Q3 2022 Aspen Aerogels Inc Earnings Call
Hello, everyone and thank you for standing by the Aspen Aerogels Q3, 2022 financial results call will be beginning shortly thank you for your patience.
[music].
Good morning. Thank you for attending the Aspen Aerogels incorporated Q3, 'twenty 'twenty Chief financial results call all lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end.
Now I'd like to turn the conference over to your host Laura Guerrant, Aspens, Vice President Investor Relations and corporate Communications. Thank you you May proceed Ms Garrett.
Thank you Emily good morning, and thank you for joining us for the Aspen Aerogels fiscal year 2022 third quarter financial results conference call with US today are Don Young President and CEO and Ricardo Rodriguez Chief Financial Officer. There are a few housekeeping items that I would like to address before turning the call over to Don the pre.
Yes 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 dot aerogel dot com, including in the <unk>.
Press release is a summary statement of operations, a summary balance sheet and a summary of key financial and operating statistics for the 2022 third quarter ended September 32022.
In addition, I'd like to highlight that we have uploaded to our website a slide deck that will accompany our conversation today.
Can find the deck at the investors section of our website and 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 historical fact these forward looking statements are subject to risks and uncertainties Aspen Aerogels actual results may.
Differ materially from those expressed in these forward looking statements a list of factors that could affect the company's actual results can be found in aspens press release issued yesterday page one of the presentation and are discussed in more detail on the reports Aspen files with the SEC, particularly the company's most recent annual report on Form 10-Q.
The company's press release issued yesterday and filings with the SEC can also be found on the investors section of Aspens website.
Forward looking statements made today represent the company's views as of today October 27th 2020 to 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 EBITA. These financial measures are not prepared.
Third in accordance with GAAP. 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 why we present. These non-GAAP financial measures are included in yesterday's.
A 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 two please get back into the queue and we will get to all questions and I'll now turn the call over to Don Don.
Yes.
Thanks, Laura Good morning, everyone. Thank you for joining us for our Q3 2022 earnings call I will kick things off with a progress report on our business on our recent business developments and financing activities and Ricardo will discuss business results and outlook, we will conclude with a Q&A session.
Our first revenue guidance for 2022 had a center point of $150 million at the time, we reiterated our 2023 target to double revenue from 2021 to 2000 $23 million to $240 million and two triple revenue from 2023 to 2025.
To over $700 million.
During the second quarter, we raised our revenue guidance to a center point of $190 million, while maintaining our 2023 and 2025 revenue targets.
At our last earnings call, we anticipated that automotive Oems would be impacted from time to time by supply chain challenges that could influence their growth ramps in any given period. We saw this in the third quarter and while we had record thermal barrier revenue. It was less than we expected at the outset of the quarter.
Q3 revenue was also impacted by some of our own supply chain issues, which Ricardo will cover in his presentation.
We are experiencing during the second half of this year the fluctuations inherent in the startup nature of the EV market as our Oems ramp their EV production.
We believe that our Q4 thermal barrier revenue will be at a record level of approximately $20 million and will enable us to achieve overall revenue for the year of approximately $180 million revenue growth for the year of nearly 50%.
Our piracy and thermal barrier commercial activity continues to gather pace as we deepen our engagement with additional customers. We continue to sell parts to support customer product development and our long term revenue pipeline, most notably to the commercial vehicle division of an important German OEM.
And one of its luxury light vehicle brands in.
Increasing the number of vehicle named blades to which we supply production parts is key.
While we will continue to anticipate variability from one quarter to the next during the ramping period overall, we believe that the long term EV momentum is powerful we remain confident that we have ample opportunity to reach our 2023 revenue target of $240 million and our two.
25% revenue target of $720 million.
We have a deep order book on the energy and industrial side of our business and while it can mitigate some of the variability of the EV OEM ramp it is not a one for one replacement at the revenue level.
There are several highlights from the energy industrial business.
We continue to see strong growth in LNG markets. During Q3, we had several early wins and accelerated LNG projects that will unfold in the coming quarters and years in North America. We had first shipments of product for the conversion of former drilling rigs to rapid deployment LNG assets we receive.
Additional orders in Latin America for Peru, LNG and expect continued growth in Latin America as projects on the Pacific takes shape.
We are expanding our presence.
In the Middle East and are proud to partner with <unk> LNG, where we received our first crowd Joe Award.
In Q3.
In the U S. We saw strong demand in service large turnarounds through the quarter on the refinery and petrochemical side of the business. We completed major construction and materials support for <unk> pen chemical facility. We also continued during Q3 to execute on the largest propylene oxide plant.
