Aspen Aerogels, Inc. (ASPN) Q4 2019 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by and welcome to the Aspen Aerogels Q4 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference to your speaker today, John Fairbanks.

Thanks, Corneshia. Good afternoon. Thank you for joining us for the Aspen Aerogels conference call. I'm John Fairbanks, Aspen's Chief Financial Officer. 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 Investors section of Aspen's website, www.aerogel.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 quarter and year ended December 31, 2019. In addition, the Investors section of Aspen's website will contain an archived version of this webcast for approximately one year.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 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, 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. 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 20, 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'd also like to note that over the next two weeks, in connection with the vesting of restricted stock units issued under our long-term equity incentive program, our Section 16 officers will file Form 4s to report the withholding of shares by the company to satisfy statutory tax obligations related to the vesting of RSUs. I want to emphasize that these shares that are withheld by Aspen are not sold into the market and will remain unissued. I'll 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, 2019, earnings call. I will start by providing an overview of our business and strategy. Next, John will review our Q4 and fiscal 2019 financial performance and provide detailed 2020 guidance. We will conclude the call with a Q&A session. I plan to cover several topics in my prepared remarks. I will review Q4 and the year 2019 overall, including our four performance indicators. I will discuss our strategy to address global opportunities, promoting resource efficiency and sustainability through the leveraging of our Aerogel Technology Platform. As part of the strategic discussion, I will include comments related not only to our core energy infrastructure business, but also to two initiatives driven by the projected rapid growth of electric vehicles. Next, I will introduce our performance indicators for 2020. And finally, I will discuss the rationale for our recent equity financing where we raised $15 million. Our fourth quarter performance is built upon the significant revenue growth and gross margin expansion that we experienced in the third quarter of 2019. Revenue in Q4 increased 30% to a record $46.5 million and for the year grew 34% to reach a record $139.4 million. Importantly, we expanded our gross margin in Q4 to 24% and doubled gross profit from the first half of the year to the second half. With this exceptional revenue growth and margin expansion, we again delivered positive adjusted EBITDA in the fourth quarter and improved adjusted EBITDA year-over-year, by over $11 million to nearly breakeven. Overall, we created the commercial and operational momentum required for significant additional gross margin expansion and adjusted EBITDA growth in 2020. I'll now review our 2019 performance indicators. Our three initial performance indicators were: first, to achieve 20% revenue growth and positive adjusted EBITDA; second, project revenue to constitute more than 33% of total revenue; and third to form an additional partnership with a leading company aimed at leveraging our Aerogel Technology Platform into a new market. In addition, during the year we established a fourth performance indicator, which was to achieve gross margins in the 20s for the second half of 2019 and to reach 20% for the year overall. With respect to our 2019 performance objectives related to revenue, we substantially exceeded the targets for both revenue growth and project revenue. Total revenue growth reached 34% and project revenue returned to its historical norm in the 40% to 45% range. Our formation of a dedicated global project-focused sales team working in concert with our regional teams contributed to our revenue growth in 2019, and we expect a continued significant return on project-related investments in 2020, 2021 and beyond. With respect to our performance objectives related to gross margin and adjusted EBITDA, we realized one solid win and one near miss. Gross margin for Q4 reached 24% despite the two quarter delay in implementing our third bill of material reduction initiative, which would have added two to three gross margin points to our Q4 2019 performance. As a result of our deliberate approach to the third initiative, we just missed positive adjusted EBITDA. We remain confident, however, that the initiative will be in place and fully contributing to profitability in Q2 2020. We also expect to benefit during 2020 from the full year impact of the first two bill of material reduction initiatives that we implemented during the second and third quarters of 2019. The final 2019 performance indicator was to form an additional partnership with a leading company aimed at leveraging our Aerogel Technology Platform into a new market. As I discussed throughout the year, we positioned ourselves in the battery materials market by leveraging more than a decade of work creating proprietary and patented carbon aerogel technology. Our effort centers on taking full advantage of the unique attributes of our carbon aerogels with the ultimate goal to improve the energy density of lithium-ion batteries, a key enabler in expanding the drive range of electric vehicles. During 2019, our team characterized our carbon aerogels and expanded our IT portfolio. We optimized our carbon aerogels for lithium-ion batteries and shared initial results with industry leaders. We were successful in our effort to demonstrate our potential value as evidenced by active engagement with a number of battery manufacturers and EV companies. Our objective was to use this technical progress to attract one or more development partners who could validate and further target our battery materials efforts much as BASF has done for us in the area of building materials. As we described in our business update released on January 27, Aspen signed in November, an evaluation agreement with Evonik Industries, an innovative $16 billion German specialty chemicals company to assess the potential of incorporating Evonik's silicon-based nanoparticles in Aspen's carbon aerogel anode materials. In addition, in January 