Q1 2021 Aspen Aerogels Inc Earnings Call
[music].
Good day, and thank you for standing by and welcome to the Aspen Aerogels Q1, 2020 one 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.
Ask a question during the session you will need to press star one on your telephone. Please be advised that today's conference is being recorded if you require for any further assistance. Please press star zero.
I would now like to hand, the conference over to your Speaker today, John Fairbanks. Thank you. Please go ahead.
Oh good afternoon. Thank you for joining us for the Aspen Aerogels conference call on <unk>.
John Fairbanks, Aspen's, Chief Financial Officer.
For 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 of applicable GAAP measures is available on the Investor section of Aspens website, Www Dot aerogel Dot com.
And the press releases of summary statement of operations of <unk>.
<unk> balance sheet, and a summary of key financial and operating statistics for the first quarter ended March 31st 2021 and.
In addition, the investors section of Aspens website will contain an archived version of this webcast for approximately one year.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 of the state and there's not a historical fact.
These forward looking statements are subject to risks and uncertainties Aspen Aerogels actual results may differ materially from those expressed and these forward looking statements.
List of factors that could affect the company's actual results can be found and aspens press release issued today and are discussed in more detail on the reports Aspen files with the SEC, particularly and the company's most recent annual report on form 10-K and <unk>.
Company's press release issued today and filings with the SEC can also be found and the investors section of Aspen's website.
The forward looking statements made today represent the company's views as of today April 29 for 2021.
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 and not prepared in accordance with the U S. Generally accepted accounting principles for GAAP. These 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 the discussion of why we present. These non-GAAP financial measures are included in today's press release.
I'll now turn the call over to Don.
Thank you John.
Good afternoon. Thank you for joining us for our Q1, 2020 one earnings call.
Today I will describe the opportunities we have for substantial value creation over the next five years and will provide a progress report on our strategic initiatives.
John will recap of our Q1 performance and finish with our updated outlook for 2021, we will conclude today's call with the Q&A session.
The key points for my comments day are first we are now developing and supply and prototyping production for more barriers to five of the 10 largest automotive Oems.
After the battery materials has received requests from five battery and automotive companies for evaluation samples of our carbon aerogel materials and finally, our energy infrastructure businesses showing early signs of of post pandemic rebound, including a new LNG win.
At the time of our last earnings call, we posted a new company presentation on our website.
One of the share key points captured in that deck because to appreciate our full potential. It is important to understand our strategy the scope of our opportunities and the progress we're making to create value.
Leveraging our aerogel technology platform is at the core of our strategy to be of global technology leader and sustainability with a focus on multi billion dollar opportunities in high growth high value markets and on creating and proprietary diverse and valuable business.
We have several opportunities currently in motion that fit this profile with the spectrum spanning from those and the R&D phase to those and the full commercial mode I will discuss three of them today.
Pirates and thermal barriers, which we believe represent an opportunity through this decade of $30 billion.
After the battery materials, which we believe represents an opportunity through the decade of over $35 billion and power Gen and crowd of gel products for energy infrastructure, which we believe represent an opportunity through this decade of over $30 billion.
Our piracy and thermal barriers allowed EV manufacturers to manage thermal runaway for.
And we'll runaways the phenomenon of where it fell on a lithium ion battery pack has a sudden release of energy that can result in a fire and is the challenge for all EV battery platforms.
And thermal barriers are designed to impede the propagation of thermal runaway and to reduce the severity of the event.
Aspen technology offers a unique combination of performance attributes that enable EV manufacturers to achieve critical safety goals without sacrificing drive range.
In Q4, 2020, we announced that of major U S automotive OEM and rewarded aspen contracts to supply pirates and thermal barriers for use and its EV battery platform.
We have the potential for these contracts alone to generate revenue of $75 million and 2023 and $150 million per year from 2020 for through 2030 of these.
And these contracts alone represented opportunity of approximately $1 billion for Aspen over this decade.
The ultimate value of the contract depends on our customer success and participating in the global transformation to electric vehicles, and we believe this customer is well positioned to succeed.
Since that time, we have developed a robust business development pipeline for pirate's and thermal barriers, we are becoming a leading industry resource for the rapid development testing and prototyping of thermal runaway solutions for mitigating the impact of thermal runaway.
It might be helpful for me to describe the various stages of our business development pipeline.
The first stage is our initial engagement and it's marked by the fact that we are connected with the subject matter expert at the target company to the exchange technical ideas and requirements, we have dozens of companies and this category.
Not going to focus on this first stage of my remarks today, but instead on the more substantive second and third stages of our pipeline.
In the second stage, we provide paraffin samples to prospective customers for fundamental testing we are involved with more than 15 companies in this space, including automotive Oems battery Oems and the stationary energy storage companies.
At this point, we engage more formally with the potential customer apply our technical expertise and provide optimal solutions to address the thermal runaway and that customer's battery system.
This group of companies represents commercial opportunities principally beginning in 2022 to 2024 timeframe.
In the third stage, we advanced providing target customers with full of thermal barrier of prototypes and production parts for system testing and the integration our goal and this stage is true to transition.
The potential customer for testing parked and samples to purchasing prototypes and onto awarding us the multiyear supply contracts similar to the ones, we announced in Q4 2020.
We are now engaged with five of the 10 largest automotive Oems in this third stage alter.
Altogether. These five companies sold over $35 million ice vehicles, and Evs, and 2019 and have committed more than $140 billion to electrification.
