Q3 2020 Aspen Aerogels Inc Earnings Call
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If you require any further assistance. Please press Star then zero I would now like to hand, the conference over to your speaker today, John fear being thank you. Please go ahead.
Thanks Brandy good afternoon. Thank you for joining us for the Aspen Aerogels Conference call.
I'm, John Fairbanks, Aspens, Chief Financial Officer.
There are a few housekeeping items that I would like to address before turning the call over to Don Young Aspen's, President and CEO.
The press release announcing aspens financial results and business developments as well as a reconciliation of management's use of non-GAAP financial measures compared to the most applicable GAAP measures is available on the investors section of Aspens website Www Dot original dot com.
Included in the press release is a summary statement of operations, a summary balance sheet and a summary of key financial and operating statistics for the third quarter and nine months ended September Thirtyth 2020.
In addition to the investors section of Aspens website will contain an archived version of this webcast for approximately one year.
Please note that in our discussion today. We will include forward looking statements, including any statements regarding outlook expectations beliefs projections estimates targets prospects business plans and any other statement that is not historical facts. These forward looking statements are.
Subject to risks and uncertainties Aspen.
Aspen Aerogels actual results may differ materially from those expressed in these forward looking statements.
The factors that could affect the company's actual results can be found in aspens press release issued today Henry.
Discussed in more detail in the reports Aspen files with the FCC, particularly in the company's most recent annual report on form 10-K.
The company's press release issued today and filings with the FCC can also be found in the investors section of Aspens website.
Forward looking statements today made today represent the company's views as of today October 29 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 are not prepared in accordance with U.S. generally accepted accounting principles or GAAP. These non-GAAP financial measures are not intended to be considered in isolation or as a substitute for results prepared in the call.
Since with Caf.
The definitions and reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures and a 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 Don Young President and CEO of Aspen Aerogels.
Great. Thanks, John.
Good afternoon. Thank you for joining us for our Q3 2020 earnings call.
Today I will comment on the contract we were awarded to provide our part within thermo barriers for use in the next generation of electric vehicles are the major U.S. automotive OEM.
I will then share our perspective on the current operating environment for energy infrastructure.
I will finish with a progress report on our strategy to leverage our aerogel technology platform into additional high growth high value market.
John will review, our Q3 and year to date financial performance and provide both revised guidance for 2020, and a high level outlook for 2021.
We will conclude the call with acuity session.
We announced today that a major U.S. automotive OEM awarded Aspen, a contract to supply power within thermo barriers for use in its electric vehicle battery platform.
Customer alone represents nearly 1 billion dollar opportunity for Aspen.
It is important to remember of course that the ultimate value of this contract is dependent on our customers success and participating in the global transformation to electric vehicles.
After an intense R. A Q process, an extraordinary individual and team efforts here at Aspen, We're focused now on exceeding the expectations of this first major customer.
It is also important to remember that thermal runaway is a universal challenge for all EV manufacturers.
[noise] battery electric vehicle companies are unlikely to take shortcuts with safety, especially at this pivotal point for market acceptance of mobility.
We have already seen recalls and regulatory pressure, resulting from thermal runaway in <unk> in Asia, Europe, and North America.
With an estimated 100 to $300 a pirate thin revenue per electric vehicle. Our business development effort is focused on a multi billion dollar commercial opportunity for Aspen over the course of this decade.
We have over 30, EV and battery players at various stages in our development funnel at.
At present, we have 10 companies consisting of EV and battery Oems and tier one suppliers that are actively evaluating our paraffin product, we are adding resource to accelerate our success with these potential customers.
Switching gears to our energy infrastructure business. The pandemic continues to have a negative impact, particularly on our near term revenue generation.
Our products are installed by contractors working in refineries petrochemical plants in LNG terminals around the world.
It is critical for our business that contractors have access to the energy infrastructure facilities that we serve.
In response to COVID-19 to still the owners have limited the number of contractors on site in order to reduce worker density.
As a result, our revenue has been negatively impacted again during Q3, most notably in the North American market.
Although it is hard to predict with certainty when we will see the pandemic related interruptions of work sees our underlying assumption for both the revised 2020 financial guidance and the high level of 2021 outlook is that lower density work sites will be the reality and therefore.
During this time, we assume revenue levels will remain in the vicinity of $25 million per quarter.
Looking forward, we expect revenue to rebound when contractor access to facilities improves and the distribution channel. We stocks. We believe there is significant pent up demand for both maintenance and project work.
There are many petrochemical in LNG projects specified with power gel and crowd gel and we believe that as soon as these projects move forward Aspen will see return to revenue growth.
As we reported last quarter.
Our revenue required for adjusted EBITDA breakeven has decreased from $140 million in 2019 to a revenue level of approximately $110 million for 2020.
For 2021, we accept the objective to maintain the $110 million breakeven level, while also increasing our expenditures on R E b initiatives, including enhancing our business development resources to capture additional EV thermal barrier wins.
