Q1 2022 Aspen Aerogels Inc Earnings Call
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Good morning. Thank you for attending me asking Eric Joseph <unk> Q1, 'twenty 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 would now like to turn the conference over to your host Laura Guerrant, Aspens, Vice President Investor Relations and corporate can.
The indications thank you.
You May proceed Ms Garen.
Thank you Emily good morning, and thank you for joining us for the Aspen Aerogels fiscal year 2022 first quarter financial results conference call with US today are John Young President and CEO , Ricardo Rodriguez, Chief Financial Officer, and Keith Schilling Senior Vice President Technology, There are a few housekeeping items.
Like to address before turning the call over to Don.
The press release announcing aspens financial results and business developments as well as a reconciliation of management's use of non-GAAP financial measures compared to the most applicable U S. Generally accepted accounting principles or GAAP measures is available on the Investor section of Aspens website, Www Aerogel Dot com.
Included in the press release is a summary statement of operations, a summary balance sheet and.
Summary of key financial and operating statistics for the 2022 first quarter ended March 31 2022.
In addition, I would 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 site 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.
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 yesterday page one of the presentation and are discussed in more detail on the reports <unk> files with the SEC.
SEC, particularly in the company's most recent annual report on Form 10-K .
The company's press release issued yesterday and filings with the SEC can also be found in the investors section of Aspens website.
Forward looking statements made today represent the company's view as of today April 28, 2020 to Aspen Aerogels disclaims any obligation to update these forward looking statements to reflect future events or circumstances.
During this call we will occur to non-GAAP financial measures, including adjusted EBITDA.
These financial measures are not prepared in accordance with GAAP.
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 why we present. These non-GAAP financial measures are included in yesterday's press release.
And one final note during the Q&A session in the interest of time, we ask that you limit your questions to two questions at a time if you have additional questions beyond the initial through please get back into the queue and we will get to all questions I'll now turn the call over to Don Don.
Thank you Laura good morning, everyone.
Thank you for joining us for our Q1 2022 earnings call.
I'll kick things off with a progress report on recent business developments Ricardo will discuss business results and outlook and Keith will cover our work awesome battery materials, we will conclude with a Q&A session.
Starting on slide three I'm highly encouraged by the progress, we're making towards achieving our goals.
Our teams throughout the company are operating at a high level of performance fees.
These outstanding teams are being strengthened as we continue to recruit talented people with deep experience.
On the heels of a solid 2021, asking is off to a strong start in 2022.
Total first quarter revenue was up 37% year over year, and 22% sequentially, reflecting continued penetration in the EV market.
Advancing recovery in the energy industrial market.
With this commercial momentum and of course, our existing awarded programs with GM and Toyota. We are confident that we will meet or exceed our 2022 revenue guidance of $145 million to $155 million and we believe that we are in a strong position to meet our 240 million.
Revenue target in 2023.
I'll talk more about that shortly.
During the quarter, we were honored to receive the Overdrive award as part of Gms, 30th annual supplier of the year ceremony. We won the award for launch excellence, which recognize our role in Gm's Thermo propagation strategy for its opium battery platform.
The recognition is indicative of the depth of the technical and commercial collaboration between Aspen.
We are excited to see GFS unwavering commitment to battery performance and safety and its opium battery platform and are equally excited to be part of Gms fast pace transition to electrification.
Turning to slide four let's talk further about our growth targets and what is driving our momentum and conviction.
We consider our growth targets to double annual revenue from 2021% to 2023 and to Triple annual revenue from 2023 to 2025 to approximately $720 million to be stage, one of our long range plan.
The strong outlook for the energy industrial business is fueled by pent up maintenance demand following the pandemic.
High energy prices and strong activity levels and LNG projects.
The thermal barrier business is coming at us faster than we had initially anticipated.
Pirates in thermal barrier revenue was seven 6 million in.
In Q1 alone exceeded our revenue level for full year 2021.
This strong outlook for powertrain thermal barriers is supported by awarded programs that we currently assess at approximately $1 billion.
To be fulfilled in stage one of our long range plan through 2025, and then additional approximately $2 billion to be fulfilled in stage two beginning in 2026.
We estimate that the awarded programs from GM, and Toyota to whom we have been delivering production parts for two quarters represents a 100% of the 2023 pirates in thermal barrier revenue target and 60% of the 2025 target.
Other tier one suppliers, we define the term awarded programs as estimated gross revenues from the volume forecast of customers taking into account our negotiated program pricing.
In addition to our work with GM and Toyota we are working closely with other automotive Oems and are striving to convert additional quotes into awarded programs with our unique thermal barrier products.
During stage, one we are making upfront investments in people optimize processes automation and capacity.
That not only enabled the doubling and tripling of revenue, but also the transition to positive cash flow and to the monetization of the investments throughout stage to these.
These investments burden margins in the short term, but we believe they set us up structurally so that in 2025 at the targeted revenue level of $720 million, we are positioned to deliver gross margins approaching 35% and EBITDA margins approaching 25%.
These margin levels are similar to those of other advanced engineering components delivered to item two the automotive industry for critical functions that enable electrification such as high voltage connectors advanced power electronics and silicon carbide components.
With our proprietary technology and scale, we are positioning ourselves to be a valued supplier to a growing list of EV producers.
I'd also like to provide a brief update on plant two.
On March 31, we celebrated the groundbreaking ceremony for our second aerogel manufacturing facility in Statesboro Bulloch County, Georgia.
With long lead time items purchased starting in Q4 2021, the first phase of plant two is on our projected timeline for completion in late 2023.
The first phase of plant to target $650 million of annual revenue capacity and will bring our total annual revenue capacity to approximately $900 million.
As we approach full capacity utilization at this level, we project, our EBITDA will be approximately $225 million per year.
Upon the completion of the second phase of plant two we expect to have overall targeted annual revenue capacity of one 6 billion across both plants and the capability to generate approximately $550 million of gross profit and approximately 400 million.
Of EBITDA.
With the auto industry on track to invest a 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.
In addition to our EV and the energy industrial businesses.
We continue to invest in this strategy to leverage our aerogel technology platform into other high value markets with sustainability themes.
