Q4 2021 Aspen Aerogels Inc Earnings Call
Thank you for your patience, the Aspen Aerogels, Inc. Fourth quarter 2021 earnings call will begin shortly.
During the presentation you would have the opportunity to ask a question by pressing star Lake by one on your telephone keypad.
[music].
Good afternoon. Thank you for attending the Aspen Aerogels, Inc. Fourth quarter 2021 earnings call.
All lines will be muted during the presentation portion of the call with an opportunity for question and answers at the end.
I would now like to turn the conference like Jewel heist Hello over garage could have spent average joes. Thank you you May proceed Ms Graff.
Thank you Laura and good evening and thank you for joining us for the Aspen Aerogels fiscal year 2021 financial results Conference call and Laura Guerrant, Aspens, Vice President of Investor Relations and corporate communications.
With us today are John Young President and CEO , John Fairbanks, Our Chief Financial Officer, and Ricardo Rodriguez Ricardo was Aspen's, Chief strategy Officer, and he will be assuming the role of CFO . Upon Johnson John's retirement April 1st there are a few housekeeping items that I'd like to address before turning the call over to John .
The press release announcing aspens financial results and business development as well as a reconciliation of management's use of.
non-GAAP financial measures compared to the most applicable GAAP measures is available on the Investor section of Aspens website Www Dot Aero gel Dot com included in the press release is a summary statement of operations, a summary balance sheet and a summary of key financial and operating statistics.
For the fourth quarter and full year ended December 31 2021 in.
In addition, I'd like to highlight that we have uploaded to our website a slide deck that will accompany our conversation today you can find the deck at the investors section of our website an archive of today's webcast will be on our website for approximately one year.
Please note that our discussion today will include forward looking statements, including any statements regarding outlook expectations beliefs projections estimates targets prospects business plans and any other statement that is not a historical fact.
These forward looking statements are subject to risks and uncertainties.
<unk> 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 essence press release issued today.
Each one of the presentation and I'll discuss in more detail on the reports <unk> files with the SEC, particularly in the company's most recent annual report on Form 10-K .
The company's press release issued today and filings with the SEC can also be found on the Investor section of Aspens website.
We're looking statements made today represent the company's views as of today February 17, 2020 through Aspen Aerogels disclaims any obligation to update these forward looking statements to reflect future events or circumstances. During this call we will refer to non-GAAP financial measures, including adjusted EBITDA.
These financial measures are not prepared in accordance with U S. Generally accepted accounting principles or GAAP is.
These non-GAAP financial measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with GAAP. The definitions and reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures and a discussion of widened present. These non-GAAP financial measures are included in today's press.
Felipe.
I'll now turn the call over to John John .
Thanks, Laura.
I'll provide a summary of our 2021 financial results and discuss our 2022 outlook before turning the call over to Don and Carton.
At a high level, our 2021 results and our 2022 outlook share the same drivers.
First we're generating revenue growth in each of our principal markets.
We're benefiting from the rapid adoption of our partner Rubin thermal barriers in the electric vehicle market, we're experiencing solid growth in the energy infrastructure market associated with the initial stages of a post COVID-19 recovery and we're gaining share in the European sustainable building materials market with our baseline.
What states last mind products.
Second we're investing in people resources and capital assets to support our rapidly growing emo cover the opportunities.
This investment includes increased spending to enhance our technical operational and commercial teams supporting our thermal barrier business the research and development team supporting our carbon aerogel battery material opportunity.
Our legal resources to expand and defend our IP portfolio and our finance information technology and general management personnel to manage the anticipated strong growth in our business.
This investment also includes planned capital expenditures to design and construct our second silica aerogel manufacturing plant.
Build out with our thermal barrier fabrication operations and to expand our carbon aerogel battery materials production fabrication and testing facilities.
We're confident that these investments are commensurate with the scale of our EV opportunity.
Focusing in on 2021 total revenue increased by $21 3 million versus 2020 to 121 $6 million.
This 21 million with $21 3 million dollar increase in revenue was composed of a $12 6 million dollar increase in energy infrastructure revenue $6 $7 million in initial revenue in the EV thermal barrier market and one $9 million of growth in a sustainable building materials market.
Our revenue could have been higher.
Estimated our production output was depressed by between 6 million and $8 million during the fourth quarter due to COVID-19 related staffing issues, some raw material shortages.
Note. These issues our 2021 revenue would have been in the upper end of our outlook range, which as a reminder, we raised three times during the year.
Importantly, we are experiencing an improvement in both staffing and raw material availability, thus far during the first quarter of 2022.
Turning to costs and expenses during 2021 material costs increased by 33% or $14 $5 million.
Factoring expenses by 28% or $11 6 million.
And operating expenses by 40% or $14 $3 million versus 2020.
Growth in costs and expenses were driven by both the increase in revenue.
Our investment in people and resources to prepare for growth in 2022 and beyond.
Accordingly, net loss increased to $37 1 million or $1 22 per share in 2021 versus a net loss of $21 $8 million or <unk> 83 per share in 2020.
And adjusted EBITDA was negative $26 million in 2021 compared to negative $6 $4 million in 2020.
Just a reminder, redefined adjusted EBITDA as net income or loss before interest taxes, depreciation amortization stock based compensation expense and any other items that we do not believe are indicative of our core operating performance in.
In 2021. These other items included a $3 7 million dollar gain on the extinguishment of debt.
Next I'll turn to our balance sheet and cash flow for 2021.
Cash used in operations of $18 $6 million, reflecting our adjusted EBITDA of negative $26 million offset in part by a $7 $4 million decrease in working capital investment.
