Conference Transcript - ASPN 2025-08-11

Colin Rush, Analyst — Oppenheimer

Good morning, everyone. My name is Colin Rush. I lead the Sustainable Growth and Resource Optimization Research Practice here at Oppenheimer. We're thrilled to have the C-suite from Aspen Aerogels, Don Young, President and CEO, and CFO Ricardo Rodriguez, along with Neil Baranowski from Amanda's IR. Guys, let's just hop into it. There's a lot going on. There's a lot of moving pieces here. And you guys reported last week with some better than expected numbers. So So, you know, there's a lot of news out this morning around, you know, Ford making an investment in incremental EV capacity. We're seeing EV sales hold up a little bit better, partially with the cliff on the federal tax credit. But I think underlying demand looks better than feared, honestly. So can you guys talk about what you're seeing with your customers and their plans as we move through some U.S. policy changes, but continue to see a lot of growth in both Europe and Asia?

Don Young, CEO

You want to take it, Ricardo, and I'll provide color commentary?

Ricardo Rodriguez, CFO

Sure. Happy to jump in. So, I mean, it's no secret that the lion's share of our revenue right now on the EV thermal barrier side comes from General Motors. And, you know, we were all obviously disappointed by how long it took for a lot of these vehicles to launch. And, you know, we truly believe that if those cars would have launched in 2022, you know, the EV market would be a completely different story from what it is today. But it is what it is. And now that they have all launched, they're having pretty good months of sales, at least in the U.S. When you look at a vehicle like the Equinox, it's the number one non-Tesla selling EV in the U.S. And I think GM is just really hoping that momentum to continue definitely between now and the end of September before the $7,500 tax credit goes away. But we're still pretty mindful of the tax credit that is there on the supply side for these automakers. That one is not going away at the end of September. And, you know, if GM has gained so much share of the USDV market, we just don't see them letting go of that easily going into the fourth quarter and next year. And so we are, you know, we were actually pretty on the pessimistic side in 2023 and called that a little earlier. But this time we're actually more optimistic than one would think when it comes to this $7,500 credit going away. It's actually enabled the OEMs to keep prices up. If you look at who's getting that $7,500 credit today, it's basically the leasing companies and the financing arms of these OEMs. And if they want to retain share and what we don't see going away is this notion that these companies are betting their future on EVs. That is still pretty consistent. And so we've said that this is going to be a bit of a transition, but the North Star is towards more electrification. even if we continue to slip further behind China and Europe?

Don Young, CEO

You know, Colin, I would just add, and Ricardo's spot on on his comments, and I would say that we are prepared to serve these OEMs and their projections going forward in both here in the United States and in Europe. Having said that, we also took careful action in the first half of this year to modify our cost structure, our fixed cost structure, pretty dramatically. And you can see that on slide two of our earnings, on our earnings deck, where we removed roughly $65 million of fixed cost out of our structure. And it shows, frankly, in our outlook for the rest of the year, where we basically anticipate approximately flat revenue, first half to second half, but with approximately twice as much EBITDA associated with it. So we're starting to see the impact of of that, of those actions. We also believe as we as we grow in the future, that we'll be able to hold that cost structure tight and and really leverage the revenue growth. And as as you know, well, we're dropping 50 cents plus of every incremental dollar of revenue. So we think we're in a good position to weather the storm. And maybe the other leg of the stool, adding to what Ricardo said, and the cost mindfulness of the way we've got the company set up now, is that we require minimal capital expenditures as well at this point. We have our supplemental supply in EMF and we've got a robust plant in East Providence, Rhode Island serving our auto customers and the U.S. energy customers. So we're, you know, again, in a in a in an environment with some moving parts to it, we feel like we're we're in a solid position, again, also with a with a strong balance sheet as well.

