Aspen Aerogels Q4 2024 Earnings Call Transcript

Quartr
Provided by Quartr
February 13, 2025

There are 10 speakers on the call.

Operator

Good morning. Thank you for attending the Aspen Aerogels Inc. Q4 twenty twenty four 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 Baranowski, Aspen's Senior Director, Head of Investor Relations and Corporate Strategy.

Operator

Thank you. You may proceed, Mr. Baranowski.

Speaker 1

Thank you, Ezra. Good morning and thank you for joining us for the Aspen Aerogels fourth quarter twenty twenty four 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 slide 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 Page one 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 of restricted stock units and or stock options issued under our long term equity incentive program, we expect that our 16 Section 16 officers will file forms four to report the sale and or withholding of shares in order to cover the payment of taxes and or the exercise price of options. I also want to highlight a few of our near term IR engagements. On Tuesday, February 25, management will be hosting virtual one on one investor meetings at the Oppenheimer tenth Annual Emergent Growth Conference. On Wednesday, February 26, management will be hosting virtual one on one investor meetings at the CG Sustainability Virtual Summit. And finally, on Monday, March 17, the management will be hosting one on one meetings at the thirty seventh Annual ROTH Conference in Dana Point, California.

Speaker 1

I'll now turn the call over to Don. Don?

Speaker 2

Thanks, Neil. Good morning, everyone. Thank you for joining us for our Q4 twenty twenty four earnings call. My comments will focus on the recent quarter and full year performance, the status and expected impact of several key elements of our strategy and our view of the current environment. Ricardo will dig deeper into our 2024 financial performance and our strategy and will provide a first look at our 2025 plan.

Speaker 2

We look forward to your questions. We operated well in Q4 and for the full year 2024. The execution of the plan was driven by the strength of our teams throughout the company. Revenue of $453,000,000 adjusted EBITDA of $90,000,000 and net income of $13,000,000 were all milestones. We grew revenue by 90% in 2024, exceeded our long term target of 35% gross margins and increased adjusted EBITDA from negative $23,000,000 in 2023 to positive $90,000,000 Our Pyrethane thermal barrier revenue increased from $7,000,000 in 2021 to $56,000,000 in 2022 to $110,000,000 in 2023 and to $3.00 $7,000,000 in 2024.

Speaker 2

At the last earnings call, we announced a new OEM award to supply Pirate Thin Thermal Barriers to Mercedes Benz. And on this call, we are pleased to announce a Pirate Thin Thermal Barrier Design Award from Volvo Truck, our second in the Commercial Vehicle segment, highlighting the significant opportunities in this space. A major Korean battery manufacturer is supplying the cells to Volvo Truck, and we expect start up production during the second half of twenty twenty six and for sales to ramp in 2027. This award was our third in 2024 and our eighth overall. Our Energy Industrial business also had an outstanding 2024 and a significant fourth quarter.

Speaker 2

A key achievement was the productive transition to our external manufacturing facility, or EMF, and the better matching of our supply capabilities with a growing global demand for our energy industrial products. The year long drive to qualify our full line of products and to produce them in a high quality, efficient manner was a success, with gross margins measurably exceeding our overall target of 35%. Our Energy and Industrial revenue in Q4, most always the strongest quarter of any year, was $53,000,000 with over $48,000,000 produced by EMF and up from just over $3,000,000 from EMF in the same quarter in 2023. As a point of reference, for the year 2024, we paid approximately 30% tariffs for energy industrial products delivered from EMF to The U. S.

Speaker 2

And generated gross margins exceeding 40%. Historically, approximately 40% of our overall Energy Industrial sales have been made in The U. S. In 2025, we are proactively addressing potential tariff risks through pricing strategies, sourcing optimization and working closely with our EMF partner to lower product costs. In a world where tariffs are used to accomplish a wide range of national and international goals and can come and go over relatively short periods of time, we believe it is difficult and likely unwise for us to make reactive and substantial structural changes based on tariffs.

Speaker 2

Overall, we believe the Energy Industrial business is well positioned for a policy approach in The United States that promotes an intensified focus on energy and power generation. The goal for the Energy Industrial team is to create shareholder value by consistently expanding the baseload of revenue and profit for the company. Looking back on 2024, we executed successfully three key elements of our strategy: first, the conversion of the East Providence aerogel manufacturing plant to support the growth of the pyrothin thermal barrier business second, 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, in part by generating positive net income in 2024 and by finishing the year with over $220,000,000 of cash on the balance sheet. We believe that our strategic execution in 2024 provides the resources and operating flexibility necessary to navigate any near term challenges and to deliver long term profitable growth. Looking ahead to 2025, we are taking decisive actions to navigate an evolving environment.

