Q2 2024 Aspen Aerogels Inc Earnings Call
Operator: Good morning. Thank you for attending the Aspen Aerogels Inc. Q2 2024 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. I would now like to turn the conference over to your host, Neal Baranosky, Aspen Senior Director, Head of Investor Relations and Corporate Strategy. Thank you. You may proceed, Mr. Baranosky. Thank you, Alys
Good morning. Thank you for attending the Aspen Aerogels, Inc. Q2 2024 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.
Operator: 2024 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.
Operator: I would now like to turn the conference over to your host, Neal Baranosky, Aspen's Senior Director, Head of Investor Relations and Corporate Strategy. Thank you. You may proceed, Mr. Baranosky. Thank you, Ulysses.
Neal Baranosky: I would now like to turn the conference over to your host, Neal Baranosky, Aspen's Senior Director, Head of Investor Relations and Corporate Strategy. Thank you. You may proceed, Mr. Baranosky.
Neal Baranosky: Thank you, Alyssa. Good morning, and thank you for joining us for Aspen Aerogel's second quarter 2024 financial results conference call. With us today are Don Young, President and CEO, and Ricardo Rodriguez, Chief Financial Officer and Treasurer. The press release announcing Aspen's financial results and business developments and the slide deck that will accompany our conversation today are available on the investors section of Aspen's website, www.aerogel.com. These statements are subject to risks and uncertainties that could cause our actual results to differ materially.
Neal Baranosky: Good morning, and thank you for joining us for Aspen Aerogel's second quarter 2024 financial results conference call. With us today are Don Young, President and CEO, and Ricardo Rodriguez, Chief Financial Officer and Treasurer. The press release announcing Aspen's financial results and business developments and the slide deck that will accompany our conversation today are available in the investors section of Aspen's website, www.aerogel.com. During this call, we will refer to non-GAAP financial measures, including adjusted EBIT. The reconciliations between GAAP and non-GAAP measures are included in the back of the presentation and earnings release.
Neal Baranosky: thank you lissa good morning and thank youfor joining us for aspen aerj's second quarter two thousand twenty four financial results conference call with us today our d yyoung president ceo and regard rega's chief financial officer and treasure
Speaker Change: The press release announcing Aspen's financial results and business developments and the slide deck that will accompany our conversation today are available on the investors section of Aspen's website, www.aerogel.com.
during this call we will refer to non-gaap financial measures including adjusted ebitda the reconciliation between gaap and non-gaap measures are includingin the back of the presentation and earnings release
Neal Baranosky: On today's call, management will make forward-looking statements about our expectations. These statements are subject to risks and uncertainties that could cause our actual results to differ materially. These risks and uncertainties include the factors identified in our filings with the SEC. Please review the disclaimer statements on pages 1 and 2 of the slide deck, as the content of our call will be governed by this language.
Neal Baranosky: I'd also like to note that from time to time, in connection with the vesting or pending expiration of restricted stock units and or stock options issued under our long-term equity incentive program, we expect that our Section 16 officers will file Forms 4, to report the sale and or withholding of shares in order to cover the payment of taxes and or the exercise price of options. Lastly, I want to call out that next Tuesday and Wednesday, August 13th and 14th, Don, Ricardo, and I will be hosting one-on-one investor discussions at Canaccord's 44th Annual Growth Conference. This event will also include a fireside chat with Don and Ricardo on Tuesday, August 13th from 8 to 8.25 a.m. EST.
On today's call, management will make forward-looking statements about our expectations.
these statements are subject to risks uncertainties that could cause our actual results to differ materially
Speaker Change: these risks concer ties include the factors identified in our filings with the secsplease review to disclaimer statements on pages one and twoof the slide deck as the content of our call will be governed by the language
Speaker Change: I'd also like to note that from time to time, in connection with the vesting or pending expiration of restricted stock units and or stock options issued under our Long-Term Equity Incentive Program, we expect that our Section 16 officers will file forms for
Speaker Change: to report the sale ro with holding of shares in order to cover the payment of taxes and where the exercise price of options
Speaker Change: Lastly, I want to call out that next Tuesday and Wednesday, August 13th and 14th, Don Ricardo and I will be hosting one-on-one investor discussions at Canaccord's 44th Annual Growth Conference. This event will also include a fireside chat with Don Ricardo on Tuesday, August 13th from 8 to 8.25 a.m. EST.
Neal Baranosky: These risks and uncertainties include the factors identified in our filings with the SEC, to report the sale and or withholding of shares in order to cover the payment of taxes and or the exercise price of options. On Wednesday, September 4th, the company will host one-on-one investor discussions at the Barclays 30th Annual CEO Energy Power Conference in New York. And finally, on Tuesday, September 24th, the company will host one-on-one investor discussions at Oppenheimer's Innovating Sustainability Summit, which will be held virtually.
Speaker Change: On Wednesday, September 4th, the company will host one-on-one investor discussions at the Barclays 30th Annual CEO Energy Power Conference in New York.
Speaker Change: And finally, on Tuesday, September 24th, the company will host one-on-one investor discussions at Oppenheimer's Innovating Sustainability Summit to be held virtually. I'll now turn the call over to Don. Don?
Neal Baranosky: On Wednesday, September 4th, the company will host one-on-one investor discussions at the Barclays 30th Annual CEO Energy Power Conference in New York. Finally, on Tuesday, September 24th, the company will host one-on-one investor discussions at Oppenheimer's innovative sustainability summit to be held virtually. I'll now turn the call over to Don. Thanks, Neal. Good morning, everyone.
Don Young: Thank you for joining us for our Q2 2024 earnings call. My comments will focus on Q2 and first half performance, 2024 full year outlook, and the status and expected impact of several key elements of our strategy. Ricardo will dig deeper into our financial performance and outlook and our business strategy. As Neal indicated, we will conclude with a Q&A session.
Donald Young: Thank you for joining us for our Q2 2024 earnings call. My comments will focus on Q2 and first half performance, the 2024 full year outlook, and the status and expected impact of several key elements of our strategy. The performance is reflected in the Q2 financial results and in the Higher 2024 Revenue and Adjusted EBITDA Outlook, our second Beat and Raise quarter of the year. Adjusted EBITDA grew to $29 million, resulting in an adjusted EBITDA margin of 25%.
Don: Thanks, Neal. Good morning, everyone.
Don: thank you for joining us for our q two two thousand and twenty four earnings call my comments will focus on q two and first half performance two thousand and twenty four full year outlook and the status and expected impact of several key elements of our strategy
Speaker Change: Ricardo will dig deeper into our financial performance and outlook and our business strategy. As Neal indicated, we will conclude with a Q&A session.
Don Young: We operated very well in Q2. The strong execution leveraged and extended the momentum that we built throughout 2023 and during Q1 of this year. The performance is reflected in the Q2 financial results and in the Higher 2024 Revenue and Adjusted EBITDA Outlook, our second Beat and Raise quarter of the year. Quarterly revenue grew to $118 million, which was accompanied by a 44% gross profit margin. Adjusted EBITDA grew to $29 million, resulting in an adjusted EBITDA margin of 25%.
Ricardo: We operated very well in Q2. The strong execution leveraged and extended the momentum that we built throughout 2023 and during Q1 of this year.
Ricardo: the performance is reflected in the q two financial results and in the higher two thousand and twenty-four revenue and adjusted ebitda outlook our second beaten raiseed quarter of the year
Ricardo: Quarterly revenue grew to $118 million, which was accompanied by a 44% gross profit margin.
Ricardo: Adjusted EBITDA grew to 29 million dollars resulting in an adjusted EBITDA margin of 25 percent.
Donald Young: Quarterly revenue and Gross Profit were at record levels in both our Energy Industrial and EV Pyrothin Thermal Barrier business. Our profitability metrics are driven by both leveraging our fixed assets and controlling expenses. Our operating facilities are placing an emphasis on important safety, operational, and financial objectives and are producing outsized value for Aspen and our customers.
Don Young: Quarterly revenue and Gross Profit were at record levels in both our Energy Industrial and EV Pyrothin Thermal Barrier business. We are well-positioned to be net income positive for 2024, an important milestone for the company. Our profitability metrics are driven by both leveraging our fixed assets and controlling expenses. Our operating facilities are placing an emphasis on important safety, operational, and financial objectives and are producing outsized value for Aspen and our customers. The gross profit margin over the past six quarters has expanded from 11 percent to 17%, to 23%, to 35%, to 37%, and now to 44%.
Speaker Change: Quarterly revenue and gross profit were at record levels in both our energy industrial and EV pyrothin thermal barrier businesses.
Speaker Change: We are well positioned to be net income positive for 2024, an important milestone for the company.
Ricardo: soir
Ricardo: our profitability metrics are driven by both leveraging our fixed assets and controlling expenses
Ricardo: our operating facilities are placing an the emphasis on important safety operational and financial objectives and are producing outsized value for aspen and our customers
Donald Young: The gross profit margin over the past six quarters has expanded from 11% to 17% to 23% to 35% to 37% and now to 44%. Our adjusted EBITDA margin over this same six-quarter period has grown from negative 31% to positive 25%. Comparing the second quarter of 2024 to the second quarter of 2023, revenue increased by approximately $70 million, and gross profit grew by approximately $43 million, bringing 62% of incremental revenue to the gross profit line. These results demonstrate the power of leveraging growth through our focus on unit economics and cost controls, both key elements of our business model. We believe we can continue to improve our performance.
Ricardo: the gross profit margin over the past six quarters has expanded from eleven percent
Ricardo: to seventeen percent to twenty three percent to thirty five percent to thirty seven percent and now to forty-four percent
Don Young: Our adjusted EBITDA margin over this same six-quarter period has grown from negative 31% to positive 25%. Comparing the second quarter of 2024 to the second quarter of 2023, revenue increased by approximately $70 million, and gross profit grew by approximately $43 million, bringing 62% of incremental revenue to the gross profit line. These results demonstrate the power of leveraging growth through our focus on unit economics and cost controls, both key elements of our business model. We believe we can continue to improve our performance.
Ricardo: our adjusted ebitda margin over this same six quarter period has grown from negative thirty-one percent to positive twenty-five percent
Ricardo: Comparing the second quarter of 2024 to the second quarter of 2023, revenue increased by approximately $70 million, and gross profit grew by approximately $43 million.
Ricardo: dropping 62% of incremental revenue to the gross profit line.
Ricardo: These results demonstrate the power of leveraging growth through our focus on unit economics and cost controls, both key elements of our business model.
Donald Young: As demonstrated above, driving incremental revenue through existing capacity is especially valuable in terms of our profitability metrics, especially as we continue to improve yield throughout the manufacturing and parts assembly processes. The transition to the supplemental supply and support of our energy and industrial business is also strengthening our gross margin expansion. Our External Manufacturing Facility, or EMF, supplied 10% of our energy industrial revenue in Q4 2023, 50% in Q1 2024, and over 75% in Q2.
Don Young: As demonstrated above, driving incremental revenue through existing capacity is especially valuable in terms of our profitability metrics, especially as we continue to improve yield throughout the manufacturing and parts assembly processes. The transition to the supplemental supply and support of our energy and industrial business is also strengthening our gross margin expansion. Our External Manufacturing Facility, or EMF, supplied 10% of our energy industrial revenue in Q4 2023, 50% in Q1 2024, and over 75% in Q2.
Ricardo: We believe we can continue to improve our performance.
Ricardo: As demonstrated above, driving incremental revenue through existing capacity is extra valuable in terms of our profitability metrics, especially as we continue to improve yield throughout the manufacturing and parts assembly processes.
Ricardo: that
Ricardo: The transition to the supplemental supply and support of our energy and industrial business is also strengthening our gross margin expansion.
Ricardo: Our External Manufacturing Facility, or EMF, supplied 10% of our energy industrial revenue in Q4 2023, 50% in Q1 2024, and over 75% in Q2.
Don Young: Over these three quarters, our energy industrial gross margin grew from 32% to 42%. We anticipate that the EMF supply percentage will continue to grow as we more fully dedicate our East Providence plant to the thermal barrier business. Energy industrial activity remains strong across all regions and segments, including significant growth of cryogel products serving the LNG industry. Since the launch of CrowdGel products in 2007, 29 facilities globally have been built or converted for LNG export. Aspen's CrowdGel is being used at 23 of these facilities.
Donald Young: Over these three quarters, our energy industrial gross margin grew from 32% to 42%. We anticipate that the EMF supply percentage will continue to grow as we more fully dedicate our East Providence plant to the thermal barrier business. Energy industrial activity remains strong across all regions and segments, including significant growth of CrowdGel products serving the LNG industry. Since the launch of CrowdGel products in 2007, 29 facilities globally have been built or converted for LNG export. Aspen's CrowdGel is being used at 23 of these facilities.
Ricardo: Over these three quarters, our energy industrial gross margin grew from 32% to 42%.
Ricardo: We anticipate that the EMF supply percentage will continue to grow as we more fully dedicate our East Providence plant to the thermal barrier business.
Ricardo: energy industrial activity remains strong across all regions and segments including significant growth of crowdjoe products serving the lng industry
Speaker Change: Since the launch of CrowdGel products in 2007, 29 facilities globally have been built or converted for LNG export. Aspen's CrowdGel is being used on 23 of these facilities.
Donald Young: We have also won our first two carbon capture projects where our cryogel products deliver high-performance thermal management. These important wins reinforce our role in sustainability and introduce an additional high-potential segment to our energy industrial business. We believe our energy industrial team will drive steady, long-term, and highly profitable growth for the company, including a record year in 2024 of at least $150 million in revenue and gross margins exceeding our original 35% target.
Don Young: We have also won our first two carbon capture projects where our cryogel products deliver high-performance thermal management. These important wins reinforce our role in sustainability and introduce an additional high-potential segment to our energy-industrial business. We believe our energy industrial team will drive steady, long-term, and highly profitable growth for the company, including a record year in 2024 of at least $150 million in revenue and gross margins exceeding our original 35% target.
Speaker Change: we have also won our first two carwin capture projects where our crowd-jil products deliver high performance thermal management
Ricardo: These important wins reinforce our role in sustainability and introduce an additional high potential segment to our energy industrial business.
Ricardo: We believe our energy industrial team will drive steady, long-term, and highly profitable growth for the company, including a record year in 2024 of at least $150 million in revenue.
Ricardo: and with gross margins exceeding our original thirty-five percent target
Donald Young: In the medium term, the team is focused on doubling the size of the business and providing a valuable baseload of revenue and profit. We started the year with an outlook for revenue of $350 million and for adjusted EBITDA of $35 million, which we raised to $380 million and $55 million, respectively, at the time of our Q1 earnings call. The mid-year results and momentum of both businesses have given us confidence again to boost our 2024 revenue outlook by $10 million to at least $390 million and our 2024 adjusted EBITDA outlook by $5 million to at least $60 million. The EU battery manufacturer has delivered over 2 million battery systems since the year 2019.
Don Young: In the medium term, the team is focused on doubling the size of the business and providing a valuable base load of revenue and profit. We started the year with an outlook for revenue of $350 million and for adjusted EBITDA of $35 million, which we raised to $380 million and $55 million, respectively, at the time of our Q1 earnings call. The mid-year results and momentum of both businesses have given this confidence again to boost our 2024 revenue outlook by $10 million to at least $390 million and are adjusted in our 2024 adjusted EBITDA outlook by $5 million to at least $60 million.
Ricardo: In the medium term, the team is focused on doubling the size of the business and providing a valuable baseload of revenue and profits.
Ricardo: We started the year with an outlook for revenue of $350 million and for adjusted EBITDA of $35 million.
Ricardo: which we raised to $380 million and $55 million respectively at the time of our Q1 earnings call.
Ricardo: the medyear results
Ricardo: And momentum of both businesses have given us confidence again to boost our 2024 revenue outlook by $10 million to at least $390 million and our adjusted in our 2024 adjusted EBITDA outlook by $5 million to at least $60 million.
Don Young: As usual, this outlook is comprised of baseline numbers, and our objective is to exceed them. In fact, we believe that we have over $50 million upside to our baseline revenue outlook, predominantly in our EV pyrothin thermal barrier. During Q2, we announced our sixth design award from a large EU battery manufacturer to supply the next generation battery platform for Porsche, the EU luxury sports car brand under the VW umbrella. The EU battery manufacturer has delivered over 2 million battery systems since the year 2019.
Ricardo: Per usual, this outlook is comprised of baseline numbers, and our objective is to exceed them.
Ricardo: In fact, we believe that we have over $50 million upside to our baseline revenue outlook, predominantly in our EV pyrothin thermal barrier business.
Ricardo: see
Ricardo: During Q2, we announced our sixth design award from a large EU battery manufacturer to supply the next generation battery platform for Porsche, the EU luxury sports car brand under the VW umbrella.
