Good morning and thank you for attending Aspen Aerogels, Inc. Fourth Quarter and Fiscal Year 2023 Financial Results Call. All lines have been placed on mute during the presentation portion of the call with an opportunity to questions and answers at the end. I would now like to turn the conference call over to your host, Neal Baranosky, Aspen's Senior Director of Corporate Strategy and Finance. Thank you. You may proceed, Mr. Baranosky.

Thank you, Candice. Good morning and thank you for joining us for the Aspen Aerogels fourth quarter and fiscal year 2023 financial results conference call. With us today are Don Young, President and CEO; and Ricardo Rodriguez, Chief Financial Officer. There are a few housekeeping items that I would like to address before turning the call over to Don. 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 U.S. generally accepted accounting principles or GAAP measures is available on the Investors section of Aspen's website, www.aerogel.com. In addition, I'd like to highlight that we have uploaded to our website a slide deck that will accompany our conversation today. You can find the deck at the Investors section of our website. On today's call, management will make forward-looking statements about our expectations. These statements are subject to risks and uncertainties that could cause our actual results to differ materially. These risks and uncertainties include the factors identified in our filings with the SEC. Please review the disclaimer statements on Pages 1 and 2 of the slide deck, as the content of our call will be governed by this language. During this call, we will refer to non-GAAP financial measures, including adjusted EBITDA. These financial measures are not prepared in accordance with 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 yesterday's press release. I'd also like to note that from time-to-time, in connection with divesting or pending expiration of restricted stock units and/or stock options issued under our long-term equity incentive program that we expect our Section 16 officers will file Form 4s to report the withholding by the company or sale of shares related to tax withholdings or the covering of exercise prices in connection with vesting or pending expiration of restricted stock units and/or stock options. Lastly, I want to call out a few near-term IR engagements. This Thursday, February 15, Ricardo will participate in a Fireside Chat in New York at the Wolfe Global Auto, Auto Tech and Mobility Conference. Don, Ricardo and I will also host one-on-one discussions at this event. On March 18, Don will be hosting one-on-one investor discussions in Dana Point, California at the 36 Annual ROTH Conference. I'll now turn the call over to Don. Don?

Thank you, Neil. Good morning, everyone. Thank you for joining us for our Q4 2023 earnings call. My comments will recap recent announcements, highlight our fourth quarter and 2023 full year performance and provide an early look at 2024, including the status and impact of several critical elements of our strategy. Ricardo will dig deeper into our financial performance and outlook and our business strategy. We will conclude with a Q&A session. Before we do a quick flyover of our recent announcements, I want to thank the Aspen team for producing excellent results in Q4. Revenue of over $84 million, gross margin of 35% and adjusted EBITDA of over $9 million. These numbers signify record performance and we believe are signs of good things to come. Every person in the company contributed to the success. Since our last earnings call, we have provided several updates. In December, we announced PyroThin Thermal Barrier Design award from the Automotives Sales Company or ACC, a battery sales joint venture with Stellantis, Saft Total and Mercedes-Benz to supply the Stellantis STLA Medium Vehicle Platform designed to host multiple brands across the world and is aimed at the passenger SUV and crossover vehicle markets with an expected start of production in 2025. Stellantis is one of the world's leading automakers with brands including Jeep, Ram, Fiat, Chrysler, Dodge, Peugeot and several others. According to Stellantis, the medium vehicle platform has the potential for up to 2 million vehicles per year built in several plants across the globe starting in Europe. At the same time, we announced that the U.S. Department of Energy Loan Programs Office invited Aspen into the formal due diligence and term sheet negotiation stage of the process. This loan application is in connection with the construction of Aspen's planned second aerogel manufacturing…

Thank you, Don and good morning everyone. I will start by covering our fourth quarter and full year results, before walking you through the thought process behind our outlook for 2024. I'll also spend some time discussing our assessment of forecasts for global EV production and how some of the recent production increases aren't captured by most headlines or the current sentiment. Early last year, we highlighted ahead of the industry, the things weren't as great as they seemed and quickly focused on right timing all CapEx and gearing Aspen for near-term profitability. Today, we can confidently say that, things are not as bad as the headline suggests. Before handing the call back to Don, I'll also explain why our team will remain heads down executing with conviction, what we believe is a clearly defined long-term plan to build value. In our awarded business and quote pipeline, we see a path that maximizes our capacity regardless of any potential near-term shifts in demand or delays in sourcing decisions. To cover our performance, I'll start on Slide 4 beginning with revenue. We delivered $84.2 million of revenue in Q4, which translates into 41% growth year-over-year and 39% growth quarter-over-quarter. This was an all-time company record and reflects an annual run rate of $336.8 million that demonstrates the company's ability to quickly flex up to meet an increasing demand at our sites in Rhode Island and Mexico along with a bit of capacity from our supplemental supply for energy industrial products, which drove $3.1 million of our revenues in December. For all of 2023, our revenue was $238.7 million, which reflects a 32% year-over-year increase. As expected, when we first communicated our outlook for the year, over 60% of our sales materialized in the second half of the year and this was…

