Aspen Aerogels, Inc.

Welcome and thank you for attending the Aspen Aerogels Q3 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, Laura Garant with Aspen Aerogels. Thank you. You may proceed, Ms. Garant.

Thank you, Sarah. Good evening and thank you for joining us for the Aspen Aerogels conference call. I'm Laura Garant, Aspen's Vice President of Investor Relations and Corporate Communications. 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 development, 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 Investors section of the Aspen West site, www.aerogel.com. 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, 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 In addition, the investor section of Aspen's website will contain an archived version of this webcast for approximately one year.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, October 28, 2021. 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. Don?

Thanks, Laura. Good afternoon, everyone. Thank you for joining us for our Q3 2021 earnings call. I should note that Laura Durant, joined us a couple of months ago as our VP Investor Relations and Corporate Communications. She has 30 years of professional experience and is joining us just in the nick of time. John and I have been moonlighting in the role since we went public in 2014, and we welcome Laura as we broaden our outreach to the investment community. 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 Q3 performance and finish with an updated outlook for 2021. We will conclude today's call with a Q&A session. The key points I intend to cover are the drivers for both strong Q3 revenue and our full year outlook, which we have now raised for the third time this year. The acceleration and expansion of our pyrethin thermal barrier business, which we believe sets the stage for 2022 pyrethin revenue to be two or more times our original 2022 revenue estimate. The progress on key investments related to plant two and the technical and business developments for aspen battery materials. The third quarter. was strong with top line growth exceeding our expectations, driven by both our energy infrastructure business and our emerging Pyrethin thermal barrier shipments. Revenue grew 26% year over year to $30.4 million, and gross profit increased 61%, reflecting the leverage associated with increasing utilization of our manufacturing plants. The recovery of our energy infrastructure business is in line with our expectations as we come out of what we hope to be the worst of the COVID pandemic. We predicted that as the impact of the pandemic subsided, energy infrastructure revenue would begin to increase towards pre-pandemic levels as pent-up demand materialized. This has, in fact, been the case as we are seeing high levels of maintenance-related activity, especially in countries, especially in key countries, with higher vaccination rates. This positive indicator is an important factor contributing to our 2021 guidance, which we have raised for the third time this year. As a reminder, one of the key components of our goal to double revenue from 2021 to 2023 is to recapture our pre-pandemic energy infrastructure revenue, which averaged nearly $35 million per quarter during 2019. We believe that we are well positioned to achieve this goal no later than 2023. Over the longer term, we believe the value of our energy infrastructure products, which is based on resource efficiency, asset resiliency, and safety, particularly fire safety, will become yet more important to our customers in the years to come as they strive to attain their own sustainability goals. And when you consider the potential of leveraging our aerogel technology platform into new markets such as hydrogen infrastructure and carbon capture, we see significant growth opportunities over this decade for our energy infrastructure business. In my earlier comments, I mentioned our emerging shipments of PyroThin thermal barriers. This business is advancing at a faster pace than we initially anticipated. John and I have previously said that we expect 2021 PyroThin thermal barrier revenue to be in the low single digit millions of dollars and 2022 PyroThin revenue to be in the mid to upper single digit millions. During Q3, we exceeded $1 million of PyroThin revenue on a year-to-date basis, and we now expect Q4 revenue alone to exceed $5 million. This acceleration of revenue, we believe, sets the stage for 2022 PyroThin thermal barrier revenue to be two times or more our initial expectations of mid to high single-digit millions. On our last earnings call, we said that we were on the cusp of winning a contract with a major Asia-based automotive OEM with a leading global platform. We have in fact received our first orders for that OEM's first all-electric vehicle that will be offered in Asian, European, and North American markets. We are delivering the first production parts to this customer in Q4, and it should be noted that this OEM has partnered with another large agent EV OEM that will use the same battery modules to power its electric offerings. We are also delivering production parts to our major U.S. automotive OEM during the fourth quarter. These first deliveries are preloading the pipeline to these customers and enhancing our Q4 revenue. The transition from supplying prototype parts to production parts is a major milestone and signifies thermal barrier parts destined for Q4 and Q1 commercial EV launches. The milestone also represents a prerequisite for announcing the names of these two first customers, which we hope to do soon. There are several drivers accelerating PyroThin thermal barrier revenue, including the transition to production parts with our two existing EVOEMs, very active prototyping with new EVOEMs in our business development funnel, and cases where we are seeing an increasing scope of work as we establish ourselves as a technology partner to these companies. I discussed earlier the importance of the move to production parts and I will discuss the business development funnel in a moment. But first, I want to explain in more depth the importance of Aspen being viewed as a technology partner. Our