Aspen Aerogels Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 8, 2024

There are 11 speakers on the call.

Operator

Good morning. Thank you for attending the Aspen Aerogels Inc. Q2 2024 Financial Results Call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. I would now like to turn the conference over to your host, Neil Baranovsky, Aspen's Senior Director, Head of Investor Relations and Corporate Strategy.

Operator

Thank you. You may proceed, Mr. Baranowski.

Speaker 1

Thank you, Elisa. Good morning, and thank you for joining us for Aspen Aerogel's Q2 2024 Financial Results Conference Call. With us today are Don Young, President and CEO and Ricardo Rodriguez, Chief Financial Officer and Treasurer. The press release announcing Aspen's financial results and business developments and the slide deck that will accompany our conversation today are available on the Investors section of Aspen's website, www.aerogel.com. During this call, we will refer to non GAAP financial measures, including adjusted EBITDA.

Speaker 1

The reconciliations between GAAP and non GAAP measures are included in the back of the presentation and earnings release. 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 12 of the slide deck as the content of our call will be governed by this language.

Speaker 1

I'd also like to note that from time to time, in connection with the vesting or pending expiration of restricted stock units and or stock options issued under our long term equity incentive program, We expect that our Section 16 officers will file Forms 4 to report the sale and or withholding of shares in order to cover the payment of taxes and or the exercise price of options. Lastly, I want to call out that next Tuesday Wednesday, August 13 14, Don, Ricardo and I will be hosting 1 on 1 investor discussions at Canaccord's 44th Annual Growth Conference. This event will also include a fireside chat with Don and Ricardo on Tuesday, August 13, from 8 to 8:25 a. M. EST.

Speaker 1

On Wednesday, September 4, the company will host 1 on 1 investor discussions at the Barclays 30th Annual CEO Energy Power Conference in New York. And finally, on Tuesday, September 24, the company will host 1 on 1 investor discussions at Oppenheimer's Innovating Sustainability Summit to be held virtually. I'll now turn the call over to Don. Don? Thanks, Neil.

Speaker 1

Good morning, everyone.

Speaker 2

Thank you for joining us for our Q2 twenty twenty four earnings call. My comments will focus on Q2 and first half performance, 2024 full year outlook and the status and expected impact of several key elements of our strategy. Ricardo will dig deeper into our financial performance and outlook and our business strategy. As Neil indicated, we will conclude with a Q and A session. We operated very well in Q2.

Speaker 2

The strong execution leveraged and extended the momentum that we built throughout 2023 and during Q1 of this year. The performance is reflected in the Q2 financial results and in the higher 2024 revenue and adjusted EBITDA outlook, our 2nd beaten raise quarter of the year. Quarterly revenue grew to $118,000,000 which was accompanied by a 44% gross profit margin. Adjusted EBITDA grew to $29,000,000 resulting in an adjusted EBITDA margin of 25%. Quarterly revenue and gross profit were at record levels in both our energy industrial and EV, pyrothan thermal barrier businesses.

Speaker 2

We are well positioned to be net income positive for 2024, an important milestone for the company. Our profitability metrics are driven by both leveraging our fixed assets and controlling expenses. Our operating facilities are placing an emphasis on important safety, operational and financial objectives and are producing outsized value for Aspen and our customers. The gross profit margin over the past 6 quarters has expanded from 11% to 17% to 23% to 35% to 37% and now to 44%. Our adjusted EBITDA margin over the same 6 quarter period has grown from negative 31% to positive 25%.

Speaker 2

Comparing the Q2 of 2024 to the Q2 of 2023, revenue increased by approximately $70,000,000 and gross profit grew by approximately $43,000,000 dropping 62% of incremental revenue to the gross profit line. These results demonstrate the power of leveraging growth through our focus on unit economics and cost controls, both key elements of our business model. We believe we can continue to improve our performance. As demonstrated above, driving incremental revenue through existing capacity is extra valuable in terms of our profitability metrics, especially as we continue to improve yield throughout the manufacturing and parts assembly processes. The transition to the supplemental supply in support of our Energy and Industrial business is also strengthening our gross margin expansion.

Speaker 2

Our external manufacturing facility or EMF supplied 10% of our energy industrial revenue in Q4 2023, 50% in Q1 2024 and over 75% in Q2. Over these three quarters, our energy industrial gross margin grew from 32% to 42%. We anticipate that the EMF supply percentage will continue to grow as we more fully dedicate our East Providence plant to the thermal barrier business. Energy industrial activity remains strong across all regions and segments including significant growth of cryogel products serving the LNG industry. Since the launch of cryogel products in 2007, 29 facilities globally have been built or converted for LNG export.

Speaker 2

Aspen's cryogel is being used on 23 of these facilities. We have also won our first two carbon capture projects where our cryogel products deliver high performance thermal management. These important wins reinforce our role in sustainability and introduce an additional high potential segment to our Energy Industrial business. We believe our Energy Industrial team will drive steady, long term and highly profitable growth for the company, including a record year in 2024 of at least $150,000,000 in revenue and with gross margins exceeding our original 35% target. In the medium term, the team is focused on doubling the size of the business and providing a valuable base load of revenue and profits.

Speaker 2

We started the year with an outlook for revenue of $350,000,000 and for adjusted EBITDA of $35,000,000 which we raised to $380,000,000 $55,000,000 respectively at the time of our Q1 earnings call. The mid year results and momentum of both businesses have given us confidence again to boost our 2024 revenue outlook by $10,000,000 to at least $390,000,000 and our 2024 adjusted EBITDA outlook by $5,000,000 to at least $60,000,000 Per usual, this outlook is comprised of baseline numbers and our objective is to exceed them. In fact, we believe that we have over $50,000,000 of upside to our baseline revenue outlook, predominantly in our EV, pyro thin thermal barrier business. During Q2, we announced our 6th design award from a large EU battery manufacturer to supply the next generation battery platform for Porsche, the EU luxury sports car brand under the VW umbrella. The EU battery manufacturer has delivered over 2,000,000 battery systems since the year 2019.

Speaker 2

The battery platform is expected to underpin multiple nameplates for Porsche and has an expected start of production in 2025. Our EV commercial activity remains at peak levels. During Q3, we expect to deliver over 100,000 prototype or preproduction parts to over a dozen programs in our development pipeline. We are in final contract negotiations with a major European OEM, which we expect to become a formal design award during the Q3. This award would be our 7th.

