Q3 2021 Aspen Aerogels Inc Earnings Call
Okay.
Welcome and thank you for attending the Aspen Aerogels Q3, 2021 earnings call all lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end.
I'd like to pass the conference over to your host Laura Garen, but often aero gel. Thank you you May proceed Ms Garen.
Thank you Sara good evening and thank you for joining us for the Aspen Aerogels Conference call on Laura Guerrant, Aspens, Vice President of Investor Relations and corporate communications.
Few housekeeping items that I would like to address before turning the call over to Don Young Aspen's, President and CEO.
Press release announcing aspens financial results and business developments as well as a reconciliation of management's use of non-GAAP financial measures compared to the most applicable GAAP measures is available on the investors section of Aspens website, Www dot Aero gel dot com.
The press release is a summary statement of operations, a summary balance sheet and a summary of key financial and operating statistics for the third quarter and nine months ended September 32021.
In addition, the investors section of Aspens website will contain an archived version of this webcast for <unk>.
<unk> be one year please.
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 a historical fact these forward looking statements are subject to risks and uncertainties Aspen aerogels.
Actual results may differ materially from those expressed in these forward looking statements a list of factors that could affect the company's actual results can be found in aspens press release issued today and are discussed in more detail on the reports <unk> files with the SEC, particularly in the Companys. Most recent annual report on Form 10-K.
The company's press release issued today and filings with the SEC can also be found in the investors section of Aspen's website.
Forward looking statements made today represent the company's views as of today October 28 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 are not prepared in accordance with U S generally accepted accounting principles forecast.
These non-GAAP financial measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with GAAP.
Definitions and reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures and a discussion of why present. These non-GAAP financial measures are included in today's press release.
I'll now turn the call over to Don Don.
Yes.
Thanks, Laura good afternoon, everyone.
Thank you for joining us for our Q3 2021 earnings call.
I should note that Laura G.
Joining us a couple of months ago, as our VP Investor Relations and corporate Communications. She has 30 years of professional experience and is joining us just in the Nick of time, John and I have been moonlighting and the role since we went public in 2014, and we welcome Laura as we broaden our outreach to the investment community.
Today I will describe the key highlights of our progress towards achieving our near term and longer term business goals.
John will then recap our Q3 performance and finish with an updated outlook for 2021.
We will conclude today's call with a Q&A session.
The key points I intend to cover or.
The drivers for both strong Q3 revenue and our full year outlook, which we have now raised for the third time this year.
The acceleration and expansion of our paraffin thermal barrier business, which we believe sets the stage for 2022 revenue.
Revenue to be two or more times, our original 2022 revenue estimate.
The progress on key investments related to plant two and.
The technical and business development for asthma in battery materials.
The third quarter.
With strong with top line growth exceeding our expectations driven by both our energy infrastructure business and our emerging pirates in thermal barrier shipments revenue grew 26% year over year to $34 million and gross profit increased 61%, reflecting the leverage associated with increasing <unk>.
<unk> of our manufacturing plant.
The recovery of our energy infrastructure business is in line with our expectations as we come out of what we hope to be the worst of the Covid pandemic.
We predicted that as the impact of the pandemic subsided energy infrastructure revenue would begin to increase towards pre pandemic levels as pent up demand materialized.
This has in fact been the case as we are seeing high levels of maintenance related activity, especially in countries, especially in key countries with higher vaccination rates.
This positive indicator is an important factor contributing to our 2021 guidance, which we have raised for the third time this year.
As a reminder, one of the key components of our goal to double revenue from 2021% to 2023 is to recapture our pre pandemic energy infrastructure revenue, which averaged nearly $35 million per quarter during 2019.
We believe that we are well positioned to achieve this goal no later than 2023 over the longer term, we believe the value of our energy infrastructure products, which is based on resource efficiency asset resiliency and safety, particularly fire safety will become more important to our customer.
In the years to come as they strive to attain their own sustainability goals.
And when you consider the potential of leveraging our aerogel technology platform into new markets, such as hydrogen infrastructure and carbon capture we see significant growth opportunities over this decade for our energy infrastructure business.
In my earlier comments I mentioned, our emerging shipments with pirates in thermal barriers. This business is advancing at a faster pace than we initially anticipated.
John and I have previously said that we expect 2021 paraffin thermal barrier revenue to be in the low single digit millions of dollars in 2022 pirates in revenue to be in the mid to upper single digit millions.
During Q3, we exceeded $1 million of pirate than revenue on a year to date basis, and we now expect Q4 revenue alone to exceed $5 million.
This acceleration of revenue, we believe sets the stage for 2022 paraffin thermal barrier revenue to be two times or more.
Our initial expectations of mid to high single digit millions.
On our last earnings call. We said that we were on the cusp of winning a contract with a major Asia based automotive OEM with a leading global platform. We have in fact received our first orders for that Oems first all electric vehicle that will be offered in Asian European and North.
Oregon markets.
We are delivering the first production parts to this customer in Q4 and it should be noted that this OEM has partnered with another large agent EV OEM that will use the same battery modules to power electric offerings.
We are also delivering production parts to our major U S automotive OEM during the fourth quarter.
These first deliveries are pre loading the pipeline to these customers and enhancing our Q4 revenue.
The transition from supplying prototype parts to production parts is a major milestone and signifies thermal barrier parts destined for Q4 and Q1 commercial EV launches. The milestone also represents a prerequisite for announcing the names of these two first customers, which we hope to do soon.
There are several drivers accelerating pirate than thermal barrier revenue, including the transition to production parts with our two existing EV Oems very active prototyping with new EV Oems and our business development funnel.
Cases, where we are seeing an increasing scope of work as we establish ourselves as a technology partner to these companies.
I discussed earlier, the importance of the move to production parts and I will discuss the business development funnel in a moment, but first I want to explain in more depth the importance of Aspen being viewed as a technology partner.
Our approach is threefold, our intent is for Aspen.
B the industry expert and battery thermal management for pirates in thermal barriers to be the industry standard and for Aspen to be OEM agnostic.