approach is threefold. Our intent is for Aspen to be the industry expert in battery thermal management, for pyrethin thermal barriers to be the industry standard, and for Aspen to be OEM agnostic. As a technology partner to EV OEMs, we are being asked to focus more broadly on battery performance and safety. This expanded mandate is in addition to our current mission critical role of mitigating thermal runaway. Our team is designing more sophisticated aerogel-based solutions to optimize thermal management and mechanical performance during the standard operation of the battery system. Again, this mandate focuses more broadly on battery performance and safety. And the likely result of this advancement is more technical scope and more content per vehicle than we initially estimated. This development is resulting in increased thermal barrier revenue estimates in 2021 and 2022, and very likely in subsequent years. We've made considerable progress during the quarter in the business development funnel for our PyroThin thermal barriers. The pace of engagement within our three-stage business development process remains high, and we are responding to multiple formal requests, including RFIs, RFQs, and performance validations. We continue to work with several of the remaining EVOEMs on developing solutions for improved battery safety in the event of thermal runaway, as well as for thermal and mechanical management solutions for improved battery performance during the normal course of the battery's operation. With the increased intensity of the EV megatrend and our broader mandate around battery performance and safety, the pace of our commercial work is accelerating and the size of the opportunity is expanding. In order to aggressively capitalize on our expanding demand profile, we are also expediting the work on our second aerogel manufacturing plant. We have selected a 90-acre parcel in the southeastern United States as the site of the second plant and are working closely with state and local officials to finalize zoning approvals and incentive arrangements. Subject to the approval of our board, we anticipate making a joint public announcement of our site selection with the governor's office in the near future. This site gives us the space to design plant two to provide more than twice the capacity of plant one. We plan to have phase one of plant two operational during the second half of 2023. We are currently working to match the size of the first phase of the plant construction with the accelerated and expanded demand profile described earlier. We are also keenly focused on building a plant with low operating costs and one that has key raw materials generated onsite or nearby. On a related note, it has been about four months since Koch Strategic Platforms made its $75 million investment in Aspen. The premise of the investment was not only to strengthen our balance sheet, but also to bring to bear the broader resources of the significant Koch network to enable us to scale more effectively. Plant 2 engineering is a good example. We have engaged Koch project solutions to support our own outstanding strategic capital projects team with additional resources drawn from its vast experience. We expect this support will continue for the duration of the project, which includes Koch providing onsite project leadership during the construction phase. There are additional opportunities for us to work with teams from Koch in areas such as the fabrication of thermal barrier parts in Mexico, and the optimization of purchasing and logistics. With the opportunity to double revenue every 24 months throughout the decade, it is imperative for us to use all possible resources to achieve our full potential. 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 collection of attributes of our carbon aerogel technology creates an ideal protective host or scaffold for silicon and helps address the challenges posed by silicon expansion during each charge cycle. The nearly $10 million of investments that we are making in scientists, engineers, and facilities throughout 2021 are resulting in significant progress towards achieving key technical milestones in the areas of energy density, and cycle life. The design of Aspen's carbon aerogel material allows lithium ions to move more easily across, sorry, to more easily assess the capacity of silicon while simultaneously preserving the structural integrity of the anode and extending cycle life. The events have also increased our production capacity to deliver larger samples of optimized materials to our partners. This approach to partner engagement plays to the strength of our technology and we believe will enable the broadest and quickest adoption of carbon aerogel solutions in the EV battery market. When we provide our overall financial outlook for 2022, we will also share specific technical and commercial targets for ABM that will set the course for what we believe will be significant value creation. At the beginning of this year, we said that our target would be to double revenue from 2021 to 2023, and again, from 2023 to 2025. And at the last earnings call, we said that we believe that we have the opportunity to double revenue every 24 months through the decade. With an accelerating battery performance and safety business led by our PyroThin thermal barriers, an important energy infrastructure business driven by resource efficiency, asset resiliency, and safety, a rich and commercially leverageable aerogel technology platform, and an outstanding team of people to drive the significant scaling of the company, we are confident in our ability to achieve these targets. In closing, I want to take a moment to recognize Aspen's 20-year anniversary, which we are celebrating this quarter. We have taken our collective vision and executed a strategy that is transforming the company to create the greatest value for our customers and for society as a whole. Even with 20 years behind us, we feel our work and important contributions are just beginning. We as a company have a deep gratitude to all of those who have provided wisdom and support to us along the way. And with that, John, over to you.