Speaker 2

We anticipate securing additional OEM EV serial programs this year, which will further solidify and diversify our position in the electric vehicle market. With respect to our commercial activity with General Motors, GM reiterated during its Q2 earnings call that it is targeting to produce between 200,000,250,000 EVs in 2024. IHS cited 108,000 Ultium based EVs produced in the first half of the year and that it anticipated an acceleration in the second half of the year with the launch of several new vehicle nameplates. For our cautious planning purposes and embedded in our 2024 outlook, we anticipate that GM will produce in 2024 180,000 Ultium based EVs for GM nameplates, plus an additional 45,000 Ultium based EVs for Honda and Acura. As Ricardo will discuss, the July sell through levels were notable and support our expectations for the year.

Speaker 2

The potential upside to our revenue outlook that I cited earlier is largely based on GM maintaining its current ramp up and achieving its targeted production range. We are fully prepared to supply GM's pyrothin thermal barriers demand should they meet or exceed their targeted production range. We believe that our strategic accomplishments, both commercial and operational, keep us on a direct path to utilize our current capacity and supply arrangements and to realize our interim baseline target of at least $650,000,000 in revenue, $230,000,000 in gross profit and $160,000,000 in adjusted EBITDA. Our first half twenty twenty four financial performance more than supports these profitability metrics. We are executing 3 elements of our strategy that are important to our revenue and profitability goals.

Speaker 2

1st, the full conversion of Plant 1 in East Providence, Rhode Island to support the growth of the pyro thin thermal barrier business. 2nd, the transition to our external manufacturing facility to support the growth of the energy industrial business. And third, the financial stewardship to reinforce the strength and flexibility of the company necessary to achieve our interim and long term goals. In terms of financial strength and flexibility, we finished Q2 with over $90,000,000 in cash, just $10,000,000 lower compared to the end of Q1. And as noted above, with the momentum from our recent operating performance, we now anticipate for the full year 2024 at least $60,000,000 in adjusted EBITDA and positive net income.

Speaker 2

As we plan for revenue beyond $650,000,000 we are focused on our second aerogel manufacturing facility in Georgia, which will add approximately $1,200,000,000 of revenue capacity by 2027. Several months ago, we announced that the U. S. Department of Energy Loan Programs Office invited Aspen into the formal due diligence and term sheet negotiation stage of the process. This loan application is one of the key drivers for restarting the construction of Plant 2.

Speaker 2

We have made steady progress with the loan programs office. While we do not have assurance that the DOE will issue a conditional commitment, we remain deeply engaged with the LPO and its advisors and continue to believe that we are a strong candidate to partner with the DOE LPO in this program. We believe that we are in the final stages of the due diligence process. If we are successful, the next step would be a letter of conditional commitment. We expect to be able to provide additional details prior to the time of our next quarterly earnings call.

Speaker 2

Riccardo, over to you.

Speaker 3

Thank you, Don, and good morning, everyone. I'm happy to jump in and report another record breaking quarter in a row on behalf of our team starting on Slide 4. We delivered $117,800,000 of revenue in Q2, which translates into 145% growth year over year and 25% growth quarter over quarter. This reflects an annual revenue run rate of over $470,000,000 Most importantly, we believe that operating at this run rate demonstrates the scalability of our asset base and validates that it was only a matter of time before demand caught up with our team's ability to deliver what we've been laying out and some for over a year. Our energy industrial revenue was $36,900,000 an increase of 4% year over year and a 27% increase quarter over quarter.

Speaker 3

CAD28,300,000 was delivered through our external manufacturing facility, which has nearly doubled its ability to supply product quarter over quarter and is well on its way to enable us to deliver over $150,000,000 of revenues in this segment as we close out the second half of twenty twenty four. As Don mentioned in his remarks, the applications, recurring maintenance and new projects continue driving excess demand and we are incentivized to continue increasing supply in this segment. EV Thermal Barrier revenue of $80,800,000 was up more than 6 fold year over year and 24% quarter over quarter, reflecting a higher than expected ramp in GM's production of Altium platform based electric vehicles and higher volumes from Toyota, Scania and more preproduction parts for Audi. Our prototype and preproduction part volumes continue to exceed those of the prior quarter. Next, I'll provide a summary of our main expenses.

Speaker 3

Cost of goods sold of $66,200,000 or 56 percentage points of sales reflect relatively flat material costs quarter over quarter, but a significant improvement in conversion costs as a percentage of sales. Let's remember that we define conversion costs as all production costs required to convert raw materials into finished products. These include all elements of direct labor, manufacturing overhead, factory supplies, rent, insurance, utilities, process logistics, quality and inspection. The higher revenue levels and our team's ability to scale and deliver lower our cost of goods sold by 7% quarter over quarter. This is an 18% improvement in our ability to deliver gross profit from lower conversion costs, which tended to make up around 30% of our sales.

Speaker 3

So the effect of the team's focus on optimizing our capacity, introducing automation and improving production yields, among many other things, is materializing faster than expected. We also believe this improvement could continue if revenues ramp further, with each incremental dollar of revenues above Q2's revenue level, bringing over 50 percentage points of sales as gross profit, regardless of mix. In Q2, company level gross profit margins were 44% and our gross profit of $51,600,000 is a $43,200,000 improvement over our gross profit of $8,400,000 during the same quarter last year. Our Energy Industrial segment delivered $15,500,000 of gross profit or a 62% year over year increase on comparable revenues. In EV Thermal Barriers, we delivered $36,100,000 of gross profit in Q2.

Speaker 3

The resulting gross profit margins during the quarter were 42% 45% for our Energy Industrial and EV Thermal Barriers segments respectively. Most of the one time charges of obsolete inventory and equipment related to customer driven engineering changes that we implemented in Q1 were reversed in Q2 as we received the benefit of those changes and the reimbursement from customers. With this in mind, the best way to look at the profitability of our EV thermal barrier business is by looking at the results of the first half rather than each quarter separately. Operating expenses, which are sized for our near term projected annual revenue capacity of over $650,000,000 were $31,600,000 in Q2 or down by $1,100,000 quarter over quarter. This would have been even lower without several one time expenses linked to performance pay, recruiting and talent development.

Speaker 3

Higher than expected insurance costs also drove OpEx to these levels. We will continue managing OpEx in the second half of the year and we'll focus increases on driving incremental demand and profitability only. Our team continues to visiting every key company process and implementing new systems with the intent of bolstering our capabilities, reducing fixed costs and driving our OpEx towards a recurring $110,000,000 per year level. Putting these elements together, our adjusted EBITDA was $28,900,000 in Q2 compared to negative $10,800,000 during the same period last year. Delivering 25 percent EBITDA margins in Q2 of this year at the current revenue run rate more than validate the planning and execution of the gearing that we defined over a year ago.