We have an extremely talented group of people are laser focused on this part of our business and we expect these investments will continue to validate the richness of our aerogel technology platform and create significant value.
We believe our carbon aerogel initiative within acid battery materials is next in line to commercialized products.
I would like to turn the call over to Keith Shelly to comment more fully on abms Keith.
Sure.
Thanks, Don.
Turning to slide five.
First let me attempt to describe the opportunity electric vehicles congested multiple types of batteries today that are stacked or wound to form captures our cylinders each with lithium ion that flow through the electrolyte from a negative and anode through a permeable separator to a positive cathode.
We'll focus on the anode for this discussion as this is one of the more difficult challenges facing the industry.
Current forms of batteries use graphite anode material.
Silicon would be a better choice since it's plentiful less expensive and holds 10 times more lithium and graphite.
It is widely accepted that boosted performance relies on incorporating additional silicon and Anna.
The challenge is that when silicon rate acts would be with and absorbed lithium ion it's wells by nearly 300% compared to roughly 7% for graphite.
This swelling through charge and discharge cycles, eventually destroys the silicon ability to carry that lithium ion as shown through the cracking of silicon as a result of swelling shown in the images here.
As well as solid electrolyte interface formation also seen in the images.
Resulting in decreased battery performance.
The opportunity for our carbon aerogel solution has shown compared on the right to alternative solutions in terms of key performance metrics of energy density range and cost.
As you can see what is commercially available and used in the market as representatives of White OLED.
Our other potential alternatives that are being explored but have not commercialized as represented by the colored ellipse in the top right of the chart.
Our solution is captured in the bottom right of the graphic representing our ambition and backed by early and very encouraging test results for our solution.
So what exactly is the carbon aerogel.
It's a unique technology platform, where we're leveraging the inimitable combination of mechanical electrical and nano morphology properties to enable higher amounts of silicon, Indiana.
Turning to slide six.
Does it matter and how do we earn our right to win inside the battery.
It's widely known and accepted that incorporating higher amounts of silicon into the nearest term path to making improvements in energy density.
Other silicon technologies had demonstrated meaningful improvements in energy density, while exhibiting cycle life performance necessary for Evs.
What remains is the ability to achieve performance and below cost.
We believe the battery materials team at Aspen has a solution that is on track to meet the performance targets of automotive and battery Oems using synthetic approaches that are scalable.
Aspen team has been working very hard to solve silicones challenges by leveraging it knowhow on carbon aerogel synthesis and the importance of its intimate interaction with silicon contained within it.
The ability to maintain silicones connectivity to the carbon aerogel during cycling has allowed us to begin testing our materials and full single layer pouch cells that would translate to more than a 10% improvement in energy density when tested in multi empower pouch.
On the right of the graphic we articulate how we are currently performing and our target as well as key cell level validation milestones, we will continue to work over the near term.
Aspen Silicon carbon anode materials have already demonstrated energy densities that we'll deliver on the needs of next generation electric vehicles, while maintaining the critical dollar per kilogram cost target of automotive Oems.
Our materials meet or exceed the energy densities of competitive offerings, but can drop in two existing battery manufacturing processes at a competitive cost we.
We see our materials, providing the performance roadmap for Evs, beginning as an additive to graphite and progressing to full tunable silicon carbon composition.
The average EV battery contains approximately 60% to 70 kilogram of graphite and Diana and as such this represents an opportunity of approximately a $1000 of content per vehicle for Aspen.
We have already achieved our targets and testing for cell variability and we will continue validating these metrics as we scale.
So what's unique in our development approach and what can we expect over the next 18 months, both technically and commercially.
Our chemical synthesis process for our silicon carbon aerogel and is truly unique as it offers a tunable platform will be can accommodate increasing amount that silicon to meet the performance and cost roadmap of the EDA industry.
The existing approaches to increase silicon content in the anode had hit a wall with only solutions out there being either too expensive, we're very much in the research phase.
<unk> over the next 18 months, we anticipate completing the development phase of our silicone carbon anode aerogel platform and leveraging our relationships with battery and automotive OEM to begin rapidly commercializing the materials, our manufacturing ability competitive cost basis and relationships.
With automotive and battery Oems gives us confidence that we can move these materials quickly into production.
In our materials are one among many advancements that we're already targeting with our aerogel technology platform aligned with our strategy and I couldnt be more excited about our future I'll now turn the call over to Ricardo.
Ricardo.
Thank you Keith good morning, everyone I will start by providing a summary of our Q1 2022 financial results.
Go into a short recap of our outlook for the year in detail our current thinking on funding stage one of our business plan before turning the call back to dawn.
Turning to slide seven and our financial highlights for the quarter.
At a high level our results show a clear continuation of the growth drivers that we have been investing to capture for several quarters.
With 37% year over year quarterly revenue growth driven by all of our principal markets.
As Don mentioned.
The thermal barrier opportunities materializing faster than expected thanks to various successful vehicle launches combined with higher than anticipated initial volumes.
To illustrate this our internal expectations for the quarter's thermal barrier revenues were $4 3 million as we budgeted for the year in December of 2021.
We delivered $7 $6 million of thermal barrier revenues during the first quarter of 2022.
A 76% increase over our original plan.
Our energy and industrial revenues were up 10% year over year from $27 9 million in the same quarter last year to 37% in Q1 of this year.
Reflecting the industry's need to increase capacity, while enabling alternate value chains.
Our growth expectations for the energy industrial market are aligned with what we seen the order books of our distribution partners and the broader value chain.
Ensuring that our sales channels have enough inventory on hand to sustained and near term demand increase.
Top of our mind as we finished the first half of the year.
It is also worth highlighting that we are managing for the capacity and levels of service that we anticipate at least five quarters from now and continue to make the necessary investments in people systems and equipment before these are needed.
Given the growth required to fulfill our thermal barrier awarded programs and a world class way.
We are confident that these investments are commensurate with the scale of our opportunity and can see a clear path to profitability enabled by our pricing.
Estimates of material and structural conversion costs, which have significant potential for operating leverage as.
As we reach our targeted revenue level of run rates.
Further developing our ability to manage engineering changes favorably and drive convergence and the requirements of multiple Oems.
