Aspen Aerogels Inc Q3 FY2020 Earnings Call

Ladies and gentlemen, thank you for joining us for the Aspen Aerogels Inc. Q3 2020 Earnings Conference Call. At this moment, all participants are in a listen-only mode. After the presentations, we will have a question-and-answer session. I will now turn the call over to your speaker today, John Fairbanks. Thank you. Please proceed.

Thanks, Brandy. Good afternoon. Thank you for joining us for the Aspen Aerogels conference call. I'm John Fairbanks, Aspen's Chief Financial Officer. There are a few housekeeping items that I would like to address before turning the call over to Don Young, Aspen's President and CEO. The press release announcing Aspen's financial results and business developments, as well as a reconciliation of management's use of non-GAAP financial measures compared to the most applicable GAAP measures, is available on the Investors section of Aspen's website, www.aerogel.com. Included in the press release is a summary statement of operations, a summary balance sheet, and a summary of key financial and operating statistics for the third quarter and nine months ended September 30, 2020. In addition, the Investors section of Aspen's website will contain an archived version of this webcast for approximately one year. Please note that in our discussion today, we will include forward-looking statements, including any statement regarding outlook, expectations, beliefs, projections, estimates, targets, prospects, business plans, and any other statement that is not a historical fact. These forward-looking statements are subject to risks and uncertainties. Aspen Aerogel's actual results may differ materially from those expressed in these forward-looking statements. A list of factors that could affect the company's actual results can be found in Aspen's press release issued today and are discussed in more detail in the reports Aspen files with the SEC, particularly in the company's most recent Annual Report on Form 10-K. The company's press release issued today and filings with the SEC can also be found in the Investors section of Aspen's website. Forward-looking statements made today represent the company's views as of today, October 29, 2020. Aspen Aerogels disclaims any obligation to update these forward-looking statements to reflect future events or circumstances. During this call, we will refer to non-GAAP financial measures, including adjusted EBITDA. These financial measures are not prepared in accordance with U.S. Generally Accepted Accounting Principles, or GAAP. These non-GAAP financial measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with GAAP. The definitions and reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures and a discussion of why we present these non-GAAP financial measures are included in today's press release. I'll now turn the call over to Don Young, President, and CEO of Aspen Aerogels.

