Aspen Aerogels, Inc.

Good afternoon. Thank you for attending the Aspen Aerogels Incorporated Q2 2021 earnings 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 pass the conference over to your host, John Fairbanks with Aspen Aerogels. Thank you. You may proceed, Mr. Fairbanks.

Thanks, Bethany. Good afternoon. Thank you for joining us for the Aspen Aerogels conference call. and John Fairbanks, Aspen's Chief Financial Officer. There are a few housekeeping items that I would 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 the Aspen's website, www.airagel.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 second quarter, and six months ended June 30th, 2021. In addition, the investor section of Aspen's website will contain an archived version of this webcast for approximately one year. Please note that our discussion today 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 a 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 on 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 Investors section of Aspen's website. Forward-looking statements made today represent the company's views as of today, July 29th, 2021. Aspen Aerodels 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 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.

Thanks, John. Good afternoon, everyone. Thank you for joining us for our Q2 2021 earnings call. Today I will describe the key highlights of our progress towards achieving our near-term and longer-term business goals. John will then recap our Q2 performance and finish with our updated outlook for 2021. We will conclude today's call with a Q&A session. The key points I intend to cover are that we closed of valuable financing with Koch Strategic Platforms. We delivered strong Q2 financial performance. We raised guidance for the second time this year. We won additional pyro-thin thermal barrier contracts, and we enhanced our acid battery material strategy. On June 30th, we completed a $75 million private placement with Koch Strategic Platforms, or KSP. KSP is part of Koch Industries, one of the largest privately-owned industrial companies in the world. We were an ideal investment target for KSP given its focus on high-growth companies, especially those innovating in new economy industries. KSP is targeting investments in fossil fuel value chain transformation, new sources of energy, energy infrastructure, and the electrification of transportation. Markets were Aspen's strength. of resource efficiency, asset resiliency, and safety translate to significant growth opportunities over this decade. Securing KSP as an investor is also consistent with our strategy, which is to leverage our aerogel technology platform. Excuse me. Securing KSP as an investor is also consistent with our strategy, which is to leverage our Aerogel technology platform into high-value, high-growth markets that support our position as a technology leader in sustainability. We believe we have the opportunity to double revenue every two years through this decade. Growth at this rate will bring scaling challenges, and for this reason, KSP is an ideal investor for Aspen. KSP's investment not only strengthens our balance sheet but brings with it broader corporate, technical, and logistical resources that are available to Aspen as we scale our operations to keep pace with the rapidly growing demand for our aerogel products. We believe that these resources will be valuable, particularly as we move into high gear in the design, engineering, and construction of Plant 2. We are in the midst of discussing Plant 2 with the Koch team to ensure a well-designed project that is delivered on time and on budget. Overall, KSP's investment will help unleash Aspen's full potential to create significant value during the emerging era of energy transformation. Regarding Q2 performance and 2021 guidance, we delivered a strong quarter with revenue of $31.7 million compared to $24.6 million in the second quarter last year, a 29% increase. Gross profit grew 61%, showing the leverage associated with increasing utilization of our manufacturing plant. Over the course of the pandemic, we indicated our belief that the low-density work sites of our energy infrastructure end users would create pent-up demand, both for maintenance and project work. We were confident that as the impact of the pandemic began to subside, we would see revenue levels begin to increase towards pre-pandemic levels. Significant revenue growth in Q2, particularly in regions with higher vaccination rates, is a good sign that this premise appears to be correct. And this positive indicator is the principal reason we raised guidance for the second time this year. One of the key components of our commitment to double revenue from 2021 to 2023 is to recapture our pre-pandemic revenue levels in our energy infrastructure business, which averaged $35 million per quarter during 2019. We believe that we are well positioned to achieve this goal by 2023. And one last point about the second quarter. The KSP investment increased our cash balance quarter end to over $100 million, which puts us in a strong position to continue to execute our strategy. Turning to our PyroSyn thermal barrier opportunity, we continue to make strong progress in developing our business opportunities during the quarter. Aspen's technology offers a unique combination of