Capital expenditures during the year was $13 $8 million.
Included engineering and designs for our second manufacturing facility and investments to expand our carbon aerogel capacity.
Cash provided by financing activities of 90, $92 $5 million included $73 $5 million of proceeds from our June 2021, private placement with Coke strategic partners and $19 $4 million from sales of equity through our ATM facility.
We ended the year with $76 $6 million of cash no borrowings under our revolving credit facility.
Shareholders' equity of $128 $4 million, we also had $12 $6 million available under our revolving credit facility at year end.
I'll now turn to our full year 2022 outlook.
Continued revenue growth in 2022 associated with the <unk>.
Tripling of our pie within thermal barrier revenue to $20 million for the year.
Continuation of the post Covid recovery in the global energy infrastructure market.
Continued demand growth in the European European sustainable building materials market.
As a result, we're setting our 2022 revenue outlook to between $145 million to $155 million for the year equivalent to a growth of between 19% and 27% compared to 2021.
As discussed earlier, we plan to continue to increase investment in personnel and resources to capitalize on a rapidly growing E mobility opportunities.
Accordingly, our initial 2022 full year outlook is as follows.
We expect total revenue of between 145 and $155 million net loss of between $66, seven and 77, I'm, sorry, $70 7 million.
Adjusted EBITDA of between negative $42 million of negative $46 million EPS of between a loss of $1 95, and the loss of 217 per share.
This EPS outlook assumes a weighted average of $34 2 million shares outstanding for the year.
In addition, this 2022 outlook assumes depreciation of $9 7 million stock based compensation expense of $8 $2 million and interest expense of $6 $8 million.
We also expect to incur between 250 and $275 million of capital expenditures during the year principally for the plant two project.
Before turning the call over to Don I want to express that it's been a privilege to work with my fellow asked an employee since 2006.
Team at Aspen is talented hard working and completely committed to the company's success.
I, particularly want to thank Don for his leadership over the years and our shared goal of building Aspen into a great company rich with opportunity.
In addition, I want to stress how truly impressed I am with Ricardo is remarkably talented and has the right combination of automotive and financial experience to ensure asked them will succeed in the coming years.
Don at the helm and Ricardo as CFO I'm confident we will not skip a beat after my retirement.
And finally I want to thank our investors and analysts it's been an honor to work with you all since our IPO in 2014.
I'll turn it over now to Don.
Yeah.
Thanks, John and good evening, everyone. Thank you for joining us for our Q4 2021 earnings call.
When John and I first met in 2006, I convinced him to join the company to help create a strong foundation I said just give us three years.
Of course over the last 15 years John .
Played an instrumental role in building a company that has a vast opportunity and a culture of openness transparency and fairness.
To honor John we as in Aspen team commit to keep this culture at our core on behalf of all of Us at Aspen. Thank you John .
I would like to welcome to this call Ricardo Rodriguez, our Chief strategy Officer, who will replace John as our CFO . Upon John's retirement at the end of the first quarter Ricardo has a deep automotive in tier one background and has already become a valuable member of the Aspen team.
Ricardo is another example of the many talented people we have at Aspen, who worked turbocharging our efforts to become a highly valuable technology leader in sustainability.
Today, I will describe the key elements of our progress towards achieving our near term and longer term business goals.
<unk> will provide a detailed assessment of our thermal barrier opportunity.
John Ricardo and I will conclude today's call with a Q&A session.
The first key point to cover is the recent 150 million dollar investment from Coke strategic platforms. The investment is comprised of convertible notes and common equity and follows KSP $75 million equity investment made in June 2021.
We appreciate the vote of confidence confidence from KSP and as importantly, the extension of the working relationships, we have with various entities at Koch industries.
As I have described in the past we are leveraging several resources at Coke with a goal of Derisking the scaling of our business as we ramp to be a fast growing supplier of critical parts to EV Oems there.
The most immediate example relates to the planning engineering and execution of our plant to capital project.
The $150 million investment from KSP, and our year end cash balance of more than $75 million provide a strong foundation for raising additional capital over the next year as we fund our significant growth and value creation initiatives.
The second key point to cover is an update to the growth targets that we first shared approximately one year ago.
At that time, we set targets to double revenue from 2021 to 2023 and to double revenue again from 2023 to 2025.
We are reiterating the target to double revenue from 2021 to 2023, and we are now upgrading the target to triple revenue from 2023 to 20, 25% to approximately $720 million in 2025.
We have made significant progress during the past year in order to reach and expand these targets.
In 2021, we generated pirate thin revenue from 10 customers.
Within revenue for 2021 and estimated for 2022 is multiples larger than what we expected and discussed one year ago.
The doubling of revenue from 2021 to 2023 is based on the expectation that our industrial business will return to pre pandemic activity levels, which we are well on the way to achieve and that we ramp paraffin thermal barrier revenue according to existing <unk>.
Awarded programs with our North American and Asia based automotive Oems.
We estimate that the awarded business from these two customers to whom we are now delivering production parts represents 100%.
2023 pirates in thermal barrier revenue target.
Like other tier one suppliers, we define the term awarded business.
Estimated gross program revenues from the volume forecast of customers taking into account our negotiated program pricing.
The upgraded target to triple revenue from 2023 to 2025 assumes low double digit growth in our industrial business and anticipated continue pendant continued penetration in the EV space, we estimate that 60% of the <unk>.
Targeted piracy in revenue for 2025 will be derived from our existing awarded programs. Furthermore, we anticipate that we will convert our highly active prototyping and quoting work into additional program awards and the battery platforms of other automotive Oems.
