Q4 2020 Aspen Aerogels Inc Earnings Call
Okay.
Ladies and gentlemen, thank you for standing by and welcome to day, Aspen, Aerogels Q4, 'twenty and 'twenty earnings call.
At this time all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session.
To ask a question. During this time, you will need to press star one on your telephone keypad.
Please be advised that today's conference is being recorded and if you require any further assistance. Please press star zero and.
I would now like to hand, the conference over to your Speaker today, Mr. John Fairbanks. Please go ahead Sir.
Thank you good afternoon. Thank you for joining us for the Aspen Aerogels Conference call.
John Fairbanks, Aspen's, Chief Financial Officer.
There are a few housekeeping items that I would like to address before turning the call over to Don Young Aspen, 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 Investor section of Aspens website, Www Dot aerogel 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 fourth quarter and year ended December 31, 2020 and.
In addition, the Investor section of Aspens website will contain an archived version of this webcast for approximately one year.
Please note that our discussion today 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 fact.
These forward looking statements are subject to risks and uncertainties.
Been aerogels actual results may differ materially from those expressed and these forward looking statements.
A list of factors that could affect the company's actual results can be found and aspens press release issued today.
And more detail and the reports Aspen files with the SEC.
Particularly and the company's most recent annual report on form 10-K.
The company's press release issued today and filings with the SEC can also be found and the investors section of Aspens website.
Forward looking statements made today represent the company's views as of today February 18th 2021.
Aspen disclaims any obligation to update 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 EPS non.
Non-GAAP financial measures are not intended to be considered and isolation or as a substitute for results prepared in accordance with GAAP. 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.
Included in today's press release.
I would also like to note that over the next two weeks and connection with divesting of restricted stock units issued under our long term equity incentive program. Our section 16 officers will file form fours to report the withholding of shares by the company.
Satisfy statutory tax obligation related to the vesting of this these are suvs.
I want to emphasize that the shares they withheld by Aspen will not be sold into the market and will remain an issue.
I'll now turn the call over to Don.
Thank you John and good afternoon. Thank.
Thank you for joining us for our Q4 2020 earnings call.
Got it and are switching up the usual order of our comments and John will start with a recap of our 2020 full year performance and finish with our outlook for 2021 I.
I will follow John by providing a strategic overview of the company and by outlining the significant opportunities we have before us.
This evening, we also uploaded a new company presentation to the investors section of our website that expands upon my comment we will conclude today's call with a Q&A session.
John over to you.
Thanks, Tom.
I'll start by running through our reported financial results for 2020 at a summary level.
Total revenue declined by $39 million or 28% during the year share $100.3 million net.
Net loss increased to $21.8 million or <unk> 83 per share and 2020 versus a net loss of $14 $6 million or <unk> 60 per share last year, and adjusted EBITDA decreased to negative $6 4 million compared to negative $200000 a year ago.
We define adjusted EBITDA and net income or loss before interest taxes, depreciation amortization stock based compensation expense and other items that we do not believe are indicative of our core operating performance.
First one and emphasize that in response to the impact of COVID-19 on our revenue levels, we decreased our costs and expenses by a total of $35 million from 2019 levels.
In addition to a reduction and material costs associated with the revenue decline.
This decrease and our cost structure by means of our initiatives to reduce compensation and discretionary expense and response to COVID-19 related uncertainty and.
And our multi year initiatives to reduce bill of material costs and.
And importantly, we reduced our costs and expenses, despite an increase and research and development spending and support of our electric vehicle programs.
As a result, we estimate that we reduced the annual revenue required for us to achieve EBITDA breakeven to between 110 and $115 million and 2020 from $140 million and 2019.
This progress indicates that we made the right decisions and response to the COVID-19 related market challenges and at the fund the fundamental economics of our business remains strong.
Moving into 'twenty and 'twenty, one we estimate that our annual revenue required to achieve EBITDA breakeven will rise to approximately $125 million due principally to our decision to increase our expenses by $6 million and support of our electric vehicle initiatives and our new business development efforts.
We will use this investment to accelerate pirates and business development to establish industry, leading thermal barrier fabrication capability to progress from the development phase towards the commercialization phase of our silicon rich carbon aerogel battery materials and to identify additional high value.
<unk> for our aerogel technology among other items.
I'll now provide additional detail on the components of our 'twenty and 'twenty results.
First I'll discuss revenue.
Total revenue decreased by $39 $1 million or 28% to $100.3 million from $139 $4 million last year.
Decrease in 'twenty and 'twenty revenue was driven by a broad base decrease and both project and maintenance work and the global energy infrastructure market and the impact of our decision to wind down our research services business.
Set and small part by growth and a sustainable building materials market.