2020 Aspen entered into a joint evaluation agreement with SKC to explore the potential use of Aspen's silicon-rich carbon aerogels in anode of a lithium-ion battery. SKC is part of SK Group, a $200 billion Korean conglomerate and a leader in the development manufacture and sale of lithium-ion batteries for the electric vehicle market. We are eager to continue our work with Evonik and SKC as we validate and accelerate the potential adoption of our aerogel technology within the battery materials market. Our initial objective with these partners is to continue to optimize and target our carbon aerogel materials to improve the performance, cost, durability and safety of lithium-ion batteries. We will continue to engage with other industry-leading companies to help us realize the full potential of our aerogel technology in the emerging electric vehicle market. Our goal is to build another attractive aerogel-based business and to further demonstrate the value of our technology platform. The megatrend EV market also holds an additional opportunity for us. Separate from our battery materials initiative utilizing our carbon aerogel technology, we are engaged with several EV manufacturers to address the challenge posed by thermal runaway, a phenomenon where a cell in a lithium-based battery pack has a sudden release of energy that initiates an unstoppable chain reaction resulting in a fire. The heat then propagates from the failing cell to neighboring cells and ultimately for module to module creating a significant hazard. Thermal runaway typically happens either during charging or in the event of an accident. As EV manufacturers strive for batteries that store yet greater amounts of energy to increase drive range, the batteries become more vulnerable to the potential catastrophic event caused by thermal runaway. In response to inquiries from several electric vehicle manufacturers, we are optimizing our silica-based aerogel blankets to provide more flexibility to EV manufacturers to manage thermal runaway. Such optimization is well within our wheelhouse. We have been providing passive fire protection for energy infrastructure assets for over a decade. It is at the core of our technology. And importantly, we can produce the products from our existing manufacturing assets in East Providence, Rhode Island. We could see adoption of materials or initial revenue in 2020, which could grow substantially into one, three and five year time periods. To put the opportunity in perspective, we estimate that market share of five percentage points in 2025 could equal $100 million of potential revenue for Aspen. This illustration suggests that this market opportunity could be as large as or larger than our energy infrastructure business in a relatively short period of time. And again, the thermal runaway product leverages our silica aerogel technology, and be produced using our current manufacturing assets and is protected by our existing intellectual property. In considering 2019 overall, we performed well by most metrics, revenue growth, gross margin expansion, adjusted EBITDA improvement and creation of exciting opportunities and partnerships related to our new business development. We executed our strategy effectively and continue to demonstrate the breadth and value of our technology platform. We know however that we have the potential to perform yet more effectively and to enhance significantly our profitability and value. With respect to 2020, we introduced our financial guidance in the January 27 business update which John will reaffirm in his presentation. We believe our guidance is sound and prudent. In addition as we considered our performance indicators for 2020, we wanted to set stretch targets that are outside of our guidance. The goal is to exceed expectations and to build additional momentum leading into 2021. With this point in mind our 2020 performance indicators are as follows. We want to achieve double-digit revenue growth; expand gross margin to the mid-20s for the year and have at least one quarter with a gross margin above 30%; continue our drive to profitability with at least two quarters with positive EPS; complete our EP20 expansion in order for the East Providence manufacturing facility to have capacity to generate $200 million of revenue and at least $35 million of adjusted EBITDA; gain adoption for or generate initial revenue from the thermal runaway opportunity in the EV market; continue to validate our carbon aerogel technology for battery materials through an expanded partnership with SKC or Evonik or through new partnerships with additional industry leaders. The achievement of these performance objectives during 2020 would likely translate to another very strong year for Aspen Aerogels and set the stage for additional value creation in 2021. We will report out on these performance indicators each quarter. Before I move on, I want to discuss what impact the coronavirus may have on Aspen Aerogels. In 2019 we averaged revenue per quarter from China of approximately $1 million and have a similar number planned for 2020. We did not purchase raw materials from China in 2019. China as a future source of raw materials and of expanded commercial opportunities is something that we are studying carefully. At this point in time we do not expect the current situation to have a profound impact on our 2020 plan. As you know we completed a secondary equity offering on February 18 and raised $15 million. The strategic rationale for the equity raise is clear: to strengthen our balance sheet such that our financial resources are aligned more closely with the size of our opportunities. We have operated in recent years with a lean balance sheet and a working capital line with Silicon Valley Bank. We will continue to make prudent decisions that are consistent with our drive to profitability. Our operating plan anticipates that we will be approximately free cash flow neutral in 2020 which includes repaying PTT LNG the remaining $4 million of its prepayment and investing nearly $4 million in capital expenditures and $9 million in research and development. This strategy to use our demonstrated strength in the energy infrastructure market to generate cash for investment in new markets that leverage our Aerogel Technology Platform is working. The goal remains to unlock our potential and to reset meaningfully the valuation of the company. Now I will turn the call over to John for a review of our financial results. John?

