Aspen Aerogels Inc Q2 FY2021 Earnings Call

Good afternoon. Thank you for attending the Aspen Aerogels Inc. Q2 2021 Earnings Call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. I would now like to pass the conference over to your host, John Fairbanks with Aspen Aerogels. Thank you. You may proceed, Mr. Fairbanks.

Thanks, Bethany. 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 the 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 second quarter and 6 months ended June 30, 2021. In addition, the Investors section of Aspen's website will contain an archived version of this webcast for approximately 1 year. Please note that our discussion today 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 Aerogels' actual results may differ materially from those expressed in these forward-looking statements. A list of factors that could affect the company's actual results can be found in Aspen's press release issued today and are discussed in more detail on 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, July 29, 2021. 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.

Thank you, John. Good afternoon, everyone. I appreciate you joining us for our Q2 2021 earnings call. Today, I will highlight our progress towards our short-term and long-term business goals. John will recap our Q2 performance and provide our updated outlook for 2021, and we will finish with a Q&A session. I want to emphasize that we successfully closed a valuable financing with Koch Strategic Platforms, demonstrated strong Q2 financial performance, raised our guidance for the second time this year, secured additional PyroThin thermal barrier contracts, and improved our Aspen Battery Materials strategy. On June 30, we completed a $75 million private placement with Koch Strategic Platforms. KSP is part of Koch Industries, one of the largest privately owned industrial companies globally. We were an attractive investment for KSP due to its focus on high-growth firms, especially those innovating in new economy sectors. KSP is investing in areas such as fossil fuel value chain transformation, new energy sources, energy infrastructure, and transportation electrification, where Aspen's strengths in resource efficiency, asset resiliency, and safety provide significant growth opportunities over this decade. Securing KSP as an investor aligns with our strategy to leverage our aerogel technology platform in high-value, high-growth markets that strengthen our role as a technology leader in sustainability. We are optimistic about doubling our revenue every two years throughout this decade. However, this growth will present scaling challenges, making KSP an ideal investor for us. KSP's investment enhances our balance sheet and provides broader corporate, technical, and logistical resources that will support our operations as we meet the increasing demand for our aerogel products. We believe these resources will be crucial as we accelerate the design, engineering, and construction of Plant 2. We are currently collaborating with the Koch team to ensure the project is well-designed and completed on time and within budget. Overall, KSP's investment will help us maximize our potential to create considerable value in the emerging era of energy transformation. Regarding our Q2 performance and 2021 guidance, we had a solid quarter with revenue of $31.7 million compared to $24.6 million in the same quarter last year, reflecting a 29% increase. Gross profit rose 61%, indicating the leverage from increased utilization of our manufacturing plant. Throughout the pandemic, we maintained that the low-density work sites of our energy infrastructure end users would generate pent-up demand for both maintenance and project work. We anticipated that, as the pandemic's impact lessened, revenue would begin to rise towards pre-pandemic levels. The significant revenue growth in Q2, especially in areas with higher vaccination rates, suggests that this expectation is accurate. This positive trend is the main reason we have raised our guidance for the second time this year. A key aspect of our goal to double revenue from 2021 to 2023 is to return to our pre-pandemic revenue levels in our energy infrastructure segment, which averaged $35 million per quarter in 2019. We believe we are well-positioned to achieve this by 2023. Additionally, KSP's investment has increased our cash balance at quarter end to over $100 million, placing us in a strong position to execute our strategy. Moving on to our PyroThin thermal barrier opportunity, we continue to make significant progress in developing our business during the quarter. Aspen's technology provides a unique combination