We believe we have position the company to emerge from the COVID-19 period with a strong operating platform and significant strategic momentum.
On the subject of strategy, we continue to make substantial progress with our initiative addressing electric vehicles. The first major win with paraffin is important to us in many ways not only does it position us for growth and a new dynamic megatrend market, but it also.
<unk>, our existing manufacturing assets were capacity utilization is key to significant profitability.
And given the universal nature of the thermal runaway problem for electric vehicle manufacturers. We have reason to believe that we can win adoption an additional battery platforms.
The problem posed by thermal runaway, it's extremely challenging to manage for the OEM. We believe the valuable attributes of pirate then combined in a single solution make the product and important contributor to a safe and successful global transformation to immobility and a big winner for asthma.
An error jobs.
With respect to our carbon aerogel efforts, we continue our work to validate and accelerate the potential adoption of our technology within the battery materials market.
Our efforts centres I'm, taking full advantage of the unique attributes of our carbonara jealous and leveraging our decades of experience manufacturing era jealous at scale. Our goal is to improve the energy density of lithium ion batteries. Our focus is on cost performance and safety.
Our work with our evaluation partners S. Casey and Nevada has intensified as we have demonstrated significant progress in both the cost and performance of our silicon rich added materials.
With our new battery lab operational and within expanded team of battery experts. We are now providing larger sample quantities to our partners further testing on production level equipment.
Their feedback is critical as we seek to optimize our carbon aerogel technology to fit a long key points of the technology roadmaps of industry leaders.
We were inspired by the Tesla Battery day.
It affirmed that the work that we're doing with our low cost high performance Silicon Rich Anno material is in fact on target. We believe our work supported by an active IP strategy will be attractive and valuable to our existing partners and to other leaders in battery technology.
The goal with our opportunities focused on the electric vehicle Mega trend is to create proprietary and diverse arrow Joe based businesses.
We have been building towards this first EEV related strategic win for many years.
Fire safety energy efficiency durable performance an asset resiliency.
Our constant themes to our success in all markets that we serve.
The contract award not only establishes our position in the EV megatrend, but it also demonstrates the value can breath of our broader strategy to leverage our patent protected air Joe technology platform, an additional high growth high value markets.
Finally, I would like to use this forum to thank the people at Aspen for the extraordinary work they have done and are doing and these most trying times.
Balancing the stresses from work family community and from life more broadly is especially hard right now and I am deeply grateful to all of my teammates Aspen.
Now I will turn the call over to Jon for a review of our financial results jump.
Thanks time.
I'd like to start by running through our reported financial results for the third quarter of 2020 had a summary level.
Third quarter total revenue declined by 32% to $24.2 million from $35.4 million in the third quarter of 2019.
Third quarter net loss was $6.7 million or 25 cents per share versus a net loss of $2.3 million or nine cents per share last year.
Third quarter, adjusted EBITDA was negative $3.2 million compared to positive $1.4 million a year ago.
We define adjusted EBITDA as net income or loss before interest taxes, depreciation amortization stock-based compensation expense and any other items that we do not believe are indicative of our core operating performance.
For the first nine months of 2020 total revenue declined by $15.6 million or 17% to $77.3 million.
Net loss increased to $15.6 million or 60 per share in 2020 versus a net loss of $13.6 million or 57 per share last year.
And adjusted EBITDA for the first nine months decreased to a negative for $8 million compared to a negative $2.8 million a year ago.
For the remainder of my comments I'll focus on third quarter performance in our outlook for the remainder of the year.
However, I first want to emphasize that during the first nine months of 2020 in response to the impact of COVID-19 on our revenue levels.
Costs and expenses decreased by a total of $13 $6 million versus 2019.
In addition to material costs decreases associated with the revenue decline. This decrease in our cost structure was enabled by our initiatives to reduce compensation and discretionary expenses in response to COVID-19 related uncertainty and our multiyear initiatives to reduce bill of material costs.
And importantly, as we decreased our costs and expenses despite an increase.
In research and development spending in support of our electric vehicle programs.
As a result, we estimate that we will have reduced our annual revenue required to achieve EBITDA breakeven to approximately $110 million by the end of 2020 from about $140 million in 2019.
This progress indicates that we are making the right decisions in response to the COVID-19 related market challenges that the fundamental economics of our business remains strong.
I also want to provide a few additional details on our contract with the major U S automotive OEM.
Under the contract we will supply fabricated multipart thermal barriers for use in the battery system of their next generation electric vehicles.
You'll generate revenue ball through the sale of our pirate then material and through fabrication of the multipart barriers we.
We expect for approximately 55% of our revenue will be attributable to the pyro thin materials and the remaining 45% other materials and fabrication.
We've committed to supply the thermal barriers up to a daily maximum volume and it fixed prices through the term of the agreement, which currently ends on September 1st 2026.