Thanks Don. I'd like to start by running through our reported financial results for the fourth quarter and fiscal 2019 at a summary level. Fourth quarter total revenue grew by 30% to a record $46.5 million from $35.7 million in the fourth quarter of 2018. Fourth quarter net loss was $1 million or $0.04 per share compared to a net loss of $14.1 million or $0.59 per share last year. Fourth quarter adjusted EBITDA was positive $2.6 million compared to negative $3.2 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. For the full year total revenue grew 34% to a record $139.4 million. Net loss was $14.6 million or $0.60 per share in 2019 versus a net loss of $34.4 million or $1.45 per share last year. And adjusted EBITDA for the year was a loss of $175,000 compared to a loss of $11.5 million a year ago. I'll now provide additional detail on the components of our results. First, I'll discuss revenue. During the fourth quarter, total revenue increased by $10.8 million or 30% to $46.5 million versus $35.7 million last year. This increase in fourth quarter revenue was driven by continued shipments to the PTT LNG Nong Fab project exceedingly strong growth in our core petrochemical and refinery markets in the United States and renewed growth in our energy markets in the Middle East and Europe. Total shipments during the quarter increased by 13% to 13.3 million square feet of aerogel blankets and our average selling price increased by 17% to $3.49 per square foot. The increase in ASP reflected both our 2019 price increase and a favorable mix of products sold. For the full year, total revenue increased by $35 million or 34% versus 2018. This strong increase in revenue was driven by deliveries to the PTT LNG Nong Fab project; solid growth in our core petrochemical and refinery markets in North America, the Middle East and Europe; a significant upturn in subsea project work; and modest growth in contract services revenue. Total shipments for 2019 increased by 18% to 40.7 million square feet, while our average selling price increased by 13% versus 2018 $3.36 per square foot. This increase in ASP again reflected our 2019 price increase. 2020 we expect our revenue growth rate to moderate from the 34% level achieved during 2019. Our 2020 outlook anticipates total revenue in the range of $138 million to $148 million. This projected 2020 range is based on our expectation that subsea revenue will be closer to our historical average of $11 million versus the $17 million achieved in 2019, that we'll see little to no growth from the PTT LNG Nong Fab project as we complete the second half of the $35 million to $40 million project during the year, that we'll wind down our government research services activity that contributed $2.4 million of revenue in 2018 and that the growth rate in the remainder of our business will run from the mid single-digits to the mid-teens during the year. We also project that our average selling price for the year will increase by approximately 2% to $3.42 per square foot plus or minus $0.05. This increase in ASP is driven principally by the price increase we enacted in January 2020. I want to highlight that the decision to wind down our government research services activity reflects our desire to focus our R&D resources on improving the profitability of our existing business and leveraging our Aerogel Technology into new markets. Next I'll discuss gross profit. Fourth quarter gross profit more than doubled to $11.3 million or 24% of revenue from $5.6 million or 16% of revenue last year. Improvement in gross profit was largely driven by the 17% increase in average selling price and a 13% increase in volume, offset in part by an increase in manufacturing expenses and a slight decline in contribution from research service contracts during the fourth quarter this year. For the year, gross profit was $26.3 million or 19% of revenue versus $12.7 million or 12% of revenue last year. Improvement in gross profit was largely driven by the 13% increase in average selling price and the 18% increase in volume offset in part by increased material costs and an increase in manufacturing expenses this year. Looking forward to 2020, we expect gross margin to reach the mid-20s for the full year, but as in past years, our gross margin will vary significantly based on quarterly revenue volume. In this light, we project our quarterly gross margins during 2020 could run from the mid to high teens in the first half of the year to the high 20s and nearing 30% in the second half of the year. Expected increase in gross profit and gross margin as the year progresses is driven by the combination of increasing levels of revenue output and capacity utilization and a growing favorable impact from our bill of material cost reduction initiatives over the course of the year. This gross margin expectation is included in our 2020 outlook. Next I'll discuss operating expenses. Fourth quarter operating expenses were $12.1 million versus $19.5 million in 2018. Operating expense in 2018 included a $7.4 million impairment charge for the preconstruction costs of our proposed Statesboro Georgia facility. Excluding this 