Don Young: The battery platform is expected to underpin multiple nameplates for Porsche and has an expected start of production in 2025. Our EV commercial activity remains at peak levels. During Q3, we expect to deliver over 100,000 prototype or pre-production parts to over a dozen programs in our development pipeline. We are in final contract negotiations with a major European OEM, which we expect to become a formal design award during the third quarter. This award would be our seventh.
Ricardo Rodriguez: The battery platform is expected to underpin multiple nameplates for Porsche and has an expected start of production in 2025. As Ricardo will discuss, the July sell-through levels were notable and support our expectations for the year. The potential upside to our revenue outlook that I cited earlier is largely based on GM maintaining its current ramp-up and achieving its targeted production range. We believe that our strategic accomplishments, both commercial and operational, keep us on a direct path to utilize our current capacity and supply arrangements and to realize our interim baseline target of at least $650 million in revenue, $230 million in gross profit, and $160 million in adjusted ETI.
Ricardo: The EU battery manufacturer has delivered over 2 million battery systems since the year 2019. The battery platform is expected to underpin multiple nameplates for Porsche and has an expected start of production in 2025.
Speaker Change: our evv commercial activity remains at peak levels during q three we expect to deliver over one hundred thousand prototype or preproduction parts to over a dozen programs in our development pipeline
Speaker Change: We are in final contract negotiations with a major European OEM, which we expect to become a formal design award during the third quarter.
Don Young: We anticipate securing additional OEM EV serial programs this year, which will further solidify and diversify our position in the electric vehicle market. With respect to our commercial activity with General Motors, GM reiterated during its Q2 earnings call that it is targeting to produce between 200,000 and 250,000 EVs in 2024. IHS cited 108,000 Ultium-based EVs produced in the first half of the year and said it anticipated an acceleration in the second half of the year with the launch of several new vehicle nameplates.
Ricardo: this award would be our seventh
Ricardo: We anticipate securing additional OEM EV serial programs this year, which will further solidify and diversify our position in the electric vehicle market.
Speaker Change: With respect to our commercial activity with General Motors, GM reiterated during its Q2 earnings call that it is targeting to produce between 200,000 and 250,000 EVs in 2024.
Speaker Change: IHS cited 108,000 Ultium-based EVs produced in the first half of the year and that it anticipated an acceleration in the second half of the year with the launch of several new vehicle nameplates.
Don Young: For our cautious planning purposes and embedded in our 2024 outlook, we anticipate that GM will produce 180,000 Ultium-based EVs for GM nameplates in 2024, plus an additional 45,000 Ultium-based EVs for Honda and Acura. As Ricardo will discuss, the July sell-through levels were notable and support our expectations for the year. The potential upside to our revenue outlook that I cited earlier is largely based on GM maintaining its current ramp-up and achieving its targeted production range.
Speaker Change: for our cautious planning purposes and embedded in our 2024 outlook.
Speaker Change: We anticipate that GM will produce, in 2024, 180,000 Ultium-based EVs for GM nameplates, plus an additional 45,000 Ultium-based EVs for Honda and Acura.
rararddo: as rararddo will discuss the july sell-through levels were notable and support our expectations for the year
rararddo: The potential upside to our revenue outlook that I cited earlier is largely based on GM maintaining its current ramp-up and achieving its targeted production range.
Don Young: We are fully prepared to supply GM's Pirate in Thermal Bears demand should they meet or exceed their targeted production range. We believe that our strategic accomplishments, both commercial and operational, keep us on a direct path to utilize our current capacity and supply arrangements and to realize our interim baseline target of at least $650 million in revenue, $230 million in gross profit, and $160 million in adjusted revenue. Our first half 2024 financial performance more than supports these profitability metrics. We are executing three elements of our strategy that are important to our revenue and profitability goals. The full conversion of Plant 1 in East Providence, Rhode Island, to support the growth of the pyrothermal barrier business.
Speaker Change: We are fully prepared to supply GM's pyrothermal barriers demand should they meet or exceed their targeted production range.
Speaker Change: we believe that our strategic of accomplished accomplishments both commercial and operational keep us on a direct pat to utilize our current capacity and supply arrangements
Speaker Change: and to realize our interim baseline target of at least $650 million in revenue, $230 million in gross profit, and $160 million in adjusted EBITDA.
Speaker Change: Our first half 2024 financial performance more than supports these profitability metrics.
Ricardo Rodriguez: We are executing three elements of our strategy that are important to our revenue and profitability goals. These include the full conversion of Plant One in East Providence, Rhode Island, to support the growth of the pyrothin thermal barrier business. Second, the transition to our external manufacturing facility to support the growth of the energy industrial business. And third, the financial stewardship to reinforce the strength and flexibility of the company necessary to achieve our interim and long-term goals. We expect to be able to provide additional details prior to the time of our next quarterly earnings call.
Don Young: Second, the transition to our external manufacturing facility to support the growth of the energy industrial business. And third, the financial stewardship to reinforce the strength and flexibility of the company necessary to achieve our interim and long-term goals. In terms of financial strength and flexibility, we finished Q2 with over $90 million in cash, just $10 million lower compared to the end of Q1.
Speaker Change: We are executing three elements of our strategy that are important to our revenue and profitability goals.
Speaker Change: First.
Speaker Change: The full conversion of Plant 1 in East Providence, Rhode Island to support the growth of the pyrothermal barrier business.
Speaker Change: Second, the transition to our external manufacturing facility to support the growth of the energy industrial business, and third, the financial stewardship to reinforce the strength and flexibility of the company necessary to achieve our interim and long-term goals.
Speaker Change: In terms of financial strength and flexibility, we finished Q2 with over $90 million in cash, just $10 million lower compared to the end of Q1.
Don Young: And as noted above, with the momentum from our recent operating performance, we now anticipate for the full year 2024 at least $60 million in adjusted EBITDA and positive netting. As we plan for revenue beyond $650 million, we are focused on our second aerogel manufacturing facility in Georgia, which will add approximately $1.2 billion of revenue capacity by 2027. Several months ago, we announced that the U.S. Department of Energy Loan Programs Office invited Aspen into the formal due diligence and term sheet negotiation stage of the process. This loan application is one of the key drivers for restarting the construction of Plant 2. We have made steady progress with the Loan Program Solve.
Speaker Change: And, as noted above, with the momentum from our recent operating performance, we now anticipate for the full year 2024 at least $60 million in adjusted EBITDA and positive net income.
Speaker Change: as we plan for revenue beyond six hundred and fifty million dollars we are focused on our second aarigof manufacturing facility in georgia which will add approximately one point two billion dollars of revenue capacity by two thousand and twenty seven
Speaker Change: Several months ago, we announced that the U.S. Department of Energy Loan Programs Office invited Aspen into the formal due diligence and term sheet negotiation stage of the process. This loan application is one of the key drivers for restarting the construction of Plant 2.
Don Young: While we do not have assurance that the DOE will issue a conditional commitment, we remain deeply engaged with the LPO and its advisors and continue to believe that we are a strong candidate to partner with the DOE LPO in this program. We believe that we are in the final stages of the due diligence process. If we are successful, the next step would be a letter of conditional commitment. We expect to be able to provide additional details prior to the time of our next quarterly earnings call. Ricardo, it's over to you.
Speaker Change: We have made steady progress with the Loan Programs Office.
Speaker Change: While we do not have assurance that the DOE will issue a conditional commitment, we remain deeply engaged with the LPO and its advisors and continue to believe that we are a strong candidate to partner with the DOE LPO in this program.
Speaker Change: We believe that we are in the final stages of the due diligence process. If we are successful, the next step would be a letter of conditional commitment.
Speaker Change: We expect to be able to provide additional details prior to the time of our next quarterly earnings call. Ricardo, over to you.
Ricardo Rodriguez: Thank you, Don, and good night.
Ricardo Rodriguez: Thank you, Don, and good morning, everyone. We delivered $117.8 million in revenue in Q2, which translates into 145% growth year over year and 25% growth quarter over quarter. This reflects an annual revenue run rate of over $470 million. Most importantly, we believe that operating at this run rate demonstrates the scalability of our asset base and validates that it was only a matter of time before the market caught up with our team's ability to deliver what we've been laying out, and some, for over a year. Our energy industrial revenue was $36.9 million, an increase of 4% year-over-year and a 27% increase quarter-over-quarter.
Ricardo: thank you dona and good morning everyone perforing record breaking quarter in a row on behalf of our team starting on slide four
Ricardo: We delivered $117.8 million of revenue in Q2, which translates into 145% growth year-over-year and 25% growth quarter-over-quarter. This reflects an annual revenue run rate of over $470 million.
Ricardo: Most importantly, we believe that operating at this run rate demonstrates the scalability of our asset base and validates that it was only a matter of time before the man caught up with our team's ability to deliver what we've been laying out, and some, for over a year.
Speaker Change: Our energy industrial revenue was $36.9 million, an increase of 4% year-over-year, and a 27% increase quarter-over-quarter.
Ricardo Rodriguez: $28.3 million was delivered through our external manufacturing facility, which has nearly doubled its ability to supply product quarter-over-quarter and is well on its way to enabling us to deliver over $150 million of revenues in this segment as we close out the second half of 2024. As Don mentioned in his remarks, applications, recurring maintenance, and new projects continue driving excess demand, and we are incentivized to continue increasing supply in this segment.
Speaker Change: twenty point three million was delivered through our external manufacturing facility
Speaker Change: which has nearly doubled its ability to supply product quarter over quarter and is well on its way to enable us to deliver over $150 million of revenues in this segment.
Speaker Change: as we closeed out the second half of two thousand and twenty-four
Speaker Change: As Don mentioned in his remarks, the applications, recurring maintenance, and new projects continue driving excess demand and we are incentivized to continue increasing supply in this segment.
Ricardo Rodriguez: EV thermal barrier revenue of $80.8 million was up more than six-fold year-over-year and 24% quarter-over-quarter, reflecting a higher-than-expected ramp in GM's production of Altium platform-based electric vehicles and higher volumes from Toyota, Scania, and more pre-production parts for Audi. Our prototype and pre-production part volumes continue to exceed those of the prior quarters. Next, I'll provide a summary of our main expenses. Cost of goods sold of $66.2 million, or 56 percent of sales, reflect relatively flat material costs quarter over quarter but a significant improvement in conversion costs as a percentage of sales.
Unknown Executive: EV thermal barrier revenue of $80.8 million was up more than six-fold year-over-year and 24% quarter-over-quarter, reflecting a higher-than-expected ramp in GM's production of all-tune platform-based electric vehicles and higher volumes from Toyota, Scania, and more pre-production parts for Audi.
Speaker Change: EV Thermal Barrier Revenue of $80.8 million
Speaker Change: was up more than six-fold year-over-year and 24% quarter-over-quarter, reflecting a higher-than-expected ramp in GM's production of Altium platform-based electric vehicles and higher volumes from Toyota, Scania, and more pre-production parts for Audi.
Speaker Change: Our prototype and pre-production part volumes continue to exceed those of the prior quarters.
Speaker Change: next i'll provide a summary of our main expenses
Speaker Change: Cost of goods sold of $66.2 million, or 56 percentage points of sales, reflect relatively flat material costs quarter over quarter, but a significant improvement in conversion costs as a percentage of sales.
Ricardo Rodriguez: Let's remember that we define conversion costs as all production costs required to convert raw materials into finished products. These include all elements of direct labor, manufacturing overhead, factory supplies, rent, insurance, utilities, process logistics, quality, and inspection.
Speaker Change: Let's remember that we define conversion costs as all production costs required to convert raw materials into finished products. These include all elements of direct labor, manufacturing overhead, factory supplies, rent, insurance, utilities, process logistics, quality, and inspection.
Ricardo Rodriguez: The higher revenue levels and our team's ability to scale and deliver lower our cost of goods sold by 7% quarter over quarter. This is an 18% improvement in our ability to deliver gross profit from lower conversion costs, which tended to make up around 30% of our sales. So the effect of the team's focus on optimizing our capacity, introducing automation, and improving production yields, among many other things, is materializing faster than expected. We also believe this improvement could continue if revenues ran further, with each incremental dollar of revenue above Q2's revenue level bringing over 50 percentage points of sales as gross profit. Regardless of me,
Speaker Change: the higher revenue levels and our team'sability to scale and deliver lower our cost of good sold by seven percent core ofover a quarter
Speaker Change: This is an 18% improvement in our ability to deliver gross profit from lower conversion costs, which tended to make up around 30% of our sales.
Speaker Change: So the effect of the team's focus on optimizing our capacity, introducing automation, and improving production yields, among many other things, is materializing faster than expected.
Speaker Change: we also believe this improvement could continue if revenues ram further with each incremental dollar of revenues ab of q two revenue level bring over fifty percentage points of sales es growross profit
Ricardo Rodriguez: In Q2, company-level gross profit margins were 44%, and our gross profit of $51.6 million is a $43.2 million improvement over our gross profit of $8.4 million during the same quarter last year. Our Energy Industrial Segment delivered $15.5 million of gross profit, or a 62% year-over-year increase on comparable revenue. In EV thermal barriers, we delivered $36.1 million of gross profit in Q2. The resulting gross profit margins during the quarter were 42% and 45% for our energy-industrial and EV thermal barrier segments, respectively.
Unknown Executive: In Q2, company-level gross profit margins were 44%, and our gross profit of $51.6 million is a $43.2 million improvement over our gross profit of $8.4 million during the same quarter last year. Our net income in Q2 increased to $16.8 million or $0.21 per diluted share versus a net loss of $15.8 million or $0.22 per diluted share in the same quarter last year. Cash generated by our operations of $6.8 million reflected our adjusted EBITDA of $28.9 million, interest income of $1.1 million, and $23 million used for working capital.
Speaker Change: regardless of mix
Speaker Change: in q two company level gross profit margins where forty-four percent and our gross profit of fifty-one point six million dollarsitiss a forty three point two million dollar improvement over our gross profit of eight point four million dollars during the same quarter last year
Speaker Change: Our Energy Industrial Segment delivered $15.5 million of gross profit or a 62% year-over-year increase on comparable revenues.
Speaker Change: In EV thermal barriers, we deliver $36.1 million of gross profit in Q2.
Ricardo Rodriguez: Most of the one-time charges of obsolete inventory and equipment related to customer-driven engineering changes that we implemented in Q1 were reversed in Q2 as we received the benefit of those changes and reimbursement from customers. With this in mind, the best way to look at the profitability of our EV thermal barrier business is by looking at the results of the first half rather than each quarter separately. Operating expenses, which are sized for our near-term projected annual revenue capacity of over $650 million, were at $31.6 million in Q2, or down by $1.1 million quarter-over-quarter. This would have been even lower without several one-time expenses linked to performance pay, recruiting, and talent development.
Ricardo Rodriguez: Higher than expected insurance costs also drove OPEX to these levels. We will continue managing OPEX in the second half of the year and will focus increases on driving incremental demand and profitability only. Our team continues revisiting every key company process and implementing new systems with the intent of bolstering our capabilities, reducing fixed costs, and driving our OPEX towards a recurring $110 million per year level. Putting these elements together, our adjusted EBITDA was $28.9 million in Q2 compared to negative $10.8 million during the same period last year.
Speaker Change: We will continue managing opex in the second half of the year, and we will focus increases on driving incremental demand and profitability only.
Speaker Change: Our team continues to revisiting every key company process and implementing new systems with the intent of bolstering our capabilities, reducing fixed costs and driving our opex towards the recurring $110 million per year level.
Speaker Change: Putting these elements together, our adjusted EBITDA was $28 9 million in Q2.
Speaker Change: <unk> to negative $10 8 million during the same period last year.
Ricardo Rodriguez: Delivering 25% EBITDA margins in Q2 of this year at the current revenue run rate more than validates the planning and execution of the gearing that we defined over a year ago. As a reminder, we define adjusted EBITDA as net income or loss before interest, taxes, depreciation, amortization, stock-based compensation, and any other non-recurring items that we do not believe are indicative of our core operating performance. In Q2, these adjustments were limited to $3 million of stock-based compensation, $1.1 million of interest income, and $2.3 million of interest and financing-related expenses.
Speaker Change: Delivering 25% EBITDA margins in Q2 of this year at the current revenue run rate more than validate the planning and execution of the gearing that we defined over a year ago.
Speaker Change: As a reminder, we define adjusted EBIT that is net income or loss before interest taxes depreciation amortization stock based compensation and then the other nonrecurring items that we do not believe are indicative of our core operating performance.
Speaker Change: In Q2, these adjustments were limited to $3 million of stock based compensation $1 1 million of interest income and $2 3 million of interest and financing related expenses.
Ricardo Rodriguez: Our net income in Q2 increased to $16.8 million, or $0.21 per diluted share, versus a net loss of $15.8 million, or $0.22 per diluted share, in the same quarter of 2023. We could not be more excited about reversing this loss in 12 months' time. Next, I'll turn to cash flow and our balance. Cash generated by our operations of $6.8 million reflected our adjusted EBITDA of $20.9 million, interest income of $1.1 million, and $23 million used for working capital. The key items that resulted in the usage of working capital were an increase in accounts receivable in inventory, offset by an increase in accounts payable, prepaid, and accrued expenses.
