Conference Transcript - ASPN 2026-08-11

Colin Rush, Analyst — Oppenheimer

My name is Colin Rush. I'm the head of industrial innovation research here at Oppenheimer, and we're thrilled to be joined by the management team from Aspen Aerogels, Don Yung, CEO, Grant Thiel, CFO, and Neil Baranovsky, head of IR. are. So guys, you know, obviously you just put up a great quarter and a great guy. And so I just want to get a sense of, you know, with thermal barrier revenue, you know, up sequentially, but down from a year ago, how are you thinking about some of the cadence of, you know, volumes on EV programs in North America? Now we should think about, you know, those volumes scaling up here or maintaining over the next several quarters.

Don Young, CEO

Thanks, Colin. Thank you for having us. On the North American pirate-thin thermal barrier business, we've obviously been through a little bit of a journey here over the course of the past 12 and 24 months after very, very rapid growth from really 2020 into 2025. The market share of EVs in the US for regulatory and incentive of reasons, we're cut in half, in essence, from roughly low double-digit percentages to a range. Today, they seem to have stabilized around 5.5%, 6%, depending on the calculation, and our numbers reflected that. We have believed that we have largely stabilized at this point, or that market has stabilized around 6%. And the key driver for us in North America, of course, is General Motors. And what we see of them here in Q3 that's a little different from what we saw of them in the first half of the year is that they seem to be producing vehicles at the rate that they're selling vehicles. They had a significant destocking or lowering of inventory during the first half of the year. So even though sales rates were at one level, production rates were at a lower level. And what we've seen is that leveling out now and even potentially building modestly inventory. And we're seeing that as creating a more robust second half for us from a North America thermal barrier business. We're seeing it here in Q3, and most forecasts have it continuing through the year.

Colin Rush, Analyst — Oppenheimer

Okay, and I trust that that's giving you a little bit more comfort on 20.7 build rates, even though it's a little early to predict where those things end up.

Don Young, CEO

Yeah, I think our expectation, and when we look at IHS and some of the other analysts' views of the North American build in market share, Look, we think that 5.5%, 6% market share number will gradually grow, and that we'll be the beneficiaries of that as it does grow. And so, we haven't provided an outlook for 2027, but we do believe that that part of our business will be a growth vehicle for us in 2027.

Grant Thoele, CFO

Just to add on to that, I think one thing to keep in mind is that right now, GM has number two market share. And we believe that going into 2027, that it's a very strong possibility that they're going to maintain that market share. You have a lot of other launches in terms of other vehicles from other OEMs that are launching in 2027. So we're optimistic and we're confident that we can supply GM maintaining that number two market share throughout 2027. on.

Colin Rush, Analyst — Oppenheimer

Excellent. And I guess changing geographies into Europe, you guys raised your outlook to 20 to 30 million this year. I just want to get a sense of where that upside is coming from. Is that coming from new nameplates? Is it higher content per vehicle, or is it just more units selling through? Because we've seen some pretty strong numbers in the EU. And how do you see that market evolving over the next couple of years, given some of the new relationships that you've been able to announce. Yeah, thank you.

Don Young, CEO

Over the course of the two earlier earnings calls before the one most recently, we had signaled that we were expecting European thermal barrier revenue to be in the $10 to $15 million range. And as you cite, we raised that recently to $20 to $30 million based in part on the fact that we had already booked revenue for approximately $11 million in the first half. We're coming at this from a pretty strong position as we get into that $20 to $30 million category for the year. I would say that it is broad-based, Colin. We have seven OEMs now where we have won design awards that are beginning to ramp their business. So it's broad across those seven as opposed to any one or two. And honestly, these are still ramping volumes as opposed to SOP volumes, which we anticipate some of them to engage in in 2027, quite possibly all of them. And as we also cited last week, we won the JLR, the Jaguar Land Rover Design Award, which is a terrific award for us. And it's pretty late stage in that we think that it will begin to generate revenue, not in the usual, you know, two plus year incubation, but, you know, almost immediately here. They're well through their design phases here. And that's why we're confident in the $20 to $30 million this year. And we cited on slide six in our Q2 2026 earnings presentation, the potential and the calculation is the design award contracts that we have, basically volume times price equals that $135 million opportunity for us in 2027. seven. We cited through experience that we think we have the opportunity quite comfortably to double our 2026 revenue. So that 20 to 30 million, you know, 40 to 60 million in 2027.