The Oems agreed to purchase all of its requirements for the specified multipart barrier from Aspen, but has no obligation to purchase any minimum volume during the term of the contract.
In addition, the OEM has the right to terminate the contract at any time.
All other provisions of the contractor customary for the automotive industry.
And obviously, all projections and estimates of aspens potential revenue a contingent on the Oems long term success and the electric vehicle market.
I'll now provide additional detail on the components of our third quarter results first I'll discuss revenue.
Third quarter total revenue decreased by $11.2 million or 32% to $24.2 million from $35.4 million last year.
This decrease in third quarter total revenue was driven by a decrease in both project and maintenance work and the global energy infrastructure market, particularly in North America.
Set in part by an increase in projects project based demand in the subsea market and gross and the building materials market.
In contrast in North America are revenue in the Asian energy markets held up well versus 2019 experienced only a modest decline.
The COVID-19 related decline in our energy business was largely the impact of our energy infrastructure customers seeking to limit the number of internal and third party installation installers in their facilities to reduce worker density.
Temporarily shuddering operations from time to time in response to COVID-19, outbreaks and delaying the start of projects due to the threat of Covid related interruptions.
Total shipments during the quarter decreased by 34% to 6.8 million square feet of error, Joe blankets, while our average selling price increased by 4% of $3.51 per square foot.
Next I'll discuss gross profit.
Gross profit was $1.9 million or 8% during the third quarter of 2020 versus $7.7 million or 22% during the third quarter last year.
This decrease in gross profit was driven principally by the 34% decrease in sales volume.
A reduction in our production volumes produced finished goods inventories and an unfavorable change in mix.
Offset in small part by the 4% increase in average sales price and a reduction in manufacturing expenses.
Next I'll discuss operating expenses.
Third quarter operating expenses decreased by $1.3 million or 13% versus last year to $8.6 million. Despite an increase in research and development and support of our electric vehicle initiatives.
Increase in operating expenses was principally the result of the type discretionary cost controls we instituted in response to the COVID-19 pandemic.
Next I'll discuss our balance sheet and cash flow for the third quarter.
Cash used in operations at $1.5 million reflected are adjusted EBITDA negative $3.2 million.
Offset partially by a 1.7 million dollar decrease in working capital investment during the quarter.
Capital expenditures during the third quarter totaled approximately $600000 and we're focused on improving the efficiency and reliability of our east Providence facility.
During the quarter. We also received approximately $100000 and proceeds from the exercise of stock options.
We ended the third quarter with $11.3 million of cash that current assets of $26.3 million no borrowings under a revolving credit facility and shareholders equity of $60.9 million.
We also had access to an additional $8.1 million available under a revolving credit facility at quarter and.
I will now turn to our outlook for the remainder of 2020.
At the time of our second quarter Investor call in July of this year, we indicated that the COVID-19 pandemic was adversely impacting demand for our products.
Largely due to our energy infrastructures customers seeking to limit the number of third party installation installers in their facilities to reduce worker density.
Based on third quarter order patterns. We currently project that the COVID-19 pandemic will have a greater impact on our revenue levels than we had expected at the time of our second quarter earnings release.
In addition, we are projecting a shift in our product mix from our highest margin high temperature temperature products to our lower margin ambient and cold temperature products.
As a result, we are reducing our outlook for both revenue and profitability for the remainder of the year.
As a result, our current Twenty-twenty full your outlook is as follows total revenue is expected to range between 102 and $106 million.
Net losses expected to range between 26 and $18.6 million.
Adjusted EBITDA is expected to range between negative $6 million and negative for a million dollars.
P. S is expected arrange between the loss of 78 cents and a loss of 71 per share.
The C. P. S outlook assumes a weighted average of 26.3 million shares outstanding for the year.
In addition, this twenty-twenty outlook assumes depreciation of $10.4 million stock based compensation expensive $4 million and interest expensive $200000.
It was full your outlook also assumes a gross margin of between 14, and 16% and an average selling price of $3.45 per square foot plus or minus five cents for the year.
[noise] turning to cash we expect a capital expenditures will total approximately $4 million for the full year.
And within the context of the adjusted EBITDA range set out in our revised 2020 full your outlook, we expect to exit 2020 with between 11 million and $12 million of cash on hand.
Looking forward to 2021, we project that the COVID-19 related contractor access restrictions will <unk> continue to impact demand for our products and the energy infrastructure market.
As a result, we are currently assuming that are 2021 revenue and profitability levels will reminding remain in line with our 2020 full your outlook and we intend to build our operating plan on that basis.
We also intend to increase investment in our electric vehicle programs and more broadly and our strategy to leverage our aerogel technology, an additional high value markets and.
And we will continue our efforts to improve the underlying fundamentals of a business and to ensure our operational effectiveness remains strong we.
We believe these actions and initiatives will position Aspen to resume the strong operating performance to characterize 2019, when the impact of COVID-19 subsides.