Speaker 2

Most notably, we have made the decision to cease construction of Plant 2 in Statesboro, Georgia and will meet long term thermal barrier demand by maximizing capacity at our East Providence manufacturing facility while utilizing a flexible supply strategy. Our strong working relationship with EMF, which has been vital to our Energy and Industrial segment, provides additional options to support our manufacturing capacity as we scale our businesses. This approach allows us to create capacity in a modular fashion that can more closely anticipate the demand curve and to do so with minimal capital. Other actions we are taking include the reduction of fixed costs by at least $8,000,000 per quarter, which returns us to a level on par with the 2023 run rate. When we shared our 2024 outlook a year ago, we thought we were being aggressive with revenue growth rate approaching 50% and with significant improvement in adjusted EBITDA.

Speaker 2

We had doubled revenue from 2021 to 2023, and there was plenty of uncertainty around EV adoption rates and the transition to EMF to serve our Energy Industrial business. As the year played out, our initial outlook proved conservative with beaten raises in each quarter, culminating in a full year revenue growth of 90% and a correspondingly high adjusted EBITDA result. As we enter 2025, there are, of course, even more variables at play, and we feel it is prudent to provide an outlook for Q1 alone, at least until the macro environment settles and the rules of the game become more clear. Our lead EV customer, GM, had a robust 2024, and our numbers reflected that level of activity. GM has set 300,000 vehicles as its target for 2025 and reiterated that number again this week.

Speaker 2

While our Q1 outlook does not reflect that pace, we are prepared to meet it as General Motors' sole source thermal barrier supplier. With a strong foundation in place, we are confident in our ability to adapt, innovate and capture significant opportunities in 2025. Our focus remains on delivering both critical solutions to our customers and sustained value to our shareholders. Ricardo, over to you.

Speaker 3

Thank you, Don, and good morning, everyone. I'm happy to report another record breaking quarter on behalf of our team starting on Slide three. We delivered $123,100,000 of revenue in Q4, which translates into 46% growth year over year. This reflects an annual revenue run rate of over $490,000,000 Having our Q4 revenues exceed our annual revenues of 2021 is a testament to our team's ability to efficiently scale our capacity. Our annual revenues of $452,700,000 reflect a 90% year over year increase and slightly beat our most recently communicated expectations of $450,000,000 for the year.

Speaker 3

Our Energy Industrial revenue set another quarterly record at $53,100,000 a 70% year over year increase and the near doubling of our supply constrained revenues in Q3. Most of this segment's product was supplied by our external manufacturing facility. Total twenty twenty four revenues of $145,900,000 reflects a 13% year over year increase and another all time record that exceeded our most recently communicated guidance of $135,000,000 for this segment in 2024. EV thermal barrier revenue of $70,000,000 was up 32% year over year and down by 23% quarter over quarter, reflecting the point that we've been making for several quarters about produced parts requiring several weeks to make their way through our customers' value chains into produced vehicles. We clearly produced a lot of the parts that were used in Q4 vehicle production during Q3 and this vehicle production schedule had at least 10 fewer production days in Q3s due to various holidays.

Speaker 3

As vehicle inventory hit our customers' target levels, we started seeing OEMs revised production schedules downward after the U. S. Presidential election, even if vehicle sales increased at the end of the quarter. More on this later. Nonetheless, revenues of $306,800,000 in EV Thermal Barriers represents a 179 percent year over year increase and then over 50% beat over our initial expectations for this segment in 2024.

Speaker 3

In Q4, company level gross profit margins were 38% and our gross profit of $47,100,000 was a 59% improvement over the same quarter of last year. The year's gross profit of $182,900,000 reflects a 40% gross margin and three times the gross profit that we generated last year, highlighting the scalability of our business. Both our segments contributed to this performance with our Energy Industrial business driving gross margins of 39% in Q4 and 40% for the year. Our EV Thermal Barrier business had gross margins of 41% for the year and 38% during the fourth quarter, which was impacted by the lower part volume produced during the quarter, but still above our segment targets of 35%. Our adjusted EBITDA was $22,700,000 in Q4 compared to $9,100,000 during the same period last year.