Adding additional engineering resources upfront a worthwhile investment.
Before turning to costs and expenses.
Not stress enough that we're carrying most of the overhead of the much higher run rate revenue operation that we will become as we target to double our 2021 revenues by the end of 2023.
And then triple these by 2025.
Our material costs also reflect the delivery of world class automotive tier one levels of service and a roughly $30 million annual run rate thermal barrier operation.
Which we realize is suboptimal in the near term.
When I look around the room at our thermal barrier manufacturing facility in Rhode Island.
With the launch team of our fabrication facility in Monterrey, Mexico.
I see the quality and size of a team that is used to driving a $1 billion run rate operation.
Sophisticated automotive tier one or specialty materials company.
We're instilling in ourselves the discipline and the habits required to manage the business on a scale that the worlds largest Oems can depend on.
As Dawn mentioned these efforts are being highly valued by customers such as GM as they accelerate their electrification goals.
Our expenses have scale and we will continue to increase as a step function.
While the thermal barrier revenue run rates are on an accelerating curve that needs to absorb the next level of fixed expenses and the investments that currently get captured as material or conversion costs.
Material cost increase year over year by 65% or $8 $3 million and conversion costs by 68% or $7 8 million during the quarter.
These reflect the relatively small size of the operation that were currently running to enable our customers' launches while establishing the capabilities of a much higher run rate automated multi site operation.
Yes.
Operating expenses, which are key to delivering our revenue profitability goals for 2023 and beyond increase.
<unk> increased by $6 7 million quarter over quarter as we increase.
As we increased spending to enhance multiple thesis.
One our technical operational and commercial teams supporting our thermal barrier business.
To the research and development team supporting our core Aerogel development efforts and the battery materials opportunity that Keith just shared our objectives on.
Three our legal resources to expand and defend our IP portfolio.
And for our core infrastructure, which includes the finance it.
In General management personnel required to manage the targeted growth in our business.
Accordingly, our net loss increased to $19 5 million or <unk> 59 per share.
And net loss of $6 3 million or 22 per share in the same quarter of 2021.
Adjusted EBIT was negative $14 7 million in Q1 compared to negative $2 6 million in Q1 of last year.
As a reminder.
We define adjusted EBITDA as net income or loss before interest taxes, depreciation amortization stock based compensation expenses and other items that we do not believe are indicative of our core operating performance in.
In Q1. These other items included $1 8 million of stock based compensation and.
And <unk> 8 million of interest expense.
Next I'll turn to our balance sheet and cash flow.
Cash used in operations of $22 $8 million reflected our adjusted EBIT of.
Of negative $14 6 million.
And then $8 $2 million of investment in additional working capital.
Capital expenditures during the quarter of $14 $5 million included engineering and designs for a secondary til manufacturing facility.
Assembly equipment for higher volume thermal barrier operations.
And R&D lab upgrades for our carbon aerogel battery material efforts.
Cash provided by financing activities of $165 8 million.
<unk> $100 million of proceeds from our convertible note issuance two strategic platforms.
$50 million from their purchase of common stock at $27 90 per share.
And $23 6 million of net proceeds from our ATM offering transactions at a gross average price of $35 10 per share.
These were all offset by a $4 $7 million repayments.
Yes.
And $2 7 million and other financing related disbursements.
We ended the quarter with $205 2 million of cash no borrowings under our revolving credit facility and shareholders' equity of $181 6 million.
Now I'll provide an update into our outlook for the rest of the year.
We expect continued revenue growth in 2022 associated with our plan for a higher than tripling of our fire <unk> thermal barrier revenue to cover $20 million for the year.
This is further supported by a continuation of the post COVID-19 recovery in the global energy industrial market.
As a result, we feel strongly about being able to meet or exceed our annual revenue outlook of between 145 and $155 million for the year equivalent to the growth of between 19% and 27% when compared to 2021.
The 37% year over year growth that we delivered in Q1, coupled with the strategic purchasing of key materials to Derisk. Our fulfillment of this year's revenue plans is encouraging.
However, we remain cautiously optimistic in a volatile supply chain environment that is not exclusive to Aspen and are proactively monitoring the delivery of key material inputs to our processes.
Effectively increasing our capacity and being ready to fulfill the growth as Don outlined in stage one of our long range plan is the main driver of this year's Capex.
Having this capacity ready to be put to work will be prioritized over a near term capital cost variances.
The R&D investments required to equip our ABM team for them to deliver and validate the development milestones that Keith outlined in his remarks on our battery material efforts will be completed in the first half of this year.
Finally, I would like to detail our current thinking on funding our business plan.
As we work our way through the year completing the funding of stage one of our long range plan is something that you can expect us to focus on opportunistically with the intent of efficiently raising the funds needed to increase our capacity.
Echoing <unk> earlier remarks, we're investing aggressively during the early part of stage one of our long range plan.
More specifically during the next five quarters.
These investments to support a much longer duration period of growth that position us to generate cash at the end of stage, one and will enable the company to continue growing without requiring additional funding.
Our range of capital sources are available for unique assets like Aspen that enables sustainability in partnership with large customers that have awarded significant business to fulfill.
These range from the sale of equity to relevance strategic partners such as KSP.
That that suits, our cash flow profile and equity.
We have several levers to pull as part of a well laid out plan to ensure that our balance sheet continue supporting our growth targets.
With stage one of our long range plan fully funded in the near term we are confident in our ability to efficiently turn capital of it investments into capacity that is immediately put to work to deliver our target revenues in 2025 and further growth into perpetuity.
We're now calling stage two of our long range plan.
With that I'm happy to turn the call back to them.
Sure.
Thank you Ricardo.
Turning to slide eight and before we move to Q&A I would like to continue the practice of highlighting our ESG work during quarterly earnings calls.
We value environmental social and governance criteria.
Integral part of our business strategy and it started the process of reorganizing our sustainability related policies and programs into a formal ESG strategy.
As a natural fit for us to explore new uses for our aerogel technology platform with the goal of improving the environmental performance and safety of our customers products and processes.
It is also at the core of our culture to respect and celebrate our employees by striving to create a diverse and inclusive environment in which people thrive.