Overall, we believe we've taken all prudent actions during 2020 traduce expense levels to improve our cash flow and to significantly reduce our annual EBITDA breakeven and at the same time, we've maintained our commitment to increase spending and investment and supportive are extremely promising electric vehicle programs.
We also believe we're making the right decisions in response to COVID-19 related market challenges and that we're position to thrive when business conditions improve.
And as always we remain committed to monitoring all aspects of our business and are prepared to take the net actions necessary to keep the company financially sound and to execute our strategy.
I will now turn the call back to Brandy for.
Q&A.
[noise] Randy.
[noise] [noise] [noise] can you hear me.
Yeah, we can now.
Yeah, if you would like to ask a question. Please press stores and the number one on your telephone keypad again scars any number one.
And your first question comes from the line at Eric Stein with Craig Hallum.
Yeah.
And on again.
Hey, Eric.
Hey, so I just want to start with the easy award.
So.
It sounds like so you're going to.
Start or you did get the prototypes of warm, but it also sounds like you are assuming or have received the platform on and I guess that was of the understanding that you had to perform on the on the prototype board to start and although it might've been a foregone conclusion. You know you you still had to do that before getting the <unk>.
<unk>. So could you just clarify kind of aware of that is that right now.
Yeah, the prototype a purchase order really was.
A small orders as it is you know and and the contract. We we were awarded relates to production quantities. If you will so as distinct from the prototype quantity.
Okay. So you do have the platform order I mean this is the.
This is the ultimate goal you have that in hand interest you need to go through the process of of the prototype all of that but this is the award you've been targeted.
Yeah, I remember the prototype Flic, if you will you know where where a component on it but it either.
Use your car. These are full P. V. So yeah, we have the contract that we've been striving for you know the other end of that three three tier R. A Q that we have talked about in the past. We we we won the prize.
Great Congrats on that.
It's just too.
Clarify. So you said you were working was 30.
Different parties, but 10 of those Oems her battery materials companies and I'm not sure if I understood that correctly.
But just curious.
That's actually let me correct that Erica and just just to be clear. So there are.
Over 30 companies in our development funnel and kind of those companies I have pirate fan.
And they are they are testing pirate then those 10 companies are made up of EV and battery Oems and tier one suppliers.
Okay.
Okay and then.
When it when we think of those companies I mean, clearly thermal runaway big problem Ah needs a solution.
You you've introduced this product I mean, what type of urgency to you see from those parties and what what could that mean in terms of.
Or or how long they may need to get through their process.
With a view towards launching a lot more electric vehicles.
Good question so so.
Well, we've seen and and recalls and regulatory pressure in all regions for several different companies related two two car fires.
And so that has really heightened.
The issue of the awareness of of the issue. If you go back in time, you know the work that we did with the North American Oh, we.
We that took approximately a year.
And a good part of that was product development in our understanding the issues involved with thermal right away and then the optimization of our of our material I mean, what are the benefits. We had was that you know.
Pirate then as a direct descendent of our pirate gel product that has been addressing fire safety and a lot of the same types of issues in the in energy infrastructure for more than a decade $1 billion installed. So we did have a running start but that period.
Did Ah Ah involve again product development Ah Ah pretty strenuous.
Intense process with them and and so if you think about sort of this this next group of companies.
In some sense, we've gone through the first part of that already and while it's quite plausible that different companies might have a different configurations and and perhaps different parameters, we're pretty far along in our understanding of the problem and being a solution provider and.
And so everyone's you know all these companies are focused on it and we think we have Ah Ah Ah Ah really important contribution to make to solving the problem.
So not to put words in your mouth, but I mean.
With that in mind and with the urgency in the market M and it wouldn't be it wouldn't be outlandish to say that there could be I mean that you would certainly hope to or target additional awards say in early well earlier first half of 21 for instance.
We're working hard at it Eric you know it it's.
Again, we we think there's a good reason to to we believe there's there's good reason to think that we're gonna win additional platform awards.
Okay.
Got it made me last one for me just on the on the outlook for 2021, and just to kind of get it your mindset there.
Is it fair to say that it's not really it's not really guidance, but it's just it's how you.
It it's how you view the year with a nod to the Unpredicted Belletti of Covid right I mean, it's covid nobody knows how long that's going to go and so you know you you do have a business as you said I've heard about the pent up demand as well they they could bounce back pretty nicely once things left it's just no one knows.
When those things left is that fair.
That's very very you know you just sort of harking back to even maybe arc Phew, one earnings call and and.
You know the way we that when I say, we I mean, all all of US analyzing what was about you know the pandemic is it was rolling out I I think most all of US had the sense that gosh, if we could just get through a Q2 and Q3 you know we've kind of rule role through this thing and by Q4 certainly about it.
The beginning of the the new year, you you know things would be back to normal well you know that there's a lot more uncertainty about that than than than than what we might have thought earlier. So we we think it's prudent to just assume that the four quarters of 2021 well.
Will be.