Speaker 3

The year's adjusted EBITDA of 89,900,000 is $112,800,000 higher than twenty twenty three's, adjusted EBITDA loss of $22,900,000 and very close to our most recently communicated expectation for 2024 of $90,000,000 As a reminder, we define adjusted EBITDA as net income or loss before interest, taxes, depreciation, amortization, stock based compensation expenses and other items that we do not believe are indicative of our core operating performance. In Q4, these adjustments were limited to $2,500,000 of stock based compensation, dollars 5,400,000.0 of depreciation, $3,500,000 of net interest expenses and $200,000 of net income tax expenses. Positive net income in Q4 of $11,400,000 or $0.14 per diluted share, assuming 82,990,000.00 shares, contributed to the year's positive net income of $13,400,000 or $0.17 per share on 80,300,000.0 shares. Next, I'll turn to cash flow and our balance sheet. We generated positive free cash flow of $20,900,000 in Q4 by freeing up $14,600,000 working capital and funding CapEx of only $14,800,000 7 point 4 million dollars of this CapEx funded Plant 2 in Statesboro, Georgia, while the remainder funded projects at our aerogel plant in Rhode Island and additional assembly equipment for new OEM programs at our EV thermal barrier assembly facility in Mexico.

Speaker 3

Our net financing activities in the quarter of $86,500,000 included all the ins and outs of the company's $93,200,000 equity offering on 10/21/2024 and a $6,500,000 repayment of our term loan. We ended the quarter with $220,900,000 of cash and shareholders' equity of $614,700,000 With our business generating positive free cash flow and a lower CapEx forecast, more on this later, we will seek to opportunistically use our cash to optimize our capital structure as we work our way through 2025. Next, I'll turn over to Slide four and walk you through some of the main differences between what drove our business in 2024 and what we're factoring into our planning for 2025. We are fortunate to be leveraging our aerogel technologies and products into two complementary and largely uncorrelated markets. Our Energy Industrial business and EV Thermal Berry business segments are each more than pulling their own weight by delivering gross margins of over 35% and growing.

Speaker 3

Our Energy Industrial Insulation business is no longer supply constrained in 2025. Our markets of subsea, refining, LNG and power generation favor investments and increasing the efficiency of assets across the board. We believe that depending on product mix, we can deliver anywhere between $150,000,000 and $200,000,000 of product each year, while continuing to very profitably replicate an annual growth rate in the teens, akin to our 13% growth rate of 2024. The demand wins in 2025 are as favorable as those of 2024 and we have supplied flexibility to grow here. Our EV thermal barrier business continues to evolve as the benchmark cell to cell product for OEMs to deploy as they develop the next generation of EVs or make meaningful mid cycle actions in these.

Speaker 3

We continue adding awards to our growing list of OEMs in a market where EV investment continues being retimed as demand expectations in North America and Europe are reset. In the long term, we believe that as we build a business from a low base, we can continue to outpace the growth of the EV market by supplying the right customers. In 2024, we benefited from scaling a new product into the automotive industry and the initial vehicle inventory buildup that is required to do this. By supporting multiple new vehicle launches, we had demand for parts that were used by automakers to hone in their manufacturing processes and improve their yields, as well as parts to build an initial set of inventory of finished vehicles. This additional demand of seventy to one hundred days of finished vehicles was meaningful and it drove most of the outsized demand that we fulfilled in 2024 that was beyond our initial expectations.

Speaker 3

A $7,500 EV credit in The U. S. In combination with the threat of tightening emission and fuel economy standards also motivated OEMs to aggressively ramp up production in 2024. Going into 2025, these demand tailwinds aren't as pronounced given the number of vehicle launches involved and the fact that OEMs have already built up inventory banks of several weeks of finished vehicles. We're also eyes wide open on the effect that continuously high interest rates and the potential reduction of EV incentives can have on new vehicle demand and in particular EV sales.

Speaker 3

We also question how motivated OEMs are to produce a high number of EVs in a potentially less punishing emissions and fuel economy regulatory environment. Having said this, we believe that to land at the appropriate level of revenues that can be expected for our EV thermal barrier business in 2025, we need to look at its revenues of $110,000,000 in 2023 and our original expectations of $200,000,000 in 2024 versus the more than $100,000,000 of outsized performance that it delivered of $306,800,000 in 2024. Tracing the line to 2025 from 2023 or our initial 2024 expectations versus the 2024 actuals seems to make the most sense given the demand dynamics involved and the fact that we do not expect volume from European OEMs to be meaningfully reflected in our P and L until late twenty twenty five and the first half of twenty twenty six. It is likely that these new programs could drive outsized 2026 demand in a similar fashion to what we experienced with the Altium launches in 2024. Turning over to Slide five.