In the world for Lyondell.
The value drivers for these wins are long term asset protection and simplified logistics, we're seeing similarly high activity levels in Europe Asia and in Canada.
One last note on energy industrial our space loft subsea pipe in pipe segment is strong with five recent awards from subsea seven Technip FMC and all sees these five projects represent approximately $12 $7 million in revenue and our backlog in this space continues to.
Growth.
The strong outlook for energy industrial is fueled by our value drivers of efficiency resiliency and safety. We are building in optionality to manage our overall revenue growth. During this early stage of the EV Mega trend.
This flexibility is a good example of the benefit of our strategy to leverage the aerogel technology platform into a diverse set of large and dynamic markets.
With an active energy industrial business and with a strong position to grow with the EV Mega trend. We are committed to our $240 million 2023 revenue target and our $720 million 2025 revenue target.
We continue to make progress on plant to our aerogel manufacturing facility under construction in Georgia at a macro level. The past 12 months have been marked by supply chain inflationary and cost of capital challenges for all projects and our plant two project has not been immune were.
Proactively managing the project in order to mitigate cost and schedule pressures and doing so without losing sight of our goal to build the initial phase of the first class.
Eric Joe manufacturing facility that enables us to hit our 2025 revenue target of $720 million.
We have also designed plant two to allow us to bring online incremental capacity as our current OEM scale and as we are able to convert our robust development and prototyping pipeline into design awards with new Oems, We believe plant two positions us to play a significant.
<unk>, an important role in battery performance and safety.
As we have said in the past and as.
It is especially true in the current financial markets. We are taking in all of the above approach to financing our growth plan.
As we explore prospective sources of capital we have continued to focus on strategic investors, who know our company and the markets, we serve and who have the potential to make equity or debt investments in the business as coke strategic platforms has done in the past and as indicated its interest in doing so again we.
Believe having a strategic investor is the centerpiece of an Investor group will add validation to our business strategy and of course strengthen our balance sheet, while market conditions continued to be a challenge. We believe we will close a round of financing in the near term.
In addition to potential strategic investors in the public equity and debt markets. We are engaged with government programs as potential 2023 sources of capital for plant two our first application for the U S Department of energy Grant for advanced battery materials as part of the bipartisan infrastructure.
Act was not funded.
We believe the awards were largely granted to companies that are quote inside the cell. We believe that the administration is likely to announce an additional $3 billion in grant funding opportunities before the end of second quarter 2023, we expect that a significant amount of that funding will be dedicated.
It to U S based manufacturers dedicated to the electrification economy.
We are also exploring other doe.
Programs that are focused on battery performance and safety.
The programs target American manufacturing in an effort to address the resiliency of supply chains in the U S, especially for projects.
In critical areas of sustainability, such as energy storage and related materials.
While such Doe programs can take time and are unpredictable. We believe we are a very good candidate and that our pursuit is consistent with our all of the above approach to raising the necessary capital for us to execute our long term strategy.
And finally I.
I would like to continue the practice of highlighting our ESG work during quarterly earnings calls for the past two decades sustainability has been linked to the success of our business. It is a natural fit for us to explore new uses for our aerogel technology platform with the goal of improving environmental performance and safety of <unk>.
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.
We believe we have a responsibility to make a positive impact on our communities and we are committed to creating a corporate culture that pursues its mission.
With the highest standards of integrity.
During the third quarter Aspen published our inaugural ESG highlights report and launched our ESG webpage, which provide a comprehensive overview of our overall ESG strategy, we look forward to your feedback.
Start on slide four and our financial highlights for the third quarter.
Starting with revenues, we delivered $36 $7 million of revenues in Q3.
Which translates into 21% growth year over year.
Energy industrial demand remains very strong and we're booking orders into the second half of next year.
We've seen no demand risk in the medium to long term on our EV thermal barriers as the move to electrification accelerates.
Absent. These disruptions, we believe revenue would have increased by $7 million.
Our EV thermal barrier revenues increased by 11% over the prior quarter to $11 9 million and over 12 fold year over year.
Our Q3 energy industrial revenues of $24 7 million.
Were 16% lower than those in the same quarter last year.
29% lower than in the previous quarter.
This segment was most affected by our three schedule annual shutdown and the national <unk> shortage.
Illustrate this impact it's worth remembering that our aerogel plant in Rhode Island operates $24 seven.
We effectively shut down this operation for seven days from July 16th to July 20, <unk> and implemented various process changes that are already yielding benefits with faster line speeds and longer rolled production links.
The national Cotr shortage prevented us from realizing these benefits in the third quarter by limiting our aerogel production for at least 17 days.