Speaker 3

As a reminder, we define adjusted EBITDA as net income or loss before interest, taxes, depreciation, amortization, stock based compensation and any other non recurring items that we do not believe are indicative of our core operating performance. In Q2, these adjustments were limited to $3,000,000 of stock based compensation, dollars 1,100,000 of interest income and $2,300,000 of interest and financing related expenses. Our net income in Q2 increased to $16,800,000 or $0.21 per diluted share versus a net loss of $15,800,000 or $0.22 per diluted share in the same quarter of 2023. We could not be more excited about reversing this loss in 12 months' time. Next, I'll turn to cash flow and our balance sheet.

Speaker 3

Cash generated by our operations of 6 point reflected our adjusted EBITDA of CAD 20.9 million interest income of CAD 1,100,000 CAD 23,000,000 used for working capital. The key items that resulted in the usage of working capital were an increase in accounts receivable and inventory, offset by an increase in accounts payable, prepaid and accrued expenses. If we counted revenue collected from customers of $28,000,000 in the week after closing the quarter, we would have generated free positive cash flow. Our capital expenditures during the quarter were of $24,800,000 These put our operating cash needs for the quarter at $18,000,000 down by 59% quarter over quarter from $43,600,000 in Q2. Again, if we included the revenue collected during the week after we closed the quarter, we would have generated over $10,000,000 of positive free cash flow.

Speaker 3

In Q2, we spent $12,300,000 towards slowly advancing progress to fully enclose the main structures at Plant 2 and temperature control all areas. To date, we have incurred $300,200,000 in cumulative expenses through the end of the Q2 towards Fanta in Georgia to position the project for a potential restart of construction after we've obtained conditional approval from remaining construction cost of Plan 2 through a loan pursuant to the DOE's Advanced Technology Vehicle Manufacturing or ATVM loan program. The remaining CapEx spent in the quarter of CAD 12,500,000 towards additional improvements at our aerogel plant in Rhode Island and EV thermal barrier equipment in Mexico that will enable the potential continued ramp of our business in 2025. Our financing activities in the quarter, including included $8,100,000 related to the exercising of employee stock options that were close to expiring within our equity compensation plan. Looking ahead, we continue pursuing capital leases to fund a meaningful portion of this year's remaining CapEx outside of Plan 2, which I'll go into when we discuss our updated outlook.

Speaker 3

We ended the quarter with $91,400,000 of cash and shareholders' equity of $517,800,000 We continue meaningfully working our way through the due diligence and term sheet negotiation phase with the U. S. Department of Energy's Loans Programs Office as part of our application to fund the remaining construction cost of Plan 2 through a loan pursuant to the DOE's Advanced Technology Vehicle Manufacturing or ATVM program. In the appendix, we have a graphic of the different phases of the DOE's application steps and details on the work streams that make up the due diligence and term sheet negotiation phase and our progress with Endyce. As our operating performance improves, we continue assessing relatively inexpensive debt options that have become available.

Speaker 3

These include asset backed loans, term debt and a potential revolving line of credit to support our business. We expect to end the year with a capital structure aimed at continuing to lower our cost of capital and making sure that we have the flexibility to fund a potentially faster than expected but very profitable ramp in our business. Now I'll turn over to Slide 5 and walk through our updated thoughts on the outlook for the rest of the year. I'll focus on the EB Thermal Barriers segment as Don covered our Energy Industrial segment in his opening remarks, and we have very clear line of sight to delivering at least $150,000,000 of revenue there this year. We remain sold out and revenues there depend on our ability to increase broad supply of all our product With 2 quarters of EV production behind us, we could not be more impressed by the launch of the Honda Prologue, a vehicle that we weren't expecting to launch until later in the year.

Speaker 3

We believe that Honda has a very attractive product here being produced by General Motors. Everything about the way this vehicle was launched from the product plan, the timing of the advertising blitz, pricing and availability seems to be working in the U. S. Marketplace. In July of this year, almost 3,500 of them were sold and we expect that the annual sales run rate of 42,000 units will increase as the year progresses.

Speaker 3

With this in mind, we think it's worth splitting the Honda Prologue along with the Acura CDX variant from the rest of the GM production volumes in our outlook as we show here on the left side of Slide 5. We expect at least 45,000 of these to be produced in 2024. GM continues ramping up production of a broad range of other Altium based nameplates. In mid June, it revised its external 2024 Altium production forecast from 200,000 to 300,000 units down to a range of 200,000 to 250,000 units. The streaming of the upper end of their production goals does not impact their outlook and we are actually revising our baseline production outlook of GM's Altium vehicles down by 10% from 200,000 vehicles to 180,000 vehicles to be safe.

Speaker 3

GM can very well still exceed 180,000 units as it ramps up production in the second half of the year of nameplates like the Equinox and Silverado. At the same time, we expected to launch the GMC Sierra EV, the Escalade IQ and the Cadillac Optique. We continue to believe that GM's established brands with long running customer loyalty along with the size and scope of its distribution scale can enable it to drive sales beyond these expectations. Putting GM's and Honda's Acura's volumes together, we now expect to supply over 225,000 vehicles and enable our EV thermal barrier business to deliver over $240,000,000 of revenue in combination with Toyota, some initial Scania and Stellantis volumes along with a high level of prototype sales. A question that we get often from investors is centered around the sell through of EV production and whether we see risk in it affecting GM's production long term.

Speaker 3

In the center of Slide 5, one can see that in the U. S, the sales rate of Altium based vehicles grew by about 50% in July over June's to 156,000 vehicles per year. Through the end of July, we believe that around 45,000 vehicles have been sold. And if July sales rates were to stop growing, over 110,000 vehicles can be expected to be sold in 2024. To support sales of 225,000 vehicles, dealers would still need around 60 days of inventory on hand or 40,000 vehicles at least.

Speaker 3

This inventory may need to be even higher to support many different vehicle nameplates. So to confidently produce over 125,000 vehicles in 2024, only around 75,000 incremental vehicles beyond the July sales rate need to be sold within the year. We believe that this is achievable, especially as attractive lease incentives are offered to consumers, and therefore, we continue to see very profitable upside to our business baseline outlook. A vehicle like the Chevy Equinox, which is now the most attractively priced EV in the U. S.

Speaker 3

Market, could drive most of the incremental unit sales required in the second half of the year. We also continue seeing some investors attempt to connect our customers' volume plans to our revenues. We strongly advise against this as there is a significant delay of weeks or even months for a finished EV thermal barrier part that we invoice customers for to end up in a produced vehicle. This delay is even longer for a sold vehicle. We continue to include in Slide 12 in the appendix of this presentation to illustrate this and we recommend studying it and reaching out to Neil if you have any questions.