Speaker Change: Our net income in Q2 increased to $16 8 million or <unk> 21 per diluted share versus a net loss of $15 8 million or 22 per diluted share in the same quarter of 2023, we cannot be more excited about reversing this lost in 12 months time.
Speaker Change: Next I'll turn to cash flow and our balance sheet cash.
Speaker Change: Cash generated by our operations of $6 8 million reflected in our adjusted EBITDA of $20 9 million.
Speaker Change: Interest income of $1 $1 million and $23 million used for working capital.
Speaker Change: The key items that resulted in the usage of working capital, where an increase in accounts receivable and inventory offset by an increase in accounts payable prepaid and accrued expenses. If we counted revenue collected from customers of $28 million and the week after closing the quarter, we would've generated free positive free.
Ricardo Rodriguez: If we had counted revenue collected from customers of $28 million in the week after closing the quarter, we would have generated free positive cash flow. Our capital expenditures during the quarter were $24.8 million. These put our operating cash needs for the quarter at $18 million, down by 59% quarter over quarter from $43.6 million in Q2. Additionally, if we included the revenue collected during the week after we closed the quarter, we would have generated over $10 million of positive free cash flow.
Speaker Change: Positive cash flow.
Speaker Change: Our capital expenditures during the quarter were $24 $8 million. These put our operating cash needs for the quarter at $18 million down by 59% quarter over quarter from $43 6 million in Q2 again, if we included the revenue collected during the week. After we closed the quarter we would've.
Speaker Change: Generated over $10 million of positive free cash flow.
Speaker Change: In Q2, we spent $12 $3 million towards slowly advancing progress to fully close the main structure at plant two and temperature control all areas to.
Ricardo Rodriguez: In Q2, we spent $12.3 million towards slowly advancing progress to fully enclose the main structures at Plan 2 and temperature control all areas. To date, we have incurred $300 million in cumulative expenses through the end of the second quarter towards Plan 2 in Georgia to position the project for a potential restart of construction after we've obtained conditional approval from the U.S. Department of Energy's Loan Programs Office as part of our application to fund the remaining construction cost of Plan 2 through a loan pursuant to the DOE's Advanced Technology Vehicle Manufacturing, or ATVM, loan program.
Unknown Executive: To date, we have incurred $300 million in cumulative expenses through the end of the second quarter towards Plan 2 in Georgia to position the project for a potential restart of construction after we've obtained conditional approval from the U.S. Department of Energy's Loan Programs Office as part of our application to fund the remaining construction cost of Plan 2 through a loan pursuant to the DOE's Advanced Technology Vehicle Manufacturing, or ATVM, loan program. The remaining CapEx, with two quarters of EV production behind us.
Speaker Change: To date, we have incurred 300 $302 million in cumulative expenses.
Speaker Change: Through the end of the second quarter towards plant two in Georgia to position the project for a potential restart of construction. After we've obtained conditional approval from the U S Department of energy loan programs office as part of our application to fund the remaining construction cost of planned to throw a loan pursuant.
Speaker Change: To the Doe.
Speaker Change: Advanced technology vehicle manufacturing or Atvs loan program.
Ricardo Rodriguez: The remaining CapEx, spent in the quarter of $12.5 million, went towards additional improvements at our Aerogel Plant in Rhode Island and EV Thermal Bay Area Equipment in Mexico that will enable the potential continued ramp of our business in 2025. Our financing activities in the quarter included $8.1 million related to the exercising of employee stock options that were close to expiring within our equity compensation plan. Looking ahead, we continue pursuing capital leases to fund a meaningful portion of this year's remaining CAPEX outside of Plan 2, which I'll go into when we discuss our updated outlook. We ended the quarter with $91.4 million of cash and shareholders' equity of $517.8 million.
Speaker Change: The remaining Capex spent in the quarter of $12 5 million went towards additional improvements at our aerogel pumped in Rhode Island, and EV thermal their equipment in Mexico that will enable the potential continued ramp of our business in 2025.
Speaker Change: Our financing activities in the quarter, including included $8 $1 million related to the exercising of employee stock options that were close to expiring within our equity compensation plan.
Speaker Change: Looking ahead, we continue pursuing capital leases to fund a meaningful portion of this year's remaining capex outside of plant two.
Speaker Change: Which I'll go into when we discuss our updated outlook.
Speaker Change: We ended the quarter with $91 4 million of cash and shareholders' equity of $517 $8 million.
Ricardo Rodriguez: We continue meaningfully working our way through the due diligence and term sheet negotiation phase with the U.S. Department of Energy's Loans Programs Office as part of our application to fund the remaining construction costs of Plan 2 through a loan pursuant to the DOE's Advanced Technology Vehicle Manufacturing, or ATVM, program. In the appendix, we have a graphic of the different phases of the DOE's application steps and details on the work streams that make up the due diligence and term sheet negotiation phase and our progress within it. As their operating performance improves, we continue assessing relatively inexpensive debt options that have become available.
Speaker Change: We continue meaningfully working our way through the due diligence in terms sheet negotiation phase with the U S Department of energy loans programs office as part of our obligation to fund the remaining construction cost of plan to throw a loan pursuant to the advanced technology vehicle manufacturing or ATM program.
Speaker Change: In the appendix, we have a graphic of the different phases of the Dod's application steps and details on the work streams that make up the due diligence in term sheet negotiation face and our progress within these.
Speaker Change: As their operating performance improves we continue assessing relatively inexpensive debt options that have become available. These include asset backed loans term debt and the potential revolving line of credit to support our business.
Speaker Change: We expect to end the year with a capital structure aimed at continuing to lower our cost of capital and making sure that we have the flexibility to fund a potentially faster than expected, but very profitable ramp in our business.
Speaker Change: Now I'll turn it over to slide five and walk through our updated thoughts on the outlook for the rest of the year.
Ricardo Rodriguez: I'll focus on the EV thermal barrier segment, as Don covered our energy industrial segment in his opening remarks. And we have a very clear line of sight to delivering at least $150 million of revenue there this year. We remain sold out, and revenues there depend on our ability to increase the broad supply of all our product variants. With two quarters of EV production behind us, we could not be more impressed by the launch of the Honda Pro-Lux.
Speaker Change: I'll focus on the EV thermal barrier segment as Don covered our energy industrial segment in his opening remarks, and we have very clear line of sight to delivering at least $150 million of revenue there this year.
Speaker Change: We remain sold out and revenues there depend on our ability to increase broad supply of all our product areas.
Speaker Change: With two quarters of EV production behind us, we could not be more impressed by the launch of the Honda program.
Ricardo Rodriguez: A vehicle that we weren't expecting to launch until later in the year. We believe that Honda is a very attractive product here, being produced by General Motors. Everything about the way this vehicle was launched, from the product plan, the timing of the advertising blitz, pricing, and availability, seems to be working in the U.S. marketplace.
Speaker Change: A vehicle that we werent expecting to launch until later in the year.
Speaker Change: We believe that Honda as a very attractive product here being produced by General Motors everything about the way. This vehicle was launched from the product plan the timing of the advertising Blitz pricing and availability seems to be working in the U S marketplace.
Ricardo Rodriguez: In July of this year, almost 3,500 of them were sold, and we expect that the annual sales run rate of 42,000 units will increase as the year progresses. With this in mind, we think it's worth splitting the Honda Prologue, along with the Acura CVX variant, from the rest of the GM production volumes in our outlook, as we show here on the left side of slide 5. We expect at least 45,000 of these to be produced in 2024, while GM continues ramping up production of a broad range of other Altium-based models. In mid-June, it revised its external 2024 Altium production forecast from 200,000 to 300,000 units down to a range of 200,000 to 250,000 units.
Speaker Change: In July of this year, almost 3500 of them were sold and we expect that the annual sales run rate of 42000 units will.
Speaker Change: It will increase as the year progresses.
Speaker Change: With this in mind, we think its worth splitting the Honda prologue along with the accuracy <unk> from the rest of the GM production volumes and our outlook as we show here on the left side of slide five.
Speaker Change: We expect at least 45 some of these to be produced in 2024.
Speaker Change: GM continues ramping up production of a broad range of other Altium base nameplates.
Speaker Change: In mid June and to revise its external 2020 for all team production forecast from 200 to 300000 units down to a range of 200 to 250000 units.
Ricardo Rodriguez: The streamlining of the upper end of their production goals does not impact their outlook, and we are actually revising our baseline production outlook of GM's Altium vehicles down by 10% from 200,000 vehicles to 180,000 vehicles to be saved. GM can very well still exceed 180,000 units as it ramps up production in the second half of the year on nameplates like the Equinox and Silverado. At the same time, we expect to launch the GMC Sierra EV, the Escalade IQ, and the Cadillac Opti. We continue to believe that GM's established brands, with long-running customer loyalty, along with the size and scope of its distribution scale, can enable it to drive sales beyond these expectations.
Speaker Change: The strengthening of the upper end of their production goals does not impact our outlook and we are actually revising our baseline production outlook of Gm's altium vehicles down by 10% from 200000 vehicles to 180000 vehicles to be safe.
Speaker Change: GM can very well still exceed 180000 units.
Speaker Change: It ramps up production in the second half of the year of nameplates like the equinox and Silverado.
Unknown Executive: At the same time, we expect to launch the GMC Sierra EV, the Escalade IQ, and the Cadillac Optima. Through the end of July, we believe that around 45,000 vehicles will have been sold, and if July sales rate is any indication, to support sales of 225,000 vehicles, dealers would still need around 60 days of inventory on hand, or 40,000 vehicles at least.
Speaker Change: At the same time, we expect it to launch the GMC Sierra EV, the Escalade IQ and the Cadillac uptick.
Speaker Change: We continue to believe that Gm's established brands with long running customer loyalty, along with the size and scope of its distribution scale can enable us to drive sales beyond these expectations.
Speaker Change: Putting gms and Hondas Acura as volumes together.
Ricardo Rodriguez: We now expect to supply over 225,000 vehicles and enable our EV thermal barrier business to deliver over $240 million of revenue in combination with Toyota, some initial Scania and Stellantis volumes, along with a high level of prototype sales. A question that we get often from investors is centered around the sell-through of EV production and whether we see risk in it affecting GM's production long term. In the center of slide 5, one can see that in the U.S., the sales rate of Altium-based vehicles grew by about 50% in July over June, to 156,000 vehicles per year.
Speaker Change: We now expect supply over 225000 vehicles and enable our EV thermal barrier business to deliver over $240 million of revenue in combination with Toyota Some initial scania and still anthos volumes, along with a high level of FERC type sales.
Speaker Change: A question that we get often from investors is centered around the sell through of EV production and whether we see risk in it affecting gm's production long term.
Speaker Change: In the center of Slide five one can see that in the U S. The sales rate of Altium based vehicles grew by about 50% in July over June to 156000 vehicles per year.
Ricardo Rodriguez: Through the end of July, we believe that around 45,000 vehicles have been sold, and if July's sales rate were to stop growing, over 110,000 vehicles could be expected to be sold in 2024. However, to support sales of 225,000 vehicles, dealers would still need around 60 days of inventory on hand, or 40,000 vehicles at least.
Speaker Change: Through the end of July we believe that around 45000 vehicles have been sold and if July sales rates were.
Speaker Change: Where to stop growing over 110000 vehicles can be expected to be sold in 2024.
Speaker Change: To support sales of 225000 vehicles dealers would still need around 60 days of inventory on hand, or 40000 vehicles at least.
Unknown Executive: This inventory may need to be even higher to support many different vehicle nameplates. Additionally, our updated 2024 Evita Outlook continues considering some potential headwinds to our near-term profitability, such as the cost of new launches, higher power prototype sales, engineering changes that could lead to inventory obsolescence, and expedited freight costs driven by the start-stop natures of some of the main plates in our thermal barrier demand. We could also opportunistically decide to add OPEX to continue advancing our R&D in key areas and accelerate the development of our technical sales capabilities and fund new program launches.
Speaker Change: This inventory may need to be even higher to support many different vehicle nameplates.
Ricardo Rodriguez: This inventory may need to be even higher to support many different vehicle nameplates. So to confidently produce over 225,000 vehicles in 2024, only around 75,000 incremental vehicles beyond the July sales rate need to be sold within the year. We believe that this is achievable, especially as attractive lease incentives are offered to consumers, and therefore we continue to see very profitable upside to our business. Baseline Outlook.
Speaker Change: So to confidently produce over 225000 vehicles in 2024.
Speaker Change: Only around 75000 incremental vehicles beyond the July sales rate needs to be sold within the year.
Speaker Change: We believe that this is achievable, especially as attractive lease incentives are offered to consumers and therefore, we continue to see very profitable upside to our business baseline outlook.
Speaker Change: A vehicle like the Chevy Equinox, which is now the most attractively priced TV in the U S market could drive most of the incremental unit sales required in the second half of the year.
Ricardo Rodriguez: A vehicle like the Chevy Equinox, which is now the most attractively priced EV in the U.S. market, could drive most of the additional unit sales required in the second half of the year. We also continue seeing some investors attempt to connect our customers' volume plans to our revenues, and we strongly advise against this as there is a significant delay of weeks or even months for a finished EV thermal barrier part that we invoice customers for to end up in a produced vehicle. This delay is even longer for a sold vehicle.
Speaker Change: We also continue seeing some investors attempt to connect our customers' volume plants to our revenues and we strongly advice against this is there is a significant delay of weeks or even months for a finished EV thermal barrier part that we invoice customers for to end up in a produced vehicle. This delay is even longer for a sold vehicle.
Speaker Change: We continue to include in slide 12 in the appendix of this presentation that illustrates this and we recommend studying it in reaching out to Neil if you have any questions.
Ricardo Rodriguez: We continue to include slide 12 in the appendix of this presentation to illustrate this, and we recommend studying it and reaching out to Neal if you have any questions. For reference, on slide 5, we are also showing IHS's expectation for what the Altium production ramp looks like in the second half of 2024 versus the first half of the year to get to a total of 244,000 units. While time will tell whether 244,000 units in 2024 is the right expectation, we believe that an increase going into the first half of 2025 is still likely.
Speaker Change: For reference in slide five we are also showing IHS expectation for what the old TM production ramp looks like in the second half of 2024 versus the first half of the year to get to a total of 244000 units.
Speaker Change: Well time will tell whether a 244000 units in 2024 is the right expectation, we believe that an increase going into the first half of 2025 is still likely.
Speaker Change: Turning over to slide six combining both segments results in a total revenue outlook of at least $390 million, which would be a 63% year over year increase from our revenues in 2023.
Ricardo Rodriguez: Turning over to slide six, combining both segments results in a total revenue outlook of at least $390 million, which would be a 63% year-over-year increase from our revenues in 2023 and a $10 million increase over our prior revenue baseline for 2024. With this updated baseline, we believe that we can deliver over $16 million of operating income in 2024, a 45% improvement over a prior EBIT baseline of $11 million, which, assuming DNA of around $30 million and stock-based compensation of $14 million, would translate into over $60 million of adjusted EBITDA.
Speaker Change: A $10 million increase over our prior revenue baseline for 2024.
Speaker Change: With this updated baseline we believe that we can deliver over $16 million of operating income in 2024, or 45% improvement or prior EBIT baseline of $11 million, which assuming DNA of around $30 million in stock based compensation of $14 million, which translate into over 60 million.
Speaker Change: So adjusted EBITDA.
Ricardo Rodriguez: This is a 9% improvement over our prior baseline EBITDA outlook, and it implies 50% EBITDA margins on the incremental $10 million of revenue, demonstrating our ability to continue scaling profitability without relying on outsized revenue growth. Our updated 2024 Evita Outlook continues considering some potential headwinds to our near-term profitability, such as the cost of new launches, higher power prototype sales, engineering changes that could lead to inventory obsolescence, and expedited freight costs driven by the start-stop natures of some of the main plates in our thermal barrier demand.
Speaker Change: This is a 9% improvement over our prior baseline EBIT the outlook and then implied 50% EBITDA margins on the incremental $10 million of revenue demonstrating our ability to continue scaling profitability without relying on outsized revenue growth.
Speaker Change: Our updated 2020 for EBIT outlook.
Denise: Denise considering some potential headwinds to our near term profitability such as the cost of new launches higher prototype sales engineering changes that could lead to inventory obsolescence and expedited freight costs driven by the start stop nature of some of the nameplates and our thermal barrier than men.
Ricardo Rodriguez: We could also opportunistically decide to add OPEX to continue advancing our R&D in key areas and accelerate the development of our technical sales capabilities and fund new program launches. As we reintroduce the rest of our energy industrial products, a mix that includes these products can also impact gross profit in this segment. On the flip side, if additional demand is truly there, we expect a disproportionate amount of it to flow to our bottom line, as it did in Q2, and our team will continue reducing our fixed costs, increasing our production yields, our uptime, and driving the right energy industrial pricing and mix. Continuing with the rest of our 2024 outlook, $60 million of positive EBITDA would translate into net income of over $7 million, or $0.09 per diluted share, assuming a share count of 79.3 million shares.