Thank you, Ricardo. We have covered a significant amount of ground today in reviewing Q4 full year 2023, our near-term outlook and our longer-term strategy. Before we move to Q&A, I would like to emphasize the focus on driving significant profitability from our existing resources and commercial opportunities, while at the same time maintaining our full longer term upside potential as we continue to win design awards from EV OEMs, grow our base load energy industrial revenue and leverage our aerogel technology platform into additional high-value markets. We believe 2024 will be another significant step towards building this dynamic and highly profitable technology company. Candice, let's turn to Q&A.

[Operator Instructions] Our first question comes from George Gianarikas of Canaccor.

Thank you for taking my questions and appreciate all the detail around your expectations for this year and for next year. I'm wondering if you could just give us a little bit of comfort around previous sales into some of your larger OEM customers. Just do the quick math around how much material you've shipped into customers like GM versus how much their sell through has been? There seems to be a little bit of discrepancy there. And they have some -- that large customer has indicated that they've had some issues module production. Can we just chalk up some of that shipments relative to sell through to issues with module production? Or is there a worry that that might come back to bite Aspen in the future?

Thanks, George. I think, of course, if you run the math, it's no secret that, it is very likely that some of our parts did not end up in a completed module or a completed vehicle and quite a few of them. I mean for us when we look at the signals around this customers demand pool, we still feel pretty good about the fact that they don't have a ton of inventory of our parts that hasn't made its way into vehicles. And so, we think that you may have some variability of around a month in the value chain waiting for a Part 2 ultimately lands into a vehicle assuming 100% yields within their processes. And we think that variability is so small that it's pretty well captured within the discounting that we're doing of there the low end of their production guideline for Ultium for this year and then, obviously a much higher level of discounting that we take to the IHS forecast. So, I mean so far we still see a pull for parts. We know that there isn't a ton of inventory in the value chain as these vehicles get built and as we showed here on some of the slides, they're expected to continue making more vehicles. We actually are an important part in the solution of improving the yields around module assembly and ultimate vehicle integration. And so we know that that's also on an improving pattern here.

And just as a follow-up, there seems to be a lot of momentum with silicon anodes and I was wondering if you can give us an update on your silicon battery material segment and any traction you have there?

Thank you, George. We continue to make progress in our aerogel technology center on our silicon anode activities and we are very focused on having a cost advantaged product and as we -- and I would expect that we will sample customers over the course of 2024 with those materials. We have some key internal milestones to reach before we do that. And the team is very talented and very focused on doing that. As you know, George, it's a challenging problem and to solve and that's why I'm doing so could be so valuable to us and to the industry overall. So we've got a great team working on it. And I guess I would just say sort of standby. We're going to continue to make progress over 2024 and very likely talk more about it in subsequent earnings calls.

Our next question comes from the line of Colin Rusch of Oppenheimer.

Can you talk a little bit about the cadence and the rate of customer sampling and how that's evolved over the last 12 to 15 months for the company?

Yes, I mean we have scaled our processes there. And if you talk to our sales team, I mean, we're and if you came by our building here in Marlboro where we build the prototype parts, we're getting prototype parts to new customers for new applications within 2 to 3 days of when they ask for them. And we're still seeing a lot of the product roadmaps that these OEMs had shaped up in 2020 and 2021 still hold as some of programs are getting into the sourcing phases. And I think this is reflected by the broader market itself, right? I mean, a lot of these decisions that and the CapEx that was put to work towards launching nameplates in 2021, I mean, those trains have sort of left the station and are in the sourcing stage today. And so that will continue to move, I think at the same pace that we saw it last year. It's really the new product decisions for that will come into sourcing here in 2025 and 2026, where there may be some retiming. But, the pace we see it comparable to what it was last year and what's actually accelerated now is our ability to respond quickly, we have got a larger sales team and our turnaround time is much faster.

