [ Clinton Health Access ]. Can you advise on this? And if there are any potential future commercial advantages to this research?

That work was completed some time ago, there was an effort at our own U.K. R&D facility. That was based on acrylic acid branch polymers. We have made the decision to focus solely on itaconic acid-based polymers. So we are not continuing that work.

Thanks, John. So [ Stephen K. ] says our gross profit margin increased to 39% from 28% despite low revenues. How was this achieved? And can you maintain or grow these margins with new supply agreements?

We -- and I think it was referenced in our -- both our trading update in July and in our release. We are signing more supply agreements around pricing that we think is favorable for both. The customer gets the benefit of our ingredient in theirs and that we are getting -- capturing the value of ours. So we're very comfortable that -- where we're at and how we're approaching the market that we'll be able to sustain those margins.

A question from [ Ben G ]. Given the advancement in the plant based superabsorbent polymers and the potential to displace acrylic-based polymers, what are the company's plans for commercialization? And are there major customers for market showing interest in this [ product ]?

As previously announced at some [ of you've heard ] we did have with our prior production process for superabsorbents, we did have some customer interest in that as [ showed improvement ]. There's a fairly difficult substitution where we didn't have the performance that we needed. It was not a one-for-one replacement for the acrylic-based one. That's when we came back and continued to work on the process to get to a better polymer on it. It is a very competitive market. There are other plant-based superabsorbents that we expect to be out there. And as -- and when we go out there, we need to make sure we go out with a really winning product on it. And the other one that I'll emphasize again, when we do, we will find a path where we have some control over making sure our product makes it out onto the [ end ] market. Particularly, because in certain hygiene applications, we have multiple technologies to come through what we think are some extraordinary new products that we get there and we want to make sure we come out with the best consumer products that could happen there, and we will probably work to control our destiny [ with something like that ].

Andrew W. asks, as the long-term holder, we haven't seen any returns. When do you think the share price will actually rise?

We think we're advancing the company. We think we're doing -- we've solved many of the issues that were -- the difficult issues that we were dealing with 3 or 4 years ago. One is, we -- there was always an issue that we didn't have enough cash on the balance sheet, so people thought we did get diluted out. We've addressed that. There was an issue of whether or not our technology really was going to enable new consumer products and that product companies we're going to win with our ingredients. We are showing that on it. Again, the one -- minor one that would be -- the issue we had is in terms of how making sure that we capture the value for our ingredient when we go to market. We were constrained -- the resources that have constrained us in terms of how we did it. You're now seeing the results of the efforts that we're making to make sure we can capture it. So I think we're in a much stronger position than we were 3 or 4 years ago when actually our market value was much higher. Some of that has turned to stock market conditions and interest rates went up, and the return on equities versus bonds changed. That's really not our area to get into. But in terms of being a substantive company with a bright future and the resources available to perform on that, we think we're massively better positioned and we hope that, that gets reflected in our trading value in the future on it.

Jeffrey H. asks, thanks for the presentation. If you have such a wonderful formula, why aren't your sales a multiple of what they are? Is it poor marketing? Or don't your customers see the benefit that you suggest?

Good question. Our sales model in the past has been very intensive one-on-one, highly -- a lot of personnel interfaces with customers in terms of getting our -- getting the right claims out in place on it. It was very intensive -- personnel intensive on it. You'll see with our efforts that we're going to be leveraging other resources, so that we do not have -- it does not have to be as intensive and we get more traction with more parties showing the benefits of it. We do believe that success begets success. When you get successful applications -- successful products out there, other brands take notice, and that's what we do see on it.

Jeffrey H. also asked, might you be vulnerable to trade restrictions from China given that there were -- sorry, given that your asset comes from China?

It is -- the trade -- there's always trading risks with China. You can solve the itaconic acid one, but when you get into a contract lender and all the other ingredients that go into a detergent, you're going to find 5 other ingredients that are a problem on it. So I think the fundamental position in terms of trading with China is something that is sort of a large geopolitical one. For right now, we do not see any risks at all. In the past when there have been trade issues, itaconic acid has been left aside on that one because of the limited -- because of the supply chain on it. And we hope that our politicians maintain level heads on that going forward.

