Good morning. Thank you for joining the Aspen Aerogels, Inc. Q2 2023 Financial Results Call. I will now hand the conference over to your host, Neal Baranosky, Aspen's Senior Director of Corporate Strategy and Finance. Thank you. You may begin, Mr. Baranosky.

Thank you, Henry. Good morning and thank you for joining us for the Aspen Aerogels' fiscal year 2023 second quarter financial results conference call. With us today are Don Young, President and CEO and Ricardo Rodriguez, Chief Financial Officer. There are a few housekeeping items that I would like to address before turning the call over to Don. The 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 U.S. generally accepted accounting principles, or GAAP measures, is available on the Investors section of Aspen's website, www.aerogel.com. In addition, I'd like to highlight that we have uploaded to our website a slide deck that will accompany our conversation today. You can find the deck at the Investors section of our website. On today's call, management will make forward-looking statements about our expectations. These statements are subject to risks and uncertainties that could cause our actual results to differ materially. These risks and uncertainties include the factors identified in our filings with the SEC. Please review the disclaimer statements on Pages 1 and 2 of the slide deck, as the content of our call will be governed by this language. During this call, we will refer to non-GAAP financial measures, including adjusted EBITDA. These financial measures are not prepared in accordance with GAAP. These non-GAAP financial measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with GAAP. The definitions and reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures and a discussion of why we present these non-GAAP financial measures are included in yesterday's press release. And one final note, during the Q&A session, in the interest of time, we ask that you limit your questions to 2 questions at a time. If you have additional questions beyond the initial 2, please get back into the queue and we will get to all questions. I'll now turn the call over to Don.

Thanks, Neil. Good morning, everyone. Thank you for joining us for our Q2 2023 earnings call. My initial comments will highlight the implementation of several critical elements of our strategy, our EV OEM development pipeline and GM's ramp, and the financial benefits of key operating efficiencies. I will complete my remarks by drawing a picture of Aspen's business profile, given current assets and opportunities. Ricardo will dig deeper into our financial performance and various elements of our business strategy. We will conclude with a Q&A session. During our last earnings call, we introduced the idea of our supplemental supply arrangement and the related plan to supply our Energy Industrial customers with products sourced from our aerogel manufacturing partner. The product will be produced exclusively for Aspen, to our quality specifications and shipped by us under our labeling and through our distribution to our customers. The implementation of this supplemental supply arrangement supports several critical elements of our strategy. First, it allows us to serve our energy industrial customers with shorter, more dependable lead times and to continue to grow that base load of revenue without supply constraints and in a manner consistent with our goal of achieving overall company gross margins of at least 35%. Second, it allows us to dedicate Plant 1 in Rhode Island to produce PyroThin thermal barrier in order to support the ramp of our EV OEMs. And third, it allows us to maintain a strong balance sheet by right-timing the final phase of the construction of Plant 2 in Georgia. In whole, the implementation of the supplemental supply arrangement allows us to focus on driving significant profitability from our existing resources and opportunities. We believe that we are building a business around our current assets and near-term commercial opportunities that has the potential to produce annually approximately $550 million of revenue, approximately $200 million of gross profit, and approximately $140 million of EBITDA. We are striving to hit this level of business performance on a run rate basis over the next four to six quarters. At the same time, we believe that we maintain our full longer-term upside potential as we continue to have talented teams garnering more design wins from EV OEMs to build out a profitable base load of energy industrial revenue and to leverage our aerogel technology platform into additional high-value markets, including our ongoing work in battery materials. Regarding additional design wins from EV OEMs, we continue to build our reputation as an industry leader in the mitigation of the risk associated with thermal runaway. We are working closely with several EV OEMs as they finalize the designs of their battery platforms. As we announced earlier, we received our third design award from an important commercial truck subsidiary of a major European OEM group. We are now delivering production parts to this customer. In addition, we believe we have near-term line of sight on design awards from at least three other EV OEMs with volumes expected to commence in 2024 and ramp in 2025. In the meantime, we anticipate an acceleration of the revenue ramp from General Motors later this year as they enter the production phase of the higher-volume Silverado, Blazer, Equinox, and BrightDrop electric vehicles. Turning to Slide 4 and our Energy Industrial business; both financial performance and demand are strong. Driven by product mix, operating efficiencies, and a more normalized supply chain environment, we achieved a record Energy Industrial gross margin in Q2 of 27%. We believe we are on track of having the Energy Industrial business provide strong support for our overall company gross margin target of at least 35%. We have significantly greater demand than we can produce from Plant 1, especially as we dedicate additional manufacturing lines to producing PyroThin thermal barrier. The supplemental supply arrangement is key to balancing supply and demand for the energy industrial business. We previously said that we plan to test our supplemental supply strategy during 2023 before the full program begins to contribute in Q1 2024. To that end, we are currently focused on the completion of our product qualifications with our aerogel manufacturing partner. Which when completed, we believe, has the potential to drive incremental Energy Industrial revenue, gross profit, and EBITDA during 2023. Turning back to the earlier slide; in many ways, Q2 was about blocking and tackling with a keen focus on strategic advancement and unit economics and profitability. Progress in operating efficiencies resulted in a 17% gross margin with significant improvements in both the PyroThin thermal barriers and Energy Industrial segments. To illustrate the financial impact of the improved operating performance, it is interesting to compare Q2 2023 with Q2 2022, where we had $2.5 million of incremental revenue and $9.6 million of incremental gross profit. Each contributing factor falls under the umbrella of our intense focus on our goal of reaching near-term profitability and achieving gross margins of at least 35%. Consistent with these goals, we are maintaining careful control of OpEx with three quarters in a row at the $25 million level. Before I turn the call over to Ricardo, I want to reiterate that our vision for Aspen is built upon the successful execution of the three pillars of our strategy, namely, the implementation of the supplemental supply arrangement, the dedication of Plant 1 production to PyroThin thermal barriers and the right timing of Plant 2. Again, we believe that from our existing resources and opportunities, the business has the potential to generate, on an annual basis, approximately $550 million in revenue, approximately $200 million in gross profit and approximately $140 million in EBITDA. We believe that we maintain our full upside opportunity, but during a potential period of economic uncertainty and while our EV OEMs ramp, we optimize the use of our existing assets and opportunities to create a cash-generating business and to avoid unnecessary dilution. Ricardo, over to you.