The decline and our energy infrastructure business was principally due to our energy customers seeking to limit the number of third party installation installers and their facilities to reduce worker density temporarily shuttering operations from time to time and response to COVID-19, outbreaks and delay and the startup projects due to the threat of cash.
Covid related interruptions.
Total shipments for the year decreased by 30% to $28 six.
Millions square feet of aerogel blankets, while our average selling price increased by 4% to $3 49 per square foot.
Next I'll discuss gross profit gross profit was $14 $6 million or 15% during 'twenty and 'twenty versus $26 $3 million or 19% during 2019.
This decrease in gross profit was driven principally by the 30% decrease and sales volume and a reduction and research services contribution offset in part by the 4% increase and average selling price a reduction and manufacturing expense and the reduction and material costs.
Next I'll discuss operating expenses, our 'twenty and 'twenty operating expense decreased by $4.3 million or 11% versus last year to $36 $2 million, Despite an increase and research and development and support of our electric vehicle initiatives day.
Decrease in operating expense was principally the result of the cost controls, we instituted and response to the COVID-19 pandemic.
Next I'll discuss our balance sheet and cash flow for the year cash.
Cash used in operations of $9 $9 million reflected our adjusted EBITDA of negative $6 $4 million and a $3 5 million dollar increase in working capital and investment during the year.
This increase and working capital is principally the result of an increase and finished goods inventory of $4.6 million during the year.
Capital expenditures during 'twenty, and 'twenty totaled approximately $3 $4 million and we're focused on improving the efficiency and reliability of our east Providence manufacturing facility.
We raised a total of $26 $2 million during the year through our financing activities, including $14 $8 million through our public offering and February three.
$3.7 million and a PPP loan and may $9.5 million under our ATM and November and December and.
And a net of $1.4 million from employee equity transactions during the year.
We used $3 $1 million of the proceeds to repay our outstanding borrowings under our revolving credit facility with Silicon Valley Bank.
As a result, we ended 2020 was $16 $5 million of cash net current assets of $33 $2 million no borrowings under our revolving credit facility and shareholders equity of $67.9 million. We also had access to an additional $5 $4 million available under our.
Revolving credit facility at quarter end.
Looking forward to 'twenty 'twenty, one we project that the COVID-19 related contractor access restrictions will continue to impact demand for our products and the energy infrastructure market.
As a result, we are currently assuming that our 2021 revenue levels, we remain in line with our 2020 full year results.
We're also projecting that our initiatives to reduce raw material costs and to enhanced manufacturing productivity will help to improve our gross margin to approximately 20% for the full year from 15% and 2020.
However, we intend to increase our investment and the electric vehicle market and our aerogel technology platform by $6 million and 2021 and again, we'll use this investment to accelerate pirates and business development to establish and industry, leading thermal barrier fabrication capability.
Progress from the development phase toward the commercialization phase of our silicon rich carbon aerogel battery materials and to identify additional high value markets for our aerogel technology.
In addition, we intend to continue our efforts to improve the underlying fundamentals of our business and to ensure our operational effectiveness remains strong.
We believe these actions and initiatives will position Aspen resumed the strong operating performance that characterized 2019, when the impact of COVID-19 subsides.
Take advantage of the significant growth opportunities available to us today, and the electric vehicle market and to leverage our aerogel Tech knowledge platform to develop new high growth businesses.
Our current 2021 full year outlook is as follows we expect total revenue of between 100 and $108 million.
Net loss of between 21 and $25 million.
Adjusted EBITDA of between negative $8 million and negative $12 million E.
P S of between a loss of 77 cents and a loss of 92 per share.
The C. P. S outlook assumes a weighted average of 27.3 million shares outstanding for the year.
In addition, this 'twenty and 'twenty outlook assumes depreciation of $8 $8 million stock based compensation expense of $4 million and interest expense of 200000 and balance.
This full year outlook also projects and gross margin of approximately 20% and average selling price of between $3.45 and $3 50 per square foot.
Turning to cash we expect that our capital expenditures will total approximately $7 million for the full year low.
Focus these capital expenditures to support the initial build out of our thermal barrier fabrication operations and to maintain our east Providence plant.
And we're targeting to have a minimum of $10 million of cash on hand throughout 2021.
Looking beyond 'twenty 'twenty, one we expect that strong growth and our EV thermal barrier business and a post COVID-19 rebound and our energy infrastructure markets will necessitate the expansion of our silica aerogel blanket capacity by the end of 2023 per.
We are engaged and the early stages of an effort to size the required expansion to select and optimal manufacturing site and to identify the appropriate financing structure to fund the project.
In addition, we're planning to establish and automated thermal barrier fabrication operation and to enhance our battery materials capability among other items.
As a result, we may incur additional capital expenditure and financing needs during 2021 to support these electric vehicle related investments, we will announce additional details as we finalize these investment plans during the year.
I'll now turn the call back to dawn.