I guess from a pricing strategy perspective, obviously you guys have able to demonstrate a fair amount of value in terms of the safety side of things, but the ability to monetize some of the other elements of cost reduction that you're facilitating for your OEMs at the pack level. Can you talk a little bit about your ability to press price and then how that might impact margins or any assumptions that are in some of the commentary you made on the margin profile for the company?

Yes. I mean the margin profile and what we have been laying out here for the past several quarters, it's really more of a framework, right, and we think that a key tenant in enabling that framework is being sold out. If you don't have more capacity than you need, you're able to have the right pricing discussion and in many ways stand your ground relative to the value that you're creating for the customer. Going back to your earlier question on the sales cycle, our sales team is incredible at saying yes to solving the customers’ problem, but we're very good at saying no to bringing the price below a level that I think compensates us for the capital that we're deploying and all of the resources that we have in the company to solve these customers' problems. So being sold out is a key tenet of the strategy. And then of course, the team continues to generate additional demand and we'll continue increasing our demand over the next several years. But again without giving up pricing, we really think that the pricing lever is the main one at driving our business model here.

I think Colin also just to turn the wheel a little bit over to the energy industrial side. Also I would anticipate that as we continue to convert over to the supplemental supply that will support the gross margins that we and you expect here over the course of 2024 and the years to come.

Our next comes from the line of Chris Souther of B. Riley.

Thanks for taking my questions and congrats on all that progress on the gross margins. Maybe to follow-up there, could you talk a bit about, if you're already hitting your target model gross margins in the fourth quarter, like what are the puts and takes between on the path to $650 million run rate? Are there any reasons we shouldn't expect continued improvements on the materials and conversion side? And are price downs kind of scheduled within that kind of path to that run rate? Like what should we be thinking about with those puts and takes?

Yes. Thanks, Chris. Look, I mean, if you look at the performance in Q4, Don, I have been joking here, we almost feel like we ran a 6 minute mile on the treadmill and our knee sort of hurt. And so we just want to take it step-by-step here and really look at the various elements of the cost structure that where even though we're already there, we still have to keep optimizing it to make it a recurring thing. And so on the material side, again, like we're still budgeting for the 40% as a percentage of sales and while the 36% as a percentage of sales is favorable. You always want to have a little bit of buffer there in our case for inbound freight costs, for example, right? Then on conversion costs, I mean, we're not there yet, right? We're still about at the run rate of Q4, I'd say we're still about 10 percentage points away from where we need to be. And there's also a buffer in there actually for expedited freight, which as we launch new programs, I mean we're potentially starting programs with 2 OEMs here this year. And if you go back to our cost structure in 2021, we're almost adding P&Ls that had that same pretty -- bad profit profile as you get ramped up here this year to come in alongside the business that we have. And so for us, while it would be great to assume that and think that we can continue running a 6 minute mile here on the treadmill, we'd like to slow it down a little bit as we launch some of these programs, deal with the nature of expediting things and the cost of being reactive here when you're still in the launch phase, even on some of the nameplates where we've been supplying Part 2 for a couple of quarters now. And those are really the main ones, right? Then there's also this element of labor costs and there's a point in which you break into a point where your labor costs actually start being pretty well absorbed, but then building up that next level of capacity could actually have you go finding different types of labor that has a different cost structure. And so we want to protect for that here as we plan for the year. Those are really the main elements. It's really the cost of being able to react quickly to change that we want to factor into the profitability outlook without going into the year assuming that we can run a 6 minute mile consistently.

I would also just say that we -- the teams really across Aspen did a lot of the small things really well over the course of the quarter and really over the course of the year, you heard me referenced that the gross margin progression starting with 11% in Q1 and making our way all the way to 35%. So we did a lot of things well in Q4. I agree with Ricardo's cautionary comments. I do think the 35% was certainly a confidence builder for us that we're going to be able to do this over any period of time, but perhaps with some variability.

And also, I mean, don't get us wrong, right, if the revenue shots up, we actually have a little chart that actually looks like a like a set of stairs. The first $50 million a good amount of that flows to the bottom line. $50 million on top of that at least 20% of that flows down to the EBITDA line. We are pretty excited about the prospects of additional revenues and that would obviously have us then update our profitability estimates if that revenue starts to materialize.