Great. Thanks, John. Good afternoon. Thank you for joining us for our Q3 2020 earnings call. Today, I will comment on the contract we were awarded to provide our PyroThin thermal barriers for use in the next generation of electric vehicles of a major U.S. automotive OEM. I will then share our perspective on the current operating environment for energy infrastructure. I will finish with a progress report on our strategy to leverage our aerogel technology platform into additional high-growth, high-value markets. Next, John will review our Q3 and year-to-date financial performance and provide both revised guidance for 2020 and a high-level outlook for 2021. We will conclude the call with a Q&A session. We announced today that a major U.S. automotive OEM awarded Aspen a contract to supply PyroThin thermal barriers for use in its electric vehicle battery platform. As a reminder, our thermal barriers help EV manufacturers manage thermal runaway, a phenomenon where a cell in a lithium-ion battery pack has a sudden release of energy that potentially results in a fire. PyroThin thermal barriers are designed to impede the propagation of thermal runaway, both at the battery cell and battery pack level across multiple lithium-ion battery platforms. Aspen's technology offers a unique combination of performance attributes that enable EV manufacturers to achieve critical safety goals without sacrificing driving range. The battery platform of the major U.S. automotive OEM will power its next-generation EVs with production expected to begin in 2021. We will provide PyroThin thermal barriers in the fourth quarter of 2020 for the prototype fleet. Based on the OEM's projections for 2021 and 2022, we expect to generate single-digit millions of dollars each year in commercial revenue. During 2023, we expect to see a solid ramp in revenue from this customer alone, with potential annual revenue in 2024 and beyond, on par with our energy infrastructure business. Over the coming decade, our potential revenue from this customer alone represents a nearly $1 billion opportunity for Aspen. It is important to remember, of course, that the ultimate value of this contract is dependent on our customer’s success in participating in the global transformation to electric vehicles. After an intense RFQ process and extraordinary individual and team efforts here at Aspen, we are focused now on exceeding the expectations of this first major customer. It is also important to remember that thermal runaway is a universal challenge for all EV manufacturers. Battery electric vehicle companies are unlikely to take shortcuts with safety, especially at this pivotal point for market acceptance of e-mobility. We have already seen recalls and regulatory pressure resulting from thermal runaway in EVs in Asia, Europe, and North America. With an estimated $100 to $300 of PyroThin revenue per electric vehicle, our business development effort is focused on a multibillion-dollar commercial opportunity for Aspen over the course of this decade. We have over 30 EV and battery players at various stages in our development funnel. At present, we have 10 companies consisting of EV and battery OEMs and Tier 1 suppliers that are actively evaluating our PyroThin product. We are adding resources to accelerate our success with these potential customers. Switching gears to our energy infrastructure business, the pandemic continues to have a negative impact, particularly on our near-term revenue generation. Our products are installed by contractors working in refineries, petrochemical plants, and LNG terminals around the world. It is critical for our business that contractors have access to the energy infrastructure facilities that we serve. In response to COVID-19, facility owners have limited the number of contractors on-site, to reduce worker density. As a result, our revenue has been negatively impacted again during Q3, most notably in the North American market. Although it is hard to predict with certainty when we will see the pandemic-related interruptions at work cease, our underlying assumption, for both the revised 2020 financial guidance and the high-level 2021 outlook, is that lower density work sites will be the reality. And therefore, during this time, we assume revenue levels will remain in the vicinity of $25 million per quarter. Looking forward, we expect revenue to rebound as contractor access to facilities improves and the distribution channel restocks. We believe there is significant pent-up demand for both maintenance and project work. There are many petrochemical and LNG projects specified with Pyrogel and Cryogel. And we believe that, as soon as these projects move forward, Aspen will see a return to revenue growth. As we reported last quarter, our revenue required for adjusted EBITDA breakeven has decreased from $140 million in 2019 to a revenue level of approximately $110 million for 2020. For 2021, we accept the objective to maintain the $110 million breakeven level while also increasing our expenditures on our EV initiatives, including enhancing our business development resources, to capture additional EV thermal barrier wins. We believe we have positioned the company to emerge from the COVID-19 period with a strong operating platform and significant strategic momentum. On the subject of strategy, we continue to make substantial progress with our initiatives addressing electric vehicles. The first major win with PyroThin is important to us in many ways. Not only does it position us for growth in a new, dynamic megatrend market, but it also leverages our existing manufacturing assets, where capacity utilization is key to significant profitability. Given the universal nature of the thermal runaway problem for electric vehicle manufacturers, we have reason to believe that we can win adoption on additional EV battery platforms. The problem posed by thermal runaway is extremely challenging to manage for the OEM. We believe the valuable attributes of PyroThin, combining a single solution, make the product an important contributor to a safe and successful global transformation to e-mobility and a significant win for Aspen Aerogels. With respect to our carbon aerogel efforts, we continue our work to validate and accelerate the potential adoption of our technology within the battery materials market. Our efforts are taking full advantage of the unique attributes of our carbon aerogels and leveraging our decades of experience manufacturing aerogels at scale. Our goal is to improve the energy density of lithium-ion batteries. Our focus is on cost, performance, and safety. Our work with our evaluation partners, SKC and Evonik, has intensified, as we have demonstrated significant progress in both cost and performance of our silicon-rich additive materials. With our new battery lab operational, and with an expanded team of battery experts, we are now providing larger sample quantities to our partners for their testing on production-level equipment. Their feedback is critical as we seek to optimize our carbon aerogel technology to fit along key points of the technology roadmaps of industry leaders. We were inspired by the Tesla Battery Day; it affirms that the work we are doing with our low-cost, high-performance, silicon-rich additive material is indeed on target. We believe our work, supported by an active IP strategy, will be attractive and valuable to our existing partners and to other leaders in battery technology. The goal with our opportunities focused on the electric vehicle megatrend is to create proprietary and diverse aerogel-based businesses. We have been building towards this first EV-related strategic win for many years. Fire safety, energy efficiency, durable performance, and asset resiliency are constant themes to our success in all markets that we serve. The contract award not only establishes our position in the EV megatrend, but it also demonstrates the value and breadth of our broader strategy to leverage our patent-protected aerogel technology platform in additional high-growth, high-value markets. Finally, I would like to use this forum to thank the people at Aspen for the extraordinary work they have done and are doing in these most trying times. Balancing the stresses from work, family, community, and life more broadly is especially hard right now, and I am deeply grateful to all of my teammates at Aspen. Now, I will turn the call over to John for a review of our financial results.