Great. Thank you John.
Aspen Aerogels is that a significant juncture in its development as we continue to realize the full potential and value of the company.
Our vision is to make an important contribution to a better and more sustainable way of life.
Our aerogel technology, whether deployed and electric vehicles, and sustainable buildings or energy infrastructure and centered on safety energy efficiency and asset resiliency.
We envision that these priorities will hold.
True as our aerogel technology enabled future solution to profit and global challenges.
We are motivated by the conviction that our work is important and meaningful buyer focused on big societal challenges and transformations that matter and by creating value broadly defined.
We embraced the idea that the imperative for change often lead to creativity and innovation.
Aspen team believes that our time to contribute now.
Our aerogel technology platform is at the core of our strategy to be a global technology leader and sustainability with a focus on multi billion dollar opportunity and high growth high value markets and on creating a proprietary diverse and very valuable business enterprise.
Today, our aerogel technology is being leveraged with products and for substantial areas.
Pirate Bay, and thermal barriers address thermal runaway and electric vehicles and have resulted to date and battery platform design wins from a single customer with the potential to generate over $1 billion of revenue this decade.
Asthma and battery materials seek to deploy our carbon aerogel technology and the design of low cost high performance anode and cathode materials for the lithium ion batteries that will power the EV Mega trend.
Spacewalk sustainable building products target the construction market in applications, where fire safety and energy efficiency are critical.
And power gel and crowd gel products address resource efficiency asset resiliency and fire safety and global energy infrastructure facilities, where we have and installed base of over $1 billion.
It is important to remember that the aerogel technology platform remains rich with untapped potential beyond these four business areas are new business creation team continues to explore the intersection of ESG and sustainability themes emerging megatrends and our own aerogel technology.
Platform.
The opportunities for the thermal and for the pirates and thermal barrier, the Astra and battery materials and energy infrastructure businesses are significant.
Piracy and thermal barriers are designed to allow EV manufacturers to manage thermal runaway and based on our recent substantial contract win will be used in the coming generation of electric vehicles.
And we'll runaway phenomenon.
A salad and a lithium ion battery pack has a sudden release of energy that can result in a fire.
Pirates and thermal bearers are designed to impede the propagation of thermal runaway book at the cell and Tac levels across multiple lithium ion battery platforms.
And Texas Aspen Technology offers a unique combination of performance attribute that enable EV manufacturers to achieve critical safety goals without sacrificing drive range.
And our last earnings call, we announced that a major U S. Automotive OEM awarded Aspen, a contract to supply pirate Bay and thermal barriers for youth and its EV battery platform, we started to supply pirate Bay and thermal barriers to this customer in 2020 and based upon the Oems projections for 2020.
One and 2022, we expect to generate single digit millions of dollars each year and commercial revenue consistent with the initial launches of its EV models.
During 2023, we expect to see from this customer alone a substantial ramp and revenue with potential revenue and 2024 and throughout the decade of more than $150 million per year.
Over the coming decade or potential revenue again from this customer alone represents an opportunity of approximately $1 billion for Aspen.
And the ultimate value of this contract is dependent on our customer success and participating in the global transformation to electric vehicles. We believe this customer is well positioned to succeed.
It is important to acknowledge that thermal runaway is a universal challenge for all EV manufacturers battery electric vehicle companies are likely to engineer to maximum safety levels at this pivotal point for the market acceptance and mobility.
We have already seen recalls and regulatory pressure, resulting from EBIT fire safety issues, and Asia, Europe and North America.
We estimate our parked and thermal bearers are focused on a $30 billion commercial opportunity over the course of this decade.
We are participating in a number of RF queues with other EV manufacturers and the lift has expanded to include companies producing energy storage systems for distributed generation at the <unk>.
Grid and home scales.
Thermal runaway is a very challenging issued and manage we believe that the attributes of our thermal barriers combined and a single solution will make piracy and a significant contributor to a safe and successful global transformation to E mobility and to electrification more broadly and that would be a bit.
Winter for Aspen Aerogels.
Our second initiative any day.
And <unk>.
And is our battery materials that utilize our carbon aerogel technology.
Our effort centers on leveraging both a unique attribute of our carbon aerogels and our two decades of experience manufacturing aerogel nano materials at scale. Our goal is to improve the energy density of lithium ion batteries used in Evs, our focus is on cost performance and safety.
Our work on our silicon rich and varied materials has intensified as we have gained confidence and our ability to meet the cost and performance targets set by both current and potential partners.
As a result, we have expanded both our battery materials team and our related lab and test facilities, we are expanding our capabilities to provide larger sample quantities to our current and potential partners for their testing and production scale equipment.
We believe our focus on low cost high performance Silicon Regina and material is on target and that our work supported by an active IP strategy will be attractive and valuable to our current partners and to other leaders and battery technology.