And then, maybe just on the 10 additional OEMs and additional programs you talked about as far as over the next couple of years. I'm curious, how many have 2025 launches and whether any vehicles or platforms you've previously been highlighting that you were testing or quoting have moved forward without PyroThin. To what extent are the opportunities getting pushed to sound like it's more of the kind of 2026, 2027, 2028 kind of potential programs that are seem to be shifting rather than the more near-term, but if you could just provide color on that overall pipeline?

Sure. I referenced in my comments the sixth one that we've talked about for some time. Technically, we started the milestones and this is a matter of negotiating final terms, if you will in that announcement. In terms of additional ones, we are heavily engaged with additional OEMs as they work through the timing of the development of their own platforms. We believe that we will be part of those platforms. In terms of timing, I think it's fair to say that the start of production for additional OEMs. It's probably more likely to be SOP 2026 and 2025. Quite honestly, I think we have our hands full from a revenue demand point of view in 2024 and 2025. That probably suits us quite well. We are not aware of say, losing a process to other materials or other solutions. We think we have an excellent solution that addresses both the thermal management and the mechanical challenges associated with these thermal barriers. We feel like we are in good shape.

Our next question comes from the line of Eric Stine of Craig-Hallum.

Maybe, if we could just talk about '24 a little bit. Obviously, you've laid out a pretty it sounds like conservative baseline and some scenarios that are upside for the second half. I know previously you had talked about a kind of a goal or a $550 million revenue run rate. With the expectation that you could hit that as early as third quarter of '24, just curious if you have updated thoughts on that, is that still the type of timeline which is possible?

I think it's still possible, but it's not really up to us frankly. I mean I think we are ready to capture it, but it really depends more on our main customer here. And it's still a possibility.

We have the capacity in place to be able to do that Eric, as we -- I think one important thing that we voiced today was this additional capacity from our East Providence facility for thermal barriers from originally $400 million to $500 million. And again based really empirically on our productivity and yields that we're experiencing today. And then of course, on top of that is our supplemental supply that we target at $150 million. That ability to get out to a run rate of the $550 million as you cite even with additional capacity from there. So, we feel like, we've sort of done our part and now we're doing everything we can to make our OEM successful.

And maybe for my second one, this is just a follow-up on a previous question. You talked about the pricing strength you have, especially in energy industrial because its capacity constrained. I mean, is there a scenario that you are able to increase that? I mean, maybe this is a question a couple of quarters from now, but when you're at $150 million, I think in the past you've talked about you see demand in excess of $200 million a year. So just maybe thoughts on how you think about that longer term?

Our team has a strong track record of increasing prices and associated with the value that we're bringing to those end users. And so, I think you will see us continue to test the market with strong pricing. I'm very pleased with the arrangement that we have with our supplemental supply, supporting our cost structure, pretty known cost structure, if you will. And so, as I said in my comments, I think you will see our energy industrial business meet our expectations and I think it's got a lot of potential to continue to grow as well from that's sort of nominal $150 million baseline that we've created, both from a demand point of view and from a capacity point of view.

Our next question comes from the line of Alex Potter of Piper Sandler.

One question on, I guess, incremental OEM. To what extent are they making orders contingent upon Aspen opening additional capacity in Georgia or elsewhere? I know that, historically, some of these automotive suppliers get a little jittery when they have so much reliance on a single plant. If a meteor strikes the Rhode Island facility, what happens to their supply chain? To what extent is that factoring into conversations that you're having either with existing customers or additional ones?

We don't see the same level of sensitivity to the single supply source as one would think. They're very concentrated on sells and actually some of the raw materials throughout the rest of the battery value chain. But for us, if an OEM is asking us about 2027, we present that as being supplied out of Georgia and that gives customers a lot of comfort if you combine it with Rhode Island. Right now in our selling efforts, I think customers are just assuming that the Georgia plant will be there in 2027 and thus giving them the necessary comfort to come in.

I think Alex that sort of area where they are likely or I should say are pushing us a little bit is on the fabrication side, especially our European customers. I think they would like us to shorten that part of the supply chain, if you will. And so as we win more and more European business, I think you may very well see us create a fabrication capability like the one we have in Mexico to serve that part of our market.

Or build up more inventory in Europe?

Exactly.

For instance, the idea of setting up a storage and inspection facility at a neutral point, Netherlands, Belgium in Europe is something that customers have been totally okay with and we'll probably take that step before looking at manufacturing in Europe.