Grant Thoele, CFO

And just to add to that, you know, the 135 is purely for our awarded OEM. So that's the seven that Don was just speaking about. And we have a robust quoting pipeline that there still is potential for other OEMs that do have an SOP in 2027 to, if we win those awards, that that could impact 2027. But kind of looking at 2028, when these design awards are ramping at serial volumes in 2027, we feel very confident that there's going to be not only seven, but there could be a few others. And the best part about this is that we don't need a grand slam from one of the OEMs. We can get, you know, singles, doubles, triples from various OEMs to fill out and kind of diversify our thermal barrier revenues.

Colin Rush, Analyst — Oppenheimer

And I guess I want to dig into this Jaguar agreement a little bit more just from a technology perspective. You know, obviously, you guys have been talking to them for a fairly long time. There's been some evolution around architectures here. The fact that you've won a next-gen architecture award, it seems significant to me. Can you talk a little bit about that process and what you think it signals out to the rest of the EV landscape around available alternatives, where architectures are going? Jaguar has been one of the early movers in bringing EVs to market. So just want to get a bit better sense of what the broader significance is of that deal for your technology position and longer term growth.

Don Young, CEO

The design award does have a history to it and kind of an unusual history in that I would say approximately two years ago, we were notified that we lost that piece of business, Colin. And we stayed with them and we wanted to learn more. And so we stayed close with JLR through the process as close as possible. And it was really JLR that came back to us, I want to say approximately six months ago, and said, hey, we want to re-engage with Aspen. And we don't know all the details, but I think it's fair to say that the other solution didn't work or wasn't robust enough or couldn't deliver for whatever reason. And we were there for them. And we have won that design award now as they are very, very close to ramping themselves. And it is a it is a two different architectures across several of their of their vehicles that they will be promoting in Europe and in the United States.

Colin Rush, Analyst — Oppenheimer

Excellent. And then can we talk a little bit about the the shift to LFP? You know, obviously, you know, folks are working to optimize performance of vehicles, reducing weight, you know, in those vehicles, but then also trying to optimize the cost, right? And, you know, looking at doped LFP, you know, can you talk about, you know, significance for your solution and what that means, you know, that shift to LFP, particularly in Europe and in the U.S. and then potentially with solid-state starting to merge and semi-solid-state solutions starting to merge for the ED market and how you guys intend to adapt to some of those ships.

Don Young, CEO

Yes. First, I would just maybe remind us that there is significant infrastructure for lithium-ion batteries and they're going to have a very significant market share in the years to come. I think that's pretty clear. On the LFP side, we also are seeing relatively high-density LFP batteries, which is being driven by the desire for range. And we know that there are thermal management issues as you drive, as you push for density. And we are engaged in several LFP chemistries today. And in fact, some of the work that we have done next stage with General Motors on the LMR side have, I think, indicate that progress as we kind of work through different chemistries. And so, we're optimistic that we're going to have a role to play. You know, also, Colin, we've talked a bit about the battery energy storage opportunities for us, BESS, those cells are largely high-density LFP cells and sourced from overseas, typically often from China. Those are the very same cells that we're working on qualifying our materials, developing our materials, qualifying our materials for that opportunity. Again, I just cite the LFP similarity to your question. On the solid state side, let me just say, maybe it's a little bit too early to tell. There is an enormous amount of energy stored in a solid state battery. And I think time will tell as that segment or sub-segment matures here, Colin, in time, what their thermal management challenges will be, where we're engaged and knowledgeable about that market. We'll see.

Colin Rush, Analyst — Oppenheimer

Okay. Can we just dig into the BESS opportunity a little bit? Because as we look at what the data center duty cycles look like, that's a very intense operation for a lot of those batteries, right? And so you end up with with having, you know, I think unforeseen thermal issues in many cases. And so, I guess, can you talk a little bit about how that opportunity has come to you, what you're seeing in terms of the duty cycle and where Aspen Solutions uniquely address some of those needs as you start to see some of those batteries get pushed really, really aggressively out in the field?