performance attributes that enable EV manufacturers to achieve critical safety goals without sacrificing drive range. Activity levels are high in the three-stage business development funnel that I described in detail at the time of our last earnings call. During the second quarter, we won additional scope for Pyro Thin Thermal Barriers in the battery platform of our original major U.S. automotive customer. we began Q2 with approximately $1 billion of potential revenue through 2030 from our prior contract win. During the quarter, we were awarded two contracts with potential revenue through 2030 of an additional $300 million. Note that these two new contracts run through 2034, which adds additional revenue potential in the years beyond 2030 and support our view that thermal runaway mitigation will be a long-term requirement in the EV market. In addition, we are on the cusp of an important design win with a leading Asian automotive OEM. This expected design win is for a specific EV model planned to be sold in multiple regions beginning in Q1 of 2022. This expected contract award positions us for a larger design win as the automotive OEM completes the design of its own battery platform that is expected to power all of its EV models through the decade. We are eager to announce the names of both our large North American OEM and the leading Asian OEM as soon as possible. For now, we remain focused on securing additional design wins for pyro-thin thermal barriers as we strive to become the EV industry standard for the management of thermal runaway. Moving to Aspen Battery Materials, which we refer to as ABM, we are developing our carbon aerogel technology in the design of low-cost, high-performance silicon-rich anodes in lithium-ion batteries. The replacement of graphite with silicon in anodes is widely viewed, as the best near-term approach to boost lithium battery performance and to reduce costs. The approach enables drop-in materials compatible with the manufacturing technology underlying today's battery gigafactories. Our work is centered on leveraging our two decades of experience in the design and manufacture of aerogel nanomaterials at scale in order to optimize the cost and performance of our carbon aerogels. As ABM has increased its level of partner engagement and made additional investments in outstanding scientists, engineers, and facilities, we have decided to add two additional angles to our commercialization strategy. First, we are exploring the idea of providing our patent-protected carbon aerogels to other companies that have their own silicon anode programs. Our carbon aerogels are mechanically strong and highly conductive, we have the ability to manipulate pore size and to make them uniform. These attributes make for an ideal protective host or scaffold for silicon and helps address the challenge posed by silicon expansion during charge-discharge cycles. This approach plays to the strength of our technology and may enable the broadest adoption of our carbon aerogel solution in the EV battery markets. And second, we are sampling with evaluation partners our silicon carbon materials for use as the anode in solid-state batteries. We believe this three-pronged approach to the commercial development of our carbon aerogels will enable us to partner with additional battery and EV OEMs and with battery material companies to leverage our technology more broadly and to reach commercial validation for ABM more rapidly. We are excited about ABM's potential and expect to formalize additional partnerships as we approach year end. At the beginning of the year, we said that our target would be to double revenue from 2021 to 2023 and reach the $225 million level with 30% gross margins. We believe that we have both the business activity levels and the existing manufacturing capacity to achieve this goal. We also said that our target would be to double revenue again from 2023 to 2025. The key elements to achieving this objective are an active pyrothin business development funnel, restoring revenue in the energy infrastructure to pre-pandemic levels, and solid execution of the Plant 2 capital project. Our confidence in achieving these targets is based on our potential for several additional multi-year battery platform wins for our unique and protected PyroThin thermal barrier technology. For the Plant 2 capital project, our plan is to bring the additional capacity online by the end of 2023. As we said at the time of our last earnings call, A well-capitalized balance sheet and the ability to scale operations are important factors to the large EVOEMs who want us not only to have ample capacity, but also a diversity of manufacturing sites. The financial and capital project resources provided by Koch Strategic Platforms heightens our confidence that we will execute a successful capital project. In closing, The key takeaways are that we closed a valuable financing with KSP. We delivered strong Q2 financial performance. We raised guidance for the second time this year. We increased potential revenue from additional contract awards for pyro-thin thermal barriers, and we enhanced our strategy for aspen battery materials. We are in a strong position to double revenue twice through 2025. And we believe we have the commercial opportunity to continue that pace of growth through the decade. John, over to you.