As a technology partner to EV Oems, we are being asked to focus more broadly on battery performance and safety.
This expanded mandate is in addition to our current mission critical role of mitigating thermal runaway.
Our team is designing more sophisticated aerogel based solutions to optimize thermal management and mechanical performance. During this standard operation of the battery system again. This mandate focuses more broadly on battery performance and safety and the likely result of this advancement is more technical school.
Nope and more content per vehicle than we initially estimated.
This development is resulting in increased thermal barrier revenue estimate in 2021, and 2022 and very likely in subsequent years.
We've made considerable progress during the quarter in the business development funnel for our paraffin thermal barriers the pace of engagement within our three stage business development process remains high and we are responding to multiple formal requests, including RFID chip RF queues and.
<unk> validation.
We continue to work with several of the remaining EV Oems on developing solutions for improved battery safety in the event of thermal runaway as well as for thermal and mechanical management solutions for improved battery performance during the normal course of the batteries operation.
With the increased intensity of the EV Mega trend and our broader mandate around battery performance and safety the pace of our commercial work is accelerating and the size of the opportunity is expanding.
In order to aggressively capitalize on our expanding demand profile. We're also expediting the work on our second aerogel manufacturing plant.
We have selected a 90 acre parcel in the southeastern United States as the site of the second plan and are working closely with state and local officials to finalize zoning approvals and incentive arrangements subject to the approval of our board, we anticipate making a joint public announcements of our site selection with the governors off.
In the near future.
The site gives us the space to design plant two to provide more than twice the capacity of plant one.
We plan to have phase one of plant two operational during the second half of 2023.
We are currently working to match the size of the first phase of the plant construction with the accelerated and expanded demand profile described earlier.
We are also keenly focused on building a plant with low operating costs and one that has key raw materials generated onsite or nearby.
On a related note. It has been about four months since coke strategic platforms made a $75 million investment in Aspen. The premise of the investment was not only to strengthen our balance sheet, but also to bring to bear the broader resources of the significant coke network to enable us to scale more effects.
<unk>.
Plant two engineering is a good example, we have engaged Coke project solutions to support our own outstanding strategic capital projects team with additional resources drawn from its vast experience.
We expect this support will continue for the duration of the project which includes.
Coke, providing onsite project leadership during the construction phase.
There are additional opportunities for us to work with teams from Coke in areas such as the fabrication of thermal barrier parts in Mexico, and the optimization of purchasing and logistics.
The opportunity to double revenue every 24 months throughout the decade. It is imperative for us to use all possible resources to achieve our full potential.
Moving to Ashwin battery materials, which we refer to as ABM, we are developing our carbon aerogel technology in the design of low cost high performance Silicon rich.
In lithium ion batteries the collection of attributes of our carbon aerogel technology creates an ideal protective host where scaffold for silicon and helps address the challenges posed by silicon expansion during each charged cycle.
The nearly $10 million of investments that we're making in scientists engineers and facilities throughout 2021 are resulting in significant progress towards achieving key technical milestones in the areas of energy density and cycle like.
The design of Aspen's carbon aerogel material allows lithium ions.
Move.
More easily across.
Two more easily assess the capacity of silicon, while simultaneously preserving the structural integrity of Android and extending cycle life.
<unk> also increased our production capacity to deliver larger samples of optimized materials to our partners.
This approach to partner engagement plays to the strength of our technology and we believe will enable the broadest and quickest adoption of carbon aerogel solutions in the EV battery market.
When we provide our overall financial outlook for 2022, we will also share specific technical and commercial targets for ABM that will set the course for what we believe will be significant value creation.
At the beginning of this year, we said that our target would be to double revenue from 2021% to 2023 and again from 2023% to 2025 and at the last earnings call. We said that we believe that we have the opportunity to double revenue every 24 months through the decade.
With an accelerating battery performance and safety business led by our paraffin thermal barriers and important energy infrastructure business, driven by resource efficiency asset resiliency and safety.
Rich and commercially Leverages, our aerogel technology platform and an outstanding team of people to drive the significant scaling of the company. We are confident in our ability to achieve these targets.
In closing I want to take a moment to recognize aspen's 20 year anniversary, which we are celebrating this quarter, we have taken our collective vision and executed a strategy that is transforming the company to create the greatest value for our customers and for society as a whole.
Even with 20 years behind Us we feel our work and important contributions are just beginning.
We as a company have a deep gratitude to all of those who have provided wisdom and support to us along the way.
And with that John over to you.
Thanks Dawn.
I'll start by running through our financial results for the third quarter of 2021 at a summary level.
Total revenue grew 26% to $30 4 million from $24 2 million in the third quarter of 2020.
Net loss increased to $7 8 million or 24 per share this year versus a net loss of $6 $8 million or 25 cents per share in the third quarter last year.
I want to highlight that net loss this year reflected a $3 $7 million gain on the extinguishment of debt.
Adjusted EBITA was negative $7 $8 million this year compared to negative $3 2 million in the third quarter of 2020.
We define adjusted EBITDA as net income or loss before interest taxes depreciation amortization stock based compensation expense.
Other items that we do not believe are indicative of our core operating performance in the third quarter. This year. These other items included the $3 $7 million gain on the extinguishment of debt.
I'll now provide additional details on the components of our results.
First I'll discuss revenue.
Total revenue increased decreased by $6 2 million or 26% to $30 4 million. This increase in third quarter revenue was principally driven by a continuation of the initial stages of the post COVID-19 recovery in the global refinery and chemical market, particularly.
In the United States.
And nearly $1 million of incremental revenue in the EV thermal barrier market.
Set in part by a decrease in project work due to the conclusion of the PTT LNG project.
Total shipments for the quarter increased by 32% to 9 million square feet of aerogel blankets, while our aired.
Our average selling price decreased by 4% to $3 36 per square foot.
The decrease in average selling price reflected an increase in the mix of lower priced five millimeter products this year versus the third quarter of 2020.
Next I'll discuss gross profit.
Most profit was $3 1 million or 10% during the third quarter, this year versus $1 $9 million or 8% during the third quarter of 2020.
