Good morning, everyone. My name is Colin William Rusch. I lead the Sustainable Growth and Resource Optimization Research practice here at Oppenheimer. We're thrilled to have the C-suite from Aspen Aerogels, Don Young, President and CEO, and CFO Ricardo C. Rodriguez, along with Neal Baranosky from Investor Relations. Guys, let's just hop into it. There's a lot going on. There's a lot of moving pieces here. You guys reported last week with some better than expected numbers. I know there's a lot of news out this morning around Ford making an investment in incremental EV capacity. We're seeing EV sales hold up a little bit better, partially with the cliff on the federal EV tax credit. I think underlying demand looks better than feared, honestly. Can you guys talk about what you're seeing with your customers and their plans as we move through some U.S.
policy changes, but continue to see a lot of growth in both Europe and Asia?
You want to take it, Ricardo? I'll provide color commentary.
Sure, happy to jump in. It's no secret that the lion's share of our revenue right now on the EV thermal barrier side comes from General Motors. We were all obviously disappointed by how long it took for a lot of these vehicles to launch. We truly believe that if those cars would have launched in 2022, the EV market would be a completely different story from what it is today. It is what it is. Now that they have all launched, they're having pretty good months of sales, at least in the U.S. When you look at a vehicle like the Equinox, it's the number one non-Tesla selling EV in the U.S. I think General Motors is just really hoping that momentum continues definitely between now and the end of September before the $7,500 tax credit goes away.
We're still pretty mindful of the tax credit that is there on the supply side for these automakers. That one is not going away at the end of September. If General Motors has gained so much share of the U.S. EV market, we just don't see them letting go of that easily going into the fourth quarter of next year. We were actually pretty on the pessimistic side in 2023 and called that a little earlier. This time, we're actually more optimistic than one would think when it comes to the $7,500 credit going away. It's actually enabled the OEMs to keep prices up. If you look at who's getting the $7,500 credit today, it's basically the leasing companies and the financing arms of these OEMs. If they want to retain share, what we don't see going away is this notion that these companies are betting their future on EVs.
That is still pretty consistent. We've said that this is going to be a bit of a transition, but the north star is towards more electrification, even if we continue to slip further behind China and Europe.
You know, Colin, I would just add, and Ricardo is spot on on his comments, I would say that we are prepared to serve these OEMs and their projections going forward in both here in the U.S. and in Europe. Having said that, we also took careful action in the first half of this year to modify our cost structure, our fixed cost structure, pretty dramatically. You can see that on slide two of our earnings deck, where we removed roughly $65 million of fixed cost out of our structure. It shows, frankly, in our outlook for the rest of the year, where we basically anticipate approximately flat revenue first half to second half, but with approximately twice as much EBITDA associated with it. We're starting to see the impact of those actions.
We also believe, as we grow in the future, that we'll be able to hold that cost structure tight and really leverage the revenue growth. As you know well, we're dropping $0.50 plus of every incremental dollar of revenue. We think we're in a good position to weather the storm. Maybe the other leg of the stool, adding to what Ricardo said, is that, and the cost mindfulness of the way we've got the company set up now, is that we require minimal capital expenditures as well at this point. We have our supplemental supply in EMF, and we've got a robust plant in East Providence, Rhode Island, serving our auto customers and the U.S. energy customers. In an environment with some moving parts to it, we feel like we're in a solid position, also with a strong balance sheet as well.
Excellent. Good to get kind of the overlay here that, you know, you've got a restructured company that's optimized from a capital perspective. You've got a primary end market right now where your customers are not backing away from investment, despite some of the overlay around policy adjustments. Can we talk about, you know, within that EV market, what you guys are doing for your customers, right? Why is this an essential part of a design process that not only allows for better performance of these vehicles, but also lower cost over time as they commercialize? Love to just get from a technical perspective what you guys are doing for these customers and how you help drive efficiencies in their platforms.
Yeah, happy to jump on that one, Colin. In essence, what we do is we allow these customers to take risks that they otherwise wouldn't take. We provide passive protection that, historically, has not been there or that is critically needed when there's nothing else to stop thermal runaway and thermal propagation, right? Maybe just to ground ourselves, thermal runaway is, if you remember those Samsung tablets that were blowing up in people's bags on planes, all that was was under cabin pressure or somebody sitting or squeezing these tablets. The pouch cells that are inside of those devices were being compressed, and you'd have a short inside of the battery that would, in essence, connect positive plus negative, and you'd have a chemical fire and pretty much an explosion happening with these cells.
If you think of an EV's battery, it's nothing more than hundreds or thousands of those cells, depending on the form factor put together. Whenever an OEM is assembling and developing an EV, they're playing a game of probabilities, right? If you control your manufacturing processes to the nth degree, there's only so much certainty that none of these cells will go into thermal runaway or thermal propagation. Those risks are higher if you are overcharging or overly discharging one of these cells, especially at very low temperatures or very high temperatures. Initially, the ask for us was just to be there as a passive layer, taking up as little space and as little weight as possible, so that in the rare case that this thermal runaway happens, we can isolate the one cell and turn a pretty catastrophic event into a serviceable event. That has actually evolved.
If you look at, for example, the General Motors EVs versus your typical Tesla or any other vehicle that is not using our product, you look at the way they use regen, you look at the way they charge at cold temperatures, they're actually able to push these cells closer to their limits and use more of the available storage capacity because they know that we are there as a passive layer to isolate a cell getting too hot, right? This is why, for example, if you go out there and drive a Tesla today, even though the vehicle should theoretically be able to give you 400 mi of range, it really has something like 330 mi in the EPA test cycle. In the real world, with differing temperatures, you probably get around 280 mi of range.
