Good afternoon. My name is Chantel and I will be your conference operator today. At this time, I would like to welcome everyone to the Aspen Aerogels’ Q4 2017 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. John Fairbanks, you may begin your conference.

Good afternoon. Thank you for joining us for the Aspen Aerogels’ conference call. I am John Fairbanks, Aspen’s Chief Financial Officer. There are few housekeeping items that I would like to address before turning the call over to Don Young, Aspen’s President and CEO. 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 Investors section of Aspen’s website, www.aerogel.com. Quoted in the press release is a summary statement of operations, a summary balance sheet, a summary of key financial and operating statistics for the quarter and year ended December 31, 2017. In addition, the Investors section of Aspen’s website will contain an archived version of this webcast for approximately 1 year.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. And such statements are subject to risks and uncertainties. Aspen Aerogels’ 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 Investors section of Aspen’s website. Forward-looking statements made today represent the company’s views as of today, February 22, 2018. 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. Definitions of 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 is available in today’s press release. I will now turn the call over to Don Young, President and CEO of Aspen Aerogels.

Thank you, John. Good afternoon. Thank you for joining us for our Q4 and fiscal year 2017 earnings call. I will start by providing comments about the business and our performance. Next, John will review our Q4 and fiscal year 2017 financial performance and provide 2018 guidance. We will conclude the call with a Q&A session. I plan to cover five topics in my prepared remarks. First, I will comment on our patent enforcement wins at the United States Patent and Trademark Office, the USPTO, the United States International Trade Commission, the ITC, and in the German Courts. Second, I will comment on the $5 million prepayment that we will receive from BASF during 2018 and the significant progress we have made in our strategic relationship with them. Third, I will review our actual performance against for 2017 key performance indicators and introduced three key performance indicators for 2018. Fourth, I will discuss the current commercial environment, including our market outlook for 2018. And fifth, I will provide an updated view of our strategy, which is centered in part on our strong capability to help our customers and partners shape their own strategies around the global mega-trends of resource efficiency and sustainability, often combined economic success with environmental protection and social responsibility. I will also describe the strategic opportunities available to us as we leverage our Aerogel Technology Platform across our core, adjacent and new markets. My first topic today is IP enforcement. In April 2016, we initiated a series of legal actions to assert our rights against companies that infringe our intellectual property. Since that time we have logged several victories. During the first half of 2017, one defendant challenged the validity of our patents at the United States Patent and Trademark Office. This challenge was denied by a…

Thanks, Don and good afternoon. Let’s start by running through our reported financial results for the fourth quarter and fiscal 2017 at a summary level. Fourth quarter total revenue grew 32% to $36.4 million versus $27.6 million in the fourth quarter of 2016. Fourth quarter net loss was $1.7 million or $0.07 per share compared to $5.7 million or $0.25 per share last year. Fourth quarter adjusted EBITDA was positive $2.2 million compared to negative $2.1 million a year ago. We define adjusted EBITDA as net income or loss before interest, taxes, depreciation, amortization, stock-based compensation expense and other items that we do not believe are indicative of our core operating performance. Patent enforcement costs had a less significant impact on our net loss in adjusted EBITDA during the fourth quarter this year than in the fourth quarter last year. We incurred $600,000 of patent enforcement costs during the fourth quarter versus $1.9 million in the fourth quarter last year. For the full year, total revenue declined 5% to $111.6 million. Net loss was $19.3 million or $0.83 per share in 2017 versus a net loss of $12 million or $0.52 per share last year. And adjusted EBITDA for the year was negative $3.3 million compared to positive $3.9 million a year ago. Patent enforcement costs had a significant impact on both our net loss and adjusted EBITDA during both 2017 and 2016. We incurred $3.5 million of patent enforcement costs during 2017 versus $3.6 million in 2016. Our performance during the fourth quarter again met our objectives to build sequential quarterly momentum during the year. Total revenue this year improved from a low of $23 million in the first quarter to a high of $36.4 million in the fourth quarter. As we discussed during our previous conference calls, our…

[Operator Instructions] Your first question comes from Eric Stine with Craig-Hallum. Your line is open.

Hi, Don and John.

Hi Eric.

I was just wondering could you just help us kind of bridge the facts that you are guiding to flat revenues, but also taking these steps to bring on capacity and I know that’s by 2020, but flat revenues we have got a lot of room now, just thought processes, is it some of the large project activity that you expected hit starting in 2019 views of some partnerships on the horizon or how should we think about that?

I think there are maybe two ways of doing it. When we are doing an expansion in this particular one, where we are really improving the process technology of our existing assets as opposed to adding new assets to the facility kind of good force method, it’s very difficult to do that kind of work while you are operating the plant full out. And so this is the time to do that work. So, we have got the perfect time to do it one. And of course, we wouldn’t do it if we weren’t confident that we could grow our revenues to that $150 million level and to the $180 million level, you just wouldn’t do this. And so that’s in the backdrop as well. So, our goal here is to continue to grow that base revenue and we said it few times in our presentation this evening in that 10% to 15% range year-in and year-out and then put some projects on top of it. As you know, Eric, we have worked that progression from doing maintenance work to small scope work to large scope project work pretty successfully and LNG is the best most recent example of that, we believe with the successful delivery of three projects in 2017 that those will lead to additional projects and larger projects in the LNG area, for example, in that 2019 and 2020 timeframe. So we are doing this with purpose and we also believe that it’s just the right time to do it and there is no question that having BASF help shoulder the load a bit here financially is really important to us.