Thank you, Don and good morning, everyone. I'll start by covering the results of the second quarter and first half of this year and then move on to our 2023 outlook and briefly discuss the key near-term demand drivers across our business segments. Before handing the call back to Don, I'll also spend some time framing out how we're gearing the company for continued improvements to near-term financial performance as we continue to grow without requiring a second aerogel plant in Georgia which we've historically referred to as Plant 2. To cover our results from Q2 of 2023, I'll start on Slide 5. Beginning with revenues, we delivered $48.2 million of revenue in Q2 which translates into 6% growth year-over-year. These revenues were supply constrained during the quarter as our aerogel plant was down for planned upgrades and maintenance on two of its three production lines, with the lines down for seven and eight days during the quarter. In an operation that is running 24 hours a day, seven days a week; this is a loss of productivity of at least 8% on those lines during the quarter. This downtime in production was necessary to ensure that we're ready to fulfill an expected ramp in PyroThin demand during the second half of 2023, particularly in Q4. Year-to-date, we have delivered $93.7 million of revenue which reflects a 12% year-over-year increase. Energy Industrial revenues in the first half of the year were $69.4 million, a 6% year-over-year increase. Given our capacity constraints, in Q2, we continue to focus on optimizing our Energy Industrial production mix, to lighten the load on our operations by making those products that require the least standard hours of processing and delivered $35.5 million in sales, reflecting a 5% quarterly increase and a 2% year-over-year increase. Adding to Don's earlier remarks on our energy business, we have approximately $138 million of backlog in orders to fulfill over the next two to four quarters. To fulfill this excess demand, we are focused on continuing to optimize our mix for steady supply during the second half of the year and bringing in contract manufacturing supply as soon as possible. EV thermal barrier revenues of $12.6 million were up 17% year-over-year and 8% quarter-over-quarter, reflecting an expected delay in the demand increase from General Motors that we communicated during our Q1 results and steady volumes from the Toyota nameplate that we supply, the bZ4X. Our EV thermal barrier revenues of $24.3 million during the first half of 2023 represent a 32% increase over the first half of 2022. Next, I'll provide a summary of our main expenses. Material expenses of $17.4 million for the quarter made up 36 percentage points of sales, reflecting the work that our supply chain and procurement groups have put into reducing the cost of some of our main raw materials, particularly silanes. In a normalized environment, it is encouraging to see these costs come in 4 percentage points of sales, below our usual target of 40 percentage points of sales. The Q2 performance enabled our total material costs of the first half of 2023 to be $36 million or 38 percentage points of sales, or 200 basis points below our target of 40 percentage points of sales. Conversion costs which we describe as all production costs required to convert raw materials into finished products were $22.4 million or 46 percentage points of sales in Q2. These costs include all elements of direct labor, manufacturing overhead, factory supplies, rent, insurance, utilities, process, logistics, quality and inspection. These results compare favorably to conversion costs in Q1 of this year which were 48 percentage points of sales. As previously mentioned, our long-term target for these costs at a higher revenue run rate is 20 percentage points to 25 percentage points of sales. So, we still have work ahead of us here. While we've made improvements, primarily thanks to the efficiency of our operations in Mexico, we need to continue capturing additional opportunities to reduce these costs. As our plant in Rhode Island is fully converted to making PyroThin and it finds its flow, we will continue driving several reductions in the cost of a standard hour of product conversion at the site. Year-to-date, our conversion costs of $44.2 million reflect 47 percentage points of sales and our performance improvement year-over-year here has been primarily driven by fabricating $99 million of subsea products within our Energy Industrial segment in Mexico versus Rhode Island. In Q2, company-level gross profit margins were up 17% and our gross profit of $8.4 million is a $9.6 million improvement over our gross loss of $1.2 million during the same quarter last year on revenues that were only 6% lower, highlighting how we haven't just been relying on higher revenues to drive profitability. The material cost tailwinds have been helpful but we still need to keep pushing for a lower fixed manufacturing cost base through process updates. Our Energy Industrial segment delivered $9.6 million of gross profit or a 59% year-over-year increase. In EV thermal barriers, we had a $1.1 million gross loss in Q2. If we compare this quarter with Q1, our EV thermal barrier gross loss improved by $2.7 million on incremental revenue of only $900,000. Our second quarter of 2023 gross loss in EV thermal barriers was also 84% lower than the gross loss of $7.2 million that we incurred during Q2 of last year in this segment, reflecting the benefits of automation in our assembly facilities in Mexico. The resulting gross profit margins during the quarter were 27% and negative 9% for our Energy Industrial and EV thermal barrier segments, respectively. For EV thermal barriers, through Q1 of 2023, we needed a quarterly revenue run rate of $20 million to achieve a positive gross profit. Thanks to additional assembly automation that the team has been implementing, we have now lowered this breakeven point to approximately $15 million of quarterly revenues. For the first half of the year, our gross profit of $13.5 million reflects a $16.5 million improvement in gross profit versus our loss of $3 million during the same period last year. Operating expenses which are sized for our near-term projected annual revenue capacity of over $550 million were $25.5 million during the quarter. We continue to level off our OpEx increases with three consecutive quarters around the $25 million range and have ensured that any additional costs are focused on streamlining how we work and increasing productivity through new process development and important system upgrades with 12-month paybacks. Approximately one-third of our quarter-over-quarter OpEx increase of $1.5 million was driven by strategic investments in resources tied to accelerating EV thermal barrier sales and commercial launch activity with specific customers. Putting these elements together, our adjusted EBITDA was negative $10.8 million in Q2 compared to negative $18.3 million during the same period last year, resulting in a year-over-year reduction in our EBITDA loss of 41%. When we compare our year-to-date adjusted EBITDA loss of $24.8 million, with our original expectations for the first half of 2023, we're $14 million ahead of those plans and our EBITDA loss is lower by $8.1 million during the first half of this year versus last year. 