Be impacted by the pandemic and and that's what we've done we are assuming all four quarters and obviously you know we don't know we don't know how it will play out, but we we liked that kind of baseline starting point.
Got it thanks for taking the questions.
Thank you Eric Eric.
Your next question comes from the line at Jed Nausea, My ear with Canaccord Genuity.
Yeah.
Hi, Thanks.
Yet.
And congratulations on.
The easy win.
I guess just starting their curious with that so so just to clarify you have BYD that you've publicly announced.
For the.
The pyro product.
And then in the U S. Today, you are announcing another.
But there's no.
There's no contract that requires them to take a certain amount of volume more minimum amount could you just I'm sure I'm just confusing this but I was wondering if you could help clarify I know it's a it's a good question, let John John was really clear in his comments about it and let let them just outline it for US all so did we have a cough.
Contract with the OEM.
It runs through 2026.
We have a we have an obligation to supply up to a certain daily volume.
And those daily volumes are significant and underlie pre.
Projections, the rough projections buying gave you through that time period.
But the the ease the E V manufacturer has no obligation to purchase from us.
Cause they don't want to commit to that and until they see see through C sell through of their vehicles ultimately through the time period and.
And they do have the right to terminate the contract at any time.
So this is not a this is not a take or pay type of an arrangement, but we have every expectation that they will purchase from us through that through the time period of the contract and we would hope that it would be extended beyond 2026, as well, but we just wanted to make it very clear as to what the contract.
Was ultimately.
And I think I think just to put an accent on one thing that John said was that the OEM as agreed to purchase all of its requirements for the specified part from Aspen right.
Got it.
Just a little surprised though because it would seem like all the risk is on you not on the OEM because I'm presuming that there is capital costs associated with.
Expanding capacity to be able to provide for the.
For this OEM are they is is there any upfront payment to eat some of those rests on on your side.
No, but also in the early in the early rollout Jed the capital costs are not substantial.
And so while there while there is some.
Staffing and focus a lot of a lot of the expenditures that we're making here over the course of the next three 612 months are really related to.
Ah continuing working our way through the development funnel.
Hey.
And dawn I think it's important yet.
This that pie rowson material is a material that we can produce on our existing assets in our east Providence plant.
And as you're aware, we've got significant capacity and so there's no capital costs for us to to increase capacity to meet the demands of of this contract and clearly in the short term.
And so the capital the capital costs are gonna be more associated with us setting up a fabrication operation, but that is relatively insignificant compared to the types of capital costs that are associated with aerogel manufacturing capacity.
Got it.
And then in terms of this opportunity.
Kind of an extension of what you just said there really is very little to us on the outside.
It's it's really a matter of filling your east.
East Providence Fab.
And this is simply another.
Market opportunity to fill that fat.
Fab.
Or is it or should we be yeah. That's a good way of thinking about it just you know as as we have said.
As we as we feel that that plant.
40, or 45% of the incremental dollars fall down to the to the EBITDA line for us and so.
You know incremental revenue as valuable to us Ah, we have approximately $200 million or.
Of revenue Ah capacity in that in that facility and so as we as we fill it you know we are expectation is that we would we would have EBITDA potential in the range of $35 million. So again, you know very different profile type company also I I would say.
That the.
The opportunity again, whether you look at it from this one customers Ah Ah Ah from the perspective of having this one customer or you know having the potential to have multiple customers.
You know the the.
The dollars, we're talking about are measured in the hundreds of millions of dollars and even in the even in the billions of dollars. So it it's a it's a very large opportunity for us.
Got it.
And so I guess, just jumping back to the core business or the the core opportunities are more established one in terms of.
Finer is an oil pipelines.
You know I can appreciate the difficulties in the end market I think I've asked you before.
You mentioned covid.
One of the more obvious signals in terms of just the strength of the.
The oil and gas market has been rigged.
<unk> counts, which frankly are are are down over 80%.
<unk> began in 20 2018 and seem to be having a greater effect from a pure capacity.
Is that the wrong way to look at this because it would seem that that again would be more and I know that you're tied more to the refinery side.
But shouldn't we be looking that is is a pure.
Supply demand capacity, if you're not building out pipelines or you're not building out refineries, there's not a need for is much or riggs.
As much installation or my what am I missing there I guess.
I think the focus on downstream is a little bit more is is most important and when we look around a regional breakdown you you know.
Two three we had regions that were that had.
Positive that had growth.
It was interesting you know the North American market was our weakest was our weakest market.
And we have we have a significant.
Finery exposure.
Particularly in in the United States and I I think the impact that they've had from you know reduce demand for jet fuels and some of these other things that we think of that.
Impacted also bye bye Covid has had a profound impact on those refineries and and certainly a.
Follow what impact to us and.
Think about it in those terms.
There's a there's a.
There there remains a reasonable amount of activity.
Around the world and in both petrochemical, let me take potential petrochemical projects and LNG activities and and as I said in my comments, we have our products power gel and crowds y'all specified in.