Right. And that’s a good segue to my second question, just I mean it seems like the health of that relationship with BASF is in very good shape, is this – is this the case where I mean should we think about that plan to I mean it would seem that this pushes that off quite a bit or that BASF doesn’t necessarily care whether their $20 million eventually goes to plant to or it’s invested in your plant, they just want to have that capacity?

Yes. They would like access to the guaranteed access to the capacity. If you go back to the 2015, 20s, early ‘16 timeframe there were points in time where we were capacity constrained significantly with ‘14, ‘15 and early ‘16. And they were concerned about having that happen to them again. And so that’s part of their motivation here in helping us with our capacity expansion. And opposite it provides a nice sort of base load activity for us as well as we go up and create this new capacity. So those are the drivers. The relationship is very – is very strong. We have talked a bit here about the financial part to that, but they have helped us with some of the operating improvements that we are making in our facility in East Providence and of course working closely with us to the JDA on these next generation products as well. So it’s a strong relationship and we really appreciate their help.

Right, okay. Maybe last one for me, just on sub-sea, yesterday Technip had their call and they had pretty positive commentary on activity continuing in 2018 and going forward, I mean is your view of 2018 more a case of I know you don’t report a backlog, but that the backlog for sub-sea as it stands today isn’t necessarily there and it’s more about if you were to get awards your late cycle and so that would be more late ‘18 and/or 2019 work, is that – is that the reason, because I mean that what Technip said and what you are looking for those are different views?

Yes. So Technip has been our largest customer in the sub-sea dating back to 2004 and ‘05. So they have been a great partner of ours through that period. And I was encouraged to hear their report. I listened in and read their work. Sub-sea is really difficult for us to project. We are bird-dogging more than a dozen projects today around the world and in the sub-sea. And those could break – those could break any time. So it’s the hard part is predicting it. I mean just, if you just look at the last 3 years and John correct me if I am wrong. If I remember correctly, the sub-sea numbers were 24 million – 4 million and 14 million. So they are just banging all around the place. So it’s really difficult to kind of want to hang your hat on any particular number. And so what we do is we take a longer term view of it and just try to find kind of an average number. And if you go out your 5 years, the average number is kind of in that 7, 8, 9 kind of range. And we are sort of just projecting that forward here in 2018. We – look we hope Technip is spot on, I mean they are really right in the middle of that market offices. So they know a lot. Yes, we do come a little late cycle, so maybe it would have the biggest impact on us late ‘18 and into 2019. We feel good about 2019 for a lot of different reasons and that’s one of them.

Okay. Thanks a lot.

Thanks.

Your next question comes from the line of Chip Moore with Canaccord. Your line is open.

Hi, thanks and congratulations on the nice finish guys. Maybe you could dive into a little bit more on EP20, that 3 million next year sort of where does that get you to and then when we think about the ramp up to that 180 million capacity with what additional sort of investments will that take?

Yes. So Chip the overall project we have earmarked between $15 million and $20 million to achieve the 20%. We will obviously focus on projects that we get the best bang for the buck initially with that money. So that original – that initial $3 million will go a long way towards gaining some fairly significant capacity during the year and we will apprise you of our progress during the year as we go rather than setting expectations, but we will let you know what advances we are making and what we are seeing in terms of capacity improvement. And in the $15 million to $20 million is that long-term message principally capital spending. So, it would be in the initial $3 million out of potentially a minimum of $15 million, so we would expect to increase our spending in 2019 and 2020. We will ultimately complete that project.

That’s perfect. That’s helpful. And it seems like a nice flexible approach and maybe if we can talk just a little bit more about some of the markets, it sounds like you seem pretty broad-based growth across all the different areas, but maybe if you could just give us a little more color on some of those individual markets? Thanks, guys.

Thank you, Chip. Well, let me just – I can just make a couple of comments. We had nice growth in 2017 in both the United States and across Europe, good growth numbers very significant numbers in fact in the U.S. and continuing good momentum in that market and I talked about increasing the size of our sales force. I am really after a good amount of travel in the second half of 2017, I am convinced that if we can get in front of business in a timely way, our products are now well accepted, they are well proven they are no longer exotic or novel products. And if we can get in front of business and when I say in a timely way, I mean getting the specifications early on of some of these native large size projects I think will win more than our fair share of that work. So, I am feeling good about through the maturation level of our product or about adoption cycle and so that’s been good, feel good about that. I have talked in the past a bit about the LNG market. Again, we were very successful delivering the three projects and the engineering companies and the asset owners gave us very high marks for doing what we said we would do and for that product to be valuable to them. And as you look forward, some of those very same engineering companies and end users, asset owners have next stage projects right on the drawing board. And so we are in a terrific position to compete not so much for the size that we did in 2017. You remember those were $3 million, $5 million and $8 million in size, but for projects it can be measured in the $10 million, $20 million even $30 million kinds of range. So, we have done a terrific job doing that. Also, I just want to focus on the adjacent markets in addition to LNG, our district energy business and the launch of our HPS product have continued to be successful, so getting incremental growth from those segments is really critical to us as we grow base revenue and position ourselves for some good project work.