Speaker Change: We could also opportunistically decide that opex to continue advancing our R&D in key areas and accelerate the development of our technical sales capabilities and fund new program launches.
Speaker Change: As we reintroduced the rest of our energy industrial products and makes that includes these products.
Speaker Change: It can also impact gross profit in this segment.
Speaker Change: On the flipside, if additional demand is truly there we expect a disproportionate amount of it to flow to our bottom line as it did in Q2 and our team will continue reducing our fixed cost increasing our production yields our uptime and driving the right energy industrial pricing and mix.
Unknown Executive: Continuing with the rest of our 2024 outlook, $60 million of positive EBITDA would translate into net income of over $7 million, or $0.09 per diluted share, assuming a share count of 79.3 million shares. On the right side of slide six, before moving on, I think that it's worth pausing again and taking stock of the operational and financial journey that our team has been on over the past two and a half years.
Speaker Change: Continuing with the rest of our 2024 outlook $60 million of positive EBITDA would translate into net income of over $7 million or <unk> <unk> per diluted share assuming a share count of $79 3 million shares we are increasing our net income outlook by $5 million or over three five.
Ricardo Rodriguez: We are increasing our net income outlook by $5 million, or over three and a half times, on our diluted EPS outlook by $0.06 per share from $0.03 per share, or three times. Our CapEx, without including Plan 2, is expected to be reduced by $5 million to $45 million from $50 million for the year, thanks to our team's ability to deliver a higher level of uptime from our EV thermal barrier equipment in Mexico.
Speaker Change: <unk> on our diluted EPS outlook by <unk> <unk> per share from <unk> <unk> per share or three fold.
Speaker Change: Our capex without including plant two is expected to be reduced by $5 million to $45 million from $50 million for the year. Thanks to our team's ability to deliver a higher level of uptime from our EV thermal barrier equipment in Mexico. We continue believing that this investment is enough for us to ramp.
Ricardo Rodriguez: We continue believing that this investment is enough for us to ramp up our production capacity in 2025. As I mentioned earlier, we only spent $20.5 million in the first half of the year toward advancing the construction of Plant 2 in Georgia versus our original expectation of $30 million.
Speaker Change: Our production capacity in 2025.
Speaker Change: As I mentioned earlier, we only spent $25 million in the first half of the year towards advancing the construction of plant two in Georgia versus our original expectation of $30 million. Looking ahead, we are not planning to spend more than $15 million advancing the construction of plan to until we receive a.
Ricardo Rodriguez: Looking ahead, we are not planning to spend more than $15 million advancing the construction of Plan 2 until we receive a potential conditional approval on the loan pursuant to the DOE's Advanced Technology Vehicle Manufacturing, or ATVM, program. This investment will still ensure that the site is advanced enough to preserve all our investments made to date, and it enables the potential re-acceleration of construction in the fourth quarter of this year. On the right side of slide six, before moving on, I think that it's worth pausing again and taking stock of the operational and financial journey that our team has been on over the past two and a half years.
Speaker Change: Conditional approval on the loan pursuant to the advanced technology vehicle manufacturing or <unk> program.
Speaker Change: This investment we will still ensure that the site is advanced enough to preserve all of our investments made to date and it enables the potential reacceleration.
Speaker Change: Construction in the fourth quarter of this year.
Speaker Change: On the right side of slide six before moving on I think that it's worth pausing again, and taking stock of the operational and financial journey that our team has been on over the past two and a half years. The basic metrics of revenue growth gross margins EBITDA and operating income that has to be up into the right or surpass.
Unknown Executive: The basic metrics of revenue growth, gross margins, EBITDA, and operating income that had to be up and to the right are surpassing our initial expectations, thanks to the work of everyone on the Aspen team that continues to do more with less and sharpening our axe by developing new capabilities so that we aren't rattled by the day-to-day headlines of exuberance or gloom. I'll let you spend more time with this slide on your own time, but when we look at the EV market in 2024, we continue seeing opportunities for additional sell-through within the OEMs that we supply, thanks to an interesting circular reference of higher production volumes needed to deliver profitability and higher incentives needed to drive those volumes.
Ricardo Rodriguez: The basic metrics of revenue growth, gross margins, EBITDA, and operating income that had to be up and to the right are surpassing our initial expectations, thanks to the work of everyone on the Aspen team that continues to do more with less and sharpen our axe by developing new capabilities. I couldn't be happier with our performance progression, and I'm excited to see it lower our cost of capital in real time as we continue creating opportunities for the same team that got us here and our company. Next, I'd like to please turn over to slide seven.
Speaker Change: <unk>, our initial expectations. Thanks to the work of everyone on the Aspen team that continues doing more with less and sharpening our acts by developing new capabilities.
Speaker Change: I couldnt be happier with our performance progression and I'm excited to see it lower our cost of capital and real time as we continue creating opportunity for the same team that got us here and our company.
Speaker Change: Next I'd like to please turn over to slide seven.
Ricardo Rodriguez: Before handing the call back to Don, we thought that it was important to take a look at what's happening in the U.S. electric vehicle market, which our in-production OEMs mostly participate in, so that we aren't rattled by the day-to-day headlines of exuberance or gloom. There just doesn't seem to be an even keel view out there, so we spent some time looking at the year Let's just face it; the USCV market didn't grow year to date through the end of July relative to last year in the US. It's only up around 1%, which is comparable to the growth rate of overall new vehicle sales.
Speaker Change: Before handing the call back to dawn.
Speaker Change: Felt that it's important to take a look at what's happening in the U S. Electric vehicle market that are in production Oems mostly participate in so.
Speaker Change: So that we aren't rattled by the day to day headlines of <unk>.
Speaker Change: There just doesn't seem to be an even keeled view out there. So we spent some time looking at the year to date market ourselves.
Speaker Change: Let's just face it the U S market didn't grow year to date through the end of July relative to last year in the U S. It's only up around 1%, which is comparable to the growth rate of overall new vehicle sales.
Ricardo Rodriguez: We foresaw this in early 2023, as we were planning for 2024, considering the effect of rising interest rates. This fact is a key ingredient in developing our 2024 revenue base. Still, though, EVs made up around 7% of the market, and over 1.3 million EVs are expected to be sold in the U.S. this year, so this has become a meaningful part of the market. Within it, there are some obvious share winners and losers.
Speaker Change: We foresaw this in early 2023, as we were planning for 2020 for considering the effect of rising interest rates.
Speaker Change: This fact is a key ingredient in developing our 2024 revenue baseline.
Speaker Change: Still though.
Speaker Change: <unk> made up around 7% of the market and over $1 $3 million of these are expected to be sold in the U S. This year. So this has become a meaningful part of the market.
Speaker Change: Within it there are some obvious share winners and losers and as we started our EV thermal barrier business from zero in 2021 supplying newly developed platform and nameplates, we are benefiting from the demand gains of the Oems that we supply.
Ricardo Rodriguez: And as we started our EV thermal barrier business from zero in 2021, supplying newly developed platform and nameplates, we are benefiting from the demand gains of the OEMs that we supply. Pyrothin is equipped on 6 out of 10 new EV nameplates that have been introduced in the U.S. in 2024. And those vehicles that were developed before we had a cell-to-cell solution are aging and losing share versus a range of fresh nameplates from OEMs that are gaining share. At this point, Pyrothin is equipped on 100% of EVs sold by GM, Toyota, and Honda in the U.S.
Speaker Change: Fire thinness equipped on six out of 10, new EV nameplates that have been introduced in the U S. In 2024.
Speaker Change: And those vehicles that were developed before we had a cell to cell solution are aging and loosing share versus a range of fresh nameplates from Oems that are gaining share.
Speaker Change: At this point peyer than it's equipped on a 100% of EV sold by GM, Toyota and Honda in the U S.
Ricardo Rodriguez: These OEMs are only scratching the surface of what their share can be relative to their overall position in the entire new car market and the scale of their distribution. We believe that they will continue making gains as they launch new nameplates and offer attractive incentives on these vehicles to drive volume. The need to produce EVs at a rate that properly enables the absorption of fixed manufacturing costs is, in our mind, expected to drive production rates in the second half of 2024 more than demand. The only thing more expensive than incentives, up to a point, is running at below 50% of one's capacity.
Speaker Change: These Oems are only scratching the surface of what their share can be relative to their overall position in the entire nuclear market and the scale of their distribution. We believe that they will continue making gains as they launched new nameplates and offer attractive incentives on these vehicles to drive volume.
Speaker Change: The need to produce evs at a rate that properly enables the absorption of fixed manufacturing costs is in our mind expected to drive production rates in the second half of 2024 more than demand.
Speaker Change: The only thing more expensive than incentives up to a point is running at below 50% of one's capacity.
Ricardo Rodriguez: I'll let you spend more time with this slide on your own time, but when we look at the EV market in 2024, we continue seeing opportunities for additional sell-through within the OEMs that we supply, thanks to an interesting circular reference of higher production volumes needed to deliver profitability and higher incentives needed to drive those volumes. Thinking longer term and moving to slide 8, it's worth remembering why OEMs built up all of this capacity to make EVs in the first place.
Speaker Change: I'll, let you spend more time with this slide on your own time, but when we look at the EV market in 2024, we continue seeing opportunities for additional sell through within the Oems that we supply. Thanks to an interesting circular reference of higher production volumes needed to deliver profitability and higher incentives needed to drive those volumes.
Speaker Change: <unk>.
Speaker Change: Thinking longer term and moving to slide eight it's worth remembering why Oems built up all of this capacity to make evs in the first place.
Ricardo Rodriguez: Understanding the regulatory environment in the U.S. around emissions and fuel economy standards is important, as it got an investment that was made over the last four to five years within OEMs in preparation of tighter standards that will ramp up this next year. I won't bore you with all the details.
Speaker Change: Understanding the regulatory environment in the U S around emissions and fuel economy standards is important as it.
Speaker Change: Got an investment that was made over the last four to five years within Oems and preparation of tighter standards that will ramp up this next year.
Speaker Change: I won't bore you with all the details.
Ricardo Rodriguez: But U.S. new vehicle emissions and fuel economy regulation is driven by two major federal regulatory agencies, the Environmental Protection Agency, or EPA, and the National Highway Traffic Safety Administration, or NHTSA, at the state level for 18 states that make up over 40% of new vehicle sales, including California. This is driven by the California Air Resources Board, or CARB. Neal would be happy to point you in the direction of good reading material to understand these standards in detail.
Unknown Executive: But U.S. new vehicle emissions and fuel economy regulation is driven by two major federal regulatory agencies, at the state level for 18 states that make up over 40% of new vehicle sales, including California. This is driven by the California Air Resources Board or CARB standard. Focusing on the EPA, when looking at 2026, Salesman. OANs take these regulations more seriously than one would think from reading the press or investor relations materials. And this is what continues giving us the conviction to keep investing in this market, particularly now that our operating model is being validated one quarter after another.
Speaker Change: But U S new vehicle emissions and fuel economy of regulation is driven by two major federal regulatory agencies, the environmental protection agency or EPA and the National Highway traffic safety administration or Nitza.
Ricardo Rodriguez: These agencies can levy fines, sue, or enforce penalties on OEMs who do not comply with their standards and therefore impact the profit potential of currently lucrative sales. Focusing on the EPA, when looking at 2026, to be minimum compliant with these regulations, the industry would need to reach a roughly 15% TV sales rate, up about 7 percentage points from the current penetration or more than doubling. This includes the exhaustion and rollover of emissions credits purchased or generated from the sale of EVs in prior years.
Speaker Change: At the state level for 18 states that make up over 40% of new vehicle sales, including California.
Speaker Change: This is driven within the California Air Resources Board or Carb standards.
Neil: Neil would be happy to point you in the direction of good reading material to understand the standards in detail.
Speaker Change: These agencies can enforce fines sue or enforced penalties on Oems, who do not comply with their standards and therefore impact the profit potential of currently lucrative sales.
Speaker Change: Focusing on the EPA when looking at 2026 to be minimum compliant with these regulations the industry would need to reach roughly 15% TV sales mix sales mix.
Speaker Change: Up about seven percentage points from the current penetration or more than doubling.
Speaker Change: This includes the exhaustion and rollover of emission credits purchased are generated from the sale of Evs in prior years.
Ricardo Rodriguez: General Motors, for example, would need to quadruple its CV penetration from 4% in July of 2024 to around 16% by 2026 to be barely compliant. It is estimated that Ford would need to triple its EV mix from its current levels by 2026 to also barely comply with the EPA's emissions regulations. If we go to what will be our next most important market after the U.S., Europe, the CO2 emissions there are even more stringent for OEMs, and that is why we see a lot of new programs from those OEMs in our core pipeline.
Speaker Change: General Motors for example would need to quadruple that CV penetration from 4% in July of 2024 to around 16% by 2026 to be barely compliant.
Speaker Change: It is estimated that Ford would need to triple that CD mix from its current levels by 2026 to also barely comply with the Epa's emissions regulations.
Speaker Change: If we go into what will be our next most important market. After the U S. Europe. The cotwo emissions, there get even more stringent for Oems and that is why we see a lot of new programs from those Oems in our core pipeline.
Speaker Change: As we built up our thermal barrier business, we've met not only with teams inside the Oems that are working to address thermal runaway in batteries for all form factors and Chemistries.
Ricardo Rodriguez: As we've built up our thermal barrier business, we've met not only with teams inside the OEMs that are working to address thermal runaway in batteries for all foreign factors and chemistries, but we've also met planning teams that are making sure that OEMs are positioned to comply with these regulations in 2025, 2026, and beyond. OANs take these regulations more seriously than one would think from reading the press or investor relations material. And this is what continues giving us the conviction to keep investing in this market, particularly now that our operating model is being validated one quarter after another. And with that, I'm happy to hand the call back to Don. Thank you for your attention and support. Thank you, Ricardo.
Speaker Change: But we've also made planning teams that are making sure that Oems are positioned to comply with these regulations in 2025 2026 and beyond.
Speaker Change: Oems take these regulations more seriously than one would think from reading the press or Investor relations materials.
Speaker Change: And this is what continues giving us the conviction to keep investing in this market.
Speaker Change: Particularly now that our operating model is being validated one quarter after another.
Speaker Change: And with that I'm happy to hand, the call back to dawn. Thank you for your attention and support.
Dawn: Thank you Ricardo.
Don Young: While we operated well in Q2 and for the first half of 2024, we believe we have room to improve upon our record financial performance as we continue to focus on leveraging fixed assets, controlling expenses, and executing key elements of our strategy. The Aspen team has done an outstanding job, and the team is positioned to continue to win. Alyssa, now we turn to Q&A.
Dawn: While we operated well in Q2 and for the first half of 2024, we believe we have room to improve upon our record financial performance as we continue to focus on leveraging fixed assets controlling expenses and executing key elements of our strategy.
Speaker Change: The asset team has done an outstanding job and the team is positioned to continue to win.
Elisa: Elisa, let's turn to Q&A. Thank you.
Elisa: Thank you.
Operator: In the interest of time, we ask that you limit your questions to two 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.
Operator: Thank you. 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. Please press star 1 to queue for questions. The first question comes from the line of George Gianakiris with Ken Accord Genuity.
Elisa: In the interest of time, we ask that you limit your questions to two questions at a time.
Speaker Change: If you have additional questions beyond the initial two please get back into the queue and we will get to all questions.
Speaker Change: Please press star one to queue for questions.
Speaker Change: Our first question comes from the line.
Elisa: Ciena Carey <unk> with Canaccord Genuity. Your line is now open.
George Gianarikas: Your line is now open. Everyone, good morning, and thank you for taking my question. I'd like to focus on the gross margin upsides. You talked a little bit about how you got there, but maybe just a little more detail as to what's driving that improvement and also your view on sustainability. Yeah, so as I mentioned in my remarks, right, in terms of material costs, we just don't think that there's a lot more room there left to squeeze. Those have settled out at levels that... you know, that we were surprised by two quarters ago.
Ciena Carey: Hey, everyone. Good morning, and thank you for taking my questions.
Marty: Hey, Marty.
Speaker Change: Hey, good morning, I'd like to focus on the gross margin upside I mean, you talked a little bit about.
Speaker Change: How you got there, but maybe just little more detail as to what's driving that.
Speaker Change: <unk> and.
Speaker Change: And also your view on the sustainability of that thank you.
Speaker Change: Yes, so as I mentioned in my remarks, right in terms of material costs.
Ricardo Rodriguez: Yeah, so as I mentioned in my remarks, right, in terms of material costs, we Now, when it comes to fixed cost absorption, that's where we believe that there's still quite a bit of juice left to squeeze up to a point, right? It really depends on the revenue mix that we have. That does not have the same gross margins as some of our higher-running products. And so I do think that, Obviously, until we find some other breakthrough in efficiency, which would require quite a bit more development, and we just don't have a line of sight to that just yet.