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 Q2, these other items included $2.7 million of stock-based compensation and $1.6 million of net interest income. Our net loss in Q2 decreased to $15.4 million or $0.22 per share versus a net loss of $24.1 million or $0.68 per share in the same quarter of 2022. Our quarter-over-quarter net loss decreased by $1.4 million from $16.8 million. Our year-to-date net loss of $32.2 million is $11.3 million lower than our loss of $43.5 million during the first half of last year or down by 26%. Next, I'll turn to cash flow and our balance sheet. Cash used in operations of $7.7 million reflected our adjusted EBITDA of negative $10.8 million and a decrease in cash needs of $3.2 million. The key items that enabled us to free up working capital during the quarter were an increase in accounts payable of $4.1 million and a decrease in accounts receivable of $3.3 million, while our inventory increased by $6.3 million and consumed working capital. Our capital expenditures during the quarter were $66 million. This put our operating cash needs for the quarter at $73.7 million. $40.7 million of our CapEx was spent in closing the main buildings of Plant 2 in Georgia and helping bring the plant to a healthy resting spot. While the remaining $25.3 million was spent on tooling up our facilities in Mexico to support the EV thermal barrier capacity ramp through the end of 2024 and finishing the construction of our recently opened Advanced Thermal Barrier Center, along with meaningful upgrades to our state-of-the-art material R&D labs outside of Boston. As progress on the construction of our second aerogel manufacturing plant continues, we have incurred $244.9 million in capital expenses through the end of the first half of the year towards it. As we right time this project with the support of Turner Construction, most of the subcontractors left the site during the 4th of July weekend and we expect to spend less than $30 million over the remainder of the year to preserve the asset and position us to complete the project in four quarters from when we decide to reaccelerate construction at full pace. We ended the quarter with $134.3 million of cash and shareholders' equity of $420 million. Turning over to Slide 6, I'd like to spend some time recapping the last 15 months and cover where we've been before going into our updated financial outlook for the remainder of 2023. On the left side, you can see how, with the exception of Q4 of 2022, where we fulfilled a supplemental order from General Motors, we haven't yet broken through the $50 million quarterly revenue run rate in the past five quarters. But at the same time, we've improved the company's gross profit margins from a low of negative 17% in Q3 of 2022 to positive 11% in Q1 of this year and 17% in the most recent quarter. Our adjusted EBITDA loss has also shrunk from a loss of $23 million in Q3 of 2022 to an adjusted EBITDA loss of $10.8 million in the most recent quarter. Since 2021, we've communicated our plans to double our 2021 revenues by 2023 and we've increased our emphasis on reducing our fixed cost base to accelerate our path to profitability. This doubling of 2021's revenues into 2023 is still a possibility but it's heavily dependent on demand from General Motors in Q4 and their ability to fulfill this demand alongside that of our energy industrial businesses growing order backlog. With this high level of variability in demand from GM, we still maintain a range of $50 million in our revenue outlook for 2023, from $200 million to $250 million. I'll go into more detail in a minute on how we think about General Motors expected ramp. Where we are updating our guidance for 2023 is in profitability, where we are seeing positive results from key initiatives such as optimizing our Energy Industrial revenue mix, reducing our raw material costs, driving process improvements in our subsea and EV thermal barrier's assembly operations in Mexico and managing our structural costs to yield a near-term payback. As these efficiencies materialize versus our original plans, we're already $14 million ahead of where we were expecting to be by this time as we were planning the year. At the same time, while a higher revenue run rate is required to further drive near-term efficiencies, we're revising our adjusted EBITDA range to a loss of $45 million to $55 million, a loss reduction of $5 million versus our prior range of a negative $50 million to $60 million of adjusted EBITDA for the year. As we factor in the effect of meaningful interest income and a different amortization schedule as we operate with less deployed capital, we're also lowering our net loss guidance for the year from a loss of $92 million to $102 million to a loss of $75 million to $85 million. This improvement of $17 million represents an 18% and 17% reduction on the lower and upper end of our prior guidance range, respectively. This also brings our earnings per share guidance to an updated loss range of $1.07 per share to $1.21 per share. With $115.4 million of CapEx spent year-to-date, we're focused on keeping our CapEx for the remainder of the year below $34.6 million, aiming to still not spend more than $150 million of CapEx in 2023. We will only increase this amount if we see a very clear picture of 2024 EV thermal barrier demand as the second half of Q3 and Q4 materialize. To provide flexibility, we've recently come to an agreement with an asset-backed lender to fund up to $25 million of CapEx and are in discussions with other lenders to provide us with additional liquidity during the next few quarters. In the near-term, we're focused on managing the company with at least $75 million of cash on the balance sheet and are pursuing non-dilutive sources of financing such as working capital lines of credit, asset-backed loans, equipment leases, and other instruments that leverage our current asset base. You may remember that on June 15, we terminated our ATM program and that we have not sold any equity in 2023. To provide flexibility for reaccelerating the construction of Plant 2, as EV thermal barrier demand starts pointing towards exceeding our current revenue capacity of over $400 million of annual revenues, we have applied for a loan with the U.S. Department of Energy's Loan Program Office, LPO. As a reminder, the LPO was created to grant loans for large-scale energy infrastructure projects with the goal of supporting the development of more fuel-efficient products, including the expansion of domestic manufacturing of electric vehicles. Our team has continued consultation with the Loan Program Office and was invited to apply for a significant loan as part of its Advanced Technology Vehicle Manufacturing program, which we did on May 31 of this year. The LPO process is uncertain and there is no guarantee that our proposed application will be looked upon favorably. We believe, however, that we are a very good candidate for a direct loan as part of the ATVM program, based on the importance of battery performance and safety and that while the timing can be drawn out, it may match well with our right timing strategy for Plant 2. We have also gotten positive feedback on the quality of the materials provided as part of our application. Turning over to Slide 7, I'd like to provide more color into how we think about