These investments have already contributed to our stable production schedule. This month.
Next I'll provide a summary of our main expenses.
<unk> expenses of $20 8 million for the quarter made up 57 percentage points of sales, which continue to be over 10 percentage points higher.
And then where we want these to be in the long term.
This delta is driven by the fact that most of our EV thermal various production in July was still deliver from Rhode Island with higher scrap levels and a more complex part design that has been phased out as we transition to higher volumes.
In Q3, we effectively transferred our EV thermal barrier Assembly from Rhode Island to a larger site in Monterrey, Mexico with higher volume processes that will enable our profitable growth in the future.
As we completed this initiative at the beginning of August .
Demand on the three automotive nameplates that were currently supplying temporarily slowed as customers are addressing their own issues increasing vehicle production volumes.
This slowdown prevented our thermal barrier gross margins from improving quarter over quarter.
And then at negative 70% versus negative 67% in the prior quarter by affecting our ability to absorb fixed costs.
We are confident however that as soon as demand accelerates next year, we will be able to capitalize on the transition to optimize processes.
Conversion costs, which we consistently describe as all production costs required to convert raw materials. Since a finished goods were up $22 8 million.
And made up 61 percentage points of sales.
These costs include all elements of direct labor manufacturing overhead factory supplies.
<unk> insurance utilities overhead and inspection.
With less revenue than expected during the quarter and approximately $12 9 million of these expenses being fixed it was challenging to continue our path towards reducing these as a percentage of sales through improved fixed cost absorption.
However, we remain confident in our ability to leverage the higher throughput rates enabled by faster line speeds and longer Eric Joe Rollings to manage these costs.
Operating expenses, which are key to delivering our revenue and profitability goals of 2023 and beyond we're a $22 million.
These increased by half a million dollars quarter over quarter versus an increase of $4 $6 million in Q2 over the prior quarter. This modest increase aligns with my remarks from Q2.
Around making sure that our opex increases become more modest and focused precisely on delivering three things one tangible productivity benefits through new process development and the implementation of systems that streamline our methods and drive overall productivity.
Two new business awards through our EV thermal barrier technical sales efforts.
And lastly, clear milestones in our R&D efforts. These include our silicon anode carbon aerogel development efforts, along with R&D efforts and our silica.
Aerogel based installation formulations.
The development that drive lower chemical waste expenses through reformulation and enable further productivity improvements.
Accordingly, our net loss increased to $29 6 million.
Or <unk> 75 per share versus a net loss of $7 8 million or <unk> 24 per share in the same quarter of 2021.
Adjusted EBITDA was negative $23 $2 million in Q3 compared to negative $7 8 million in Q3.
Three of last year.
As a reminder, we.
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 Q3. These other items included $2 6 million of stock based compensation and $1 3 million of interest expense.
Next I'll turn to cash flow and our balance sheet.
Cash used in operations of $37 4 million reflected our adjusted EBITDA of negative $28 3 million and an increase in operational cash needs of $14 3 million.
That reflects a quarterly decrease in accounts payable of $15 $5 million.
Capital expenditures during the quarter of $67 million included the site work extract their pit formation as part of the plant to its construction assembly equipment for a higher volume thermal their operations. The R&D lab upgrades for our carbon aerogel battery material efforts.
And the initial construction of our advanced thermal barrier center.
As progress remains on track for plans due to enable our revenue growth in 2024, we have incurred $129 4 million in capital expenses through the end of Q3 towards it.
Cash provided by financing activities of $44 7 million. During Q3 included $44 9 million of net proceeds from our ATM offering transactions at a gross average price of $10 63 per share.
We ended the quarter with $102 $4 million of cash.
No borrowings under our revolving credit facility and shareholders' equity of $182 $4 million.
We remain geared to delivered revenues of $180 million in 2022.
Net loss in the range.
Of $82 3 million.
And $86 8 million and adjusted EBITDA in the range of negative $57 5 million and $62 million.
Our capital expenditures for the year are expected to range between 202 hundred $55 million.
As we work to further optimize our commitments and investments across the board.
Delivering over $59 million of revenues during the fourth quarter is subject to various external factors such as our thermal barriers customers' abilities to maintain their stated vehicle production volumes and the supply chain of our main raw materials, such as filings batting cotwo.
And the local labor market, particularly for our aerogel facility in Rhode Island, we.
We are proactive and proactively managing our supply chain risks and have ensure that were supplied stylings and batting to execute our production plans.
Recent nationwide Sidoti shortages, and a tight labor market continued to pose the highest near term risks to our revenue room.
Before turning the call back to Don I would like to provide a brief commercial activities update on slide six.