We will be publishing our first DSG report, shortly which will outline key sustainability initiatives and ESG priorities.
Our goal is to provide a foundation for deeper discussions with investors and other stakeholders on specific ESG topics and to enable everyone to have access to accurate and timely information.
I will now turn the call back to Emily for the Q&A session.
Thank you very much if you would like to ask a question. Please be showing now by pressing star followed by one on your telephone keypad. If you change your mind and wish to withdraw your question from the queue. Please press star followed by Chase.
Turning to ask your question. Please ensure that your microphone is on mute blakeney.
Our first question today comes from Eric Stine from Craig Hallum. Eric. Please proceed with your question.
Good morning, everyone. Thanks for all the details.
Thank you Eric.
So.
On that $7 $4 million of pirates and revenue.
Obviously, GM and Toyota make up the lion's share of that so I'm just curious if you could talk about.
How many customers went into that number and then in terms of number of units is it as easy as just dividing by your average content or do you have other revenue lines in there or whether that's development milestones.
Or or other things in that number.
Yes, Eric I think I mean <unk>.
Dividing by the.
The weighted average CPG that we sort of outlined in the prior quarter would make sense.
Youre trying to back into the number of units that we shipped.
Frankly, there on the number of customers, it's fair to assume that the bulk of the revenue really came from.
<unk> GM and Toyota.
Breaking out the additional customers that we've been selling prototype parts too.
We don't really think is an indicative measure of the commercial progress in fact are.
Prototyping activities have intensified with other customers.
And.
And when they were shipping parts to 10 customers as we disclosed last year.
20, or four we don't think it's an indication of the.
The true depths in the progress of the commercial pipeline so.
We'd like to leave it at that.
Yes, Eric I would just I would just add and just to emphasize.
The intensity part of <unk>.
<unk> com.
Comment.
The activity level.
From our from our thermal barrier team has.
Has never has never been greater in all three of the of the important regions.
Producing electric vehicles today.
Got it well.
For my second question I guess I was going to talk about those those 10.
And maybe not necessarily from a quantity year revenue perspective, but whether it's those 10 or others.
Are you seeing I mean, clearly it sounds like Youre seeing.
Step up those programs moving forward.
I would assume some of those launch plans crystallize and then.
Whether or not your confidence level that lies in terms of being part of the platform. When it launches. So I mean, if you can just go into what you can again not from a unit perspective, but more just high level.
And then thoughts about why why wouldn't this be the industry standard going forward given the early progress you've made and the progress within that pipeline that youre seeing right now.
Yes, I mean, I think in terms of managing those customers that were.
And engaged with at the prototyping or the technical.
Assessment stage right.
This is an area where.
You do all of your work and then Youre almost at the at the Mercy of.
Of the different programs being available to accept the technology.
And.
Not every OEM is positioned in the way that somebody like GM is where theyre starting from scratch with an all new battery platform that immediately scales to multiple vehicle nameplates.
Some of those customers that we've sent prototype parts to our engaged within the commercial funnel.
Our balancing a mixed portfolio of nameplates that has all battery platforms combined with.
What seems to be on the surface and all new battery platform, but it's really just an evolution of the prior battery.
So to your question on why why this isn't adopted us.
As the standard from the get go.
Its really because its difficult to adapt prior batteries unless you are in the fortunate position that GM science itself and where they are really starting from scratch and.
And have the wherewithal to invest as aggressively as they are as they are today.
So for US really we also have to pick and choose.
Who are prototype team supports to be honest and it's really with these Oems that have.
<unk> taken a platform approach to the battery and then have the resources to scale something akin to what GM is doing with all team and so yeah.
You can at least find one customer in each region of the world Thats that is taking that approach.
And that's that's really where we're focused.
Eric I would add.
I think if you just go a little higher to I think our feeling has never been stronger that it is inevitable that these.
Producers are going to have.
Our strategy.
For thermal management and to mitigate thermal runaway.
That is becoming crystal crystal clear for all of them and maybe some of them were a little slowed it.
To want to get there, but I think that is becoming increasingly clear the second thing I would say and again too.
Reiterate.
What was I think in my script and then Ricardo.
For our 2023 doubling of revenue.
<unk>.
Have the awarded programs necessary to.
Pirates in thermal barrier point of view to reach that target.
Target also assumes 10%.
Growth in our <unk>.
Energy industrial business, as well, which we feel.
Very positive about it.
And we feel we have 60% of the revenue EV revenue necessary to hit the 2025 tripling and so if you think about the programs that.
That Ricardo.
The additional programs that he referenced from other Oems.
We're spilling in at least to this stage one of this long range plan, we're filling in that last.
40, 40% and.
These come in pretty big chunks.
As you can tell and when you when you have a design win and.
So.
Can you just say we have multiple opportunities to.
To fill in the remaining 40% of our 2025 target. So we have a lot of comments and and if you look back on sort of the.
The timeframe of General Motors.
And how that sort of played out.
<unk>.
How we how we competed in the RF keys in how we we had our early wins and then provided prototype parts and then ultimately production parts.
If you think about that timeframe it was.
18 to 24 months sort of timeframe and what sort of engaged at that we are in that process with several other Oems right now which is perfect for us.
Got it.
In the sense that.
It's likely to come on in meaningful volumes in that 2020 for 2025 timeframe Im just as we're bringing up.
Phase one of plant too so.
Some good deals good questions and there's some detail for you.
Yes, Thanks, a lot I appreciate it thank you Eric.
Sure.
The next question comes from the line of Alex Potter from Piper Sandler Your line is open racks.
Perfect. Thank you.
So obviously encouraging to see the higher than expected revenue on paraffin in the quarter I was wondering if you could dig a little deeper into that do you think that this.
Reflect.
Your customers being surprised by the amount of demand and their ability to sort of front end load production or are they trying to.
I don't know if stock up inventory in advance of their own launch to sort of de risk their production curve.
Any sort of insight into why you think revenues tracking ahead of plan for that particular product would be helpful.
Yes, Thanks, Alex.
Thank you.
And this one really seems to be just these launches in particular.
For instance, the lyric.
As we see it launched actually several months ahead of when even GM was planning to launch it.
