Q2 2020 Aspen Aerogels Inc Earnings Call
And Eric Jousting Q2, Twentytwenty earnings Conference call at this time, all participants are in listen only mode. After the speakers presentation. There will be a question and answer session to ask a question. During this session. You want me to press Star one on your telephone if you apply or any further assistance. Please press star.
I'd now like to hand, the conference over to your Speaker today, John Fairbanks. Thank you. Please go ahead.
Good afternoon. Thank you for joining us for the Aspen Aerogels Conference call.
John Fairbanks, Askin's, Chief Financial Officer.
There are few housekeeping items that I would like to address before turning the call over the Danyale, how spins president and CEO.
Press release announcing aspens financial results in business developments as well as are reconciliations of management uses non-GAAP financial measures compared to the most applicable GAAP measures is available on the Investor section of Aspens website, Www dot very gel dot com.
In in the press releases, a summary statement of operations summary balance sheet summary of key financial and operating statistics for the second quarter.
Six months ended June Thirtyth 2020.
In addition, the Investor section of Aspens website contain an archived version of this webcast for approximately one year.
Please note that our discussion today will include forward looking statements, including any statement regarding outlook expectations beliefs projections estimates targets prospects business plans and any other statement that is not an historical facts.
These forward looking statements are subject to risks and uncertainties.
Aspen Aerogels actual results may differ material from those expressed in these forward looking statements.
Well, that's the factors that could affect the company's actual results can be found in aspens press release issued today and discuss in more detail on reports Aspen files with the FCC, particularly in the company's most recent annual report on form 10-K.
Companies press release issued today and filings with the FCC can also be found in the Investor section of Aspens website.
Forward looking statements made today represents the company's views as of today July Thirtyth 2020.
Aspen Aerogels disclaims any obligation to update these forward looking statements to reflect future events or circumstances.
During this call we will refer to non-GAAP financial measures, including adjusted EBITDA. These financial measures you're not prepared in accordance with U.S. generally accepted accounting principles for GAAP non-GAAP financial measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with gap.
The definitions and reconciliations of these non-GAAP financial measures the most directly comparable GAAP measures and the discussion of why we present. These non-GAAP financial measures are included in today's press release.
I'll now turn the call over to Dawn young President and CEO of Aspen Aerogels.
Thank you John.
Good afternoon. Thank.
Thank you for joining us.
Q2, 2020 earnings call.
I'll start by sharing our recent dessert business results indoor perspective on the current operating environment.
I will also discuss our ongoing strategy related not only to our core energy infrastructure business, but also to work to electric vehicle initiatives.
Thanks, John will review, our Q2 and year to date financial performance described the progress we've made to ensure the long term financial financial strength as a company and introduce new financial guidance for 2020.
We will conclude the call with the QNX session.
Let's start with the obvious depending on mix is having a negative impact on our business, particularly on our near term revenue generation.
Our products are installed by contractors working in refineries petrochemical plants and LNG terminals around the world.
It is critical to watch for contractors to have access to the energy infrastructure facilities that we serve.
In response to Cobot 19 facility owners have limited the number of contractors on site in order to reduce worker density.
For this reason our revenue has been negatively impacted during Q2, most notably in the U.S. maintenance market.
Adding to the challenge in Q2, our distributors actively manage their own working capital, which resulted in a de stocking up the distribution channel.
Fortunately a distributor can only destock once it given period of time. So put this pandemic, we believe it the negative impact of de stocking.
Actually played out.
Looking forward.
We expect revenue to rebound strongly when contractor access to the Phillies improves and the distribution channel we stocks.
It's clear that there is a significant pent up demand, especially on the main inside the business.
When we examine T I a data for U.S. refinery, we see the capacity utilization for this period last year was over 90%.
In April 2020 at the pandemic intensified capacity utilization for U.S. refiners dropped below 70%.
Capacity utilization in U.S. refineries has no partially rebounded to approximately 80%.
In active facility needs regular maintenance. So we view this trend as a positive sign.
However, given that we have seen starts and stops in all regions. It is hard to predict with certainty when a consistent demand dues for our products will begin.
To be cautious our underlying assumption for our new financial guidance is that lower density Worksite will be the reality for the remainder of the year and therefore, we expect quarterly revenue levels to be relatively consistent with the first two quarters of 2020.