In this chart to remind everyone. This side of the size of the circle is the vehicle volume in millions.
That Piper Sandler is forecasting for these Oems in 2025 and their placement on the map is their approximate headquarters location.
The color of the circle, then determines whether we have been awarded business by that OEM are actively quoting business undergoing testing are not active with that OEM.
We presented an earlier version of this slide during our Q2 earnings call.
Can see that our team has successfully entered the quoting stages over that.
With the largest customers in Europe , and Asia that will be relevant on a global basis in 2025.
The volume of prototyping activity in Europe is also advancing.
Vance into deep technical development that reinforces our strategy and continues to demonstrate customers eagerness to invest in the right thermal runaway in thermal propagation solution.
In Q3, we also started discussions within additional American OEM and have provided them with pirate <unk> materials to test its capabilities.
With that I'm happy to turn the call back to Don.
Yeah.
Thank you Ricardo.
Before we turn to the Q&A session I would like to reiterate two important points first both our EV and energy industrial businesses provide a favorable backdrop for us to reach our 2023 and 2025 revenue targets.
And second despite the challenging financial markets. We are confident that we will fund our plan to execute our strategy will become cash flow positive during 2024 and create value for our shareholders. We appreciate your continued support.
Emily, let's turn to the Q&A session.
Thank you we will now begin the question and answer session if you'd like to ask a question. Please do so now by pressing star followed by the number one on your telephone keypad. If you change your mind I would like to be removed from the queue. Please press star followed by chip.
Pairing to ask your question. Please ensure that your microphone is on mute locally.
Our first question today comes from the line of Eric Stine with Craig Hallum, Eric Your line is open.
Hi, Don I Ricardo.
Eric how are you.
Yes.
Doing well thanks.
So I'd love to just stick with slide five I mean first of all great to see that.
You've added Tesla and.
That seems to be pretty recent since that it looks like it's been updated over the last months.
But I'm curious so you've had these blue blue circles.
And you're in clothing stage I mean is this an area, where it's kind of going as expected and that you've got the Oems now really trying to dial in what their plans are for their platform for specific launches launched launch dates that sort of thing.
Just maybe your thoughts on that and do you have an expectation of when you think you could see some movement of those moving from.
<unk> stage to actual awards.
Sure Eric.
Maybe before answering that one I'll just make a quick correction on my remarks around the Capex range.
I actually meant to say that our capex range is going to be between 202 hundred $25 million.
Which I believe they're in the pressure of the moment I would read it as $2 55 on the higher end.
On.
For us really what is evidence of progress there and getting closer to actually being source is the.
To level off.
And Thats why we put that in in Dons remarks, because it is notable that.
The volume of prototype parts that we've.
And Europe has increased.
And we've got a clear line of sight.
To what the specific applications.
We.
We're being <unk> four and <unk>.
And so I think.
That will continue making progress in <unk>.
Next year, we're going to start seeing that convert into a potential award.
Eric I would just I would just add to what Ricardo said.
The pattern of Av.
Engagement with these European Oems.
And the intensity of it.
The specifics of the of the of the prototype.
<unk>.
Remind us very much of where we were with our earlier award wins with with General Motors and Toyota and.
And I think.
It is also a function of.
Those companies.
And the development of their battery platforms.
Various nameplates that they have so we recognize this pattern quite quite clearly and that gives us confidence that we are that we're in a good a good position with several of them.
Got it so that I mean fair to say that it sounds like with the one German OEM that you called out in the presentation I mean confidence there, but potentially 2023 is when you see others, whether it's Europe or Asia or it could be North America as well.
Absolutely.
Okay.
And maybe second one for me.
You may be limited as to what you can say and understandable if that's the case, but.
I think about all these circles.
On the map and how that plays into financing I mean, clearly a strategic and seems to have what you seem to have a lot of confidence.
In going down that road.
Any clarity you can provide do you think it would be potentially from this map on this slide or someone in the more broad.
Installation space.
We'd just like to be careful in answering that Eric.
Let's just say sort of all of the above it if we can just to use a phrase that we've used before.
Sure.
Not to be evasive, but I just wanted to be careful.
In this stage of engagement.
Nope understandable, but I thought I would give it a shot anyway. So okay. Thank you appreciate it yes.
Thanks, so much.
Our next question comes from Colin Rusch with Oppenheimer. Please go ahead Colin.
Thanks, so much guys.
With the full year guidance, it looks like youre going to get to about $60 million in revenue for the year I just want to understand where that incremental revenue is coming from.
All of that is coming from the EV space and assume that the law.