Colin Rush, Analyst — Oppenheimer

Excellent. Well, guys, good to get kind of the overlay here that you've got a restructured company that's optimized from a capital perspective. You've got a primary end market right now where your customers are not backing away from investment, despite some of the overlay around policy adjustments. So can we talk about, you know, within that EV market, you know, what you guys are doing for your customers, right? And why is this an essential part of a design process that not only, you know, allows for better performance of these vehicles, but also lower cost over time as they commercialize? And I'd love to just get from a, you know, from a technical perspective, what you guys are doing for these customers and how you help drive efficiencies in their platforms.

Ricardo Rodriguez, CFO

Yeah, so happy to jump on that one, Colin. I mean, in essence, what we do is we allow these customers to take risks that they otherwise wouldn't take. And we provide passive protection that, you know, historically has not been there or that is critically needed when there's nothing else to stop thermal runaway and thermal propagation, right? And so, you know, maybe just to ground ourselves, so thermal runaway is, if you remember those Samsung tablets that were blowing up in people's bags on planes, all that was was under cabin pressure or somebody sitting or squeezing these tablets, the pouch cells that are inside of those devices were being compressed and you'd have a short inside of the battery that would, in essence, connect positive plus negative. and you'd have a chemical fire and pretty much an explosion happening with these cells. If you think of an EV's battery, it's nothing more than hundreds or thousands of those cells, depending on the form factor put together. And so whenever an OEM is assembling and developing an EV, they're playing a game of probabilities, right? If you control your manufacturing processes to the nth degree, there's only so much certainty that none of these cells will go into thermal runaway or thermal propagation. Those risks that are higher if you are overcharging or overly discharging one of these cells, especially at very low temperatures or very high temperatures. And so, you know, initially the ask for us was just to be there as a passive layer, taking up as little space and as little weight as possible. So that in the rare case that this thermal runaway happens, we can isolate the one cell and, you know, turn a pretty catastrophic event into a serviceable event. But that has actually evolved. And if you look at, for example, the GM EVs versus your typical Tesla or any other vehicle that is not using our product, you look at the way they use regen, you look at the way they charge at cold temperatures, they're actually able to push these cells closer to their limits and use more of the available storage capacity. because they know that we are there as a passive layer to isolate a cell getting too hot, right? And this is why, for example, if you go out there and drive a Tesla today, even though the vehicle should theoretically be able to give you 400 miles of range, it really has something like 330 in the EPA test cycle. In the real world with differing temperatures, you probably get around 280 miles of range. But the GMO-TMEVs are actually demonstrating to be able to deliver reliably more than the 310 to 450-plus miles of range that the EPA cycle delivers. And that's because they're able to use regen more aggressively, charge faster and harder at cold and very hot temperatures. And that's something that I've experienced on my drives, driving both of these vehicles. And so those benefits are proven, and more OEMs are starting to see the light around the benefits of having a product like ours in between these cells in place of those old polyurethane foams that didn't provide any protection and would actually become fuel to these fires.

Colin Rush, Analyst — Oppenheimer

And Don, can you help the investors understand exactly what the aerogel is and how it works, right? I mean, I think it's always instructive to just kind of hold, you know, a bit of aerogel to understand kind of how, like, just honestly just crazy it is, right? It's kind of a wild material that it's hard to imagine. And, you know, can you talk about the platform that you guys have built over the course of a couple decades at Aspen and what an aerogel really is and why you guys are such, you know, clear leaders in the field and how then this gets applied in the UV battery that Ricardo really just articulated well.