Each of the companies as promised all electric lineups within a decade. These companies either have launched Tvs for will launch EPS by 2022 and represent a great opportunity for Aspen to ramp the volume quickly in the coming few years.
With the accelerating pace of our thermal barrier work, we are increasing our investment and the business we are.
On recruiting people with deep automotive and <unk> experience covering technology supply chain quality automation and business development.
We are also planning for capital investment in our advanced thermal barrier center or ATB see this investment is consistent with our goal to be the expert industry resource for thermal barrier solution.
Best in class facility will enable rapid prototyping performance testing collaborative customer engagement and both low volume and automated production of parts. We believe these investments and our thermal barrier opportunities have the potential to generate significant returns.
The second opportunity I'd like to review today is Aspen battery materials, which we referred to as ABN, where we.
We're deploying our carbon aerogel technology and the design of low cost high performance, So look and rich and lithium ion batteries.
Replacement of graphite.
And with Silicon is widely viewed as the best near term approach to boost the PMI on battery performance and to reduce costs.
The approach enables drop and materials compatible with the manufacturing technology underlying todays battery Giga factories, our work centers on leveraging our two decades of experience and the design and manufacture of aerogel and nano materials at scale in order to optimize the cost and performance of our <unk>.
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We are confident that we can meet the targets set forth by our evaluation partners we.
And we're responding today to request for evaluation of the samples from five battery and automotive companies.
These companies are seeking high capacity of silicon alloys that are readily available to us with their current battery designs and may play a role and the future battery designs, including solid state.
We are encouraged with the development of our silicon carbon aerogel solution.
This increased level of market engagement and our carbon aerogels has given us the confidence to accelerate our plans to make additional investments and ABN, we are adding scientists and engineers to the team and it kicked off.
A significant facility expansion to accelerate the in house development and testing of full multi layer and layer with PMI on battery cells. This expansion will also speed market development by providing much needed production capacity for larger quantities of the valuation materials to meet demand.
And from a growing list of battery and automotive Oems.
The investment and the APM facilities is being done in conjunction with and expansion of our overall laboratory assets that support our R&D and new business creation teams all consistent with our strategy to leverage our aerogel technology platform into new high growth high value markets.
I'll now provide.
<unk> a few comments on our energy infrastructure business revenue.
Revenue of $28 1 million exceeded our expectations and was roughly on par with the pre pandemic Q1 2020.
One quarter alone does not signal and the end to the pandemic, but there were green shoots that suggest a relatively good first half and something closer to normal as we work our way through the year.
In particular of few of our regions are beginning to show signs of of post pandemic uptick and activity.
In the U S market, we see our distributors beginning to restock and our end users begin to address deferred maintenance work.
We also see and increase in the LNG project work, which includes the award of the Arctic LNG contract.
We believe that we are well positioned to emerge from the COVID-19 period with a strong operating platform and the energy infrastructure and significant strategic momentum for the company as a whole.
At this point.
I'd also like to provide and update on the targets and milestones for 2023 that we first introduced earlier this year.
We set a revenue target of $225 million for 2023, approximately doubling revenue from our 2021 outlook the.
Breath and intensity of our engagement with automotive Oems around pirate and thermal barriers and the positive sides of the energy infrastructure market caused us to be yet more confident and our ability to achieve this 2023 revenue target.
We also believe that we have the opportunity to double revenue not only between 2020, one and 2023, but again between 2023 and 2025 of our belief is based both on the positive macro environment and support of the mobility and on our potential for several of.
Additional multiyear battery platform wins for our unique and protected Parison thermal barrier technology.
In addition to the investments that we're making to keep pace with the progress of parts and thermal barriers and asked for battery materials. We are also planning to expand capacity with the second aerogel manufacturing.
We have the required capacity today, and our east Providence plant to support our 2023 revenue target of $225 million.
But with the opportunity to double revenue again by 2025, we will need additional capacity by late 2023, we plan to build plant two and a modular fashion and.
And we will determine the capacity of the first phase of plant two based on the potential value of additional thermal barrier contract awards.
A definitive plan for plant two comprised of the site locations.
Schedule and an appropriate balance sheet is important to the large EV Oems, who want us not only to have ample capacity, but also a diversity of manufacturing sites we.
We will share details of our plans for plant two in the coming months.
Overall, the key points for my comments today are first we are developing and supplying prototype and production for thermal barriers now to five of the 10 largest automotive Oems.
And battery materials since received requests from five battery and automotive companies for evaluation samples of our carbon aerogel materials.
Next our energy infrastructure business.
Going early signs of of post pandemic rebound, including a new LNG win and lastly, we have decided to accelerate investment in these businesses based on significant momentum and opportunity.
John ill turn it to you.
Thanks, Tom.
I'll start by running through our reported financial results for the first quarter of 2021 at the summary level.
Total revenue declined 1% to $28 $1 million and <unk>.
$28 $4 million and the first quarter of 2020.
Net loss increased to $6 $3 billion for 'twenty two cents per share of this year versus the net loss of $3 $2 million or <unk> 13 per share and the first quarter of last year.
And adjusted EBITDA was a negative $2 $6 million.
Compared to positive $500000 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.
I'll now provide additional detail on the components of our results for.
First I'll discuss revenue.
Total revenue decreased by 1% to $28 $1 million This day.