Larger bulk of that is going to be coming from the industrial space and how much visibility you have to those numbers right now.
Yes, I think.
The volumes on the EV thermal their side have become clearer for Q4, just recently and so.
As Don mentioned in his remarks, I think we've got a relatively clear line of sight to around $20 million.
For the EV thermal barrier space and.
And then really we.
We're leaning heavily.
On really the products that.
That we have the highest productivity on out of the aerogel facility.
Two.
To really deliver the rest the other $40 million here.
And we've got customers, they're eager too.
Ear and expecting that product is so.
As we were working our way through the end of Q3, we started allocating.
We've continued to do that and that's what's going to.
This was still gives us confidence into the.
$180 million for the year and in 2022.
I think as Ricardo said in his script.
We're taking orders into.
Into 2023 at this well into 2023 at this point on the energy industrial.
Side so.
We've got so for us it comes down to.
Avoiding any supply chain issues during Q4.
Riccardo also said in his remarks, we have made significant improvements.
Not only with productivity, but.
Around some of our some of our raw materials in particular, Cotwo, which is which has been challenging nationally.
For a period we.
We've put in place.
Belt and suspenders efforts to be sure that we don't have disruptions going forward.
Okay. That's super helpful guys, and then just thinking about the gross margin evolution here with with those supply chain adjustments in some of the cost out measures that you've got how should we be thinking about that.
Cadence of gross margin improvement as we get through the balance of this year, which you guys have provided a fair amount of detail on it but more importantly into next year.
Okay.
Yes, I mean, it's heavily volume dependant on the thermal barrier side.
But we still I mean, we were still not deviating from our plants turn.
To turn that positive next year.
And here as we work to deliver the $20 million in Q4.
I think we're going to see.
Very good improvement over Q3, and Q2, just given the nature of.
These parts look like now.
And really the processes that we're using to make them. So.
We're really pushing hard to turn that positive as soon as possible and.
Yeah.
Our next question today comes from Alex Potter with Piper Sandler. Please go ahead Alex.
Great. Thanks.
So Riccardo My first question is on the revised Capex guidance $200 million to $225 million, which is down versus last quarter. I'm. Just wondering if you can give some color on what qualitatively has changed why are you delaying capex are you finding areas of increased efficiency, what's the main driver of that down.
<unk> adjustment.
Sure, it's really just more timing versus our estimates.
At the beginning of the year and then in June as we were looking at it.
Has it slowed it is really it ultimately comes down to when these expenses actually hit our books and they're hitting us slower than we were originally expecting as we were planning for the year.
And then obviously working through our capital raise efforts.
At the same time.
When it comes to all of the other projects, we're really scrutinizing the scope of every single thing to do not overcommit here.
And that has.
Given us some efficiency, but but it's not the bulk of the of the re timing here.
Okay. That's that's helpful.
And then I guess, maybe also just on <unk>.
It appears obviously to be a very material topic. If you look at the guidance for Capex as well.
Sure.
I'm wondering the extent to which you have access to capital I can't remember how much is left on the ATM.
Is a big capital raise necessary in the next three to six months.
In order for you to continue on your path with this capex guidance or is that not necessary.
Our our plant two in some of the other activities that we have.
Going on that require capital and to stay on course to execute.
On our on our strategy.
I think having a strong balance sheet is also.
<unk> to some of the automotive Oems, who are who are looking to us to.
To have parts designed into their to their platforms over over a long period of time and so there are there are several good reasons for us to fortify.
The $107 million that we started this this quarter with and and we intend to do that again, we believe we will we'll do it in the in the near term with respect to the ATM do you have that.
We've got around $60 million remaining on that Alex yes.
Being cautious and opportunistic on how we use that and it's obviously not the main source of capital here.
Yes.
Okay great.
Maybe if I can squeeze one last one in here can you talk about the CODI shortage that this is the first time I had heard of it I'm not really steeped in that supply chain. So any additional color you can give on that it sounds like you are taking some.
Mitigating factors in order to address that.
But to what extent could something like this resurface next quarter or two quarters from now obviously, it seems like thats sort of crept up out of nowhere.
So how big of a risk is this or other parts of the supply chain in that energy industrial part of the business. Thanks.
Yes, I mean, the COPD shortage hasn't really gone away.
And it's actually been in the news Cui.
A bit over the summer.
With folks in the beverage space, not being able to get a dry ice suppliers not being able to get it.
And it started here in the northeast as we understand that and.
And basically spread throughout the country and it's still there what we've had to do is really just.
<unk> increased the amount of buffer that we have of it on site and.
And then really take control over how we get it.
From anywhere in the country rather than relying on.