Don Young, CEO

Sure. Going back many decades, aerogels had been discovered, but really as a laboratory curiosity to a great extent. Best thermal insulator, lightest solid material known to man. It's this open porous nanoporous structure and um and while it was fascinating technically and had it had amazing um properties it didn't have a lot of capabilities and that's because it was not industrially robust so aspen aerogels um dating back as you say slightly more than two decades ago worked with nasa and and others and and developing what we refer to as a flexible aerogel blanket and this is where we in essence infused that silica aerogel into in liquid form into a a fibrous batting material and we created what is really our platform which is the flexible aerogel blanket and so we were able to maintain all of the properties of this amazing material but we added capabilities to it industrially robust and so we started um and and and we've had ip um all along um from the very first years to to these recent weeks and months we've continued to add to that. And our skill has been at being able to mass produce these materials at this point. So there's a chemistry to it, there's a process technology, and then there is a sort of product optimization. And we've optimized around our subsea pipeline business, our refinery business, and onto LNG terminals, et cetera, and then all based around thermal management and fire safety. And of course, when we went into the EV business, per Ricardo's description of our value there, it was really about this thin profile, high thermal performance, and outstanding fire safety with this flexible aerogel blanket that can absorb and act like a sponge to a great extent. So that's sort of the core of what we have done with the material. I I think it's possible to think about adjacent markets that continue to use flexible aerogel blanket as a concept. And again, where you see applications where high thermal performance, perhaps fire safety, are key ingredients and thin profile are key ingredients. You'll remember dating back into the late 20-teens, we had a building materials activity going, ran out of capacity as we were getting that rolling and stepped away from it. But there have been aerospace applications. There are a variety of applications where we think we can use this same flexible aerogel technology and be additive and create a third leg to the stool, if you will, energy industrial one, EV two, what is three and four? Because it's so critical as we've moved from the red line to the blue line to the green line in our cost structure to be able not only to do that as phase one, but then to travel up that green line and drive significant profitability and cash flow from our existing assets.

Colin Rush, Analyst — Oppenheimer

So let's pick up on that, you know, because we've known you now for 15 years, Don, right? And, you know, have watched the evolution of the platform of this blanket material, you know, being used first in some building applications and then into the oil and gas space and now into the EV space as a unit play. And, you know, as you guys have evolved the chemistry and the manufacturing process, you've been able to enter into new markets. So can you talk a little bit about, you know, the optimized, you know, manufacturing process that you have, the evolved platform that gives you some flexible capacity as needed, and how you're thinking about some of that, you know, incremental productization that you can go through to open up some new revenue streams?

Don Young, CEO

Yeah. As we were contemplating our second plant in the United States, in Statesboro, Georgia, as we were going through that process, we at the same time in really late 2023 began considering an external manufacturing capability to provide more variable, supply to us and in smaller increments than the design of plant two, which was to bring on 1.2, 1.4, $1.6 billion of revenue capacity in one fell swoop. And so what we were able to accomplish over the course of 2024 was to transition from the plant two concept over to this more variable supply where we're able to bring up smaller amounts of or increments, smaller increments of supply and fit the demand curve better, if you will. So we've got our substantial capacity in East Providence, Rhode Island, plant one, And we've created this variability of supply in our supplemental relationship out of China.

Colin Rush, Analyst — Oppenheimer

And how do you protect the IP in that relationship and what's essential? I think it's been interesting to see what's essential in terms of manufacturing IP and then productization. there's obviously some complexity and some layers to this in terms of what you guys share and what you don't share with some of these folks and how you bring something to market well the materials

Don Young, CEO

that they're producing um are are are our original um materials um serving the energy industrial business and one of the keys in protecting our intellectual property not only the surrounding agreements and what have you we understand that the complexities of that with working with a with this kind of partner but what i would say is that we have if you look at our end users historically um are always the basically the largest companies in the world whether it was exxon mobile or british petroleum or basf or more recently the general motors and the toyotas of the world. These are companies that would not unknowingly use an infringing product in their applications. And we have been active in being sure that any product that may be a takeoff of our product, we've been aggressive. And I think you remember back into the, again, back into the 2010s, we defended our intellectual property very successfully against Chinese impersonators here in the United States, across Europe, in Asia, including having our patents validated in China. And so there's never a perfect answer to that, to your question, but we think we've got um the the the framework um both operationally and contractually to to um uh to do the best possible there's also with respect to our partner a mutual benefit to this relationship i mean we um we are their gateway if you will to outside of of china and and we have created what I think is a very significantly mutually beneficial relationship with that partner. And I think they agree that it would be a mistake for them to violate that.