Speaker 3

For reference, in Slide 5, we are also showing IHS' expectation for what the Altium production ramp looks like in the second half of twenty twenty four versus the first half of the year to get to a total of 244,000 units. While time will tell whether 244,000 units in 2024 is the right expectation, we believe that an increase going into the first half of twenty twenty five is still likely. Turning over to Slide 6, combining both segments results in a total revenue outlook of at least $390,000,000 which would be a 63% year over year increase from our revenues in 2023 and a $10,000,000 increase over our prior revenue baseline for 2024. With this updated baseline, we believe that we can deliver over $16,000,000 of operating income in 2024, a 45% improvement over prior EBIT baseline of $11,000,000 which assuming D and A of around $30,000,000 and stock based compensation of $14,000,000 would translate into over $60,000,000 of adjusted EBITDA. This is a 9% improvement over our prior baseline EBITDA outlook and it implies 50% EBITDA margins on the incremental $10,000,000 of revenue, demonstrating our ability to continue scaling profitability without relying on outsized revenue growth.

Speaker 3

Our updated 2024 EBITDA outlook continues considering some potential headwinds to our near term profitability, such as the cost of new launches, higher power prototype sales, engineering changes that could lead to inventory obsolescence and expedited freight costs driven by the start stop natures of some of the nameplates in our thermal barrier demand. We could also opportunistically decide to add OpEx to continue advancing our R and D in key areas and accelerate the development of our technical sales capabilities and fund new program launches. As we reintroduce the rest of our energy industrial products, a mix that includes these products can also impact gross profit in this segment. On the flip side, if additional demand is truly there, we expect a disproportionate amount of it to flow to our bottom line as it did in Q2 and our team will continue reducing our fixed costs, increasing our production yields, our uptime and driving the right energy industrial pricing and mix. Continuing with the rest of our 2024 outlook, dollars 60,000,000 of positive EBITDA would translate into net income of over $7,000,000 or $0.09 per diluted share, assuming a share count of 79,300,000 shares.

Speaker 3

We are increasing our net income outlook by $5,000,000 or over 3.5 times and our diluted EPS outlook by $0.06 per share from $0.03 per share or 3 fold. Our CapEx without including Plan 2 is expected to be reduced by $5,000,000 to $45,000,000 from $50,000,000 for the year, thanks to our team's ability to deliver a higher level of uptime from our EV thermal barrier equipment in Mexico. We continue believing that this investment is enough for us to ramp up our production capacity in 2025. As I mentioned earlier, we only spent $20,500,000 in the first half of the year towards advancing the construction of Plant 2 in Georgia versus our original expectation of $30,000,000 Looking ahead, we are now planning to spend more than $15,000,000 advancing the construction of Plant 2 until we receive a potential conditional approval on the loan pursuant to the DOE's Advanced Technology Vehicle Manufacturing or ATVM program. This investment will still ensure that the site is advanced enough to preserve all our investments made to date and it enables the potential reacceleration of construction in the Q4 of this year.

Speaker 3

On the right side of Slide 6, before moving on, I think that it's worth pausing again and taking stock of the operational and financial journey that our team has been on over the past two and a half years. The basic metrics of revenue growth, gross margins, EBITDA and operating income that had to be up into the right are surpassing our initial expectations, thanks to the work of everyone on the Aspen team that continues doing more with less and sharpening our ax by developing new capabilities. I couldn't be happier with our performance progression and I'm excited to see it lower our cost of capital in real time as we continue creating opportunity for the same team that got us here and our company. Next, I'd like to please turn over to Slide 7. Before handing the call back to Don, we felt that it's important to take a look at what's happening in the U.

Speaker 3

S. Electric vehicle market that our in production OEMs mostly participate in, so that we aren't rattled by the day to day headlines of exuberance or gloom. There just doesn't seem to be an even keeled view out there. So we spent some time looking at the year to date market ourselves. Let's just face it, the U.

Speaker 3

S. EV market didn't grow year to date through the end of July relative to last year in the U. S. It's only up around 1%, which is comparable to the growth rate of overall new vehicle sales. We foresaw this in early 2023 as we were planning for 2024, considering the effect of rising interest rates.

Speaker 3

This fact is a key ingredient in developing our 2024 revenue baseline. Still though, EVs made up around 7% of the market and over 1,300,000 EVs are expected to be sold in the U. S. This year. So this has become a meaningful part of the market.

Speaker 3

Within it, there are some obvious share winners and losers. And as we started our EV thermal barrier business from 0 in 2021, supplying newly developed platform and nameplates, we are benefiting from the demand gains of the OEMs that we supply. Pyrethane is equipped on 6 out of 10 new EV nameplates that have been introduced in the U. S. In 2024 and those vehicles that were developed before we had a cell to cell solution are aging and losing share versus a range of fresh nameplates from OEMs that are gaining share.

Speaker 3

At this point, Pirate Thin is equipped on 100% of EVs sold by GM, Toyota and Honda in the U. S. These OEMs are only scratching the surface of what their share can be relative to their overall position in the entire new car market and the scale of their distribution. We believe that they will continue making gains as they launch new nameplates and offer attractive incentives on these vehicles to drive volume. The need to produce EVs at a rate that properly enables the absorption of fixed manufacturing costs is in our mind expected to drive production rates in the second half of twenty twenty four more than demand.

Speaker 3

The only thing more expensive than incentives up to a point is running at below 50% of one's capacity. I'll let you spend more time with this slide on your own time. But when we look at the EV market in 20 24, we continue seeing opportunities for additional sell through within the OEMs that we supply, thanks to an interesting circular reference of higher production volumes needed to deliver profitability and higher incentives needed to drive those volumes. Thinking longer term and moving to Slide 8, it's worth remembering why OEMs built up all of this capacity to make EVs in the first place. Understanding the regulatory environment in the U.

Speaker 3

S. Around emissions and fuel economy standards is important as it guided investment that was made over the last 4 to 5 years within OEMs in preparation of tighter standards that will ramp up this next year. I won't bore you with all the details, but U. S. New vehicle emissions and fuel economy regulation is driven by 2 major federal regulatory agencies, the Environmental Protection Agency or EPA and the National Highway Traffic Safety Administration or NHTSA.