Don Young, CEO

Yeah. It's a really interesting opportunity for us, Colin, In that, we're able to apply the lessons that we've learned in addressing EV battery modules and battery cells and thermal management challenges in EVs. But we've been able to apply those lessons in what sort of feels like an industrial setting for us. And so if you look at our team, which, by the way, we are expanding specifically to address the BESS opportunities. And so we are working with the developers who are building the modules, and we are designing and qualifying product. And when I say designing, I don't need to think R&D type designing, but really, really designing for commercialization. We're at that end of the spectrum. And because as you cite, the size, the intensity, the reliability needs for these applications are significant. So, we believe that we will generate near-term revenue on this opportunity. I think, to be honest, we're still sizing the market. We believe that it is measured at least in the tens of millions of dollars of opportunity for us per year. But we know that the size of the market is significant. You know, the other thing, of course, that we bring to the party is the desire, the incentive that those developers have for U.S. content. And where many of the cells are coming from outside the United States, the vast majority, our U.S. content is an important part of the equation for them.

Colin Rush, Analyst — Oppenheimer

Excellent. Let's shift gears to the energy industrial and some of the adjacent markets. So, you know, with the energy market, you know, you're down just a little bit versus a year ago, but you noted acceleration on the quarter. I guess what can you point to in terms of the sales process, demand, sell-through, inventory levels that give you some comfort that that business is starting to re-accelerate?

Don Young, CEO

Well, we're seeing it here in the third quarter for one thing, and that gave us the confidence to provide a relatively robust outlook, I think, for the quarter and I think body language for the second half of the year. It is the reacceleration, if you will, is largely coming from our project activity, which was, I think, just cyclically light over the course of the 12 months, the past 12 months. We've seen it before. We know that kind of comes and goes. But we're very confident that both our sub-C work and our LNG work will lift us significantly here in Q3 and for the second half of the year. We have talked about approximately 20% revenue growth here in 2026 for this segment. And we believe that we have the opportunity to do that and to carry that kind of growth into 2027 as well. I think the macro is very supportive of us. We look at the backlogs of our significant end users and our customers, both in the subsea and in LNG, and they have really record backlogs today, and we will be the beneficiaries of those as those projects play out. As you know, Colin, insulation, thermal management in those systems comes relatively late in the build cycle. And so I think we have good visibility and we have an excellent track record of performance and customer service in that market.

Colin Rush, Analyst — Oppenheimer

Excellent. And then, you know, so if we're thinking about this, we've got the EV market, you've got the historic energy market that you're going through the cycles with. You've got this growth opportunity with stationary storage. Can you talk about any other adjacent markets that we should be thinking about as growth opportunities for the platform on the thermal barrier side?

Don Young, CEO

You know, I think we're very focused. As you know, we brought our resources down pretty significantly with the downturn of the EV business. And we went from roughly 1,400 employees to 800 employees. We took $80 million of cash costs out of the business. Having said that, we remain targeted, if you will, to continue to build innovation in the company. We're an innovation leader in our space, and we will continue to do that. Colin, I think we've put extra resources on the BSS. We want to reach pay dirt there. And I think analysts and investors will give us a lot of credit for creating a third growth driver in the business, especially leveraging the flexible original blanket, our current assets, our current IP, et cetera. And to be able to grow our energy industrial business, our thermal barrier business, and potentially this BESS opportunity without meaningful capital expenditures is, I think, is very valuable. We also have a group in our R&D organization who are focused on aerogel technology that is not the flexible aerogel blanket that provides other paths for us to build out. And these are in the earlier stage, and so I don't want to get ahead of ourselves today, but we do have a targeted R&D effort to explore additional uses for aerogels that may not come in the form of the flexible aerogel blanket, which has been our bread and butter for these years.

Colin Rush, Analyst — Oppenheimer

Excellent. So good to know that you focus on three core markets here, leveraging the same IP. So just turning to the operations, you completed a stage restart of East Providence. Can you talk about what the teams learned through that process and how that's informing how you're running the facility and thinking about safety and operational resilience going forward?