And so that's a good example of it.
GM prioritizing.
EV launches as they try to meet their electrification goals and then of course.
Having the material on hand to.
To make the vehicles themselves.
When it comes to demand for the vehicles I think we've all seen that.
The new car market right now is really <unk>.
Hurting for inventory and units to sell.
So we're seeing this right now.
A sudden acceleration of revenue.
And as we work with.
With our customers here over the next quarters, we will see how much of that truly come.
It comes in as real additional demand.
For the year right. So yes.
I think also.
Both Ricardo Eni.
You used to use the phrase that Bob.
Activities in what you cited Alex.
Give us the momentum and the confidence to make the statement that we feel that we're positioned to meet or exceed our art or $1 45 to $1 55.
$155 million of.
Of outlook revenue outlook.
I think if we knew.
Exact answer to your question, we might we might have been a little bit.
More aggressive and playing around with our outlook, but we feel very good about meeting and potentially exceeding just given where we are and the momentum and.
And as you know, it's not always the case, where.
You have these new technologies come faster I mean normally that comes slower right.
And so the fact that it's coming faster I think is definitely noteworthy and we're working hard too.
Be prepared to fulfill that and to and to be able to meet or exceed our revenue outlook for the year.
Okay perfect that's super helpful.
Then one other question maybe following up on some of the others that were asked previously.
Would you say that.
We're talking about potential customers. Obviously, there is an ocean of different Oems out there and they all have different battery strategies, but theres also.
This handful of.
Tier one batteries specialists, who are trying to achieve scale and make.
Quote unquote commoditized cells.
How high on the priority list would you say customer.
Customers or potential customers like that or what are the pros and cons of aligning with somebody like that relative to something like <unk>, which is obviously more of a brand specific or company specific battery platform. Thanks.
Yeah, I mean, when we look at the Oems and.
And the ones that can deliver you.
The steady volumes with.
With franchise nameplates that just that you can rely on.
We don't see a trend towards actually wanting to integrate a pack from someone else and so instead, it's actually.
They are leaning heavily into it and replacing a lot of there.
<unk> combustion engine development.
With development into all of the details of the battery itself in developing a battery platform that is not just the sales, but the overall battery system within the broader system that has that car.
So.
For us in the.
On our products it makes more sense to align with customers that are resource to think that way.
And really when we look at the.
The customers that the team is engaged with its really hard to be happier with.
With the folks that we're engaged in and the level of technical depth that one is stable to go into when your system level approach is really the car and not just the battery or the sale right. So so for us to come at this from the sales perspective or to engage more aggressively with folks who are <unk>.
Added to the scope of the cell when this release of broader system issue.
Doesn't make as much sense as some of the Oems that we are engaged with.
Yes.
Just just evident to us that.
The automotive Oems are owning this issue and.
And more broadly.
The strategy of their of their battery platform.
And as you cite Alex they all have little twists and turns on on how they think about their battery platform, but.
Sure.
But they are owning this they are owning this issue.
The other piece that we look at is just folks access to capital so the Oems seem to have.
Quite a bit of access to capital and.
It's interesting even when we look at where the.
The battery experts in a lot of them really are at the Oems at this point.
Sure.
Yes.
Okay. Thank you very much guys. Thank.
Thank you.
Next question comes from Jeff Schreiner from Canaccord Genuity jet. Please go ahead.
Hey, congratulations.
Excellent job in the in the progression here guys.
Thank you Jay just two questions.
Little under the weather so so apologize if if their conclusion.
I guess first just on the ramp of Georgia.
Can you outline some of the timelines.
You'd be looking at for in terms of.
How to gauge that progression of the of.
That facility.
Yes.
So.
So we've targeted.
Yes.
Our 2023 revenue.
At.
That doubling would be it.
We've targeted $240 million.
And we feel are our revenue.
Capacity with our existing assets and as we build out our fabrication capability et cetera is about $250 million. So we're right up against it as we as we go work our way deep into 2023. So we are we are.
Laser focused on bringing that plant up in late 2023 and have it contribute.
In the early part of 2024.
And so.
We've built a heck of a team to execute that project.
As I've said before that team is made up.
Only of an outstanding Aspen.
Strategic capital projects team, but a strong group of <unk>.
Supporting cast and leadership frankly from.
Our friends at Coke as well who are highly experienced at building.
This scale of.
The facility.
And other and other excellent resources.
As well and frankly, a very cooperative.
Statesboro Bulloch County.
State, Georgia folks as well.
Who are facilitating our every move down there. So we really we feel we've got a strong team and where we are on track to.
To do what we've said, we're going to do and that is to bring that facility up later in the late part of 2023.
Great and then just as a follow up maybe a bit more technical but on the.
The silicon.
Composite solution for anode.
You pointed out some.
Some tactical details in terms of the states versus charge I'm wondering can you comment on dendritic growth.
Within the battery.
Over that or have you published any peer reviewed.
As literature data.
It's around this because it seems like you are becoming more open at this point. That's just my read on it in terms of what you're doing here and it seems like a shift.
Directionally I guess.
Based on the progress that Youre now seeing so I'm curious about that yes, we are.
Our our commitment is to be more open on this.
Over the course of 2022, and I think I hope today was a good example that I'll, let Keith and Ricardo.
Comment on the more technical aspects of the question.
Sure. Thanks.
Publish something yet our intention obviously is to continue to work through the validation of our of our solution and then and then obviously, we will continue to be more forthcoming with.
With those kind of technical details.
We're working through as.
As you can imagine a long list of.
Of opportunities in terms of of how to continue to solve this challenge that that is that is an opportunity in an industry and as Don mentioned, we will continue to be more forthcoming in the future as those technical details.
We're at a place where we can share them relative to our intellectual capital position. So I appreciate the question.
And we'll look forward to more information there as we as we continue to evolve.
Thank you.
Thank you guys feel better.
Our next question comes from Chip Moore from Ian Hudson Jackie Chan. Please go ahead.
Thanks.
Okay, Let me follow up there on that.
Battery materials.
Great to see the update and the good progress.
Just give us some of your comments on development and commercialization over the next call it 18 months or so.