Speaker 3

At the state level for 18 states that make up over 40% of new vehicle sales including California, This is driven within the California Air Resources Board or CARB standards. Neil would be happy to point you in the direction of good reading material to understand these standards in detail. These agencies can enforce fines, sue or enforce penalties on OEMs who do not comply with their standards and therefore impact the profit potential of currently lucrative sales. Focusing on the EPA, when looking at 2026, to be minimum compliant with these regulations, the industry would need to reach a roughly 15% TV sales mix, up about 7 percentage points from the current penetration or more than doubling. This includes the exhaustion and rollover of emissions credits purchased or generated from the sale of EVs in prior years.

Speaker 3

General Motors, for example, would need to quadruple its CV penetration from 4% in July of 2024 to around 16% by 2026 to be barely compliant. It is estimated that Ford would need to triple its CV mix from its current levels by 2026 to also barely comply with the EPA submissions regulations. If we go to what will be our next most important market after the U. S, Europe, the CO2 emissions there get even more stringent for OEMs and that is why we see a lot of new programs from those OEMs in our core pipeline. As we've built up our thermal barrier business, we've met not only with teams inside the OEMs that are working to address thermal runaway in batteries for all form factors and chemistries, but we've also met planning teams that are making sure that OEMs are positioned to comply with these regulations in 2025, 2026 and beyond.

Speaker 3

OEMs take these regulations more seriously than one would think from reading the press or Investor Relations materials. And this is what continues giving us the conviction to keep investing in this market, particularly now that our operating model is being validated 1 quarter after another. And with that, I'm happy to hand the call back to Don. Thank you for your attention and support.

Speaker 2

Thank you, Riccardo. While we operated well in Q2 and for the first half of twenty twenty four, we believe we have room to improve upon our record financial performance as we continue to focus on leveraging fixed assets, controlling expenses and executing key elements of our strategy. The Aspen team has done an outstanding job and the team is positioned to continue to win. Alisa, let's turn to Q and A. Thank you.

Operator

Thank you. 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 The first question comes from the line of George Giancaris with Canaccord Genuity. Your line is now open.

Speaker 4

Hey, everyone. Good morning and thank you for taking my questions.

Speaker 3

Hey, George. Good morning.

Speaker 4

Hey, good morning. I'd like to focus on the gross margin upside. I mean, you talked a little bit about how you got there, but maybe just a little more detail as to what's driving that improvement and also your view on the sustainability of that? Thank you.

Speaker 3

Yes. So as I mentioned in my remarks, right, in terms of material costs, we just don't think that there's a lot more room there left to squeeze. Those have settled out at levels that we were surprised by 2 quarters ago. And it's very encouraging to see that trend continue. And as we renew some of the contracts for our RAS, they're all shaping out to end up at around the levels that we saw that we've seen here over the past two quarters.

Speaker 3

Now when it comes to fixed cost absorption, that's where we believe that there's still quite a bit of juice left to squeeze up to a point, right? It really depends on the revenue mix that we have. As we ramp up some of the other EV launches, I think the launch phase tends to be relatively expensive as we saw here with General Motors throughout 2022 and the beginning of 2023. So those will impact the gross margin to a point. And then at the same time on the energy industrial side, as we start ramping up production of cryogel, that does not have the same gross margins as some of our higher running products.

Speaker 3

And so I do think that that remark that I made of basically incremental revenue beyond the run rate of this quarter coming in at about 50 percentage points of gross margin broadly is the right way to think about this. Obviously, until we find some other breakthrough in inefficiency, which still which would require quite a bit more development and we just don't have line of sight to that just yet.

Speaker 2

I think George, I would just add to what Ricardo said. I talked about we still have room to improve our performance. And one aspect of that is as we continue to drive yields, both in our aerogel manufacturing facility and in our parts assembly activities, again, there's room for us to improve there. And then as that gross profit translates to EBITDA and EBITDA margin, we largely have in place today the OpEx structure that the organization support further growth. So Ricardo mentioned it a number of times, our focus on straight lining and maintaining our current level of costs and OpEx.

Speaker 2

So that gross profit gains, those gross profit gains fall down to EBITDA gains as well. So we do believe that there's an opportunity to sustain these kind of margins, just as Ricardo described.

Speaker 3

Yes. I mean, frankly, George, our minds are starting to shift from being excited about gross margins to being excited about what ultimately matters, which is operating income, net income and targeting generating positive free cash flow. And there given as Don said, given the OpEx, it doesn't take a ton of incremental gross profit to increase those metrics by multiples, right, which is it's sort of implicit in the updated guide, which was pretty modest. But to increase our net income per share threefold, that to us is the ultimate measure of profitability here.

Speaker 4

Thank you. And maybe just as a follow-up, I'd like to focus on Energy Industrial where the relationships in China appear to be going well. Any update there? Any potential for that revenue capacity to flex higher over the near to medium term? Thank you.

Speaker 2

The relationship is strong and the cooperation is strong. It's very much of a mutually beneficial relationship. And the answer is yes, they have the capabilities of expanding their capacity. And so we believe that there is upside to that, not so much necessarily in 2024 beyond the numbers that we've suggested to date. But as we go into 2025, the ability to, as I said in my remarks, our team is focused on doubling the size of that business here in the medium term.

Speaker 2

As you know, very valuable baseload of both revenue and profit for us. And so we're having those discussions with our manufacturing partner to be able to execute on that strategy.

Speaker 3

Yes. I mean our run rate within the baseline guide, right, our run rate needs to increase to over $42,000,000 a quarter here in the second half in order for us to get to 150. And so we're obviously very incentivized to increase that supply and that's implied within the baseline.

Speaker 2

We're still trying to catch up with demand, frankly, especially in certain parts of that business. And as I noted, we've won 2 carbon capture programs here in North America, which I think foreshadow a nice opportunity for us as we go forward over the course of the again, over the course of the medium term.

Speaker 5

Thanks.

Speaker 2

Thank you, George.

Operator

Thank you. The next question is from the line of Colin Rusch with Oppenheimer. Your line is now open.

Speaker 6

Thanks so much guys. Given kind of the cadence of what's going on with the industry and certainly some other suppliers looking at the opportunity and your success, can you talk a little bit about the competitive landscape and what you're hearing and seeing from customers and some of those other folks that may try to, wedge into this market?

Speaker 3

We don't see a ton of people trying to wedge in, especially more given the headline views, right? I mean, if you look at folks that are currently selling components into EV manufacturers or that were sourced, When we were just getting started here on other parts of the EV value chain, They're all rethinking their investments into the EV market, right? And so while we used to or this space used to look extremely attractive a year ago, it doesn't look that way for them either. And that actually, I think, gives us room to just continue chipping away here at converting customers, right? When we look at the U.