Speaker 3

Just as in early twenty twenty three, we call that EV expectations were ahead of any potential reality and retimed all our capital investments while accelerating our path to profitability, in 2025, we are very cautiously going into the year by preemptively doing three things. First, we are stopping construction of Plan two. We're meeting long term demand by investing to maximize capacity at our aerogel facility in Rhode Island and supplementing that by leveraging the external manufacturing model that has worked so well in 2024 for our energy industrial products. It feels great to not take on an incremental $671,000,000 of debt on the balance sheet and to still be able to fulfill all the expected demand. Second, we are aiming to improve our profitability gearing by reducing the fixed cost base of the company by over $35,000,000 per year through our reduction of various positions and outside spend.

Speaker 3

Third, we strengthened our balance sheet in the fall of last year and currently have $228,000,000 of cash on hand as of the January. This fully funds our plans. It also enables us to play offense and evaluate a variety of opportunities, including additional paths of organic and inorganic growth, optimizing the capital structure and potentially returning capital to shareholders. In addition to our balance sheet, we have $57,000,000 of unused capacity on the revolver, bringing our total available liquidity to $285,000,000 With these actions behind us, we believe that we are uniquely positioned to protect our company's profit and cash generation potential through a broad range of potential demand outcomes. Providing annual guidance doesn't make sense and instead will work through this year quarter by quarter.

Speaker 3

We'll give you our best estimate of the broad range of outcomes for as far as we can clearly see and work to excel in executing through these outcomes. When our visibility for the rest of the year improves, we'll go back to providing a baseline expectation for the year. Now turning over to Slide six and focusing on Q1 of twenty twenty five. We expect total revenues of $75,000,000 to $95,000,000 in the first quarter of the year. The revenue split is expected to be of $35,000,000 to $40,000,000 for our Energy Industrial segment with the remainder covered by our EV Thermal Barriers segment.

Speaker 3

Within this revenue range, we expect to deliver breakeven EBITDA to $15,000,000 of EBITDA or a net loss of $15,000,000 to breakeven on a net income basis. This range also reflects a range of earnings per share from a loss of 0.19 to being approximately breakeven. While we assess and minimize the cost of demobilizing Plan two in Georgia, we are not expecting to invest more than $70,000,000 in CapEx supporting our operations in Rhode Island and Mexico during the quarter. CapEx for the year outside of Plan two will be managed to be less than $25,000,000 without including the cost to the mobilized Plan two. We realize that this is a meaningful reset from the levels of the most recent three quarters.

Speaker 3

Q1 represents an inevitable bump in the road and potential low point in the development of our EV thermal barrier business. We actually had a similar one in Q1 of twenty twenty three and as OEM vehicle sales start aligning with production on the successful nameplates that we've launched, there is potential upside to capture during the rest of the year. Let me be crystal clear. We are talking about finished vehicle inventories at General Motors where we are single sourced, not pirated inventories in the value chain, which we have full visibility on. GM had a strong production ramp in 2024 and is targeting over 300,000 vehicles in 2025 if we include the Honda and Acura nameplates.

Speaker 3

Our guide for Q1 reflects what we believe is a temporary drop in production to reduce finished vehicle inventory levels. With an annualized sales rate in The U. S. Of over 270,000 vehicles in Q4 of last year and market share of 19%, it is fair to expect GM to increase production after Q1 to meet its targets and launch three additional nameplates. Looking further ahead into 2026 and beyond, new programs will drive and diversify our revenue base in this segment further.

Speaker 3

For instance, we estimate the Volvo award that Don mentioned adds at least $45,000,000 to revenue per year once it's launched. From looking at the trends of the past five quarters on the right side of the slide, one can see that our team has very recent experience on accelerating the company's path to profitability, while ratcheting back spending to generate cash. Thanks to our recent decisive actions, we are energized to continue replicating this approach at a scale that isn't limited by capacity constraints anymore. And we cannot be more driven to keep executing. With that, I'm happy to turn the call back to Don.

