Q3 2024 Aspen Aerogels Inc Earnings Call
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 Neil Baranovsky I've spend senior director head of Investor Relations and corporate strategy. Thank you you May proceed Mr. Baranowski.
Neil Baranovsky: Thank you Andrew Good morning, and thank you for joining us for Aspen Aerogels third quarter 2024 financial results conference call with US today are Don Young President and CEO, and Ricardo Rodriguez, Chief Financial Officer and Treasurer.
Press release announcing aspens financial results and business developments in the slide deck that will accompany our conversation today are available on the Investor section of Aspens website, Www Dot aerogel Dot com.
During this call we will refer to non-GAAP financial measures, including adjusted EBITDA the.
Reconciliations between GAAP and non-GAAP measures are included in the back of the slide presentation and earnings release.
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 statement on page one of the slide deck is the content of our call will be governed by this language.
Neil Baranovsky: Yeah.
On November 19th Ricardo I will be hosting investor discussions in New York at the Craig Hallum Alpha Select conference in the Bernstein annual Industrials form also on November 19th we will be attending and Investor dinner in Menlo Park for the Piper Sandler 2024 Bay area.
And batteries bus tour.
Carter: On November 20th Carter, I will host Investor meetings at Barclays Annual Global automotive and mobility Tech Conference. This event will also include a fireside chat with Ricardo from one to $1 35 pm ESP.
Neil Baranovsky: On December 4th and fifth our team will be presenting at the deploy 24 conference in D. C hosted by the Department of Energy and finally on December 5th recorded I will be hosting investor discussions at the Janie clean energy investment Symposium in New Orleans.
Now I'll turn the call over to Don Don.
Don Don: Thanks Neil.
Don Don: Morning, everyone. Thank you for joining us for our Q3 2024 earnings call Mike.
Don Don: My comments will focus on Q3 and year to date performance, our revised 2020 for full year outlook and the status and expected.
Don Don: Impact of several key elements of our strategy.
Don Don: Ricardo will dig deeper into our financial performance 2020 for outlook.
Don Don: And recent financing activities, we will conclude with a Q&A session.
Don Don: We operated well in Q3, the strong execution leveraged and extended the momentum that we built throughout 2023 and during the first half of this year.
Don Don: The performance is reflected in the Q3 financial results and in the higher 2020 for revenue and adjusted EBITDA outlook, our third beat and raise quarter of the year.
5 p.m. EST
Presenting it to deploy 24 conference in D. C hosted by the Department of Energy and finally on December 5th recorded I will be hosting investor discussions at the Janie clean energy investment Symposium in New Orleans.
Don Don: Our year to date numbers and our Q4 momentum are the basis for raising our 2024 outlook to $450 million of revenue and $90 million of adjusted EBITDA.
I'll now turn the call over to Don Don.
Don Don: Thanks Neil.
Don Don: Good morning, everyone. Thank you for joining us for our Q3 2024 earnings call.
Don Don: Since we first issued our 2024 outlook, we have increased guidance on revenue by $100 million in.
My comments will focus on Q3 and year to date performance, our revised 2020 for full year outlook and the status and expected.
Don Don: And on adjusted EBITDA by $60 million, reflecting the good work of the Aspen team.
Impact of several key elements of our strategy.
Don Don: Our quarterly revenue mix was comprised of $91 million of pirates, and thermal barriers and a modest $27 million for energy industrial.
Don Don: Ricardo will dig deeper into our financial performance 2020 for outlook.
And recent financing activities, we will conclude with a Q&A session.
Don Don: With respect to energy industrial this year has been dedicated to the transition to our supplemental supplier and supportive of the business.
We operated well in Q3, the strong execution leveraged and extended the momentum that we built throughout 2023 and during the first half of this year.
Don Don: Our external manufacturing facility, serving our energy industrial business performed a successful five week planned turnaround during Q3 aimed at upgrading equipment to be more flexible and efficient and importantly to expand capacity.
Don Don: The performance is reflected in the Q3 financial results and in the higher 2020 for revenue and adjusted EBITDA outlook, our third beat and raise quarter of the year.
Don Don: While the long duration of the turnaround dampened Q3 results for energy industrial it positions our energy industrial team for a solid fourth quarter and we believe for a record 2025.
Don Don: Our year to date numbers and our Q4 momentum are the basis for raising our 2024 outlook to $450 million of revenue and $90 million of adjusted EBITDA.
Don Don: Energy industrial activity remained strong across all regions and segments, including significant growth of crowd gel products, serving the LNG industry.
Don Don: Since we first issued our 2024 outlook, we have increased guidance on revenue by $100 million.
Don Don: And on adjusted EBITDA by $60 million, reflecting the good work of the Aspen team.
Don Don: We believe our energy and industrial team will drive profitable growth with a medium term goal of doubling the size of the business to provide a valuable base load of revenue and profit for the company.
Our quarterly revenue mix was comprised of $91 million of pirates, and thermal barriers and a modest $27 million for energy industrial.
Don Don: Our revenue for our piracy and thermal barrier business was driven by continued <unk> growth at GM.
Don Don: With respect to energy industrial this year has been dedicated to the transition to our supplemental supplier in support of the business.
Don Don: As we navigate this phase of EV adoption, we are benefited greatly from our strong collaboration with GM, both commercial and technical.
Our external manufacturing facility, serving our energy industrial business performed a successful five week planned turnaround during Q3 aimed at upgrading equipment to be more flexible and efficient and importantly to expand capacity.
Don Don: We were energized by Gm's Investor Day, and its Q3 earnings call, where they expressed their full throated commitment to electrification, including the launching of a full lineup of profitable Evs.
Don Don: While the long duration of the turnaround dampened Q3 results for energy industrial it positions our energy industrial team for a solid fourth quarter and we believe for a record 2025.
Don Don: In addition to GM and our previously announced five other OEM Awards. We are pleased to announce a new OEM award to supply piracy and thermal barriers to Mercedes Benz for its battery electric platform based on prismatic cells with production expected to begin.
Energy industrial activity remained strong across all regions and segments, including significant growth of crowd gel products, serving the LNG industry.
Don Don: In 2027.
Don Don: We believe our energy and industrial team will drive profitable growth with a medium term goal of doubling the size of the business to provide a valuable base load of revenue and profit for the company.
Don Don: This additional OEM award is through ACC, a battery cell joint venture between Atlantic.
Don Don: Hotel energies and Mercedes Benz.
Don Don: Earlier awards from ACC, where first ailanthus STL, a medium platforms, which we expect to begin to ramp in late 2025.
Don Don: The continued adoption of pirates and thermal bearers is a testament to the strength and uniqueness of our portfolio.
Don Don: We are confident in our ability to serve this ever evolving market with our innovative and agile technology platform or.
Don Don: Our focus is on securing our eighth OEM design Award.
Don Don: Which would further diversify our customer base and support our long term growth through the decade.
Don Don: While it is challenging to pinpoint the exact timing of nominations even in cases with agreed upon technical and commercial terms. We believe this next OEM program Award is on the near term horizon.
Don Don: We will keep you informed about the progress.
Don Don: As we as we build our energy industrial and paraffin thermal barrier businesses.
Don Don: We are focused not only on growth, but unprofitable growth.
Don Don: From 2021 to 2023, we nearly doubled revenue, while driving gross profit margin from 8% to 24%.
Don Don: We are ahead of schedule for doubling revenue again from 2023 to 2025 with an expected revenue growth rate in 2024 alone approaching 90%.
Don Don: And again with profitability in mind, our gross profit margin through three quarters. This year has expanded to over 40%.
Don Don: With our revised outlook, we anticipate growing revenue in 2024 by $211 million.
Don Don: And adjusted EBITDA by $150 million to $113 million or 54% of incremental revenue.
Don Don: Our commercial and operating progress since 2021 demonstrates the financial power of leveraging scale and driving margins.
Don Don: Importantly, we anticipate additional profit profitable growth in 2025 and to continue a direct path to fully utilizing our current capacity and supply arrangements of at least $650 million of revenue capacity with at least 35% gross profit.
Don Don: Arjun and 25% adjusted EBITDA margins.