Kris and first quarter revenue was driven by a decrease in demand and the refinery and petrochemical market, particularly in Asia, and a decrease and project work and the subsea market offset in large part by strong demand and the global LNG market led by shipments to the Arctic LNG and <unk>.
<unk> LNG projects.
Total shipments for the quarter increased 6% to $8 6 million square feet of aerogel blankets.
The average selling price decreased by 6% to $3 25 per square foot.
The decrease in average selling price reflected a decrease and the mix of higher price subsea products.
And an increase and the mix of lower price five millimeter and LNG products this year versus the first quarter of 2020.
Next I'll discuss gross profit.
Gross profit was $4 million of 14% during 2021 versus $6 million of 21% or 2020.
Decrease in gross profit was driven by the 6% decrease and average sales price and increase of material costs offset in part by 6% increase and volume and a reduction and manufacturing expense.
On a highlight that our first quarter gross profit was reduced by $1 $2 million and our gross margin by 400 basis points as a result all of the.
$1 8 million dollar reduction and on finished goods inventory during the quarter.
We expect to build finished goods inventories and regain that contribution later in the year.
Next I'll discuss operating expense.
First quarter operating expense increased by $1 $1 million for 12% versus last year, the $10 $1 million the.
The increase in operating expense was primarily the result of additional recruiting expense compensation costs associated with new hires including those supporting our E mobility business development initiatives.
And in part by reduced travel expenses associated with ongoing COVID-19 related restrictions.
Next I'll discuss of our balance sheet and cash flow for the quarter.
Cash used in operations of $1 $9 million reflected our adjusted EBITDA of negative $2 6 million.
Offset in part by a $700000 decrease and working capital investment during the quarter.
The decrease in working capital was principally the result of the decrease in inventories of $2 $3 million during the quarter.
Capital expenditures during the quarter were $1 $5 million and we're focused on improving the efficiency and reliability of our east Providence manufacturing facility and to a lesser expense.
Establishing our thermal barrier fabrication operations.
Cash provided by financing activities of $4 1 million was comprised of $6 $2 million generated by our sale of equity for our existing ATM facility offset in part by a net of $2 $1 million of cash used for employee equity transactions.
As a result, we ended the quarter was $17 $2 billion of cash net current assets of $27 million no borrowings under our revolving credit facility.
And shareholders equity of $66 $6 million.
And so had access to an additional $13 $1 million available under our revolving credit facility of the quarter ends.
I'll now turn to our full year 2021 outlook.
Although COVID-19 continues to depress activity and our energy infrastructure markets, particularly in Asia, We're seeing early signs of improved demand in north and South America.
As a result, we are now projecting revenue growth for the last three quarters of 2021, and the mid single digits to mid teens.
And we're increasing our 2021 revenue outlook by $3 million to between 103 and $111 million for the year.
We've also decided to increase our strategic investments during the remainder of 2021 and supportive of our E mobility business development initiatives.
This investment will include $10 million of incremental expense to enhance the technical commercial and operational teams and resources and support of our thermal barrier and battery materials and opportunities.
Of the total we expect to incur $6 million of incremental expense and cost of sales.
For additional manufacturing fabrication supply chain quality and engineering personnel and the operating costs associated with our new fabrication facilities.
We expect to incur the remaining $4 million incremental expense and operating expense per scientists researchers salespeople and administrative support personnel to expand and protect our patent portfolio, including our E mobility products and technology and for operating of costs associated with <unk>.
The expanded research and corporate facilities.
Our 2021 strategic investments will also include and incremental $18 million of capital expenditures to construct our advanced thermal barrier center to expand our battery materials production fabrication and testing facilities and to complete the initial engineering designs for a second.
Silica aerogel manufacturing plant.
Including the strategic capital investment, we project, our capital expenditures of range between 20 and $25 million for the full year.
We believe the strategic investments will position the Aspen to take advantage of the significant growth opportunities available to us today and the electric vehicle market to leverage our aerogel technology platform to develop new high growth businesses and to resume the strong operating performance the characterize.
For 2019 on the impact of COVID-19 subsides.
Including the impact of these strategic investments our revised 2021 full year outlook is as follows we expect total revenue of between 103 and the $111 million.
Net loss of between $28, three and $31 $9 million.
Adjusted EBITDA of between negative $15 2 million and negative $18 $8 million.
EPS of between a loss of the dollar one and the loss of $1 14 per share.
The EPS outlook assumes a weighted average of 28 million shares outstanding for the year.
In addition, this 2020, one outlook assumes depreciation of $8 9 million stock based compensation expense of $4 million and interest expense of $200000.
She and full year outlook also projects and <unk>.
<unk> margin and the mid teens and average selling price of between $3 35 and.
And $3 of 40 cents per square foot.
Turning to cash and we're confident in our cash on hand available credit and proceeds from potential equity sales under our existing ATM facility.
Sufficient to fund operating requirements and strategic capital expenditures for the remainder of the year.
Longer term, we are working on a number of potential financing alternatives to fund the construction of our second silica aerogel manufacturing facility other capital expenditures required to support our E mobility business opportunities and post 2021 operating requirements.
We will announce additional details of the second plant other capital projects as our planning efforts progressed during the year.
I'll now turn the call over to Mike for Q&A.
At this time I would like to remind everyone in order to ask a question press star one on your telephone to.
Withdraw your question press the pound key pause for a moment to compile the Q&A roster.
Your first question comes from Eric Stine from Craig Hallum.
And on that John.
Eric Hi, Eric.
Hey.