A series of those of those projects and we do believe that especially on the petrochemical analogy thought that Quinn Covid subsides those projects will come will come back to life, and and where will will be in the in the cat bird seat to resume.
Revenue growth in our energy business and you know while it's.
No question it it it's down and let let's face it part of our strategy has been to diversify into.
Into additional markets and we've talked about easy in the building materials area.
You know what.
We're gonna have growth in 2020, even with it.
Even with a Covid challenge year, we're still in the you know in the single digits civilians, but but where.
We're moving in the right direction and and so I think our strategy is.
It is sound the fundamentals in our energy business remain very good we think we have a product and.
Product attributes that are valued in that in that market and.
Again, it's obviously a difficult segment right now but.
Again, we believe on the other side of Covid, we'll we'll resume growth remember Oh seven to 2019, we have their revenue CAGR from long period of time over over 20% last year alone, we had Ah revenue growth of over 30%.
So we still have room to to go in that market and it creates a nice base.
<unk> for us.
Got it last question on the Silicon nano Crystal.
In the lab that you've got set up.
That's a development activity that it's at some point you you monetize but it is very separate than the core business is that the right way to look at that.
That's a that's a reasonable way to look at it I think so.
With a silicon rich carbonara gel material that were that were focused on today on the arrow. It's part of the battery Ah with our with our partners. Yes. It is a it's a separate.
Lab facility. It is it's it's in the in the four walls of our of our offices in northborough, but it's a separate group.
Group of people in a separate focus and a and a and a bit of a different focus as as well I think what you will see.
From us in this area is.
Is that we will continue.
Or close partnership with S. K C and a vanik I think he may very well see us.
Broaden those partners the listed partners to some of the other leading companies, including some of the auto Oems. It in the space, who is you know have taken in house more and more of this battery activity and.
And while the team is the near term focus no question is on the silicon regenerate.
There are other research activities I'm going on there were actively filing patents and.
In other areas for our Carbonara, Joe materials, and so it's a it's a rich program in a very focused and dedicated group of people.
Thanks, Thanks, I'll jump back a gift.
Alright, Thank you very much.
Your next question comes from the line at Grant with Northland Capital.
Evening, guys and congrats on the on the wind.
Yes. Thank you.
Was was wondering first if you could clarify the fact that you guys are having the fabrication aspect as well on this contract does that at all change how we should think about incremental margins on on the thermal runaway versus traditional business and is there a way I know you said 100 to 300 as far as the revenue per via.
Oh is there a I guess an average to think about is taken the mid point there too crude based on you know the various models and sizes that you guys are looking at.
Well, let me answer the second part and I'll ask John to answer the first kind of the margin breakdown part of it as we anticipated that yeah that that range I recognize it up.
It's a it's a large range, but it's it's.
Just think of it as sort of a spectrum of vehicle size I I guess right from you know smaller passenger vehicles, two suvs and trucks and what have you which are so prevalent here and you know the larger sized vehicles, so prevalent here, especially in the U S.
And Jeff I think in terms of the first part of your question. The we did we did give some guidance that.
About 55% of the revenue.
Would be attributable to our pirates end product and clearly that will have the sort of incremental margin impacts that we've talked about in our in our existing based business.
The the the fabrication portion is going to be significantly lower margin a lot of it's just us buying materials.
From other vendors and packaging it up so it will not have the same economics, but we will provide additional guidance on that is.
Is the business rules, though but I think your best bet is to is to concentrate on the 55% it or.
That's our traditional business.
Got it okay.
I mean, it's kind of it's kind of interesting and we've talked for a long time I've got are 200 million.
A million dollars revenue capacity in our current assets and just to sort of state the obvious.
Or that's for.
You know our energy infrastructure business, but also are the the.
The aerogel portion of our of our E V business and so you know what one could think that we have a greater revenue capacity because of that fabrication is sort of additive to the 200 million, but just.
I'm sure you understand that map.
Okay, Yeah, no that's that's.
That's helpful perfect.
And for my follow up could you guys kind of talk about the dynamics of the ramp here I know a lot of this is obviously.
Out of your hands as far as what what you talk about Madonna. Thank you had said it kind of sounded like from 2021 to 2022, we shouldn't expect to see much of a ramp early show up on the income statement and really this is more of a twenty-three and beyond type of story is that you can talk about that dynamic I guess I would've thought we'd be a little bit more.
Traction and and 22, given that'd be a full calendar year of of sales there, but maybe not.
Yeah no.
I think a little bit of it is calendar year, but I think of it also it just as they ask these companies are rolling out there E V models. So what we're what we're seeing is.
N as a as a certain take hold in in the market and begin to displace internal combustion engines.
So again just to be clear.
Very small revenue this year here in 2020 here in queue for starting to have.
Have some.
Initial revenue in in 2021 again.
Single digit millions of revenue and again that is associated with the rollout of there are 2022.
Vehicles.