Maybe you can expand on how we should think about upcoming investments I know you've talked about potential licensing efforts in the past.
Other efforts and anything you can offer there.
Keith you want to grab that.
Yes, thanks chip.
Right now we are.
<unk> made some investments in and all of our lab space and probably more importantly in the human capital part of that business.
As Ricardo mentioned in the prepared comments, we're expecting that expanded space and facility to be completed.
We're targeting for the first half of this year.
And really our effort had been had been really laser focus on on solving some of the technical challenges because as you know they are there.
You are quite daunting, but we've made some really good progress we've highlighted that here and and as we as we continue to progress towards those validation targets I think I think we're seeing good results in <unk>.
We will continue to invest in that space, where it where necessary and where it's appropriate but we believe the investments. We've included so far.
Are necessary.
Meet the needs that we need today.
To really accelerate our program.
Yes, good morning.
Dominate one within that.
And chip if I may ask just on the until your point on the licensing versus going at this on our own I mean.
I think <unk>.
Keith laid out the opportunity is substantial here, but we definitely want to match the capital commitments with the eagerness from other folks too.
Cooperate with us in this.
And obviously our achievement of the <unk>.
Technical milestones that will enable commercial viability.
So we're trying to not get ahead of our skis here in funding this and committing us to.
Two processes and actually making the material at scale until commercial liabilities proven.
Ideally with the help of some outside parties are customers and then really fund this as efficiently as possible.
And it licensing is the business model that does that more quickly and effectively.
And then so be it but we'll we'll cross that bridge when we when we get there.
Yes, absolutely we'll stay tuned thanks.
Thank you chip.
Our next question comes from Chris Chavez from B Riley, Chris Your line is open.
Yeah, Hey, Thanks for taking my question guys.
I just wanted to get a sense of if you could provide a margin breakdown for the thermal barrier business versus.
The energy infrastructure business I, just love to get some.
Color on the investment and ramp up fixed costs.
The sampling component is baked in on the thermal side.
How should we think about that gross margin cadence throughout the year I think would be helpful.
Yes.
Good question.
Chris I mean.
Really for us as we look at the thermal barrier side.
Our remarks, we mentioned how we feel good about the structural costs that we have there right. So sure.
<unk>.
When you are quoting something of this scale.
Obviously don't want to let the material costs get above a certain point and then really keep your conversion costs in that 20% to 35% of sales range right.
For us right now.
Really the when you're running a $30 million run rate operation, but half.
Quite a bit of amount of fixed expenses and the overhead that could almost pretty much run up $240 million operation you operate it at a negative gross margin there.
So.
We're working through the allocations and youre going to see that breakdown in the queue.
But in essence, we can expect our energy and industrial business to be bringing in.
Low double digits gross margins.
While the thermal barrier side stay slightly negative in the near term.
With that potentially the.
We're sending in the next quarter as we.
Okay.
As we have two facilities running rate, we have the overhead of the Mexico facility, that's getting ramped up without the revenue to show for that just yet.
But then as we mentioned in our remarks, we really are managing for five quarters from now when we will have.
The higher volume manual processes that the team has designed.
Along with an automated facility kicking in and and just a much higher revenue run rate.
Okay got it.
All makes sense and obviously with the pirate than revenue well above the run rate that you've previously talked about here.
I wanted to kind of clarify it seems like you guys are taking a wait and see approach.
Overall volumes coming through but there might have been a bit.
Okay. Appreciate mints with Alere collage et cetera, So just wanted to get a sense over the next quarter visibility.
Should we expect kind of a similar run rate to what we saw or we have some moderation for the pipe business.
As customers Digest.
Spreads have shipments yet.
Yes, I mean, we think the current run rate is is an indication of where things are in looking but again, there's quite a few factors here outside of.
Ours are even gm's control.
Toyota is a actually.
Getting the vehicles assembled.
So for us the operating that's why even in my remarks, I mentioned, the $30 million run rate instead of the $20 million run rate because we are gearing ourselves up for.
A much higher run rate any way right, so whether it's 20 or 30.
Not the main thing that's driving our decisions right now are decisions are truly based on.
The $200 million to $240 million annual run rate that we have to be ready to deliver.
And the interesting thing is that the levels of service don't don't really change.
The engagement of our quality team our supply chain team.
Has the same intensity, whether the operation is running at 20 or 30 or whether it's running at $2 20 or 240.
Not to put too fine of a point on it but when we say doubling revenue 21 to 2023 from 2021 to 2000 $23 million to $240 million.
To make the other statement 2023, it's just next year.
200, <unk>, we're talking about a serious rep.
Of this of this of this business and.
And that's why we're making.
These pre investments that's why we are where we are.
We're going to have two facilities fabricating it at the same time, because we want to move.
To those higher volumes to more automation to more better manufacturer ability of design.
<unk>.
Lower labor cost environment et cetera, and so we're doing that but sometimes we have these sort of redundant activities going on and Thats what were sort of facing here this quarter next quarter.
But let me just say that.
We're confident in the ramp and the and the communications that we're that we're getting from general Motors, and Toyota and quite frankly from.
Some of the other.
Of the Oems.
We're engaged very intensely right now.
In the <unk>.
Quoting process.
Understood. Thanks, guys.
Thanks Christian.
Our next question comes from Colin Rusch from Oppenheimer. Colin. Please go ahead. Thanks, so much.
Thanks, So much guys can you talk about with the new anode materials. The volume of sales that you guys are testing as well as the maturity of your efforts around electrolyte and separator technology at this point to support.
That material.
Hi, Keith.
Yes. So thanks for your question Collyn so in terms of.
We're really focused on the anode at this point, we have some other products are projects and in our in our pipeline that were that were really not discussing right now.
Primarily around cathode materials, but but not not necessarily separators or others. So.
I think I think just to focus on it it's really more about a plug and play.
Anode material and Thats really where our focus is that and in terms of in terms of the quality performance and quantities, we're working through a pretty.
Systematic validation program and we're handling that appropriately.
And at the right pace and scale and I feel like I feel like we've been able to demonstrate good progress and as we continue to evolve that technology and build out our platform.
We'll be we'll be sharing additional details.