Thanks for all of the details don't really.
No where to start here, but maybe just.
On the thermal barrier side, so we're talking about the 'twenty.
<unk> got deep engagement with and the five that are more advanced just curious how.
And that has kind of accelerated since you announced your first partner.
What.
Obviously, there is urgency from those five but kind of what are you seeing in terms of urgency.
And this area from the group and I guess I would assume you still have confidence and securing at least one to two more of this year.
Well I think.
<unk>.
Feeling that urgency and and we believe as we've said in the past that now is the time to win these contracts. These are multiyear design and wins.
And.
I think just from an external point of view of macro point of view the the.
The momentum around E mobility electrification of the proliferation of the visas.
As is.
And at least as swiftly as people expected and maybe even more so.
So.
We believe that we will win additional contracts during 2021 Eric.
Just the progress that we've made from stage one as I described it.
<unk> and.
And now down into the third the.
Third stage, we believe that will continue to move companies through that there is.
I think the issue of thermal runaway as is also the.
Becoming increasingly prevalent and as you've seen.
Recalls occur.
For many companies and and and other sort of let me say regulatory.
And maybe warnings around some of these things and all three regions in Asia, Europe and here in United States.
Got it.
One thing I know debt.
As of later over the last couple of months, you've got increased confidence and your ability to eventually.
Be able to disclose for your current customer is.
And I'm curious if that is still is that it's still an area that you're confident in and is there an event that triggers of that or how should we think about potential tightening there.
Yes, we have.
Said that we expected to do it during the second quarter of this year and we think that is still the case is interesting and.
And not just with this one but.
And with others, who are and stage three.
There is an element of.
Strategy for them and.
And in the way they might be addressing.
Thermal runaway and and so.
You know I don't think all of the companies are going to.
I think many companies are going to view this as the proprietary.
Aspect of their of.
Of their battery platform and perhaps not want to do a big announcement of having said that.
We expect that we will be able to make announcements along the way because it and their interest I think.
Look where we are.
Sure.
Investing in a second plant as I said a significant investment.
We have to have.
The confidence of our people.
We'll have to understand what is the basis for that confidence and to have major.
On players and the EP space.
Aligned with the FCC will around thermal runaway, it's just an important endorsement and I think sort of less of that kind of major capital decision.
Right and fair to say that I mean, that's.
That's the capital decision you would make if you didn't have.
A high level of confidence and additional business on both the past thermal runaway and the carbon aerogel back.
Yes.
That is true.
I think having that.
One of the nice part about our ability to the way in which we build these manufacturing plants as is and that sort of modular form and even the one that we built earlier in east Providence, We have built we built the original line we expanded the original line first and then.
Built another module and line two and then yet another one and line three so we're well versed and.
And being able to sort of let out the line of little bit here, if you will and the way. We go about this one of the interesting.
Aspects of our of our work today and.
Thinking about plant two is.
And sizing that first.
And our module.
Correct way and.
And it's going to be based on on.
And on.
The contracts in hand, and there is no question about that.
But that's the that's a great way to build these things were.
Demand is really the driver as opposed to that.
Say build it and they will come on and this is going to be really demand driven.
And I'll, absolutely, it's very good to hear.
Maybe last one for me just on the carbon aerogel path and clearly last call you talked about the standard accelerated you'd moved up the timeframe a little bit and it seems like it continues to do so when you mentioned the five companies does that five include SK antibiotic or of those five in addition to those two.
It includes it includes one of.
Of the them and.
And I don't mean.
It'd be elusive about that.
S. K, it's very much on the customer side and Ovonic as you know is up as the supplier of materials to a third partner to us and that sets and so.
The five that we mentioned one of which is SK are let's say sort of market facing.
Okay.
Got it. Thank you very much thanks, Jack Thanks for.
Your next question comes from Chris <unk> from B Riley.
Yes.
Hey, guys. Thanks for taking my question here.
And just start on the $18 million incremental spend.
For the advanced thermal battery center.
Completion of this and that's been acting as any kind of barrier to additional when do you think or is this really just about demonstrating manufacturing expertise for these larger customers and kind of speeding up.
The production kind of Timeframes here I just wanted to get a sense of how you guys are you when youre kind of building this out.
Potentially demonstrate with customers kind of the rationale and and what the capabilities of youre going to have coming out of that.
Yes.
John I'll take that.
Sure sure it really does both so the advanced thermal barrier center will.
We will be of customer center will do rapid prototyping.
And response to customer demand and we're doing that today and we're doing it on a bit of of shoes strength for the ATB C will help us there and also as well lastly house.
Our.
On our automated fabrication operations as well and we will be producing new millions of thermal barriers for for the the contract per year for the contract that we have already won and we anticipate that we.
<unk> wins, but that number on the increase.
So we need to and we need to automate that thermal barrier of fabrication operation, Florida, and ultimately be successful delivering and these components to our customers. So it will help us gain more customers and then it will help us produce product for those customers and the contracts all.
Doable.
Okay and then.
A lot of sense and then just on the progress on the second facility planning here obviously.
Can it be kind of customer dependent so based on when you get these awards and potentially come in throughout this year and next year.
But if we're talking about the 2022 to 2020 for ramps with the bunch of these customers potentially.
How do we and Neil.
And the modular approach when do you guys do kind of.
Our pencils down and just kind of speak to the street as far as and what the plans are going and it seems like it could kind of continue to evolve the size that youre going after I'm just kind of curious.