Speaker 3

S. Market and we see that we're on 6 of the 10 new nameplates that have been introduced, we can't help but wonder why are we not on the other 4. And the reason is because we were nowhere when those 4 vehicles were being developed. But as we look ahead, it's not that competitive. I mean, there isn't another material that we know of that can deliver the three requirements that OEMs keep asking us to deliver, right?

Speaker 3

So the fireproofing within the thinnest profile possible, the thermal isolation within the thinnest profile possible and then the mechanical properties, which are everybody else's Achilles heel, including the thickness, right? And so, yes, I mean for us, as Don mentioned in his remarks and I brought this up as well, the building that we're sitting in right now which works on our EV thermal barrier prototypes could not be busier as we ramp up new programs. And that we're just going to continue leaning into that even if these programs end up getting retimed and pushed out by the OEMs. We hope that some of the remarks that we covered around the regulatory environment really put this in perspective when we're looking at 2026. I mean these names, they have to launch, right?

Speaker 3

Paying fines is very expensive for these OEMs. We know that there's teams in there optimizing the mix as they set up their product plans. And there's a reason why they continue investing in some three requirements today.

Speaker 6

That's super helpful. And then thinking about where some of the growth is coming from as see the EU start to ramp more capacity and you guys continue to perform well there with customers. How do you think about serving that market, especially given the success that you've had with the contract manufacturing and energy market? That something that we should be thinking about as part of the long term model?

Speaker 3

I mean, I think we're incentivized to leverage the facilities that we have in Mexico as much as possible, right? The scalability that the overhead there delivers is incredible. And if I just think to a previous life and the notion of ramping up facilities in Europe, that's a really hard place to make stuff in. You almost need to go to Eastern Europe or places like Morocco, Tunisia. And even there, the costs are rising.

Speaker 3

And so we're inclined to really stick to our strategy here. And if we are able to solve for the cost of capital for the plant in Georgia, We would ramp up the plant in Georgia right away to meet all of this demand that we expect in 2027, 2028 and beyond. And then continue leaning into our assets in Mexico. We're actually setting up a warehouse in the Netherlands for some of these given the profitability trajectory that we're on and the margin progress that we've made, we want to be very careful in expanding our footprint.

Operator

The next question is from the line of Ryan Fink with B. Riley. Your line is now open.

Speaker 7

Hey guys, thanks for taking my questions. Hey Ryan. Ricardo, just to follow-up on that last one. With the 6th OEM award for pyrothin and another expected in the Q3, What's the strategy if and when that awarded volume in 'twenty six or 'twenty seven or 'twenty eight exceeds your expected $1,700,000,000 in revenue capacity after Plant 2 comes online?

Speaker 3

Boy, that'd be an amazing prompt to have. I'd love to be the CFO of that company. I mean, yes, I mean, for us, the plant in Mexico still has an ability to ramp. And our current assets, last time we sized up our capacity, we mentioned that it was $650,000,000 But our team in Rhode Island continues finding additional efficiency, right? And we're incentivized to find as much productivity and capacity as we can until plan 2 comes online sometime towards the end of 2027, right?

Speaker 3

And so if we solve our cost of capital issue here for Plan 2, the strategy is the same, right? It's let's just ramp up Plan 2. We do think that there may be a room in 20252026 to get all of these programs together. It will be tight, but to get all of these programs fulfilled out of Rhode Island and potentially supplement it with some material from our external manufacturing facility for selected programs. But that would be a great problem to have.

Speaker 3

I mean, we just want to take it one step at a time. I think the most immediate one is solving for the cost of capital to get plan 2 in Georgia restarted as soon as possible. And our team in Mexico and our teams in Rhode Island continue finding additional capacity. And as those improvements are demonstrated, we it's fair to expect us to revise our capacity update from $650,000,000 of capacity to something that can bridge the gap to, for when Plan 2 comes online potentially.

Speaker 7

Got it. Makes sense. And then maybe just a second question on something a little more near term. Ricardo, could you potentially go a little deeper on the working capital dynamics and your expectations for collections and inventory here in the second half?

Speaker 3

It really depends on the volume trajectory, right? So if we have to continue capturing additional demand beyond our baseline expectations, we would continue consuming working capital similar to what we did here in Q2. But at the same time, if the demand flattens out a bit on us, which is what's implied in the baseline very conservatively, then all of that working capital would reverse itself. And I mean, we get paid pretty reliably within 45 days of when we invoice something. And so I think that overall it's a net positive, right?

Speaker 3

I mean if the for cash flow generation, if the demand increases and have to flex up, we'll consume a little bit of cash akin to what happened here in Q2. But then if it doesn't, then our cash flow position would be potentially even better as the working capital reverses itself. And so, we think we're sitting here looking at the second half favorably from a cash position and it's a net neutral in terms of working capital. And collections, I mean, our AER on the energy side is extremely tight. We've rarely written things off there.

Speaker 3

We sell to very legitimate and large customers. And so we have no concerns on our ability to collect.

Speaker 2

Great. And also, Ricardo, you mentioned in your script, Ricardo, the possibility of a working capital line. Just to manage these things, I mean, we really managed through the first half of the year our working capital without that kind of a working capital line. So it's very possible we could do that and it would be very, I think very normal for a business like ours to benefit from that.

Speaker 3

That's a second point on. I mean, I think we keep increasing our level of sophistication here. And so, there's the things that we are considering such as the working capital line, our revolver, there's also factoring that we could do with our AR to help free up cash flow earlier. We now have the margins and the reliability to be able to do that. With a little bit of insurance, we could actually do fairly cheap factoring as well.

Speaker 3

And so we've got plenty of options to fund what could be a very profitable expansion here going into 2025.

Speaker 5

Thanks guys. Anytime.

Operator

Thank you. The next question is from the line of Dave Anderson with Barclays. Your line is now open.

Speaker 8

Hey, good morning, Don. Only 13 years between earnings calls for me. A little bit changed here.

Speaker 5

I

Speaker 8

want to ask you about I just want to ask you about kind of overall kind of the bigger picture for your business over the next few years. A lot of concerns about EV demand in the U. S. And rest of world slowing. Ricardo mentioned that.

Speaker 8

However, on the other hand, domestic OEM manufacturing really just starting to ramp up. I'm just curious in your and as you're sort of thinking about it and GM is obviously your anchor customer here, but when you're looking out there and kind of their ramp up and I guess your other customers as they're ramping up, what is the governor on the pace of that ramp up? What's guiding that? Is it the EV sales? Are they looking at sales and all that?

Speaker 8

Or is it more their manufacturing? As they're building out improving manufacturing, I'm sure GM is probably trying to do all sorts of things with a whole new line of products out there. So how do we think about those 2? Because it feels to me like there's a lot of worry about EV demand, but I'm not sure if it really matters to your business in the next kind of 2 to 3 years. Am I thinking about that the right way?