This increase in gross profit was principally driven by the 32% increase in shipment volume and a decrease in material costs.
Offset in part by an increase in manufacturing expense and the 4% decrease in average selling price.
Next I'll discuss operating expenses.
As we've discussed in prior calls we are strategically increasing our investment in our electric vehicle market opportunities.
Our strategic investment. This year includes increased spending to enhance the capabilities of our technical operational and commercial teams supporting our thermal barrier business. The research and development teams supporting our carbon aerogel battery material opportunity and our legal resources to expand and defend our IP.
Yes.
In contrast during 2020, we perk.
Purposely reduced compensation and spending levels throughout the company.
Bonds to the uncertainty associated with the COVID-19 pandemic.
As a result third quarter operating expenses increased by $6 million versus last year to $14 6 million.
Next I'll discuss our balance sheet and cash flow for the quarter.
Cash used in operations of $6 1 million reflected our adjusted EBITDA of negative $7 $8 million.
Set in part by a $1 $7 million decrease in working capital investment during the quarter.
The decrease in working capital investment was broad based and included decreases in accounts receivable and increases in accounts payable and accrued expense balances.
Capital expenditures during the quarter, a $2 $3 million were focused on improving the efficiency and reliability of our east Providence plant and the initial engineering work for our second manufacturing facility.
Cash provided by financing activities of $1 6 million was comprised of $800000 generated by our final sales of equity through our ATM facility.
And $800000 from employee option exercises.
As a result, we ended the quarter with $95 $5 million of cash net current assets of $98 9 million no borrowings under our revolving credit facility and shareholders' equity of $142 $5 million.
We also had access to an additional $9 $5 million available under our revolving credit facility at quarter end.
I want to highlight that during the quarter, we applied for and received full forgiveness of our $3 $7 million PPP loan from the small business administration.
I'll now turn to our full year 2021 outlook.
We expect continued revenue growth this year associated with the initial stages of the post COVID-19 recovery in the global energy infrastructure market and solid demand growth in the European Green building materials market.
In addition, we're increasing our outlook for pirate's and thermal barrier revenue by $5 million to a total of between six and $7 million for the year.
As Don discussed this increased thermal barrier outlook is related to an expanded scope for thermal management mechanical stability and fire protection properties provided by our pirate than thermal barriers that enhance EV battery performance and safety.
In total as a result, we're increasing our 2021 revenue outlook by more than $10 million to between $120 million to $128 million for the year equivalent to a growth of between 23% and 28% compared to 2020.
We're continuing to invest in people and assets to capitalize on a rapidly growing E mobility opportunities.
This investment includes planned incremental expense to enhance our technical commercial and operation operational capabilities and resources in support of our thermal barrier and battery materials opportunities.
This investment also includes our planned capital expenditures to design and construct our advanced thermal barriers center.
To establish thermal barrier fabrication operations to expand our carbon aerogel battery materials production fabrication and testing facilities and to design and construct our second silica aerogel manufacturing plants.
Given the accelerating pace and scale of our pirates in thermal barrier opportunities, we are increasing the target capacity for our second plant and anticipate will be.
We will bring on a greater proportion of the plant assets during the second half of 2023.
As a result, we expect to incur a greater proportion of the required capital expenditures in the earlier stages of the project.
Our engineers are focused on designing a greener and more dependable facility with more than twice the capacity of our east Providence plant and lower per unit operating costs were also considering establishing fence line production of critical raw materials with few of our principal suppliers to shorten our supply chain and reduce.
Material costs.
To have the facility operational during the second half of 2023.
We're also planning to establish establish a fabrication facility likely in Mexico in support of our pirate than thermal barrier opportunity. We're planning to have the facility established in mid 2022.
And fully automated operations quite in place beginning in early 2023.
We believe these strategic investments will position to ask them to take advantage of the significant growth opportunities available to us today in the electric vehicle market.
And to leverage our aerogel technology platform to develop new high growth businesses.
We'll provide additional detail on these strategic investments and associated financing arrangements as our planning efforts progressed during the next few quarters.
Our revised 2021 full year outlook is as follows.
We expect total revenue of between 122 and $128 million net.
Net loss of between 29 and $31 million adjust.
Adjusted EBITDA between negative $18 $5 million of negative $25 million.
So between a loss of 96.
And the loss of $1 two per share.
This EPS outlook assumes a weighted average of 34 million shares outstanding for the year.
In addition, this 2021 outlook assumes depreciation of $8 $9 million stock based compensation expense of $5 $1 million gain on extinguishment of debt of $3 $7 million and net interest expense of $200000.
This full year outlook also projects gross margin in the low to mid teens.
And in average selling price of approximately $3 35 per square foot.
Turning to our outlook for cash we're currently project capital expenditures of approximately $15 million for the first.
Full year.
As our planning efforts progressed during the next few quarters, we will provide our investors with multiyear capital expenditure projections to include our second aerogel manufacturing facilities, our Mexican fabrication operations and other capital assets required to support our electric vehicle business opportunities.
We will want to raise capital to fund these facilities equipment and people could keep pace with the expanding scale of our E mobility opportunities.
Importantly, though we're confident our $95 $5 million cash balance available credit under our SVP facility will be sufficient to fund our near term operating and capital expenditure requirements.
I'll now turn the call over to Sara for Q&A.
We will now begin the question and answer session. If you would like to ask a question. Please press star followed by one on your Touchtone keypad if.
Is there any reason you would like to run is your question. Please press star followed by Tim.
Again to ask a question press Star one as a reminder, if you are using a speaker phone. Please remember to pick up your handset before asking your question.
Yes.
We will now take our first question is from the line of Eric Stine with Craig Hallum. You May proceed.
Hi, John.
Hi, Eric Hi, Eric how are you.
Doing well so thanks for all the detail.
Good to hear about our acceleration of the activity in the revenues in 'twenty, one and 'twenty two and wondering if you could maybe just go into detail on that a little bit I know part of that is increased content, but just curious is that.
Is that also more volumes was the two customers that you have in hand.
I mean is that visibility into additional customers how should we think about that.