More of a regional supply chain and.
So.
But for us it really didn't come out of nowhere, we have been flagging it as a risk really since Q1 and <unk>.
And started installing the additional capacity for storage on site.
More structurally there is an opportunity to invest in actually doing our own recapturing.
But as we understand the national issue would really all stem from a contamination issue for one of the main sources in the U S.
That really prevented.
Sure.
All of US who are heavy users of <unk>.
I mean, it's it's.
Given that the demand is dropping in the fall, but we've also just been able to.
<unk> put in place the right mitigation actions, so that we're less affected by it.
For us in Q3, particularly the issue was the timing right ideally this would've.
And timed exactly when we shut down the plant for.
For our improvements.
But.
Really the bulk of the down days came after we restarted the plant ready to make more ore zones.
And just one last.
Comment.
As we did site selection Alex for our plant two.
The southeast has a much much greater much more robust.
Us.
Sources of Sidoti supply.
And our R&D effort has has also we recycle the vast.
Percentage of our two Houston, we continue to improve upon that.
As Ricardo alluded to.
I think in the future as we continue to.
To sort of pull our supply chain, a little closer in we have opportunities to to.
To self generate as well and so we've been focused on this for a while this has been an issue a potential issue for a while and obviously it came it came out in full force and in the third quarter, but I think our team is doing a lot going at it from a lot of different directions, and again as I say this.
Southeast where are our plant number two is.
Again has a much more robust.
Set of suppliers.
That's super helpful guys. Thanks, I'll pass it on thanks, Alex.
Our next question comes from Chris <unk> with B Riley Chris. Please go ahead.
Yeah, Hey, thanks for taking my call.
Maybe just to start we could talk about you mentioned near term capital raise from strategic potentially another around with with Coke and the ATM I just wanted to get a sense.
If there is an additional doe.
Loan.
For 2023 or are we still looking at $150 million for for that potentially next year.
Maybe as you saw.
Rising other investments between now and then.
Just how we should think about.
Are you guys baking in the Doe loan is as part of the part of the puzzle if you need the cash kind of ahead of when that approval might come in.
Sure.
Yes, let me just comment on the on the on our work with with Doe as I said in my script there were a set.
There was a set of awards that took place.
Couple of weeks ago, we were not included in that many of the companies who were were in the battery chemistry sort of as I said sort of inside the cell.
We anticipate.
That.
In Q2 of 2023.
There will be a second set of awards.
Again, as we understand it in the range of about $3 billion and there will be.
Greater focus on manufacturing in our grant application was specific to our plant two activities.
We believe we are a good candidate.
For for that in support of electrification.
And some of the themes that are inherent.
In that program. So we are we are.
Very focused on.
Presenting well if you will in that effort.
Although Chris it is hard to count on hard to count on it and so we're taking an approach.
To be sure that.
I don't want to call it a nice to have but but where we are taking an approach to be sure. We have the adequate capital to continue to execute our strategy throughout 2023 of building that facility and bringing.
Platt to online so it's contributing in the beginning of 2024 to support.
Our growth.
In that year.
In terms of.
Other capital.
Yes, we'll continue.
We're very focused.
Not to overuse, the all of the above.
Phrase but.
We are we are we will be focused on on strategic investors Coke has been a terrific supporter of ours.
And we believe they will continue to be.
And.
Okay.
And the equity and debt markets as well so again, we're taking a pretty broad broad view of this.
We believe that we will be able to close.
A round of financing here in the in the in the near term and we will continue to work or the.
The capitalization of our company to keep up with the.
Enormous opportunity that we have in front of us.
Got it okay, yes that makes sense I think you had called out the great you're applying for.
On this last round that was announced a week or two ago that it was $150 million is that kind of in the ballpark of what you would be applying for it.
Correct correct.
Kind of more of a fact, okay got it and then maybe just on Toyota.
Okay, and then maybe just on Toyota There've been multiple press releases over the past week or so talking about Toyota reviewing their overall EEV roadmap.
Potentially transitioning with larger volumes around 2025.
The PZ Forex, maybe being a bigger piece of that 2025 plants can.
Can we just get a sense.
Maybe matching up some of those press reports, we are seeing with what you guys have baked in for 2025 from that customer I am curious if you guys are reading the same things and thinking.
Thank you Matt.
Volumes.
<unk> talked about.
Visibility for them might have upside.
Anything you could kind of comment around.
Progress with that customer around just kind of the <unk>.
Platform win beyond BZ, I think it would be helpful for folks.
Sure.
Coincidentally, we have a team in Japan this week actually up.
And.