2018 impairment charge, our fourth quarter 2019 operating expenses were flat versus the fourth quarter of 2018. For the full year, operating expenses were $40.4 million versus $46.6 million in 2018. Again excluding the impairment charge, operating expenses in 2019 increased by $1.2 million or 3% versus 2018. This increase in operating expenses reflected an increase in sales and marketing expense to drive revenue growth, investment in research and development in support of our battery materials initiative and an increase in incentive compensation in 2019 related to our 34% growth in total revenue and the $11.3 million improvement in adjusted EBITDA during the year. Looking forward to 2020, our guidance includes our expectation that operating expenses will grow between 4% and 11% for the year to between $42 million at the low end of our guidance range to $45 million at the high end of our guidance range. Projected increase in operating expenses again reflects expected investments in sales and marketing to drive revenue growth and research and development in support of our battery, materials and other new business initiatives. Next I'll discuss our balance sheet and cash flow for 2019. Cash used in operations of $1.1 million reflected increased investment in working capital during the year principally resulting from an increase in accounts receivable associated with our record fourth quarter revenue. Capital expenditures for the year totaled $2.1 million, down from $3.6 million in 2018. During the year, we also received prepayments from BASF in the aggregate of $5 million and repaid $1.1 million of borrowings under our revolving credit facility. We ended 2019 with $3.6 million of cash, net current assets of $15.3 million, $3.1 million on our revolving credit facility, shareholders' equity of $59 million. And importantly, we had access to additional $12.4 million available under our revolving credit facility at year-end. I'll now summarize our full year financial outlook for 2020. Total revenue is expected to range between $138 million and $148 million. Net loss is expected to range from between $5.7 million and $9.7 million. Adjusted EBITDA is expected to range between $5 million and $9 million. And EPS is expected to range between a loss of $0.22 and a loss of $0.37 per share. EPS guidance assumes weighted average of 26.2 million shares outstanding for the year. The 2020 outlook also assumes depreciation and amortization of $10.3 million, stock-based compensation of $4 million and interest expense of $400,000. For the full year, we expect the gross margin in the mid-20s and an average selling price of $3.42 per square foot plus or minus $0.05. Our 2020 capital budget will increase to $3.6 million in support of projects to enhance operating efficiency in our East Providence manufacturing facility and to achieve our EP20 capacity targets. As we announced last week, we strengthened our balance sheet by raising net proceeds of $14.8 million through the issuance of 1,955,000 common shares on February 18 through a secondary offering of our stock. We chose to issue shares principally to ensure we have the financial resources in place to support our significant growth opportunities in the energy infrastructure, building materials and electric vehicle markets. We also plan to extend our revolving credit facility with Silicon Valley Bank prior to its maturity on April 28 to ensure we have a backstop in place for working capital requirements. In addition and most importantly, as Don mentioned, we expect free cash flow during 2020 will be essentially breakeven plus or minus $2 million within the context of the adjusted EBITDA range set out in our 2020 full year outlook. Factoring in the net $14.8 million in equity-related proceeds and our free cash flow projections, we expect to exit 2020 with approximately $15.5 million of cash on hand plus or minus $2 million and no outstanding borrowings on our revolving credit facility. Although we don't plan to provide specific quarterly guidance on a routine basis, we think it's important from time to time to provide our investors with a general view to our expectations during the year. Consistent with our financial performance over the past three years, we expect between 40% and 45% of our 2020 revenue will be generated during the first half of the year. And the projected improvement in net loss and adjusted EBITDA will be concentrated in the second half of the year. In addition, as we discussed at the time of our third quarter earnings call, we expect to implement the third of our principal initiatives to reduce bill of material costs at the beginning of the second quarter of 2020, which we expect will increase our gross margin by 200 to 300 basis points for the remainder of the year. As a result, we expect that our first quarter 2020 revenue and profit profile will remain roughly in line with the first quarter of 2019. However, we expect to deliver strong year-over-year growth in gross profit and adjusted EBITDA over the final three quarters of the year and to achieve our full year 2020 outlook. I'd now like to turn the call back to Corneshia for Q&A.