Speaker Change: We just don't think that Theres a lot more room, there left to squeeze those have settled out at levels that.
Speaker Change: We were surprised by two quarters ago.
Ricardo Rodriguez: And it's very encouraging to see that trend continue, and as we renew some of the contracts for our raw materials, they're all shaping out to end up at around the levels that we saw here over the past two quarters.
Marty: <unk>.
Speaker Change: It's very encouraging to see that trend continue and as we renew some of the contracts for our for our Ros.
Marty: Theyre all shaping out to end up at around the levels that we saw that we've seen here over the past two quarters.
Ricardo Rodriguez: Now, when it comes to fixed cost absorption, that's where we believe that there's still quite a bit of juice left to squeeze up to a point, right? It really depends on the revenue mix that we have as we ramp up some of the other EV launches. I think the launch phase tends to be relatively expensive, as we saw here with General Motors throughout 2022 and the beginning of 2023, and so that will impact the gross margin to a point.
Marty: Now when it comes to fixed cost absorption, that's where we believe that there's still quite a bit of juice left to squeeze up to a point right. It really depends on the revenue mix that we have.
Marty: As we ramp up some of the other EV launches.
Marty: The launch phase tends to be relatively expensive as we saw here with general motors throughout 2022, and the beginning of 2023 and so those will impact the gross margin to a point and then at the same time on the energy industrial side as we start ramping up production of cryo gel.
Ricardo Rodriguez: And then at the same time, on the energy industrial side, as we start ramping up production of cryogel, that does not have the same gross margins as some of our higher-margin products. And so I do think that the remark that I made of basically incremental revenue beyond the run rate of this quarter coming in at about 50 percentage points of gross margin broadly is the right way to think about this. Obviously, until we find some other breakthrough in efficiency, which would require quite a bit more development, and we just don't have line of sight to that just yet.
Marty: That does not have the same gross margins as some of our higher running product.
Marty: So I do think that.
Marty: That remark that I made of basically incremental revenue beyond.
Marty: The run rate of this quarter coming coming in at about 50 percentage points of gross margin broadly is the right way to think about this.
Marty: Obviously until we find some other breakthrough in inefficiency.
Marty: Still which would require quite a bit more development and we just don't have line of sight to that just yet.
Donald Young: I think, George, I would just add to what Ricardo said. I talked about how we still have room to improve our performance, and one aspect of that is as we continue to drive yields, both in our aerogel manufacturing facility and in our parts assembly activities, you know, again, there's room for us to improve there. And then as that gross profit translates to... to EBITDA and EBITDA margin, and margins, just as Ricardo described. What ultimately matters would
Don Young: I think, George, I would just add to what Ricardo said. I talked about how we still have room to improve our performance, and one aspect of that is as we continue to drive yields, both in our aerogel manufacturing facility and in our parts assembly activities, you know, again, there's room for us to improve there. And then as that gross profit translates to... to EBITDA and EBITDA margin, we largely have in place today the OPEC structure that the organization needs to support further growth. Ricardo mentioned it a number of times, our focus on... on the margins, just as Ricardo described. Yeah, I mean, Frankly, George.
Marty: I think George I would just just to add to Ricardo said.
George: I talked about.
Speaker Change: We still have room to improve our performance in one aspect of that is as we continued to drive yields.
Speaker Change: Both in our <unk> manufacturing facility and in our parts Assembly.
Speaker Change: Activities.
Speaker Change: There's room for us to to improve there and then.
Speaker Change: And then is that gross profit translates to.
Speaker Change: To EBITDA and EBITDA margin.
Speaker Change: Margin.
Speaker Change: We largely have in place today.
Speaker Change: The opex structure the organization to support further growth.
Marty: <unk>.
Marty: Ricardo mentioned that a number of times our focus on on.
Speaker Change: On straight lining and maintaining our current level of.
Marty: <unk> costs in Opex so.
Marty: That gross profit gains those gross profit gains fall down to EBITDA gains as well. So we do believe that there is an opportunity.
Marty: To sustain these kind of.
Marty: Margins.
Marty: Just as Ricardo described yes, I mean frankly George.
Ricardo Rodriguez: Our minds are starting to shift from being excited about gross margins to being excited about what ultimately matters, which is operating income, net income, and Targeting Generating Positive Free Cash Flow. You know, given, as Don said, given the OPEX, it doesn't take a ton of incremental gross profit to, um.., increase those metrics by multiples, right? It's sort of implicit in the updated guide, which was pretty modest.
Speaker Change: Our mines are starting to shift from being excited about gross margins to be excited about what.
Unknown Executive: What ultimately matters, which is operating income and net income, you know, given, as Don said, given the OPEX, it doesn't take a ton of incremental gross profit to increase those metrics by multiples, right, which is. It's sort of implicit in the updated guide, which was pretty modest. But, you know, to increase our net income per share is threefold. That, to us, is the ultimate measure of profitability here.
George: What ultimately matters, which is operating income net income and.
Marty: And targeting generating positive free cash flow in there.
Marty: Given as Don said, given the Opex it doesn't take a ton of incremental gross profit too.
Marty: Two.
Don: To increase those metrics by multiples right, which is it.
Don: Sort of implicit in the updated guide which was pretty modest.
George Gianarikas: But, you know, to increase our net income per share threefold, that, to us, is the ultimate measure of profitability. Thank you. And maybe just as a follow-up, I'd like to focus on energy industrial, where relationships in China appear to be going well. Any update there?
Marty: <unk>.
Marty: To increase our.
Marty: Our our net income per share three fold that that to us is the ultimate measure of profitability here.
Marty: Okay.
Speaker Change: And maybe just as a follow up I'd like to focus on energy industrial where our relationships in China appear to be going well any update there and any potential for that revenue capacity to flex higher over the near to medium term. Thank you.
Don Young: Any potential for that revenue capacity to flex higher over the near to medium term? Thank you. The relationship is strong, and the cooperation is strong, and it's very much a mutually beneficial relationship. And the answer is yes, they have the capability of expanding their capacity, and so we believe that there is upside to that, not so much necessarily in 2024 beyond the numbers that we've suggested to date.
Speaker Change: The relationship is strong and the.
Marty: Cooperation.
Speaker Change: As strong as it very much of a mutually beneficial relationship.
Speaker Change: And the answer is yes.
Speaker Change: They have the.
Marty: The capabilities of of expanding their their capacity and.
Marty: And so we believe that.
Marty: That there is upside to that not so much necessarily in 2024 beyond the numbers that we've we've suggested to date, but as we go into 2025 the ability to.
Don Young: But as we go into 2025, the ability to, as I said in my remarks, our team is focused on doubling the size of that business here in the medium term, a very valuable baseload of both revenue and profit for us. And so we're having those discussions with our manufacturing partner to be able to execute on that strategy. We're obviously very incentivized to increase that supply, and that's implied within the baseline.
Marty: As I said in my remarks.
Speaker Change: Our team is focused on doubling the size of that business here in the medium term.
Marty: As you know very valuable base load of both revenue and profit for us and so we're having those discussions with our with our manufacturing partner to be able to.
Marty: To execute on that strategy.
Marty: Right within the baseline guide right, our run rate needs to increase to over $42 million a quarter here in the second half in order for us to get to 150 and so.
Unknown Executive: We're obviously very incentivized to increase that supply, and that's implied within the baseline.
Marty: Obviously, very incentivized to increase that supply and.
Marty: And that's implied within the baseline.
Don Young: We're still trying to catch up with demand, frankly, especially in certain parts of that business, and, And as I noted, we've won two carbon capture programs here in North America, which I think foreshadow a nice opportunity for us as we go forward, over the course of again over the course of the medium term. Thanks. Thank you, George.
Marty: We're still trying to catch up with demand frankly, especially in certain parts of that business.
Marty: And as I noted we've won two carbon capture programs here in North America.
Donald Young: And as I noted, we've won two carbon capture programs here in North America, which I think foreshadow a nice opportunity for us as we go forward over the course of the, again, the medium term. Thanks.
Marty: Which I think foreshadow a nice opportunity for us.
Marty: As we go forward.
Marty: Over the course of this again over the course of the medium term.
Marty: Thanks.
George: Thank you George.
George: Thank you.
Operator: Thank you. The next question is from the line of Colin Rusch with Oppenheimer. Your line is now open.
Marty: The next question is from the line of Colin Rusch with Oppenheimer.
Speaker Change: Your line is now open.
Unknown Executive: Thanks so much, guys. Given kind of the cadence of what's going on in the industry and certainly some other suppliers looking at the opportunity and your success, can you talk a little bit about the competitive landscape and what you're hearing and seeing from customers and some of those other folks that may try to wedge into this market?
Speaker Change: Thanks, so much guys.
Colin Rusch: Thanks so much, guys. Given the cadence of what's going on with the industry and certainly some other suppliers looking at the opportunity and your success, can you talk a little bit about the competitive landscape and what you're hearing and seeing from customers and some of those other folks that may try to wedge in? We don't see a Trump.
Speaker Change: Kevin.
Speaker Change: Yes.
Colin Rusch: Given kind of the cadence of what's going on with the industry and certainly some other suppliers looking at the opportunity and your success can you talk a little bit about the competitive landscape and what youre hearing and seeing from customers in some of those other folks that may try to wedge into this market.
Colin Rusch: And we don't see a term.
Unknown Executive: And we don't see a ton of... they're all rethinking their investments in the EV market, right? And so we can't help but wonder, you know, why are we not on the other four? And the reason is that we were nowhere when those four vehicles were being developed. But as we look ahead, It's not that competitive. I mean, there isn't another material that we know of that can deliver the three. And we're just going to continue leaning into that, even if these programs end up, you know, getting re-timed and pushed out by the OEMs.
Ricardo Rodriguez: People trying to wedge in, especially given the headline views, right? I mean, if you look at folks that are currently selling components into EV manufacturers or that were sourced. You know, when we were just getting started here on other parts of the EV value chain. They're all rethinking their investments in the EV market, right? And so, you know, while we used to think this space used to look extremely attractive a year ago, it, you know, it doesn't look that way for them either.
Marty: <unk>, China wed Jane, especially.
Marty: More given the.
Speaker Change: The headline views right I mean, if you look at folks that are currently selling components into EV manufacturers or that we source.
Speaker Change: When we were just getting started here on another parts of the EV value chain.
Marty: We're all rethinking their investments into the EV market right and so.
Marty: While we used to or this space used to look extremely attractive a year ago.
Marty: It doesn't look that way for them, either and that actually I think gives.
Ricardo Rodriguez: And that actually, I think, gives us room to just continue chipping away here at converting customers, right? When we look at the U.S. market and we see that we're on six of the 10 new nameplates that have been introduced, We can't help but wonder, you know, why are we not on the other four? And the reason is because we were we were nowhere when those four vehicles were being developed. But as as we look ahead.
Marty: It gives us room to just continue chipping away here at converting customers right. When we look at the U S market and we see that we're on six of the 10, new nameplates that had been introduced we can't help but wonder why are we not on the other four and the reason is because we were we were nowhere windows for.
Marty: Vehicles were being developed.
Marty: But as.
Marty: As we look ahead.
Marty: It's not that competitive I mean, there isn't another material that we know off that can deliver.
Ricardo Rodriguez: Um... It's not that competitive. I mean, there isn't another material that we know of that can deliver the three requirements that OEMs keep asking us to deliver, right? So the fireproofing within the thinnest profile possible, the thermal isolation within the thinnest profile possible.
Marty: Three.
Marty: Requirement that Oems keep asking us to deliver right. So the fireproofing within the thinness profile possible possible.
Marty: The thermal isolation within the thinness profile possible.
Ricardo Rodriguez: And then the mechanical properties, which are everybody else's Achilles heel, including the thickness, right? And so... Yeah, I mean, for us, as Don mentioned in his remarks, and I brought this up as well, the building that we're sitting in right now, which works on our EV thermal barrier prototypes could not be busier as we ramp up new programs. And we're just going to continue leaning into that even if these programs end up, you know, getting retimed and pushed out by the OEMs.
Marty: And then the mechanical properties, which are everybody else's achilles' heel, including the.
Marty: The thickness right and so.
Marty: Yes.
Marty: Us.
Marty: As Don mentioned in his remarks, and I brought this up as well the building that we're sitting in right now which works on our EV thermal barrier prototypes could not be this year and as we ramp up new programs.
Marty: And that.
Marty: We're just going to continue leaning into that even if these programs ended up.
Marty: Getting re timed in.
Marty: And pushed out by the Oems, we hope that some of the remarks that we covered around the regulatory environment.
Unknown Executive: We hope that some of the remarks that we covered around the regulatory environment really put this in perspective when we're looking at 2026. I mean, these nameplates have to launch, right? Paying fines is. We don't see any other competitors going in to meet these three requirements today.
Ricardo Rodriguez: We hope that some of the remarks that we covered around the regulatory environment really put this in perspective when we're looking at 2026. I mean, these nameplates have to launch, right? Paying fines is... very expensive for these OEMs.
Marty: Really put this in perspective, when we're looking at 2026.
Marty: These nameplates have to launch rate paying finances.
Marty: Very expensive for these Oems.
Colin Rusch: We know that there are teams optimizing the mix as they set up their product plans, and there's a reason why they continue investing in some EV capacity, even if it's at a slower rate. We don't see any other competitors going in to meet these three requirements today. That's super helpful.
Speaker Change: No that theres teams in there.
Marty: Optimizing the mix as they set up their product plans and there's a reason why they continue investing in some of the capacity even if it's at a slower rate.
Marty: <unk>.
Marty: Yeah.
Marty: We don't see any other competitors going in to meet these three requirements today.
Marty: That's super helpful.
Ricardo Rodriguez: You know, and then thinking about where some of the growth is coming from, as you see the EU start to ramp up more capacity, and you guys continue to perform while they're with customers, how do you think about serving that market, especially given the success that you've had with the contract manufacturing and energy market? Is that something that we should be thinking about as part of the, I mean, I think we're incentivized to leverage the facilities that we have in Mexico as much as possible, right?
Marty: Then thinking about where some of the growth is coming from as you see the EU start to ramp more.
Marty: More capacity and you guys continue to perform well there with customers how do you think about.
Speaker Change: Serving that market, especially given the success that you've had with the contract manufacturing in the energy market is that something that we should be thinking about as part of the long term model.
Unknown Executive: I mean, I think we're incentivized to leverage the facilities that we have in Mexico as much as possible right.
Ricardo Rodriguez: The scalability that the overhead there delivers is incredible. And you know, if I just think to a previous life and the notion of ramping up facilities in Europe, that's a really hard place to make stuff in. You almost need to go to Eastern Europe or places like Morocco, Tunisia.
Speaker Change: The scalability that the overhead there delivers.
Unknown Executive: It is incredible. And, you know, if I just think about my previous life and the notion of ramping up facilities in Europe, that's super helpful. Thanks guys.
Speaker Change: This is incredible.
Marty: And.
Speaker Change: If I, just think to our previous life and and the notion of ramping up facilities in Europe.
Marty: That's a really hard place to make stuff and you almost need to go to eastern Europe.
Marty: Or places like Morocco, Tunisia.
Ricardo Rodriguez: And even there, the costs are rising, and so we're inclined to... really stick to our strategy here. And if we were able to solve for the cost of capital for the plant in Georgia, we would ramp up the plant in Georgia right away to meet all of this demand that we expect in 2027, 2028 and beyond, and then continue leaning into our assets in Mexico. We're actually setting up a warehouse in the Netherlands for some of these customers so that we could have some inventory near their production facilities. But just given the profitability trajectory that we're on and the margin progress that we've made, we want to be very careful in expanding our footprint. Super helpful.
Speaker Change: And even there the.
Marty: The costs are rising and so we are inclined to.
Unknown Executive: Really stick to our strategy here and if we are able to solve for the cost of capital for the plant in Georgia.
Marty: We would ramp up the plant in Georgia right away to meet all of this demand that we expect in 2027 and 2028 and beyond.
Marty: And then continue leaning into our assets in Mexico, we're actually setting up.
Marty: Warehouse in the Netherlands for some of these customers. So that we could have some inventory near their production facilities.
Marty: But.
Marty: And just given the profitability.
Marty: <unk> ability trajectory that we're on and the margin progress that we've made we want to be.
Marty: Be very careful in expanding our footprint.
Speaker Change: Super helpful. Thanks, guys.
Marty: Anytime.
Marty: Yes.
Operator: Thank you. The next question is from the line of Ryan Finkst with Be Riley. Your line is now open.
Colin Rusch: The next question is from the line of Ryan Finkst with B Riley. Your line is now open. Hey guys, thanks for taking my question. Hey Ryan. Ricardo, just to follow up on that last one, you know, with the sixth OEM award for pyrothin and another expected in the third quarter, what's the strategy if and when that awarded volume is 26 or 27?