Speaker 3

Yes. I mean, that's exactly right. And that's what we were trying to go to with our remarks, right? There's a blend of carrots and sticks driving EV production. And I would argue that those matter more for the OEMs than the demand itself to your point.

Speaker 3

And so there's another gate, which is these OEMs' ability to make cells, make modules, make battery packs and make vehicles, which is an all new thing for them, right? You're seeing that in Europe, where some of these folks that had very large expectations around building up capacity quickly are struggling to make their first batch of sales for a vehicle and therefore delaying the manufacturing of some of these programs. But when we look at an OEM like Ford, for example, that has been making EVs here in the U. S, we it's fair to expect them that on a next generation product, they could ramp up pretty quickly given the regulatory environment and the meat and the EV mix that they'll need to have to be able to sell vehicles period in 2026 through 2,030 and beyond. So that's ultimately the gating item, right?

Speaker 3

If you're and the OEMs don't advertise this for obvious reasons, right? It means expenses. It means deploying capital, but they need to make EVs. And then once you set up that capacity, you basically have this trade off as an OEM on whether you run at a very low portion of that capacity and have no volumes and you're guaranteed to lose money, right? Or do you provide certain incentives through leases?

Speaker 3

Leases are a very effective way for the OEMs to drive volume and without having a ton of cost. And then that way they'll hopefully get up to utilizing most of that capacity that they've deployed and make gross profit, right. So we think that all of them will go through some sort of ramp up phase, but that will really intensify in 2026 given the sticks and carat environment that the regulations provide.

Speaker 2

I also think they're gaining experience and the market the consumer is becoming increasingly comfortable and interested in these types of vehicles. And Ricardo mentioned the Prologue during his the Honda Prologue. It's a really attractive vehicle. GM, the Equinox is a well priced vehicle, very stylish, great drive range. We have high confidence that we're going to get a good that they will get a good pull through on that as well.

Speaker 2

And I think those things will reinforce themselves. The production as you cited and I also think there will be good demand for growing demand for these vehicles, especially some of the newer nameplates.

Speaker 8

So in your guidance for that potential there's another potential $50,000,000 in upside here in 2024. What's the swing factor on that? Is that just are you in your guidance just assuming, hey, you know what, we're going to take we're going to be conservative here. There could be some production kind of hiccups with GM and that's why our guidance is where it is. Whereas the side is, hey, if everything goes perfectly according to plan, that's how it is.

Speaker 8

So I'm just kind of curious what's sort of the difference? Is it more GM internally figuring this out and getting better at this? Is that kind of the gating factor just if I just pull it back to this year's guidance?

Speaker 3

Yes. So I think there's actually 2 stages of upside within the baseline outlook, right? So we're obviously playing it safe looking at GM's track record of producing and selling these vehicles. And their approach to Honda has been a little bit different, right? They've been producing mostly higher end models, higher trim levels.

Speaker 3

And so that's why we cut our baseline outlook to 180,000 vehicles for GM, right. But if GM does get to their 200,000 vehicles level, for us that could be a good $20,000,000 of revenue upside during the year, right? And it could all fall in Q3 or Q4 or split out in various different ways, like it's hard to determine how that would land. Then there's the second element of the upside, which is whether they get to $250,000 right? And that would be another depending on the vehicle, that would be another $50,000,000 plus $50,000,000 to $65,000,000 of revenue upside depending on what vehicles they make, right?

Speaker 3

If they make more Equinoxes, it's on the lower end of that number. If they make more Hummers, Escalades, larger battery pack vehicles and our CPV would be higher. We just want to manage our business here and plan our expenses not having to worry about whether GM goes to $225,000,000 or $190,000,000 or like we take our baseline guide very seriously. We take the planning internally pretty seriously. And it'd be great to just run our business without having to worry what GM is saying at some investor and and their messaging.

Speaker 3

And right now the market is incentivizing the OEMs to say that they're producing less EVs because they perceive this an impact on their profitability, right? But at some point, EVs are really a driver of their sustainability as entities that can sell vehicles, at least in the U. S. And in Europe in 2026 and beyond, right? And so I think people should not lose sight of that.

Speaker 3

And that's why while our long term outlook is still very optimistic, here in the near term, we just want to be careful with what we set our expectations of GM to produce.

Speaker 2

Dave, another source of that upside is that potential upside is the Energy Industrial business, which I know you know very well, probably in the range of $10,000,000 to $20,000,000 And it's not about demand in this particular case, it's about production and our ability to supply largely from our external manufacturing facility. So that's kind of another leg of the stool, I guess, when we think about our upside versus our baseline that we cited today at $390,000,000

Speaker 8

Great. Thank you very much gentlemen. Appreciate it.

Speaker 2

Thanks. Welcome. Thanks for initiating coverage, Dave.

Speaker 3

Anytime.

Operator

Thank you. The next question is from the line of Eric Stine with Craig Hallum. Your line is now open.

Speaker 9

Good morning, everyone. Thanks for sneaking me in here at the end.

Speaker 3

Hey, Eric. Hey, Eric.

Speaker 9

Hey. So I'm just curious, you mentioned in your remarks and also in the presentation, this potential 7th OEM in the Q3, major German OEM. I'm just curious, I mean, can you give any details there? Is that potentially a parent company of nameplates or brands you already have? Is that a new OEM altogether?

Speaker 9

Anything you can share would be great.

Speaker 3

It'd be all new. All new. I think Neil put a German flag on the slide, right? Yes. I saw that.

Speaker 3

At least one of them out, right? It would be all new and it's an OEM that we've been working with for quite some time. And they do have relatively strong EV penetration globally already. And yes, I mean there it's one where we have a very high level of confidence just based on the work that's been done so far and we do expect to have that contract signed here in the near term.

Speaker 9

Got it. That is great. And then last one for me. You mentioned carbon capture in 2 initial projects. Can you size well, I guess, first of all, I assume we should think about this as being kind of like LNG in the early days where you get in.

Speaker 9

It's very small, you get in a little bigger and then potentially a project or contract that's much larger. Is that how we should think about this? And maybe as you think about what the content is, maybe what it is today and kind of what you're shooting for?

Speaker 2

It's a

Speaker 3

little bit of a work

Speaker 2

in progress, but I would cite some differences actually with our LNG work. When we broke into the LNG business and again, it's a very conservative group of engineers that surround that business and the failures are extremely costly and difficult. So we really sort of cut our teeth in that on the maintenance side, doing relatively small projects within LNG facilities, building the confidence, getting our data in place. And as I cited in mine, we are very active in the vast majority of projects now these many years later. I think on the carbon capture side, the initial activities are sort of more project oriented just given the newness of these facilities.