In face.
In the face of the dual impacted Kobin 19, and an uncertain energy environment are critical commercial cost for both maintenance and project work is to sell our value proposition centered on simplified logistics.
And reduced workforce requirement to continue to gain market share in the energy infrastructure space, even in a down market.
Also we will continue to strengthen our sales organization, including a focus on converting our pipeline into additional project wins, we're confident that these investments will pay dividends.
Our second quarter performance was largely consistent with our cobot 19 expectation with revenue down 17% for the quarter in down 8% year to date during which we had to positive pre cobot month January and February.
Our revenue required for adjusted EBITDA breakeven has decreased from $140 million last year to a revenue level of approximately $110 million for 2020.
This decrease adjusted EBITDA breakeven is the result of the actions, we took to lower compensation and discretionary expenses to reduce our bill immaterial talk into improved our yield and productivity in our east Providence manufacturing plant.
The impetus for this important work work was both the pandemic and our ongoing drive to profitability.
Interestingly the lower breakeven level was achieved at a time when we increased our R&D spending to support our strategy to leverage our aerogel technology platform into new diverse and valuable markets, including our two emerging opportunities in that you'd be space.
Importantly, also during this time, we strengthened our company with an equity raise and credit line extension in February and the P.P.P. loan in May.
We believe we get position the company to emerge from the Cobot 19 period with a strong operating platform and significant strategic momentum.
On the subject to strategy.
We continue to make substantial progress with our two initiative addressing electric vehicles.
We have accelerated optimization of our silica based aerogel blankets to provide better solutions to be manufacturers to manage thermal run away.
The development of our thermal runaway mitigation chronic product hi worth it.
Benefited from our experience delivering critical fire protection solution to our energy infrastructure customers and from active technical exchanges with key TV manufacturers.
The thermal run away product leverages, our existing silica aerogel technology can be produced using our current manufacturing assets and is protected by our existing intellectual property.
One of our performance indicators for 2020.
He is to gain adoption for or to generate initial revenue from the thermal runaway opportunity in the TV market in 2020.
In fact, we have shipped in initial thermal <unk> thermal barrier order to an Asian partner to be used by B.Y. D. In its new blade data Replatform B.Y. de of course is the largest Chinese producer of electric automobiles and buses blade is be why these innovative battery system focused on safety.
Energy density and cost.
The blade battery system will be used in B Y de vehicles and will also be available for sale to other TV manufacturers.
In addition.
We're in the midst of responding to a request for quote with a potential U.S. based customer with them. We have completed significant product development work.
The RF Q contemplates orders spanning multiple years input potentially totaling multiple hundreds of millions of dollars of revenue.
If successful in the near term we will receive during Q3 2020 in order for a small prototype fleet of babies.
In our acute does not guarantee success, but it doesn't mean, we're in the hunt for significant business with our pirates probably within product.
With respect to our carbon error, Joe efforts, we continue our work to validate and accelerate the potential adoption of our technology within the battery materials market.
Our effort centers on taking full advantage of the unique attributes of our carbon error gels and leveraging our decades of experience manufacturing area gels at scale.
The ultimate goal is to improve the energy density of lithium ion batteries, a key enabler in expanding the drive range and reducing the cost of electric vehicles.
We continue to work closely with our evaluation partners as Casey and Ivanek and are actively engaged with other industry, leading companies, both battery and that you'd be manufacturers.
In the first six months to 2020, we accomplished several important items, we improved significantly both the performance and cost of our materials, we expanded our battery team and we built in house battery fabrication.
Location and testing capability that will allow us to accelerate development even faster.
[music].
During the remainder.
2020, we will provide larger sample quantities of our newest carbon era, Joe materials to our partners to test in full cells and I'm more production level equipment.
The goal is to test full battery systems with multiple sell stock back to back to measure against a total energy output target.
Yeah.
This feedback from our evaluation partners is critical as we continue to optimize our carbon there Joe materials.
The advanced data also make our attractiveness to potential new partners yet more appealing.
We continue to believe that we will expand our relationship with one or both of our existing partners.
And enter into additional agreements with other industry leaders during 2020.