Sure.
It is principally.
Comcast.
The number of vehicles is is pretty consistent with earlier expectations, but it's for us it's been more of a content issue.
Eric as we've been.
I have two.
I think more broadly about.
What role Aerogels can have.
More broadly in battery performance and safety, so some things beyond.
The thermal runaway issue that we've been so focused on in the past year or two.
And these things these things include broader thermal management.
Challenges that that these batteries have and.
And certain mechanical performance that we are that we are addressing as well with our with our powerful thermal thermal barriers. So those things have added up to additional additional content per vehicle and that's the reason.
To a large degree we're having the kind of revenue that we're projecting that we're estimating I should say in Q4 and that we suggested that we would have two times or more.
The revenue that we were anticipating for 2022.
Got it and is that.
Is that additional content is.
Is that with both Oems or is it skewed to one versus the other I know the one you've had in hand for the longest time.
That one is the platform versus the other one being the vehicle, but curious on that.
Yeah.
I think I think what I would like to say or just from a confidentiality point of view is that this is.
Being a provide this idea is being applied to several of the companies that are.
That were both serving and that are in our development funnel.
So.
So this is a pretty universal opportunity for us as we.
Strive to become this idea of a technology partner, we're we're very engaged with several of these companies at the design level and again, it's giving us the opportunity just to address more issues, including issues that take place during the normal course of the battery operation.
Got it.
And maybe sticking with the Asian, OEM and it sounds like that potentially has announced soon who that is.
But just curious where your confidence level lies in winning the entire platform I know youre starting with this one because they're under some time constraints, but thoughts about getting the rest of it.
Yeah, we've worked very closely with.
The company continued to work very closely with delivering production parts into.
Into its first vehicle.
We think we're in a strong position.
It should be.
The partner for for the for the battery platform more broadly, which ought to take place here over the course of the coming.
Few quarters.
Okay.
Got it and then last one for me just.
You mentioned, you've always talked about the three levels.
Engagement and as things continue to trend well there I mean is it.
Is it fair to characterize it kind of number of Oems are pretty similar in the same buckets just that those those that level of engagement is just.
Gotten closer to resolution, whether it's an award or what next steps are.
I think the level of engagement the way I would say this that in some sense, it's become more formal as I've said in my comments.
We're seeing many more we are engaged with.
Many more.
Requests for information requests for quotation.
And these kinds of things so I would just it's advanced in the sense of it's more formal in.
That way Eric.
Okay. Thank you.
Thank you very much thanks, Eric.
Thank you Mr. Stein. Our next question comes from the line of Colin Rusch with Oppenheimer. You May proceed.
Thanks, so much guys.
So if you look at that pipeline and I'm, just wondering for Eaton overall scope and scale of what that pipeline looks like.
A square meter perspective, or revenue number or or total customers and then the second question within that.
The customers that you have.
It looks like you're working with are reacting chip problems that they've had on the field I'm wondering about earlier stage engagement around proactively avoiding some issues around using the material in a more structural way potentially.
Essentially just supports our programs essentially from other parts of the vehicles beyond just the pattern.
Okay.
Thanks Colin.
So on the.
Well this is really a pretty fast moving situation for us to really give you.
You know longer term projections.
Because several of these things are.
Are somewhat binary if you're if you will and.
And each one.
Can have.
An enormous impact on our revenue out in 2023, and 2025 and so.
Yeah.
But a lot of these decisions are going to be made here.
Coming.
Handful of quarters at the very very most and so it's a it's a large opportunity and you know we don't.
Investor deck, we've we had some projections in there and we're very confident.
And the size that we outlined at that point in time.
Yes.
So it's definitely a multibillion dollar opportunity for us and again, we're not we're not really projecting much beyond that at the at the moment, but with each one that we win it brings a fairly large chunk of revenue.
Our way that that is.
Usually defined at a long term contract.
In turn.
Yes.
Yeah.
Go ahead caller.
In terms of your second second question, what I would say is.
That we're principally focused.
On on the battery platforms themselves I think there is additional work for us around the battery platforms that is interesting to us and we have discussions around.
But I wouldn't really extend the scope beyond the battery platforms themselves at this point in time, you know I mean.
Historically, we have had.
Sales.
Let's call them transportation sales, sometimes in vehicles, sometimes an automobile excuse me and trains in a variety of different types of transportation vehicles, but again, our principal focus and the real drivers of our revenue we're going to be our work around the battery platforms themselves.
Awesome and then obviously, there's a lot going on with.
Basic materials from a cost perspective logistics perspective, I guess, just since the end of the quarter starting with October.
Speak to any adjustments that are happening or concerns that you're seeing in terms of availability of material.
Cost structure, it sounds like that and if those were to pass those costs on to customers.
Okay.
Very topical.
We're not.
Not different than a lot of a lot of companies right. Now we have we have our we have our supply chain.
And it's it's stretched.
Frankly around the globe and our customers are around the globe. So there was there is there are a lot of challenges associated with it.
What would I would just say about it is.
And our energy infrastructure business for example.
We.
We have in the past.
And it's been largely an industry practice to be able to pass along these kinds of.
Increasing expenses serve call them inflationary type.
<unk> expenses increases and so I think.
I would expect that we will do the same.
And this in this particular in this particular case, especially now that it seems quite apparent that it will extend into.
Into 2022.
Right.
So I think we're in we're in we're in good shape.
From that point of view with with with.
Pricing power if you will again, we're not trying to take advantage of the situation. We're just we're just try to hold hold serve basically.
Perfect. Thanks, so much guys.
Thank you Carl.
It's Tom.
Sure.
Thank you Mr. Rice. The next question comes from the line of Alex Potter with Piper Sandler You May proceed.
Great. Thanks, guys.
Maybe one I guess follow on question to what Colin was just asking there.
Les on the supply chain for what you're making now and more on the supply chain for.
Plant number two are there any particularly long lead time.
He says of equipment or anything like that that could be slowed down as a result of the.
Of the pandemic revenues logistical problems.
Does that keep you up nights wondering whether youre going to have to delay the project as a result of any of that.
