Aspen Aerogels, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Aspen Aerogels Inc. Q3 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone keypad. If you require any further assistance, please press star then 0. I would now like to hand the conference over to your speaker today, John Fairbanks. Thank you. Please go ahead.

Thanks, Brandi. Good afternoon. Thank you for joining us for the Aspen Aerogels conference call. I'm John Fairbanks, Aspen's chief financial officer. There are a few housekeeping items that I'd like to address before turning the call over to Don Young, Aspen's president and CEO. The press release announcing Aspen's financial results and business developments, as well as a reconciliation of management's use of non-GAAP financial measures, compared to the most applicable GAAP measures, is available on the investor section of Aspen's website, www.arajel.com. Included in the press release is a summary statement of operations, a summary balance sheet, and a summary of key financial and operating statistics for the third quarter and nine months ended September 30th, 2020. In addition, the investor section of Aspen's website will contain an archived version of this webcast for approximately one year. Please note that in our discussion today, we will include forward-looking statements, including any statement regarding outlook, expectations, beliefs, projections, estimates, targets, prospects, business plans, and any other statement that is not an historical fact. These forward-looking statements are subject to risks and uncertainties. Aspen Aerogel's actual results may differ materially from those expressed in these forward-looking statements. A list of factors that could affect the company's actual results can be found in Aspen's press release issued today and are discussed in more detail in the reports Aspen files with the SEC, particularly in the company's most recent annual report on Form 10-K. The company's press release issued today and filings with the SEC can also be found in the investor section of Aspen's website. The forward-looking statements made today represent the company's views as of today, October 29th, 2020. Aspen Aerogels disclaims any obligation to update these forward-looking statements to reflect future events or circumstances. During this call, we will refer to non-GAAP financial measures, including adjusted EBITDA, These financial measures are not prepared in accordance with U.S. generally accepted accounting principles or GAAP. These non-GAAP financial measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with GAAP. The definitions and reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures and a discussion of why we present these non-GAAP financial measures are included in today's press release. I'll now turn the call over to Don Young, President and CEO of Aspen Aerogels.

Don Young Great. Thanks, John. Good afternoon. Thank you for joining us for our Q3 2020 earnings call. Today, I will comment on the contract we were awarded to provide our pirate thin thermal barriers for use in the next generation of electric vehicles of a major U.S. automotive OEM. I will then share our perspective on the current operating environment for energy infrastructure. I will finish with a progress report on our strategy to leverage our AeroGel technology platform into additional high growth, high value markets. Next, John will review our Q3 and year to date financial performance and provide both revised guidance for 2020 and a high level outlook for 2021. We will conclude the call with a Q&A session. We announced today that a major US automotive OEM awarded Aspen a contract to supply Pyrofan thermal barriers for use in its electric vehicle battery platform. As a reminder, our thermal barriers help EV manufacturers to manage thermal runaway, a phenomenon where a cell in a lithium-ion battery pack has a sudden release of energy that potentially results in a fire. Pyro-thin thermal barriers are designed to impede the propagation of thermal runaway both at the battery cell and battery pack level across multiple lithium-ion battery platforms. Aspen's technology offers a unique combination of performance attributes that enable EV manufacturers to achieve critical safety goals without sacrificing drive range. The battery platform of the major U.S. automotive OEM will power its next generation EVs with production expected to begin in 2021. we will provide power-thin thermal barriers in the fourth quarter of 2020 for the prototype fleet. Based on the OEM's projections for 2021 and 2022, we expect to generate single-digit millions of dollars each year in commercial revenue. During 2023, we expect to see, from this customer alone, a solid ramp in revenue with potential annual revenue in 2024 and beyond on par with our energy infrastructure business. Over the coming decade, our potential revenue, again, from this customer alone, represents a nearly $1 billion opportunity for Aspen. It is important to remember, of course, that the ultimate value of this contract is dependent on our customer's success in participating in the global transformation to electric vehicles. After an intense RFQ process, and extraordinary individual and team efforts here at Aspen, we are focused now on exceeding the expectations of this first major customer. It is also important to remember that thermal runaway is a universal challenge for all EV manufacturers. Battery electric vehicle companies are unlikely to take shortcuts with safety, especially at this pivotal point for market acceptance of e-mobility. We have already seen recalls and regulatory pressure resulting from thermal runaway in EVs in Asia, Europe, and