of performance features that help EV manufacturers meet critical safety standards without compromising driving range. Our business development activity remains high, as I outlined during our last earnings call. During Q2, we expanded our scope for PyroThin thermal barriers with one of our major U.S. automotive customers. We began Q2 with about $1 billion in potential revenue through 2030 from previous contracts. This quarter, we secured two more contracts that could generate an additional $300 million in potential revenue through 2030. These new contracts extend through 2034, adding revenue potential for years beyond 2030 and reinforcing our view that thermal runaway mitigation will be necessary in the EV market long-term. We are also nearing a critical design win with a prominent Asian automotive OEM, expected for a specific EV model launching in multiple regions starting Q1 2022. This anticipated contract positions us for a broader design win as the automotive OEM finalizes its own battery platform intended to power all its EV models through the decade. We are eager to share the names of both our large North American OEM and the leading Asian OEM soon. For now, our focus is on securing further design wins for PyroThin thermal barriers as we aim to become the industry standard for managing thermal runaway in EVs. Shifting to Aspen Battery Materials, also known as ABM, we are advancing our carbon aerogel technology for creating low-cost, high-performance silicon-rich anodes in lithium-ion batteries. Many industry experts view replacing graphite with silicon in anodes as the best near-term approach to improve lithium battery performance while lowering costs. This strategy allows us to provide drop-in materials compatible with the existing manufacturing processes of today's battery gigafactories. Our approach leverages our two decades of experience in designing and manufacturing aerogel nanomaterials at scale to optimize the cost and performance of our carbon aerogels. With ABM increasing its engagement with partners and investing in talented scientists, engineers, and facilities, we have decided to expand our commercialization strategy in two key ways. First, we are considering supplying our patent-protected carbon aerogels to other companies with their own silicon anode programs. Our carbon aerogels are mechanically robust and highly conductive, and we can manipulate pore sizes to ensure uniformity. These characteristics make them ideal for supporting silicon and addressing the challenges posed by silicon's expansion during charge-discharge cycles. This strategy plays to our technology's strengths and could foster widespread adoption of our carbon aerogel solution in the EV battery market. Second, we are collaborating with evaluation partners to test our silicon carbon materials as the anode for solid-state batteries. We believe this comprehensive approach to the commercialization of our carbon aerogels will enable us to partner with more battery and EV OEMs and battery material companies, facilitating faster commercial validation for ABM. We are excited about ABM's potential and anticipate formalizing more partnerships by year-end. At the start of the year, we aimed to double revenue from 2021 to 2023, reaching $225 million with 30% gross margins. We believe we have the current business activity levels and manufacturing capacity to meet this target. We also aim to double our revenue again from 2023 to 2025. Achieving this goal hinges on an active PyroThin business development pipeline, restoring energy infrastructure revenue to pre-pandemic levels, and executing the Plant 2 capital project effectively. We are confident in these targets based on our potential for additional multiyear battery platform wins for our unique and protected PyroThin thermal barrier technology. For the Plant 2 capital project, we aim to bring the new capacity online by the end of 2023. As mentioned in our last earnings call, a strong balance sheet and the ability to scale are crucial for large EV OEMs, who require not just sufficient capacity but also diverse manufacturing locations. The resources and financing from Koch Strategic Platforms boost our confidence in a successful capital project execution. In summary, we successfully closed a valuable financing with KSP, achieved a strong Q2 financial performance, raised our guidance for the second time this year, increased potential revenue from additional PyroThin thermal barrier contracts, and improved our Aspen Battery Materials strategy. We are well-positioned to double our revenue twice by 2025 and see a continuous opportunity for growth throughout the decade. John, over to you.