Well, thanks. That’s great. It’s good to see.

Thank you, Chip.

[Operator Instructions] Your next question comes from Sean Hannan with Needham. Your line is open.

Yes, hi, folks. Thanks for taking the question here. I just want to come back to an earlier question, because I am still not too sure if I fully understand the basis of investment and making that decision today. When I step back and I think about, we have got a core business where initially last year you were looking to do $90 million to $100 million that got paired back, then we were looking to do $90 million and then we were beneath that. We are looking as an aspiration to hit $100 million, but you guys expressed some conservatism around that. The other aspects of your business, is looking about or looking at the project orientation was a lot of variability there. And so it almost seems like we are really kind of building some flex capacity to accommodate a few LNG projects that are going to be fairly finite. I maybe misinterpreting things, but can you help me to better understand this, because once we expand if we are there in 2020, I would want to think that we have a good base to our core business that is justifying that versus the project side. Any help around that will be great? Thanks.

Yes. So, our target for base revenue this year is $100 million and we are going to put our resources into achieving that number. And I would anticipate that, that number continues to grow in that 10% to 15% range year-in and year-out as we move forward. And if you start to put a couple of projects on top of that level over the course of 2018, 2019 and 2020, we are pushing up hard against that 150 number. And second as I said earlier, the only time we can really make these investments in East Providence is not when you are running full out at a 100% capacity, but as you lead up to that where you have a little bit of flexibility in your management of that facility. And so we are making that, we have a strong conviction that we are going to grow in the way that I just talked about and that’s why we are making those investments now.

And one other point Sean, some of the advancements that we will make this year with that $3 million in capital expenditures will be to improve yields in our plant and those yield improvements increase our output, but it also drops our costs. And so there will be a benefit to the bottom line that will accrue later in 2018, into 2019 and ‘20. So it will help us become more profitable. The other piece of it is the EP20 projects themselves are principally capital. So, it’s capital expenditures. This will not require us to increase the operating expense levels in our business and that’s why that incremental profitability associated with the increase, the potential profitability associated with that increase of $30 million from 150 to 180 is so profitable to us. So, I think this is that the investment we are making in 2018 is limited to that $3 million of CapEx, it’s the right time for those projects when we start to fill the plant, we won’t be able to accomplish those projects. We will get an immediate benefit from yield improvement and then we will get the benefit of improved profitability and cash flow when we do fill the plant. And so from that perspective, we felt it was the right time to make the investment.

Okay. I understand. I follow that. And I suppose that perhaps what it then comes back to me is where the confidence is in the growth factor for that core business, because again last year, we ended up in a very different place versus where our expectations were going to be. And again this year as you guys are targeting that $100 million, unless I heard you incorrectly it sounded like you were explicitly stating we want to be cautious and conservative and there are asterisks that you are putting around that. So I am just trying to bridge the fact as I hear those types of comments versus then Don a moment ago, it sounds like you are very confident in growing that 10% to 15%, so just trying to connect the dots guys?

Yes, look I….

And I am sorry I don’t mean to come across the wrong way. I just want to make sure I understand this correctly.

Right. Look, we agree with you that there are – that our confidence level as depicted by the fact that we are willing to make these investments in expanding our capacity and the fact that we are growing our sales force by 25%. Those are the actions of a management team that feels strongly about their business. And look I recognized that feels a little out of sync with our revenue guidance that we gave, which I think is cautious, I think is the word I used and the word that you repeated. And so I understand there is little tension between those two things. We do think that the late cycle impact has some real ramification for us and we think we will build throughout this year and we think we will position ourselves very well for ‘19 and ‘20 if that flywheel starts to spin here a little bit. What – we are feeling a good U.S. market right now. We hope overachieved in Europe last year, so there are a lot of positive things going on. We just want to see them take hold here. I think our performance metric in 2018 of year-to-date growth in both revenue and adjusted EBITDA as measured in each quarter is going to be a really strong metric for us. And I would just anticipate keeping a close eye on that and building that again will be a very important indicator.

All very fair, Don. Thank you so much for patiently addressing the question.

I understand we had the question for. Thank you.

There are no further questions at this time. I will now turn the call back over to Mr. Don Young.

Thank you, Chantel. I appreciate it. We appreciate your interest in Aspen Aerogels and we look forward to reporting on first quarter 2018 results to you in early May. Have a good evening. Thank you.

Thank you.

This concludes today’s conference call. You may now disconnect.