Visiting with Toyota among among others and of course, we have read the same.
Some of the same dispatches.
Referring to I think what I would just say is that we are.
We are.
Engaged technically and commercially with.
With Toyota and.
And.
And remain.
Close close to them and it will be I don't mean to say, we're privy to anything that is.
No that goes beyond the headlines goes beyond the headlines.
I think when it all when you boil it all down.
<unk>.
<unk>.
The headlines were really yes may be a shift, but I think a shift.
Two two.
Go bigger and be yet more committed.
And also to answer your question on the <unk>.
Just how that factors into our 2025 rare.
Revenue planned right now.
Really only including the nameplate, though we have been awarded yet.
Got it okay. Thanks, guys.
Thanks, Chris.
Our next question comes from Jeff Osborne with Cowen. Please go ahead, Jeff.
Yes. Good morning, two quick questions. One I think in the past you had talked about maybe challenges in using your pirates in products for cylindrical format batteries I was just curious if.
If that's still the case or if you've found an application that might work for that.
That's still the case.
Got it.
Yes, yes.
Is there is there anything to do.
So more at the pack level or no.
Yes.
Yes, I mean for folks that are using prismatic and pouch cells.
And so I.
This whole idea of the form factor is something that we're seeing everybody reconsidering right now.
Along with Chemistries.
And.
But we're definitely.
Yes.
More compatible with folks that are using prismatic and pouch cells.
I think speaking got it generally.
Jeff without without meaning to speak to any one OEM.
I think we also see as Ricardo mentioned companies working on different Chemistries and sometimes form factors to go along with those chemistries, perhaps LSP.
Chemistries et cetera, and.
And so it's interesting.
To be engaged in some of those programs again on the prismatic and pouch.
Yes.
Side of that where we are.
Our strengths lie.
Got it and just to be clear because you've seen GM also announced stationary batteries are you in conversations around stationary batteries and if so is that included in chart slide five I think it is it references.
Dialogue with potential customers or is that just specifically for automobiles in 2025.
So slide five only refers to particularly light vehicle volumes.
But as we understand the stationary batteries that you mentioned are also on the Altium platform using alteon modules and we are in the <unk> modules.
Got it and then just the last question I had thats helpful. Ricardo.
You mentioned several times the shutdown in July and the.
Speeding up.
As well as the elongation of the rules can you quantify what the potential either margin impact is of that exercise or the potential annual revenue impact or percentage yes.
Is there any way to frame that.
Yeah, so all else being equal.
And uninterrupted.
Without any changes in product mix.
That's around 20% productivity improvement just additional throughput with the same fixed expenses.
That's great to hear that's all I had thank you.
Thank you Jeff.
Our next question comes from George <unk> with Canaccord Genuity. Please go ahead George.
Hi, good morning, and thanks for taking my questions I'd like to ask about George Toyota again, because that's how you get it.
Good morning.
Some of the <unk>.
Articles referenced.
A complete redesign of their thermal management and I'm, just kind of curious as to whether you could share any thoughts.
On what you know about what they are considering there. Thank you.
Yes.
Yes, it's hard to go into a ton of detail.
There are unfortunately, not enough to have abated, but.
We just don't want to front the news here.
George I would just I would.
Good.
Hey.
That's where it hasnt.
<unk> is an important focus on thermal management is as I think some of the articles have have sat in.
As they've had in the past, but I think.
The fact that they have.
They have included that in there.
And their redesigned kind of concepts.
It's interesting.
And also it's worth mentioning that the overall trend and then is it.
What's more.
Yeah, right more of more and better so.
Yes, I think.
Yes.
Understood.
And I want to focus on a previous question as well.
Around the energy stationary storage opportunity I mean, how many conversations have you had with regards to that market can you share.
Any details about how that might be a future opportunity beyond startup.
25 to 26.
Well.
With respect to.
Yes.
We've had across the industry we've had conversations.
On this.
General Motors of course made there.
More recently in this in this regard and we.
And they are using there.
They have stated that they are using their altium.
Battery platform as the basis for.
For this stationary.
Energy storage and.
And so we are.
Sort of literally and figuratively in the middle of that and so.
That is up.
A positive.
For us as they build that out.
We have been engaged.
With them around <unk> and our focus of course has been on the EV side of the business.
To date, so again, we don't have any any any extra insights that we'd be able to share.
At this point on their strategy.
Of course other companies have have have worked in this direction also and we've been we've been engaged with them.
A lot of the same ideas of mitigating the dangers of thermal runaway certainly apply in this case as they do in an EV.
Thank you.
Thank you George.
Our next question comes from Tom Curran with Seaport Research Partners. Please go ahead Tom.