Switching gears to our energy infrastructure business and the pandemic continues to inhibit our short term revenue generation and response to COVID-19 facility owners have limited the number of contractors on site in order to lower worker density, which has reduced near term demand for our products.
Our underlying assumption for our 2021 outlook is that lower density work sites will continue to be the reality.
And therefore, we assume revenue levels will remain in the vicinity of $25 million per quarter.
Looking forward, we expect both maintenance and project revenue to rebound when contractor access to facilities improves and as the distribution channel restock. We believe that there is significant pent up demand.
Pirate gel and crowd Joe had been specified for several petrochemical and LNG projects and we believe that Aspen and will see increased revenue opportunities as soon as these projects move forward. We believe that we are positioning the company to emerge from the COVID-19 period with a strong operating platform and energy infrastructure.
And significant strategic momentum for the company as a whole.
And our new company presentation, we describe the breadth of the opportunity we have over the next decade and lay out targets and milestones for 2023.
We are focused on multibillion dollar opportunities, where our aerogel technology platform can be deployed and ESG and sustainability based market.
In the two businesses alone power through power within thermal barriers represent a $30 billion opportunity this decade, and the EV materials opportunity while at an earlier stage of development is potentially larger.
We believe we have the opportunity to double revenue every 24 months through 2025, driven by our unique and protected technology and by multiyear platform wins, the first of which we have and hand.
We are confident that over the course of this decade, Aspen will grow significantly and establish its reputation as a technology leader in sustainability.
With respect to targets and milestones for 2023, we aim for revenue of $225 million more than two times. Our 2021 outlook. We believe that 2023 revenue target, we will drive the gross margin of 30% and helped to fuel our continued growth.
Our 2023 revenue target is comprised principally of two parts.
Pirates and thermal barrier Robert revenue derived predominantly from.
From our contracted with north with a major North American automotive Oems and second we believe that when the pandemic and we will not only regain our 2019 peak revenue level and energy infrastructure, but we'll also have the opportunity to continue to grow that part of our business disbelief is grounded.
And the fact that we had a revenue CAGR of over 20% from 2008 through 2019 and grew revenue 34% in 2019 alone.
We have defined 2023 milestone, perhaps with battery materials as the first adoption of our silicon rich anode material.
Lithium ion.
EV battery.
We believe such and adoption would be a significant value driver for Aspen.
Between now and 2023, we expect to expand our relationships with our existing evaluation partners and to advance relationships with other market leaders.
The replacement of graphite and and that's with Silicon is widely viewed as the best near term approach to boost revenue and lithium ion batteries and we know that other companies have a similar focus but different approaches and we also know that these companies have attracted investment capital at very significant valuation.
We believe that our proven ability to produce aerogel nano materials at significant scale with a dual focus on high performance and low cost for over two decades puts us in a competitive position.
We believe that our technology, our experience and our expertise and set us apart and position us for success.
We are considering business models for Astra and battery materials that span from direct manufacturing to technology licensing the goal will be to maximize long term value of the company.
Overall.
We believe that we are well on our way to becoming a global technology leader and sustainability as we focus on multibillion dollar opportunities and high growth high value markets and on creating a proprietary diverse and very valuable business enterprise.
With that I would like now to turn the call back to lane for the Q&A session.
And as a reminder, if you would like to ask a question press star one on your telephone keypad net.
That is star and the number one and we'll pause for just a moment to compile the Q&A roster.
And your first question comes from the line of Eric Stine from Craig Hallum.
And on that John.
And our carrier.
Two and well yeah.
So I know that this first win that you have and hand, and and thermal barrier side of the business, while it's competitive but I'm. Just curious if you could give some thoughts on the competitive environment as you see it now.
And this application and I guess, what I'm getting at is when this wind and hand and.
Based on what you see out there and why.
I mean do you think that this can become the industry standard for this application.
Well I would answer it I think in two ways one.
We went through a rigorous process.
And with a very technology forward company.
And that shows our product to help them address this this issue I've said before.
I think this is if there is an issue that has caught.
And the industry by surprise the intensity of this issue.
And.
And they are playing catch up here and our process took approximately a year.
To go through.
The development of the product and then a three part.
RFP process again that was quite rigorous clear to me that there were a number of.
Products potential products to address this application on the table and that's the.
At the beginning of that our acute process.
And as we worked our way through the technology of the engineering and the quality and the procurement aspects of that RFP process. We were determined to have the best solution.
We do believe that we.
Would be the technology leader and the industry standard.
And when it comes to thermal barriers again this is not an issue that only <unk>.
Impacts the one customer with whom we have won the contract, but all and that is clear to me because when we look at our business development funnel.
We have over and over 30 companies in that funnel those companies represent.
Incumbent companies, new players and the automotive industry.