Speaker Change: We believe our financial performance during the first three quarters of 2024 more than supports these profitability metrics.
Speaker Change: As a reminder, we are executing three key elements of our strategy.
Speaker Change: That are in support of these revenue and profitability targets first the full conversion of the east Providence Aerogel manufacturing plant to support the growth of the paraffin thermal barrier business.
Speaker Change: 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 Nessus.
Speaker Change: Necessary to achieve our interim and long term goals and to take advantage of opportunities as they present themselves.
Speaker Change: In terms of financial strength and flexibility during Q3, we generated $21 million in operating cash flow and finished the quarter with over $113 million in cash.
Speaker Change: In addition, we put in place a 100 million dollar working capital revolver.
Speaker Change: Since Q3, we took the next major step towards efficiently financing our plant Statesboro aerogel manufacturing plant by receiving the conditional commitment from the Doe LPL for a loan of up to $670 million.
Speaker Change: While we do not have assurance that the deal will close alone. We believe the remaining conditions for closing the loan are controllable.
Speaker Change: The Statesboro Aerogel manufacturing plant is expected to have revenue capacity at between one two and $1 6 billion.
Speaker Change: And is designed to generate not only accretive margins, but also positive cash flow at moderate capacity utilization levels.
Speaker Change: Also in October we raised over $90 million in an equity offering to strengthen our balance sheet.
Speaker Change: Our overall financial strength and profitable operating performance provide us with the resources and flexibility to execute our strategy and to drive long term profitable growth.
Speaker Change: As a reminder, our strategy is to leverage our aerogel technology platform into large dynamic markets, especially those with sustainability themes.
Speaker Change: In work unrelated to the loan programs office. The U S Department of energy awarded Aspen, Aerogels with a $7 $3 million R&D grant that is dedicated to advancing our aerogel technology platform in the field of battery materials, our R&D teams have advanced the development.
Speaker Change: Of our carbon aerogels in various battery Chemistries and this R&D.
Speaker Change: R&D grant sponsors our team of scientists to further develop our proprietary carbon aerogel to enhance the performance of fast charging high power LSP cathode materials.
Speaker Change: As part of this R&D grant.
Speaker Change: Aspen is partnering with the Oak Ridge National Laboratory to leverage its deep LSP battery expertise and to both advance and validate the technology.
Speaker Change: The Doe grant and the Oak Ridge partnership provide to us the resources and complementary expertise to demonstrate the fast charging LSP technology and to expand the scale from lab to pilot.
Speaker Change: If successful aspen's LSP cathode material may offer a domestically sourced high performance and cost effective solution to fast charging LSP batteries, we will keep you informed about the progress.
Speaker Change: <unk> over to you.
Speaker Change: Thank you Donna and good morning, everyone I'm happy to report another productive quarter on behalf of our team starting on slide four.
Speaker Change: We delivered $117 $3 million of revenue in Q3, which translates into 93% growth year over year.
Speaker Change: This reflects an annual revenue run rate of approximately $470 million.
Speaker Change: Sustaining a comparable level.
Speaker Change: Over quarter is great, but this could have been even higher.
Speaker Change: Our energy industrials.
Speaker Change: Segment revenue was $26 8 million, a decrease of 4% year over year, and a 27% decrease quarter over quarter.
Speaker Change: At this point most of the segments product was supplied by our external manufacturing facility.
Speaker Change: As Don mentioned in his remarks, we went through a five week operational improvement turnaround at this facility to enable a higher throughput rate in Q4 and into 2025, we remain sold out in this segment and there is no doubt that without the operational improvements shutdown our revenues year could have been at least $10 million higher.
Speaker Change: For the quarter.
Speaker Change: EV thermal barrier revenue of $90 $6 million was up over 176% year over year, and 12% quarter over quarter, reflecting a high level of demand from our main customers in this segment.
Speaker Change: In Q3 company level gross profit margins were 42% on a gross profit of $49 million is $35 $2 million improvement over.
Speaker Change: Gross profit of $13 8 million during the same quarter last year, our energy industrial segment delivered $10 8 million of gross profit or an 84% year over year increase some comparable revenues and EV thermal barriers, we delivered $38 $3 million of gross profit in Q3.
Speaker Change: The resulting gross profit margins during the quarter were 40% and 42% for our energy industrial and EV thermal barrier segments, respectively.
Speaker Change: Without any material onetime charges in Q3, it was encouraging to see our gross margins increased by 90 basis points over our overall gross margin of 41% during the first half of the year.
Speaker Change: Which is a more direct comparison versus splitting out Q1, and Q2 due to various one time charges that hurt the P&L in the first quarter, but benefited in the second quarter as these were reimbursed.
Speaker Change: Operating expenses, which are sized for our near term projected annual revenue capacity of over $650 million were $31 $6 million in Q3 were flat quarter over quarter.
Speaker Change: These would have been lower without several one time expenses linked to performance bank.
Speaker Change: With our Opex flat or down here over the last three quarters I'll reemphasize that any increases will be aimed at driving incremental demand and profitability only.
Speaker Change: Putting these elements together, our adjusted EBITDA was $25 4 million in Q3 compared to negative $7 3 million during the same period last year.
Speaker Change: Echoing <unk> remarks.
Speaker Change: One 2% adjusted EBITDA margins put US ahead of any expectations that we had as we were gearing the company's cost structure two years ago. Our team continues validating that we've set up the business to be profitable without having to rely on outsized revenue growth.
Speaker Change: As a reminder, we define adjusted EBITDA as net income or loss before interest taxes depreciation amortization stock based compensation expenses and other items that we do not believe are indicative of our core operating performance in.
Speaker Change: In Q3. These adjustments were limited to $2 6 million of stock based compensation $5 3 million of depreciation $1 2 million of interest income and $31 3 million of interest and financing related expenses.
Speaker Change: Which included the loss on extinguishment of debt of $27 5 million.
Speaker Change: Related to the redemption of the company's convertible note with Koch industries.
Speaker Change: Our net loss in Q3 was $13 million or negative <unk> 17 per diluted share versus a net loss.
Speaker Change: Of $13 1 million or negative <unk> 19 per diluted share in the same quarter of 2023.
Speaker Change: Without the loss on extinguishment of debt related to the convertible note. We would have had $14 5 million of net income.
Speaker Change: Next I will turn it over to cash flow and our balance sheet cash.
Speaker Change: Cash generated by our operations of $28 million reflected our adjusted EBITDA of $25 4 million and.
Speaker Change: And $3 5 million used for working capital.
Speaker Change: Interest expenses of <unk> $8 million and income tax expenses of <unk> $3 million.
Speaker Change: Quarter over quarter, our working capital increases were reduced by 85% confirming that what we've been saying all along about our team's ability to preserve cash if we don't have much quarter over quarter revenue growth.
Speaker Change: Our capital expenditures during the quarter were $28 million, which was fully funded by the cash generated from our operations. So the core business does not consume any cash during the quarter.
Speaker Change: In Q3, we spent $16 $1 million towards slowly advancing progress or plan to.
Speaker Change: To date, we have incurred $316 3 million in cumulative capital capital expenses towards plant two in Georgia to position the project for a potential restart of construction. After we've closed alone from the U S Department of Energy's loan programs office targeted.
Speaker Change: <unk> targeted in Q1 of next year.
Speaker Change: I'll go into more details around our statesboro plant in a minute.
Speaker Change: Our net financing activities in the quarter of $22 2 million <unk>.
Speaker Change: Included all of the ins and outs of the company's redemption of the legacy convertible note for $150 million the.
Speaker Change: <unk> of $125 million term loan facility.
Speaker Change: The drawdown of $43 million within a $100 million asset based revolving credit facility with Midcap financial.
Speaker Change: We ended the quarter with $113 5 million of cash and shareholders' equity of $507 $6 million.
Speaker Change: More recently on October 21, we closed an underwritten public offering with net proceeds of $93 $2 million and as of October 31, our cash balance was Av $203 million.
Speaker Change: Our statesboro plant will be fully funded after we close on the Doe loan. We are jointly targeting Q1 of next year to finalize that and could not be more excited about focusing our energies on playing offense and defining incremental elements of our strategy that go beyond plant two in 2025.