Yes.
We are we are very engaged with our with the vendors for our long lead time.
Adams and.
And we are we are in good shape right now.
Without Alex we are not expecting.
That to be an issue for the startup of plant to buy by the second half of 2023.
You know I think.
I think our.
Challenges are more just around the more.
Current day logistics of moving materials around both our raw materials and our products.
It's just a challenge it's keeping.
US up at night in particular, our supply chain team.
Yeah.
Okay great.
And then obviously this is this these comments around expanded scope of work.
Using pirate than for other purposes.
That all sounds great.
Upward revision to the revenue guidance that all sounds great.
I don't know the extent to which you're comfortable talking maybe in slightly more specific terms around what exactly.
It is that you'll be using pyro 10, four you mentioned sort of general thermal management or structural I guess.
Characteristics of Arafat.
But can you elaborate on that exactly.
And then just kind of encasing sales or pacs or modules to prevent thermal runaway.
Let me let me.
Let me give a maybe an example of that that would be helpful. When you think about mechanical performance in mechanical durability.
You know that.
Typically in and.
Module the cells have material between them to keep.
Keep them.
And in place and constant pressure on the cell wall.
<unk>.
So as the material as the cells are expanding a contraction with each charge cycle and.
So if you think about our material you know it has that.
It has its.
It's compressible to think of it as kind of a blanket like material and so there are there can be roles for our materials, sometimes with other materials as well.
Two to play a role in that and that relates to the normal course of a battery's life as opposed to the extreme situations of thermal runaway, which you don't want to <unk>.
That's never happened, but it but we know it does so.
That's the kind of thing that we are.
That we're exploring today.
Interesting. Okay. Thanks, that's very helpful. And then maybe last question on the.
But maybe the types of companies that are in your funnel as well as your own capacity I guess is there a is there a natural limit to the number of inbound inquiries.
Inquiries that you can entertain.
And as a result, our U.
Maybe rank ordering these inbound request.
In order of.
Long term revenue potential or your own perception of the quality or the.
The customer I guess, maybe.
And maybe that's.
Two questions buried in there are you are you dealing with all kinds of customers and treating them all more or less equal and then second is there a natural limit to the number of people that you can be.
Thanks, Yeah.
So in terms of ranking look.
Everyone is important to us, but some people or some companies are probably more important than others in some sense because of scale because of the likelihood of them being successful the breadth of their programs.
That that the technical prowess.
Their teams with those sorts of things really draw us in.
And we engage very well with those kinds of those kinds of groups. So I think there is some natural prioritization going on as you would as you would think.
<unk>.
We are we are interested in a variety of areas, including stationary energy storage and some other areas areas of aviation and and what have you.
But just from a breath point of view, it's hard to compete with you know with one of the three or four or five largest automotive Oems in the world or multiple of them and they can really absorb a lot of our a lot of our efforts.
In terms of in terms of.
Sort of that.
How many can you sort of take on if I understand that part of your question correctly I think what I would say is and.
John said it in his comments.
Got it in my comments.
We are we are we are looking very carefully at the demand profile and that translates for us too.
The way we build plant two.
And we've talked.
We've described when we built plant one we did it in three phases basically.
Our initial thoughts about plant two where to do it in a very similar kind of way you know, bringing on the capacity sort of incrementally as you as you as you.
Locked down business and.
And as this business comes out of us.
More rapidly and and we're having significant success within that.
The development funnel and our confidence in progressing through the RFID RF Q processes.
Increases.
We are we are looking at building.
More of that play out during phase one let me, let me just say and but it's going to be demand driven we're not we're not building it and hope they come it's going to be demand driven and we're working real hard to coordinate those things and as I said the business sort of comes in chunks and.
So at least the contract sort of come in chunks, and then they roll out their vehicles.
And we all know Alex you more than most.
All of them are going be more successful than they are suspecting and some are going to be less successful than their suspecting and so that's why our.
Our strategy around being OEM agnostic is really important for us and.
And our intent to be the industry standard here.
Uh huh.
Has it.
In our Paris in thermal barrier is really critical to us so.
I hope that sort of answers your multipart question.
That's the way, we're thinking about the business.
Yeah. Thanks, very much that's super helpful I'll pass.
John.
Yes.
Thank you Mr. Potter. The next question comes from the line of Jed <unk> with Canaccord Genuity you May proceed.
Hey, guys.
Thanks for all the details and nice job on the quarter.
Thanks, Jeff first question for you I guess.
Hi.
The Georgia, the second facility down in Georgia, the state that is statesboro corrected that hasnt changed.
We're referring to it in the southeastern United States at.
At the moment.
Okay are you in.
But in the Q, you previously announced or in your case.
The breaking ground.
Utility.
In Georgia is it I guess it.
Is it for negotiations with between.
Between municipalities for is that sort of the stage that you are at in terms of where the location and what incentives may be.
J J I can clarify so back in 2016.
We had booked through Georgia, and South Carolina and at that time, we had selected Statesboro, Georgia for the location of our second facility, but we've we've reconsidered we're looking at multiple locations and we have selected a site now.
Haven't we have not announced that it has statesboro, Georgia, Georgia or South Carolina, We've just said so got it in the United States.
That's really helpful. Thanks.
And I'm, assuming when you announce.
Yes go ahead.
No no I was just going to say I think it's where you're headed.
We will we will announce.
Jointly with the Governor's office and we'll do this deal.
Properly, let's say.
And they're not too distant future.
Understand.
Great.
And good luck with the incentives for that too.
Yeah on the.
The Mexico facility.
When you say the production.
One I guess.
Have you targeted a location it sounds like you're further along there. So I'm curious if you have.
It's.
Settled on a on a location there and then I just have.
Just curious about some of the details square footage or how we should think about <unk>.
Production output from that facility.
Yeah. So so what we're.
Are doing in Mexico is as we've described our paraffin thermal barriers.
It's a <unk>.
<unk> part.
System.
And.
Okay.
The automated fabrication of those parts.
That can.
Equal millions of parts.
We're doing in in Mexico, we have.