Speaker 3

Thank you very much for your attention and continued support.

Speaker 2

Thank you, Riccarda. Before we move to Q and A, I'd like to comment that while we may have an unsettled near term environment, we believe that electrification through this decade will be a major driver for both our thermal barrier and energy industrial businesses. Our customers in these two businesses have vital safety, cost and performance goals, and our products, both current and future, provide critical solutions to them. Going forward, we are confident that electric vehicles will be the choice of a growing number of car buyers and that energy and power generation will be important macroeconomic drivers. And we have an important role to play in both.

Speaker 2

We continue to invest in our strategy to leverage our aerogel technology platform into large dynamic markets. Our operational and financial performance in 2024 exceeded all expectations, and we believe we will continue to perform at a high level in the years to come. We are focused on profitable growth and believe that we are positioned to thrive and to win. Ezra, let's turn to Q and A, please.

Operator

Thank you very much. Our first question comes from George Jaiyankas with Canaccord Genuity. George, your line is now open. Please go ahead.

Speaker 4

Hi, good morning, everyone. Thank you for taking my questions.

Speaker 3

Good morning. So

Speaker 4

maybe given the change in business strategy, can you just help us sort of quantify and think about what the long term financial profibusiness model looks like? What sort of EBITDA margin can we expect? What sort of revenue capacity? What sort of free cash flow margin do you think the enterprise is capable of producing over time? Thank you.

Speaker 3

Thanks, George. Yes, I mean, the margin targets remain unchanged. We want to do everything at 35% plus gross margins and to gear the company to deliver over 20% EBITDA margins. The supply strategy does not change that. And in fact, as you've seen in the energy business, we picked up a couple of points of margin thanks through working with our external manufacturing supply.

Speaker 3

And so when we look at that for the EV thermal barrier business versus deploying an incremental $671,000,000 of capital, it really is a no brainer, right? We can more modularly build up the supply source for that. We would not have gotten awards last year and this year if customers were not okay with that. And everything that we've discussed previously about our revenue potential and the pipeline remains the same. It's just that rather than supplying it now with one very large capacity original project, which is what plan two was, we're going to incrementally build the capacity beforehand.

Speaker 3

And Don and the team was actually in China here a couple of weeks ago looking at that capacity get built up and it's just really encouraging to see how that will be there ready to supply all of this additional demand that we expect in as early as 2026 without requiring additional capital from us.

Speaker 4

Thank you. Maybe as a follow-up, so is China the jurisdiction in which you'll be building additional capacity for Parathon or is it

Speaker 3

or are you exploring additional geographies and how much okay.

Speaker 5

Initially, yes.

Speaker 3

Sorry, George, go for it.

Speaker 4

No. So these margin targets that you've talked about, those are inclusive of any tariffs, etcetera, in these other from China?

Speaker 3

That's correct. Anytime. Thank

Operator

you very much. Our next question comes from Colin Rusch with Oppenheimer. Colin, your line is now open. Please go ahead.

Speaker 6

Thanks so much, guys. With the lower fixed cost, can you just walk us through timing on how we should start thinking about that savings being realized and what the nature is of it? Is that related to some of the scrap getting reduced in the manufacturing process Or is there a process change that we should be thinking about in terms of the production? Or is it really just related to migrating some of the production into the contract manufacturing?

Speaker 3

So the cost reductions that Don and I mentioned, the roughly $8,000,000 per quarter and $35,000,000 that I mentioned, those are actually just structural costs. So we are reducing I mean, we already reduced in the first half of this quarter several positions in the company. Looking at overhead in the operations as well as our OpEx spend and external spend, We mentioned that there are basically $3,000,000 of restructuring charges that we expect to impact us here in Q1 and those are reflected in the guidance. But then from Q2 onwards, that's when we can start expecting these $8,000,000 of savings from the fixed cost base, not material costs and other parts of the P and L. This is I mean, we're in essence bringing the fixed cost structure of the company back to the levels that they were in roughly Q4 of twenty twenty three.

Speaker 3

And obviously, as we pick up upside from GM here in hopefully the second half of this year or even in Q2, we think that that can yield several benefits. And again, our main focus with these actions is to protect the company's ability to generate a profit and generate cash flow.

Speaker 6

That's super helpful. And then from a customer perspective, you guys have been out working with customers for a number of years now. I'm curious about not just with the pricing dynamic, but just in terms of the product development and integration into new vehicles. Are you seeing any sort of acceleration in the sales cycle? Any slowdown?