Over the course of the next 18 months.
It feels like it feels like.
Really good progress has been made by the team and we wanted to share that here today.
Okay. Thanks, so much and then around input costs and pricing and margin structure. Obviously, you guys are getting into better utilization levels on the current facility and I'm still kind of running at breakeven margins are so can you talk a little bit about your interest or or willingness to go to a cost plus model is that something that you guys are exploring.
With your with your customers is that something that you guys wanted to do and how many other areas are there should you guys to start dropping off that and control of stock up in March and on top of the utilization level.
Yes.
On the pricing side I mean.
That's a fluid conversation that we're having with folks particularly on the.
Energy industrial side.
And in on some of the input to this worth.
Evaluating the cost plus.
Model, which we are already mirroring with some of our inputs.
Going back to to your point on on the cost right. So really at this point.
On the on the energy infrastructure side.
It's really we're focusing on.
And just getting our getting the material side.
Right.
And then optimizing the conversion side as we make further investments that are also the same ones that are behind the increase in capacity for the facility in Rhode Island.
So.
Then when we when we scale the thermal barrier side.
It's really interesting because a lot of the investments that we're making to deliver the additional throughput iron are also going to help the way our production flows for energy industrial.
Right now energy industrial is for example, being overly Penalised every time, we have to changeover.
Products and the facility in Rhode Island.
Or with some of the extra overhead that we have managing the criticality of the situate of the of the operation as we are delivering to GM and Toyota and so.
So.
Does that get.
Better absorbed with the.
The run rate increase.
Both.
Businesses will benefit and where you are.
Going to start seeing the.
The improvement, particularly on the conversion side.
Great. Thanks, so much guys.
Thanks Scott.
Our next question comes from Tom Curran with Seaport Research Partners. Tom. Please proceed with your question.
Good morning, guys.
Hi, John .
Don.
You've repeatedly emphasized that the real competition between EV Oems on leading shares in the future is really a race between branded battery platforms.
When you look at the customer prospects or in stage three of your commercial development funnel.
Most advanced stage, how many of them have proprietary platforms or had joined the platform of arrivals such as Honda has done with GM.
And then if Toyota where you decided to use pirating and another EV model launch or EBIT to adopt it for platform wide standardization when would you expect to see that incremental award from Toyota.
So.
Let me start with the first part.
Of that.
<unk> commented on this I think in a slightly different in a slightly different way, but our focus is on the Oems who are having who are developing.
A unique broad based platform for all of their for all of their models.
And for all of their nameplates and.
That's a much more efficient relationship in some sense for us.
And.
Okay.
The.
Good.
Entity that I would say.
And maybe I should say entities that are most engaged with us.
From an intensity point of view.
Broad based platforms.
That are going to be used across multiple.
Models.
And again, it's it comes in pretty big chunks of business and and it's another reason why we're building the capacity the way we are building it I've talked about building plant two in two phases, but during phase one we are putting in the infrastructure.
To be able to support phase two an additional $700 million of annual revenue capacity.
Because of the nature of the of the design wins the award programs that that we get so.
We're principally focused on the big platforms themselves.
The individual models just makes more sense for for US and then with Toyota obviously.
Deep relationship.
With Toyota.
And Thats, a little contrary to what.
I was just talking about.
But even with Toyota.
We see them moving if not a universal platform.
A platform that will serve multiple models multiple nameplates and.
Where we're engaged with them in those discussions.
Significant in a significant way and feel we're delivering excellent product we're on or on schedule.
Et cetera, we've been a good partner to them and we think thats. The best sort of advertisement if you will for adopting us more broadly than that and that nameplate. So.
We believe if you look at Toyota is rolling out.
Vehicles between now and 2025.
Many of them are in that 2023, 2024 timeframe and so we think we're in a good position to participate with those.
Got it.
I think the other.
Oh sure.
I just think the other part of your question that I answered that.
Is this idea of piggybacking on other People's name plate.
While it takes a lot to have your own battery platform in terms of.
Investment in capital and technical expertise and scale.
And it's not for the Fainthearted and so we do believe that.
We will see more and more of Av.
These collaborations take take place it just it just makes tons of sense.
To do that.
Yes.
Your example of.
Of Honda MGM and <unk>.
And since we last spoke we've seen additional announcements.
About some high volume vehicles coming out.
I believe it was in the <unk>.
In the 22025 timeframe.
I might have that slightly wrong, but not immediately but in that 2025 timeframe, but some high volume.
GM is flash Honda vehicles.
Coming out, which would be which are going to use the ultimate battery platform.
Alright.
And then turning to ABM.
When it comes to your plug and play silicone carbon anode material.
You've previously contemplated.
Essentially selling a commercial target of getting that material spec into a 2023 vintage battery.
Should we still think of that as sort of the key commercial milestone to look to.
As Ed.
Is that first commercial breakthrough and if so what.
Sort of timeframe.
You seem to be on track for at this point.
Keith do you want to talk a little bit more about sort of the.
18 month profile that you.
That you alluded to in your.
In your script.
Sure sure. So one of the things just to maybe maybe go backwards a little bit to go forward.
Our first step is really validation.
We're looking to ensure that we can use.
Third party validation of our 300 watt hours per kilogram.
<unk>.
Solution that supports 80% energy density 500 cycles. So that's kind of the near term targets in terms of of metrics that we're that we're working towards and we believe we're on track to achieve that within the next 18 months. So it really comes down to.
Validation first.
And then obviously the second portion of that is our ability to do that with low variability.
And in our current coin cell.
If I refer back to the chart that we've shown you can see that our sell variability at least in the current coin cells has been at.
OEM tight.
Levels, so so kind of 3%.
Which is which is really state of the art and so that gives us some confidence we wanted to be below 10% variability in at 31 empower pouch style.
Using our material and and we've got some confidence that.
Given our variability that we can continue to tune and get to a place where.
Where we can commercialize at at a very.
Commercially viable.
Target so I hope that answers. Your question. We've got we've got an 18 month roadmap and we are we are well on our way with some very early.
And excellent results from our extremely talented team at Aspen, and we're really proud of what we're showing.
To be open and share what we're learning as we go through this process because it's pretty exciting.