General Motors' expected Ultium EV production ramp in the second half of 2023 and beyond with the help of some data from IHS Markit like vehicle forecast which, as we've seen over the past couple of quarters has been adjusted downward since the beginning of the year from an expectation of 140,000 Ultium-based vehicles to be produced in 2023 to 76,000 vehicles in the most recent forecast, a 46% reduction. As we built our revenue projections for 2023 late last year, we anticipated this delay and still believe this forecast to be high. 89% of the expected volume for 2023 is expected to be produced in the second half of the year, putting most of the revenue variability in the second half of Q3 and particularly in Q4. GM has cited cell manufacturing supplier automation issues as the source of this production delay but has said that it remains confident in its ability to resolve these challenges in 2023, reiterating their target for 100,000 EVs in the second half of the year, a figure that includes the Chevy Bolt, a legacy vehicle that is currently not yet based on the Ultium battery platform. With a 30% increase over our part demand from Q2 from General Motors in Q3 and Q4, we'd be able to achieve the low end of our revenue guidance. In forming the upper end of our guidance, it's a higher revenue ramp that is currently being communicated by General Motors and the most recent IHS Markit forecast, projecting GM to triple its Ultium EV production in Q3 over Q2's levels and then more than double that production into Q4. We are geared to capitalize on any potential demand scenario. But as you can see, the range of outcomes here is wide but encouraging, particularly for Q4. The production ramp in vehicles in the second half of 2023 of the nameplates that have already been launched, such as the Hummer EV, the large BrightDrop van and the Cadillac Lyriq can drive a significant portion of this demand increase. The Silverado EV and the Blazer that recently launched along with the Equinox that will begin high-volume production in Q4 will provide additional volumes. GM reiterated the start of production dates during its earnings calls last week and we're ready to support the ramp amidst broader uncertainty brought by the upcoming UAW negotiations of the Detroit-based automakers, including General Motors. While our 2023 outlook remains wide, as GM begins its ramp, we believe that in the long term, the outlook remains strong. This belief is supported by our ongoing conversations with GM, other suppliers, and IHS. GM has continued to reiterate its long-term commitments to significantly ramp up its EV production capacity over the next few years. It continues to emphasize targets of producing 400,000 EVs from 2022 through the end of the first half of 2024 and is investing in capacity for producing 1 million units per year in North America by 2025. The trends within the latest IHS Markit forecast also align with these expectations for 2024 and 2025. Turning over to Slide 8; I'd like to cover a question that most investors have asked us since announcing the right timing of our second aerogel Plant in Rhode Island or Plant 2. The question is this, what business are you building during the next four to six quarters? To which our answer is now a lot simpler. We're basically building a business with the potential of $550 million in revenue capacity available in 2024 and 25% EBITDA margins as we fill that capacity. Evolving EV thermal barrier demand will determine the timing of when we reach our approximate EV thermal barrier revenue capacity which we currently estimate at $400 million. Our energy industrial demand already exceeds the initial $150 million annual capacity enabled by our supply arrangement in 2024. As a company, we're working to have our material costs not exceed 40 percentage points of sales and we're focused on driving our manufacturing or conversion costs to less than 25 percentage points of sales to deliver at least 35% gross margin. Five percentage points of sales and variance between either of these two cost buckets make up the range in cost structure differences across our products. If we manage material and conversion costs as targeted, we have the potential to deliver $200 million of annual gross profit on a run rate basis. The OpEx ramp that we've experienced during the last two years is coming to its end, as we remain focused on managing this below $100 million on an annual run rate basis which is less than 20% on $550 million of revenues or $110 million. We've illustrated this basic gearing in Slide 8, while also showing how our historical quarterly financial performance compares with this near-term gearing of our business plan on an annual run rate basis. While the revenue run rate isn't there yet, we've brought material costs and manufacturing costs down, while the OpEx ramp is being managed. In Q4 of 2022, when thanks to a supplemental order from General Motors, our revenue run rate increased, one can see how our fixed manufacturing costs were better absorbed and our gross profit improved to 24%. As Don mentioned earlier, we have the potential to deliver $140 million of EBITDA or 25% plus gross margin on an annual run rate basis by combining the elements that make up the core gearing of our operating plan in the same quarter. Over the next four to six quarters, we are looking forward to posting results on this board and getting closer to delivering the profitability that is enabled by this gearing as demand increases across both our segments and we fulfill it with our current asset base, combined with supplemental supply. As one can see, material costs are already there and our focus needs to remain on keeping OpEx near $100 million annually and cutting our manufacturing or conversion costs in half as a percentage of sales with the assistance of higher revenues. Turning over to Slide 9, I would like to close by saying that this quarter has been a lot about near-term execution and setting up Aspen for what we believe is an eventual but not conditional surge in demand. We believe that this is really a matter of when, not if. This growth is driven by the underlying global vehicle electrification trend and the high share of vehicles that will be launched with pouch or prismatic cells. Our latest assessments of PyroThin's serviceable addressable market is that it can be of $8.7 billion annually in 2030 or an underlying compounded expansion of 27% per year between now and then. While we don't have a crystal ball and process this market sizing exercise with caution, it's clear that the wind is at our sails as we work on our way through the EV plans of different OEMs at their pace, in most cases, enabling a safe transition to electrification. We remain convinced that this is an opportunity worth capturing with all of our assets and energy to create value and post results as demand gets closer to these market sizing estimates. When we step back and compare these market size assessments that account for only a subset of the global EV market, it is easy to see that with our $400 million of near-term potential annual revenue capacity for PyroThin, we are really only getting started at capturing a very large opportunity while building a business that is geared for profitability in the near-term. And with that, I'm happy to pass the call back to Don.