The third key point focuses focuses on our plans and expectations for plant two in support of our expanding and accelerating demand plan.
We announced today that plant to will be in Statesboro, Georgia, Statesboro as a university town near the Port City of Savannah, and central to our growing automotive and battery ecosystem.
We plan to build plant to considerably larger than initially anticipated with expected revenue capacity of approximately 1.35 billion.
The first phase of plant two we will have approximately $650 million of revenue capacity and a startup date in late 2023.
At that time, we will have the revenue capacity in our two plants of approximately $900 million.
Enough to service, our industrial business and approximately $2 2 million electric vehicles.
As we approach full capacity utilization at this level, we project, our gross margin to be approximately 35% and our EBITDA margin to be approximately 25%.
During the building of the first phase of plant two we also plan to construct the necessary infrastructure to support both the first and second phases.
This approach is most cost efficient and enables us to add another $700 million of revenue capacity in approximately 15 months from the kickoff of the second phase.
The volume and timing flexibility is critical as we anticipate potential additional awards for battery platforms from other automotive Oems.
As a reminder, we estimate.
We have existing capacity adequate to meet the target to double revenue from 2021 to 2023 to approximately $240 million.
<unk> targeted tripling of revenue from 2023 to 2025 to approximately $720 million can be met from plant one and the first phase of plant two in.
Points directly to the reason why we are building plant two to be much larger than the original plan.
Upon the completion of the second phase, we expect to have overall revenue capacity of approximately $1 6 billion across both plants.
The auto industry on track to invest half a trillion dollars in the next five years to make the transition to electric vehicles, the speed and size of our potential ramp is increasing rapidly.
With our technology and scale, we are positioning ourselves to be a valued supplier to a growing list of EV producers. We project the first phase of plant two.
With full infrastructure will require capital of approximately $575 million in the second phase will require capital of approximately 120.
$25 million.
Capex per dollar of revenue for the full project is less than 55.
Which is a lower cost than our prior projection of 65.
Per dollar of revenue capacity.
Our year end cash balance of more than $75 million in the KSP investment of 150 million.
Dollars provide the financial foundation for our business able to generate $1 $6 billion of revenue approximately $550 million of gross profit and approximately $400 million of.
Of EBITDA.
We will explore over the next year financing alternatives to raise additional cash required to fund the remainder of our significant business opportunity.
In addition to our EV and industrial businesses, we continue to invest in our strategy to leverage our aerogel technology platform into other high value markets with with sustainability themes, our work with carbon aerogels as the catalyst for asthma in battery materials, where our initial.
Our focus is on the silicon rich added materials. During 2022, we plan to share key metrics related to performance cost and third party validation and to compare those metrics with other interesting companies in the field.
With the 2021 investments in people and equipment.
<unk> is well positioned to respond to the increasing number of requests for battery and automotive Oems for evaluation materials and for development collaborations.
Finally.
I would like to begin the practice of highlighting our ESG work during quarterly earnings calls.
<unk> has become a business imperative for all good companies. Accordingly, we have begun the process of reorganizing our environmental and social efforts into a more formal ESG strategy.
This spring we plan to publish our first ESG report, which will be followed by a more in depth report, where we will recap our 2022 ESG progress and define our ESG positioning for the future.
Our goal is to provide a foundation for deeper discussions on specific ESG topics with investors and other stakeholders in order for various ESG scorecards and reading agencies have access to accurate and timely information.
And with that let me now turn the call over to Ricardo <unk>.
Carlo.
Thank you, Dan I really appreciated and couldnt be happier being part of the team.
As we execute the plan that Dan laid out and invest in increasing our pirate and capacity to plant two.
We think that it's worth stepping back and spend spending some time communicating in detail what makes this such a compelling mission.
Thermal runaways and uncontrolled energy releasing themselves triggered by various design manufacturing and usage issues that ultimately result in the decomposition of all of the materials in this film.
A runaway sells high temperature can push the nearby cell into thermal runaway and such propagation, usually destroys the battery or start to fire.
A lithium ion battery pack.
On fire consumes everything that it can do to a tight temperature, including an entire car.
These fires usually worsen with water is didn't react with lithium to expand the fire and only class the type of extinguishers can be used to control them and put them out.
The amount of energy released in thermal runaway is significant and equal to more than the energy used to charge the pack gear.
Given the ability of some of the materials within the pack.
So this is one of the most complex system level issues that our customers face as they integrate and launch safe and reliable electric vehicles in record time.
It's really exciting to be enabling a safe and reliable transition experience to electrification as part of some great vehicle nameplates and body styles that we can always safely enjoy with our families.
If we put ourselves and our customers choose integrating in Evs no easy exercise.
This complexity increases when an OEM takes over the design and integration of the battery pack as well.
And this feeds of system integration and vehicle has many diverging requirements or considerations that correct or is it we're making one better tends to affect the other.
These things determine whether your car is big.
All fast efficient agile full of feel or boring to drive.
Things like the vehicle size weight range its performance targets charging discharging rate ease of assembly crash worthiness, Recyclability, etc Drive battery pack design architecture decisions.
These decisions include what cell chemistry, what form factor pack design or layout are used.
All with the intent of providing as much energy density per unit of mass in space in the vehicle.
A key issue is that this energy density needs to stand the test of time and persist within an acceptable and consistent range that consumers see everyday in their gauge as big fast charge or drive their vehicles and all sorts of temperatures and conditions for over 10 years.
The integration is very complex, even if safety is we prioritize.
However, we are seeing most Oems go the extra mile.
<unk> safety and addressing thermal runaway with both active measures and passive systems, such as our player within thermal barriers.