Thanks, Don. I'd like to start by running through our reported financial results for the third quarter of 2020 at a summary level. Third quarter, total revenue declined by 32% to $24.2 million from $35.4 million in the third quarter of 2019. Third quarter net loss was $6.7 million, or $0.25 per share, versus a net loss of $2.3 million, or $0.09 per share last year. Third quarter adjusted EBITDA was negative $3.2 million, compared to positive $1.4 million a year ago. We define adjusted EBITDA as net income or loss before interest, taxes, depreciation, amortization, stock-based compensation expense, and any other items that we do not believe are indicative of our core operating performance. For the first nine months of 2020, total revenue declined by $15.6 million, or 17%, to $77.3 million. Net loss increased to $15.6 million, or $0.60 per share in 2020, versus a net loss of $13.6 million, or $0.57 per share last year. Adjusted EBITDA for the first nine months decreased to a negative $4.8 million, compared to a negative $2.8 million a year ago. For the remainder of my comments, I'll focus on third quarter performance and our outlook for the remainder of the year. However, I first want to emphasize that during the first nine months of 2020, in response to the impact of COVID-19 on our revenue levels, our costs and expenses decreased by a total of $13.6 million versus 2019. In addition to material cost decreases associated with the revenue decline, this decrease in our cost structure was enabled by our initiatives to reduce compensation and discretionary expenses in response to COVID-19 related uncertainty, and by our multiyear initiatives to reduce building material costs. Importantly, as we decreased our costs and expenses, we still increased our research and development spending in support of our electric vehicle programs. As a result, we estimate that we will have reduced our annual revenue required to achieve EBITDA breakeven to approximately $110 million by the end of 2020 from about $140 million in 2019. This progress indicates that we are making the right decisions in response to the COVID-19 related market challenges and that the fundamental economics of our business remain strong. I also want to provide a few additional details on our contract with the major U.S. automotive OEM. Under the contract, we will supply fabricated multipart thermal barriers for use in the battery system of their next-generation electric vehicles. We will generate revenue both through the sale of our PyroThin material and through fabrication of the multipart barriers. We expect approximately 55% of our revenue will be attributable to the PyroThin materials, and the remaining 45% to other materials and fabrication. We've committed to supply the thermal barriers up to a daily maximum volume and at fixed prices through the term of the agreement, which currently ends on September 1, 2026. The OEM has agreed to purchase all of its requirements for the specified multipart barrier from Aspen, but has no obligation to purchase any minimum volume during the term of the contract. Additionally, the OEM has the right to terminate the contract at any time. All other provisions of the contract are customary for the automotive industry. All projections and estimates of Aspen's potential revenue are contingent on the OEM's long-term success in the electric vehicle market. I'll now provide additional detail on the components of our third quarter results. First, I'll discuss revenue. Third quarter total revenue decreased by $11.2 million, or 32%, to $24.2 million from $35.4 million last year. This decrease in third quarter total revenue was driven by a decrease in both project and maintenance work in the global energy infrastructure market, particularly in North America, offset in part by an increase in project-based demand in the subsea market and growth in the building materials market. In contrast to North America, our revenue in the Asian energy markets held up well versus 2019, experiencing only a modest decline. The COVID-19 related decline in our energy business was largely the impact of our energy infrastructure customers seeking to limit the number of internal and third-party insulation installers in their facilities to reduce worker density, temporarily shutting operations from time to time in response to COVID-19 outbreaks, and delaying the start of projects due to the threat of COVID-related interruptions. Total shipments during the quarter decreased by 34% to 6.8 million square feet of aerogel blankets while our average selling price increased by 4% to $3.51 per square foot. Next, I'll discuss gross profit. Gross profit was $1.9 million, or 8%, during the third quarter of 2020 versus $7.7 million, or 22%, during the third quarter last year. This decrease in gross profit was driven principally by the 34% decrease in sales volume, a reduction in our production volumes, reduced finished goods inventories, and an unfavorable change in mix, offset in small part by the 4% increase in average sale price and a reduction in manufacturing expenses. Next, I'll discuss operating expenses. Third quarter operating expenses decreased by $1.3 million, or 13% versus last year, to $8.6 million despite an increase in research and development in support of our electric vehicle initiatives. The decrease in operating expenses was principally the result of the tight discretionary cost controls we instituted in response to the COVID-19 pandemic. Next, I'll discuss our balance sheet and cash flow for the third quarter. Cash used in operations of $1.5 million reflected our adjusted EBITDA of negative $3.2 million, offset partially by a $1.7 million decrease in working capital investment during the quarter. Capital expenditures during the third quarter totaled approximately $600,000 and were focused on improving the efficiency and reliability of our East Providence facility. During the quarter, we also received approximately $100,000 in proceeds from the exercise of stock options. We ended the third quarter with $11.3 million of cash, net current assets of $26.3 million, no borrowings under our revolving credit facility, and shareholders' equity of $60.9 million. We also had access to an additional $8.1 million available under our revolving credit facility at quarter-end. I'll now turn to our outlook for the remainder of 2020. At the time of our second-quarter investor call in July of this year, we indicated that the COVID-19 pandemic was adversely impacting demand for our products, largely due to our energy infrastructure customers seeking to limit the number of third-party installation installers in their facilities to reduce worker density. Based on third quarter order patterns, we currently project that the COVID-19 pandemic will have a greater impact on our revenue levels than we had expected at the time of our second-quarter earnings release. In addition, we are projecting a shift in our product mix from our highest-margin, high-temperature products to our lower-margin ambient and cold-temperature products. As a result, we are reducing our outlook for both revenue and profitability for the remainder of the year. Our current 2020 full-year outlook is as follows: total revenue is expected to range between $102 million and $106 million. Net loss is expected to range between $20.6 million and $18.6 million. Adjusted EBITDA is expected to range between negative $6 million and negative $4 million. EPS is expected to range between a loss of $0.78 and a loss of $0.71 per share. This EPS outlook assumes a weighted average of 26.3 million shares outstanding for the year. In addition, this 2020 outlook assumes depreciation of $10.4 million, stock-based compensation expense of $4 million, and interest expense of $200,000. This full-year outlook also assumes a gross margin of between 14% and 16% and an average selling price of $3.45 per square foot, plus or minus $0.05 for the year. Turning to cash, we expect capital expenditures to total approximately $4 million for the full year, and within the context of the adjusted EBITDA range set out in our revised 2020 full-year outlook, we expect to exit 2020 with between $11 million and $12 million of cash on hand. Looking forward to 2021, we project that the COVID-19-related contractor access restrictions will continue to impact demand for our products in the energy infrastructure market. As a result, we are currently assuming that our 2021 revenue and profitability levels will remain in line with our 2020 full-year outlook, and we intend to build our operating plan on that basis. We also intend to increase investment in our electric vehicle programs, and more broadly in our strategy to leverage our aerogel technology in additional high-value markets. We will continue our efforts to improve the underlying fundamentals of our business and to ensure our operational effectiveness remains strong. We believe these actions and initiatives will position Aspen to resume the strong operating performance that characterized 2019 when the impact of COVID-19 subsides. Overall, we believe we've taken all prudent actions during 2020 to reduce expense levels, improve our cash flow, and significantly reduce our annual EBITDA breakeven. At the same time, we've maintained our commitment to increase spending and investment in support of our extremely promising electric vehicle programs. We also believe we're making the right decisions in response to COVID-19-related market challenges, and that we're positioned to thrive when business conditions improve. As always, we remain committed to monitoring all aspects of our business and are prepared to take the actions necessary to keep the company financially sound and to execute our strategy. I'll now turn the call back over to Brandy for Q&A.