Speaker Change: Now I'll turn it over to slide five.
Speaker Change: And walk you through our updated thoughts on the outlook for the rest of the year.
Speaker Change: With only one quarter left in recent communications from General Motors confirming their plans to produce 200000 evs for their own brands. In 2024, we are leaving our alteon based production expectations unchanged to 225000 vehicles, including approximately 45000 units.
Speaker Change: The Honda prologue and the accuracy CBS.
Speaker Change: This leaves a 180000 units for <unk> and its brands.
Speaker Change: While the recent annualized sales rate in the U S. At around 200000 units for all 10 vehicles over the last three months is very encouraging IHS estimates that general Motors has produced about 137000 vehicles for <unk> through the end of Q3.
Speaker Change: So wrapping up to produce over 60000 units in Q3 as possible, but we feel more confident.
Speaker Change: Around our prior estimate of 180000 vehicles wholesales by ATM in 2024.
Speaker Change: When thinking about the revenues of our EV thermal barrier segment.
Speaker Change: Our guidance update it's worth highlighting a couple of important things.
Speaker Change: First is that as we've been reminding everyone over the last several quarters. It may take several weeks or months for our parts to make their way into a battery pack or a vehicle and even more time into a sold vehicle.
Speaker Change: Trying to tie vehicle production or sales to our revenues is a high level directional and very precise exercise.
Speaker Change: The second is that during the launch phase of battery module pack and vehicle Assembly.
Speaker Change: Oems have been procuring a higher number of parts to produce a vehicle unexpected.
Speaker Change: As the initial production yields at the Oems improve any demand risk is more than counterbalanced with incremental vehicles throughput over time, and we are not concerned about this reducing demand in the future.
Speaker Change: The third is that contracts can give us the right to invoice and OEM for several weeks of forward looking demand. If we have produced those parts.
Speaker Change: This notion of billing and holding in combination with weekly delivery schedules for six to nine month rolling periods enable smoother planning across the value chain and a reduced potential volume fluctuations for suppliers.
Speaker Change: And the last one is that we generally have this ability into the Oems inventory of our parts and.
Speaker Change: And they focus on maintaining a low level of working capital throughout the value chain. So the idea of an OEM suddenly not ordering because they have excess inventory is not only something that can be foreseen, but it's highly unlikely when a range of vehicle nameplates is being launched.
Speaker Change: With all that in mind, we now expect our EV thermal barrier segment to deliver $350 million of revenues in 2024.
Speaker Change: This is a 31% or $75 million increase over our prior outlook of $240 million, mainly driven by the second and third points that I, just made along with increasing part prototype volumes for new customers.
Speaker Change: Switching gears to our energy industrial segment, which without an external manufacturing facility would've been supply constrained to less than $10 million of product per quarter at this point.
Speaker Change: We now expect to be able to supply $135 million of product in 2024 or at least $42 million in Q4.
Speaker Change: The operational turnaround in Q3, and the validation of the resulting capacity improvements from it.
And they focus on maintaining a low level of working capital throughout the value chain. So the idea of an OEM suddenly not ordering because they have excess inventory is not only something that can be foreseen, but it's highly unlikely when a range of vehicle nameplates is being launched.
Speaker Change: <unk> us to push out $15 million of supply into 2025, but now enabled that facility to deliver over 20% more output per unit of time, depending on product mix as we position that business for next year.
Don Don: With all that in mind, we now expect our EV thermal barrier segment to deliver $350 million of revenues in 2024.
Speaker Change: Turning over to slide six and putting our outlook together, we now expect to deliver $450 million of revenue in 2024.
Don Don: This is a 31% or $75 million increase over our prior outlook of $240 million, mainly driven by the second and third points that I, just made along with increasing part prototype volumes for new customers.
Speaker Change: This level would enable $9 million of net income versus our prior outlook of over $7 million.
Speaker Change: The encouraging thing is that we are making this outlook update after having incurred $27 $5 million towards redeeming. The prior convertible note. So we excluded that to assist the net income generated by the underlying business improvement over our prior outlook would be of $29 $5 million.
Don Don: Switching gears to our energy industrial segment, which without an external manufacturing facility would've been supply constrained to less than $10 million of product per quarter at this point.
Speaker Change: On an incremental $60 million of revenue.
Don Don: We now expect to be able to supply $135 million of product in 2024 or at least $42 million in Q4.
Speaker Change: Our updated EBIT outlook of $90 million is a 50% improvement over our prior outlook of over $60 million, while continuing to consider some potential headwinds to our near term profitability such as the potential cost of new launches higher prototype sales engineering chain.
Don Don: The operational turnaround in Q3, and the validation of the resulting capacity improvements from it.
Don Don: <unk> us to push out $15 million of supply into 2025, but now enabled that facility to deliver over 20% more output per unit of time, depending on product mix as we position that business for next year.
Speaker Change: Is that could lead to inventory obsolescence and expedited freight costs driven by the start stop nature of some nameplates and our thermal barrier demand.
Don Don: Turning over to slide six and putting our outlook together, we now expect to deliver $450 million of revenue in 2024.
Speaker Change: On the flipside, if additional demand is truly there we expect a disproportionate amount of it to continue not just flowing to our bottom line, but now to our cash balance.
Don Don: This level would enable $9 million of net income versus our prior outlook of over $7 million.
Speaker Change: Our diluted EPS outlook is improving by <unk> <unk> per share to <unk> 11 per share over <unk> <unk> per share on a post offering share count of 84 million shares.
Don Don: The encouraging thing is that we are making this outlook update after having incurred $27 $5 million towards redeeming. The prior convertible note. So we excluded that to assess the net income generated by the underlying business improvement over our prior outlook would be a 29 $5 million.
Speaker Change: Again, this update would be significantly higher without the loss on extinguishment of debt tied to the redemption of the convertible note.
Speaker Change: Our capex without including plant two is expected to be reduced by 5 million to $40 million from $45 million for the year, thanks to our team's ability to.
Don Don: On an incremental $60 million of revenue.
Don Don: Our updated EBITDA outlook of $90 million is a 50% improvement over our prior outlook of over $60 million, while continuing to consider some potential headwinds to our near term profitability such as the potential cost of new launches higher prototype sales engineering change.
Speaker Change: To deliver a higher level of uptime from our EV thermal barrier equipment in Mexico.
Speaker Change: We continue believing that this investment is enough for us to ramp up our production capacity in 2025.
Speaker Change: We spent $36 million year to date towards advancing the construction of plant two in Statesboro, Georgia. Looking ahead, we are not planning to spend more than $20 million advancing the construction or planned to until we close the loan pursuant to the advanced technology vehicle manufacturing or Atvs program targeted in.
Don Don: Is that could lead to inventory obsolescence and expedited freight costs driven by the start stop nature of some nameplates and our thermal barrier demand.
Don Don: On the flipside, if additional demand is truly there we expect that this proportionate amount of it to continue not just flowing through our bottom line, but now to our cash balance.
Speaker Change: Q1 of 2025.
Don Don: Our diluted EPS outlook is improving by <unk> <unk> per share to <unk> 11 per share over <unk> <unk> per share on a post offering share count of 84 million shares.
Speaker Change: This investment will ensure that the site is advanced enough to preserve all our investments made to date and it enables the potential reacceleration of construction next year.
Speaker Change: On the right side of slide six before moving on I'll, let you take stock of the journey that our team has been on for the past five quarters. This quarter, we're particularly proud of being free cash flow neutral on what should have been a quarter with higher and accretive energy industrial revenues. The team deserves a lot of credit for staying on top of working.
Don Don: Again, this update would be significantly higher without the loss on extinguishment of debt tied to the redemption of the convertible note.
Don Don: Our capex without including plant two is expected to be reduced by 5 million to $40 million from $45 million for the year, thanks to our team's ability.
Speaker Change: Capital and we look forward to managing our investments outside of plant two in <unk>.
Don Don: To deliver a higher level of uptime from our EV thermal barrier equipment in Mexico.
Speaker Change: That makes generating positive free cash flow a habit.