Our value proposition is highest in NMC and mixed silicon graphite anode chemistry.
The Oems had most eagerly reach out to solve their challenges are focused on pilot or prismatic form factors given their high energy density and the space for passive protection features that these enabled.
The recent news of manufacturing defects strong impacts or erratic charging new cycles, causing fires are evident that active systems alone can't prevent thermal runaway 100% of the time.
OEM investment in advanced active systems is expensive and time consuming from an R&D standpoint.
Is it a validation requires testing multiple variance of every control strategy times every type of cell module and pack to the point of failure.
Validating advanced controls for electrochemical processes, it's hard.
We are encouraged by recent investments from Oems and other tier ones in this space given that we are all in the first inning of ensuring electrical electric vehicle safety.
But our customers towards C. A passive system is a key part of their battery pack design and at the same way that a vehicle with traction control automatic emergency braking and collision avoidance systems still requires crumple zone high strength steel beams indoors impact resistant fuel systems airbags and seatbelts.
Again, this is a multi variable problem with varying requirements customer priorities and the approaches.
As we started production and engage in conversations with more customers the need for passive design elements and materials that work to provide thermal and fire safety system is becoming increasingly clear.
There is no silver bullet to prevent or stop the effects of thermal runaway and we intend to work with the rest of the industry to provide a very good lead bullet to this problem for a long time.
We all know that not all materials are alike and when these materials are fighting for precious space and weight inside of a battery pack to perform a critical safety function the better deliver improve their word.
At the core our customers are looking for the thinnest and lightest material that provides the highest level of runaway prevention and protection.
Also want the material that can compress and recover without degradation to keep the cells in their place because theyre form changes during their life cycle.
On the left you can see in a simplified way how pirate than another materials worked together as gas barriers cell to cell barriers and compression pats inside of the pack.
It tends to behave very differently on this thermal runaway thermal resiliency or fireproofing range, along with the range of course under which they can be compressed and then be able to fully recover.
You can also see that per unit of thickness. It would take twice in material and two eight times the mass of the closest cell to cell barrier material to deliver the performance of <unk>.
These charts also show while increasing the third one fire resistance of the material per unit of thickness and weight along with broadening its compressibility and recovery range are at the heart of our player within R&D efforts.
Thermal barrier that also act as a compression pad. It's an example of how we will optimize content per vehicle or CPD.
Beyond that we will continue to focus R&D on the scalability of our manufacturing processes for the aerogel base, along with automation tooling and assistance for thermal barrier fabrication.
On the far right you can see how we're currently thinking about CPD.
Given that were in the first innings of this type of vehicle content, having just started supplying production parts in the last quarter. We're showing you a broad range of where supply CPD life, where there were a tier one or tier two supplier.
Our understanding is informed by the vehicle programs that were supplying in this evolving with our quoting.
What we know for sure is.
We win by solely focusing on increasing CBD as we need to earn every cubic inch or islands inside customers' battery packs.
We are focused instead on increasing the percentage of the overall thermal barrier content that is pyro thing.
For our projections, we're assuming a CPE that settles in the range of 300 to $325.
With pyro thin content, making up around 60% of that.
Understanding that this will vary with design changes.
New program awards, and customers' increasing desire to prioritize safety.
We really look forward to enabling customers accelerating EDI product plans and evolving needs with our system level approach the thermal runaway solutions.
Serving as a partner with the right R&D validation design integration and production capabilities gives us the right to play in multiple levels of the value chain and we will continue delivering accretive CPD.
Again. These are initial thoughts and we will provide updates as our thinking evolves.
With that I'm happy to turn the call back to dawn to summarize our strategy and deliver his closing remarks.
Thank you Ricardo before we move to Q&A, let me summarize key points.
Our entire focus is on creating significant value with our aerogel technology platform.
We're playing in large markets as a technology leader in sustainability, our talented team is executing our strategy to optimize and expand the value of our current set of markets and investing in leveraging the technology into a next set of opportunities.
We received.
<unk> hundred $50 million investment from KSP.
With our which with our year end cash balance of over $75 million provides a strong foundation and momentum for raising additional capital over the next year to fund our initiative to create significant value.
We are reiterating our 2021 to 2023 revenue growth target of two <unk> and upgrading our 2023 to 2025 revenue growth target from two to three X to $720 million in 2025.
We are committed to building plant too to be larger and more capital efficient than initially planned to better match, the growing and accelerating customer customer demand plan and to support a business able to generate an estimated $1 $6 billion of revenue approximately five <unk>.
Third $50 million of gross profit and approximately $400 million of EBITDA.
I will now turn the call back to Lauren for the Q&A session.
Thank you.
If you would like to ask a question. Please press star followed by one on your telephone keypad if.
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Our first question comes from the line of Eric Stine from Craig Hallum, Hi, Rick. Please go ahead.
Hi, everyone. Thanks for all the details.
Thank you Ed.
Yes, so great that you can disclose.
GM and Toyota in the presentation just curious.
If you can give more clarity on the 10 Oems that you ship to in 2021.
And maybe how that breaks down between the two customers you're shipping to commercial volumes.
And the other.
And then what kind of visibility that potentially gives you into whether it's RF Q activity going forward next towards.
Things along those lines.
Well thanks, Eric.
We are.
Of those 10, let me just say that the fact that we are generating revenue.
Things that we are providing.
Prototype.
<unk> to these to these potential longer term customers and.
We are.
I would just say going.
Becoming much more expert in this field and a much greater resource to these next set of customers as they develop their battery platforms.
And I would just say that those battery platforms.