And your first question comes from the line of Eric Stine with Craig-Hallum.

Hi, Don and John.

Hi, Eric.

Hi, Eric.

Hey, so just want to start with the EV award. So it sounds like you're going to start, or you did get the prototype award, but it also sounds like you are assuming or have received the platform. Or – and I guess, that was of the understanding that you had to perform on the prototype board to start, and although it might have been a foregone conclusion, you still had to do that before getting the actual award. So, can you just clarify kind of where that is at right now?

Yeah. The prototype purchase order really was a small order, as you know, and the contract we were awarded relates to production quantities, if you will, so as distinct from the prototype quantities.

Okay. So you do have the platform order. I mean, this is the ultimate goal. You have that in hand. It's just you need to go through the process of the prototype, all of that, but this is the award you've been targeting.

Yeah. Remember, Eric, the prototype fleet, if you will, I mean, we're a component on it, but these are full EVs. So yeah, we have the contract that we've been striving for. The other end of that 3-tier RFQ that we have talked about in the past, we won the price.

Great. Congrats on that. So just to clarify, so you said you were working with 30 different parties, but 10 of those OEMs are battery materials companies, and I'm not sure if I understood that correctly. But just curious –

Let me correct that, Eric, and just to be clear. So there are over 30 companies in our development funnel. And 10 of those companies have PyroThin, and they are testing PyroThin. Those 10 companies are made up of EV and battery OEMs and Tier 1 suppliers.

Okay. Okay. And then when we think of those companies, I mean, clearly, thermal runaway, big problem, needs a solution. You've introduced this product. I mean, what type of urgency do you see from those parties? And what could that mean in terms of speed, or how long they may need to get through their process with a view towards launching a lot more electric vehicles?