And I said in my notes.
We're seeing opportunities as well and stationary systems as well around distributed generation.
Which is which is how many of the same.
Thermal runaway issues also.
And those in that funnel, we have now provided material and.
And engaged.
And a pretty intense level.
Responded to a small handful of RF queues that have come out.
And.
And so we are and that RF <unk> process.
Again with a small handful of companies.
Companies and.
We're engaged with virtually everyone and that in the business and one form or another.
So.
And again, we think we have.
<unk>.
Product, it's a very challenging.
Issue to resolve and again, we're right in the middle of it.
Do you think that.
Given you did a lot of the heavy lifting of the development work on the front and with the.
But the current OEM that you have in hand, and do you expect that these RF SKU.
And the Rfps that youre going through the process that youre going through will be accelerated versus that which actually didn't take long for us eight months.
Just curious what you think that looks like this go around with new customers.
We do think.
And that the battery platforms that will be serving both the incumbent and the new players.
And we'll need to resolve this and the next two four and six quarters. That's the way we're thinking about it so the time for us to win this now and we've moved a lot of our resources into being sure that we are front and center when it comes to compete.
Competing for that for that business again, we think we have a very unique technology, a very unique solution.
Two and where we're engaged so.
I do believe this is this is something that's going to play out over the course of that timeframe are two four and six quarters.
Got it and then just last one from me I know Youre looking at options and it's early.
And on the capacity side, you did mentioned the automated lines for the pirates and product just wondering what that does to capacity.
It does it does it expand the capacity of the current east Providence facility or how should we think about that.
Yes, so Jonathan.
John and John referenced.
The.
The advanced thermal battery center and.
And which is focused on being not only the showcase.
For the technology for customers and others and the industry.
But it also has our prototyping and manufacturing capability as well just relates.
To not just.
And the aerogel production from East Providence, but.
<unk>.
Production from the tier one production of the park as well or the various parts that will go into these battery platform. So.
It does and.
Hence our revenue for sure you know, we've we've talked for a long time about having a revenue capacity of approximately $200 million with this capability.
Of additional.
Parts of manufacturing if you will.
Does enhance our revenue capability and I wanted it depends a bit on mix, but let's just say out to the $250 million level, having said that.
That's important to us, but we also know I.
I made the statement that we have the opportunity to double revenue every 24 months through 2025, and if you play that out and it's clear that we need additional manufacturing capacity.
And we are heavily focused on that today, we've talked about this in the past as to whether we would build a facility or ourselves or whether we would have a manufacturing partnership we're exploring those those items now.
Yes.
Okay. Thank you.
And Craig.
And your next question comes from Jack <unk> from Canaccord.
And yet.
Jed.
Yeah.
Yes.
Check to see if your line may be on mute.
Sorry days of zoom.
Guess I pulled the old on mute sorry about that guys.
And anyway.
So thanks for.
For the for the visibility and and the layout of the of the strategy I just wanted to clarify.
So the first win that you that you have for the thermal runaway.
That's not the Asian customer that you had originally talked about that.
This is Ed a domestic player and the in the EV space or or not.
Okay got it yeah, we have we have not named the company just contractually for now and we're hoping to be able to do that and but we have identified that the company is simply as a major north American automotive OEM.
Got it that's helpful. Thanks.
And I guess, just pivoting away from the thermal runaway if we look at I.
I didn't hear and maybe I just missed it.
Did you give an update on the development of that.
And so what silicon particles.
For the and outside.
Yes.
We did and you'll notice on the on net.
And the company presentation, which we which we've uploaded onto our and investors section of our website, we expand on this a bit but let me let me just say a few words about it.
We have in fact made.
Excellent progress and the development.
Of the product and and and when I say that Jed.
That is to say that where we're hitting the cost and performance targets that have been laid out in front of us by both our partners and.
And potential partners, our current partners and potential partners with whom we are engaged so.
I would so we've made we've made good progress we've also expanded our team.
Bring in more technical talent and we've expanded our our laboratories are test facilities and.
And that's enabled us to provide.
Is enabling us to provide this is happening sort of real time here.
Larger quantities sample quantities to current and potential partners. So that they can test and material that production level production scale equipment and.
And and so where.
We're very focused I think.
The next thing that will come from this.
And and Jed, we did repeat again that we our goal and and.
And this is based on our work.
With a partner is our goal is to have our first adoption for 2023.
Lithium ion battery.
And so.
You know very definitive.
I'm line there.
So we're excited about that I think the other thing that will be coming down the road here fairly soon is building.
Not just and expanded laboratory capability.
First sampling material, but a larger scale, let's call. It a pilot facility that will that will enable us to.
Accelerate the work and again provide greater quantities iterate more rapidly with our partners et cetera.