Our goal with these two opportunities that leverage the mega trend towards electric vehicles is to build proprietary and diverse aero Joe based businesses and to further demonstrate the value and breadth of our technology platform.
We will continue to report out on our progress related to these important strategic initiatives.
Finally, and to recap we believe we are taking the correct actions in this unusual time to fortify the company to regain our commercial momentum and to advance our strategy.
Our goal is to keep everyone on the Aspen team safe and healthy and at the same time to keep the company's strong.
We are focused on our drive to profitability and on executing our strategy.
These times demand a balancing act and we will continue to aggressively manage the company to ensure we maintain the correct balance.
Now I'll turn the call over to John for a review of our financial results John.
Thanks, Don.
Let's just start by running through our reported financial results for the second quarter of 2020 at a summary level.
Second quarter total revenue declined by 17% to $24.6 million.
$29.5 million in the second quarter 2019.
Second quarter net loss was $5.7 million for 21 cents per share versus $5.3 million for 22 cents per share last year.
Second quarter, adjusted EBITDA was negative $2.1 million compared to negative $1.7 million a year ago.
We defined adjusted EBITDA as net income or loss before interest taxes, depreciation amortization stock boss stock based compensation expense and other items that we do not believe are indicative of our core operating performance.
For the first half of 2020 total revenue declined by $4.4 million or 8% to $53.1 million net loss improved to $8.9 million or 34 cents per share in 2020 versus a net loss of $11.3 million or 47 cents per share.
Our last year.
And adjusted EBITDA for the first half improved to a loss of $1.6 million compared to a loss of $4.2 million a year ago.
For the remainder of my comments I'll focus on second quarter performance and our outlook for the remainder of the year.
However, I first want to emphasize that in the first half of 2020, we improved adjusted EBITDA by $2.6 million. Despite a revenue decline of $4.4 million during the period.
This improvement was driven by our initiatives to reduce compensation and discretionary expense in response to cobot 19 related uncertainty.
Our multiyear initiatives to reduce bill of material cost.
Continued improvement in yields and productivity in our east Providence plant.
And our annual price increases.
And importantly, we improved profitability, despite an increase in research and development spending in support of our electric vehicle and next generation processed allergy programs.
This performance indicates that we are operating well despite the cobot 19 related market challenges at the fundamental economics of our business are improving.
And we believe that the actions, we're taking to improve profitability in the energy market and the strategic investments, we're making in the market will enable aspen to thrive when business conditions improve.
I'll now provide additional detail on the components of our second quarter results.
First I'll discuss revenue.
Second quarter total revenue decreased by $4.9 million or 17% to $24.6 million versus $29.5 million last year.
This decrease in second quarter total revenue was driven by a decrease in project piece revenue in the subsea market.
Covert 19 related decline in maintenance related business, most notably in the U.S. petrochemical and refinery market.
And our planned reduction in research services revenue.
These were offset in part by growth in onshore problem project work globally led by strong demand in the LNG market.
[noise] cope with 19 related decline in our maintenance related business was largely impact of our energy customers limiting the number of internal and third party insulation installers in their facilities to reduce worker density and temporarily shuttering operations from time to time.
Sponsor coated 19 outbreaks.
To access related issues affected our business globally during the quarter, but were particularly prevalent in the us Gulf Coast region.
Total shipments during the quarter decreased by 13% to 7.3 million square feet of aerogel blankets, and our average selling price decreased by a slight mix related 2% to $3.35 per square foot.
Next I'll discuss gross profit.
Gross profit was $2.9 million during the second quarter of 2020 versus $3.5 million during the second quarter last year. However, gross margin was 12% or in both quarters.
The decrease in gross profit was largely driven by 13% decrease in volume the 2% decrease in average selling price and the decline in research services revenue offset in part by a decrease in manufacturing expense decrease in material costs.
I want to highlight that our second quarter gross profit reflected $1.2 million of expense associated with our 4 million dollar reduction in inventory during the quarter.
If we had maintained inventories at first quarter levels. Our gross margin would have improved to 16% in the second quarter 2020, compared to 12% last year.
However, we chose to decrease inventory balances in the second quarter, two improved cash flow as we gain confidence that we could sustain manufacturing operations. Despite the coated 19 pandemic.