Good question. So well, we've seen recalls and regulatory pressure in all regions for several different companies related to car fires. And so that has really heightened the issue, the awareness of the issue. If you go back in time, the work that we did with the North American OEM, that took approximately a year. A good part of that was product development and our understanding of the issues involved with thermal runaway, and then the optimization of our material. I mean, one of the benefits we had was that PyroThin is a direct descendant of our Pyrogel product that has been addressing fire safety and a lot of the same types of issues from the energy infrastructure world for more than a decade, with $1 billion installed. So we did have a running start, but that period did involve product development through a pretty strenuous process with them. If you think about sort of this next group of companies, in some sense, we've gone through the first part of that already, and while it's quite plausible that different companies might have different configurations and perhaps different parameters, we're pretty far along in our understanding of the problem and being a solution provider. Everyone's focused on it, and we think we have a really important contribution to make to solving the problem.

So not to put words in your mouth, but I mean, with that in mind and with the urgency in the market, I mean, it wouldn't be outlandish to say that you would certainly hope you'll target additional awards in the first half of 2021, for instance.

We're working hard at it, Eric. We think there's good reason to believe that we're going to win additional platform awards.

Okay. Got it. Maybe last one for me. Just on the outlook for 2021 and just to kind of get your mindset there. I mean, is it fair to say that it's not really guidance, but it's how you view the year with the nod to the unpredictability of COVID, right? I mean, it's COVID. Nobody knows how long that's going to go. And so you do have a business as you said, I've heard about the pent-up demand as well that could bounce back pretty nicely once things lift. It's just no one knows when those things lift. Is that fair?

That's very fair. Reflecting on our Q1 earnings call and our analysis of the pandemic as it unfolded, many of us felt that if we could just get through Q2 and Q3, things would return to normal by Q4 or the start of the New Year. However, there's more uncertainty now than we initially thought. Therefore, we believe it's wise to assume that the entire year of 2021 will be affected by the pandemic, and that's our current position. While we can't predict exactly how things will unfold, we feel this is a reasonable baseline to start from.

Got it. Thanks for taking the questions.

Thank you, Eric.

Thanks, Eric.

Your next question comes from the line of Jed Dorsheimer with Canaccord Genuity.

Hi, Thanks.

Hi, Jed.

Congratulations on the EV win. To clarify, you have publicly announced BYD for the Pyro product. Today, you are announcing another OEM in the U.S., but there is no contract obligating them to take a specific volume or minimum amount. Could you help clarify this?

Yeah. No, it's a good question. John was really clear in his comments about it. I'll let him just outline it for us all.

So, Jed we have a contract with the OEM. It runs through 2026. And we have an obligation to supply up to a certain daily volume, and those daily volumes are significant and underlie the projections that Don gave you through that time period. But the EV manufacturer has no obligation to purchase from us, because they don't want to commit to that until they see sell-through of their vehicles ultimately through the time period. And they do have the right to terminate the contract at any time. So this is not a take or pay type of arrangement, but we have every expectation that they will purchase from us through the time period of the contract. And we would hope that it would be extended beyond 2026 as well, but we just wanted to make it very clear as to what the contract was ultimately.

And I think Jed just to put an accent on one thing that John said was that the OEM has agreed to purchase all of its requirements for the specified part from Aspen.

Got it. I'm just a little surprised because it seems like all the risk is on you, not on the OEM, since I assume there are capital costs involved in expanding capacity to meet the OEM's needs. Is there any upfront payment to alleviate some of those risks on your side?

No, but also in the early rollout, Jed, the capital costs are not substantial. So while there is some staffing and focus, a lot of the expenditures that we're making here over the course of the next three, six, or twelve months are really related to continuing to work our way through the development funnel.

And Don, I think it's important, Jed, that this PyroThin material is a material that we can produce on our existing assets in our East Providence plant. And as you're aware, we've got significant capacity. So there's no capital cost for us to increase capacity to meet the demands of this contract clearly in the short-term. The capital costs are going to be more associated with us setting up a fabrication operation, but that is relatively insignificant compared to the types of capital costs that are associated with aerogel manufacturing capacity.

Got it. And then in terms of this opportunity—kind of an extension of what you just said—there really is very little to us on the outside. It's really a matter of filling your East Providence fab. And this is simply another market opportunity to fill that fab, or should we be –

No, that's a good way of thinking about it, Jed. As we have said, as we fill that plant, 40% or 45% of what the incremental dollars fall down to the EBITDA line for us, and so incremental revenue is valuable to us. We have approximately $200 million of revenue capacity in that facility. And so as we fill it, our expectation is that we would have EBITDA potential in the range of $35 million. So, again, very different profile type company. I would also say that the opportunity, again, whether you look at it from just one customer or having the potential to have multiple customers, the dollars we're talking about are measured in the hundreds of millions of dollars and even in the billions of dollars. So it's a very large opportunity for us.