Colin Rush, Analyst — Oppenheimer

Excellent. So where we're at now is we've got multiple SKUs, some optimization around the product platform. You've got a couple of good end markets at this point. You've gone through some platform optimization, both from a cost structure on the OPEX level, as well as the manufacturing base. Can you guys just talk to us around, you know, just what the financial model is and the gearing that you guys have for growth from here, right? Like we've gone through kind of the, I would say the first leg of real substantial growth for the company and a much longer journey. And so we're kind of going through a little bit of a digestion period right now, but talk to us about how the platform is set up and really built for resilience through this period of time as you get into more of a higher growth mode again, getting into 2026. Yeah, I think the gearing

Ricardo Rodriguez, CFO

is relatively unchanged to what we were laying out here throughout 2022 and 2023 when people were asking us what company we were working to build, Colin. And if you recall, we had a slide That laid it out for people that in essence said, look, we don't know what the revenues are going to be, but we're going to gear the company to deliver 35% plus gross margins and then to work to deliver 25% plus EBITDA margins at, you know, give or take a 70% plus utilization of our capacity, right? And that's, in essence, the yardstick that we use to quote or pursue any opportunity, both on the energy industrial side or the EV thermal barrier side. And so if you look at our economics last year, last year, that 70% plus capacity level was a little bit lower than where we ended up the year at. We were basically saying, let's try to, and by the way, all that gearing translates into at least 10% OI or EBIT at $400 million of revenues, right? And so last year we did $453 million of revenues. We overshot the sort of gearing point at 80% utilization, and you saw our EBITDA was, you know, $90 million on $453 million of revenue. This year, to Don's earlier point, we knew that the top line was not necessarily on our side and that the winds were going to be more against us than behind us. And we worked proactively to gear the company down so that our EBIT break-even point was at around $280 million of revenues, but still working to preserve those 35% gross margins for both segments at above a 70% utilization of the assets. Right now, in Q1 and Q2 of this year, we've been a little bit below that. But if you look at the EI side, even though the revenues are lower, it's proven to be more resilient because of the supply that we have from the external manufacturing facility. I think that on the EV thermal barrier side, that point of give or take $200 million of revenues per year is where we start getting closer to that 35% plus gross margin as we absorb all of the fixed costs in line with that gearing that we established here a couple of years ago.

Don Young, CEO

you know ricardo the way the way we've talked about the way i think about it you know sometimes you know you you build a company and because sometimes you're playing offense and we played offense the last couple of years right we grew 90 last year we grew 40 or 50 a couple years before that and then sometimes you build your company because you have to play some defense and right now we're playing defense, but what we've done is, you know, to earn that same $60 million or $90 million of EBITDA, you know, it's a number closer to $360 million of revenue, not the 453 that we had last year. And in fact, if we can reignite that growth and get back up into the kind of range where we were last year, we wouldn't be making $90 million of EBITDA with this cost structure, but a number like 150, 155 kind of million. And so again, sometimes you're playing offense, sometimes you're playing defense. But I think combined with the reduced capital expenditures of our model and our strong balance sheet position, we think we're really set up well to play both offense and defense as you know as the times call for and and let's talk about let's

Colin Rush, Analyst — Oppenheimer

talk about offense because it's more fun you know like you know you guys have done the you've done the hard work here um right of cutting costs and kind of optimizing the platform you've done a lot of work around uh improving yields on the on the factory um and you know if we get through this transition in the u.s there's still an awful lot of growth with your incremental customers right and you have some impressive logos. So, you know, can you talk to us about the customer base that you have on the EV side and, you know, what you're seeing from those folks from a RAP perspective and anticipation of incremental volumes as you move into 2026?