Next I'll discuss operating expenses.
Third quarter operating expenses decreased by $200000, a 3% versus last year to $8.5 million. Despite a 300000 dollar increase in research and development in support of our electric vehicle initiatives.
Decrease in operating expenses was principally the result of a decrease in travel related expenses and the tight discretionary cost controls we instituted in response to the covert 19 pandemic.
Next I'll discuss our balance sheet cash flow for the second quarter.
Cash used in operations of $1.9 million reflected our adjusted EBITDA negative $2.1 million.
Set in part by a 200000 dollar decrease in working capital investments during the quarter.
The decrease in working capital was principally the result of a $4 million decrease in inventory net of an associate at 3.8 million dollar reduction and accounts payable.
Capital expenditures during the second quarter totaled $1 million and supported the expansion of our carbon era gel battery lab, Northborough, Massachusetts headquarters and capital investments to improve the efficiency and reliability of our east Providence facility.
During the quarter. We also received PPP loan proceeds of $3.7 million and nearly $900000 and proceeds from the exercise of stock options.
We ended the second quarter with $13.4 million of cash net current assets of $30.1 million no borrowings under our revolving credit facility.
And shareholders' equity of $66.5 million.
We also had access to an additional $8.9 billion available under our revolving credit facility at quarter end.
Certainly we believe we have the balance sheet liquidity.
And available credit required to support operations and to continue to fund our planned strategic investments.
At the time of our first quarter and bus Pester call in April of this year, we indicated that the coated 19 pandemic and volatile energy markets were adversely impacting demand for our products and making accurate projections over 2020 revenue exceedingly difficult.
Accordingly, we read through our prior 2020 financial outlook due to the considerable uncertainty for our business associated with the cobot 19 pandemic.
At present, we expect that ongoing worker density constraints and access issues that customer facilities, well continue depressed demand for our products during the pandemic.
However, oil prices have settled above $40 per barrel and we believe the demand patterns for aerojet blankets have begun to stabilize.
Well risks and uncertainties remain we currently expect that our second half 2020 revenue will be roughly in line with first half actuals with some potential for project related upside, but will fall below 2019 levels.
As a result, we're introducing a new 2020 full year outlook as follows.
Total revenues expected to range between 104 and $110 million.
Net loss is expected to range between 17.7 and $14.7 million.
Adjusted EBITDA is expected to range between negative $3 million and breakeven.
EPS is expected to range between a loss of 67 cents and a loss of 55 cents per share.
This EPS outlook assumes a weighted average of 26.3 million shares outstanding for the year.
In addition, this 2020 outlook assumes depreciation and amortization of $10.5 million stock based compensation expense of $4 million.
Interest expense of $200000.
This full year outlook also assumes a gross margin the between 16, and 18% and an average selling price of $3.45 per square foot plus or minus five cents.
Turning to cash we expected capital expenditures will total approximately $4 billion for the full year.
And then the context to the adjusted EBITDA range set out in our new 2024. Your outlook, we expect to exit 2020 with between 12 million and $14.5 million attach on.
Overall.
We believe we had the balance sheet liquidity and available credit required to support operations and to continue to fund our planned strategic investments.
We believe we have taken prudent actions to reduce expense levels and to improve our cash flow.
We believe our business fundamentals are improving.
And we remain committed to monitoring all aspects of our business and are prepared to take the actions necessary to keep the company financially sound and execute our strategy.
I'll now turn the call back to Cheryl for QNX.
To ask a question. Please press star one on your telephone keypad. The first question is from Eric Stine of Craig Hallum. Please go ahead, Sir your line is open.
Hi, Don again.
Eric Hi, Mark Hey, I'm fine.
So I was hoping before moving on to the electric vehicle.
Thank you if we can just talk about the core business to you.
It seems like the weakness that you've seen in Q2 non a surprise, but also that you expect for the remainder of the year is that day to day business that up until this point grown every quarter.
For a year I believe this how you've described it.
And with the view that that comes back I mean, I would love to hear a little bit about the project business you did.
The released in a little bit in the in the commentary there talk about how you were seeing some positive signs, but just talk about.
That business and then maybe some of the end markets within that business.
Yeah. So.