So the gating item and are being awarded additional programs really is the development of those battery platforms I would say that the earlier customers that we had were ahead in many regards from the development of those battery platforms and and so we're we're we're at a nice pace to add to that list and we believe that we will.
Do that over both 2022 and onward.
Got it so I mean is it fair to say that.
It's more about that.
I mean in terms of when we think about timing for <unk>.
It's more about the development on the OEM side rather than.
Are you winning the war for making progress within those Oems.
Yes, Eric we think that we have a strong a strong solution that we're bringing.
Real value to these companies I think Ricardo did a nice job describing it.
I would also just reiterate one of my comments, which was that for our 2023.
Target revenue from Harrison.
We feel that we have a 100% of estimated revenue from from those.
Currently awarded programs and so we're in a we're in a strong position in this first double and then with respect to the to the tripling 2023 to 2025, we estimate that we have approximately 60% of the revenue from our from our current awards.
Again estimated two to play out in that in that timeframe. So we're in a we're in a strong position and outlook.
Given that sequence. If you will we are confident that we will be able to bring on additional battery platform additional awards.
<unk>.
Supplement, let's just say.
Our revenue mix as we get out into that 2023 and 2025 timeframe.
But we know as you know right.
These buildings.
Thanks.
Okay.
Yes.
Absolutely.
Yes.
On the topic of 2025, I know you've increased that quite a bit.
And obviously more Oems, but maybe if you could just kind of square that are or describe that how do you have in the past you've kind of talked about the three levels of engagement.
So maybe where that stands now and maybe where it did versus where it did a quarter ago or a year ago.
You know where we're.
<unk>.
Detailed.
Prototype part two.
A wide range of these automotive Oems today, and we're on let me just say a similar track to the one that we were off in the two wins that we've that we've garnered to date and.
The two awards that we've received so we're on we're on a very similar very similar track.
To be able to win.
Additional awards, Eric and so we have to get a lot of confidence that we're going to.
Balance additional awards over the course of 2022 and 2023.
And round out that that revenue mix such that we're serving.
Number of these.
Yeah.
Producers.
And I would assume that means that you.
With Toyota.
You are assuming or is it fair to say, you're assuming that you win the whole platform rather than just the one vehicle.
We think we're in a strong position.
Two.
Go beyond the single nameplate to single model and to win.
A good amount of toyotas business across its battery platform.
Our next question comes from line of Jeff Osborne from Cowen Jeff. Please proceed.
Yes, I was just curious thanks for all the information on page.
Nine of the deck.
The non pyro thin revenue can you talk about what that is at 40% at the weighted average content of 300 to 325.
Oh, sorry.
You've got 60% down for that.
40% is non pay right and so I was just curious is that advanced battery materials or is that yes revenue attributable to the finishing steps.
No. So thats actually revenue, where we are putting so.
If you look at the configuration of the of the thermal barrier.
The bookends of what a thermal barrier looks like.
On the most simplified form it's basically just aerogel shaped to a particular form and sent to the OEM.
But in its most advanced form it's actually a sandwich of multiple.
Layers of different materials, very similar to pretty much the ones that we show on the chart on the left on page eight.
And so when we mentioned other content.
When speaking of CTV, we're referring to these other purchase materials that are being integrated as part of the thermal barrier Assembly.
Got it Thats helpful.
I was wondering if you could also just touch on the savings of <unk> 10 per dollar of revenue where that was attributable to relative to the initial expectations and then how do we think about cost per square meter for Georgia relative to Rhode Island.
John do you want to take.
Yes.
Good.
I wanted to get a little additional detail on the <unk> can you can you explain that question.
Yes.
Jonathan Jonathan goal was.
65 cents of.
Okay dollar of revenue and it's now 55.
So I was curious where that <unk> came from the expectations a year or so ago and then also if you could compare the garage structure per square meter relative to maybe your latest of the three lines in Rhode Island.
Yes.
It's a function of multiple full it really is the improved dizzy.
Design that we're deploying in.
The Georgia plant ultimately in terms of its ability to produce.
Product.
We've always said that our our second line with more productive than our first in east Providence and our third.
20% more productive than the second line.
And so we've been able to we haven't dipped.
We deployed the third production line in East Providence in 2015.
And so so our designs are development or technology or manufacturing process technology has advanced significantly in that time period. So as we design. This plant and we've worked our way through bottlenecks. It is just a far more productive designed more energy efficient cleaner greener and more productive.
<unk>.
Then in addition in terms of its use of utilities.
And a lot of the sort of operational cost we're seeing we're seeing.
Operating costs savings of about 33% over the and what we actually.
Have in East Providence, Rhode Island so.
Just a more efficient more productive asset and it's it's when we designed it and we looked at the productivity of that design ultimately was better than what we had anticipated a year.
Got it that's helpful. I appreciate it John .
Thank you Jeff.
Question comes from the line of Alex Potter from Piper Sandler Alex. Please go ahead.
Okay perfect. Thanks, guys.
Congrats John .
Thanks for all the help.
So I guess I have a I had a couple of questions I had on fabrication.
Sure.
Did you ever put a price tag on that fabrication facility in Mexico, I don't know how material. It is if it really moves the needle in your Capex Guide and then.
Maybe as a follow on to that what percentage of the time I know that you mentioned there is the 60 40 split in your overall CPB.
Calculation, but what percentage of the time do you expect to be just selling sort of pure product out of the facility in Georgia.
And what percentage of your customers are going to actually ask you to be doing more value added through the fabrication steps.
So I think.
Handle both of those questions.
So first we didn't we didn't provide guidance on <unk>.