Got it. Jumping back to the core business opportunities, particularly in refineries and oil pipelines, I understand the challenges in the end market. Previously, you mentioned COVID, but one clear indicator of the oil and gas market's strength has been the decline in rig counts, which have dropped over 80% since 2018 and seem to have a significant impact on capacity. Am I misunderstanding the situation? It seems that with no new pipelines or refineries being built, the demand for rigs and insulation should be less. What am I missing?

I think the focus on downstream is the most important factor. In our Q3 regional breakdown, some areas experienced positive growth, but interestingly, the North American market was our weakest. We have significant refinery exposure, particularly in the United States, and the reduced demand for jet fuels and other factors, which we believe are impacted by COVID, have significantly affected those refineries and, in turn, us. However, there is still a reasonable amount of activity globally regarding potential petrochemical projects and LNG initiatives. As I mentioned earlier, our products Pyrogel and Cryogel are specified in several of these projects, and we are confident that when COVID subsides, these projects will come back to life, placing us in a strong position to resume revenue growth in our energy business. Although it's undeniably down now, part of our strategy has been to diversify into additional markets, like EV and building materials, where we anticipate growth in 2020. Even in a year challenged by COVID, we are still in the single-digit millions, which indicates we are heading in the right direction. Our strategy remains solid, and the fundamentals of our energy business stay strong. We believe we offer valuable products and attributes in this market. While this segment is obviously facing difficulties right now, we are optimistic about resuming growth after COVID. From 2007 to 2019, we achieved over 20% CAGR in revenue for a long duration, and last year alone, we saw over 30% revenue growth. Thus, there is still significant potential in this market, providing a robust foundation for our operations.

Got it. Last question on the silicon nanocrystal. In the lab that you've got set up, that's a development activity that at some point you monetize, but it is very separate than the core business. Is that the right way to look at that?

That's a reasonable way to look at it I think. So with the silicon-rich carbon aerogel material that we're focused on today on the anode part of the battery with our partners. Yes, it is a separate lab facility. I mean it's in the four walls of our offices in Northborough, but it's a separate group of people and a separate focus, and a bit of a different focus as well. I think what you will see, Jed, from us in this area is that we will continue our close partnership with SKC and Evonik. I think you may very well see us broaden that partner list to some of the other leading companies including some of the auto OEMs in the space who, as you know, have taken in-house more and more of this battery activity. While the team's near-term focus, no question, is on the silicon regenerate, there are other research activities going on there. We're actively filing patents in other areas for our carbon aerogel materials. It's a rich program and a very focused and dedicated group of people.

Okay.

Thanks, Jed.

Thanks. I'll jump back in queue.

Thank you very much.

Your next question comes from the line of Jeff Grampp with Northland Capital.

Good evening, guys and congrats on the win.

Jeff, thank you.

Was wondering first if you could clarify. The fact that you guys are having the fabrication aspect as well on this contract, does that at all change how we should think about incremental margins on the thermal runaway versus traditional business? And is there a way, I know you said $100 to $300 as far as the revenue per vehicle. Is there, I guess, an average to think about that's taking the midpoint there to crud based on the various models and sizes that you guys are looking at?

Let me answer the second part and I'll ask John to answer the first kind of the margin breakdown part of it as we anticipate it today. But yes, that range—I recognize it's a large range—but it's just think of it as sort of a spectrum of vehicle size, I guess, right, from smaller passenger vehicles to SUVs and trucks and what have you, which are prevalent here. Especially in the U.S.

And Jeff, I think in terms of the first part of your question, we did give some guidance that about 55% of the revenue would be attributable to our PyroThin product, and clearly that will have the sort of incremental margin impact that we've talked about in our existing base business. The fabrication portion is going to be significantly lower margin. A lot of it is just us buying materials from other vendors and packaging it up, so it will not have the same economics. But we will provide additional guidance on that as the business rolls out. I think your best bet is to concentrate on the 55% at our—that's our traditional business.

Got it. Okay.

Yes, it's interesting. We've discussed our $200 million revenue capacity regarding our current assets, specifically for the energy infrastructure business and the aerogel segment of our EV business. One might consider that we have increased revenue potential due to the fabrication aspect, which adds to the $200 million. However, I'm sure you can follow that reasoning.