Speaker Change: Next question is from the line of Ryan <unk> with B Riley. Your line is now open.
Speaker Change: Hey, guys. Thanks for taking my questions.
Unknown Caller: Hey guys, thanks for taking my questions.
Brian: Hey, Brian.
Ricardo: Ricardo just just a follow up on that last line.
Ryan Finkst: With the six OEM award for power within another expected in the third quarter, what's the strategy, if and when that awarded volume and 26 or 27 or 28 exceeded your expected $1 7 billion.
Ryan Finkst: 28 exceeds your expected $1.7 billion and Revenue Catastrophe. Boy, that'd be an amazing prompt to have. I'd love to be the CFO of that company. Yeah, I mean. For us, the plant in Mexico still has an ability to ramp up, and our current assets. Last time we sized up our capacity, we mentioned that it was $650 million. But our team in Rhode Island continues finding additional efficiency, right?
Speaker Change: And revenue capacity after plant II comes online.
Speaker Change: Boy that would be an amazing problem to have I would love to be the CFO of that company.
Speaker Change: I mean [laughter].
Unknown Caller: Yes.
Unknown Executive: Yeah, I mean, we do think that getting all of these programs together will be tight, but to get all of these programs fulfilled out of Rhode Island and potentially supplement it would be a great problem to have. I mean... And our team in Mexico and our teams in Rhode Island continue finding additional improvements. As those improvements are demonstrated, it's fair to expect us to revise our capacity update from $650 million.
Speaker Change: For us the plant in Mexico still has an ability to ramp.
Ricardo: And our current assets last time, we sized up our capacity, we mentioned that it was $650 million.
Ricardo: But our team in Rhode Island continuous finding additional efficiency rate and we're incentivized to find as much productivity and capacity as we can until plant II comes online some time towards the end of 2027 right.
Ricardo Rodriguez: And we're incentivized to find as much productivity and capacity as we can until Plan 2 comes online sometime towards the end of 2027, right? And so if we solve our cost of capital issue here for Plan 2, the strategy is the same, right? It's, let's just ramp up Plan 2.
Ricardo: And so if we saw all of our cost of capital issue here for plant two.
Ricardo: The strategy is the same rate so lets just ramp up plan too.
Ricardo Rodriguez: We do think that there may be room in 2025 and 2026 to get all of these programs together. It'll be tight, but to get all of these programs fulfilled out of Rhode Island and potentially supplement it. Um... with some material from our external manufacturing facility for selected programs. But... That would be a great problem to have, I mean... We just want to take it one step at a time. I think the most immediate one is solving for the cost of capital to get Plan 2 in Georgia restarted as soon as possible, and our team in Mexico and our teams in Rhode Island continue finding additional.
Ricardo: We do think that.
Ricardo: That there may be room in 2025 and 2026.
Unknown Executive: To get all of these programs together it will be tight but to get all of these programs fulfilled out of Rhode Island and potentially supplement it.
Unknown Executive: With some material from our external manufacturing facility for selected programs.
Unknown Executive: But.
Ricardo: That would be a great problem to have I mean.
Unknown Executive: We just wanted to take it one step at a time I think the most immediate one is solving for the cost of capital to get plant two in Georgia restarted as soon as possible.
Unknown Executive: And our team in Mexico, and our teams into Rhode Island continue finding additional.
Ricardo Rodriguez: As those improvements are demonstrated, it's fair to expect us to revise our capacity update from $650 million in capacity to something that can bridge the gap for when Plan 2 comes online, potentially. That makes sense. And then maybe just a second question, something a little more near term. Ricardo, could you potentially go a little deeper on the working capital dynamic? your expectations for collections and inventory here in the second half. It really depends on the volume trajectory, right?
Capacity.
Unknown Executive: As those improvements are demonstrated.
Unknown Executive: It's fair to expect us to revise our capacity update from $650 million.
Unknown Executive: Of capacity to something that can bridge the gap to.
Unknown Executive: For one plant two comes online potentially.
Unknown Executive: Got it makes sense and then maybe just a second question on something a little more near term Riccardo could you potentially go a little deeper on the working capital dynamics and your expectations for collections and inventory here in the second half.
Unknown Executive: It really depends on the on the volume trajectory right. So if we have to.
Unknown Executive: It really depends on the volume trajectory, right? So we have to continue capturing additional demand beyond our baseline expectations. But at the same time, if demand flattens out a bit on us, which is what's implied in the baseline, very conservatively, then all of that working capital would reverse itself in Q2, but then if it doesn't, then our cash flow position would be potentially even better as the working capital reverses itself. And so we think we're sitting here looking at the second half favorably from a cash position, and it's a net neutral position, and Arie Foegeman.
Ryan Finkst: So if we have to, continue capturing additional demand beyond our baseline expectation, we would continue consuming working capital similar to what we did here in Q2, but at the same time, if the demand flattens out a bit on us, which is what's implied in the baseline very conservatively, then all of that working capital would reverse itself. And I mean, we get paid pretty reliably within 45 days of when we invoice something.
Speaker Change: We continue capturing additional demand beyond our baseline expectations.
Arie Foegeman: We would continue consuming working capital similar to what we did here in Q2.
Ricardo: But at the same time, if the if the demand.
Unknown Executive: Flattens out a bit on us, which is whats implied in the baseline.
Unknown Executive: Conservatively.
Ricardo: Then all of that working capital would reverse itself.
Arie Foegeman: I mean, we get paid pretty reliably within 45 days of when we invoice something.
Arie Foegeman: So I think that.
Arie Foegeman: Overall, it's a net positive right I mean, if if if the.
Ryan Finkst: And so I think that Overall, it's a net positive, right? I mean, if, if, if the demand increases and we have to flex up, we'll consume a little bit of cash akin to what happened here in Q2, but then if it doesn't, then our cash flow position would be potentially even better as the working capital reverses itself. And so we think we're sitting here looking at the second half favorably from a cash position.
Arie Foegeman: For cash flow generation, if the demand increases and we have to flex up will consume a little bit of cash akin to what happened here.
Unknown Executive: In Q2, but then if it doesn't then are our cash flow position would be potentially even better.
Arie Foegeman: Is it working capital reverses itself.
Unknown Executive: So.
Arie Foegeman: We think we're sitting here looking at the second half favorably from a cash position.
Ryan Finkst: And, um, and it's net neutral. In terms of working capital and collections, our AER on the energy side is extremely tight. We've rarely written things off there. We sell to very legitimate and large customers, and so we have no concerns about our ability to collect.
Unknown Executive: <unk>.
Arie Foegeman: And it's it's a net neutral.
Arie Foegeman: In terms of working capital and collections.
Arie Foegeman: Our AUR on the energy side.
Arie Foegeman: It's extremely tight.
Arie Foegeman: Rarely written things off there.
Arie Foegeman: We sell to vary.
Arie Foegeman: Legitimate and large customers and so we have no concerns on our ability to collect to collect.
Unknown Executive: Great.
Unknown Executive: Right. And also, Ricardo, you mentioned in your script the possibility of a working capital line, you know, just to manage these things. I mean, we really managed the first half of the year without that kind of a working capital line. So it's very possible we could do that. And it'd be very, I think, very normal for a business like ours to benefit. That's a good point.
Ricardo Rodriguez: Right. And also, Ricardo, you mentioned in your, You mentioned it in your script, Ricardo. Thomas Potter, Amit Dayal, Colin Rusch, Jeffrey Osborne, Sameer Joshi, Donald Young, Ricardo Rodriguez, Neal Baranosky, Benjamin Johnson, Eric Stine, Alfred Moore, Aspen Aerogels, Sameer Joshi, Donald Young, Ricardo Rodriguez, Neal Baranosky, Benjamin Johnson, Eric Stine, That's a good point, Don.
Speaker Change: You mentioned in Europe.
Speaker Change: You mentioned in your script Ricardo.
Unknown Executive: The possibility of a working capital line just to manage these things I mean, we really managed through the first half of the year our working capital.
Unknown Executive: Without that kind of a working capital lines. So it's very possible, we could we could do that and it would be very I think very normal for a business like ours to benefit from that.
Speaker Change: The second point on I mean I think.
Ricardo Rodriguez: I mean, I think we keep increasing our level of sophistication here. And so, um, there's things that we are considering, such as the working capital line, a revolver. There's also factoring that we could do with our AR to help free up cash flow earlier.
Unknown Executive: You know, we keep increasing our level of sophistication here. And so there's also factoring that we could do with our AR to help free up cash flow earlier. We now have the margins and the reliability to be able to do that, and fairly cheap factoring as well, and so we've got plenty of options to fund what could be a very profitable expansion here going into 2025.
Speaker Change: We keep increasing our level of sophistication here and so this.
Unknown Executive: The things that we are considering such as the working capital line.
Unknown Executive: Our revolver.
Unknown Executive: Theres also fac.
Unknown Executive: Factoring that we could do with our <unk> to help free up cash flow earlier, we now have the margins and the reliability to be able to do that.
Unknown Executive:
Unknown Executive: With with a little bit of.
Unknown Executive: Insurance, we could actually.
Unknown Executive: Do fairly cheap factoring as well and so we've got plenty of options to do fund.
Dave Anderson: We now have the margins and the reliability to be able to do that, and with a little bit of insurance, we could actually do fairly cheap factoring as well. And so we've got plenty of options to fund what could be a very profitable expansion here going into 2025. Thanks, guys. Any time. The next question is from the line of Dave Anderson with Barclays. Your line is now open. Hey, good morning, Don.
Unknown Executive: Could be a very profitable expansion here going into 2025.
Speaker Change: Thanks, guys.
Unknown Executive: Anytime.
Unknown Executive: Yes.
Operator: The next question is from the line of Dave Anderson with Barclays. Your line is now open.
Unknown Executive: The next question is from the line of Dave Anderson with Barclays. Your line is now open.
Dave Anderson: Hey, good morning, Don only 13 years between earnings calls for me.
Unknown Caller: Hey, good morning, Don. Only 13 years between earnings calls for me. A little bit changed here.
Dave Anderson: Only 13 years between earnings calls for me. A little bit changed here. I want to ask you about, I just want to ask you what kind of bigger picture for your business over the next few years? A lot of concerns about EV demand in the U.S. and rest of the world is slowing. Ricardo mentioned that.
Dave Anderson: Little bit changed.
Dave Anderson: I wanted to ask you about just wanted to ask about kind of overall kind of the bigger picture for your business over the next few years.
Unknown Caller: I want to ask you about, I just want to ask you what kind of bigger picture for your business over the next few years. There are a lot of concerns about EV demand in the U.S. and rest of the world slowing down. Ricardo mentioned that.
Speaker Change: A lot of concern about EV demand in the U S and rest of world slowly Ricardo mentioned that however, the other hand domestic OEM manufacturing really just starting to ramp up I'm just curious in your and as Youre sort of thinking about it in Gm's, obviously your anchor customer here, but when youre looking out there and kind of their ramp up and I guess your other customers as they are ramping up.
Ricardo Rodriguez: However, on the other hand, domestic OEM manufacturing is really just starting to ramp up. I'm just curious, as you're sort of thinking about it, and GM is obviously your anchor customer here, but when you're looking out there and kind of their ramp-up, and I guess your other customers as they're ramping up, what is the governor on the pace of that ramp-up? What's guiding that?
Unknown Caller: However, on the other hand, domestic OEM manufacturing is really just starting to ramp up. I'm just curious in your, as you're sort of thinking about it, and GM is obviously your anchor customer here, but when you're looking out there and kind of their ramp up, and I guess your other customers as they're ramping up, what is the governor on the pace of that ramp up? What's guiding that?
Unknown Caller: Is it EV sales? Are they looking at sales and all that? Or is it more their manufacturing as they're building out, and improving manufacturing? I'm sure GM is probably trying to do all sorts of things with a whole new line of products out there. So how do we think about those two? Because it feels to me like there's a lot of worries about EV demand, but I'm not sure if it really matters to your business in the next couple of years. Am I thinking about that the right way?
Dave Anderson: Is it EV sales? Are they looking at sales and all that? Or is it more their manufacturing as they're building out, and improving manufacturing? I'm sure GM is probably trying to do all sorts of things with a whole new line of products out there. So how do we think about those two? Because it feels to me like there's a lot of worries about EV demand, but I'm not sure if it really matters to your business in the next couple of years. Am I thinking about that the right way?
Unknown Caller: What is the governor on the pace of that ramp up what is guiding that is that the EV sales are they looking at sales and all of that or is it more of their manufacturing as they are pulling out and improving manufacturing I'm sure GM is probably trying to do all sorts of things with a whole new line of products out there. So how do we think about those two because it feels to me like there's a lot of worried about EV demand but.
Unknown Caller: Im not sure if it really matters to your business in the next kind of two to three years am I thinking about that the right way.
Speaker Change: Yes, I mean, thats exactly right and Thats, what we were trying to go to with our remarks right. There is a blend of carrots and sticks driving EV production.
Ricardo Rodriguez: Yeah, I mean, that's exactly right. And that's what we were trying to get across with our remarks, right? There's a blend of carrots and sticks driving ED production.
Unknown Executive: Yeah, I mean, that's exactly right. And that's what we were trying to get across with our remarks, right? There's a blend of carrots and sticks driving ED production, and I would argue that those matter more for the OEMs than the demand itself, to your point.
Ricardo Rodriguez: And I would argue that these matters more for the OEMs than the demand itself, to your point. And so. There's another gate, which is these OEMs' ability to make cells, make modules, make battery packs, and make vehicles, which is an all-new thing for them, right? You're seeing that in Europe, where some of these folks that had... You know, very large expectations around building up capacity quickly are struggling to make their first batch of cells for a vehicle and, therefore, delaying the manufacturing of some of these programs.
Unknown Executive: And I would argue that those matter more for the Oems and the demand itself to your point.
Unknown Executive: And so.
Unknown Executive: There's another gate, which is these OEMs' ability to make cells, make modules, make battery packs, and make vehicles, which is an all-new thing for them, right? You're seeing that in Europe, where some of these folks that had... you know, very large expectations around building up capacity quickly are struggling to make their first batch of cells for a vehicle and, therefore, delaying the manufacturing of some of these programs. But when we look at an OEM like Ford, for example, that has been making EVs here in the U.S., it's fair to expect them that on a next-generation product, they could ramp up pretty quickly, given the regulatory environment and the EV mix that they'll need to have to be able to sell vehicles, period, in 2026 through 2030 and beyond. That's ultimately the gating item, right?
Unknown Executive: There is another gate, which is these oem's ability to make sales to make modules make battery packs and make vehicles, which is an all new thing for them right Youre seeing that in Europe, where some of these folks that had.
Unknown Executive: Very large expectations around building up capacity quickly are struggling to make their first batch of sales for a vehicle and therefore delaying the manufacturing of some of these programs.
Ricardo Rodriguez: But when we look at an OEM like Ford, for example, that has been making EVs here in the U.S., it's fair to expect them that on a next-generation product, they could ramp up pretty quickly, given the regulatory environment and the EV mix that they'll need to have to be able to sell vehicles, period, in 2026 through 2030 and beyond. That's ultimately the gating item, right?
Unknown Executive: But when we look at an OEM like Ford for example that has been making evs here in the U S.
Unknown Executive: It's fair to expect them that on our next generation product they could ramp up.
Unknown Executive: Pretty quickly.
Unknown Executive: Given the regulatory environment in the meat and EV mix that they'll need to have to be able to sell vehicles period in 2026 through 2030 and beyond.
Unknown Executive: So.
Unknown Executive: If you're and you know, the OEMs don't advertise this for obvious reasons, right? It means expenses. It means deploying capital, but they need to make EVs. A very low portion of that capacity and have no volumes, and you're guaranteed to lose money, right? Or do you provide certain incentives through leases? Leases are a very effective way for the OEMs to drive volume, you know, without having a ton of cost. And then that way, they'll hopefully get up to utilizing most of that capacity that they've deployed and make a gross profit, right? So we think that all of them will go through some sort of ramp-up phase. But that'll really intensify in 2026, given the sticks and carrots environment that
Unknown Executive: That's ultimately the gating item right if you're in.
Ricardo Rodriguez: If you're... And, you know, the OEMs don't advertise this for obvious reasons, right? It means expenses, it means deploying capital, but they need to make EVs. And then once you set up that capacity, you basically have this tradeoff as an OEM on whether you run at a very low portion of that capacity and have no volumes, and you're guaranteed to lose money, right? Or do you provide certain incentives through leases?
Unknown Executive: The Oems don't advertise this for obvious reasons right. It means expenses it means deploying capital, but they need to make evs.
Unknown Executive: And then once you set up that capacity.
Unknown Executive: Basically have this tradeoff as an OEM on whether you run that.
Unknown Executive: A very low portion of that capacity.
Unknown Executive: And have no volumes and you're guaranteed to lose money right.