Speaker 6

And any commentary around kind of previous expectations for ramp with some of these European OEMs and timing of those production schedules would be helpful?

Speaker 3

Yes. We see acceleration and adoption interest, but deceleration when it comes to ultimately the OEMs making the sourcing decision and launching these nameplates, right. With the Europeans, I think we all know what's going on at Northvolt. It's worth highlighting that our award with Audi in Scania was originally intended to be supplied with Northvolt sales. We're actually in the middle of validating the Plan B cell source for those programs.

Speaker 3

And just reiterating what I mentioned in my remarks, we do expect those guys to launch here towards the end of this year and in the first half of next year.

Speaker 5

Great.

Speaker 6

Thanks so much guys.

Speaker 3

Thanks Scott. Thanks, Tom.

Operator

Thank you very much. Our next question is from Eric Stine with Craig Hallum. Eric, your line is now open. Please go ahead.

Speaker 7

Hi, Donna, Ricardo.

Speaker 2

Eric, everyone.

Speaker 3

Hey, Eric.

Speaker 7

Good morning. So should we take it from your commentary, is it fair to say that you think that the GM inventory is something that largely normalizes in Q1? And then Ricardo, in the remarks, you talked about looking at the progression from '23 to your original '24 outlook has a way to think about '25. Could you just be a little more specific? Are you saying, take the original outlook you had for 2024 and kind of take that progression and grow it from there?

Speaker 7

Just looking for some directional outlook and I realize there are a lot of uncertainty, there's a lot of headwinds here, at least in the near term, but that would be helpful.

Speaker 3

Yes. I mean, the way we look at it is this way. Regardless of what General Motors is saying around their production targets and how many vehicles they're going to wholesale this year, we estimate that there are about 83,000 units that there were about 83,000 units sitting in inventory at the end of the year. And then I mean, we're dealing with the reality here, right? The production schedule is something that we've been we get for forty weeks out.

Speaker 3

In the near term, it's pretty accurate and we started to see that come down here in December and January. And when we look at the inventory levels, we can it's easy to understand why. When it comes to picking out the right level for the year, the reason why in my remarks, I point folks to looking at our original expectations from last year, which were basically of $200,000,000 so doubling our 2023 levels. Using that as a jumping off point for then trying to size out 2025 makes more sense versus using the outperformance of $100,000,000 on top of the $200,000,000 that we were originally expecting for last year. So I think that the number can still be higher than what we delivered last year if General Motors truly gets to that 300,000 unit level.

Speaker 3

But just based on the demand for parts and this inventory bank of vehicles, we just don't see it in Q1. And in Q2, it will likely start ramping up again. But I mean, given the environment, given the $7,500 credit, all those incentives that were so strong prior to the election for these OEMs to just build, incentivize and clear out EVs and offer cheap leases are not as prevalent here in 2025 or as clear, right. And so while we I mean if GM gets to 300,000 vehicles plus more if we actually include the Honda and the Acura nameplates we'll be ecstatic, right. It'll be a better year than last year.

Speaker 3

That's just not what we're seeing in Q1.

Speaker 7

Got it. So to clarify jumping off point, you're just saying $200,000,000 is a fair place to start and then make your judgment about how the remainder of the year plays out?

Speaker 3

Correct. I mean, we doubled '23 to 2024, right? Then we almost doubled that again, right? And I think the growth rate for 2025 could be somewhere in between

Speaker 2

where

Speaker 3

we would have ended up in 2024 with our original expectations and doubling, right?

Speaker 7

Very helpful. Thanks.

Speaker 3

Anytime.

Operator

Thank you. Our next question is from Chip Moore with Roth. Chip, your line is now open. Please go ahead.

Speaker 8

Good morning. Thanks for taking the question. I would like to ask on Statesboro, the capital you've deployed there, can you use some of the assets? How much capital is stranded and some of the equipment on the ground? What are your plans there?

Speaker 3

Some of it, we are moving to Rhode Island to increase the throughput of that facility, particularly some post processing equipment. And then the rest, as we mentioned in the press release and in our remarks, I do think there's a lot of value there and we'll work to capitalize on it. And there's a potential to send some of the equipment to the external manufacturing facility as well, which we'll be evaluating. But that's all happening now as we speak.