So you know there's a lot of light discussion going on on the industry today about the timing of projects and and and how the pandemic has impacted that timing.
Whether we talked to contractors are our distributors.
The basic consensus for now is that we've seen primarily delays in project work as opposed to cancellations of project work at least for our for our part of the World.
And so we're doing everything we tend to be in position and competitive.
For those projects there are several projects that are that have passed through the financial decision and in many cases have begun construction and we feel we're in a prime position to participate in those over the course of 2021 in 2022, we are very focused on replaced.
Thing if you will the PPP or excuse me the PTT.
Tight LNG project that we have which will come to an end is towards the end of Q1 2021.
And we think that we will do that.
Not not only in the LNG business in there there are two or three prime projects that were focused on and believe that we're in a strong competitive position to win but also in the petrochemical and refinery areas as well.
Particularly.
In in our age and region.
So.
Again, I I don't want to pretend that that that the pandemic hasn't had any impact. It clearly has it has caused people to slow down and and so our frankly, our focus right now is to execute the projects that we have and and monitor care for.
Really.
Worker access contractor access into into those job sites.
And as I noted in my comments, there's been kind of a you know kind of a rolling up starts and stops too.
Access again, depending on where you where you are in the world. We we are seeing a pretty good access in Asia, and that's an important region for us in particular in Thailand.
And and right now you know I I would say, where we're we're seeing a little pause or a little extra cautiousness on the Gulf coast here in the United States.
And for all the reasons that we read about all fulfil the time just the the.
Just the activity levels of Cobot, 19 down down in Texas and around the goal so.
Great and again I think our outlook is largely the same.
Just you know these pauses these delays.
Clearly are clearly have an input.
Yes, and then when I think about the guide and a guide for a second half it looks a lot like the first I mean is it fair to say that.
You really are are factoring in.
Only modest.
Improvement in that in that access problem and that maybe that's a little bit offset by the fact that there's no.
De stocking or destocking at the distributor level as Don.
It does seem to sell.
You mentioned some potential upside from project business.
Is it in terms of the day to day businesses that upside.
There or is that something where you have enough visibility into some of the refinery schedules.
That you think that is truly more of a early 2021.
Part of the business.
Yeah, so so on that.
On the Coresite I think your characterization is is right. We just think it.
Prudent for us to assume that quarters, three and four are going to look and feel a lot like Q2 from an access point of view and so we we based.
Our our new financial guidance on that assumption.
To the extent.
You know I talked about some of the refinery capacity numbers were returning back to kind of.
Pre cobot norms.
Those activity levels, we no question translate to more activity.
Bakken in in the refinery and petrochemical side of the world. So.
That that forms a bit bid of upside for us.
Also the project. So look we have some projects that have themselves had some starts and stops to them in and I think our our upside in project work is is again in assumption that we get maybe.
Better than expected access to finish off some of those projects again summit here in the in the U.S. as well.
Okay. That's helpful.
Maybe just turning to the electric vehicle opportunity.
The RF Q.
Details with the large north American OEM.
And then is it fair to say that that is the one that that kind of from the start you've been furthest along with.
And then just curious you mentioned that.
If you get that RF Q. It would mean that you would start with a small order.
For a pilot deployment.
Maybe just talk about is that something where you're competing versus another technology.
Once you get to that point or is it really a decision by the OEM did they move forward or not.
No question that is the competitive environment.
We feel that we have.
Excellent solution and if you think about some of that.
Parameters of this you know passive fire protection that that's really the nature of our of our of our product.
In product the compressible product.
There are a a lot of factors.
Where this type of application really seats as quite well.
No question, it's a competitive it's a competitive environment.
Were where we're we've made it over some of the early early hurdles and where we're we're moving fast and they're moving fast. So we think we're anup.
Okay.
Strong position, but still it's competitive.
The prototype fleet that is.
Require initial parts.
Initial shipments.
Is it would be a Q3 2020 order again I emphasize it's not up it's not an important amount of revenue per se, but it is crumbs on the trail for sure that were that we're moving in the right in the right direction, we would.
Expect that that type of order would expand in 2021 and begin to have some noticeable revenue, but it's really in that 2020 to 2023 timeframe, where you start to see really quite noticeable revenue. The more work we've done in this space and I.