Thank you. [Operator Instructions] And your first question comes from the line of Eric Stine from Craig-Hallum.

Hi, Don, hi, John.

Hey, Eric.

Eric, how are you?

Hey, so I just wanted to start with the thermal runaway opportunity. Obviously a big problem that OEMs sense some urgency to figure out a solution. It sounds like that's come together pretty quickly. So just curious maybe how that whole thing came together next steps we should look for? And then just – you said you're kind of in the process of optimizing your product for that application. Just what are some of the performance benefits that you're starting to see?

Thank you, Eric. Yes we actually had a handful of EV manufacturers experimenting with our material, the same material that we provide to the energy infrastructure space, the ExxonMobils of the world and somewhat unbeknownst to us initially. And as we became more aware of it and worked closely with them we were able to spend time with them, understand the issues, better spend time in their test facilities, explain to them better the levers we have with our materials and are on a rapid pace in the midst of optimizing our material. We've gone back to them at this point. And with a significantly improved optimized product we're in the midst of several full-scale test activities going on. And we're optimistic that we have a solution to the problem. As I said in my prepared remarks, this is exactly what we do. We've been providing what we refer to in the energy infrastructure space as passive fire protection for a long time. We've installed nearly $1 billion of material in the energy infrastructure space and so this is exactly, what we do and very much consistent with our technology. So we're working fast and closely with them and we think we're going to play a role in the solution for thermal runaway.

No. That's great. Maybe just turning to the project team, I know in place for some time but really starting to gain traction. I don't know if you're willing to discuss maybe what that's meant for your pipeline? And then, I'm curious just on the LNG side, what that pipeline looks like and what it maybe means for I guess it wouldn't be for 2020 but it would be for 2021 potentially?

Yeah. As you know, we put the – the project-focused team in place, just about two years ago now and their mission is to expand our project pipeline not only the size of it, but the quality of it. And by quality, I mean, that we are in more and more of the specifications right from the start of these engineering projects and in fact in a preferred position. So they have expanded that project pipeline, now with identified opportunities of over $900 million. We just added two people to the team which is I think a reflection of the progress, they're making and the opportunity that we see of working early on with the asset owners with the EPC companies, with the contractors, and really positioning ourselves to win our fair share of that business. With respect to LNG in particular, I think we've laid the groundwork for continued success. We've done maintenance work now in three dozen facilities around the world. We've done small projects around the world. We are in the midst of delivering our PTT project now that the value proposition based on not only great thermal performance, but both speed and ease of installation. And that is a value proposition that is resonating very well, with the asset owners and the EPC companies. And a good part of our project pipeline is comprised of LNG opportunities. We all -- we're pretty easy to follow them. There are a couple of dozen in particular that are on our radar screen. And we think, we will again continue to – we've laid the groundwork and we'll continue to win projects. We're delivering the PTT project very effectively and winning projects is the best way to win more projects frankly as your reputation grows. So that's where we are on that business.

Okay. And maybe just last one for me. You laid out the performance indicators. And I know you said that, some of them on purpose stretched goals. I mean, I would think that the gross margin goal that's one that you have a lot of visibility into and a lot of confidence in. But curious as you look at this list of six what are the ones that you have a high confidence level in? And what are the ones that are stretch goals you're confident in but there's some work to do?