Unknown Executive: Or do you provide certain incentives through leases leases are a very effective way for the Oems to drive volume.
Don Young: Leases are a very effective way for the OEMs to drive volume and, uh..., you know, without having a ton of cost. And then that way, they'll hopefully get up to utilizing most of that capacity that they've deployed and make a gross profit, right? So we think that all of them will go through some sort of ramp-up phase, but that'll really intensify in 2026, given the sticks and carrots environment that the regulations provide.
Unknown Executive: And.
Unknown Executive: Without having a ton of cost and then that will hopefully get up to utilizing most of that capacity that they've deployed.
Unknown Executive: And make gross profit right.
Unknown Executive:
Unknown Executive: So so we think that all of them will go through some sort of ramp up phase.
Unknown Executive: But that will really intensify in 2026 given the.
Unknown Executive: Sticks and carrot environment that.
Unknown Executive: The regulations provide.
Don Young: You know, I also think they're gaining experience and the market, the consumer, is becoming increasingly comfortable and interested in these types of vehicles. And Ricardo mentioned the Prologue during his speech. The Honda Prologue is a really attractive vehicle. GM's Equinox is a well-priced vehicle, very stylish, and has a great drive range.
Speaker Change: I also think there theyre gaining experience and.
Unknown Executive: The market.
Unknown Executive: Consumers, becoming.
Unknown Executive: Increasingly comfortable and interested in these types of vehicles.
Speaker Change: <unk> mentioned the prologue during his the Honda prologue.
Unknown Executive: Really.
Speaker Change: Attractive vehicle.
Unknown Executive: GM the equinox.
Unknown Executive: As a well priced.
Speaker Change: Vehicle very stylish great drive range.
Speaker Change: We have high confidence that we're going to get a good that they will get a good pull through on that as well and I think those things will reinforce themselves.
Unknown Executive: You know, we have high confidence that we're going to get it right, that they will get a good pull through on that as well. And I think those things will reinforce themselves. The product or the production is, as you cited, and, and I also think there'll be good demand for growing demand for these vehicles, especially some of the newer nameplates.
Dave Anderson: You know, we have high confidence that we're going to get it right and that they will get a good pull through on that as well. And I think those things will reinforce themselves. The product or the production is, as you cited,
Unknown Executive: The production is as you cited.
Ricardo Rodriguez: And I also think there'll be good demand for growing demand for these vehicles, especially some of the newer nameplates. So, in your guidance for that, you know, potential, hey, there's another potential $50 million in upside here in 24, what's the swing factor on that? Is that just, are you in your guidance just assuming, hey, you know what? We're going to take, we're going to be conservative here, there could be some production hiccups with GM, and that's why our guidance is where it is, whereas the upside is, hey, if everything goes perfectly according to plan, that's how it is. I'm just kind of curious, what's sort Is GM internally figuring this out and getting better at it?
Unknown Executive: And I also think there'll be.
Unknown Executive: Good demand for growing demand for these vehicles.
Unknown Executive: Especially some of the newer nameplates.
Speaker Change: So in your guidance for that potential hey, there's another potential $50 million and upside here in 'twenty, what's the swing factor on that is that just are you in your guidance, assuming hey, you know what we're going to take we're going to be conservative here.
Speaker Change: Could be some production kind of hiccups with GM and Thats why our guidance is where it is whereas the upside is hey, if everything goes perfectly. According to plan. That's how it is so I'm just kind of curious what's sort of the difference is it more GM internally figuring this out and getting better at this is that kind of the gating factor if I just pull it back to this year's guidance.
Dave Anderson: Is that kind of the gating factor, if I just pull it back to this year's guidance? Yeah, so I think there's actually two stages of upside within the baseline outlook, right? So, you know, we were obviously playing it safe looking at GM's track record of producing and selling these vehicles, and their approach to Honda has been a little bit different, right?
Unknown Executive: So I think theres actually two stages of upside within the baseline outlook right. So we were obviously playing it safe looking at Gms track record of producing and selling these vehicles.
Unknown Executive: And their approach to Honda has been a little bit different right they've been producing mostly higher end models higher trim levels.
Ricardo Rodriguez: They've been producing mostly higher-end models, higher trim levels. And so that's why we cut our baseline outlook to 180,000 vehicles for GM, right? But if GM does get to their 200,000 vehicles level, you know, for us, that could be a good $20 million of revenue upside during the year, right? And it could all fall in Q3 or Q4 or split out in various different ways. It's hard to determine how that would land.
Speaker Change: And so that's why we cut our our baseline outlook to 180000 vehicles for GM right.
Unknown Executive: And so that's why we cut our baseline outlook to 180,000 vehicles for GM, right? And plan our expenses, not having to worry about whether GM goes to 225 or, you know, 190 or something like that. We take our baseline guide very seriously, we take the planning internally pretty seriously, and their messaging. And right now, the market is incentivizing the OEMs to say that they're producing less EVs because they perceive this as an impact on their profitability.
Speaker Change: But if GM does get to their 200000 vehicles level for us that could be a good $20 million of revenue upside during the year.
Unknown Executive: And it could all fall in Q3 Q4 or split out.
Unknown Executive: In various different ways, it's hard to determine how that would land.
Ricardo Rodriguez: Then there's the second element of the upside, which is whether they get to 250,000, right? And that would be another 50 plus, you know, 50 to $65 million of revenue upside, depending on what vehicles they make, right? If they make more Equinoxes, it's on the lower end of that number.
Unknown Executive: And then there is the second element of the upside which is whether they get to 250000 right.
Speaker Change: And that would be another depending on the vehicle that would be another 50, plus $50 million to $65 million of revenue upside depending.
Speaker Change: Depending on what vehicles, they make great if they make more equinoxes, it's on the lower end of that number if they make more.
Ricardo Rodriguez: If they make more, you know, Hummers, Escalades, larger battery-packed vehicles, then our CPV would be higher. We just want to manage our business here and plan our expenses, not having to worry about whether GM goes to 225 or, you know, 190 or something like that. We take our baseline guide very seriously; we take the planning internally pretty seriously. And it would be great to just run our business without having to worry about what GM is saying at some investor conference about their EV outlook, right?
Speaker Change: Hummers escalates larger battery pack vehicles in our CPB would be higher.
Unknown Executive: Just want to manage our business here.
Unknown Executive: And plan, our expenses not having to worry about whether GM goes to $2 25 or 109.
Unknown Executive: We take our baseline guide very seriously, we take the planning internally pretty seriously.
Unknown Executive: It would be great to just run our business without having to worry what GM is saying at some investor conference around the <unk> outlook right. The other part that's worth mentioning is that.
Ricardo Rodriguez: The other part that's worth mentioning is that, You know, we read the coverage of the OEMs and their messaging. And right now, the market is incentivizing the OEMs to say that they're producing fewer EVs because they perceive this as an impact on their profitability. But at some point, EVs are really a driver of their sustainability as, as entities that can sell vehicles, at least in the U.S. and in Europe, you know, in 2026 and beyond. And so I think people should not lose sight of that.
Speaker Change: We read the coverage of the Oems.
Unknown Executive: And their messaging and right now the market is incentivizing the Oems to say that they are producing less evs because.
Speaker Change: They are perceived as an impact on their profitability right.
Unknown Executive: But at some point, EVs are really a driver of their sustainability in 2026 and beyond, right? And so I think people should not lose sight of that. And that's why, while our long-term outlook is still very optimistic, here in the near term, we just want to be careful with what we set our expectations of GM to produce.
Speaker Change: But at some point Tvs are.
Unknown Executive: Really a driver of their sustainability as.
Unknown Executive: S entities that can sell vehicles at least in the U S and in Europe.
Unknown Executive: In 2026, and beyond right and so I think people should not lose sight of that and Thats why while our long term outlook is still very optimistic here in the near term, we just want to be careful with what we set our expectations of GM to produce.
Don Young: And that's why, while our long-term outlook is still very optimistic, here in the near term, we just want to be careful with what we set our expectations of GM to produce. You know, they have another source of that potential upside, the energy industrial business, which I know you know very well. Probably in the range of, you know, 10 to 20 million dollars, and it's not about demand.
Unknown Executive: You know, they have another source of that potential upside, the energy industrial business, which you and I know very well.
Speaker Change: They are another source of that.
Unknown Executive: Of that upside is.
Speaker Change: That potential upside as the energy industrial business, which I know you know very well.
Unknown Executive: Probably.
Unknown Executive: Range.
Unknown Executive: $10 million to $20 million and it.
Speaker Change: It's not about demand in this particular case, it's about it's about production.
Dave Anderson: In this particular case, it's about production and our ability to supply, largely from our external manufacturing facilities. So, you know, that's a kind of another leg of the stool, I guess, when we think about our upside versus... versus our baseline that we cited today at $390 million. Great. Thank you very much, gentlemen. Thanks. Welcome. Thanks for initiating coverage, Dave. Anytime.
Speaker Change: And our ability to supply.
Speaker Change: Largely from our external manufacturing facilities. So.
Speaker Change: That's kind of another leg of the stool I guess.
Unknown Executive: When we think about our upside versus.
Unknown Executive: Versus our baseline that we that we cited today at $390 million.
Unknown Caller: All right. Thank you very much, gentlemen. I appreciate it. Thanks. Welcome.
Speaker Change: Alright, Thank you very much I appreciate it.
Unknown Executive: Thanks. Welcome. Thanks for initiating the coverage, Dave.
Speaker Change: Thanks, welcome Thanks for initiating coverage anytime.
Speaker Change: Thank you.
Operator: The next question is from the line of Eric Stine with Greg Hallam. Your line is now open.
Operator: Thank you. The next question is from the line of Eric Stine with Greg Hallam. Your line is now open. Good morning, everyone.
Speaker Change: The next question is from the line of Eric Stine with Craig Hallum. Your line is now open.
Eric Stine: Good morning, everyone. Thanks for sneaking me in here at the end.
Eric Stine: Thanks for sneaking me in here at the end. Hey, so I'm just curious, you mentioned in your remarks and also in the presentation this potential seventh OEM in the third quarter, a major German OEM. I'm just curious, I mean, can you give any details there? Is that potentially a parent company of nameplates or brands you already have? Is that a new OEM altogether? Anything you can share would be great.
Operator: Okay.
Operator: Hey.
Eric Stine: So I'm just curious you mentioned in your remarks and also in the presentation.
Speaker Change: This potential seventh OEM in the third quarter major German OEM I'm, just curious I mean can you give any details there is that potentially a parent company of nameplates or brands you already have is that a new OEM altogether.
Speaker Change: Anything you can share would be great.
Speaker Change: It would be all new all new I think Neil for the German flag on this slide right.
Ricardo Rodriguez: It'd be all new. All new. I think Neal put a German flag on the slide, right?
Unknown Caller: It'd be all new. All new. I think Neal put a German flag on the slide, right?
Speaker Change: So yes.
Ricardo Rodriguez: So if they roll at least one of them out, it would be all new, and it's an OEM that we've been working with for quite some time. And they do have relatively strong EV penetration globally already, and yeah, I mean, there, it's one where we have a very high level of confidence, just based on the work that's been done so far, and we do expect to have that contract signed here in the near term. I got it. That is great! And then last one for me, you mentioned carbon capture and two initial projects. You know, can you size me?
Unknown Executive: So if we see them, rule at least one of them out, right? It would be all new, and it's an OEM that we've been working with for quite some time. And they do have relatively strong EV penetration globally already. And yeah, I mean, there, it's one where
Speaker Change: You saw that at least.
Unknown Executive: At least one of them outright.
Unknown Executive: It would be all new.
Unknown Executive: And it's an OEM that we have been working with for quite some time.
Unknown Executive: And they do have a relatively strong EV.
Unknown Executive: <unk> penetration globally already.
Unknown Executive: And.
Unknown Executive: And yes, I mean.
Unknown Executive: It's one where.
Unknown Executive: We have a very high level of confidence just based on the work that's been done so far and we do expect to have the contract signed here in the near term.
Speaker Change: Got it that is great and then last one for me you mentioned carbon capture in two initial projects.
Don Young: Well, I guess first of all, I assume we should think about this as being kind of like LNG in the early days where you get in very small, you get in a little bigger, and then potentially a project or contract that's much larger. Is that how we should think about this? And maybe if you think about what the content is, you know, maybe what it is today and kind of what you're shooting for, to a little bit of a work in progress.
Speaker Change: Can you size well I guess first of all I assume we should think about this as being kind of like LNG in the early days, where you get in.
Unknown Executive: Very small, you get in a little bigger, and then potentially, a project or contract that's much larger. Is that how we should think about this? And maybe if you think about what the content is, you know, maybe what it is today and kind of what you're shooting for.
Unknown Executive: It's very small you get in a little bigger and then potentially.
Unknown Executive: A project or a contract that's much larger or is that how we should think about this and maybe as you think about what what the content is.
Unknown Executive: Maybe what it is today and kind of what you're shooting for.
Unknown Executive: It's a little bit of a work in progress.
Donald Young: It is a little bit of a work in progress. But I would cite some differences, actually, with our LNG work. You know, when we broke into the LNG business, and again, it's a very conservative group of engineers that surround that business, and the failures are extremely costly and difficult. So we really sort of cut our teeth on the maintenance side, doing relatively small projects within LNG facilities, building confidence, and getting our data in place.
Don Young: But I would cite some differences, actually, with our LNG work. You know, when we broke into the LNG business, and again, it's a very conservative group of engineers that surround that business, and the failures are extremely costly and difficult.
Speaker Change: I would cite some differences actually with.
Donald Young: Our LNG work.
Donald Young: When we when we broke into the LNG business and again, it's a very conservative.
Donald Young: Group of engineers surround that business in the.
Donald Young: Failures are extremely costly and difficult. So we really sort of cut our teeth in that on the maintenance side doing relatively small projects within LNG facilities building the confidence.
Don Young: So we really sort of cut our teeth on the maintenance side, doing relatively small projects within LNG facilities, building confidence, getting our data in place. And, as I cited in mine, we are very active in the vast majority of projects now, these many years later. I think on the carbon capture side, the initial activities are sort of more project-oriented, just given the newness of these facilities, and... Again, I think we have some work to do before we can really size the market.
Donald Young: Getting our data in place and as I cited.
Donald Young: And, as I cited in mine, we are very active in the vast majority of projects now, these many years later. I think on the carbon capture side, the initial activities are sort of more project-oriented, just given the newness of these facilities. And again, I think we have some work to do before we can really size the market. But I believe the opportunities on a per project basis will be notable.
Donald Young: In mind, we are we are very active in the vast majority of projects now. These many years later I think on the carbon capture side.
Donald Young: The initial the initial activities.
Donald Young: More project oriented just given the newness of these of these facilities.
Donald Young: And.
Donald Young: Again, I think we have some work to do before we can really size the market, but I believe the opportunities on a per project basis.
Eric Stine: But I believe the opportunities on a per project basis will be notable. And so give us a give us a couple of quarters to kind of work our way into this market. But there's a nice pipeline of projects. And we think these carbon capture programs are important from a sustainability point of view.
Donald Young: We will be notable.
Donald Young: And.
Donald Young: So.
Donald Young: And so give us a give us a couple of quarters to kind of work our way into this market, but there's a nice pipeline of projects. And we think these carbon capture programs are important from a sustainability point of view. And also, they're being driven largely by the companies that we've served in our traditional energy industrial business. And, um, so we have excellent channels into them and relationships with the engineering group.
Speaker Change: Given sort of give us a couple of quarters to kind.
Donald Young: Work our way into this market.
Donald Young: There's a nice pipeline of projects and we think these carbon capture programs are are important from a sustainability.
Don Young: And also, they're being driven largely by the companies that we've served in our traditional energy industrial business. And so we have excellent channels into them, relationships with the engineering group. And we have an excellent solution as well from a thermal management standpoint. Okay, that's great. Thanks. Thank you, Eric. The next question is from the line of Am Curran with Seaport Research Partners. Your line is now open.
Donald Young: A view and also they are being driven largely.
Donald Young: By the companies that we observed in our traditional energy industrial business.
Donald Young: And so we have excellent channels into them.
Donald Young: Relationships with the engineering groups.
Donald Young: And we have an excellent solution as well from a thermal management point of view.
Speaker Change: Okay, that's great. Thanks.
Unknown Caller: Okay, that's great, thanks.
Eric: Thank you Eric.
Unknown Caller: Yeah.
Operator: The next question is from the line of Om Curran with Seaport Research Partners. Your line is now open.
Speaker Change: The next question is from the line.
Operator: Karen with Seaport Research partners. Your line is now open.
Operator: Good morning, guys. Thanks for going into extra innings here and taking my questions. Thank you. Yeah, you know, you guys always do. For your internal modeling that underpins guidance, would you tell us what average CPV you're assuming for the Honda Prologue and the Acura ZDX, respectively? Yeah, they're about $900 for a vehicle, for both Ricardo.
Om Curran: Good morning, guys, thanks for going into extra innings here and taking my questions.