[indiscernible] asked, how successful has the strategy been to diversify the customer base and reduce dependency on the high-volume, low-margin deals?

I think it's been great. I mean, we're picking up lots of smaller specialty retail brands working directly with us with great success. They love working with them. We love working -- they like working with us, and we had a number of successes in the second half of -- in the second quarter that you'll see, success coming in the second half here on it. I think it's been very successful, particularly with our ability to do it with the digital marketing, with a lot less labor cost to be able to do that.

Chris N. asks, new IP for processes and products, including SAP. Can you provide any further color on SAP elements and why this is significant?

We have some new process developments where we've been able to extend our polymerization capabilities. And that's really what's underlying the improvement that we have in our superabsorbent performance. That extension on our polymerization capabilities with some new processes are also opening up some new application areas of other polymers that we can -- that have been targets for us in the past. So we're very excited about it. We expect to have some tangible progress on that either in the -- late in the fourth quarter or early in the first quarter of next year.

Chris N. also asks, how is the sales cycle developing in H2 2024? Is it accelerating?

We found that when we really like some of the smaller brands that we work with, some of them -- there's customers that we had our first contact with them in May, and we'll be shipping product for them in November. That's how quickly the cycle could go. And when we have success with them, that they want to come back for more. So we've had some important launches in the -- as I said, in the first half of this year, they're going to continue to grow. We think that we are targeting customers, where we think we can reduce that sales cycle and avoid the 2-year projects that can blow up at the very end after spending lots of [ time ] on it.

Jeff H. asks, with all the coming investments, do you have enough cash to see you through to a profitability future?

We think we're in good shape right now. I don't see any issues.

Chris N. asks, can we expect adjusted EBITDA to come in at the same levels as 2023, given the strong improvement in gross profit margin? Can you provide any guidance on cash operating expenses in H2 2024?

I think our adjusted EBITDA target for market expectations that -- we are going to increase our adjusted EBITDA losses. That's because we will be maintaining our operating expenses for important investments in the marketing. Some of the onetime expense that we talked about, our product stewardship side of it and some of the staffing that [ we've got ]. We think this is all judicious spending that has a fairly rapid turnaround in terms of generating new revenues. So we expect we're focusing on rapid payback investments.

Andrew P. asks, can we expect a trading update in October based on the first 3 months of the second half of 2024?

I'm sure we'll have a trading update at some point in the second half. I'm not sure it's going to be October. But I'm sure before the end of the year, we will have one. We will have a trading update out before the end of the year.

David D. asks, are you still in negotiations with the former largest customer to overcome the impasse? Or has that reached a dead end, and each side has just been forced to accept each other's position?

We still continue to have sales to that customer. It's a little bit narrower set of products that we're in. But clearly, there are formulations where we really were needed, and we are continuing to supply there, and we continue to have active customer projects. I think it was a good position that we both came to on it, and we remain in communications and are always looking for new opportunities for ourselves. And they are still a customer that we would like to help and be successful with.

And that concludes the Q&A portion of our presentation. So [indiscernible] your questions.

Perfect. John, Laura, thank you very much for answering these questions from investors. Of course, the company can review all questions submitted today, and we'll probably send responses on the Investor Meet Company platform. Just before redirecting investors to provide you with their feedback, which I know is particularly important to the company, John, I was wondering if I could ask you for a few closing comments.

I think the -- I think we're -- even though the numbers may look difficult, I think the wise investments that we've made in long-term opportunities that are going to advance us as a great specialty ingredient company. I think the elements are there. And I can understand why people may not see them yet, but we're very encouraged by it. We think that we made some very important steps, and we look forward to continuing to show progress in the coming 6 months.

John, Laura, thank you once again for updating investors today. Could I please ask investors not to close this session as you'll now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations. This will only take a few moments to complete, and 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, and good afternoon to you all.

Thank you.