Well, look I think of the six, I would say that the ones that are outside of our guidance almost by definition are ones who are – we're going to need extra effort so to speak by the team. Double-digit revenue growth is outside of our guidance. John, set that up, well, I think with contemplating a more normalized year around our subsea business, the fact that almost by definition delivering the other half of a big project PTT is a non-growth component shedding our R&D government contract work. All those things dig a little bit of a hole for us. So we're going to have to do some terrific things, I think to create that double-digit growth. It's – we wouldn't have put it down if it were impossible, but it's going to take a real effort. The gross margin one, I think we're – it's going to take good work. If we continue to perform as we did last year from a margin expansion point of view and the implementation of these programs, we think we've got a good shot of doing that. I really love the one on our drive to profitability to two quarters of positive EPS. That's perhaps a sign of maturity of our company, and the growth of our company, and the effectiveness or this focus that we've had on drive to profitability. The EP20 project, we're in good shape there. We did a great job in 2018, focusing on the first part of expanding the facility by 20%. In 2019, we focused principally on the raw material initiatives. And we've got I think the remaining part of the EP20 quite well in hand. I talked a little bit already about the thermal runaway opportunity. That's a fast-moving situation. We're very excited about it. It's right up our ally. And again, we're – on the carbon aerogel side of the battery initiative, we're having conversations with several of the leading companies: SKC and Evonik, right? We've got working groups working closely now on this issue. And I do believe that, we'll continue to expand the number of companies that we're working closely with formally or informally. So I'm excited about them. So I'd say some of them are – I would say kind of down the middle of the fairway and some of them are going to really take an extra effort.

Okay. Thanks a lot.

Thank you, Eric.

And your next question comes from the line of Chip Moore from Canaccord.

Hey, good evening guys.

Chip, How are you?

Hi, Chip

Hey, wondering if I could follow-up back to the thermal runaway opportunity for your traditional aerogel blankets? It sounds like this is more piloting activity in 2020, but it sounds like you think things could be moving fairly rapidly. On the other hand, sometimes OEMs have -- are notorious for moving rather slowly. So how should we think about any key milestones or announcements on that end?

Yes. I think that we've got -- our focus is on being designed into an adoption and that will likely generate more noticeable revenue in 2021 and beyond. And that adoption may come with -- what we're referring to as initial revenue in 2020 again not denominated in millions of dollars at all, but very much smaller than that. But I think indication or a great indicator of the design in process and the work that we're doing with these groups. We started with a small handful and our team is rolling this out across-the-board with the manufacturers. This is I would say a universal problem. This is not a problem of any one producer. And so I think the idea of adoption and initial revenue I think will be the big indicators for 2020. And hopefully what would be progress -- revenue -- noticeable revenue progress in 2021 and beyond.

That's helpful. And can you give us any insight on margin potential there versus your traditional sort of energy infrastructure end market?

For now, I'd like you to think about it as being on par with it. We're going to be using the same manufacturing assets. We obviously are working on our value proposition and we'll price it accordingly. But I think just from our expectations at this point, let's just think of them as being on par with our energy infrastructure margins.

But it is material that we can produce on our existing assets. It is -- it will benefit from the incremental economics in the plant. It will help drive us towards that $200 million capacity in East Providence and drive us towards the $35 million of potential EBITDA in the plant. So we're very excited about the opportunity.

That's a good point John. And just as a reminder Chip and you know this incremental revenue we drop $0.45 $0.50 for every dollar of incremental revenue from East Providence down to the adjusted EBITDA line. So when we talk about those kind of -- those are pretty good -- pretty solid margins from continuing this drive to profitability.

Yes. No absolutely. That's perfect. Thanks. And just one more from me. Back to commercial efforts. I think you talked about $900 million plus identified potential opportunities, some more resources on the team. It's a little bit early, but can you talk about confidence in backfilling of at least PTT in 2021? Thanks.

Thank you. Thanks Chip. Yes. I mean look we're -- we want to announce some project wins over the course of 2020 that we'll be sure that we don't get a drop in revenue in 2021 and beyond. And we think we have in the LNG space but also more broadly in the petrochemical and refining area that we've got the ability to continue to grow the project part of our business. And we went through a long period of time with project revenue in that kind of industry norm 40% to 45% range. And I think we've got the resources in place now at our end to sustain that kind of percentage of total revenue. And as you know from -- a kind of the flip side of that is that our maintenance revenue which we've grown double-digits every single year since we introduced Pyrogel and Cryogel back in 2007 and 2008. So, again, we think we've got the pieces in place.

All right. Thanks.

Thank you.

And your next question comes from the line of Thomas Curran from B. Riley FBR.

Good evening.

Hey Tom.

Hi Tom.

Don on the carbon aerogels side of your set of EV battery opportunities, given the stage of development you're at with Evonik and SKC respectively, when does it seem most likely that you'll convert the first of those evaluation partnerships into some sort of nonexclusive commercial agreement? And then from the time you would ink that commercial deal, what would be the time frame for initial revenue? And could you size for us how much in annual revenue each of those two applications could generate?