Thanks, Don. I'll start by running through our reported financial results for the second quarter of 2021 at a summary level. Total revenue grew 29% to $31.7 million from $24.5 million in the second quarter of 2020. Net loss increased to $6.7 million or $0.23 per share this year versus a net loss of $5.7 million or $0.21 per share in the second quarter last year. And adjusted EBITDA was negative $3.4 million compared to negative $2.1 million in the second quarter of 2020. We define adjusted EBITDA as net income or loss before interest, taxes, depreciation, amortization, stock-based compensation expense and other items that we do not believe are indicative of our core operating performance. I'll now provide additional detail on the components of our results. First, I'll discuss revenue. Total revenue increased by $7 million or 29% to $31.7 million. This increase in second quarter revenue was principally driven by the beginning phase of a post-COVID recovery and demand in the refinery and petrochemical market, particularly in the United States, solid growth in the European building market and continued shipments to the Arctic LNG project, offset in part by a decrease in project work, both in the subsea market and due to the conclusion of the PTT LNG project. Total shipments for the quarter increased by 35% to 90.9 million square feet of aerogel blankets, while our average selling price decreased by 5% to $3.19 per square foot. The decrease in average selling price reflected an increase in the mix of lower-priced building materials products and 5-millimeter LNG infrastructure products this year versus the second quarter of 2020. Next, I'll discuss gross profit. Gross profit was $4.6 million or 14% during the second quarter this year versus $2.9 million or 12% during the second quarter of 2020. This increase in gross profit was driven by the 35% increase in volume and a decrease in material cost, offset in part by an increase in manufacturing expense and the decrease in average selling price. Next, I'll discuss operating expense. This year, we are purposely increasing operating expense levels in order to enhance the capabilities of our technical and commercial teams and associated resources in support of our thermal barrier and battery materials businesses. We've also increased spending this year to expand and defend our IP portfolio, supporting our energy infrastructure, thermal barrier and battery materials businesses. In contrast, during the second quarter of 2020, we significantly reduced compensation and spending levels in response to the uncertainty associated with the emerging COVID-19 pandemic. As a result, second quarter operating expense increased by $2.7 million or 32% versus last year to $11.2 million. Next, I'll discuss our balance sheet and cash flow for the quarter. Cash generated from operations of $1.3 million reflected a $4.7 million decrease in working capital investment during the quarter, offset in part by our adjusted EBITDA of negative $3.4 million. The decrease in working capital investment was broad-based and included decreases in accounts receivable and inventory balances and increases in accounts payable and accrued expense balances. Capital expenditures during the quarter were $2.4 million, and we're focused principally on improving the efficiency and the liability of our East Providence manufacturing facility and to a lesser extent, establishing our thermal barrier fabrication operations. Cash provided by financing activities of $86.1 million was comprised of a net $73.6 million from our private placement with Koch Strategic Platforms, $12.3 million generated by our sale of equity through our ATM facility and $200,000 from employee option exercises. As a result, we ended the quarter with $102.3 million of cash, net current assets of $105 million, no borrowings under our revolving credit facility and shareholders' equity of $147.1 million. We also had access to an additional $7.9 million available under our revolving credit facility at quarter end. I also want to highlight that moving forward, we do not intend to sell any additional stock under our existing ATM facility. I'll now turn to our full year 2021 outlook. Although COVID-19 continues to negatively impact our energy infrastructure markets, particularly in Asia, we're seeing continued signs of improving maintenance-related activity in North and South America and in Europe. We're also experiencing solid growth in the European building market. As a result, we are now projecting revenue growth for the full year of between 10% and 18%. And we're increasing our 2021 revenue outlook by $7 million to between $110 million and $118 million for the year. As we noted at the time of our Q1 earnings call, our 2021 outlook includes $10 million of incremental expense to enhance the technical, commercial and operational teams and resources in support of our thermal barrier and battery materials opportunities. Our 2021 outlook also includes up to $18 million of incremental capital expenditures to construct our advanced thermal barrier center to expand our battery materials production, fabrication and testing facilities and to complete the initial engineering designs for our second silica aerogel manufacturing plant. We believe these strategic investments will position Aspen to take advantage of the significant growth opportunities available to us today in the electric vehicle market to leverage our aerogel technology platform to develop new high-growth businesses and to resume the strong operating performance that characterized 2019 when the impact of COVID-19 subsides. We remain firmly committed to making these investments over the course of 2021. Our revised 2021 full year outlook is as follows: We expect total revenue between $110 million and $118 million, net loss of between $28.9 million and $31.7 million. Adjusted EBITDA between negative $14.7 million and negative $17.5 million. EPS of between a loss of $0.94 and a loss of $1.04 per share. This EPS outlook assumes a weighted average of 30.6 million shares outstanding for the year. In addition, this 2021 outlook assumes depreciation of $9 million, stock-based compensation expense of $5 million and interest expense of $200,000. This full year outlook also projects a gross margin in the mid-teens and an average selling price of approximately $3.35 per square foot for the year. Turning to cash. We currently project our capital expenditures will range between $18 million and $23 million for the full year. As our planning efforts progress during the year, we plan to provide multiyear capital expenditure projections for our second silica aerogel manufacturing facility and other capital assets required to support our electric vehicle business opportunities. But overall, we're confident in our $102.3 million cash balance and available credit under our SVB facility, will be sufficient to fund our near-term operating requirements and our strategic capital expenditure plan. I'll now turn the call back over to Bethany for Q&A.