Something by year end and that will get kind of more and more details and then could expand in 2022, if there's additional customer wins, how should we kind of think about it.
Chris I think.
We are we are going to build plant two.
And and.
And for Us.
Okay.
And we are studying how big to build that first.
And that first line, if you will of that first phase.
Of this project and it's important.
And my notes of little bit, it's important not only because we need.
The capacity, but also because of these large Oems.
Are expecting us to have not only handful of.
Capacity.
But they would also like for us to have the diversity of manufacturing sites and.
And I think this is a significant.
Significant commitment on our part.
Two.
To that to debt too.
This new new business that we've entered into so.
In terms of timing.
I think debt.
We'll make announcements before the end of the year as to how this will play out in terms of site location.
And and.
And most probably size as well and.
Because we really need to get after and here we need this capacity.
As we get late into 2023, and certainly by the time, we start 2020 for and it's about.
The 24 month process and.
And so we have a dedicated team today working on this.
And as John described putting the.
Some of the initial design together all of the lessons we've learned from buildings line.
And from building of line one line to line three and our East Providence facility. So a tremendous amount of work is being done on this today. So I think you can expect.
On Smiths sooner rather than than later certainly before the end of this before the end of this year.
Got it and then kind of 24 months.
Startup of production for kind of incremental line, what would be the timeframe timeframe, you think you'd need and if youre going to expand it beyond the initial scope.
Well.
Well, if you mean.
How does it take us less time to build the second phase definitely.
As of yet.
But still but still it probably truncated from 24 months.
15, or 18 months, something like that and when we have a structure and we.
Have the infrastructure. So it's the number it truncated and a bit but we need to get this first phase.
On the Mark for the size point of view as best we can right from the get go.
Understood and that makes a lot of sense and then just last one here on the $10 million and incremental expense. This year on the Navy side you mentioned.
<unk> million dollars and $4 million split between Cogs and Opex can you can you talk about what the impact was and the first quarter, maybe I missed that and then what the cadence would be for the rest of the year for the rest of that spend David would be helpful.
Yes.
So that incremental spend on it.
And as all of Q2 of the end of the year and so it is going to come.
And from this point forward so.
And it didn't include any any expenses that we incurred and the first quarter.
Okay got it.
We're kind of the impact of Cogs from the increased TV side.
It was in the range of maybe a point of margin.
At this juncture it was not that significant but it will it will scale up quickly as we move from prototype production, which is what we're doing today.
Two two and a full scale commercial production and.
And so but that was and that was in our initial projections were just really just accelerating some of these expenses.
We had originally plan and maybe for 2022 into 2021 in response to this just this increase and interest in our thermal barriers and and our confidence that this thermal barrier businesses is going to grow rapidly and 2022 for 2025 guidance.
So that's great to hear and I'll hop in the queue. Thanks, guys. Thanks.
Thanks, Chris.
Your next question comes from Jed <unk> from Canaccord.
Hi, Thanks for taking.
Taking my questions I have of several if you don't mind.
I guess first.
Maybe just the energy infrastructure I mean.
The first off congrats on.
Better top line.
Sort of the bold move of.
The net.
Capacity expansion at these levels. So if we just dig into the energy infrastructure.
And clearly pricing is starting to increase on the traditional hydrocarbon based fuels.
Is there anything else other than sort of rig counts and refinery.
Refineries or utilization that it is kind of driving on level of confidence on the side of the business in terms of the.
That ramp and then and then I've got follow ups on on the other two areas.
I think our I think are indicators of sort of.
Threefold.
One is.
We're seeing.
We're seeing restocking and and you might remember in Q2 of last year I talked about the Destocking that we saw going on through our very well established distribution channel here in the United States and around the world.
And those distributors are pretty close to the ground sort of speak and they have they have a good sense for.
What is happening facility by facility. So we view that as a positive sign second.
We have been clear that we believe that because of the low density work sites that had been required during this COVID-19 period, which continues in many parts of.
Of the worlds most parts of the world problem.
There is no question that there was deferred maintenance and we're beginning to see.
Some of that deferred work.
The initiated and.
Tended to here and and so we view that as a as the as.
The positive side, and then and then third.
We are seeing the project pipeline.
Begin to.
You will begin to come alive again, the worst thing that the contractor and asset owner could do is start of project and have its team on site Offsite onsite and Offsite, it's a terrible way to run an expensive way of runner.
<unk>, so more projects and not just for either not started or put on hold and we're beginning to see some of those come come back to life here and we were.
We are positioned neatly and the specifications for several of these projects. So that gives us confidence and of course weak we announced.
Earlier the.
And with the new LNG projects, so called the Arctic LNG.
And when so.
As of three things Jed debt.
I think we're seeing and the numbers, we're seeing and the activity levels.
And it's and it's again, it's not true across the around the world entirely, but but it's certainly true and pockets and we think as the pandemic gets a little further behind us it will become the case and most all regions.
Got it and then just is.
A reminder, on the value profit if you will I know on.
On the oil side I believe at the.
Thermal benefits.
On the heat as well as.
The rust under pipe.
And of the major drivers on the LNG is that working.
The same but cryogenically and terms of.
The cooler temps or is that still a.
Thermal heat.
The value prop there.
And so so.
Thermal management is still and.
And important part of our value proposition in that space fire protection is also an important element and one that is of little is really pronounced I would say on the LNG side is the ability.
And to install our materials.
The more rapidly.