Speaker 2

And again, I think we have some work to do before we can really size the market. But I believe the opportunities on a per project basis will be notable. And so give us a couple of quarters to kind of work our way into this market, but there's a nice pipeline of projects and we think these carbon capture programs are important from a sustainability point of view. And also they're being driven largely by the companies that we've served in our traditional energy industrial business. And so we have excellent channels into them, relationships with the engineering groups and we have an excellent solution as well from a thermal management point of view.

Speaker 9

Okay. That's great. Thanks.

Speaker 2

Thank you, Eric.

Speaker 8

Good to hear.

Operator

Thank you. The next question is from the line of Om Curran with Seaport Research Partners. Your line is now open.

Speaker 5

Good morning, guys. Thanks for going into extra innings here and taking my questions. Happy to. Happy to. Just yes, you guys always do.

Speaker 5

For your internal modeling that underpins guidance, would you tell us what average CPV you're assuming for the Honda Prologue and Acura ZDX respectively?

Speaker 3

Yes. They're about $900 per vehicle.

Speaker 2

For both, Ricardo?

Speaker 5

Yes. Great. And then turning to the Scania contract, as a commercial vehicle brand, that Marquise activity is just a bit more opaque. It's kind of tougher to track and get insights into. Could you speak to what indications you've gotten so far about how that production volume is expected to ramp?

Speaker 5

And will you be starting with the Scania 45P electric truck? And just that model initially, are there additional models in the queue? Could you just share some color on the current visibility and expectations you have specifically for the Stoney ramp?

Speaker 3

Yes. So initially, it's just on one of these commercial trucks, the 45P, as you mentioned. The it's worth highlighting that Scania is actually using Northvolt cells. And so even though they have pretty high expectations for the nameplate in Europe in particular, it's dependent on the ability of the cell manufacturing to scale up, right? And so until that really starts happening, it's hard for us to gauge the ramp up of that one.

Speaker 5

Okay. And then I'll squeeze in one more quick one here. On the energy industrial side, Don, could you just remind us when it comes to an LNG project, when do your orders tend to hit relative to the projects FID announcement? And what are the differences for you between a liquefaction project and a regasification opportunity?

Speaker 2

Well, we've from a on the regas side, I would say the largest project we've done on LNG has been a regasification facility. You might remember PTT in Thailand. The majority of the projects we've done have been export facilities though. And those have tended to be smaller, but still meaningful. And again, as I said in my comments, we've participated in the vast majority of those over the course of the past 5 years, actually longer than that.

Speaker 2

So sorry, I forgot the first part of your question.

Speaker 5

Just the timing of when you tend to see your orders hit and you get specked in relative to, let's say, a high profile FID announcement?

Speaker 2

Yes. So we get expected relatively early in that process, but we deliver product relatively late in the stage of the construction project, right. Insulation is one of the part of the latter phase of these construction programs that the LNG terminals have. So again, we get visibility on it relatively soon, but then we deliver towards the end of the projects.

Speaker 5

Got it. Thanks for letting me tick through my final questions. Thanks, Tom.

Operator

Thank you. The next question is from the line of Alex Potter with Piper Sandler. Your line is now open.

Speaker 3

Hi, guys. Hey, Alex. I know we're coming up

Speaker 7

on time here. I'll just ask one. And it's on the STLA medium platform from Stellantis. I guess, maybe a 2 parter. Would you agree, 1st of all, that in terms of incremental volume in 2025 versus 2024 that this is the, I guess, single most consequential new target for pyrofin next year versus this year?

Speaker 7

And then the second follow-up question to that is, what's the update there? Have you had there's been some murmurs of Stellantis potentially delaying a couple of launches. I don't know if that's accurate or if that aligns with what you've been seeing. Anything you could give us on that relationship would be helpful. Thanks.

Speaker 3

Sure. So I'll start with the first one. We actually think that Audi could ramp up faster than Stellantis here. And the reason for that is because this, STLA medium platform that we're expecting or the subset within that is the one that is using cells made by ACC in France. And so until that ramps, that's when that's really when one can start thinking about the timing of those nameplates.

Speaker 3

And to your second part of the question, I think that's why we assume those volumes to show up in the second half of twenty twenty five versus in 2024, right? And so as 2024 is materializing here, it's no secret that people are seeing that the vehicles just aren't launching here in 2024 and we expected that. But we believe that that will ramp up meaningfully in the second half of twenty twenty five and but it should be a close second to Audi. Okay, perfect. Thanks.

Speaker 3

I'll take

Speaker 7

the rest offline. Thanks guys.

Speaker 5

Thanks, Alex.

Speaker 3

Anytime. Sounds good.

Operator

Thank you. The next question is from the line of Sameer Joshi with H. C. Wainwright. Your line is now open.

Speaker 10

Hey, Don, Ricardo. Congrats on all the progress. I'll just make one comment and then a question. It seems that the increase in top line guidance of around the 10,000,000 dollars is pretty conservative given that your baseline volumes have increased from 200 to roughly 225. So I'll just let that hang.

Speaker 10

But on the second part, the question on that is on the DOE loan application process, is there a concern and this is a good problem to have that the process could be delayed that would prevent you from achieving the capacities that you will need to deliver in 2026, 2027 timeframe? And how are you planning for that potential delays that could materialize with the DOE?

Speaker 3

Sure. So happy to reaction to the comment, I would just emphasize that it's baseline or greater than. And so we understand that, but we don't want to get ahead of our skis, right? Then in terms of any potential delays around the DOE loan,

Speaker 5

I mean,

Speaker 3

I think my answer there is just no. I mean, we are moving as fast as we can on it. The DOE has been extremely engaged with us. I would not be surprised if within our team we're spending at least 10 hours with them on any given week since we made it to this phase of the process. And we obviously cannot get ahead of expectations here disclosing something, but we are very optimistic about where we sit in the process.

Speaker 3

Everybody's incentivized to get this done before the election. And so we don't expect any delays and that actually aligns perfectly with our timeline.

Speaker 10

Got it. Thanks for that Ricardo and good luck.

Speaker 5

Thank you. Thank you.

Operator

Thank you. There are no further questions at this time. So I'd like to hand the call back over to Don for any additional remarks.

Speaker 2

Thank you, Alyssa. We appreciate your interest in Aspen Aerogels and look forward to reporting to you our Q3 2024 results. Be well and have a good day. Thank you.

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Earnings Conference Call
Aspen Aerogels Q2 2024
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