I've said this before that we believe that this opportunity.
Can be as large and important and perhaps larger than our energy infrastructure business, where we had $140 million revenue last year and.
It's clear to me the opportunity is is.
At least of that have that scale.
I think it's a it's important to mention that it's for the 2022 model year. So its prototype in late 2020 additional initial commercial production in late 2021, an introduction at that time, and then ramping thereafter 2020 to 22.
Three and beyond.
Yes.
Okay. Thanks, I'll take the rest offline.
Thank you Eric.
Your next question is from Dell.
Please go ahead, Sir your line is open.
Thank you Hi, John Hi, Don.
Well as well thank you.
Good thank you so.
With respect to.
You know the easy side of your progression.
Did you say you've already shipped some.
Amounts to be why I'd or is that also sort of the threeq you.
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We have shipped to our Asian partner, who.
He is responsible for fabrication and delivery to be white D. So you are correct, we have shipped that product.
Okay.
And and all that that's so that was a couple hundred thousand dollars.
You asked that kind of a prototype levels. So.
So how does this so.
What needs to happen for that relationship with that sort of order too.
Well move to the next level, if you remove their testing feared and you know how long do that dig et cetera. If there's any color you can provide.
Well.
They've been working with a material for for a period of time already.
This is again for you know what we referred to in the industry refers to as a prototype.
Fleet.
Again using be white, these new battery systems, so called blade, and which they announced a.
A few months ago, and I believe actually in June of this year and so this is a material that are material is looking for a role to play in that new battery system and.
Again, we have gone through substantial testing.
Through our partner and we'd be why D.
For that without material.
Understood I'll take my other questions on this topic offline.
Just getting back to sort of the.
The adjusted EBITDA, So those are expectations.
So this cost cuts that you need.
How much of this should we think we'll be permanent and as you sort of.
Scaled back an LTV economy starts roofing et cetera.
Some of this cost them back and good businesses are you going to try and keep them I see.
John do you want to take that.
I will I think it'll probably be a mix.
We pulled back discretionary spending and I think we're learning to operated and a new mode and I do think this summer.
Cost savings will be permanent and that we will see improvements to our bottom line flowing because of of sort of the actions that we've taken in the way we've operated through our uncoated 19. Other expenses will return I mean at present quite a bit of the savings is our salesforce not traveling.
We we would love to get back to a position, where we can be making.
Our sales pitches face to face it's a very effective in this industry and we have definitely lost something in doing those virtually.
A portion of it is a reduction in incentive compensation.
That was set pretty cope it and that we're not achieving at present. So we've pulled that back we'd expect that to could you know to return as well. So so so I think it's a mix, but we as a management team have as sort of one of our goals is to find ways to take some of these learnings in cost savings measures and make sure that.
They are permanent and help us achieve our drive to profitability objectives.
I can tell you.
You know those those initiatives that we had in place around raw material cost reductions and yield and productivity improvements. Those those are fundamental you know those are those are going to stay with us.
Passive.
Pandemic, writing John has exactly right.
I can tell you I'm really biting at the bit right now to get back traveling.
And there are a lot of good reasons for me to be in Asia. There a lot of good reason for me to be in Europe, and and so I'm sort of.
Sort of ready to go in of course those are those are expenses that will enter.
Back onto our our income statement, but but also we believe that they will.
And [noise].
And for our team in general will help.
Solidify and is that some of the strategic that work that we're doing I I give my team a lot of credit for being able to advance our strategy.
I don't want to say without interruption, but we've made a lot of progress and the and during the coded period here with our with our key partners. It sometimes the partners the potential partners, who won knows less well that are that's probably where the delay is coming if you will you know, it's a little harder to.
No.
Break into a new relationship from a distance and.
And but our team has done a terrific job advancing our strategy through this kind of virtual world.
Understood and then maybe going back to last question going back to the North American do you view opportunity.
You are saying this is multi hundred million dollar.
Puts unity for you.
What would it take from an investment perspective to deliver we're you know these levels on a orders.
Logos on growth in new and used secure this customer.
Yes. Good question. So so we've got plenty of capacity to deal with.
Early years and again this is spread out over over the course of.
[music].