With the less skilled work force.
And modular yards as opposed to necessarily on site. So the durability of our material to be transported on Piper on vessel from.
From a yard to let's just say.
And the remote site.
All of our materials are very durable and that way so our value proposition.
On the LNG side is as broad and.
And and strong and I think the fact that we piece together of 50% revenue caters since 2015 since we really really let me say invested and that in that space.
Tells the story pretty well.
Got it and then just maybe a pivot to the <unk>.
And the battery materials side, so on the thermal runaway opportunity.
And.
What are you, replacing in terms of the core of shell.
Yeah.
There are thermal mitigation and prop.
Propagation solutions in terms of.
Mitigation reduction solutions now so I'm just curious on.
Are you prepared at this point to sort of talk about the improvements that youre seeing on versus what debt.
Yes.
The OEM or a battery manufacturer might be replacing.
And using your material.
Instead.
Yes.
Look I think I think.
A few things.
On.
A lot of the battery platforms that we are working.
Through that 123 stage process that I described.
And our new and.
They are looking for optimal materials.
To address this issue so in some sense.
We're really not knocking and incumbent and out of the box. We are part of the original design of of these battery and platforms.
And that's it.
That's a strong place for us to be and it's why it's so important for us to invest and the vast thermal barrier center to really be that industry resource for.
It's helping them address.
This.
This challenge debt all of the battery platforms have and.
And so its unlike the energy infrastructure business in the sense that we largely needed to.
Knock out the incumbent that had been in place for a long time and that that was a slow arduous process and we've done the hard work and we're making significant inroads in that and.
And that space, it's a little different here with these new battery platforms.
Jed.
They don't have long histories with <unk>.
With existing materials and.
And if I could just say.
The attributes of our materials, we refer to them, it's a really unique combination of.
Debt that thermal management.
The non combustibility of the mechanical durability with that very thin profile and taking up very little space.
Within these packs so that they can get more cells and place so.
Which is to say more drive for range and so.
We really haven't we really haven't.
I think and important product here and we're doing our best to.
Work these companies through our development funnel here as of day.
As David and itself and let me say sort of settle on their on their battery platforms.
And then last question I guess just on the.
Battery materials on the and outside of things.
Obviously moving to silicon on the anode.
The tremendous amount of benefits.
But the issue has always been the coefficient of thermal expansion associated with.
The thermal increase so I'm just curious.
Where are you in terms of the data with the testing with the five.
With the customer base that euro debt.
The rent.
Is there any metrics debt that you might be able to share at this point in terms of that solution.
Providing for the data as a goal for us.
Publicly as a goal for us here in 2021.
And we think.
And that it's a relatively bold move not many are doing that not many companies that are doing this.
Are putting their data out were eager to do it and and Youre right that is.
The challenge is the expansion of of the.
All of the silica what <unk> significant and how do you how do you protect that.
The expansion through through cycle life and <unk>.
A lot of the work that we're doing with our <unk>.
With our.
Evaluation partners is around exactly that cycle life.
How durable are these materials and.
And we think our carbon aerogels.
Are a perfect scaffolding for that given.
Are there.
The mechanical durability.
The ability to manipulate the pore size create uniformity of the pore size do and a variety of things that for.
Protect.
That silicon.
As well as possible and so that's really our focus and enormous amount of our scientific team is dedicated to that to that issue.
Idea of presenting.
Our data publicly here during 2021.
Great. Thank you.
Thank you Jeff.
Your next question comes from Doug Becker from Northland Capital.
Hi, Doug.
Dan you made the point youre not knocking out incumbents, specifically, but curious if there's been any notable changes around the competitive landscape with competing solutions for thermal barriers or the carbon arrow gels.
Well.
We're assuming and I think.
Fair to assume that.
And that.
The.
These automotive Oems that we have in.
Five of the 10 largest automotive Oems and the world are.
Looking at all materials and and.
And the one that we.
Were awarded the contract for and we know that they started with.
A number of materials and the first stage of that through part of our Q and so.
Where we are.
Progressing pretty pretty efficiently through that funnel right now as many of these companies is as possible again dozens and stage one.
Sure.
15% or 20 and stage two now five significant cash.
Companies and the.
Stage three.
We don't know all of the materials that we're being compared against but we know some of them and this is extremely hard problem that you just don't sort of come up with the.
Just don't come up with it.
Our solution easily and what was important for us and the reason that we've been so strong and this to date is debt.
The product Pyrostat is a direct descendant of the pacifier protection products that we used and the energy infrastructure, where passive fire protection is so critical yes, we've optimized the significantly for.
And the lithium ion batteries.
But we we were very experienced with the issue coming into it and again, it's put us in a very strong put us in the very strong position.
You also mentioned on the on the.
On the asset battery materials and the.
And the Silicon Regina.
The material that we've talked about.
Yes, there are.
A number of companies that are focused on this I mean, it's well well understood and agreed.
Agreed upon and I think that adding silicon.
To the.
Sort of the current style of lithium ion batteries that are the next logical steps along the technology roadmap and the great benefit of it of course too as debt.
It fits within the process technology of the manufacturing technology of these these big Giga factories, some of which are operational today, and some of which have been announced and will be operational and the coming year or two.
And so that's that's that's a requirement of the.
These kinds of materials and.
Think of to everyone's opinion and.
So so.
It's an area, where we think.
That the.
Work that we've done and.
Developing.
And then manufacturing on scale these nano materials for.