Om Curran: Happy to Peter.
Unknown Caller: Apeta. Apeta.
Operator: Yes.
Apeta: You always do.
Om Curran: For your internal modeling that underpins guidance would you tell us what average CPB youre, assuming for the Honda <unk> logging and accuracy Dx respectively.
Speaker Change: Yes, there are about $900 per vehicle.
Apeta: For both for Cardinal.
Unknown Executive: for both Ricardo. Yes. What indications have you gotten so far about how that production barn is expected to ramp up, and will you be starting with the Scania 45P electric truck and just that model initially, or are there additional models in the queue? Could you just share some color on the current visibility and expectations you have specifically for the Scania ramp?
Unknown Caller: Yes.
Speaker Change: Great and then.
Am Curran: Yes. Great. And then turning to the Scania contract. As a commercial vehicle brand, that marquee's activity is just a bit more opaque. Cooper to track and get insights into.
Speaker Change: Turning to discounting of contract.
Speaker Change: The commercial vehicle brand that Mark key activity is just a bit more opaque, it's tougher to track and get insights into.
Am Curran: Could you speak to what indications you've gotten so far about how that production bar is expected to ramp up, and will you be starting with the Scania 45P electric truck and just that model initially, or are there additional models in the queue? Could you just share some color on that?
Speaker Change: Could you speak to.
Speaker Change: What what indications you've got.
Unknown Executive: About.
Unknown Executive: How that production volume is expected to ramp and will you be starting with the scanning at 45 P Electric truck.
Speaker Change: And just that model initially.
Unknown Executive: Are there additional.
Unknown Executive: <unk> models into Q could you just share some color on.
Ricardo Rodriguez: current visibility and expectations you have specifically for the Spelman year. Yeah, so initially, it's just on one of these commercial trucks, the 45B, as you mentioned, the it's worth highlighting that Scania is actually using Northvolt cells cells, and so even though they have fairly high expectations for the nameplate in Europe, in particular, it's dependent on the ability of the cell manufacturing to scale up, right?
Unknown Executive: The current visibility and expectations you have specifically for Scott here Matt.
Speaker Change: Yes. So initially its just on one of these.
Unknown Executive: Yeah, so initially, it's just on one of these commercial trucks, the 45B, as you mentioned, the it's worth highlighting that scanning is actually using Northvolt cells, and so... even though they have fairly high expectations for the nameplate in Europe, in particular, it's dependent on the ability of the cell manufacturing to scale up, right? And so, until that really starts happening, it's hard for us to gauge the ramp-up of that.
Unknown Executive: One of these commercial trucks, the 45 fee as you mentioned.
Unknown Executive: <unk>.
Unknown Executive: It's worth highlighting that scanning is actually using north volt cells cells and so.
Unknown Executive: Even though they have.
Unknown Executive: Fairly high expectations for the nameplate in Europe in particular, it's dependent on the ability of the cell manufacturing to scale up right and so.
Unknown Executive: Until that.
Unknown Executive: Really starts happening it's hard for us to gauge the ramp up of that one.
Unknown Executive: Okay.
Unknown Caller: Okay, and then I'll squeeze in one more quick one here on the energy industrial side. Don, could you just remind us when it comes to an LNG project? When do your orders tend to hit relative to the project's FID announcement, and what are the differences for you between a liquefaction project and a regasification opportunity?
Ricardo Rodriguez: And so, until that really starts happening, it's hard for us to gauge the ramp-up of that. Okay. And then I'll squeeze in one more quick one here on the energy industrial side. Don, could you just remind us when it comes to an LNG project? When do your orders tend to hit relative to the project's FID announcement? And, you know, what are the differences for you between a liquefaction project and a rega
Speaker Change: I'll squeeze in one more quick one here on the energy side, Tom could you just remind us.
Don: When it comes to <unk>.
Don: LNG project.
Don: When do your orders tend to hit relative to projects at announcement.
Unknown Caller: <unk>.
Unknown Caller: What are the differences for you between a liquefaction project and Regasification opportunity.
Speaker Change: While we've.
Donald Young: Well, we're from the Regas side. You know, I would say the largest project we've done on LNG has been a regasification facility. You might remember PTT in Thailand. The majority of the projects we've done have been export facilities, though, and those have tended to be...
Don Young: Well, we've, on the Regas side. You know, I would say the largest project we've done on LNG has been a regasification facility. You might remember PTT in Thailand.
Speaker Change: From a.
Speaker Change: On the re gas side.
Donald Young: I would say the largest project we have done on LNG has been a regasification facility you might remember.
Speaker Change: PTT in.
Donald Young: Thailand, the majority of the projects, we've done have been export facilities, though and those have tended to be.
Don Young: The majority of the projects we've done have been export facilities, though, and those have tended to be... smaller, but still meaningful. And again, as I said in my comments, we've participated in the vast majority of those over the course of the past five years, actually longer than that. So, so, sorry, I forgot the first part of your first question. Just the timing of when you tend to see your orders hit and you get spec'd in relative to, let's say, a high-profile FID. Yeah, so we get specked in relatively early in that process, but we deliver product relatively late in the stage of the construction project, right? Installation is one of the, One of the parts of the latter phase of these construction programs that the L&T terminals have.
Speaker Change: Smaller but.
Speaker Change: But still but still meaningful and again as I said in my comments.
Am Curran: So again, we get visibility on it relatively soon, but then we deliver it. Toward the end of the project. Thanks for letting me check through my final questions. Thank you. The next question is from the line of Alex Potter with Piper Sandler. Your line is now open.
Speaker Change: Participated in the vast majority of those.
Speaker Change: Over the over the course of the past five years.
Speaker Change: Actually longer than that.
Donald Young: So.
Speaker Change: Sorry, I forgot the first part of your first part of your question.
Speaker Change: Just the timing of when you tend to see Europe entrenched hit and you get you get specced here relative to let's say a high profile announcements.
Unknown Executive: Yep, so we get spec'd in relatively early in that process, but we deliver the product relatively late in the stage of the construction project, right? Installation is one of the... One of the, phases of these construction programs that the L&T terminals have. So, again, we get visibility on it relatively soon, but then we deliver it towards the end of the project. Thank you for joining us. Thank you for having me.
Donald Young: Yes.
Speaker Change: So we get specced in relatively early in that in that process, but we deliver product relatively late in the stage of the of the construction project installation is is one of them.
Unknown Executive: One of the part of the latter phase of these construction programs that the LNG terminals have so.
Unknown Executive: Again, we get visibility on it relatively soon but but then we deliver.
Unknown Executive: Towards the end of the projects.
Speaker Change: Got it.
Unknown Caller: Got it. Thanks for letting me check my final question.
Speaker Change: Thanks for letting me tick through my final questions.
Speaker Change: Thank you Tom.
Unknown Caller: Thank you.
Operator: The next question is from the line of Alex Potter with Piper Sandler. Your line is now open.
Speaker Change: Next question is from the line of Alex Potter with Piper Sandler Your line is now open.
Speaker Change: Hi, guys.
Unknown Caller: Hi guys, I know we're coming up on time here, so I'll just ask one.
Alex Potter: Hi guys. I know we're coming up on time here, so I'll just ask one. And it's on the STLA medium platform from Stellantis. I understand. Maybe a two-parter.
Alex Potter: Our company coming up on time here I'll just ask one.
Speaker Change: And it's on the CLA medium platform from Atlantis.
Unknown Caller: And it's on the STLA medium platform from Stellantis. So, target for Pyrofin next year versus this year? And then the second follow-up question to that is, what's the update there? Have you had any, there's been some rumors of Stellantis potentially delaying a couple launches. I don't know if that's accurate or if that aligns with what you've been seeing. Anything you could give us on that relationship would be helpful. Thanks.
Speaker Change: I guess.
Alex Potter: Maybe a two parter would you agree first of all of that in terms of incremental volume in.
Ricardo Rodriguez: Would you agree, first of all, that, terms of incremental volume in 2025 versus 2024, that this is the, I guess, single most consequential new target for pyrofin next year versus this year? And then the second follow-up question to that is, What's the update there? Have you had, There's been some rumors of Stellantis potentially delaying a couple launches. I don't know if that's accurate or if that aligns with what you've been seeing. Anything you could give us on that relationship would be helpful, thanks.
Speaker Change: In 2025 versus 2024 that this is the single most consequential.
Unknown Caller: New.
Unknown Caller: Target for Pirates and next year versus this year and then the second follow up question to that is.
Unknown Caller:
Unknown Caller: What's the update there have you had there's been some murmurs of clients is potentially delaying a couple a couple of launches I don't know if that if that's accurate or if that aligns with what <unk> been seeing anything you could give us on that relationship would be helpful. Thanks.
Speaker Change: Sure So I'll start with the first one.
Ricardo Rodriguez: Sure, so I'll start with the first one. We actually think that Audi could ramp up faster than Stellantis here. And the reason for that is because this STLA medium, platform that we're spec'd in, or the subset within that within that is the one that is using cells made by ACC in France.
Unknown Executive: Sure, so I'll start with the first one. We actually think that Audi could ramp up faster than Stellantis here. And the reason for that is because this STLA medium, platform that we're spec'd in or the subset within that. And so until that ramps up.
Unknown Executive: Do you think that aldi could ramp up faster than to Lantus here and the recent for that is because this is still a medium.
Unknown Executive: Platform that we're expecting or.
Unknown Executive: The subset within that within that.
Unknown Executive: Is the one that is using sales made by ACC in France.
Ricardo Rodriguez: And so until that ramp. That's when, really when one can start thinking about the timing of those nameplates. And to your second part of the question, I think that's why we assume those volumes will show up in the second half of 2025 versus in 2024, right? And so as 2024 is materializing here, it's no secret that people are seeing that, that the vehicles just aren't launching here in 2024. And we expected that.
Unknown Executive: And so.
Unknown Executive: Until that ramps that's when that's really when one can start thinking about the timing of those nameplates.
Unknown Executive: Yeah.
Unknown Executive: And to your second part of the question I think Thats why we assumed those volumes to show up in the second half of 2025 versus in 2024 right and so is 2024 is materializing here.
Unknown Executive: It's no secret that piece.
Speaker Change: People are seeing that.
Unknown Executive: That the vehicles, just arent launching here in 2024, and we expected that but.
Ricardo Rodriguez: But we believe that that will ramp up meaningfully in the second half of 2025, but it should be a close second to hourly. Okay, perfect. Thanks. I'll take the rest offline.
Unknown Executive: We believe that that will ramp up meaningfully in the second half of 2025.
Unknown Executive: But what it should be a close second.
Unknown Executive: <unk>.
Unknown Executive: Okay perfect. Thanks, I'll take the rest offline thanks guys.
Unknown Caller: Okay, perfect. Thanks. I'll take the rest offline. Thanks, guys.
Unknown Caller: At this time it sounds good.
Speaker Change: Thank you.
Alex Potter: Thanks, guys. Thanks. Happy time. Thank you. The next question is from the line of Sameer Joshi with HC Wainwright. Your line is now open.
Operator: Thank you. The next question is from the line of Sameer Joshi with HC Wainwright. Your line is now open.
Speaker Change: The next question is from the line of Sameer Joshi with H C. Wainwright. Your line is now open.
Operator: Yes.
Unknown Caller: Hey Don, Ricardo, congrats on all the progress. I'll just make one comment and then a question.
Sameer Joshi: Hey Don, Ricardo, congrats on all the progress. I'll just make one comment and then a question. It seems that the increase in top-line guidance, around 10 million. (Inaudible) I'm sorry, I'm sorry, I'm sorry, I'm sorry, I'm sorry, is pretty conservative though, given that your baseline volumes have increased from 200 to roughly 225.
Sameer Joshi: Hey, Don because congrats on all the progress.
Sameer Joshi: I would just make one comment than a question.
Unknown Caller: It seems that the increase in top-line guidance of around just 10 million is pretty conservative given that your baseline volumes have increased from 200 to roughly 225. So I'll just let that hang. But on the second part, the question on that is, in the DOE loan application process, is there a concern, and this is a good problem to have, that the process could be delayed that would prevent you from achieving the capacity that you will need to deliver in the 26-27 timeframe? And how are you planning for potential delays that could materialize with the DOE? Thank you. Bye.
Speaker Change: It seems that.
Speaker Change: The increase in top line guidance.
Speaker Change: $10 million.
Unknown Caller: Is that pretty conservative given that your baseline was.
Speaker Change: Yes, 70, some 200 roughly 295.
Sameer Joshi: So I'll just let that hang, but on the second part, the question on that is the DOE loan application process. Is there a concern, and this is a good problem to have, that the process could be delayed, which would prevent you from... Achieving the capacity that you will need to deliver in 26, 27 years?
Unknown Caller: At that time.
Speaker Change: On the second.
Speaker Change: <unk> on that.
Speaker Change: On the <unk>.
Speaker Change: Loan application process.
Unknown Caller: Is there a concern that this is a good problem to have that.
Speaker Change: Process could be delayed.
Speaker Change: That would be.
Speaker Change: <unk> from.
Unknown Caller: Achieving the capacity that you will need to deliver in 2687 timeframe.
Ricardo Rodriguez: And how are you planning for that? Initial delays that could materialize with the DOE. Sure, so happy to... In a reaction to the comment, I would just emphasize that, you know, it's baseline or greater than. And so we understand that, but we don't want to get ahead of ourselves, right? Then, in terms of any potential delays around the DOE loan, I mean, I think my answer there is just no.
Speaker Change: And how are you planning for that.
Speaker Change: What then shall be news.
Speaker Change: That could materialize with the dealers.
Speaker Change: Sure so happy to.
Unknown Executive: Sure, so happy to... In a reaction to the comment, I would just emphasize that, you know, it's baseline or greater than baseline. And so we understand that, but we don't want to get ahead of ourselves, right? Then, in terms of any potential delays around the DOE loan, I mean, I think my answer there is just no.
Unknown Executive: And our reaction to the comment I would just emphasize that.
Unknown Executive: <unk> are greater than.
Unknown Executive: And so.
Unknown Executive: We understand that but we don't want we don't want to get ahead of our skis right.
Unknown Executive: And then in terms of any potential delays on the Doe loan.
Unknown Executive: I mean, I think my answer there is just no I mean, we are moving as fast as we can on it.
Ricardo Rodriguez: I mean, we are moving as fast as we can on it. The DOE has been. Extremely engaged with us. I would not be surprised if, within our team, we spend at least 10 hours with them on any given week since we made it to this phase of the process. And we obviously cannot get ahead of expectations here by disclosing anything, but we are very optimistic about where we sit in the process. Everybody's incentivized to get this done before the election, and so we don't expect any delays. And that actually aligns perfectly with our timeline.
Unknown Executive: I mean, we are moving as fast as we can on it. The DOE has been extremely engaged with us. I would not be surprised if, within our team, we spend at least 10 hours with them on any given week since we made it to this phase of the process.
Doe: The Doe.
Unknown Executive: Has been.
Unknown Executive: Extremely engaged with us I would not be suppressive within our team we are spending at least 10 hours with them on any given week.
Unknown Executive: Since we made it to this phase of the process.
Unknown Executive: And.
Unknown Executive: We obviously cannot get ahead of expectations here disclosing something but but we are very optimistic about where we sit in the process everybody's incentivize too.
Unknown Executive: Get this done before the election and so we don't expect any delays in that actually aligns perfectly with our timeline.
Speaker Change: Got it thanks for that to cargo and good luck.
Unknown Caller: Got it. Thanks for that, Ricardo, and good luck.
Sameer Joshi: Got it. Thanks for that, Ricardo, and good luck. Thank you. There are no further questions at this time, so I'd like to hand the call back over to Dawn for any additional remarks. Thank you, Alyssa. We appreciate your interest in Aspen Aerogels and look forward to reporting to you our third quarter 2024 results.
Speaker Change: Thank you. Thank you.
Unknown Executive: Thank you. Thank you.
Ricardo Rodriguez: Thank you.
Operator: There are no further questions at this time, so I'd like to hand the call back over to Dawn for any additional remarks.
Unknown Executive: There are no further questions at this time, so I'd like to hand, the call back over to Don for any additional remarks.
Don Young: Be well, and have a good day. Thank you. This concludes today's conference call. Thank you all for your participation. You may now disconnect your lines.
Dawn: Thank you Melissa.
Dawn: We appreciate your interest in Aspen, Aerogels and look forward to reporting to you our third quarter 2024 results be well and have a good day. Thank you.
Dawn: This concludes today's conference call. Thank you all for your participation you may now disconnect your lines.
Ricardo Rodriguez: These include asset-backed loans, term debt, and a potential revolving line of credit to support our business. We expect to end the year with a capital structure aimed at continuing to lower our cost of capital and making sure that we have the flexibility to fund a potentially faster than expected but very profitable ramp up in our business. Now, I'll turn over to slide five and walk through our updated thoughts on the outlook for the rest of the year.