That's great. Thank you I'd like to just if I compare that back to sort of the core oil and gas business.
Or the installation for the oil and gas I'm curious if we look at it.
And if we look at us and so we've seen commodity prices rise we're looking at.
And a pretty healthy increase in terms of pricing I'm, just wondering where your where your customers are at in terms of.
<unk>.
Reinvestment in.
Our midstream production.
To start to trigger that that.
Demand scenario there.
Yes, it's a great. It's a great question. So you know obviously, we've been we've been consistent in saying that.
Over the course of 2020 after is really terrific.
2019 with over 30% revenue growth.
And the brakes were put on because of Covid. We also knew simultaneous to the energy market with was coming down and price and so we were trying to sort out the.
And the impact how much of it was related to Covid and how much of it was related to.
Two a decrease and energy prices and.
And.
Our feeling was that it was predominantly COVID-19 and and.
I think there's no question that we would rather have these current 40 50 and $60 oil prices. Then you know 20, 30% and 40, which we which we were saying Theres no question, that's a better environment for us.
We're seeing a lot of engagement on the LNG side as well.
As you know we focused on that over five years ago, and we have a we have a revenue CAGR of.
And 50% and the LNG side since 2000.
2015 so.
That focus and investment has been good.
I am.
I see real pent up demand.
Both on the maintenance side.
And on the project side.
And that when we get to the other side of Covid.
And we believe that we will recapture that.
And that 2019 level of activity and resume our growth and that.
And that part of our.
Our business and and.
We're we're pretty confident that we're going shift and see that and I think the question is when and and we for our outlook purposes.
Have said.
That when and if not until 2022.
So here, we are in 2021, and we'll see how it plays out but again, our assumption is we're going to we're going to be right around that $25 million per quarter kind of level some quarters, a little higher some quarters, a little lower but make our way into the guidance and John I've set out for 'twenty 2021 got it.
One last.
Yes, just one last question, if I could though in terms of that business.
And hitting that is that going to be more.
So should I think of that as is that.
I have historically thought of that as more production related in terms of.
On the mid to downstream.
So should we think of that and the in the same way and and and.
Is that business shifted to offshore versus domestic.
Production in terms of.
Building out.
The pipes and refiners if you will.
Yeah, No. We're still our focus is really is really.
On the on the refining refinery petrochemical side the LNG.
Side, both both in terms of liquefaction and the receiving terminals and the only real upstream part that we have and it's been a steady performer for our business for a long time, not a not a big growth area, but we are we have a very high market share and these are the so called pipe in pipe subsea programs.
And that we have and but that data is.
We typically say.
And any given year, it's about a $10 million business, plus or minus five and it's been kind of in that range for a long time and solid business force. We're very good at it and we like that and we like that business, but most of our work comes and the refiners with the refiners with the petrochemical guys and and and of course with the LNG side of it.
Got it thanks, I'll jump back in the queue. Thank you.
Thank you Josh.
And our next question comes from the line of Tom Curran from B Riley Securities.
Good evening.
Tom Tom.
Dawn based just on the piracy and RF queues currently and hand, what's the earliest any of them could result in a second production and volume contract and.
At this point, just given where it all the conversations and.
And where youre at each of the RF SKU stages does it seem as if that award is more likely to come from your from your partner in China, and we supports BYD or a new third OEM customer.
I believe that.
These are accused will come to fruition.
This current step that I that I referenced in my and my conversation over the course of the first half of the year half of this year I don't want to say a week or a month, but I feel very comfortable and saying the first half of this year.
And I also believe that additional RF queues.
And additional <unk>.
Design and development work will also take place over the course of the second.
Second part of the year and into and even into 2022, but I do believe Tom that.
Yes.
Much of this will be determined over the course of this calendar year and into the early part of 2022 and.
And.
We we are focused on being that.
Co leader that technical expert the go to resource for solving this issue.
And with the automotive Oems with the battery manufacturers with tier one suppliers with the companies that are focused on stationary.
Hattery supplies, both of the grid and and really at the home home scale as well.
And so this will play out this will play out.
Over the course of in stages over the course of that period of time, two four and six quarters.
And then shifting.
Over to the carbon aerogel side I would surmise that two of your goals for your relationship with SK group. This year were to convert your existing evaluation agreement and there's some type of joint development deal and.
And then for that new partnership structure to set a target of having Karl.
Carbon aerogel material designed into 2023 battery and SK innovation.
Could you provide and update on those objectives and speak to how.
They had been or might be impacted by last week's ITC ruling against SK innovation.
Yes sure.
Our focus is with the team.
<unk> team.
And in Korea, and that's that's that's the group that were working most closely with our development agreement with it with a sister company called S. K C.
And of course, SK innovation S. K I is right and in the middle of that because of their testing capability.
Good day.
We are a very large company they are developing.