Had a team there looking at different sites, we do have an adviser in country.
<unk> is guiding us.
We've also leaned on the resources that.
Koch industries have.
And.
They have substantial.
Fabrication facilities in Mexico. So we're we're trying to learn all the lessons and get as smart as we can about this and where we are making are making good progress and we would expect to have.
An operation there by the end of 2022, so it's.
We're moving right along with that with the process that we have not quite kick.
Hey location yet.
In terms of size John do you have I don't have that really.
We're not.
It's all part of our planning at present, so Jed once it is the same way we're sizing our our aerogel.
Plant in the southeastern U S were also engaged in.
In an effort to size the fabrication facility I think the important part is we'll pick a leased will be so facility. So we're not going to have an extended lead time to get into a building.
And it's it's much less capital intensive.
And the equipment that we would actually put into that plant more readily available.
And so the lead time to get into a facility is measured in months.
The lead time to have automated fabrication operations in place.
Maybe a year.
It will absolutely meet our needs and allow us.
To keep pace with demand.
Got it maybe just shifting gears.
I didn't hear any update on the silicon anode and just curious.
How that.
Project is is developing any comments there.
Yes. Thanks.
I did mention that we do.
We will have invested over the course of 2021, roughly roughly $10 million of that this year and scientists and engineers and in facilities and what it's allowed us to do.
Is.
Produce larger quantities of material better materials, deepen our engagement with our announced partners and other partners as well or other other entities, we are working with.
And so you know our focus remains on.
And really leveraging the unique aspect of our carbon aerogel ended up in the in the protection of the.
The silicon.
Through to its lifecycle, and so where we're making very good progress we're iterating faster.
With these other companies.
And we just didn't have enough material before we made these investments to really keep pace and work at a large enough scale to satisfy them and we're now doing that and it's been this has been true for just about one full quarter now so.
The peso has quickened and we're really excited about the work and what we've committed to is that when we when we provide our.
2022.
Guidance for the year, we will add at that point in time.
So both commercial and technical milestones for acid battery materials to help you guys keep score just a little bit better throughout the year 2022.
Great.
Well look looking forward to watching the progress thanks guys.
Thanks, guys I appreciate it thanks chip.
Yes.
Thank you Mr. Doyle Chairman. The next question comes from the line of Amit Dayal with H C. Wainwright you May proceed.
Thank you and good afternoon, everyone.
Thank you.
Just really quickly on <unk>.
The expectations for next year from totally gone away.
<unk>, you're doubling your revenue expectations.
Is this coming from visibility from customers you have in hand or are you expecting additional orders from.
Are the customers that you are working with.
So this is really coming from additional content from the customers, we have and that and so that.
That confidence was not coming.
Not necessarily derive from winning more contracts and delivering production parts in 2022 from you know from other entities that think of that as upside.
Our comments that John and I provided really related to content per vehicle.
From the two major automotive Oems that we have won a U S based one Asia based.
So if you do get additional orders from other customers you potentially be able to meet the demand with the capacity you have men.
Yes, we do.
We have capacity today to reach up into the <unk>.
The mid two hundreds of millions of dollars and so John's guidance was what was in that.
Why.
2018 to 128.
For this year and so we've got we've got some room to run here before we run out of capacity and we believe that we can double.
Revenue from 2021 to 2023 with the capacity that we have.
Today. So so we've got room to run, but we are as we said expediting our work.
On plant two.
Yeah. So so.
So a similar question.
<unk>.
You don't necessarily have to give up any energy infrastructure business to capture the EV opportunity fully for at least 2022.
That's correct.
And look our energy infrastructure business was very important to us and.
We we play.
An important role I've taken that in that industry are our.
Distributors are contractors our end users.
Rely on this product and we believe that we can continue to grow that business as well, even even if if you subscribe to the idea that you know the traditional energy might go sideways for the next three decades.
We believe just given.
Our resource efficiency asset resiliency and safety nature of our products that those that those attributes will become at least or only more important to these companies as they as they tried it.
Achieve some of their own sustainability goals here over the course of the coming five and 10 years. So.
And so we do have room, and we are anticipating that will continue to grow that grow that business.
Understood. That's all I have guys. Thank you so much.
Thanks Aman.
Yes.
Thank you Mr. Dial. The next question comes from the line of Chris <unk> with B Riley you May proceed.
Hey, guys just a quick one on the second facility planning, we're talking about more than two times the size of the current facility, but are we going to get a full picture of the size scope and cost with.
With the Governor announcement, you think or is that.
That something that comes later next.
Next year or something.
Yes.
Alright, John here.
Yes, hi.
We know that we need to give that to you. It will it will definitely come by the time of the government announcement with the governor.
And the way the way we think about it internally is we want to tell you what the return is on the investment when we talk about the investment and so we'll make sure you understand the scope the scale the capacity the operating efficiency of that plant and.
We're targeting to have that.
Public costs.
Within the next few months.
Okay. That's great and then maybe just the capex cadence that we should be looking at.
I think the third quarter will be in the cat in the Q there but.
Fourth quarter are we starting to order any of the.
Long lead.
Yes.
We're starting to put in orders for long lead time equipment, although most of that would that cash would actually flow to be recognized as capital expenditures in 2022, we did give guidance of $15 million in capex.
For the full year 2021.
Got it Okay and then.
Kind of brushed on.
Potential new wins for next year.
Upside I just wanted to get a sense.
When was essentially just a few months before the vehicle launch so what is vehicle launch timeline for some of the stage III kind of late stage folks.
Is it.
There are kind of looking at vehicles potentially for 2022 launches or is it more.
I'm, just wondering three and beyond after.
Or more.
Sure.
Yes, Chris I think that wins that we will get during 2022 and even the first half of 2022, well will really begin to materialize in terms of revenue.
The following year and then typically really kick in much more substantially in 2020 for that that's the pattern that we've seen in the contracts that we've won and its and its consistent with what we all read.
About projections and and and frankly, the number of launches that.
These.
Seven or eight 910 companies have scheduled between now and even as late as 2025 2025 models typically in 2024 so.