Don Young, CEO

Yeah, it was a significant event for our company, April 8th. We began the stage restart, as you cited. We began that on May 14th. We've made good progress. We believe that it will take until the first half of 2027 to reach our full production capacity post the April 8th incident. In terms of building in reliability, we have taken many lessons from the event. Again, I can't say this often enough where we feel immensely thankful that no one was seriously injured that day, that evening. But we have built in redundancy, safety redundancy, reliability redundancy. It's also caused us to broaden our relationship, I think, with our external manufacturing facility as well, a relationship that we really began to rely on really back to 2024. And I think it has given us both short and long-term supply flexibility as we've developed that relationship here over the course of, certainly over the course of the past several months since the incident, that was to be able to not disrupt our customers in any meaningful way from a supply point of view was quite an achievement by our team. And our hand-in-hand work with our external manufacturing facility was also, you know, a critical component to that successful customer relationship through this period.

Colin Rush, Analyst — Oppenheimer

Excellent. So, you know, and obviously you're still working through the insurance process as well as some of the supply chain hiccups. Can you just walk us through the puts and takes and some of the, you know, incremental charges that you're seeing right now and some of the cost recovery that you're anticipating over the next several quarters?

Grant Thoele, CFO

Yeah, sure. I'm happy to take that one, Colin. What we had in Q2 was 5.3 million of incident-related ad backs. So those are charges that are basically burdening your gross margin. And we are adding them back to adjusted EBITDA. Our adjusted gross margin in Q2 would have been 17% versus the 7% reported. And the difference is that 5.3 million of ad backs. So as we look forward, in our guide for Q3, we had 5 to 10 million. And so, what happens is that we have three buckets. The first bucket is going to be just pure expedited freight or thermal barrier blankets to our China manufacturing partner, and then to Mexico for a finished good assembly into a thermal barrier. So, we're elongating our supply chain in this time where East Providence is being restored to full capacity. But we've already kind of worked through the kinks of that, and we have been able to deliver on time with our customers and respond to fluctuating demand. And I think the way that, so that's one category. The second category would be just professional services out at East Providence. So these are contractors, engineers working on the restoration and to return the facility to full capacity. And then the third bucket is really going to be applicable in Q3 and going forward is just all around kind of the temporarily sourcing our certain energy industrial products from the external manufacturing facility that typically we would source out of East Providence. Think about these as U.S. deliveries of rolls. And so we're obviously incurring a few extra charges there by making those rolls over in China and then shipping into the US. So all of those will be, those three categories will be submitted to business interruption insurance. The way that I explained it on the call and think about it broadly is that all these ad backs, we are going to submit the total amount of that ad back as a business interruption claim. And so those claims are submitted in arrears. And so the 5.3 million we incurred in Q2 is going to be submitted in Q3 and expected payment sometime, you know, kind of thereafter. You know, we are still working through the insurance process, but we're very, very confident that what we are submitting is, you know, is going to be covered. And we feel very, very good about the overall kind of cash needs during this time. And in particular, you know, from now until the end of the year, you know, we believe that we have, you know, kind of some good liquidity to absorb some of these costs and see the insurance proceeds come through.

Colin Rush, Analyst — Oppenheimer

Excellent. And, you know, is it change your thinking at all around internal capacity versus contract manufacturing as you grow here? I mean, obviously, there's some domestic content considerations with some of your customers. But just curious about your, you know, philosophy around own capacity versus contract manufacturing as you go forward and start growing into some of these markets?

Grant Thoele, CFO

Yeah, yeah, sure. I think that one of the big items that I think is really kind of a silver lining throughout this process is that we were already planning on taking our pyrothin products and having our partner over at EMF being able to manufacture those and really to have an opportunity for our European OEMs to have a different supply chain, and in some cases, a lower cost to them. And so that was kind of already in the works. What this did is it really expedited that process. And so now what we're envisioning is that as you get on the other side of a full restoration of East Providence, we can have a dual supply mentality and really look at the the profitability impact and the supply chain impact of supplying various OEMs in our energy business, either internationally or domestically.

Colin Rush, Analyst — Oppenheimer

Okay. Let's shift to the balance sheet here for a minute. Can we just talk about the process of liquidating the assets in Georgia? And you mentioned it on the call, working it through, but can you just walk us through how that process is developing and how we should expect that to evolve here over the next three to four quarters? Yeah, I'll take that.