Battery technology, and Korea for the Asian market for the European market that ruling was focused on the United States, which is certainly an important market I think when I look at not just aspen, but much larger companies like Ford and VW and other companies.
And who have.
We'd like to see this resolved and.
And we.
And we certainly put ourselves and that in.
And that place we haven't noticed any change at all and we're engaged.
With the S K C and S K.
<unk> multiple times per week and again, it's been a short period of time, but.
And.
We haven't noticed a single dip.
Difference between.
Pre and post that announcement.
And again.
Our hope is that they can resolve that.
And I think there are a lot of people, who are who were cheering that that outcome on.
Yes, I would expect the same and net that's good to hear it sounds reassuring.
And then just turning to 2021 guidance John.
This adjusted EBITDA range negative eight to negative $12 million should we think of that as partly reflective of an incremental $6 million and EV related spending and is that what you're trying to tell us and and bought back 6 million be entirely captured within R&D.
Yes, actually yes, so the $6 million.
And is included in the.
The $8 million to $12 million guidance negative guidance.
It is not all in R&D and some of it is actually captured and cost of sales.
Associated with the build out of the.
The advanced thermal battery fabrication facility and.
And so we need to hire people fabricators, we have equipment that we need to run and operating expenses associated with that fabrication operation.
Associated with that principle contracts, we have with the North American EV manufacturer.
Got it that makes sense. Thanks for fielding my questions.
Thank you Tom.
And our next question comes from Amit Dayal from H C. Wainwright.
Thank you hi, guys I appreciate it and how are you.
Good thank you.
On the EV side of the story can you talk about margins for the EV segment and potentially that you are anticipating vs.
And what you might be.
Beach, and and reading familiar and infrastructure and applications.
Sure John do you want to take that yes. So we talked at the time, we announced that contract back in and our third quarter earnings call and about 55% of the revenue associated with that contract will be for our pirates and.
Average aerogel materials, our margins on that component of the revenue.
Our strong they're in line with what we're seeing on energy infrastructure side, and if anything a bit at the high end.
Of that range.
Other component the other 45% and fabrication and for the fabrication is much lower margin and so in the aggregate we would expect a lower margin on that business, but I think as Don alluded to earlier the capacity that we could generate out of our east Providence plant increases from $200 million stuff.
And $250 million.
The way I think to think about it is.
We will still generate gross margins close to 30% at full capacity and east Providence plant and we would still expect to generate adjusted EBITDA at capacity and East Providence plant of about $35 million all the.
<unk> says that we'll see slightly higher.
Revenue out of that facility, but the profitability and the cash generation hasn't really been changed by that by that business.
Understood. Thank you for that I appreciate it and you are guiding to roughly single digit millions and revenues from.
The EV opportunity and to anyone and Tony do.
Is there growth and that single digit millions between 'twenty, one and 22 or are you starting to just see how do you supply the force to use.
Give us some cleaning and other day please.
Please yes.
It does it basically doubled from one year to another but still still single digit millions and so I want.
I wanted to keep that.
And perspective and look at it is entirely.
Consistent with the rollout of Av.
Of electric vehicle models for this particular, Claire and really when you look across the industry.
We're starting to see some.
Some new 2022 models, but really most most of the Oems have talked about 2023, 2020 for 2025 models and coming onto the onto the market. So.
From having one or two and sort of their launch year 2345, and six and then ultimately <unk> and 'twenty and 'twenty five vehicles electric vehicles.
Coming off of their lines.
And so the exact ramp up that is consistent with our projections from.
The design win that we had within North American.
Entity so.
And we say single digits and.
And.
2021, doubling that but still being in single digits and 'twenty.
22, and as I said in 2024 and through the rest of the decade, you know up in the up and the $150 million range and.
2023 is that is that substantial ramp year.
As we move to those much higher much higher numbers.
And I, just think of it as kind of maybe maybe getting halfway there and kind of kind of thing.
Ultimate ramp.
And understood.
Yes, that's all I have no other questions from last month's taking rate.
Thank you so much thanks, and we'll talk.
Later.
Yes.
And our next question comes from Doug Becker from Northland Capital.
Hi, Doug Thanks.
I was just hoping to get a little more context from the $225 million and revenue target and the 30% gross margin.
Just.
Is there a clear visibility to that number or is it based more and a top down assessment of the of the opportunity.
And what type of fabrication revenues are included and that as you were just alluding to and a lower margin.
Yes.
Let me talk about at one level and then John maybe you can go to go to.
A little bit more detail.
So really it's comprised principally of two major.
<unk>.
They were thinking about it one is from the single North American.
And.
Our automotive OEM and.
And again these are their projections and.
And that work that we're using in this case and then the other assumptions that we make Doug is that we in 2023, we recapture our 2019 revenue level and our energy infrastructure business and.