So look I think the majority of the revenue that we had in 2022 will come from the.
The two customers, we have today and but.
But switching over to production parts with some of these entities in the latter part of 2022 again really sort of sets the stage for a nice acceleration in 'twenty two 'twenty three.
Yeah. So on 2023, you were talking about Washington.
Second facility here in the back half.
We have a sense of the size of particular modules at that facility.
We get a sense of kind of the cadence of that.
Over 500 million coming online what would be kind of the timeframe. We should think about if you don't want to say, how much bigger than $500 million.
How many stages and when we should expect kind of the different lines to come on.
Yes, we're going to.
Exactly the kind of detail that we hope to get out within the next few months and no later than our Q4 earnings call.
We will provide the overall.
Size of the facility, what's the Capex costs are when we expect to incur those costs.
<unk>, what's the capacity of that facility will be how to keep pace with revenue will obviously give you our 2022 guidance at that point in time as well.
And we will talk about how it is phasing in and so we wanted to give you the whole picture.
At once.
You can understand the dynamics of the business and not just not just the investment cost, but the return on the investment and what we're seeing going forward.
Chris I would add.
Yeah.
Thing I would add to John's comment is as you know.
I think they call it kind of a goldilocks thing right. We don't have too big too small, we certainly don't want to build this thing too small so that were out of capacity before we before we get started because.
This is the time to win these contracts and this is the time to deliver these are long longer term contracts and so.
You've gotta be capable.
And.
And so that's that's our focus here.
And again as John says, we're really trying to match up our demand profile with the size of that first without first fast.
And of course, we're leaning towards building a bigger in the beginning because that's that's what we're that's what we're getting for it.
When the opportunities come in.
It's it's larger and it's coming at an accelerated pace than what we expected a quarter ago.
Got it okay.
Helpful. Thanks, guys.
Thanks, Chris.
Thanks, Chris.
Thank you Mr. <unk>. The next question comes from the line of Tom Curran with Seaport Research Partners you May proceed.
Hey, guys. Thanks for squeezing me in even though we're over the hour now.
Quick I've only got two left.
Dan at this juncture does the apparent front runner to become customer number three for thermal barriers.
Most likely to extend you a <unk>.
<unk> Award for single EV model.
Inc.
Multimodal platform wide contracts similar to customer number one and and what's the earliest you might secure that third customer could could we see an announcement on that potentially.
Before the <unk> earnings call at the Soonest.
So it will be more battery platform in nature. So.
I mean, I'm speculating here a little bit there.
There's a roster are you know there are multiple Oems in this RF.
RFID RF Q.
Product validation.
Activity level today I'm anticipating that.
That the most sort of notable ones are more platform oriented.
Dissipating that.
So our earnings announcement. It was late February so that's a that's a pretty short period of time. So I don't want to I don't want to set expectations in that way, but I would just say that you know over the course of the next couple of quarters.
We will continue to talk about the about the funnel and make announcements as we win them. There are there going to be some decisions made in this in this kind of two quarter timeframe.
And we think we're in a strong position.
Again with some of the some of the very largest companies and with some of the newcomers as well.
Great.
Eagerly staying tuned.
John when it comes to plant number two.
Could you just revisit that very helpful. Touristic, you've previously provided when it comes to the expected Capex outlay per dollar of <unk>.
Incremental revenue you'd be adding.
Be an investment in.
Additional production capacity.
Does the 65 cents of Capex per dollar of incremental revenue in production capacity is that still hold or.
Based on the work you've done thus far would you update that.
For phase one plant number two and then when it comes to phase two in the second half of 2023 do you expect that just to be a seamless transition or might we see a pause between phases.
Sure.
So I'll answer your second question first we could potentially see a pause between phases.
I think the real question, because we talk about revenue capacity coming out of the plant.
We had we had we had metrics they were for traditional aerogel products alone, but now we've got these multipart thermal barriers that add additional content additional revenue.
So I'm going to withhold, making a comment on that at present until it really is going to be dependent upon the revenue that we get to the thermal barriers with aerogel, just being a component of that overall.
Revenue.
I would say however.
There is inflation on steel costs are up and a big part of the cost of building. This plant is steel.
And then.
Construction resources are in high demand.
And just like every other business out there construction companies are having to pay up in order to get workers. So inflation is working against us the additional content on our thermal barriers is working for us.
And we'll put it all together and when we talk about the investment in the asset will make it very clear what's the capacity, what's the aerogel capacity with aggregate thermal barrier revenue capacity that comes from the investments we make and so we'll make sure we package that provide all that detail when we talk about the plant more full.
Early in the next few months.
Sounds fair it makes sense. Thanks.
Thanks for taking my questions guys. Thank.
Thank you Tom.
Thank you Mr. Brian. The next question comes from the line of Chip and wireless patent.
You May proceed.
Hi, good evening, thanks for taking the question.
Just quickly on the energy infrastructures that guidance I don't think we touched on LNG, maybe you can update us on the pipeline there and then anything on the subsea side in terms of trends.
Well on the.
I think we've all been reading about the importance of LNG.
In Asia, and Europe, and NSF production center here in the United States. So I think activity levels are high.
Japan damage costs.
<unk> work in general to slow down and we've talked about that a lot frankly, it costs maintenance work to slow down as well, we're seeing maintenance work come back.
Quite nicely some pent up demand for sure.
Project work is I think people are still a little hesitant to pull the trigger on a major project.
At.
Has in security around.
Workforce and the continuity of executing on that project. So.
Having said that we are in the specifications of a number of projects.
And we're and we're staying close to those projects and we think again, we'll win our fair share of them, both LNG and chemical refinery type projects as well, so where we feel we feel really strongly.
Strongly about our energy infrastructure business and our place in that business in the years to come.
The subsea work has always been.
Our business I think dating back home.
For most of our 20 years.
You know it's been a business that typically has been somewhere between five and $15 million in size. It's been it's been sort of an important.
Solid sort of niche for us and I think it will continue to be here in 2022.
And when we look out into our pipeline, we sort of keep about a three year pipeline of sort of.