Mexican <unk>.
Aprication facility.
At present.
It is though a less capital intensive process than what we have deploying in.
In an aerogel manufacturing plant.
We're much more able to scale. It so as we see revenue growth as it evolves, we're able to deploy capital maybe.
Nine to 12 months in advance of the need for that type of that facility.
So in the aggregate this opportunity as it increases we will deploy a significant amount of capital there.
But it is scalable.
And significant different from what we felt with the aerogel manufacturing.
Plant in the past.
Then in terms of the.
The content.
They were looking at when we get to the.
<unk> content per vehicle in that 300 $325 range. That's us looking at our existing contracts. They are award wins and looking at the range of quotes that we've given.
To prospective customers as well.
And so is our best estimate of where the content per vehicle is likely to shake out through time.
However, I think Ricardo Cardona talked about this we do expect it to evolve.
And these systems will continue to evolve through time.
But at present I would say, it's a function of the 10 customers that we had in.
In 2021, plus all of the other customers, who we've provided we've tightened our responses to.
<unk> or RF Q.
Situations and so.
It's our best estimate for where we think it will shake out.
Okay. That's very helpful. If I could just add to that.
Sure Yes.
Alex if I could just add maybe to John's Johns comment it is a strategic consideration for us that we will.
We will consider here and in the <unk>.
Year or two around tier one versus tier two and it is also true that too.
Today, even in the awarded.
Awards that we have to date.
From the programs.
In one case, we're very much of a tier one another case, where we're a tier two.
And I would just.
The advantage for us.
And the tier one spot for the moment is that.
We are much more deeply involved as a technology partner.
And in <unk>.
Engineering with the customer a solution and.
And as Ricardo mentioned in his notes.
Puts us in a much stronger position to increase the aerogel content.
I've talked about in the past around this idea of battery performance and safety our ability to play greater roles.
And within a within a battery.
Pat.
Is is really.
Critical for us and something that we're very we're very focused on and we think again it can be.
Significantly value add from from our from our perspective.
So all else equal if you had the choice between.
Tier two type relationship our tier one you would choose tier one as often as you can is that fair to say.
What would you say Ricardo.
Yeah, I mean I think.
It's really it's the App right now its about maximizing the opportunity in supplying as many Oems as possible without.
Letting go of the deep technical relationship, so frankly, where there were a tier one or a tier two.
As I mentioned in my remarks, right the industry doesn't like paying people for doing nothing in their value chain and so.
We just want to earn our position in the value chain looking.
Looking at the current content in that 60 40 split that we.
Have on our planning expectations.
Is that that's in essence Oems signaling to us that they appreciate the value that we add integrating the thermal barrier system right.
But on some parts, where the configuration looks like just.
Aero gel.
There we will gladly.
Ah.
Tier two that has a deep technical relationship on the materials side with a material that is able to do what four or five materials on this chart.
Right. So so we honestly don't see it as a mutually.
Exclusive.
Situation as long as we're maximizing the opportunity and really solving Oems problems first.
Great I'll pass it on thanks, guys.
Thanks, Alex.
Thanks.
Our next question comes from the line of Colin Rusch from Aitken Hymer Colin. Please go ahead.
Thanks, so much.
Youre getting closer to some of these customers and looking at the real needs within the battery packs are you working on any.
Meaningful efforts to evolve the formula are the recipe for the powerful technology ticket.
Enhanced performance ranking I fail to capture more volume.
Well that's it.
That's a very good question and the answer is certainly yes.
What I referenced.
But we are learning a lot that we're becoming quite expert and understanding.
The almond on itself.
And given the levers that we know how to play with our own materials and and being asked to do more within the comp.
Systems.
I think it sets us up very well collyn too.
To do that industry expert that we that we want to that we want to be at.
You know very well that.
We we.
Installed.
Well over $1 billion of material into certain settings in a lot of that has been around passive fire protection and this is a very logical extension.
Of that understanding of those learnings.
So I think.
We've been on a on an accelerated talk here.
And it is what has given us confidence.
Two.
We reiterate our two X goal in 'twenty, one to 'twenty, three and upgrade to a three X revenue growth goal of 23 to 25. It is a function of our understanding of the situation is a function of our of our engagement.
With a host of them, what we think it will be some of the leading Oems in the E&P space.
Great.
Super Helpful. And then in terms of the financing plan for the facility in Georgia can you talk about how mature your conversations or any sort of equipment finance or leverage on that facility is.
Yes.
John do you want to.
Do you want to take that you know that John .
We've been kind of all of the above kind of approach to this.
Over the years and I think you can pretty well count on that being true again hearing and.
You know over the course of the next year and two as we as we.
Fund or a fund or our part.
Obviously as we as we.
Have a very defined path to profitability. It continues to open lots of opportunities additional opportunities for us to to raise <unk>.
Raise capital and not to mentioned generating cash of around here as we as we move forward through this time period that we've talked about so.
Right. That's the best form of financing you can have so.
That's really what we're focused on calling but.
But we think that we will have.
Opportunity to smartly creatively fund our growth.
Growth plans here over the course of the next one three and five years.
Our next question comes from the line of Chip Moore at Hudson Chip. Please go ahead.
Thanks, and congrats on the tremendous momentum.
Thanks, and congratulations great working with you.
End user so just wanted.
I wanted to circle back to that tier one tier two discussion I think you've been very smart to be OEM agnostic.
Obviously everyone's really worried about supply chains right now is there opportunity to accelerate more wins that as Oems look to lock up capacity or is that something you think you've seen already.
Well.
We have.
We have a very strong team.