Thank you, Ricardo. We have covered a significant amount of ground today in reviewing Q2 and our strategy. Before we move to Q&A, I would like to emphasize three points. First and perhaps our most important point, we are focused on driving significant profitability from our existing resources and opportunities. We believe the near-term business profile as we have constructed and consistent with current assets and commercial opportunities, has the potential to produce, on an annual basis, approximately $550 million of revenue, approximately $200 million of gross profit and approximately $140 million of EBITDA. We are striving to hit this level of business performance on a run rate basis within the next four to six quarters. At the same time, we believe that we maintain our full longer-term upside potential as we continue to have talented teams garnering more design wins from EV OEMs, building out a profitable base load of Energy Industrial revenue and leveraging our aerogel technology platform into additional high-value markets, including our ongoing work in battery materials. Second, we believe the implementation of the supplemental supply arrangement supports several critical elements of our strategy. It allows us to continue to grow the base load of energy industrial revenue without supply constraints and in a manner consistent with our goal of achieving overall gross margins of at least 35%. The supply arrangement allows us to dedicate Plant 1 in Rhode Island to produce PyroThin thermal barriers in order to support the ramp of our EV OEMs. And finally, it allows us to maintain a strong balance sheet by the right timing of the final phase of the construction of Plant 2 in Georgia. And the third point of emphasis, in addition to having the large European commercial truck customer joined GM and Toyota on the list of design awards, we believe that we have near-term line of sight on design awards from at least three other EV OEMs with volumes expected to commence in 2024 and ramp in 2025. Even with this anticipated near-term success, our team believes that we are just getting started as the need for battery performance and safety in EVs becomes yet more paramount. With that, operator, let's turn to the Q&A.