Good morning.
Good morning, John not much left on my list.
Yeah.
With this eminent round of financing done would the expectation would still be.
Number one that it's most likely to be structured.
Some type of pipe and then number two.
It will probably include two strategic investors.
Yeah.
The.
Yes.
The payback option is certainly a.
No.
<unk> falls under the umbrella of all of the above for certain and.
Is it would be an interesting approach to us.
Yes.
I think.
The idea of multiple strategics.
We were.
We were not necessarily including Coke.
In that in that phraseology.
Even though one could very much make the argument that its a strategic strategic in many regards.
As a partner they've been extremely helpful.
To us so.
I think thats.
Leave it I'll just leave it there for if I may.
And again.
We believe we anticipate that this will play out here in the near term.
Fair enough I understand things are very sensitive and constrained at the moment, but just a clarification I was including KSP.
Sure.
You're asking about more than one Phoenix.
Partly answered that.
No I'm glad you Arnaud.
I'm glad you I believe you clarified clarified that.
Alright.
And then.
Ricardo for conversion costs I believe you said.
For thermal barriers conversion costs came in for <unk> at 61% of sales.
Looking to <unk> 2023.
Sure.
If you should hit your thermal barriers gross margin target for <unk>.
Where would you expect conversion costs as a percentage of thermal barrier revenue to be at that point.
Could you just revisit.
And expand upon what the drivers should be of.
Is that expected reduction converging costs as a percentage of thermal barriers revenue.
Yes, they need to basically be cut in half so they need to be in that 25% to 30% level.
And.
Alive.
Lot of it next year.
Correct.
And I just wanted you to.
A good portion of that improvement comes through.
Just the volume rate that we that I would be assuming as I do the math for that quarter.
But.
But it really is.
It kind of it's a shame that.
That we didn't have the thermal barrier volumes.
That we were expecting in August and September during the quarter, because we would have already started showing a path towards that.
Through our operation in Mexico.
And so.
We're hoping to really work you know here in Q4, as we deliver roughly $20 million.
Thermal barrier revenues.
To start, making a meaningful dent at that 61%.
And ideally.
A year from from next quarter, we will have.
Cut that in half at least.
Great. So we should see that first significant step down in.
Conversion cost as a percentage of revenue.
Starting with next quarter's results.
Correct.
Assuming the volumes are there.
Great.
Thank you.
Thank you Chuck.
Our next question comes from Chip Moore with F. Hutton. Please go ahead.
Thanks for taking the question.
Just wanted to follow up there on the gross margin.
Q4 guide.
Guidance implies you're somewhere closer to where you were back in 2019 and you just touched on the move to Monterrey pyro, but thanks for that I guess, maybe on the subsea it should be.
Are you expecting the bulk of those orders you called out to hit in Q4 or any other factors to consider there.
There is some some of that activity will be.
We will be produced and delivered during Q4, the majority of it will be in 2023.
Got it okay.
And then just as a follow up maybe you can give us a bit more of an update on advanced battery materials.
E money announced last week is going to projects in that space as you know.
I'm, just curious maybe how youre prioritizing investment there.
You sort of wait until you get that next round of financing to accelerate or how should we think about that.
Yes, I mean, we haven't slowed down the development and actually has seen really encouraging results on.
On those three metrics that we outlined earlier in the year.
The team is just really impressive as we built it up they're working in a brand new lab.
And we feel just as confident as we were a quarter ago or even two.
Around our path to get there and have made meaningful progress towards demonstrating the increased energy density the increase dependability on that higher density pad.
Path towards a lower cost process.
Then a lot of what we're seeing.
Getting awarded here and.
And then also reduce variability as you.
Put the material in to actually making a cell so.
Really the team is still on a path towards demonstrating all of those things here before the end of the year and as we do that.
And we think about.
Applying for a grant to think emphasizing on those developments will be really important.
<unk>.
To improve our candidacy for these things as we focus on are inside of the cell efforts more meaningfully after having demonstrated all of these milestones.
We're also.
Abel.
<unk> variability really focused on on cycle life.
As well.
And the ability now to begin to produce.
<unk> quantity.
For larger scale testing.
<unk>.
Internally, if you will and and with potential partners.
Good to hear alright.
Thanks.
Thanks, so much.
We have no further questions today, so John I will hand back to you for concluding remarks.
Thank you Emily we appreciate your interest in Aspen, Aerogels and look forward to reporting to you our fourth quarter 2022 results in February .
Be well and have a good day. Thank you so much.
Thank you everyone for joining us today. This concludes our call you may now disconnect your lines.
Okay.