People, many who have joined our company in the last one and two years.
With Jeep.
Automotive and tier one backgrounds, who.
It will come from the very same companies that were engaged with either us either as automotive Oems or tier.
Tier ones in.
There.
We are going through qualification processes.
On a regular basis, where we're engaged with experimenting with different products for different battery platforms.
On a daily and weekly basis with a whole host of companies. So you know our our engagement and I've said this before.
<unk>.
Winning these is.
The gating item is the development of the platform itself and we believe.
That we are well positioned to play an important role and not only in the two.
Companies with.
With homework, we're delivering production parts, but.
Too.
Good number of them.
Copies, we expect to be leaders in the EV space going going forward in all three major regions.
Thanks.
Maybe one more on sort of more near term.
Look to take.
Thanks, Bert over to start up later next year.
Talk about some of the supply chain constraints that you saw this quarter it looks like price per square foot at a nice bump maybe just.
Big picture thoughts on margins.
This year and next as we look towards that's fair enough.
Yes.
Yes.
I think those are a.
A little bit of a path to profitability question.
We see in 2022, we were investing significantly.
And manufacturing resources, where we're seeing an increase in manufacturing expenses as a result, we're setting up facilities that will handle.
Very significant growth in thermal barrier operations in 2023 and 2024 in line with our.
<unk> targets <unk>.
And the three X and so that's depressing gross margins today and it's reflected in our 2022 outlook we.
We didn't mention it during the script, but our gross margin expectations in.
In 2022 would be the high single digits because of those the addition of those expenses and we're going to go to Monterrey, Mexico set up a fabrication operation.
Higher.
Put it an overhead there significant all.
That will hit the earnings this year, but will set us up for significant profit growth in 2023 and beyond.
After 2022, we would roughly see for every dollar of revenue that we generate.
We'd get about 40 and gross profit.
So an incremental gross margin of about 40% on that incremental revenue and about 33 cents.
Incremental.
Adjusted EBITDA per dollar of revenue so about a third of that will drop down to the adjusted EBITDA line and that's that incremental profitability that ultimately results.
Get out to $900 million of revenue, we still the second tilda.
Till the second plant.
First phase of the second plant.
We think we'd see.
Gross gross margins at that point of about 35% EBITDA margin of about 25%.
So the low point in terms of margin and profitability in 2022 with the revenue growth, we will see very significant improvements in profitability.
'twenty three 'twenty four and beyond up to those capacity economics that we gave you in our call.
Right.
Yes.
The next question comes from the line of Doug Benchmark Research. Please go ahead.
Thanks Todd.
You mentioned that at full capacity it will be generating significant free cash flow to fund future capacity expansion.
Wondering if you could just talk through some of the big moving parts are going from $1 6 billion of revenue to $400 million of EBITDA, what type of free cash flow would you be expecting to throw off at that at that point.
Yes, so so so Doug I mean, it's principally so capex would be.
When we are starting to fill the second plant.
Most of our financing need our capital need out over the next couple of years is associated with the plant two construction.
Don alluded to a lot of that that's front loaded.
$575 million for the first phase $125 million from the second phase.
And then.
And then beyond that.
Anthony.
Beyond that.
We would just have incremental capex associated with expanding our fabrication operations, which would be at a significantly lower level than the kind of investment we require for constructing and aerogel plant.
So.
Capex maintenance Capex would not be a significant drag on our operating cash flow.
And so a lot of that adjusted EBITDA would have been available to us as this free cash flow.
Would you expect to be a cash taxpayer at that level or.
Oh, Yes, Nols yeah.
Yes.
You can do that you can do the math pretty quickly.
Got it.
We would when we break profitable with those incremental margins I. Just described it very quickly we'd be adjusted EBITDA positive and start to generate net income and we do have a significant NOL level black car block.
Block, our cash tax payments for a period of time, but we've actually run through those in pretty short order and so when youre talking about being in a $1 6 billion dollar company with.
$400 million worth of EBITDA very significant net income, we would've gone through our Nols and we would be a cash taxpayer.
At that point.
Next question comes from the line Amit.
<unk> <unk> from H C. Wainwright Amit. Please proceed.
Thank you and good afternoon, everyone and congrats on all the programs.
Thank you.
Thank you.
Thank you.
Our next question comes from Jack <unk> midstream kind of cool.
Yes.
Thanks.
Disconnected.
If you just want to get back into queue Armitage.
The next question.
So the next question comes from the line of Jed <unk> from Canaccord Genuity. Please go ahead.
Hi, Thanks, guys back of the bus here so.
Just a few questions from me.
So I guess the expectation is.
So when we look at on slide five for the annual revenue capacity of the $900 million and the 1.6.
That is that in addition, or to the 250 from east Providence or is that including the $2 50 from Providence.
That includes the $2 50 firms Providence.
Got it and then on the Providence plant, that's never done to 50.
So has there been a change in terms of <unk>.
Yield out of that plant in terms of.
The ability to kind of double.
The revenues there because it seems like theres been some breakthrough.
Breakthrough.
Yes, so I'll take that.
We're always we've always said that our east spread this was before the thermal barrier business. So the.
The capacity of our East Providence plant has been about $200 million, that's just straight aerogel on the energy infrastructure market.
The the increased to 250 <unk> as a combination of the original content that we're selling in the in the energy infrastructure market as well as the in the.
Aerogel content that we'd be using to support the thermal barrier business plus the additional materials that Ricardo described that we're incorporating into the thermal barrier sandwiches.
Sure.
We're shipping to our customers. So it's aerogel content plus purchase materials plus the.