The first question is from Eric Stine with Craig-Hallum.

So maybe we can start on the thermal barrier side and the contract increase with the OEM in hand. Any color there? I mean, I would assume that's more vehicles or potentially it's more content per vehicle or maybe how that breaks down as you look at these two new contracts?

Yes, Eric. This is more content per vehicle. These are additional parts per vehicle. So same number of vehicles forecast, if you will, but just more content per vehicle.

And the OEMs, I mean, I guess, thought process on that, is it realizing that this is more than they thought? Or is it simply just part of optimizing their battery platforms?

Yes, I believe it's more about becoming more familiar with our materials and exploring additional thermal management applications for our PyroThin products within their battery platform. I wouldn't describe these as emergency parts; instead, it's more about fine-tuning the design.

And is that something that as you think about, as you mentioned, you've got a lot of activity in the 3 levels that you laid out. As you think about that content for vehicle, do you think this is the direction that other OEMs go as you start to knock out some awards?

Yes. I think it's a good question. Just to review what we've said in the past and as included in our presentation on our investor website, we have presented the idea of around $275 of content per vehicle in our model. We've also mentioned before that we believe our content will be between $100 and $300 per vehicle, depending on the size of the vehicle, such as sedans, SUVs, or trucks, and also on how OEMs finalize their designs. I believe those numbers are valid; if anything, I might raise them slightly. But until we have more concrete data, I think John and I are very comfortable with those kinds of numbers from a modeling perspective.

Maybe just on the advanced battery materials side, a little bit of a new strategy. Maybe the thought process there rather than going solo, obviously, I guess, expanding your market opportunity. But have you had inbounds on that? And just maybe what drove you in that direction?

Yes, I believe it comes down to a few factors. We have been actively developing the material with our two announced partners, SK in Korea and Evonik in Germany. Additionally, we are engaging with a small number of other companies. As we advance along the learning curve, new ideas have emerged—some generated internally and others suggested externally. This has led us to expand our strategy to include our own silicon-rich anode, supplying our carbon aerogel to others, and investigating how our carbon aerogel silicon anode could be utilized in solid-state batteries.

And maybe just sneaking in one last one. Just on building materials. I mean on OEM I heard you talk about that in. It's been a long, long time, so that kind of caught my attention. I mean do you think that that is something where it's a bit of a catch-up with BASF or kind of the fruits of the refocusing that they did, I think, earlier this year?

As we've said before, we've been disappointed at the rate of growth or the market penetration that we've had so far in that area. I think it is fair to say that we were pleasantly surprised by the nice uptick in revenue in building materials. We firmly believe that our high-performance, non-combustible, highly efficient materials have a role to play in the building materials market. And we're just starting to get a little traction in there, but we're very pleased by the progress we've made in the second quarter and really the first half overall.

The next question comes from the line of Chris Souther with B. Riley.

Maybe just a little more details on the extension here with that first customer. How does this change the gains you had previously talked about? Should we think about this essentially the 30% increase in each of the years on the platform? So looking out to 2023, where you talked about, I think, $75 million or so. Is that closer to $100 million? Or is it kind of more backend, some of the later models having kind of the more content? Maybe just kind of walk through the timing of the cadence increase here.

For now, Chris, we want to set expectations that align with what we've stated before. This year, we anticipate low single-digit millions, and next year, higher single-digit millions as new models are introduced. Our target for 2023 is around $75 million, with an expectation of doubling that in 2024 and in the following years throughout the decade. It's important to note that this isn't solely dependent on the backend; this is primarily a content per vehicle issue for us. There's an overall increase across the board, not strictly backend loaded. It's a calculation based on content per vehicle. We're very comfortable with the numbers we've previously outlined, and this reinforces that while also increasing our content per vehicle.

So maybe just on to the Asian automotive OEM that you talked about being on the cusp of a win here with, which is great to hear. Maybe just a little bit more on the scope of the program there. Is this a global OEM that you're working on for a battery platform, one of those kind of top 10 traditional OEMs that you've talked about, where you've got 5 in that late stages at this point with them? Or is this you've got an EV kind of only player? And then what are kind of the model years where that platform is expected to launch, if you could provide that, I think, would be helpful for people as well?