And so when you put those two things together.
And you get up very close to that $225 million level. We also have the sustainable building materials activity and a variety of other sort of small sources of revenue.
But those are the two principal components of that $2 25.
John when I was talking to and you figure out the portion of that that would be and fabrication.
Yes.
I think just we'll just do the math on so.
And this is this is just indicative so I don't want to be held to this but just the $2 25, and 140, which was the peak energy infrastructure revenue. We saw back in 2019, if you're if you subtract that out of $2 25, youre down to $85 million worth of.
EV thermal barrier business and I think we alluded earlier that that would be 55% of that would be the sale of our aerogel blankets pirates and.
Product and the remainder of day fabrication.
But it's in line that gives us essentially somewhere on the order of $190 million worth of Silicon silica aerogel blanket.
Revenue in in 2023, which would be right up against the capacity of our east Providence plant and <unk> and the economics as we've said all along Hasnt changed we would expect to see a gross profit gross margin above 30% and capacity in that plant and then be able to generate 30 30 30.
$5 million of EBITDA.
And at capacity and so that's essentially the breakdown in.
In 2023 $225 million, we'd be very close to a full full average all plants at that time weighted a little room to grow and get a little closer to that $250 million as Don alluded to.
We have and we would have a very good.
Coal plant generating quite a bit of cash at that time.
And let me just let me add one thing to that it's an interesting question.
Let me tell you what is not.
And that number.
And again it just assumes that 2019 level of revenue from our energy infrastructure business.
And.
And again.
We're assuming that 2022 and 2023 or post COVID-19.
And.
We believe that we will recapture that level over the course of that period and we also believe that will continue to grow that business and as I've said and my comments earlier.
We grew.
Revenue CAGR of over 20% from 2008 to 2019, 34%.
2019 alone.
So we'll see how that plays out another thing thats not in there.
And to any to any great extent is that.
Additional RF Q wins.
Companies that are sort of on par with the one that we won already and so you know.
We believe we're going to be the technical leader, we're going to be the industry standard and these thermal barriers and.
And.
And so.
Let me just say, we would be disappointed if we weren't playing and more battery platforms and the one that we have in hand today.
Understood.
And that's 30% gross margin.
And as to imply incremental margins incremental gross margins of around 45%.
And I just want to make sure that's achievable, even with some component of fabrication coming in at a very minimal margin.
And just because of the capacity utilization.
Yes.
Yes, absolutely.
We anticipate two things so we'll get the incremental 45% that we've talked about for a long time is the incremental gross profit per dollar of.
Of aerogel blanket.
Revenue, we also anticipate.
We have continued effort going to.
Improve our bill of material cost as a percentage of sales. So we would expect a bit of a margin enhancement there from that and it would offset the degradation in margin associated with the fabrication.
Opponent of revenue.
Got it.
You should easily achievable and in line with.
The basic economics, we've discussed for the last five years.
Got it thank you.
Thank you Doug.
And you'll have follow up question from.
Jack.
First timer from Canaccord.
Okay, Hey, Thanks, guys, just just a real quick one here. So just on the Biz Dev side of things can you convince me why your.
Your insulation, that's being used for oil and gas and.
I wouldn't be used in a.
Hydrogen.
And <unk> formation.
Application.
We are we are exploring that.
Issue and we wanted to.
Get our.
Our thoughts are line before we put it into any presentation and.
We are looking.
Looking at that as a potential use for our materials there are obviously.
And some very great.
Great similarity between that hydrogen work and other work that we do.
And the industrial area so.
And by on that.
I know, it's a very topical question and we want to really make sure we're focused in on it and the right way and and and <unk>.
Express carefully what we think our role could be and that in that space, we'll definitely do that.
Got it let me just rephrase the question slightly from a thermal dynamic perspective.
Your installation is going to get is going to give properties that would either be beneficial in terms of high temperature heat, but also low temperature too. So if I'm operating at 260 degrees below.
Fahrenheit.
And.
And then having the thermo and dynamic benefits of your phone and then.
And the lack of air penetration <unk>, if you will would still have the same.
Beneficial properties correct, you're exactly right the reason and work.
Perhaps we're most focused right now and the cold on the cold side and.
And that equation and.
And I think.
For the reasons are that we are doing very well and the LNG space today might be the reasons, why we do well and the hydrogen space coming down the road.
Thank you.
Yes, Thank you Jeff.
And there are no further questions in queue at this time and I would like to turn the call back over to Don Young.
Thank you Elaine.
I appreciate everyone's interest and Aspen Aerogels, we look forward to reporting to you our Q1 'twenty.
<unk> 2021 results and in late April Thanks for joining US Tonight, and we look forward to seeing you then be well take care.
This does conclude today's conference call. Thank you for participating you may now disconnect Lakers please hold.
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