Let me just at five to 10 year.
Period, and and so we are.
Retooling one of our three operating lines to optimize our performance or a round this new product upsell called piracy.
And that's well within our.
Well within our capital expenditure budget that John mentioned $4 million in total so it'll be a subset.
Of that so we feel that we're.
In in good shape to be able to meet those orders in the years to come up.
I'll be assumed to see how the energy infrastructure business comes back strong and this business comes into play we do anticipate at the right time that we will we will build additional capacity.
And.
So.
I will tell but we're fine for we're fine for now if you will remember we have.
Roughly $200 million of revenue capacity in our in our existing manufacturing plant and our guidance you know one zero for 110, I think thats a little artificially low we were what 140 last year. So even with that you know we still have some running room here.
To continue to grow within the confines of our existing.
Asset base.
I want to stress.
Amit I just want to stress that this is it's a silica era gel based.
Product that can be manufactured in the east Providence Plaza and when Dodd said retool, it's really sort of optimizing the existing production assets that that form of the product, but it's very similar to what we've been supplying in the energy markets for years.
Yeah, I was just going to say, though it's good problem to have.
Yeah, no exactly exactly that's the way, we think about it and when it comes time to make that that capital decision you know John and I have talked about on taking partnered approach is to new capacity or additional capacity.
Semis, our own capital.
There were really about advancing our air Joe Technology platform as a technology company as a technology platform company and and we believe.
This is the opportunity both on the silica air Joe and on the carbon here Joe side.
Additions as well and there's no question in my mind also that we have additional ideas.
That are valuable to develop again leveraging that that platform into some additional markets as well.
Thank you guys got her handful right now with this one now and we're really excited about it.
Right understood. That's all I agree. Thank you so much.
Thank you next summer.
Your next question from Jed Dorsheimer of Canaccord Genuity. Please go ahead. Your line is open.
Hi, Thanks.
Yep.
Oh, you've addressed a lot of them, but I was wondering.
Just digging into that the core energy business.
And I know this co bids come in and hit hit all of Us.
Taken us by surprise the guest.
But if I look at Tom if I look good rig count.
In kind of looking at a peak of 620.
In 2019, that's going to come down.
To less than 150, and so I'm just wondering is that kind of the bigger driver in terms of.
[music].
The energy market versus co bid and then also.
No along the same wind, we're going from 12.3 million barrels per day to less than 8 million. So I'm just wondering how I reconcile some of those figures is I'm trying to figure out when the ramps going to happen if it's more coded related or just looking at the capacity.
Related there.
You know.
Yes.
These facilities, we've really had our eye on the <unk> numbers they come out weekly out capacity utilization. It just talks about.
The activity levels within these refineries and these.
These refiners.
You know cat can't consistently run their facilities, either optimally or necessarily safely without and ongoing you know day in and out maintenance program. So we find that particular number for us.
To be.
Indicative and look I mean that worth.
We're still a little bit in the early days for me I cited the numbers being.
Just happened remember.
July.
19 that number was about 93% capacity utilization and dip down into the mid to mid to high Sixtys in April of 2020 wrestled its way back up to about 80% now and pretty interesting you know, we we were going gang Busters July of 2019.
We really felt it in April of 19, it's starting to feel a little better. So again not a million data points there, but I think that is that does represent a reasonable pull from the market for our fruit for what we do.
So very international as you know Jack we're exporting John I want to say over 60% I believe of our of our process. It wrote.
But but not rain, 65%.
And we do have some geographic diversity here as well you know where we're.
We're seeing for the most part D. The Asian economies.
More active than than ours, we started to come back and and we I think were little bit back on their heels right now in the Gulf coast at the moment, but I in the U.S. maintenance market I can't emphasize enough how important that market is too as we have a terrific team of people working that market, it's kind of our homefield if you.
Well and and so when that when that quiet, we really feel we really feel that we felt it a bit in Q2, you know and ended de stocking Didnt help right. Those those distributors did exactly what you and I would do they manage their working capital they pulled back their inventory a little bit and food.
Kind of a little bit of a double double Whammy force in Q2 again, we want to take the prudent approach to thinking about the remaining part of the year. So we said okay. Let's just assume it's going to be a lot like Q2 of our hope is that we start to see a little better activity level that 80% number you know stays there.