Yes, I'll give my best answer. In terms of -- on the carbon aerogels side and our relationship with SKC and Evonik is actually more of a supply relationship to us with a very interesting component so to speak of our system. We believe that this is a three- to five-year revenue opportunity for us. We believe that between now and that period of time you will see us working closely with SKC and their sister company, so to speak and with other leading companies in the space. And so working with them in the sense of advancing our technology and working towards being designed in to battery systems. And I think those will be events that we will talk about along the way. And I think will be again, while not revenue generators necessarily, will give confidence in our team and in the investor group that we have a role to play with our aerogel technology. We're very, very good at producing these nanomaterials, and we think we've got a real opportunity to play in this space as they continue to look for new methods to improve energy density, improve the density, improve the performance, improve the durability of these battery systems. The early work that we've done as I said in my notes -- the fact that we were able to have a broad reception from many of the leading companies in the space gave us confidence that we're on the right track. And so we're eager -- I hope that sets it up pretty well for you. How big can it be? Well it's, obviously, an enormous -- it's an enormous opportunity that is just measured in numbers well beyond anything our energy infrastructure space could produce. So it's a very big opportunity over a longer period of time. I cite on the thermal runaway side, on the silica aerogel side again utilizing our existing technology, our existing assets protected by our existing intellectual property. That's an opportunity. As I've said it's a more immediate revenue opportunity for us here over the course of small, small 2020 but beginning to build in 2021 and beyond. And as I said in my notes, again for illustration purposes you take the average of projections for EVs and from some of the feedback that we've received from them in terms of the amount of material required per auto. A 5% market share in that space equates to roughly $100 million of revenue potential. Again I use that for just illustration purposes just to show that order of magnitude what numbers we're talking about.

All right. That was a helpful summary and framing -- and I guess we'll just stay tuned on the carbon aerogel side. John, on a product line basis, when it comes to the margin range, I know that the Pyrogel end markets are the most profitable and then Cryogel for subsea infrastructure is one of the least lucrative. But could you quantify for us what that spread is from highest to lowest? And then you've just said for now, we could assume that any kind of Pyrogel application for thermal runaway would most likely have a margin in line with the weighted average for energy infrastructure. What would you expect for any eventual carbon aerogel product for EV batteries?

So carbon aerogel -- and first off, you've got that right. So it really has to do with the value proposition in these markets. And in combination with the amount of material we produced and we've come down the experience curve. So we sell about 60% -- 65% of our revenue comes on the hot side of the business with Pyrogel, and 35% or so comes from the ambient and cold side. And through time we've got more experience making Pyrogel products and that's actually led us to have the lowest cost and the highest margins. So as we continue to see an increasing share of our business move to Cryogel and to our building material Spaceloft, we'd expect improvement in margins in those products as time progresses. We would expect generally for the thermal runaway product to have margins that are roughly equivalent to the weighted average, but we'll have to see how that plays out through time. I think most importantly though with any revenue that we generate from those existing assets has very beneficial incremental economics associated with it. As Don mentioned, we see -- as we fill the plant we get roughly 45% to 50% incremental profitability on that differential in revenue. Looking at carbon aerogel, it's -- it would be a different manufacturing process. And so we don't really know yet how we would commercialize that product that we would -- might have the opportunity to simply license the technology and let a battery manufacturer utilize that technology in the manufacturer of batteries or we could, obviously, with our experience base we would be in the best position to ultimately manufacture the material itself, which we could then use to have more of a traditional supplier-customer relationship. That's all to be determined. We'll clearly choose the form that's required by the marketplace. And we'll do it with an eye to try to minimize the capital intensity of our future businesses as well. So -- and that really is to be determined, but I do think that ultimately we've got multiple ways that we could service that business opportunity moving forward.

Go ahead, Don please.

Sorry, I was just wanted to add just -- we are acutely aware of -- that we need to strike the balance between performance and cost, so we are very, very aware of that balancing act. And again a lot of that work that we're doing with these partner companies is related to hitting that -- just that balance point that again takes into consideration both performance and cost.

Right. And it sounds like just in general on the carbon aerogel front, there's simply more to explore, narrow and clarify commercially. So we'll have to stay tuned.

Yeah, absolutely. And again once we put it into our performance indicators, we do that mindfully in the sense that we'll talk about it each quarter. And typically when we're at an investor conference or something, we really work off of these performance indicators to create a consistent dialogue with our investor base over the course of the year so standby.