For the <unk>.
Better part of 20 years.
Given the.
The.
And the advantage at that level of especially when youre talking about cost and performance cost and performance of those two things go together, it's one thing to have pure performance out of very high cost.
Not going to get it done its cost and performance and again, we feel that we are.
And it.
Good position and we we've added since the last.
And we've talked about this.
Three of additional companies too.
Who are who are.
The requesting and samples.
<unk> worked through our data and and materials and what have you and so.
The list is expanding and.
And we've got a lot of work to do we're investing and the business will bring scientists and engineers and our confidence has grown.
And I think that the next logical things are for us.
Share data.
And compare that data with other solutions, but also to announce additional.
Partnerships and addition to our Korean partner and our German partner.
And that all sounds very consistent with what you've said in the past you have competitors out there, but no major changes in that.
And it sounds like Okay, and then maybe a quick update on the opportunity for stationary energy storage and distributed generation.
And it seemed to get a lot of airtime today has has that opportunity just kind of taken a back seat given given the other opportunities do you have right in front of you.
And not really actually.
And certainly our team is our team is focused on.
Obviously, the the EV spaces is as so much so prevalent right now.
And out there in the world.
The.
The stationary energy so think of this for.
For those who are listening of.
Of.
Energy storage systems associated to.
Typically with a residential or small business so the.
And behind the meter odd times.
Solar and battery type.
The systems again, using the same lithium ion technology battery cells typically perched up net.
Two one zone and so some of the some of the thermal runaway issues are prevalent there as well and so.
And we have continued to make progress.
With two entities, one in Germany, and one here and the United States I should say, one in Europe, and one here and the United States.
And we've made.
<unk> continued to make good good progress with them really I think it's a really interesting and important.
Area.
And for Us.
And I think last quarter, you mentioned you were involved and some RF queues. It I assume those are still continuing to move forward.
But is there any way to frame the opportunity specifically from this this aspect.
Of the business.
I think the fact that we have five.
The major Oems and the third stage of our development.
On.
Think of that is as pretty advanced and.
And whether whether it's exactly and RF, Q or not or advanced prototyping and and and.
Providing.
On.
Production parts.
It's pretty advanced.
At this point and.
So it's.
I would say at that point.
And they have limited their choices down to very very few.
Possible solutions at that at that point in time.
And we.
We haven't won until we win but what we feel strongly that we are and.
And an excellent position to to be able to announce some additional contracts. This some of this calendar year.
And just to clarify it was actually specifically talking about the stationary energy storage or.
Excuse me.
I would bet.
And that will have one of those announced here in 2021.
Okay.
Perfect. Thank you.
Thank you Doug.
Your next question comes from and they are down from H C. Wainwright.
Hi, Amit.
Good afternoon, and how are you.
How many of you there.
Hello.
Alright, sorry, I was on mute.
How are you.
Good Thank you all day.
Good thank you.
So with respect to this EV opportunity right.
And there's been some recent headlines about the supply chain challenges and the auto space is that impacting any of your time line or is that the market much of a concern at this point.
Well.
And.
Is it is not directly impacting us in the sense that if you're referring to.
Semiconductor shortages et cetera, so not directly.
But perhaps and some indirect expense, yes, if it if it necessarily slows things down and I can.
And I can say just sort of more and more broadly if you will.
That all of us are.
Whether you are the biggest OEM or or of supplier.
Like Aspen.
There is no question that.
The supply chain is.
Being challenged right now and and it's just a matter of sort of uncorking the process after.
After.
And I don't mean to say the pandemic is over but as we get off of on the other side of it at least and.
And.
These big supply chain, and arent really meant to start and stop and start and stop there and that's like shape that way and.
And so it came to.
A significant slowdown if not stop for lots of these parts and.
And it's going to take a little while the kind of reset and.
It wouldn't surprise me if there if there are some disruptions along the way I think we've already read about some of them, but but.
<unk> of our work.
We're not anticipating any any issues from our side.
Thank you for the and then.
And had indicated you're expecting single digit millions for sales into that opportunity for <unk> for anyone and 22.
Is there any change to that outlook or are you still sort of backdrop.
We think thats a good.
We think that's a good expectation for you to have.
And I did say in my notes.
And that we are.
As confident as ever more confident.
Our 2023 target.
Of $225 million again based on the fact that we've got the significant automotive Oems and the third stage of our development funnel and we're seeing.
Activities in on.
And our energy infrastructure business that are that are promising.
That's starting to feel a little bit normal and guests and again, we've got a ways to go but it's moving and the right direction and we Havent said that for four quarters as you know.
And.
It was really just sideways at a low level and were just seeing any sort of a little bit maybe and our revenue in Q1.
I think it was.
Better than expectation and again one quarter doesn't makeup.
And to the pandemic, but.
But we feel we're in a good direction, there so sort of that target of 2023 and again, we feel confident and that we're building up of 2021 and 2022 of these investments that we're making our ability to move towards.
Automated higher volume.
Parts of production on the thermal barrier side. These are all critical elements to be successful here.
Okay.
One on one other comment the single digit millions in 2021 and 2022 was from the.
And the U S based automotive OEM alone. So if we have additional contract wins.
It could give us upside on those numbers and particular in 2022.
But we.
As long as the U S automotive company of successful, we should achieve those numbers and the additional contract wins would give us upside.
Right. Thank you for that debt acquisition Thats helpful.
On.
Just one last one for me.