Your first question comes from the line of Eric Stine from Craig-Hallum.

Can you start by discussing the guidance? You've indicated that you plan to keep operating expenses mostly unchanged and provided reasons for a potential improvement in margins. I understand this is tied to the general merchandise ramp and how it may trend in the fourth quarter. However, your EBITDA guidance suggests there will be minimal or no improvement compared to what we observed in the second quarter. Could you clarify this? Previously, you mentioned the fourth quarter might be a positive period for EBITDA; does that perspective still hold?

Yes, I believe achieving positive EBITDA in the fourth quarter is still a possibility if the GM ramp occurs as expected. However, we need to account for various outcomes, especially considering the potential that the ramp may not materialize until Q1 of 2024. This would require us to produce a significant amount of PyroThin in Q3 and Q4 without being able to recognize that revenue this year. Additionally, we have to balance the optimization of our energy product mix without neglecting the fulfillment of orders for specific products. By the end of the year, we might need to manufacture some energy products that we deferred during the first half. Coupled with a more aggressive GM ramp in Q1 next year, this uncertainty is what makes us cautious on the lower end of our guidance. I remain optimistic about our savings and see potential for further improvements as our revenue run rate increases, but we want to be prudent and mitigate risks from less likely scenarios.

Eric, I would just like to add to what Ricardo mentioned. Our revenue outlook is quite broad at this point in the year. There are really two factors that could drive us higher within that range. First, the GM ramp, and second, the opportunity to test the supplemental supply agreement later this year. If we can achieve one or both of these, we will aim for a higher position in our revenue outlook. Additionally, I believe we will continue to enhance our EBITDA outlook. However, for now, while we have slightly improved our EBITDA outlook, we are comfortable with its current status until we see these factors come into play.

Regarding your second question, I understand you were considering whether we might announce an OEM during this call, and you've mentioned at least three potential announcements for the remainder of the year. Can you share any insights on the timing or any factors that might influence this? Additionally, looking further ahead, do you have a projection for the number of OEMs we might have by 2025?

We have discussed three design awards so far. As I mentioned in the previous earnings call, I want to reiterate that we are confident in achieving around six design awards by the end of this year. These awards should start contributing in 2024 but will really escalate in 2025. These represent our immediate opportunities. We are still collaborating with nearly all companies globally that have pouch and prismatic designs in their battery platforms. We believe we will keep making progress with these companies, regardless of whether they ultimately result in design awards. It remains to be seen. However, it is clear that the risks associated with thermal runaway are becoming increasingly important to address. We are confident that all electric vehicle original equipment manufacturers will tackle this issue in some way. We also believe we are leaders in mitigating that risk.

Our next question comes from Alex Potter from Piper Sandler.

Maybe the first question is about profitability. You have mentioned that with the new contract manufacturer, there's a possibility of reaching the higher end of your revenue range if they perform well and come online as planned, which makes sense. However, I would like to understand better how this affects your margins. What gives you confidence that as you transition to this contract manufacturer, there won't be any issues or disruptions that could affect pricing or costs? Any insights on this would be appreciated.

We consider our production process in various ways. Currently, at the East Providence plant, we source raw materials from the U.S., Europe, and several Asian countries, including China. We transport these materials by sea for 8 to 10 weeks, incurring a 30% tariff. Upon arrival in Rhode Island, we manufacture our energy industrial products, of which we export about two-thirds, mainly back to Asia. This process involves considerable cost, time, and working capital. Overall, we have a substantial foundation to work from. Our pricing for energy industrial products is well established, and our contract arrangements from supplemental supply are clear. While execution remains crucial, we have a solid understanding of our situation. Our calculations support our target of at least a 35% gross margin. In the recent quarter, we achieved a 27% margin in the energy industrial sector, even without enhancements. We are witnessing improvements in operational efficiencies and a more normalized supply chain and raw materials market after a challenging three-year period. This reflects our clear understanding of the current situation regarding supplemental supply.

Yes. And if I may add, I mean, I think the margins are aligned with our expectations given all of the room that there isn't the value chain to have contract manufacturer support our energy business. But most importantly for us and really why the pressure is on us is that we don't really take margins to the bank. We take the incremental gross profit. And here with the backlog of roughly $138 million on the energy side, there's money there that we are just not taking by not being able to fulfill the demand.

Maybe one other question just goes to what you were alluding to just there in the last question with Eric, Don. This is the risk of potentially having to build some inventory given, I guess, the uncertain ramp and I can appreciate how uncertain these ramps are this is sort of par for the course when somebody is turning on a big factory like this. But I've noticed that the inventory has been ramping up a bit sequentially here over the last couple of quarters. What is that? Is that reflecting a preparation for the GM ramp, I guess, just qualitatively, what's in inventory and will that continue?

At this stage, inventory represents flexibility for us. When we consider the demand we receive from customers like GM in the automotive sector, we essentially have the right to produce and invoice for the next four weeks of demand, which changes approximately every two weeks. We have a general idea of what the demand may be over the next 40 weeks, but again, this can shift every two weeks. Therefore, having some inventory on hand allows us about a month to respond, especially regarding aerogel, which is crucial as we manage our production ramp with GM. The approximately $6 million of inventory we added includes a significant amount of finished goods PyroThin, which is ready for processing in Mexico. What we are currently experiencing is similar to what we faced in Q3 and Q4 of last year. The ramp we saw in Q4, which led to fulfilling $101 million in annual EV thermal barrier revenues, was at the cost of energy revenues in Q3 since we had to produce much of the PyroThin needed for Q4 during Q3. This dynamic is repeating itself until we secure an additional supply source for our energy business. Consequently, our inventory build is primarily aimed at providing flexibility for the EV thermal barrier side. In addition, the energy industrial team is working diligently to clear the warehouse by the end of each quarter.

Our next question comes from Jeffrey Osborne from TD Cowen.

The IHS figures are very helpful. I had a question about the three potential awards. It would be helpful to characterize those in relation to the GM ramp in terms of size and scope.