Don Don: We continue believing that this investment is enough for us to ramp up our production capacity in 2025.
Speaker Change: Next let's turn over to slide six with.
Speaker Change: With the recent announcement of the conditional commitment for a direct loan.
Don Don: We spent $36 million year to date towards advancing the construction of plant two in Statesboro, Georgia. Looking ahead, we are not planning to spend more than $20 million advancing the construction of plan to until we close the loan pursuant to the advanced technology vehicle manufacturing or ATM program targeted at <unk>.
Speaker Change: Of up to $676 million from the Department of Energy loan program office towards our plant in Georgia. We wanted to provide you with a quick update on the project in some key parameters that our team is ensuring as we prepare to restart construction. After we close on the loan in the first quarter of 2025.
Speaker Change: Q1 of 2025.
Speaker Change: This investment will ensure that the site is advanced enough to preserve all of our investments made to date and it enables the potential reacceleration of construction next year.
Speaker Change: The scope of the project has evolved through the right timing of the last two years and then the way that gives us very strong conviction to make it a critical part of the current leg of our strategy aimed at driving the uninterrupted profitable growth.
Don Don: On the right side of slide six before moving on I'll, let you take stock of the journey that our team has been on for the past five quarters. This quarter, we're particularly proud of being free cash flow neutral on what should have been a quarter with higher and accretive energy industrial revenues. The team deserves a lot of credit for staying on top of.
Speaker Change: Our EV thermal barrier segment.
Speaker Change: Let's start with the costs. The last estimate that we have disclosed or on the cost of the plant for $710 million in Q1 of 2023.
Speaker Change: Adjusting this for the cost of right timing the project inflation and scope that includes our latest process improvements as we record. The project today, we expect it to cost anywhere from 800 million to $960 million.
Don Don: Working capital and we look forward to managing our investments outside of plant two in <unk>.
Don Don: That makes generating positive free cash flow a habit.
Don Don: Next let's turn it over to slide six with.
Speaker Change: The <unk> zone is designed to fully fund the remaining spend on the project.
Don Don: With the recent announcement of the conditional commitment for a direct loan.
Don Don: Of up to $676 million from the Department of Energy loan program office towards our plant in Georgia. We wanted to provide you with a quick update on the project in some key parameters that our team is ensuring as we prepare to restart construction. After we close on the loan in the first quarter of 2025.
Speaker Change: The structure of this project financing with treasury rates in Georgia as the borrower, we see that alone is a critical enabler for the project.
Speaker Change: It's worth understanding how advanced plant twos processes are and the underlying product economics at these enable buy.
Speaker Change: By combining two critical stages of our aerogel manufacturing process into one set of equipment.
Don Don: The scope of the project has evolved through the right timing of the last two years and then the way that gives us very strong conviction to make it a critical part of the current leg of our strategy aimed at driving the uninterrupted profitable growth of our EV thermal barrier segment.
Speaker Change: In one step with an unrestricted footprint that enables linear product flow without overhead transfers, we expect plant two to enable fixed costs that are at least 25% lower than those of comparable aerogel production facilities.
Don Don: Let's start with the costs. The last estimate that we have disclosed around the cost of the plant for $710 million in Q1 of 2023.
Speaker Change: This means that even though the two main clusters of equipment that were installing their enable one two to $1 6 billion of capacity the facility only needs to be producing $200 million of revenues within our EV thermal barrier segment to be accretive to our 42% gross margins of this most recent.
Don Don: Adjusting this for the cost of right timing of the project and inflation and scope that includes our latest process improvements as we record. The project today, we expect it to cost anywhere from 800 million to $960 million.
Speaker Change: Quarter, while generating enough cash to service the debt of the project.
Don Don: The <unk> zone is designed to fully fund our remaining spend on the project.
Speaker Change: In summary, our EV thermal barrier segment with our plant in Rhode Island that currently has an annual EV thermal barrier revenue capacity of approximately $500 million.
Don Don: As structured as project financing with treasury rates in Georgia. The borrower, we see that alone is a critical enabler for the project.
Speaker Change: And just a sliver of the capacity of plan to continue growing profitably without skipping a beat in service the debt.
Don Don: It's worth understanding how advanced planning tools processes are and the underlying product economics at these enable buy.
Speaker Change: If we wanted to stress test the breakeven point of plan to stand alone, we estimate that it only need $250 million of demand to deliver our current gross margins. Moreover, only $400 million of annual demand or just a bit more than 10% of our Q3 EV thermal barrier segment run.
Don Don: By combining two critical stages of our aerogel manufacturing process into one set of equipment.
Don Don: In one step with an unrestricted footprint that enables linear product flow without overhead transfers, we expect plant two to enable fixed costs that are at least 25% lower than those of comparable aerogel production facilities.
Speaker Change: Right would be required to service the debt over the tenure of the loan.
Don Don: This means that even though the two main clusters of equipment that were installing their enable one two to $1 6 billion of capacity the facility only needs to be producing $200 million of revenues within our EV thermal barrier segment to be accretive to our 42% gross margins of this most recent.
Speaker Change: Turning over to slide seven if we know that we only need an incremental $200 million of demand over the $500 million of <unk>.
Speaker Change: One in Rhode Island can supply to make plans to more than viable and accretive to the current margins of our EV thermal Bayer's segment, then let's look at our latest revenue pipeline from 2026 to 2029.
Don Don: Quarter, while generating enough cash to service the debt of the project.
Don Don: In summary, our EV thermal barrier segment with our plant in Rhode Island that currently has an annual EV thermal barrier revenue capacity of approximately $500 million.
Speaker Change: This is an update over a similar slide that we showed in February of this year during our 2023 full year results earnings call.
Speaker Change: It reflects a small decrease in total demand driven by some of the ebbs and flows of vehicle programs and the launch delays within the Oems Some of which you may have read in the press over the past few months.
Don Don: And just a sliver of the capacity of plant to.
Don Don: To continue growing profitably without skipping a beat in service the debt.
Don Don: If we wanted to stress test our breakeven point of plan to stand alone, we estimate that it only need $250 million of demand to deliver our current gross margins. Moreover, only $400 million of annual demand or just a bit more than 10% of our Q3 EV thermal barrier sent.
Speaker Change: Like last time, the Boston this slide represent the estimated value of our currently awarded and recorded business, which assumes our customers' internal volume projections I am surprised that we've quoted for each party.
Speaker Change: The Red line that we have now added represents what our EV thermal various segments revenues would be if we discount this pipeline by 60% in each year.
Don Don: <unk> run rate would be required to service the debt over the tenure of the loan.
Speaker Change: One can see.
Don Don: Turning over to slide seven if we know that we only need an incremental $200 million of demand over the $500 million of plant one in Rhode Island can supply to make plans to more than viable and accretive to the current margins of our EV thermal Bayer's segment, then let's look at our <unk>.
Speaker Change: Here that we will arguably need the plant in 2026 and that we not only would need in 2027, but that the revenue level driven by a 60% discount from our pipeline is above the point in which our EV thermal barrier business can operate both plants without impacting our current gross margins.
Don Don: <unk> revenue pipeline from 2026 to 2029.
Speaker Change: For 2029, although we continue working to secure additional demand through OEM awards that go well beyond then we'd need to discount the estimated demand by 43% to not run out of the capacity from both plants and five years from now.
Don Don: This is an update over a similar slide that we showed in February of this year during our 2023 full year results earnings call. It.
Don Don: It reflects a small decrease in total demand driven by some of the ebbs and flows of vehicle programs and the launch delays within the Oems Some of which you may have read in the press over the past few months.
Speaker Change: In summary, we continue estimating that there are multiples of excess demand between our customers estimates of their demand and our latest capacity plan assessment and what is required to make plans to accretive to our current margins.
Don Don: Like last time, the Boston this slide represent the estimated value of our currently awarded and recorded business, which assumes our customers' internal volume projections I am surprised that we've quoted for each party.
Speaker Change: We believe that this lease room for plenty of program delays slower volume ramps long sourcing processes and multi stakeholder to physicians that are customary in the automotive industry without affecting our ability to grow profitably and drive our business model in the interim.