And then maybe, you mentioned, talking about 2027 and beyond sourcing out of Georgia. Obviously, you are not going to be able to provide any incremental commentary on the DOE loan process. One thing I am sort of interested in something that's come up in conversations with clients is the election. Again, maybe hard to predict, but to what extent, let's say that the loan isn't finalized and the capital is not deployed prior to November. And then who knows how things happen in November, but assuming you have a less maybe DOE-friendly administration coming in November. To what extent does that put the DOE loan at risk?

We are working very hard to do it in a timeframe that brings us and there are no assurances here, but brings us to a conditional approval and final terms. At that point, that money is allocated from the DOE and wouldn't be reversed come a November election that might be less favorable towards these kinds of programs. So, we're working hard and fast as possible on this. And I think again, as I said in my comments, the LPO Loan Programs Office is -- we're very engaged with them and their advisors. And again, it's no assurance of a final result but we're in really good position we believe.

Yes, that is worth highlighting. Once you get into this diligence and the term negotiation phase with the DOE, we have actually been very surprised that the speed at which the DOE moves, I mean it's moving faster than a lot of the private investors that we were encountering last year, right? Everybody is very actively engaged. We actually have to step up our response be to the DOE in many cases. And so we feel confident about the timing and where we are today.

And Alex, we're a good candidate. We have proven technology. We have customers. We have contracts. We've positive EBITDA as of fourth quarter. Our projections are strong. We have two different businesses supporting the overall growth of our company -- growth and profitability of our company. We're a good candidate I think for this program.

Our next question comes from the line of Tom Curran of Seaport Research Partners.

At East Providence, you just saw for and we'll unleash another 20% of annual capacity. That's a considerable increase and this is not the first time Aspen has unlocked significantly higher throughput and/or yields there. Just theoretically, assuming Plant 1 remains dedicated to PyroThin. Just how much more productive capacity could you potentially bring out of that facility?

I think we are at the point where it really depends more on the mix and who we are producing parts for then finding more capacity through improving the yields, increasing the line speeds, introducing longer roll lengths, et cetera, which the team is still continuing to work on. But I think, yes, above that $500 million annual revenue capacity level, I think if we're producing some of the thinner material for a broader set of customers, there's potential for additional capacity, but there we sort of need the mix to work in our favor. But then again, I mean, I think our team has been really incredible at coming up with a couple of breakthroughs here, particularly in improving our yields and we're still working on that. So it's a bit of a balance, but I do feel much less conservative around the latest capacity assessment than when we were calculating the $400 million a year ago.

We made some capital investments over the course of 2023, as we convert the three lines in East Providence, one at a time from optimized around energy industrial to optimize around EV, and we still have a little bit more of that to do. But again, the team has done an excellent job on this. And as Ricardo says, we feel confident in what we talked about today. And also as Ricardo said, I think what you'll see from here is more incremental than a big 20% chunk that we've talked about earlier today.

I mistakenly said 20%. I think it's actually 25%, right? So even more impressive. And then, we don't want to undercut what your team has achieved. Again, very impressive. And then based on GM's current Ultium production guidance and sales targets 2024. They are not your internal discounted baseline, but they are actual bounded plans. And then the result and expected nameplate mix. Ricardo, what is the weighted average range for CPV that you'd expect to realize for Ultium sales this year?

About $900,000 to $100,000 of vehicle.

And that would be like the weighted average midpoint of their range? We do not expect it to really vary?

You can the IHS mix -- I mean it could vary more to the upside, frankly. It does seem like some of the larger battery pack models will probably be built first, but we cannot need to wait and see that.

Our final question comes from Amit Dayal of H.C. Wainwright.

Just one question on the CapEx plans. Is any of that dependent on the DOE loan coming through or is that sort of baked into your cash flow assumptions et cetera already?

What we have communicated is what we would spend without the DOE's potential funding. If the DOE's funding materializes then we would be basically plotting the reacceleration of the construction and that has a different spend profile for the second half of the year, which we're selling right now, but it would look a lot like the trajectory that we were on before we decided the right time to plan.

Thank you. As there are no additional questions waiting at this time, I'd like to hand the conference call back over to Don Young for closing remarks.

Thank you, Candice for your help today. We appreciate your interest in Aspen Aerogels and look forward to reporting to you our first to our first quarter 2024 results in early May. Be well and have a good day. Thank you.

Ladies and gentlemen, thank you for joining us on today's conference call. Have a great rest of your day. You may now disconnect your line.