Yes, Greg. It is a major automotive OEM among the top 10, with a significant EV program ahead. As we mentioned, it is based in Asia. What is interesting for us is that we are being rapidly integrated into a specific model that has a significant launch planned in several regions starting in the first quarter of 2022. There is a strong emphasis on launching that model on schedule, and a concerted effort has been made to pull everything together, to which we have responded very effectively. This reflects the design win we expect in the near future. Our collaboration with this company is notable because they are focused on advancing their second-generation battery platform, which is set to power all their SUV models throughout this decade. Securing this initial component positions us advantageously to be integrated into the overall platform in the upcoming period. Additionally, the expected content per vehicle is quite similar to that of the North American company we have previously announced. This is an excellent beginning with this particular customer, and we believe it is just the start of a long-term partnership with this remarkable company.

The next question is from the line of Amit Dayal with H.C. Wainwright.

With respect to these models hitting the market early 2022, maybe first quarter 2022. Do you anticipate potentially shipping product against these in Q3 or Q4? I mean, some of this probably is already underway for you. I'm just trying to see in terms of revenue recognition by the end of the year, for the EV side, do you see something to start coming in for you guys?

That's a good question, Amit. The launch is actually scheduled for the end of Q1, but we expect some initial shipments in Q4. We've incorporated that into our overall outlook for 2021, so it won't significantly alter our expectations for the EV thermal barrier business this year, although there is some potential for revenue from that second customer.

And then on the building material side, was this sort of just a near-term contribution for you from maybe some projects that came up versus it being more of a more concrete trend going forward that you will see potentially more contribution on the building materials side going forward?

The observation that we have here is that building materials more broadly were very active markets in several regions of the world, interestingly around the pandemic, and we certainly felt here in the United States and in Europe. I think with our materials, in particular, this was not driven by any one given project or even 1 or 2 or 3 given projects. This was pretty broad-based activity levels where our materials, again, high performance, highly efficient, non-combustible, again, finding roles and a whole host of opportunities in this segment. So we believe this is the beginning of our ability to grow that business in the years to come. We really do believe that the market is moving towards the idea of highly energy-efficient and non-combustible. And we've got a very, very important offering, we think, in that space.

The next question is from the line of Doug Becker with Northland Capital Markets.

You started to address this a little bit, but I was hoping to get a little more color on framing the potential size of the imminent deal with the Asian automotive OEM in the shorter-term and really the longer-term opportunity. And it sounded like you were saying the content per vehicle would be similar, but if you could frame it a little bit more on the longer-term side?

Yes. Doug and John were explaining this. With the U.S. automotive OEM, we have a battery platform that will ultimately be used across 25 or 30 models. For the Asian automotive OEM, we are initially working with a single model, which is a global model set to be sold in Asia, Europe, and the U.S. In terms of content per vehicle, it is roughly the same, but the initial contract with the Asian OEM is not expected to be as significant as the ones with the U.S. OEM. However, this initial deal positions us well for a future battery platform win, which could be as substantial as what we are currently experiencing in the U.S. Right now, we are focusing on a single model win, which would represent about one-twenty-fifth of what we anticipate from the U.S. business at this time. If we succeed in winning the platform, it could ultimately match the scale of our U.S. operations.

And what are the remaining steps to being able to officially announce this deal? It really does seem like it's imminent to try and get something into the first quarter model.

We have been finalizing the design and the contract, and I think you know us well enough, Doug, that we would not have talked about being on the cusp unless we were on the cusp. So we're working on the final elements of the contract and the agreement.

And then in light of some potential customers looking at the use of the carbon nanomaterials and solid-state batteries. I just want to get your latest thoughts on the opportunities and the threats from solid-state batteries because at least arguably, it really could eliminate the thermal runaway issue, but that might be a much longer-term threat.

We are currently focused on solid-state technology in collaboration with two partners. We are in the early stages of testing and evaluating our materials for solid-state battery structures. We will keep you updated on our progress. A significant milestone would be announcing our evaluation partnerships with SK and Evonik, among others. Regarding the potential threat of solid-state technology, we believe lithium-ion batteries will remain relevant for a considerable time, as solid-state technology is expected to take a long time to develop, potentially 10 to 15 years to reach commercial scale. As we move towards solid-state solutions, we think the risks of thermal runaway could increase over that period. We also believe the efforts being put into lithium-ion batteries will lead to continued improvements in performance and cost, making them strong competitors even when solid-state technology becomes viable. Our contract with the North American partner extends beyond 2030, indicating that there are concerns about thermal runaway issues extending into that timeline. While there are no guarantees, we believe that a 10 to 15-year horizon is quite extensive for a technology company that continuously innovates and explores new markets. We respect the potential of solid-state technology, and we are also investing in this area because we recognize its importance.