The revenue associated we do mark up fabrication expenses as well to our automotive customers and so it's the combination of all of US. So it isn't a productivity improvement its really a change in the nature of our business, but it's the same basic aerogel capacity, we had before.
With additional global items on topics.
Our next question comes from the line of Chris question.
Chris. Please go ahead.
Hey, Thanks, I just wanted to confirm on the 60% visibility on 2025 tripling that include Gms platform plus just the one model with Toyota and Subaru.
Presumably you can get closer to a 100%. If you won the full platform with good is that kind of a good way to think about.
The current visibility.
Yes.
I think one of the reasons why we put that.
Statistic, if you will that estimate in there was.
So we wanted to demonstrate I think the.
You know that we have with it.
With an additional one or two.
Wins.
In other battery platforms.
It is it is.
The math plays out.
Neatly, let me just say that.
And so our ability to achieve those the reason we're confident in those targets. The reason that were increasing those targets is just a function of.
Our engagement with not only the two.
Customers with whom we are delivering production parts, but to a range of additional ones, where we where we're confident that we're we're we're very engaged.
Again from a prototyping quoting.
Working to quality system here very detailed engagement with these additional companies. So we feel we're in a strong position.
To support those to two <unk> target.
Okay, Great and then of the eight that you shipped paraffin for revenue last year.
Excluding GM Toyota can you talk about the variety of battery Chemistries that are being used by those customers majority or NMC, but for any using LLC or any any other chemistries that youre seeing.
Yeah.
Sure.
Yeah, Im not sure Youre familiar with absolutely all eight of them and that level of detail but.
Take it away to even more at a higher level.
Yeah, I mean, they're they're really all prototype parts, so going into too much detail.
The specific chemistry, that's being used.
Didn't necessarily align with what may end up going to production as well.
But the but they're mostly NMC.
And either culture prismatic cells as we've indicated in the remarks.
Okay.
Okay.
Our final question comes from the line of Tom Curran from Seaport Research Partners. Tom. Please go ahead.
Yes.
Last but certainly not least I trust.
I wanted to be sure John I'll congratulate you on I didn't clean on financially.
[laughter] right batting cleanup there you go.
John Congrats on financially piloting Aspen through every chapter of its development and growth over the past 15 years.
Appreciate it your detailed guidance responsiveness and lucid explanations so best of luck to you.
Alright, Thanks, Paul I appreciate it.
So at your total annual revenue target for 2025 of 740 million thermal barriers would we expect it to contribute 75% or $540 million.
Of the remaining $180 million, what would be the expected split between energy infrastructure and the battery materials segment.
Yeah.
Maybe a good way to calculate it would be just to say that.
We remember back that our pre pandemic level of industrial was in the range of $130 million and.
We've assumed low double digit.
Growth from there so if you.
You know out over the course of those those.
Three or four years.
We're putting a 10 or 12% growth rate on that we're very comfortable with that.
With that.
That gets you up into that.
Yeah, and Tom were 195.
Yeah and Tom.
The ASP in battery materials business.
Little unclear in terms of what how that will be structure, we're going to have to make a decision about whether we license that technology to others and let them produce some materials or we.
Just an additional assets.
Those materials ourselves and sell them into the market.
So at present are estimates, we have the cost and expenses in the research and development.
Vestment required to fund that.
Initiatives in our models, but we haven't put in revenue assumptions.
And we think that Thats, a conservative approach, but we ultimately were very excited about that business. We think it will generate revenue.
But we don't know what form yet and so on that basis, we've tried to exclude it from all the projections we provided today.
Got it.
Much after that question. Thank you Jonathan.
No Thats you both helped to answer what I was trying to get at but it's reassuring to know that it does not assume any revenue contribution from battery materials. So that you do expect to be able to cover that full 720 between thermal barriers and the legacy industrial business.
And then.
Now that you've been able to confirm that.
That'd be mystery Asian automakers, Indeed, Toyota we can hone.
And then with our questions about that the pacing and potential of that relationship.
Would you update us on where they're at with finalizing their own dedicated battery platform to help us with the timing of when you might when more than just the BZ Forex and then would you expect in.
An expansion in 'twenty kind of platform wide contract to also include Subaru.
Well, let me.
We just want to be very careful about talking about specific programs right now and.
Specific expectations with these with these companies and we just want to be very mindful and respectful of their own developments and what have you. So let.
Let me just say, maybe what I've said in the past.
Which is that we feel we're in a very strong position gap.
<unk> that these companies.
Again, we've been awarded business and others that we're you know we're in the later labor day.
I mean, if you will.
Okay.
Being awarded business, we anticipate.
Those.
We just feel like we're in a very strong.
Long position and and we feel that we are bringing a lot of value.
Two.
Two the discussions at it yes. It comes from our technology, but it also comes from the strategy that we've talked about for over a year now around.
Being OEM agnostic being.
Sure.
Being really the industry resource here.
<unk> expertise into into this really difficult challenging problem I thought Ricardo did a nice job describing the complexity.
All of this.
And the likelihood of.
These automotive Oems.
Trying to manage this situation, both with active and passive system.
Simultaneously.
That's the way, we see it playing out over and over.
Certainly <unk>.
Period of time so.
So again, we just want to be a little careful about talking about specific programs.
Hey back to Stan.
The Q&A session today, So I'll now hand, you back over to Don Young for closing remarks.
Thank you very.
Very much.
Everyone. We appreciate your interest in Aspen Aerogels, we look forward.
To reporting our Q1.
2022 results.
In late April be well have a good evening. Thank you very much.
This concludes today's call. Thank you for joining you may now disconnect your lines.
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