Yes. At Toyota, we're currently only supplying one nameplate, which is the smallest one. The award we have with the European commercial truck program is the second smallest, while the GM one accounts for the majority of our near-term volume. However, we have already begun delivering production parts to the commercial vehicle manufacturer in Europe, and we expect that to increase significantly in 2024, contributing a substantial portion to our current run rate with GM. Jeff, I was referring to the three potential awards that you announced before the year-end. Is there a way to dimension them?

Yes, there are some significant ones. Yes, the way I would say, Jeff, I think, again, just, I would say that we're very focused. We have a strong team in Europe. And we believe that even with significant growth from General Motors and additional North American wins, there's a reasonable chance that Europe could be our largest market in three to five years. And so a lot of the success we're anticipating here in the near term, I think, supports that or get that process started in a pretty significant way. So General Motors is obviously right in front of us and are very large numbers. But we're really working hard to create diversity of OEMs and geographies and we think we're doing a pretty good job of that. So I think we'll be able to answer that question a little better as we end this year and enter 2024.

Yes, one key thing to keep in mind when thinking about the sizing of these European programs is that they're all for prismatic cells. And so the content per vehicle opportunity is lower. But at the same time, the process to manufacture those parts is a lot more streamlined and we think we can ramp that up faster than some of the current designs that we're supplying.

And maybe just one follow-up. You mentioned a few of those, maybe all three would start in '24 but really ramped in '25. So keeping in mind the fourth quarter construction cadence to finish Georgia and I think maybe you can update us but I think it was $450 million to do that. Would you need to sort of pull that trigger in the spring of '24 to start that process? Or how do we think about when Georgia, if you were to win all 3, when Georgia would have to commence the restart of construction?

We don't believe we need to start that process early next year. It largely depends on General Motors more than our other customers. One advantage of providing prismatic cell programs is that the materials are generally thinner. Therefore, our capacity with the $400 million investment would be significantly higher. Since we are primarily supporting prismatic cell programs, we have more time to make this decision. The driving factor that would require us to accelerate the plant would be an increase in demand from GM.

Our next question comes from George Gianarikas from Canaccord Genuity.

So just to focus on the three OEMs again. Can you just talk about the process that you've gone through? And what has the bake-off look like? Who are you competing against? What are the requirements that they need? I'm just kind of curious if you can give us any more detail as to what that process look like?

Yes, the process is quite similar across the board. I wish our Head of Sales were here to assist with this, but essentially, we no longer receive questions about being compared to other materials like ceramic papers and mica sheets. We are leveraging a lot of data that our team has gathered over the past year, which shows that we really are the only solution that meets the three main requirements our customers are looking for. They want thermal isolation, the lightest and thinnest envelope possible, and fire protection. Most importantly, they have a requirement concerning the mechanical properties of the material, which our competitors often overlook. Our material acts like a spring inside the battery, situated between each cell. It’s less about showing performance now and more about developing designs that fit their needs, many of which are already underway. The issue of addressing thermal runaway is relatively new for some OEMs, so we need to educate them on these requirements. The biggest challenge is aligning our product, PyroThin, with their design timelines, which can take time. For example, in Europe, we’re starting in August, which is problematic since many take the month off. However, we are confident in the volume of prototype orders we are receiving and the strategic discussions happening, especially with OEM groups that have multiple brands but lack a unified platform approach like General Motors.

George, I would just add and I really do agree with Ricardo, the image of fitting into their platform ideas. One other thing that's really helping, I think, significantly is we're a lot better, too. We have really come to understand the challenges around the mitigation of thermal runaway but also of the sort of the mechanical test as well. And so we bring a lot of expertise into these discussions and that expertise is increasing with every day that passes. So I do agree with Ricardo that the gating item tends to be at this point more about their own battery design than a competitive bake-off.

And just as a follow-up, I want to confirm my understanding of the range of outcomes needed to meet your guidance at both the low end and high end for GM. You mentioned on Slide 7 that it's 20% and 47% in Q4 $1,000 for GM. I'm curious if achieving those numbers would place you at the high end of the range or the mid-range.

I think it really depends on which numbers we're discussing. If we examine GM's current demand rate, which indicates a 40-week expectation, we find ourselves well within the range, but that situation could change. If we were to meet the IHS rate, I believe we would exceed the range significantly. However, it's difficult to gauge how many parts GM currently has in inventory because we haven't received that feedback from them. As I noted earlier, for us to achieve $200 million in revenue this year, we would only need the run rate to increase by about 30% over the next two quarters compared to what we delivered to them in Q2. I believe that expectation is realistic.

Our next question comes from Chris Souther from B. Riley.

Maybe just a little bit on the puts and takes on the gross margins for PyroThin once the contract manufacturer comes online, does that change the breakeven point for PyroThin gross margins? I'm just curious if there's like a step down in those margins when that's all you're producing out of Rhode Island.

No. I mean, that breakeven point is really more driven by the assembly. And I mean don't get me wrong, I think there's still efficiencies on making only PyroThin in Rhode Island. But I'd argue that all of those efficiencies are ending up more likely on the energy industrial side, given that a lot of the processes for the energy industrial side would be taken out of Rhode Island and not necessarily benefit PyroThin.

And then, just a last one to put a point on the EBITDA guidance. It seems to reflect kind of the low end of revenue range where GM kind of slips on the ramp. Where does that shake out if GM's ramp stays on their targeted schedule and you hit that positive EBITDA in the fourth quarter. Just what is kind of the upside there since it seems like you're kind of guiding people to the downside case?