Thanks for taking my questions guys.

Thank you, Tom.

Your next question comes from the line of Amit Dayal from H.C. Wainwright.

Thank you. Hi, guys. I appreciate you taking my call. A lot of color on the call. Thank you for that. Most of my questions have been asked, but just wanted to touch on potentially price increases in 2020. I know you had some in 2019, but are we staying put on the prices, or do you see some opportunity to raise prices again this year?

Yes. We took -- after a significant price increase last year where across the sort of on a mix weighted basis, we were between 10% and 15% last year. We took a lower increase this year roughly 2% once again across the mix of our products weighted a little more heavily towards the hot side. We just felt we had more room to move. And that 2% Amit is -- it's a little more in line with what we've done over the last 3 to 5 years and we felt it would be well received in the marketplace. We didn't get much pushback on it. And we were particularly sensitive this year to not having a significant increase given the size of the increase we had back in 2019.

Got it. And the revenue mix, I know you've touched on this a little bit but the revenue mix this year -- is there any opportunity to bring in some of these bigger projects that you saw in say early 2019? Is there any of that in the pipeline, or is that something that may materialize maybe 2021? I'm just trying to see where the delta between your stretch target for revenues versus your guidance is and what could possibly come in and allow you to hit that double-digit growth on the revenue side?

Yes. We really had a strong Q4. And if you look at the second half of that year, we won a couple of projects. They're not of the order of magnitude of a PTT not $40 million, but something closer to $3 million, $4 million, $5 million, $6 million. And we had an excellent project in Canada. We had an excellent project in Egypt. And those projects are the ones that really make a big difference on the margin, if you will. So I would not expect us to win a large, large-scale project during 2020 that leads to 2020 revenue. We could win some larger projects, but I'm anticipating that that revenue will then come in 2021 and beyond. So our work in that pipeline -- yes it has some of the larger scale projects in it, but it also has -- it's really filled with projects that are kind of in the $4 million, $8 million $12 million size. And those are the ones that -- we need to win an extra one or two of those over the course of the year to get us into that double-digit revenue territory that we're stretching for here and we're very motivated to do it.

I mean we're really talking about $5 million, $6 million to get to double-digit. And if we could just win a couple of those $3 million type projects that would put us over the goal line. So -- and as Don mentioned, we did that in 2019. And if we can replicate it again in 2020 we could have that potential. We're very comfortable with our guidance range, but I think one of the things about this -- setting the target at double-digit growth we are not -- we're a growth aerogel technology company. We have huge opportunity in the energy infrastructure market, in the building materials market and ultimately in the electric vehicle market as well. And we're not satisfied with our outlook. We want double-digit plus every year in and year out. Really getting a sense there that we want to do more than what we see currently available to us in…

Right. I appreciate that. And just maybe one final question related to the margin aspect of the story. It looks like most of the margin capture you're going to see or margin improvements you will see happen post the second quarter. So in the context of a stronger performance in the fourth quarter on the margin front, should we expect a little bit of a dip in the first quarter and then steady improvements rest of the year?

Yeah. Absolutely. It's very much a function. So I think -- we mentioned that -- but in the last three years between 42% and 43% of our revenue was generated in the first half of the year and the remainder in the second half of the year. And our expenses are really incurred on a level basis during the year. So you get your cost level, but your revenue grows as the year progresses. And so it puts a lot of pressure on margin and our profitability in the first half of the year. So we expect that to continue again in 2020. And as I alluded to, we really expect the profit profile of our financial performance in the first quarter of 2020 to be very similar to what we saw in the first quarter of 2019 with then good solid growth Q2, Q3 and Q4 as a function of two things: increasing revenue as the year progresses and then continued benefit or the growing benefit from those bill of material cost reduction initiatives. And that is the dynamic. And so you should absolutely expect a dip in revenue margin and EBITDA in the first quarter with good solid growth into our guidance range, our outlook range for the full year.

Yeah. Okay. Good. That's all I have. Thank you so much.

Thank you, Amit. Thanks.

And there are no further questions. I'll turn the call back over to Don Young for closing remarks.

Thank you, Corneshia. Good job tonight. Thank you very much. We appreciate your interest in Aspen Aerogels. We look forward to reporting to you our first quarter 2020 results at the end of April. Have a good evening. Thank you.

And this does conclude today's conference call. You may all disconnect your lines.