Which will come out in the market approximately September and then in 20.
22.
You know, we have additional growth, but denominated again and single digit millions.
Millions.
And then there are and then and then there are additional models being introduced as we get out into that other that next time frame, which starts to really ramp up our ramp up our numbers and as I said by the time, we and as a substantial.
Notable in 2023, but then again.
<unk> sort of on par from this customer from this single customer with our entire energy infrastructure business in the 2024 timeframe going forward.
Got it okay. That's that's helpful and if I can sneak one more in here yeah.
Have you guys been able to I guess sure. This news in any capacity, whether maybe directly or in male conversations and I guess gotten any any feedback or thoughts as far as you know I would imagine this would provide some validation or comfort and could accelerate.
Yeah, you know year year, and a half to get yeah when number one.
How how much contraction do you think we could see in contracts two three et cetera.
Yeah, No I I think it helps a lot.
Jeff in a sense of.
Winning that first one and really understanding the problem and and working the levers of our of our of our product.
To really address this.
Winning winning the first one is always the hardest.
I think winning the second one is really important though and.
In the sense that.
You know.
We're really rolling at that at that point, and and I think we will.
[noise] demonstrator again as I as I've said Ah real World O'clock and I mean.
I think we're a relatively small company and for them.
Them too.
Commit to us in this in this way is cause substantial I I believe that these large automotive companies have taken comfort in the fact that we have served the Exxon mobil's and that's B S. That's in the in the.
Shelves of the world for a long time, very very effectively and and we will do the same in the market.
Yeah understood looking forward to it thanks for the time again.
Thanks.
Your next question comes from the line at a neat guy out with H C. Wainwright.
Thank you Hi, Donna.
How are you from my question.
Good good. Thank you. So is this E V customer the biggest customer you could ever want in the U S or other other larger customers and blue for Ya.
You know, we just wanted to be really careful that we haven't announced that for contractual and confidential reasons and we just we just wanted to be really careful about.
About.
That's.
Necessarily revealing who who who it is and I I.
Time will come when we when we will do it and it's just not quite right now.
We would tell you more if we could but we're abiding by contractual.
Understood.
And then just just a little curious about.
So drivers behind you, providing 2021 outlooks sort of at this point typically if you don't see that sound management teams you know this this during this period.
Is this because.
Maybe the pipeline has shrunk for you or are there any other factors that you need to keep in mind.
Nope.
Maybe.
Yeah no. It is it is.
Our approach to communicating these kind of things has been to be as early as transparent as we as we can there is nothing you know sort.
Fundamentally different about our energy infrastructure value proposition or model.
We we just wanted to create.
Some baseline expectations.
During this pandemic time, and and but we also want to be equally clear that when we get to the other side. We have every expectation that we will resume.
Our growth and both of the project and maintenance inside of that business. We have an outstanding group of people focused on that on that market and they've done a very good job and.
Yes, we passed over earlier this year $1 billion of installed material and and I think the second billion will come.
In short order here over the course of the coming years once we get our way it makes your way through Covid.
Understood.
Could you give us a sense of how big you believe the addressable opportunity for final thing is.
Yeah, so anyway, so easy.
Yeah, I mean, if you look at it.
Most broadly I think if you just use our our estimate of $100 to $300 per electric vehicle and then you can.
Kind of plug that into your expectations.
And everyone has them as to how many.
Many electric vehicles will be sold between now and say 2030 or 2035.
And but you just stay focused on on this area and when you when you do that math it becomes a.
A multibillion dollar.
Addressable market.
Depending again on almost no matter, who that estimate to use some are some are higher than others, but they always adult.
And a multibillion dollar opportunity again using that.
That that mathematics and so.
You get to some very large numbers fairly quickly again as we said.
From this.
First major customer up alone.
You know we look at numbers that.
That approach a billion dollars or you know during this decade.
All right and I'm the den Oems are actively testing.
Oh.
How deep are you in terms of that process.
And in the context, so all of these companies trying to bring these offerings to the market Asap.
Should we think that.
These announcements could come pretty fast over the next 12 months in terms of.
Whether you win some of these contracts or not.
[noise] you know we've.
We've really been head down to witness the first one and and while we have a team who who's dedicated and expanding team with dedicated to.
Working or development.
Business development funnel.
Formal process that we have internally.
I I think I just wanted to not for now begin to set expectations about when two three and four all I would say is what I said in my notes is that we have reason to believe that are are.
Solution.
Our contribution to a solution.
Is applicable Ah too many battery platforms virtually all all battery battery platforms E B models.
Got it and just one last one on the battery side with respect to Carbonara Joe offering.
One of the next milestones we should look for.
Well I I would I would say that.
Not revenue.
In the short term here, but.
Additional and more substantial.
Development agreements with highly recognizable names you know.
Certainly deeper broader relationships with S. K C indoor ovonic, but then with with.