Ricardo Rodriguez, CFO

Yeah, I mean, I think, you know, when we look at the other awards that we have, the one that is going to contribute here in addition to what we're doing with GM and Toyota today is ACC with the Stellantis Volumes, first in Q4, and then that ramps up in 2026. We believe that if that can bring in over $15 million of revenues next year, that would be excellent. And then the other one that is pretty set and where we do have high confidence that they'll execute is Daimler in 2027. And that is, you know, comparable size to what we're expecting from Stellantis with more volumes that could be added given some new launches that they've announced. And then Audi, Scania, and Porsche, those ones, you know, they were originally relying on sales from Northvolt, and we all know how that's going. They're working to move to sales from Samsung that we're pretty familiar with from working on those with another OEM that hasn't awarded us the business yet, but that's volume that could arrive in 2027. And so I think those, you know, a combination of four or five other awards could come in in late 2026, 2027, as soon as they make the determination on by when they'll switch cells to Samsung and then also what the timeline for these launches is, right? I mean, if you look at the Porsche, the Cayman Boxster platform, there are vehicles out there, test vehicles rolling with our parts in them. But Porsche is obviously rethinking their timing for the launch of those EVs in the U.S. And we're in wait-and-see mode to see when they'll ultimately determine the start of production date to be.

Colin Rush, Analyst — Oppenheimer

So, Don, what are you most excited about here? You've been with this platform for a long time. you've been able to take it from fairly small revenue levels to much more revenue levels and free cash flow. What are the things on the near to medium term horizon that you're most excited

Don Young, CEO

about that investors should be looking for here? I think, and I've said it already a little bit, which is to be able to diversify our revenue growth and reignite growth itself and travel up that green line. I mean, it's a powerful cash generating machine at that point. And we feel we've, again, we've done, we've got two markets in place. And we think that while those markets don't go up every single year, we do think over the longer period of time that we've got the ability to grow the business consistently and to add to these markets and just travel up that line. And what I what I like about that is also the fact that we do not need to build substantial capacity to do that. We've got those pieces in place and those are always complicated because they take a long time. There's permitting. There's all sorts of factors that come into play there. And we have a lot of runway right now to travel up that green line, generate a significant amount of profit and cash for the company, and to continue to grow substantially.

Colin Rush, Analyst — Oppenheimer

So, guys, what aren't we talking about that we should be talking about for the platform? It seems like you've optimized the cost structure. We're going through some market digestion here. You've got a lot of opportunities for growth. what else are we missing?

Ricardo Rodriguez, CFO

I mean, I think that it's sort of highlighted, but I think people are not as excited, at least as I am, is really if you look at those lines and the green line on slide two of the most recent deck, the leverage is pretty good if the company is able to get growth, right? So we learned a lot over the past couple of years around what is precisely needed to deliver that level of growth and, frankly, what is not needed. And being able to grow again without the burden of what was not needed to grow will create a much better company than even what we were able to deliver last year. And so I think as a company travels up the green line, The leverage looks very different to, you know, our best efforts to grow here in 2023 and 2024.

Don Young, CEO

You know, Colin, if I could just add maybe one thing, and this is a little bit more of just internal ops sort of thing. But, you know, in the actions that we took earlier, Q1, Q2, we really de-layered the organization and simplified and streamlined the organization. Uh, and just, uh, I think our effectiveness as a, as a team and as a, um, uh, in, in, in, uh, in planning for and executing, uh, next, next layer, next, um, aspects of growth are, are right there before us. Not a lot of complication. We know what we need to do. And, uh, again, that simpler organization is just really refreshing. I think we got a little complex. Yes, we were growing 40%, 50%, 90%, and projecting forward to continuing that kind of ramp in the near term. And I think you build, there's a tendency, and this was on my watch and my responsibility, to build in some layers and to just keep up with it all. And, again, what I think we've done is gone back to a simpler organization, de-layered, more effective. And I'm really excited about that as well.

Colin Rush, Analyst — Oppenheimer

Awesome, guys. Well, listen, I think we need to leave it there. I want to thank you for taking the time. We're excited to see the next stage of growth for the company. And Ricardo, wish you best on your next endeavors and remind everyone that we've got a CFO transition here that looks very, very smooth with internal controller coming in to run the organization and happy to get folks connected with the company as they need or to help with folks as they do their diligence. But thanks, everybody, for joining us today. We'll look forward to talking to you guys soon.

Ricardo Rodriguez, CFO

Thanks so much, Colin. I'll dial in as an attendee next time.