Any change to the ABM TAM? Or is that, well, too soon to be broadening that opportunity?

I think we'd like to leave those numbers alone for now.

The next question is from the line of Shawn Severson with WCR.

Don, I wanted to revisit the energy infrastructure business for a moment. It seems that most of the recent increase has come from maintenance and turnaround activities that were postponed. How does the outlook for project work look over the next few years? I understand that it can be unpredictable and the timing can vary, but there could be potential for larger projects to emerge. Additionally, do you have any updates regarding developments in the hydrogen sector?

Yes, you are right that we are experiencing the highest levels of activity as we emerge from the pandemic. The situation is somewhat unclear at the moment, but certain regions are progressing. Most of our work has been focused on maintenance, which we are pleased with. We have been replenishing our supply chain and distribution channels. There has been a significant amount of activity, particularly in the U.S., as John mentioned. We also announced in our last quarterly call that we concluded another LNG project in Arctic LNG, which has been a great undertaking for us this year. Regarding future projects, I truly believe we are well-positioned as many projects that were paused at the onset of the pandemic are starting to be planned again. We expect to secure our fair share of these opportunities. We anticipate that our revenue will return to a mix of 60% maintenance and 40% project work as we move further past the pandemic.

I was curious about the PyroThin product pipeline. Are all the OEMs and customers included? Are they targeting a specific model year for launch? Considering they are at different stages of development with you, is there a convergence expected for 2024 or 2023? I'm trying to understand the timing, even though they are at various stages of development, is there a particular year they are aligning with?

Well, what we have seen and what they've announced, if you look at these companies, typically, they have announced 1 or 2 or 3 vehicles here out over the course of the next 2 or 3 quarters. And then it's really 2023, where you start to see some of the company saying that they'll have 5 and 10 vehicles out. And then as you get '24, '25, you see some of them saying 2025, even 30 vehicles, electric vehicles in those model years. So it's not inconsistent really with the ramp that we've talked about from the North American company that we've discussed, just low single-digit millions this year, mid to upper single digits next year, boom, that $75 million target number in 2023. That's a function of the battery platform being utilized over a greater number of models and picking up market share. And then, of course, by the time you get out to 2025, you're more than double that number. So I think that ramp is very emblematic of sort of the timing of these companies rolling out their various models.

The next question is from the line of Tom Curran with Seaport Global.

So starting on the PyroThin side, just hovering a bit more detail out on this pending design win with the Asian automaker. What would be the remaining steps in timeline in progressing from this single model award to some form of a multi-model battery platform based contract?

I think the situation relates significantly to the completion of their battery platform development. Historically, some companies focused on dedicated battery platform concepts around 2015 to 2017 and have continued in that direction since then. Our North American design customer exemplifies this approach. Others arrived at this strategy later, as they chose to act more as integrators, relying heavily on their battery cell partners like LG, Samsung, SK, Panasonic, and CATL to advance their programs. As certain companies like Tesla shifted their strategies to bring more technology in-house for energy storage, they now see themselves largely as energy storage companies. Many firms have honed in on this battery platform concept, but they are at different points in their development timelines. The Asia-based customer is a noteworthy example; they are determined not to backtrack on their launch commitments, ensuring their model is ready to go. However, they remain focused on their battery platform development, and we are collaborating closely with them on this.

And then when it comes to the remaining prospective customers you've had at stage 3 in the development pipeline, assuming this Asian automaker was one of them as of the last update you gave us, you've gone from 5 to 4. Does the current leading candidate for becoming your next customer seem most likely to start with a prototype order similar to the very first sale you made in China? A design win maybe for a single model or 2 or jump straight into a big battery platform-based production volume contract such as your first North American customer?