North America. With an estimated $100 to $300 of PyroThin revenue per electric vehicle, our business development effort is focused on a multi-billion dollar commercial opportunity for Aspen over the course of this decade. We have over 30 EV and battery players at various stages in our development funnel. At present, we have 10 companies consisting of EV and battery OEMs and Tier 1 suppliers that are actively evaluating our PyroThin product. We are adding resources to accelerate our success with these potential customers. Switching gears to our energy infrastructure business, the pandemic continues to have a negative impact, particularly on our near-term revenue generation. Our products are installed by contractors working in refineries, petrochemical plants, and LNG terminals around the world. It is critical for our business that contractors have access to the energy infrastructure facilities that we serve. In response to COVID-19, facility owners have limited the number of contractors on site in order to reduce worker density. As a result, our revenue has been negatively impacted again during Q3, most notably in the North American markets. Although it is hard to predict the certainty when we will see the pandemic-related interruptions of work cease, our underlying assumption for both the revised 2020 financial guidance and the high-level 2021 outlook is that lower density work sites will be the reality. And therefore, during this time, we assume revenue levels will remain in the vicinity of $25 million per quarter. Looking forward, we expect revenue to rebound when contractor access to facilities improves and the distribution channel restocks. We believe there is significant pent-up demand for both maintenance and project work. There are many petrochemical and LNG projects specified with pyrogel and cryogel, and we believe that as soon as these projects move forward, Aspen will see a return to revenue growth. As we reported last quarter, our revenue required for adjusted EBITDA break-even has decreased from $140 million in 2019 to a revenue level of approximately $110 million for 2020. For 2021, we have set the objective to maintain the 110 million-dollar break-even level, while also increasing our expenditures on our EV initiatives, including enhancing our business development resources to capture additional EV thermal barrier winds. We believe we have positioned the company to emerge from the COVID-19 period with a strong operating platform and significant strategic momentum. On the subject of strategy, we continue to make substantial progress with our initiatives addressing electric vehicles. The first major win with PyroThin is important to us in many ways. Not only does it position us for growth in a new dynamic megatrend market, but it also leverages our existing manufacturing assets where capacity realization is key to significant profitability. And given the universal nature of the thermal runaway problem for electric vehicle manufacturers, we have reason to believe that we can win adoption on additional EV battery platforms. The problem posed by thermal runaway is extremely challenging to manage for the OEM. We believe the valuable attributes of pyrofen combined in a single solution make the product an important contributor to a safe and successful global transformation to e-mobility and a big winner for Aspen Aerogel. With respect to our carbon aerogel efforts, we continue our work to validate and accelerate the potential adoption of our technology within the battery materials market. Our effort centers on taking full advantage of the unique attributes of our carbon aerogels and leveraging our decades of experience manufacturing aerogels at scale. Our goal is to improve the energy density of lithium ion batteries. Our focus is on cost, performance, and safety. Our work with our evaluation partners, SKC and Evonik, has intensified as we have demonstrated significant progress in both the cost and performance of our silicon-rich anode materials. With our new battery lab operational and with an expanded team of battery experts, we are now providing larger sample quantities to our partners for their testing on production-level equipment. Their feedback is critical as we seek to optimize our carbon aerogel technology to fit along key points of the technology roadmap of industry leaders. We were inspired by the Tesla Battery Day. It affirmed that the work that we are doing with our low-cost, high-performance, silicon-rich anode material is, in fact, on target. We believe our work, supported by an active IP strategy, will be attractive and valuable to our existing partners and to other leaders in battery technology. The goal, with our opportunities focused on the electric vehicle megatrend, is to create proprietary and diverse aerogel-based businesses. We have been building towards this first EV-related strategic win for many years. Fire safety, energy efficiency, durable performance, and asset resiliency are constant themes to our success in all markets that we serve. The contract award not only establishes our position in the EB megatrend, but it also demonstrates the value and breadth of our broader strategy to leverage our patent-protected aerogel technology platform in additional high-growth, high-value markets. I would like to use this forum to thank the people at Aspen for the extraordinary work they have done and are doing in these most trying times. Balancing the stresses from work, family, community, and from life more broadly is especially hard right now, and I am deeply grateful to all of my teammates at Aspen. Now I will turn the call over to John for a review of our financial results. John?