Meaningful in terms of our ability to service this market.
I would just add Michael.
While Steve will actually be technical.
I think I think that makes I think that makes sense, we're very comfortable with that idea.
And as we said in our last earnings call and we'll we'll say again here I think.
Key task.
I think it even goes back I think to judge question, a little bit about.
Providing meaningful data comparative data third party data.
Apples to apples data.
Okay.
I think thats really our goal.
Through the year 2022 here and.
I think the logical extension of that.
His inc.
Deeper relationships with a small handful of important companies in this.
In this in this space.
Got it so 2022 will be a technical validation year and once you've made it past.
So those hurdles and you can turn to commercial targets understood I think that's I think that's it thank you for everything.
Thanks Pat.
Thanks, Tom.
Our next question comes from the line of Jeff Osborne with Cowen Jeff Your line is open.
Great. Good morning, just two quick ones Don I was wondering.
A lot has happened in the last three months since your last call.
Comment you made about the awarded programs 1 billion $3 25, and then 2 billion beyond 'twenty six.
Net new or has that changed at all when the last three months.
It is.
It has changed.
Slightly but not significantly.
Actually these are obviously coming from general Motors, and Toyota and <unk>.
And where.
While the revenues coming out of food faster.
Awarded programs are more or less the same.
In terms of projected volumes out over time, so we.
We had to think about it a little bit, but I think quality is coming at us faster.
Absolute number has stayed.
Roughly the same I think is a good way of thinking about it.
Got it that's helpful. And then the follow up I had is just is there anything that you're monitoring or we would encourage investors to monitor over the next 12 to 18 months on the policy side.
U S or Europe , I consider adopting the Chinese rules.
Around safety or something possibly more stringent.
And yes, the potential policy.
Sorry for the follow up it does the potential policy changes.
Change the way Oems are approaching your thoughts.
I did talk a little bit about.
I believe those Eric's question sort of the inevitability of of these battery platform.
These automotive Oems, having a thermal management.
Our strategy to.
To mitigate thermal runaway and and I think thats sort of twofold.
The reason I use the word inevitable I think its two fold one is.
Yeah.
You just.
We think that the.
Catastrophic event for any for any for any brand really impairs the entire industry and the entire mega trend and.
Yes.
We think that.
There will be.
Internal reasons for the industry to.
To have these strategies these thermal management strategies, one and the second one.
I put this second because I think it is.
Second most important is that there will be I think there is an inevitability also that we'll see policy.
Across Asia across Europe , and here in the United States.
That will.
Put some.
Put some.
Baseline.
Requirements on these companies when it comes to.
Protecting battery safety, let's call it.
I just think that I, just think for those two reasons.
Youre going to Youre going to see.
All of these companies.
Implement.
<unk> execute on their strategy here around thermal runaway.
In many ways. It goes back to this whole notion of our U system oriented or are you component oriented right.
And we see the industry recently just.
And this effort of getting batteries.
To this $100 per kilowatt hour milestone theres been a lot of focus on performance right.
When one actually steps back and looks at it from the.
The broader system that is a car park next to our house.
That's when safety really becomes critical.
And we're starting to see more and more Oems take that.
So that broader system and user level approach.
Versus focusing on the performance of specific components.
I think I think Jeff and just.
I mean, just go into brand.
So critical to I mean.
Sure.
That means they're investing.
Billions of dollars tens of billions of dollars.
And we know how fragile brand can be and and.
And how few.
Catastrophic events would need to take place for any one of those brands too.
To wipe out.
Those billions of dollars of investment and so again.
I think there is a there.
There is.
For so many reasons there is an inevitability.
<unk>.
Getting one's arms around this around this issue.
And we do have a solution.
Makes sense I appreciate it thanks for the thoughts guys.
Thank you Jeff.
Before we take our next question as a reminder for any further questions. Please press star followed by one on your telephone keypad now.
Our next question comes from Amit Dayal from H C Wainwright.
Please go ahead.
Good morning, everyone.
My question to you.
To exceed guidance for.
So this year would that come from the energy infrastructure business or from the EV side.
Ricardo and his comments said that where we're seeing acceleration of.
Business.
In both of our principal markets.
And I think that's absolutely right.
Yes, we cited that it's.
Yeah.
$7 $6 million of EV thermal barrier revenue in Q1 exceeded our R. R.
Our internal thoughts that we put in place coming into the year for sure, but we're seeing a significant amount of activity in the <unk>.
Energy industrial business as well and it's it's really a function of.
Of pent up demand coming out of the pandemic.
Higher prices always poised.
Spark activity and then.
And this is this was partly driven geopolitically.
But the.
The LNG activity.
It's hard to imagine a more active a moment in time for for that.
That business.
In all three of the major regions as well so.
Where we're really excited about our energy industrial business right now and so.
Again to answer your question on outlook.
It would be a broad based.
Set of reasons why why we.
Ultimately increase the outlook, but today, where we're very comfortable saying that we're that we're confident that we'll meet or.
Or beat it.
And just one more.
Are you already pursuing acquisitions outside the E&P space, whether it's a little better your product or is it too early I mean, you don't have enough bandwidth right.
These are assumptions systems.
We're aware.
We're swimming as fast as we can right now with that with everything we've got on our plate.
To be honest with you.
I would say.
That we are we are.
All of our focus around.
This.
These thermal barriers today.
As in converting.
Additional prototype work additional quoting activity into.
Into awarded programs and.
That just makes all the difference in the world for Us and if we can get one or two more of these and we can start talking about not having 60% of our of our 2025 target.
<unk> accounted for with with existing.
Awards.
But 70%, 80%, 90% 100%.
And.
That puts us in a very very strong strong position through stage one of this long range.
Plan.
As Ricardo pointed out.
Puts us in a.
Very.
Solid cash position cash flow position and self sustaining and really monetizing these investments that we're making today.
Over the course of the next four or five quarters.
We think in a very in a very attractive way.
Thank you Bethany.
I appreciate it. Thank you. Thank you very much.
Thank you to all the questions we have for today. So I'll now turn the call back to Mr. Young for concluding remarks.
Thank you Emily.
We appreciate.
Okay.