Don Don: The Red line that we have now added represents what our EV thermal various segments revenues would be if we discount this pipeline by 60% in each year.
Don Don: One can see here that we will arguably need the plant in 2026 and that we not only would need in 2027, but that the revenue level driven by a 60% discount from our pipeline is above the point in which our EV thermal barrier business can operate both plants without impacting.
Speaker Change: Turning over to slide eight.
Speaker Change: Worth emphasizing the market dynamics that drive this demand at a higher level.
Speaker Change: We're encouraged to see Oems had made in their most recent investor presentations and events that the current nickel and iron based chemistries along with the three predominant form factors.
Don Don: Our current gross margins.
Don Don: For 2029, although we continue working to secure additional demand through OEM awards that go well beyond then we'd need to discount the estimated demand by 43% to not run out of the capacity from both plants and five years from now.
Speaker Change: Or what the industry has to work with over the next 10 plus years to address global EV demand.
Speaker Change: We've been saying this for the past two years in response to random news articles reporting one potential battery breakthrough. After another that is many years away from being validated let alone to a point in which it can be implemented into a production vehicle.
Don Don: In summary, we continue estimating that there are multiples of excess demand between our customers estimates of their demand and our latest capacity plan assessment and what is required to make plans to accretive to our current margins.
Speaker Change: The last 20 years of battery development and industrialization has taught us that battery advancement is easier said than done.
Don Don: We believe that this lease room for plenty of program delays slower volume ramps long sourcing processes and multi stakeholder to physicians that are customary in the automotive industry without affecting our ability to grow profitably and drive our business model in the interim.
Speaker Change: Our team stands ready with solutions for all of the chemistry and form factors in play.
Speaker Change: Push comes to shove. We can also have a solution for cylindrical cells and our team has won under development for an OEM that is willing to cluster some cells to provide thermal runaway and propagation protection.
Don Don: Turning over to slide eight.
Don Don: Worth emphasizing the market dynamics that drive this demand that up at a higher level.
Speaker Change: We also continue making inroads commercial the unfair somatic cells in this quarter alone our pirate than pursuit team landed Mercedes Benz through renewal award with ACC.
Don Don: We're encouraged to see Oems had made in their most recent investor presentations and events that the current nickel and iron based chemistries along with the three predominant form factors.
Speaker Change: Mercedes Benz is committed to its electrification efforts and we look forward to doing everything we can to serve them across a range of potential form factors and chemistries in the future.
Don Don: Or what the industry has to work with over the next 10 plus years to address global EV demand.
Speaker Change: If we look at the two sets of bars on the middle and the right side of the slide one can see that in the North American and European market, where EV production is expected to increased fivefold from 2024 to 2030 to $15 7 million vehicles in 2030, 86% of these are.
Don Don: We've been saying this for the past two years in response to random news articles reporting one potential battery breakthrough. After another that is many years away from being validated let alone to a point in which it can be implemented into a production vehicle.
Don Don: The last 20 years of battery development in industrialization has taught us that battery advancement is easier said than done.
Speaker Change: Expected to have power to a prismatic cells.
Speaker Change: With the remaining 14% nickel sell vehicles split with two thirds of the demand from Tesla and the remaining 5% of the market split across all other Oems.
Don Don: Our team stands ready with solutions for all of the chemistry recent form factors in play.
Don Don: Push comes to shove. We can also have a solution for cylindrical cells and our team has won under development for an OEM, that's willing to clusters themselves to provide thermal runaway and propagation protection.
Speaker Change: The body styles size and energy demand requirements for vehicles in North America, and Europe drive a mix of high nickel based chemistry today of approximately 92% of the market and even with some expected gradual improvements in the charging speed and energy density of Iron based chemistry sales.
Don Don: We also continue making inroads commercial <unk> in this quarter alone our pirate <unk> pursuit team landed Mercedes Benz through a new award with ACC.
Speaker Change: These are only expected to carve out 27% of the North American and European market in 2030.
Don Don: <unk> is committed to its electrification efforts and we look forward to doing everything we can to serve them across a range of potential form factors and chemistries in the future.
Speaker Change: All of these forecasts are obviously directional but we believe that even if we take a very conservative view and assume content per vehicle of $350 per car in 2030 times, 86% of $15 7 million vehicle, North American and Europe EV production market.
Don Don: If we look at the two sets of bars on the middle and the right side of the slide one can see that in the North American and European market, where AG production is expected to increased fivefold from 2024 to 2030 to $15 7 million vehicles in 2030, 86% of these are <unk>.
Speaker Change: We ended up with an over $4 billion annual market that our expected 2020 for revenues of $315 million can grow into.
Don Don: <unk> to have pilot prismatic cells.
Don Don: With the remaining 14%.
Speaker Change: This opportunity is what motivates our team to continue executing in this segment and to make sure that the timing size and gearing of our investments enable us to continue on a path of profitable growth. After all the work that it's taken for us to get to this point.
Don Don: <unk> sells vehicles split with two thirds of the demand from Tesla and the remaining 5% of the market split across all other Oems.
Don Don: The body styles size and energy demand requirements for vehicles in North America, and Europe drive a mix of high nickel based chemistry today of approximately 92% of the market and even with some expected gradual improvements in the charging speed and the energy density of Iron based chemistry sales.
Speaker Change: And with that I'm happy to hand, the call back to Don.
Don Don: Thank you Ricardo.
Don Don: Before we move to Q&A, we want to comment briefly on the recent elections.
Don Don: The answer to most related questions, we expect to receive from you today.
Don Don: These are only expected to carve out 27% of the North American and European market in 2030.
Don Don: The answer is we're not sure.
Don Don: All of these forecasts are obviously directional but we believe that even if we take a very conservative view and assume content per vehicle of $350 per car in 2030 times, 86% of a $15 7 million vehicle, North American and Europe EV production market.
Don Don: As the nation transitions from campaign rhetoric to policy shifts we will remain agile.
Don Don: Over the past decade climate policy has become inextricably intertwined intertwined with energy policy economic policy and foreign policy and at the same time hundreds of billions of dollars of capital had been been invested in the United States and around the world.
Don Don: We ended up with an over $4 billion annual market that our expected 2020 for revenues of $315 million can grow into.
Don Don: We believe change will come but that it will be constrained by these complexities and that it will take time.
Don Don: This opportunity is what motivates our team to continue executing in this segment and to make sure that the timing size and gearing of our investments enable us to continue on a path of profitable growth. After all the work that it's taken for us to get to this point.
Don Don: We will continue to focus on profitable growth for both our energy industrial and paraffin thermal barrier businesses, our energy industrial business is well positioned, especially with strong value propositions and subsea and LNG.
Don Don: And it is important to note that we launched our successful pirate than thermal barrier business. During president elect trumps first term and that we intend to continue to grow the business during his second term.
Speaker Change: And with that I'm happy to hand, the call back to Don.
Don Don: Thank you Ricardo.
Don Don: Before we move to Q&A, we want to comment briefly on the recent elections.
Don Don: The answer to most related questions, we expect to receive from you today.
Don Don: We are executing our profitable growth strategy at a high level and Furthermore, we are well capitalized with a strong balance sheet.
Don Don: The answer is we're not sure.
Don Don: As the nation transitions from campaign rhetoric to policy shifts we will remain agile.
Don Don: We believe we are positioned to thrive and to win.
Speaker Change: Let's turn to Q&A.
Don Don: For the past decade climate policy has become inextricably intertwined intertwined with energy policy economic policy and foreign policy.
John: Thank you very much John.
Speaker Change: If you would like to ask a question. Please press star on your telephone keypad now.
Don Don: And at the same time hundreds of billions of dollars of capital have been been invested in the United States and around the world.
Speaker Change: Please ensure your devices on mute locally.
John: Change your mind or your question has already been answered then please press star.
Don Don: We believe change will come but that it will be constrained by these complexities and that it will take time.
John: As a reminder, we are keeping things to one question per analyst.
Speaker Change: Our first question comes from Eric Stine with Craig Hallum. Eric. Your line is now open. Please go ahead.