Decreasing the average selling prices, mainly because of the product mix in <unk> is this sort of of temporary situation and.
Yes, there is a of managing through this going forward.
Got it.
It really is a function we sold a lot of five millimeter product and we sell our five millimeter product for about half. The the average selling price says are 10 millimeters of product so.
Mixture of it down and so it's temporary and it is project related and we would expect that to continue into the second quarter, but sort.
The resume R R.
Your levels of the average selling prices and the second half of the year and.
And just to just to clarify and our bill of material costs per square foot.
Thinner product for the five millimeter product is lower as well so it really maintain our margin and we have lower revenue and then we also the lower material costs, which give us the same contribution so theres been no economic degradation on Amit and.
But will rebound and the second half of the year.
On the.
Thank you for that and that's all I have I appreciate all the color. Thank you.
Your next question comes from Jeffrey Campbell from Alliance Global Partners.
Good afternoon, and thanks for squeezing me on.
The first thing I wanted to ask the bad so I just wondered if there was much segregation between those battery folks that are deep into pilot and then.
Adoption or sampling and testing and those that are showing the strong and increasing interest and the Carmen and brought it because it seems like.
This is both the necessary products and the same battery and assuming that they perform day expectations.
Yeah, it's a good.
It's a good question and I would say debt, but I think about it there is overlap.
But I would say.
I mean on the one hand, I would say it's sort of.
Coincidental, but on the other hand, I would say you know what it's not very surprising.
And there are different groups within the within these firms who are working on these things.
But.
There are only so many players let's face it at the end of the day so.
And we believe there will only be so many successful players at the end of the day.
Some of the incumbent companies will be.
Successful some of the newcomers will be will.
And we will be successful and.
So it's not too surprising, but I wouldn't say that.
And theyre necessarily related to one another a lot of times I would even.
Major.
Know that.
One group within the within one of these big companies.
They are the even those of the other group is working with us on on the other ones. So again I call it a little bit coincidental, but not surprising.
Okay, well, thank you for that.
Regarding the Oems and the battery manufacturers that are in the second and third of the.
And then phases that you outlined.
Can you provide some color just on geography.
Yes.
And Asia.
Yes to get some sort of sense of the.
They represent.
All three regions, all sort of sorry, all three major regions. So there is going to be terribly helpful. But there are participants from Asia.
Participants from Europe and participants from.
And the U S.
In the.
Jesus.
Two and three.
And.
Within Asia, China.
And and other countries within Asia as well so.
Yes.
Alright, great geographic.
Diversity.
Yeah and John.
You mentioned the China's.
And interesting and significant because we've talked on the past about how there is some entity there that and.
The fringes on your patents, but.
It sounds like maybe the if you've got if you're doing work in China that means there is more to it and just being able to make some aerogel and must be all of the other research that you've done and the other people that you are working with is that the right way to think about it.
Yes, there are.
The comeback.
And to that and.
On that these companies.
Aspire to be international companies and and R. R.
And we've got to we've been very aggressive and successful and.
And the.
Let me say defending our intellectual property.
Around the world and.
And so I would just say that.
There.
I would just say that they are.
I mean.
Sorry, I guess I would just say that they are focused on.
And if they wanted the international company, they do not want to be violating intellectual property and we've seen that and their behavior as well.
No that's a great point.
The they wanted to able to sell outside of the moat.
And my last question and you sort of alluded to this but.
Earlier of items.
For the color to you mentioned, the some large Oems or <unk>.
Cognizant of.
The diversity of supply locations I was just wondering as Youre planning.
Your future roof line expansion maybe not.
And the stage two and maybe even further for us.
And if it comes to that.
Are there any potential large foreign customers that are indicating the power of gel.
And our pilot and facility source closer to their manufacturing capability is there.
Any importance to them.
Jeffrey on our materials ship very effectively and.
On.
And cost effectively.
And we've exported historically approximately two thirds of our product to all corners of the of the globe and so.
I think having a diversity of supply I think having ample supply are the two most important things having of nearby.
Supply.
He has been voiced more the nice to have and not and not at all of requirement.
I think as we come to a full capacity of a plant two.
We will have to think very hard about where we locate the class III and if the share.
The likely driven.
By where.
And where we are particularly successful.
And in the thermal barrier side of the side of the slate so I could make a.
Project forward for.
Five years I could make a good argument for Europe, and I can make a good argument for for Asia. So.
We'll see how it plays out.
And the in the interim as well we could site.
Our fabrication operations.
In Europe and in Asia, but make the average of the base Aerogel based pirates and product here and the U S.
Just to make sure we have that proximity and quick turnaround on on.
On prototype designs and delivery of fabricated parts.
And as well, Okay, and that's a really good point and John and just.
I think you'll see more and more of that.
And that is the.
Much lighter of foot to do that sort of thing and to build a full fledged aerogel manufacturing plant. So I think that's a very logical.
Maybe interim.
Yeah, I appreciate that color on that thanks.
Perfect.
Thank you.
Great. Thank you Jeff I appreciate it.
The Q&A session is now and I will turn the call back over to Don Young for closing remarks.
Thank you Mike I appreciate it thanks for your help.
Thank you everyone and we appreciate your interest and and.
Aspen Aerogels and we look forward.
To reporting our Q2.
Results in late.
<unk> B.
Be well and have a good evening, thanks very much take care.
Okay.
This concludes today's conference call. Thank you for participating you may now disconnect.
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