Proposed project projects subsea.
You know again there is a there is a.
Nice handful of projects in 2022 that could materialize and I would expect us to come.
Fall into that $5 million to $15 million kind of range again in 2022 so.
Again, just just relatively consistent.
Yes, no that's helpful Don.
Obviously, we're seeing a number of these everyday and high profile announcements in terms of build out of battery supply chains here in the U S Canada Europe.
Wondering maybe if you could speak a bit to implications for your opportunity set maybe from a geographic perspective.
As well as some of the more advanced battery material opportunities, even though they are further out on the horizon.
Yeah Yeah.
No look where we are.
Very engaged with these companies, we mostly talk about automotive Oems, but where we are.
<unk>.
Sure.
When you talk about thermal barriers.
But we're also engaged.
<unk>.
With the tier ones with it with a battery Oems themselves and then you switch over to the Ashwin battery material side, our carbon aerogel.
And again, we were.
We have the belief that on the carbon aerogel side that.
We're going to see.
I guess I would say sort of consortium.
Companies come together and.
Play important roles in.
And.
Sort of next generation.
Batteries in and our goal is to be sure that our carbon aerogels.
Joining in on some of those consortiums and we.
And those will be comprised of large large.
Our battery management.
Oems on some of the newcomers on the on the battery OEM side, but we also know that the automotive Oems have significant battery programs battery chemistry programs.
Today, So I think you'll see let's call it a materials company like ours.
Turning up with up with us.
With a battery OEM big and small pairing up with some of the large automotive Oems. So I think youre going to sort of see that.
Play out here and again, we believe that our carbon aerogel are special and we'll we'll find some daylight in and those activities. So that's what we're working towards it again.
I don't want to convey that this is a 2022 or 2023 revenue item for us, but we do think that it can be value generating.
As we as we get.
Further third party validation.
For our work and we begin to be able to compare our data with some of the other companies.
Has.
They have worked hard in the battery materials space as well so.
Got it.
Thanks, guys.
Hey, Thanks, Thanks, Jeff appreciate it.
Thanks Chip.
Thank you Mr. Moore. The next question comes from the line of Jeff Osborne with Cowen You May proceed.
Excuse me. Thanks for squeezing me in just had a couple of quick ones I think in the past you had talked about 100 to $300 content per vehicle. It sounds like that might be a bit higher now can you give us an update on where that should be.
Yes.
It is.
It is a it is a valid number for some for some cases and.
And I think as and I think we will be at the higher end of that range or extend beyond that range with.
With some of the other cases, where we're again, we're playing a broader role.
And the battery construction, if you will the battery performance and safety.
We're we're addressing some of the.
Challenges around a battery module during its normal course of operation as opposed to it.
The mission critical part around thermal runaway so when we get into those situations, where we're seeing we're expecting a content per vehicle to be greater than that 100 to 300 level and it is the principal reason why youre seeing us.
Increase.
Expectations for <unk>.
2021 and 2022.
Got it that's helpful is it both the North American and Asian customer that it's expanded the scope or just one of the two.
Again, we'd rather we'd rather.
Maybe not say I mean, if there were 10 of them and I would tell you well three of them, but it's there.
That's gonna get revealed here pretty soon.
These companies are and I just would like to.
Understood maybe just two other quick ones.
Even out of the interest of time, one for Don one for Jon Don for you on the Asian customer can you you mentioned that there's like a secondary party that might be using the platform as the awards that you have just for one vehicle now, but there is a desire and ambition potentially to expand that or is it literally just one model.
Yeah.
Yeah, no we with the with our Asia based when it is for a specific <unk>.
Model that will be marketed in Asia in Europe and in North America.
But most of our engagement with the company has been.
Has included.
The team that's responsible 18, one team that's responsible for the vehicle and another team.
Responsible for the battery platform overall, and so they made commitments to launch that vehicle before the platform is completely designed and so we're engaged with both of those teams. We've obviously one with the vehicle and we're and again, we believe we're in excellent shape to win them to win the platform longer longer term.
Got it that's helpful. And then the last question I had is John you mentioned, the $10 million of incremental investment in 'twenty. One a common question. We get is sort of the path to profitability and obviously theres a lot of incremental margins that flowed through as a result of utilization, but it is a bit unclear how much opex you guys need to invest in all of these.
Additional initiatives, so I know, you're not giving 2022 guidance, but would you say that $10 million to drop in the bucket of what.
It's needed as it relates to say 'twenty, two and 'twenty, three and there's a pretty sharp hockey stick of incremental investment for each of these new initiatives or.
Do you expect it to be.
Flattish at these levels is.
Single digit millions next year from from our initial two customers. We just updated that two X, which would put it somewhere between 15 and $20 million in that range.
So when you think about a $10 million operating expense investment or something even more significant than that.
The EV business is going to generate losses.
In the 2022 timeframe could you get a very significant expansion of revenue potential in 'twenty, three and leading into 'twenty four and 'twenty five.
No.
It definitely we will see Lucy losses coming from the EV bus.
Business in.
In 2022, but then sharp increases in.
And profit contribution from that business and resulting ultimately in profitability.
In 2023, and clearly into 2024, so thats the general profile will be much more specific though when we talk about the sizing of the plant. When we give 2022 guidance. We'll also we'll also try to give you a really good sense for the revenue ramp and in the path to profitability at that time as well.
Perfect. That's all I had thanks, so much for squeezing me in thanks, Jeff.
Thank you Mr. Osborne at this time there are no additional questions I will pass it back to the management team to provide closing remarks.
Thank you Sir appreciate it hey, we appreciate your interest in Aspen Aerogels and look forward to reporting to you our fourth quarter 2021 results in late February and be well and have a good evening. Thanks, so much.
That concludes the Aspen Aaron.
Q3, 2021 earnings call. Thank you for your participation and enjoy the rest of your day.
Yeah.
Okay.
Okay.
Okay.
Yes.
Right.
Yes.
Okay.
[music].
Yeah.
Yes.
[music].
Yeah.
[music].
Okay.
Sure.
Yes.