Don Don: We will continue to focus on profitable growth for both our energy industrial and paraffin thermal barrier businesses, our energy industrial business is well positioned, especially with strong value propositions and subsea and LNG.
Speaker Change: Good morning, everyone.
Speaker Change: Good morning, Eric.
John: Hi, Thanks for taking the question.
Don Don: And it is important to note that we launched our successful pirate themed thermal barrier business during president elect trumps first term and that we intend to continue to grow the business during his second term.
John: So I can definitely appreciate it.
John: Some.
John: Nature being not clear on what the election means and.
John: And a lot of moving parts, but could you maybe just go through the Doe loan.
Don Don: We are executing our profitable growth strategy at a high level and Furthermore, we are well capitalized with a strong balance sheet.
John: The steps that are needed from today through first quarter. When you were expecting a close and then maybe just talk about.
Don Don: We believe we are positioned to thrive and to win.
John: Your thoughts on.
Speaker Change: Let's turn to Q&A.
John: Funding.
John: Once it is closed.
Speaker Change: Thank you very much John.
John: In a new administration.
Speaker Change: If you would like to ask a question. Please press star on your telephone keypad now.
John: Where there is obviously been rhetoric and pushback against Evs and that sort of thing again, I mean I know this is a really difficult question to answer.
Speaker Change: Please ensure your devices on mute Lucky if you change your mind or your question has already been answered then please press star.
John: But I do know that's top of mind for investors.
Speaker Change: As a reminder, we are keeping things to one question per analyst.
Speaker Change: Thanks Sarah.
Yes.
Speaker Change: I'm not sure how informative.
Speaker Change: Our first question comes from Eric <unk> with Craig Hallum. Eric. Your line is now open. Please go ahead.
John: Any speculation around.
John: How things could develop over the next.
John: Several months would be all we know today is that the conditional commitment milestone is a meaningful one at that point.
Speaker Change: Good morning, everyone.
Speaker Change: Good morning, Eric.
Hi, Thanks for taking the question.
So I can definitely appreciate it.
John: Funds are earmarked for this purpose.
Some.
Nature being not clear on what the election means.
John: And.
John: And so let's not lose sight of that right then at the same time.
Speaker Change: And a lot of moving parts, but could you maybe just go through the Doe loan.
John: I mean.
John: I think we're all for team America, winning here as we try to leverage our platform into supplying.
Speaker Change: The steps that are needed from today through first quarter. When you were expecting a close and then maybe just talk about.
John: Oems around the world.
Speaker Change: Your thoughts on.
John: And and.
Funding.
John: And we're confident that we can drive alignment around that our goal is to produce this in America with our plant in Georgia, and I'm pretty sure that.
Once it is closed.
In a new administration.
Speaker Change: Where theres, obviously been rhetoric and pushback against Evs and that sort of thing again, I mean I know this is a really difficult question to answer.
John: We can drive alignment around that over the next several months.
Speaker Change: But I do know that's top of mind for investors.
John: And I think other than that it will.
Speaker Change: As Don mentioned in his remarks, right, we will be agile and we will work with whoever we need to work with.
Speaker Change: Thanks Sarah.
Speaker Change: I'm not sure how informative.
Speaker Change: To make this project successful possibility and to deliver it.
Any speculation around.
How things could develop over the next.
Speaker Change: I would just add Eric.
Speaker Change: Sorry, Eric I was just.
Speaker Change: I was just going to.
John: Add that.
John: Yes.
John: This project is <unk>.
John: Significant benefit too.
John: Two Georgia. It is important to remember that it is a loan where debt worthy company that will pay back the loan and so it has a category I think of its own relative to.
John: Again, some of the campaign rhetoric.
John: <unk>.
John: Yes.
John: So prevalent over the course of the past six months.
John: Yes and no.
John: And that's a key point than it is.
John: It is alone.
Speaker Change: And also I mean, the funds are already set aside right I mean this is.
Speaker Change: They are there you just corrected closer to get that okay. Thank you.
John: And then the other point on Evs, just to add one thing Eric I mean.
John: Once you drive one it's tough to go back to one if you can live within the range limitations and the infrastructure evolves.
John: So we just don't I mean, even in this world of uncertainty geopolitics.
John: Just to see a world in which.
John: China has already made the leap to Evs and Chinese consumers are loving their EV right. So for us to imagine a world in which the U S goes backwards on this I just don't see how that's progress for our consumers.
John: And we do believe that.
John: Consumers will.
John: After they drive in EV and in Evs make their share here theyre not going back.
John: The burning diesel.
John: And then we also have Europe to work with as well and Europe has been pretty steadfast on some of the mandates that are driving vehicle development towards electrification.
John: Yeah.
Speaker Change: Our next question is from Colin Rusch with Oppenheimer. Your line is now open. Please go ahead.
Colin Rusch: Thanks, so much.
Colin Rusch: And thanks for the detail around some of the customer dynamics and the opportunity set on geometries.
Speaker Change: You guys talk a little bit about how quickly and how dynamic somewhat.
John: Platforms are adjusting.
Speaker Change: To the macro environment, we're seeing any number of Oems changed platform Timeframes.
Speaker Change: Some of the design elements.
Speaker Change: And potentially bringing some products forward faster question ramps out.
Speaker Change: I just want to get a sense of those customer engagement.
Speaker Change: Dynamics.
Speaker Change: How it might translate into town.
Speaker Change: Timing for these launches and your content.
John: Yes.
John: Some.
John: Yes, so we see within the within the current awards, we see the Oems pretty steadfast.
John: Focused on launching those vehicles footwear. They are struggling is on execution as we mentioned.
John: I think everybody is realizing that launching cell manufacturing at scale.
John: And then EV manufacturing at scale is easier said than done each of these Oems is going through.
John: Their version of production health.
John: Right then when we're looking at programs that will launch in 2027 and beyond.
John: Do think that there we are seeing the Oems just be more thoughtful around her.
John: How to more leverage the investments that they'll make then too.
John: To be more efficient.
John: So we do see quite a bit of opportunities for them to adopt.
John: <unk> sell to pack designs in that are a logical fit for what we supply we see them all very focused on safety.
John: Way more than than they were two years ago.
John: And that is not changing but I do think that once the.
John: The noise around policy here settles down one way or another we're going to get a lot more clarity around.
John: How steadfast they will be with the investments for 2027 and beyond.
John: And you see that in our case as well right. If you look at how we are managing plan too.
John: We're obviously, we've done a lot of work to bring the breakeven point on that so that its accretive.
John: To be as low as possible and then we're taking it step by step in and I think that same agility is the way a lot of the Oems are going to manage their EV investments over the next three years.
Speaker Change: That's super helpful. And then just on the Capex number for the Statesboro plant.
Speaker Change: The Big Delta.
Speaker Change: With that $160 million.
Speaker Change: I just want to understand what the variables are there that we can we can track that just construction contingency that you guys have in place or are there some other elements in that.
John: That we should be thinking about.
Speaker Change: The telephone numbers.
Speaker Change: Yes, I think the contingencies one the main element is probably speed.
Speaker Change: To summarize it right if you if we wanted fast.
John: It would be more expensive if we if we want it sooner.
John: It would be on the lower end of that range and so for us that really depends on just really when we make the decision.
John: When we close the loan and when we need that supply VI right. So I think that's what will determine where on that range. We then.
Speaker Change: Truly speed.
Speaker Change: Okay.
John: Awesome guys. Thanks.
John: Okay.
John: Is from George Guyana rig kits.
George: With Canaccord Genuity George Your line is now open. Please go ahead.
Speaker Change: Good morning, and thank you for taking my question.
John: Somewhat related to that.
John: The change in administration.
John: But if you could give us an early glimpse potentially in 2025, and there's a lot of puts and takes obviously with the GM ramp and also the potential for a pushback and EV mandates how should we be thinking about the bridge.
John: From 2024 to 2026 and beyond thank you.
John: Yeah.
Speaker Change: Yes, I think we commented on 2026 during the last call if the if the current regulation mandates and incentives stayed in place right. So.
Speaker Change: It's definitely up into the right and we under that scenario, we do see Oems having to increase their EV mix.
Speaker Change: And in many cases more than double that.