Those after debt and I think maybe that would just get US up you know up into the middle or upper part of our guidance range if that happens.
Got it and one last question there the utilization number that you put out there there have been a lot of refinery that have gone under due to the pricing. So is that a true apples to apples number or is that going up.
As a function of.
The company's that aren't able to stay in business, therefore, a lower denominator.
Well got that you know I haven't.
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Exactly people that part the numbers quite to that extent I I think those numbers are pretty reliable and have their finger on the pulse up pretty well I think the refineries for the most part have have while I wouldn't call them.
They're not at the healthiest point in time I.
I think there stronger then.
Some of the highly levered, frackers et cetera, et cetera, So I think that part of the business.
Yeah. Those are big brought shouldered companies for the most part we've got it. Thank you.
Turning to date.
Turning to the side I had a few questions. If you don't mind.
So just to be clear.
The product would be why D. is for the passive fire protection.
Correct, it's not for the carbon.
Battery materials.
It is it is to address a thermal runaway within.
They're lithium ion battery program, so and you just shipped that within the last year to them.
Within within the last month within the last month so.
And I just want to make sure from an expectation perspective, you did.
Yeah. So.
You're looking at going into the battery pack for the fire protection to be adopted.
With the 2022 model year for them that would be the expectation.
Well.
We had we had two activities going on and John dry when he met when he said that with particularly talking about the the north American based opportunity that we're in the middle of it our acute process around that is a 2022 launch which will take place as you know and what September October 2020.
One with initial.
Within.
Initial volumes, if you will so I. So yes, I think of it as the 2022 mile on the be white be White D. I think you should assume the same timeframe.
20 to 2022 model late 2021 launch.
Gotcha, I mean that strikes me is really even for B Y d. that seems incredibly aggressive in terms of that timeframe in in that sector. It.
Is there something that I'm missing in terms of I mean, that's a critical.
Element in the car, particularly is is you're reducing the risk of of it catching on fire is there something that you've been able to kind of circumvent to accelerate that program because I mean hats off to you that sounds fantastic I'm just.
Curious, how how the timeframe works.
We we are.
You know we've been very impressed.
We are the companies were working most closely with with the speed with which they are addressing this issue I think it might be fair to say that.
They were not anticipating an early design of these battery systems and easy B.
The this issue quite quite to the degree that they're having to wrestle with it and I'm not saying that there you know this kind of a retrofit I'd out it's not quite like that but I think they are a little behind in their development in it for addressing this particular problem and so they're going.
You know all out to.
To address in there in their systems and the blade. The blade battery system is you can read about it online I mean, it one of its.
Advertised attribute is safety and they really talk about safety energy density or drive range and cost and.
And so they put 50 right right the beginning of that so we like that.
You know, we like that safety.
Emphasis and we think that suits, our price, but but the jet <unk>.
I don't disagree with you.
I've.
Other jobs in my career, where weve addressed the auto industry and and look we worked it.
We have that we have a long history of working with very large companies, whether they're in the energy business or.
Or.
Or in the chemical business or.
And now here in the automotive motive business.
It's not.
Historically those are not the fastest moving companies unless they've got a problem to solve and I really believe that thats, the emphasis here and where the where did beneficiaries of it you know speed.
Innovation customer intimacy, that's what aspens, all about and so it really suits us well to have this level of intensity.
Listen I think it's a fantastic win for you guys I I just wanted to better understand that puts and takes and probability of bought out of the timing and yes. So congrats.
I will wrap topline thank you.
We haven't exactly declared a wind yet, but we still think we're in the in that in the middle of the game I mean this this is going to play out big time over the course of the the next month in quarters in couple of years and we're again.
Indications are pretty good and but but where where we're working hard to keep or head down and really serve those customers well. Thank you Jack.
Hello.
There are no further questions at this time I will turn the call over to Don Young for closing remarks.
Thank you Sheryl ops.
We appreciate your interest in a in Aspen Aerogels, we look forward.
To continue to report our progress to you and our third quarter.
2020 result.
Towards the end of October be well and have a good evening. Thank you very much.
This concludes today's conference call. Thank you for your participation you may now disconnect.
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