Okay. Yes, that's helpful. Perfect. And for my follow-up, can you guys kind of talk about the dynamics of the ramp here? I know a lot of this is obviously out of your hands as far as what you talked about, but Don, I think you had said it kind of sounded like from 2021 to 2022, we shouldn't expect to see much of a ramp really show up on the income statement. Really, this is more of a 2023 and beyond type of story. Is that—can you talk about that dynamic? I guess I would have thought we'd see a little bit more traction in 2022 given that would be a full calendar year of sales there, but maybe not?

Yes. No, I think a little bit of it is calendar year, but I think of it also just as these companies are rolling out their EV models. What we're seeing is, as they take hold in the market and begin to displace internal combustion engines. So again, just to be clear, very small revenue this year in 2020, starting to have some initial revenue in 2021, again single-digit millions of revenue. Again, that is associated with the rollout of their 2022 vehicles, which will come out in the market approximately September. In 2022, we have additional growth denominated again in single-digit millions. There are additional models being introduced as we get out into that other next time frame, which starts to really ramp up our numbers. As I said, by the time we—this is substantial and very notable in 2023. Our revenue will be on par from this customer, from this single customer, with our entire energy infrastructure business into 2024 and beyond.

Got it. Okay. That's helpful. And if I can sneak one more in here.

Yeah.

Have you guys been able to I guess share this news in any capacity, whether maybe directly or in mailed conversations, and I guess gotten any feedback or thoughts as far as—I'd imagine this would provide some validation or comfort and could accelerate, if it took you one year, 1.5 years to get your win number one? How much contraction do you think we could see in contracts 2, 3, et cetera?

Yes. No, I think it helps a lot, Jeff, in the sense of winning that first one and really understanding the problem and working the levers of our product to really address this. Winning the first one is always the hardest. I think winning the second one is really important, though. We're really rolling at that point. I think we will demonstrate, again, as I've said a little role to play. Look, I mean, I think we're a relatively small company. For them to commit to us in this way is substantial. I believe that these large automotive companies have taken comfort in the fact that we have served the ExxonMobils and the BASFs and the Shells of the world for a long time very, very effectively. We will do the same in the EV market.

Yeah. Understood. Looking forward to it. Thanks for your time, guys.

Thanks, Jeff.

Your next question comes from the line of Amit Dayal with H.C. Wainright.

Hi, Don, hi, John.

Hi, How are you?

Good. Thank you. So is this EV customer the biggest customer you could have won in the U.S., or are there other larger customers in place for you?

We just want to be really careful that we haven't announced it for contractual and confidential reasons. We just want to be really careful about necessarily revealing who it is. Our time will come when we will do it; it's just not quite right now.

Yes, Amit, we would tell you more if we could, but we're abiding by contractual provisions.

Understood. And then just a little curious about sort of drivers behind you providing 2021 outlook sort of at this point. Typically, we don't see that from management teams during this period. Is this because maybe the pipeline has shrunk for you, or are there any other factors that we need to keep in mind if results are…?

Yes. Our approach to communicating these matters has been to be as early and transparent as possible. There is nothing fundamentally different about our value proposition or business model regarding energy infrastructure. We wanted to establish some baseline expectations during this pandemic. We also want to be clear that once we move past this period, we fully expect to resume our growth in both the project and maintenance aspects of our business. We have an excellent team focused on that market, and they have performed very well. Earlier this year, we surpassed $1 billion in installed material. I believe the second billion will come quickly over the next few years once we navigate through COVID.

Understood. Could you give us a sense of how big you believe the addressable opportunity for PyroThin is in?

Yes, I mean if you look at it kind of most broadly I think if you just use our estimate of $100 to $300 per electric vehicle, and then you can kind of plug that into your expectations and everyone has done as to how many electric vehicles will be sold between now and 2030 or 2035. When you do that math, it becomes a multibillion-dollar addressable market depending again on almost no matter who the estimate you use. Some are higher than others, but they all result in a multibillion-dollar opportunity; again, using that mathematics. From this first major customer alone, we look at numbers that approach $1 billion during this decade.

Right. And of the 10 OEMs that are actively testing how deep are you in terms of that process? In the context of all of these companies trying to bring these offerings to the market ASAP, should we think that these announcements could come pretty fast over the next 12 months in terms of whether you win some of these contracts or not?