John: Now as we as we plan for 2025, I mean, we do see still production rates holding up.
John: Closer to our expectations, but it is a bit early to guide for 2025, So I would say stay tuned here for definitely before the end of the year, we'll have a firmer view on what our outlook for next year and how that walk through 2026 will look like.
John: I also think Georgia.
John: Commented in my closing.
John: Remark.
John: It is complex and it will take time.
John: Two.
John: Change policy to unwind policy to create new policy to implement policy.
John: And.
John: So.
John: I think it will be something that plays out over the course of 2025 before we can really get clarity.
John: So star situation, but the situation more broadly.
Speaker Change: Thank you. Our next question is from Alex Potter with Piper Sandler. Your line is now open. Please go ahead.
John: Yeah.
Speaker Change: Great. Thanks, a lot guys a lot of good color in the call today.
Speaker Change: Was hoping you could talk maybe first on the CLA medium.
Speaker Change: Platform I guess also related to that the Mercedes announcement.
Speaker Change: All of that.
Speaker Change: Relies on ACC this battery joint venture sort of ramping up.
Speaker Change: Any color you can provide on how that ramp is going you mentioned production health for these big battery plants I know that.
Speaker Change: Both the scientists and the and the Mercedes platforms are going to require that plant to come online. So is that do you anticipate something similar to what happened with Altium right, where they had multiple quarters potentially of delays or.
Speaker Change: Scrap issues or I don't know if I know, it's maybe difficult to put words in the mouth of your customer, but any any color you can shed on.
John: On the ramp that would be helpful.
John: Yeah.
John: Yes, I mean, we're in the middle of that right. When we won some of these awards.
John: The startup production expectations were in 2024, but then when we were translating that into our revenue planning and some of the investments that we have to make in Mexico to ramp up these programs.
John: We were betting on more of a second half of 2025 startup production.
John: It's what we've been saying all along here for the past couple of quarters. Since we won those awards.
Speaker Change: Since when the.
John: There's still answer award.
John: Sure.
John: And we believe that that pretty much hedges away. Some of the risks here that we that we see in terms of being able to ramp up.
John: And so we do still see line of sight to these awards being able to ramp up in the second half of next year.
John: And I think that captures.
John: Any of the operational risks that we're seeing today.
Speaker Change: Okay, Great. That's good to hear and then just from a revenue recognition standpoint from Aspen perspective.
Speaker Change: And I know the timing of product shipments and things like this all come into play here, but.
Speaker Change: Let's say that you're correct that.
Speaker Change: I don't know late 2025 is when that platform launches does that mean, you start shipping product in recognizing revenue in early 2025 mid 2025.
Speaker Change: When you say late 2025 is that when you expect to start shipping product in the vehicles will be in showrooms in 2026.
Speaker Change: Correct, we're basically saying that we don't expect revenues from these programs until the second half of 2025.
Speaker Change: Okay perfect. That's good clarity and then maybe one last one if I can sneak it in.
Speaker Change: Our content per vehicle roughly on on this Mercedes platform, how does it compare versus GM and some of the other programs that you've been a line but.
Speaker Change: Yeah.
Speaker Change: Right along the lines of all of our other prismatic program so in that $300 per vehicle range.
Speaker Change: Excellent. Thank you guys appreciate it.
Speaker Change: Okay. Thanks.
Speaker Change: Our next question is from Ryan <unk> with B Riley Brian. Your line is now open. Please go ahead.
Speaker Change: Hey, guys I'll ask about the legacy business here could you just size what annual revenue capacity for energy industrial looks like today after the expansion and how should we think about the potential timeline for.
Speaker Change: Topline revenue for the segment.
Speaker Change: I think we have.
Speaker Change: As you know we've been operating well.
Speaker Change: While last quarter in the high <unk> with the turnaround.
Speaker Change: We've made it into the Thirty's, we've made it into the forties onetime and indicated this current quarter. It is likely to be in the $40 million.
Speaker Change: Plus range.
Speaker Change: Yeah.
Speaker Change: Capacity today, it's really a combination Ryan of.
Speaker Change: Making the lines.
Speaker Change: Fully.
Speaker Change: More fully efficient and productive if you will and second.
Speaker Change: Qualifying the full range of our of our products in that facility.
Speaker Change: We delivered I believe it was approximately 85% of our revenue last quarter from that facility.
Speaker Change: That's really in part a function of.
Speaker Change: Not only throughput, which we've improved upon but also product qualification, which we've also.
Speaker Change: <unk> made progress on here recently so to answer your question, we believe that we can make our way into.
Speaker Change: Into the $50 million per quarter range as we work our way through 2025.
Speaker Change: A capacity point of view.
Speaker Change: And in terms of doubling the size.
Speaker Change: Of that business, we think our team is geared to doing that within a five year period of time so.
Speaker Change: Again at the current margins that we're operating at which were plus 40%.
Speaker Change: This past quarter and the quarter before yes, I mean on the supply side. If you look at our implied guidance for.
Speaker Change: Q4 in this segment.
Speaker Change: We would need to be running at $168 million annual run rate to deliver $42 million in Q4.
Speaker Change: So that'll be judgment day here for us in terms of our ability to get to that point and beyond.
Ryan: As I said in my comments Ryan demand remains.
Ryan: Demand remains strong.
Ryan: <unk>.
Speaker Change: We continue to see.
Speaker Change: LNG activities.
Speaker Change: At robust levels, and we're engaged with with many many many of those projects.
Speaker Change: Projects.
Speaker Change: We talk about policy shifts and what have you.
Speaker Change: One could make the argument that the pilot see shifts that are likely to come from energy policy are in our favor.
Don Don: Excellent makes sense. Thank you Don.
Don Don: Okay.
Don Don: Thank you alright.
Speaker Change: Our next question is from Tom Curran with Seaport Research Partners. Tom. Your line is now open. Please go ahead.
Tom Curran: Thank you good morning, guys.
Speaker Change: Assuming there is no attempt to negatively intervene somehow disrupt the Doe <unk>.
Tom Curran: Assets for advancing towards.
Speaker Change: Towards the financial players.
Speaker Change: And what sounds like the accelerated timeline, you expect to be earned relative to.
Speaker Change: Most of the other.
Speaker Change: Loan recent BMS it sounds like you think you'd be able to get you up.
Speaker Change: Financial close pretty quickly and that in turn means youre not only going to be in the driver's seat with regards to right timing plan too.
Speaker Change: But also going to be able to enhance and sort of.
Speaker Change: Maximize your visibility on right sizing it and determining where you should come in at between that one two to $1 6 billion of annual production capacity.
Speaker Change: Part of that Ricardo given how state of the art facility is going to be the accurate it is going to be able to.
Speaker Change: Produce aerogels.
Speaker Change: 5% lower than.
Speaker Change: The operating cost of any of the existing <unk> manufacturing capacity out there are there any key gating items equipment wise technology wise.
Speaker Change: I'm going to determine how fast you'll be able to move.
Speaker Change: Obviously, it sounds like that one.
Speaker Change: Losing for the Doe <unk> alone.
Speaker Change: Isn't so much the issue anymore I'm, just wondering if theres anything related to this facility being state of the art it could be.
Speaker Change: Yeah. So the funny thing is that a lot of this equipment was procured back in 2021, and it's been they're on site.
Speaker Change: Sure.
Speaker Change: At least a year at this point.
Speaker Change: So.
Speaker Change: The projects today, and we haven't actually I have a picture of it.
Speaker Change: In the appendix of the deck.
Speaker Change: Is.
Speaker Change: It's really more around finishing the building, finishing the piping electrical then sourcing equipment a lot of the equipment, that's actually being stored there on site already.
Speaker Change: Got it so there is no key.
Speaker Change: Pieces of technology are automation or anything that you have an order yet.
Speaker Change: And could become a <unk>.
Speaker Change: Supply chain.
Speaker Change: Pinpoint.
Speaker Change: Correct.
Speaker Change: Alright.
Speaker Change: So we have flexibility there and as we mentioned we can bring up the plant.
Speaker Change: Anywhere between 12 to 18 months from when we decide to.