I believe it will actually be a combination of the last two options regarding the specific model. We are closely collaborating on a broader battery platform for the organization. Some companies are already quite advanced in their battery platform initiatives, so we may enter that final stage with others as well. I want you to expect that it will be a combination of those two routes. Regarding prototypes, we are actively selling prototype parts to at least five, possibly more, companies at this point. The distinction here is that prototype parts are going into vehicles that they are not planning to sell, whereas production parts are intended for vehicles that are being rolled out and sold to the public.

Yes. Tom, yes. So in the second quarter, we had revenue from all the companies in stage 3, but it was prototype revenue. So to get to stage 3, you're kind of in that prototype bucket already. And what we're then doing is converting them to commercial contracts that are either for a battery platform or for a model.

That's a helpful clarification. And then on the ABM side, this will be my last one, try to help you guys finish on the hour. When it comes to the first prong of your strategy, is it your understanding that your partners are using those evaluation samples to explore anode structures or investigate uses in some other way that differs from your scaffolding host design?

No. In the first part of our traditional approach, we have been supplying our silicon-rich anode material and working alongside our partners as they establish metrics for us to meet. We often provide each other with specific recommendations as we refine our collaboration. I hope that answered your question, Tom. That has been our traditional and initial approach, and we remain highly engaged at that level, which is our primary focus today. Other areas of exploration have emerged from discussions with a select few automotive and battery OEMs who wanted to consider additional ideas with us. Our expertise lies in carbon aerogel and how we manipulate those carbon materials, which we believe are particularly interesting as a host material. We feel we have a unique capability in constructing that material, allowing us broader adoption potential. We've mentioned our OEM-agnostic approach with PyroThin, aiming for it to become an industry standard. While I'm not fully at that point with our ABM approach, the concept remains the same—this will enable broader adoption if we can highlight this specific aspect that aligns with our technological strengths. That is the essence of the discussions and collaborative efforts we are undertaking with these other companies.

The next question is from the line of Jed Dorsheimer with Canaccord Genuity.

Most have been asked, but I guess first product out of the gate, is that going to be a value engineering implement or new platform launch? In other words, if there's a battery on the market that has some existing problem for fire mitigation. Would you be slotted into an existing model? Or is this for a new model?

The work we are doing with PyroThin for the thermal barriers is intended for a new model. This is an important distinction, Jed. We recognize that there are existing electric vehicles facing challenges with thermal management and thermal runaway. However, most of our efforts are concentrated on new models, typically focusing on new battery platforms rather than addressing issues with existing models.

I heard you mention solid-state technology earlier, but it seems like many solid-state companies are pulling back on their development timelines and returning to traditional methods, particularly by shifting to silicon-based anodes. This change could enhance your value proposition. I want to clarify whether you're still committed to developing your silicon anode solution and not pursuing solid-state technology at this time.

Our main focus remains clear. You're correct that there are many intermediate steps between our current position, the industry's present state, and what some consider to be a true solid-state solution. The work we are doing primarily centers on existing chemistries and current production methods. We have explored the potential role of our silicon carbon aerogels in solid-state designs, but we view this as a long-term prospect. We are gaining valuable insights, and we believe our materials possess distinct qualities, even when paired with a solid electrolyte. However, we see solid-state developments as something that lies far in the future. Therefore, as I mentioned earlier, our primary emphasis is on the silicon-rich anode material and integrating that carbon aerogel structure into current technologies.

One last question for me, and I'll let everybody get on with their night. The LNG work that you're doing up north, is there a hydrogen component in terms of steam reformation? Or is that strictly LNG?

Our focus is on the LNG aspect. However, we are recognizing the potential for thermal management and fire safety related to the storage and transportation of liquid hydrogen. This opportunity aligns naturally with our LNG value proposition. The scale of the hydrogen system being discussed is enormous. We are considering how we can contribute and are looking to partner with industry leaders to gain insights and ensure that there is a clear understanding of the value our materials can offer in this market.

There are no additional questions waiting at this time. I would like to pass the conference back over to Don Young for any closing remarks.

Thank you, Bethany. Thanks very much. We appreciate everyone's interest in Aspen, and we look forward to reporting our third quarter 2021 results to you in late October. Be well. Have a good evening. Thank you.

Thanks, everybody.

That concludes the Aspen Aerogels Inc. Q2 2021 Earnings Call. I hope you all enjoy the rest of your day.