Yes. I mean I think there's definitely a probability of coming in on the high end of the range of profitability. If we have a good Q4 and if GM's demand ramp really starts in Q4, quite a bit of it would come at the expense of Q3. So I mean, I think the higher end of the guidance range reflects that, right? It reflects a good Q4 but not a great Q3 and that's how we see things potentially playing out here.

Our next question comes from Thomas Curran from Seaport.

I'm looking for some clarification on the three automotive OEMs that are in the most advanced stage of business development with us, and we are optimistic about converting them into significant EV customers. Can you confirm if all three of these are European OEMs? Also, are they each distinct automotive groups, or are any of them separate brands that are subsidiaries of the same automotive group?

It looks like you have a bingo board there.

Yes, some are part of the group and some are separate or independent.

Okay. And all European?

Yes.

Yes.

And then, just for my second here, that's left actually my first call question on the energy industrial side in a while. But for that division's LNG market, could you update us on what LNG sales should account for as a percentage of EI revenue this year? Are you also producing Cryogel product for LNG customers out of Mexico now as well? And are you currently pursuing any visible large LNG projects by which I mean opportunities that could result in awards, comparable in size to the PTT Nong Fab receiving terminal contract that you won and delivered over 2019, 2020?

Let me clarify that a bit. I'll start with the latter part and please remind me if I miss the beginning. We are actively pursuing several LNG projects that are currently in development. We have made significant progress on these projects and have delved into their specifications. While not all of these projects are as large as the PTT project, which was approximately $45 million, they still represent substantial orders. PTT is also expanding their facility with an additional receiving line, and we are working diligently to be involved in that, especially since we performed exceptionally well on previous projects. We believe we are well-positioned there. Our primary focus is on the supplemental supply agreement related to our Pyrogel product, which accounts for the majority of our revenue in the energy industrial sector, roughly three-quarters. Next, we will work on qualifying our Cryogel products with the supplemental supplier. This breakdown is mostly three-quarters for the hot applications and the remaining portion for cryogenic cold applications. We excel in this business, as you know, and it was crucial for us to secure the supplemental supply; without it, we would have faced significant capacity limitations and a potential loss of demand, particularly given the growth of the EV market affecting Plant 1. Thus, this is a vital part of our strategy, and we are confident in our ability to deliver excellent service. Much of this business is in Asia, and serving that market from Asia makes a lot of sense for us, both from a customer service and economic perspective.

I think there was also a question about Cryogel in Mexico. To clarify, we are still selling only aerogel installation rolls from Rhode Island. Our subsea products undergo an additional process in Mexico, where those rolls are put into bags or encapsulated. However, this additional processing is specific to subsea projects, not for Cryogel.

I was going to mention that we find it quite interesting, especially since you have a background in oil and gas. We're witnessing significant activity in our subsea business, which has been somewhat surprising to us. We have secured a number of projects that will continue into 2024, providing strong support for that area of our business.

Just to wrap this up then, could you just provide us with rough estimates for LNG and subsea, respectively, as percentages of EI revenue?

I like the 75-25 to the Pyrogel side.

Our next question comes from Amit Dayal from H.C. Wainwright.

Yes, most of my questions have been addressed already. I won't take too much of anyone's time. Just on the competitive side, are you seeing any other competitive solutions coming up to the thermal barrier product offering?

No. I mean, we see websites and kind of press releases being put out, but we don't see them gaining traction within the commercial processes that the team is engaged in.

It is a challenging problem that involves multiple aspects. Sometimes we encounter solutions that tackle parts of the issue, but addressing all facets is quite difficult. This highlights the significance of our product and the efforts our team has made in optimizing for that complex challenge.

Our next question comes from Colin Rusch from Oppenheimer.

Our checks suggest that some of the mechanical properties that you guys offer are critically important to the win rate here. Can you talk about what you're seeing at this point around the leverage from those mechanical properties, particularly as we get into structural battery packs becoming more prevalent outside of just Tesla?

I believe the mechanical aspect is becoming increasingly significant. Many of the structural battery packs will now also need to meet crash requirements. We anticipate that will lead to more complex components overall. It's fascinating how everyone must optimize not only for these mechanical aspects and the integrity of the pack itself but also for ease of assembly and cost. Many factors related to the cells were overlooked in the previous generation of electric vehicles, but they are now vital in the design and cost of the pack. As packs become more focused on structural integrity, I think there’s ample opportunity even for LFP cells, and many of these structural packs actually utilize LFP cells.

I think Colin highlighted some interesting economic aspects on the mechanical side. As we optimize our materials for both thermal and mechanical properties, we have the chance to replace some existing materials, including some that are quite expensive. This enhances our value proposition as we aim to offer the best possible solution. Certain original equipment manufacturers initially focused on the mechanical stability of the inserts, but are now starting to address the thermal aspect. Therefore, the idea of replacing some current materials has become a key part of our strategy and has also created a valuable economic opportunity for us.

I will now turn the call over to CEO, Don Young for closing remarks.

Thank you, Henry. We appreciate everyone's interest in Aspen Aerogels and we look forward to reporting our third quarter 2023 results to you later in the year. Be well and have a good day. Thanks so much.

Ladies and gentlemen, that concludes today's call. Thank you for joining. You may now disconnect.