S. K C. Pier companies are are active in this space again, whether it's L. G camera Samsung S T I or Panasonic or C. A T L in China, and others and of course, what we have seen is that.
E V manufacturers themselves have increasingly taken battery technology battery development in house. They recognize that this is the principle value add of an electric vehicle and they don't want to outsource it and so we're seeing a lot of activity from the E V manufacturers themselves in this area and I think that would be very.
Interesting, if we were able to post up an interesting development agreement with with one of them.
So those are the kinds of milestones.
We have we have thought that perhaps during 2021 some time during the year that we may post some of our performance data and to those who could put that in perspective, I think people would find that very.
Very interesting again, both from a cost and performance point of view.
Alright.
Yeah, that's all I am yes. Thank you so much.
Take care.
Yeah.
Your next question comes from the line at Tom Qur'an would be Riley Securities.
Good evening guys. Thanks for squeezing me in late and second enjoying until late I appreciate it.
And I just wanted.
<unk>.
We recognize at Amazon and E Bay.
Facebook and some others announced their earnings at the same time, so we recognize it you know.
Busy day.
Yeah far less important boring stories, [laughter], but I'll I'll I'll make this quick.
Starting on the pirates inside.
When it comes to that.
The.
Battery platform contract you think with the.
Mister U S OEM.
Does that contract.
Include.
Any kind of exclusivity provisions or.
You know any any any constraints on your ability to market and sell pirate themed however, you want to whoever you want.
That's a tough time I don't want I don't want to talk about their contract, but we believe that we can continue to.
To market Pirates and.
Broadly to the electric vehicle market.
Yeah.
Great and then.
If you were to.
It it it it that contract should ramp as expected.
At what point.
Would you need to to pull the trigger an expansion.
Of your pirate themed manufacturing capacity.
Whether it would involve adding roofline east Providence or.
Breaking ground on a whole new facility and at what point would you have to decide that.
In in the in the volume ranch sort of like the earliest.
You you you you might have to.
Pull the trigger and then and then the latest we could see I I I would say I would say the earliest.
Is about a year from now approximately and let let me just tell you how I get to that that that that timeline, you know that would indicate.
That we would have new capacity online you know.
Again, depending on whether we build you know extension of art existing Ah Ah manufacturing, which is unlikely just given the space constraints and it it it's probably prudent for us to have a second plant, but also kind of a modification or a middle ground between that and a.
A greenfield site would be to build Ah Ah Ah Ah Ah narrow Joe asset onto an existing manufacturing facility say, a one of our suppliers are partners and I. You know of course that comes with a lot of infrastructure and and we're able to operate much more or commence operation much more quickly that way so.
So who if you take that kind of time frame you know you're probably talking about you know maybe 18 months, so that gets us into the middle of 2023.
Where we would.
Have asset.
Additional capacity I think.
That would be that's that's probably good thinking if we were to win a second or a third or fourth.
You know that begins to change that.
A little bit here and it might causes to to move a little faster, but but that that's a good time frame.
I think your expectations should.
From a calculation point of view.
And in terms of.
Or is there a potential award shifting to China.
Where do things stand with your effort.
To convert the the prototype.
Contract into a similar type of battery platform contract like you've done with yoga sales U S Oems, yeah, where where where does that where where do you stand there in terms of progress and then which which the soon as if that does happen.
We would see it.
I guess I have described.
We do have a a Chinese partner who is interfacing.
With the customer there and so again or.
Our our view of that is is not quite as clear as it is you know obviously for the one that we were working on here in the United States very directly.
And so what what I would say is that the prototype fleet is operational and and and we're in sort of full full test full test mode. So I think it would be something that would become notable in the first half of 22.
He won.
Alright, and then last one for me.
Shifting to the carbon aerogel side.
And your efforts focused on improving battery performance.
When when you're reaching a point at which you would recognize first revenue.
And by that I'm, allowing for something as small as just you know an initial prototype order of some sort just just at first.
Ignition of revenue.
What would you expect it to more likely be.
For the use of carbon aerodrome material no.
Lithium sulphur application or lithium iron one.
[noise] Lithia.
Hey.
Yeah I.
No.
Ah Ah Ah Ah Kurt lithium ion drop in tight.
Situation and.
You you know again, that's our teams near term focus is very much on on the lithium ion.
Battery and contributing to.
To that and you know a clip you know obviously there has.
We do have a team that focuses a little longer term, we do have an active intellectual property program going sort of anticipating next steps down the road.
But our principal focus and our and our goal is to win a design in to to a lithium ion battery.
That's that's what we're trying to do right now.
Sounds good and makes sense I'll, let you guys wrap it up thanks again for taking my tops.
That time.
And I will now turn the call back over to you done young with closing remarks.
Thank you Brandy well, we appreciate your interest in in Aspen are Joseph and we will.
We'll look forward to reporting our our queue for 2020 results to you in the in the new year, so be well and have a good evening, thanks very much.
This concludes today's conference call you may now disconnect.
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