Speaker 8

Got it, Ricardo. And for this sort of modular strategy and adding capacity as you need it, is there a thought on how quickly you can do that and stage that? Obviously, I would assume it was faster with external partners, but how do you think about that sort of staging?

Speaker 3

Yes. I mean, again, going back to what we covered with George, in essence, I mean, we have to find a supply source for 2026. If you recall, a plant two would not have been available until 2027. And so, the facility that would supply this is being built right now as we speak Don and the team was there in January. And the speed with which things get done there is really incredible.

Speaker 3

So, the goal is to have this facility online ready to supply in 2026.

Speaker 8

Got it. And if I could sneak one last one in, back to capital and maybe getting some more from Statesboro. You mentioned organic and inorganic potential uses of capital. Just expand on that and then even return to capital, buyback or what are you thinking about there? Thanks.

Speaker 3

Yes. I mean, I think we obviously want to see how the rest of the year plays out and even though we're playing it safe here in Q1, there's no denying to the fact that we're sitting on $220,000,000 of cash, right? And so we have several R and D efforts that we could lever upon. If you take this strategy of mission critical materials that solve key problems where you can generate 35% gross margins, we do see several opportunities in that space. And I do think that as we work our way through the year, we're going to figure out what the right amount of cash on the balance sheet is and to what extent that there is to whatever extent there is some excess cash.

Speaker 3

We always need to see where the equity is at. I think at that point we could go out and reduce the share count.

Operator

Thank you very much. Our next question is from Jeff Osborne with TD Cowen. Jeff, your line is now open. Please go ahead.

Speaker 9

Yes, thank you. Maybe just following up on a couple of other questions before. As it relates to the annualized capacity with moving the Georgia equipment to Rhode Island and then also the EMF expansion that Dawn saw in China, can

Speaker 3

you just give us an update on

Speaker 9

what that annualized capacity will be in 'twenty six? And then, adjacent to that or in relationship to that question, what is the process for qualifying Chinese made pyrobin product with GM and others? Is that a requalification, rebidding, repricing process? Or do they not care where it's made?

Speaker 3

They don't care where it's made. It's basically another PPAP for recertifying. And we're looking at adding that capacity in increments of $150,000,000 to $200,000,000 of supply per year.

Speaker 9

And what will Rhode Island be with the equipment movement?

Speaker 3

Rhode Island could be closer to $600,000,000

Speaker 9

And then China is $200,000,000 today and adding $150,000,000 to $200,000,000 more?

Speaker 3

Correct. Great. Thank you. And then with literally no limit to that, right? So we could replicate that several times over within China or even outside of China.

Speaker 9

Thanks, Ricardo.

Speaker 5

Anytime. Thanks, Jeff.

Operator

Our next question comes from David Anderson with Barclays. David, your line is now open. Please go ahead. David, could we double check you're not muted at all? We're going to have to go through to the next question with Ryan Finkst with B.

Operator

Riley. Ryan, your line is now open. Please go ahead.

Speaker 7

Yes. Hey, guys. Thanks for taking my question.

Speaker 3

Hey, Ryan.

Speaker 7

For the Volvo hey, Ricardo. For the Volvo commercial trucks program, could you give us an idea of CPV there? And just broadly, and you touched on it earlier, but do you see additional wins coming here in the near term? Or are OEMs maybe taking a wait and see approach as policy changes take hold?

Speaker 3

Yes. So on the CPV, I mean, it's comparable to our other commercial vehicle truck program. To give you an idea, our on a 70 to 90 kilowatt hour prismatic battery, we would have roughly $300 of content. This I mean, some of these batteries are up in the three fifty, three hundred plus kilowatt hour size. And so the CPV opportunity is meaningful without going into a ton of detail on the specifics of their configuration.

Speaker 3

To your question on just the broader environment, it's really interesting. China is at 50% EV penetration already. In North America and Europe, we continue to dabble in this 10% to 15% level. So you do start wondering, right, like is that progress? And so while there's a lot of noise and uncertainty here around The U.

Speaker 3

S. Regulatory environment, it all really seems to be lower on the priority list relative to a bunch of other things that the new administration seems to be doing. And so really time will tell. That's why I think if you look at some of what some of the OEMs are saying, they're all just sort of staying the course and putting out targets with an asterisk, right, basically saying assuming the regulatory environment states are saying this is what we're going to deliver. And

Operator

I think

Speaker 3

that is probably the right thing to do given how drawn out any regulatory changes are, right? I mean, the Trump administration basically ran out of time during their first term trying to amend the CAFE standards. So this stuff takes quite a while and, you know, for companies to pivot too quickly, it's really expensive and they can end up earning a lot of capital that they just don't pay back. Then in Europe, in Europe, we just don't see the requirements being relieved at all. And so these with these OEMs being global and with our European customers, those guys are staying the course, still trying to build a certain level of EV mix.