Don Young, CEO

Let me just get my timing here, right? About 100 days ago or so, we signed a purchase and sale agreement with a counterparty. And that counterparty was in the midst of negotiating for a long-term lease with a third party. And that our P&S expired while they were still negotiating. They continue to negotiate. And so upon that expiration, we reopened the bidding to other interested parties who were active at the earlier time. And so we have that being marketed actively. It's in an excellent location, a very robust industrial environment in and around Statesboro, the location of our facility. And we do believe that we will sell that facility. We think that it will take a little longer. Now, we were citing the second half of 2026, and we think that could go into 2027. But we're confident in the asset value that we were talking about. You may remember, we expected net proceeds to come approximately $25 million, and that would go directly towards paying the mid-cap term loan. So, look, it's a delay, but I think that the basic premise and continues to hold.

Colin Rush, Analyst — Oppenheimer

Okay, excellent. And then just the final question here is really around the guidance for 3Q and how that translates into sustainable business on a go-forward basis. You guys have obviously lowered the break-even level for the company. You've gotten yourself into a good position from a balance sheet perspective in terms of managing cash. And I guess the question is really with the sequential growth in 3Q, You know, returning to being EBITDA positive here, you know, how are you thinking about sustainable revenue levels and, you know, the growth trajectory from here, you know, and kind of the lumpiness potentially given some of the way these programs lay out and the project-based nature of some of the business?

Grant Thoele, CFO

Yeah, no, it's a good question, Colin. I think that the breakeven level we've been targeting in the second half of this year is a $200 million revenue level for adjusted EBITDA breakeven. And then by the end of 27, we're targeting $175 million revenue level for adjusted breakeven. And so we have more work to do. We are actively working all these various cost initiatives. And I think that one of the things that we're seeing in Q3 is a little bit of a return to just once you absorb your overhead costs, the incremental profit is going to fall to the bottom line. So for every dollar above our breakeven level, we're dropping 50 to 60 cents of adjusted EBITDA down to the bottom line. So, that is a very powerful tool for us as we begin to see these volumes materialize and progress. And I think that one of the things that we're seeing is that the gross margin level, I'll continue to report on that adjusted gross margin as we have these incident-related add backs, just because in our view, when you get to the guide of 65 to 80 million, you're going to have a significant step up in your gross margin, and it will still be burdened by some of these costs that you just can't add back to gross margin. And so, we are adding them back to adjusted EBITDA. But we feel confident in our ability to scale and really drive operating leverage to reach revenues that are well in excess of the 175 and then 200 million break-even loans.

Don Young, CEO

That leverage that Grant talks about is important. We think the growth strategy, We think the elements of the growth strategy are very much in place, whether it's scaling energy industrial, which we're confident that we can build a $200 million business there, a good high margin business. We think the stabilization that we see in the North American EV market, and we're just starting to grow in the European market on the thermal barrier side as this array of companies move into SOPA, basically. And so we think we've got a real opportunity to grow the business sustainably, to use your term, Colin, and we're confident we'll be able to do that.

Grant Thoele, CFO

Just one last thing on that is that when we look at all these European programs, the growth in energy industrial, the growth in North American EV demand, we already have the infrastructure in place, the capacity in place, and we now have a dual supply strategy. So while we have kind of been put through the ringer here with North American EV demand, what we've done in the meantime is we've kind of batted down the hatches, and we have restructured the business to be more efficient and optimal for higher volumes. And so now we don't have incremental CapEx that's tied to any of these volume growths. We've got the manufacturing capacity in place, and we have a dual supply strategy. So it's coming out, all the pieces are kind of coming together as we kind of go into the back half of the year here.

Colin Rush, Analyst — Oppenheimer

Well, guys, we're at time here. I was going to ask you for some final comments, but I think you just nailed it for us. You know, you've got three growth drivers. You've got a cost structure that's coming down, the 50% to 60% incremental operating margins above your break-even level. And, you know, you've got, you know, sufficient cash on the balance sheet to drive the business and support the working capital needs here going forward. So, guys, thank you so much for the time. If anyone online has any questions, don't hesitate to reach out. We've known Don and the team for a long time, like a very long time. So, you know, pleasure to still be working with you guys, and we'll look forward to talking to him with you again soon. Thank you, Kyle.