Speaker Change: Isn't so much the issue anymore I'm, just wondering if theres anything related to this facility being state of the art it could be.
Speaker Change: Two restarted at full steam.
Speaker Change: Great and then just as a follow up I'll give legacy business, some lumpy well along with Brian there.
Speaker Change: Yeah. So the funny thing is that a lot of this equipment was procured back in 2021, and it's been they're on site.
Speaker Change: Tom could you update us just on the <unk>.
Sure.
Speaker Change: Rising how the LNG business is growing.
Speaker Change: At least a year at this point.
So.
Speaker Change: Quantify it somehow for us in terms of its contribution this year versus last or may be expected.
Speaker Change: The project today, and we haven't actually I have a picture of it.
Speaker Change: In the appendix of the deck is.
Speaker Change: Next year versus this year just on the demand side when you talk about.
Speaker Change: It's really more around finishing the building, finishing the piping electrical then sourcing equipment a lot of the equipment and its actually being stored there on site already.
Speaker Change: How you are essentially trying to grow your capacity to meet the demand.
Speaker Change: A big of a driver as LNG, becoming.
Speaker Change: As you ramp here.
Speaker Change: You don't have to go back for many years, where Gwen crowd Joe.
Speaker Change: So there is no key.
Speaker Change: Pieces of technology are automation or anything that you have an order yet.
Speaker Change: Was roughly 10% of our of our product mix.
Speaker Change: And could become.
Speaker Change: Today.
Speaker Change: Supply chain.
Speaker Change: We're roughly 30% of our.
Pinpoint.
Correct.
Speaker Change: Our product mix coming out of that.
Right.
Speaker Change: Yes, so we have flexibility there and as we mentioned we can bring up the plant.
Speaker Change: Either that product line, driven principally by LNG and other gas processing activities.
Speaker Change: Anywhere between 12 to 18 months from when we decide to.
Speaker Change: I can see that continuing to grow and.
Speaker Change: Two restarted at full steam.
Speaker Change: Great and then just as a follow up I'll give legacy business, some lumpy well along with Brian there.
Speaker Change: Perhaps into the 40% range, but I think that that would be a very logical spot.
Speaker Change: Spot for it.
Speaker Change: Tom could you update us just on <unk>.
Speaker Change: I would just say.
Speaker Change: Tom that.
Speaker Change: How the LNG business is growing quantify it somehow for us in terms of its contribution this year versus last or may be expected.
Speaker Change: The.
Speaker Change: When we started.
Speaker Change: On the LNG side, we were doing maintenance work demonstrating our capabilities participating in turnarounds.
Speaker Change: Next year versus this year just on the demand side when you talk about.
Speaker Change: Working our way into specifications and we continued to do a fair amount.
Speaker Change: How are you essentially trying to grow your capacity to meet the demand.
Speaker Change: Maintenance work, but we're also.
Speaker Change: A big of a driver as LNG, becoming.
Speaker Change: As you ramp here.
Speaker Change: Competing for the big projects as well and when you see.
Speaker Change: You don't have to go back for many years, where Gwen crowd Joe.
Speaker Change: Big crowd, Joe orders, they they can be pretty lumpy and consume a lot of manufacturing plant for a period of time so.
Speaker Change: Was roughly 10% of our of our product mix.
Today.
Speaker Change: We're roughly 30% of our.
Speaker Change: Part of our turnaround.
Speaker Change: That we talked about.
Our product mix coming out of that.
Speaker Change: <unk> was.
Speaker Change: It was geared to.
Speaker Change: Either that product line, driven principally by LNG and other gas processing activities.
Speaker Change: Higher productivity levels of crowd, Joe materials, So I just raised that point.
Speaker Change: I can see that continuing to grow and.
Speaker Change: Consistent with your question it is becoming.
Speaker Change: An increasingly important part of our of our mix.
Speaker Change: Perhaps into the 40% range, but I think that that would be a very logical.
Speaker Change: Now now a third and it could very well be.
Speaker Change: Spot for it I would just say Tom.
Speaker Change: 40% of our business in any given quarter. It can obviously spike up from there, but I think that's a good way of thinking about it.
Tom.
The.
When we started.
Speaker Change: Yes, that's exactly what I was looking for and in line with what I expected.
On the LNG side, we were doing maintenance work.
Speaker Change: Demonstrating our capabilities participating in turnarounds.
Speaker Change: Thanks for taking my questions.
Speaker Change: Thank you.
Speaker Change: Our next question is from Jeff Osborne with TD Cowen Jeff. Your line is now open. Please go ahead.
Speaker Change: Working our way into specifications and we continued to do a fair amount.
Speaker Change: Maintenance work, but we're also.
Speaker Change: Competing for the big projects as well and when you see.
Speaker Change: Yes.
Speaker Change: Two quick ones just a clarification is the 25% lower production comment in Georgia is that you mentioned relative to other facilities does that include your Rhode Island facility or is the.
Speaker Change: Big crowd, Joe orders they they.
Speaker Change: Can be pretty lumpy and consume a lot of our manufacturing plant for a period of time so.
Speaker Change: Cost structure comparable to that facility.
Speaker Change: Part of our turnaround.
Speaker Change: Yes, so that includes Rhode Island in MF and several other facilities that we've benchmarked.
Speaker Change: That we talked about.
<unk>.
Was geared to.
Speaker Change: Higher productivity levels of crowd gel materials. So I just raised that point just consistent with your question it is becoming an.
Speaker Change: Got it and then.
Speaker Change: Another quick one here Ricardo.
Speaker Change: The Audi platform I think they are battery suppliers had some struggles how should we think about the launch cadence there, which I think was originally scheduled for the second half of next year.
Speaker Change: An increasingly important part of our of our mix.
Speaker Change: Now now a third and it could very well be.
Speaker Change: 40% of our business and in any given quarter. It can obviously spike up from there, but I think that's a good way of thinking about it.
Speaker Change: Yes same thing.
Speaker Change: I think that.
Speaker Change: Bye Bye now expecting those revenues until the second half of next year I think thats our hedge.
Speaker Change: Yes, that's exactly what I was looking for and in line with what I expected.
Speaker Change: If you go back.
Speaker Change: Thanks for taking my questions.
Speaker Change: The announcements when that vehicle was announced they were expecting it to start production this year.
Speaker Change: Thank you.
Speaker Change: Our next question is from Jeff Osborne with TD Cowen Jeff. Your line is now open. Please go ahead.
Speaker Change: And that could very well still happen.
Speaker Change: Our prototype volumes too.
Speaker Change: To them have increase here over the past couple of months.
Yes.
Speaker Change: Two quick ones just a clarification is the 25% lower production comment in Georgia is that you mentioned relative to other facilities does that include your Rhode Island facility or is the.
Speaker Change: But.
Speaker Change: But we don't expect full volume production until the second half of next year.
Speaker Change: Got it.
Speaker Change: Last one is just.
Speaker Change: Cost structure comparable to that facility.
Speaker Change: And I recognize as Don said.
Speaker Change: Spurred remarks, Theres, a lot of uncertainty with President Trump.
Speaker Change: Yes, so that includes Rhode Island in MF and several other facilities that we've benchmarked.
Speaker Change: Have you started exploring.
Speaker Change: I will turn it over back on plan so to speak in the event that the <unk> office.
Speaker Change: Six as soon as this after the 20th of January in terms of like re engaging with GM on the debt facility that you once had.
Speaker Change: Got it and then.
Speaker Change: Another quick one here Ricardo.
Speaker Change: Our other alternatives that might be non dilutive capital.
Speaker Change: No.
Speaker Change: We're really engaged here sprinting ahead to get this done in Q1.
Paul: Got it thank you Paul.
Jeff Osborne: Thank you Jeff.
Speaker Change: Thank you very much everyone that marks the end of the question and answer session I will now hand back over to Don for any closing remarks.
Don Don: Thank you.
Don Don: We appreciate your interest in Aspen, Aerogels, and we look forward to reporting to you our fourth quarter and full year 2024 results be well and have a good day. Thanks again.
Speaker Change: Thank you very much John and thank you everyone for joining this concludes today's call you may now disconnect your lines.