Speaker 3

And four years within a twenty year transition of electrification is not a ton. And so I do see some OEMs staying the course, but being overly cautious as they deploy capital, right. The broader new vehicle market seems to be stressed as the Western OEMs lose China. And so that is having an effect on their CapEx budgets. And that I believe is ultimately why they are being a little slower to launch new vehicles, launch new nameplates and just source new technologies including ours.

Speaker 3

So, we are cautiously going into 2025, but this is stuff that we foresaw back in the beginning of 2023 when we re time Plan two.

Speaker 7

Got it. Appreciate that color, Ricardo.

Speaker 3

Anytime.

Operator

Thank you very much. Our next question is from Tom Curran with Seaport Research Partners. Tom, your line is now open. Please go ahead.

Speaker 4

Good morning, guys.

Speaker 3

Hi, Tom.

Speaker 5

Just to clarify Ricardo, I'm trying to put a fine point on it. Is what you're doing on the structural cost savings front, is that so that as we move through 2025 and head into 2026 and you have the incremental capacity coming online at the EMF in China and generating more production for EVTV. Is that all and the associated tariffs to ensure that you can defend this hell or high water baseline for gross margin of 35%? Or is it expected to actually generate offside and take you to a new higher run rate for gross margin?

Speaker 3

No, I don't think it's really tied to gross margin. It's actually more to protect the EBITDA and net income potential of the company. So it's quite a bit of it is below the gross margin line. And it's to protect Q1 and protect the rest of 2025. Some of this is also just general housekeeping, right?

Speaker 3

When you go through an expansion as the one that we did, you sit back and realize that some positions were critical and some you could do without. And we just thought that it'd be prudent to do that early on going into this year regardless of the demand and supply outcomes.

Speaker 2

Tom, I would just reiterate or emphasize. If I could just amplify one point. When we talked about the $8,000,000 per quarter, we've completed those actions. I thought by your question, you might be suggesting that we were going to do it over the course of the year. These actions have been taken.

Speaker 5

Got it. So it's all done, it's been fully implemented and you're 100% there as of Q2?

Speaker 3

Exactly. That's correct.

Speaker 5

Okay, great. Helpful. And then shifting to EI, Darn, could you share some color on how the LNG end market is shaping up for 2025? Do you expect it to account for at least 30% of EI's revenue in 2025? And then how we might see the mix between U.

Speaker 5

S. And international revenue evolve over 2025 for EI?

Speaker 2

Yes. So the LNG business, Tom, we know is strong. It was strong in 2024. And I think in this new environment, it's poised to be yet even stronger. And I do think cryogel, our coal processing materials, are headed to 30%.

Speaker 2

They're not quite there yet. In terms of the split geographically, as I said in my comments, about 40% historically has been U. S. Based. It's interesting, some of our larger LNG projects are located here in The U.

Speaker 2

S. So it's possible that, that number can shift around. But our business in the other regions is strong as well. So I don't mean to suggest that that will be a meaningful or dramatic change, I guess, I should say. But we are in good shape in this business.

Speaker 2

Of course, some uncertainty on the EV side. The flip side of that is some pretty clear tailwinds on the Energy Industrial side. And by the way, it's terrific to be able to be unconstrained in our capacity for that business here in 2025.

Speaker 5

Understood. I appreciate you taking my questions.

Speaker 2

Thanks, Tom.

Operator

Thank you very much. We currently have no more questions. That marks the end of our Q and A session. I will now hand back over to Don for any closing remarks.

Speaker 2

Thank you, Ezra. We appreciate your interest as always in Aspen Aerogels and look forward to reporting to you our first quarter results in early May. Be well. Have a good day. Thank you.

Operator

Thank you very much, Don. And thank you, Neil and Ricardo, for being our speakers today. Thank you, everyone, for joining. We appreciate your participation. You may now disconnect your lines.

Remove Ads
Powered by Quartr
Earnings Conference Call
Aspen Aerogels Q4 2024
00:00 / 00:00
Remove Ads