We've really been head down to win this first one. While we have a team who is dedicated and an expanding team who is dedicated to working our development business development funnel, it's a formal process that we have internally. I think I just wanted to not for now begin to set expectations about when Q3 and Q4. All I would say is what I said in my notes that we have reason to believe that our solution—our contribution to a solution is applicable to many battery platforms, virtually all battery platforms and EV models.

Got it. And just one last one on the battery side. With respect to carbon aerogel offering, what are the next milestones we should look for?

Well, I would say that, not revenue in the short term here, but additional and more substantial development agreements with highly recognizable names. Certainly deeper broader relationships with SKC and/or Evonik. But then with SKC's pure companies are active in this space again, whether it's LG Chem or Samsung SDI or Panasonic or CATL in China and others. What we have seen is that EV manufacturers themselves have increasingly taken battery technology, battery development in-house. They recognize that this is the principal value-add of an electric vehicle and they don't want to outsource it. We're seeing a lot of activity from the EV manufacturers themselves in this area. It would be very interesting if we were able to post an interesting development agreement with one of them. Those are the kinds of milestones. We have thought that perhaps during 2021, sometime during the year that we may post some of our performance data. To those who could put that in perspective, I think people would find that very interesting again from both a cost and a performance point of view.

Got it. Yes, that's all I have, guys. Thank you so much.

Thanks, Amit. Take care.

Your next question comes from the line of Tom Curran with B. Riley Securities.

Hey, Tom.

Good evening, guys. Thanks for squeezing me in late because I couldn't join until late. I appreciate it.

We recognize that Amazon and Facebook and some others announced their earnings at the same time. So, we recognize it's a busy day.

Yes. Far less important, boring stories. But I'll make this quick. Starting on the PyroThin side, when it comes to the battery platform contract you baked with the mystery U.S. OEM, does that contract include any kind of exclusivity provisions or any constraints on your ability to market and sell PyroThin however you want to whoever you want?

So, Tom, I don't want to talk about their contract, but we believe that we can continue to market PyroThin broadly to the electric vehicle market.

Great. And then if you were to—if that contract should ramp as expected, at what point would you need to pull the trigger on an expansion of your PyroThin manufacturing capacity, whether it would involve adding roofline at East Providence or breaking ground on a whole new facility? At what point would you have to decide that in the volume ramp, sort of, like the earliest you might have to pull the trigger and then the latest we could see that?

I would say that the earliest is about a year from now approximately. Let me just tell you how I get to that timeline. That would indicate we would have new capacity online. Again, depending on whether we build an extension of our existing manufacturing, which is unlikely just given the space constraints. It’s probably prudent for us to have a second plant, but also kind of a modification or a middle ground between that and a greenfield site would be to build an aerogel asset onto an existing manufacturing facility, say, with one of our suppliers or partners. Of course, that comes with a lot of infrastructure, and we're able to operate much more or commence operations much more quickly that way. If you take that kind of timeframe, you're probably talking about maybe 18 months. So that gets us into the middle of 2023 where we would have additional capacity. That would be—we would have a good time frame if we were to win a second or a third or a fourth. That begins to change that a little bit here and it might cause us to move a little faster.

And then in terms of that second or third potential award, shifting to China, where do things stand with your effort to convert the prototype contract into a similar type of battery platform contract like you've done with the U.S. OEM? Where does that—where do you stand there in terms of progress? And then what's the soonest if that does happen we would see it?

As I've described, we do have a Chinese partner who is interfacing with the customer there. Our view of that is not quite as clear as it is, obviously, for the one that we were working on here in the United States very directly. What I would say is that the prototype fleet is operational and we're in full test mode. I think it would be something that would become notable in the first half of 2021.

Great. And then last one for me. Shifting to the carbon aerogel side and your efforts focused on improving battery performance. When you reach the point at which you recognize first revenue, and by that I'm allowing for something as small as just an initial prototype order of some sort, just that first recognition of revenue, would you expect it to more likely be for the use of carbon aerogel material in a lithium-sulfur application or lithium-ion one just from where you sit today?

Yes, our team's immediate focus is primarily on lithium-ion batteries. We do have a team looking at longer-term developments and are actively managing an intellectual property program to prepare for future advancements. Our main objective is to secure a design win in the lithium-ion battery sector, which is what we are currently pursuing.

Sounds good. It makes sense.

I will let you guys wrap it up. Thanks again.

Thank you, Tom.

Thanks, Tom.

And I will now turn the call back over to Don Young with closing remarks.

Thank you, Brandy. Well, look we appreciate your interest in Aspen Aerogels, and we will look forward to reporting our Q4 2020 results to you in the new year. So be well and have a good evening. Thanks very much.

This concludes today's conference call. You may now disconnect.