The GM Ultium EVs are actually demonstrating to be able to deliver reliably more than the 310 to 450+ mi of range that the EPA cycle delivers. That's because they're able to use regen more aggressively, charge faster and harder at cold and very hot temperatures. That's something that I've experienced on my drives, driving both of these vehicles. Those benefits are proven, and they're only going, and more OEMs are starting to see the light around the benefits of having a product like ours in between these cells, in place of those old polyurethane foams that didn't provide any protection and would actually become fuel to these fires.
Don, can you help the investors understand exactly what the aerogel is and how it works, right? I think it's always instructive to just kind of hold, you know, a bit of aerogel to understand kind of how, like, just honestly, just crazy it is, right? It's kind of a wild material that it's hard to imagine. You know, can you talk about the platform that you guys have built over the course of a couple of decades at Aspen Aerogels and what an aerogel really is and why you guys are such, you know, clear leaders in the field and how then this gets applied in the EV battery that Ricardo really just articulated well.
Sure. Going back, you know, many decades, aerogels had been discovered, but really as a laboratory curiosity to a great extent. Best thermal insulator, lightest solid material known to man. It's this open porous, nanoporous structure. While it was fascinating technically and had amazing properties, it didn't have a lot of capabilities. That is because it was not industrially robust. Aspen Aerogels, dating back, as you say, slightly more than two decades ago, worked with NASA and others in developing what we refer to as a flexible aerogel blanket. This is where we, in essence, infused that silica aerogel in liquid form into a fibrous batting material. We created what is really our platform, which is the flexible aerogel blanket. We were able to maintain all of the properties of this amazing material, but we added capabilities to it, industrially robust.
We started, and we've had IP all along from the very first years to these recent weeks and months. We've continued to add to that. Our skill has been at being able to mass produce these materials at this point. There is a chemistry to it. There is a process technology, and then there is a sort of product optimization. We've optimized around our subsea pipeline business, our refinery business, and onto LNG terminals, etc. All based around thermal management and fire safety. Of course, when we went into the EV business, per Ricardo's description of our value there, it was really about this thin profile, high thermal performance, and outstanding fire safety with this flexible aerogel blanket that can absorb and act like a sponge to a great extent. That's sort of the core of what we have done with the material.
I think it's possible to think about adjacent markets that continue to use flexible aerogel blanket as a concept. Again, where you see applications where high thermal performance, perhaps fire safety, are key ingredients, and thin profile are key ingredients. You'll remember dating back into the late 2010s, we had a building materials activity going, ran out of capacity as we were getting that rolling and stepped away from it. There have been aerospace applications. There are a variety of applications where we think we can use this same flexible aerogel technology and be additive and create a third leg to the stool, if you will, energy industrial one, EV two. You know, what is three and four?
It is so critical as we've moved from the red line to the blue line to the green line in our cost structure to be able not only to do that as phase one, but then to travel up that green line and drive significant profitability and cash flow from our existing assets.
Let's pick up on that, you know, because we've known you now for 15 years, Don, right? You know, have watched the evolution of the platform of this blanket material, you know, being used first in some built-in applications and then into the oil and gas space and now into the EV space as a unit play. You know, as you guys have evolved the chemistry and the manufacturing process, you've been able to enter into new markets. Can you talk a little bit about, you know, the optimized, you know, manufacturing process that you have, the evolved platform that gives you some flexible capacity as needed, and how you're thinking about some of that, you know, incremental productization that you can go through to open up some new revenue streams?
As we were contemplating our second plant in the U.S., in Statesboro, Georgia, as we were going through that process, we at the same time in really late 2023 began considering an external manufacturing capability to provide more variable supply to us and in smaller increments than the design of plant two, which was to bring on $1.2 billion , $1.4 billion , $1.6 billion of revenue capacity in one fell swoop. What we were able to accomplish over the course of 2024 was to transition from the plant two concept over to this more variable supply where we're able to bring up smaller increments of supply and fit the demand curve better, if you will. We've got our substantial capacity in East Providence, Rhode Island, plant one, and we've created this variability of supply in our supplemental relationship out of China.
How do you protect the IP in that relationship and what's essential? I think it's been interesting to see what's essential in terms of, you know, manufacturing IP and then productization. There's obviously some complexity and some layers to this in terms of what you guys share and what you don't share with some of these folks and how you bring something to market.
The materials that they're producing are our original materials serving the energy industrial business. One of the keys in protecting our intellectual property, not only the surrounding agreements and what have you, is that we understand the complexities of that with working with this kind of partner. What I would say is that we have, if you look at our end users, historically are always basically the largest companies in the world, whether it was Exxon, Chevron, Shell, or BASF, or more recently the General Motors and the Toyotas of the world. These are companies that would not unknowingly use an infringing product in their applications. We have been active in being sure that any product that may have maybe a takeoff of our product, we've been aggressive.
I think you remember back into the, again, back into the 2010s, we defended our intellectual property very successfully against Chinese impersonators here in the U.S., across Europe, in Asia, including having our patents validated in China. There is never a perfect answer to that, to your question, but we think we've got the framework, both operationally and contractually, to do the best possible. There is also, with respect to our partner, a mutual benefit to this relationship. I mean, we are their gateway, if you will, to outside of China. We have created what I think is a very significantly mutually beneficial relationship with that partner. I think they would agree that it would be a mistake for them to violate that.
Excellent. Where we're at now is we've got, you know, multiple SKUs, some optimization around the product platform. You've got a couple of good end markets at this point. You've gone through some platform optimization, both from a cost structure on the OpEx level as well as the manufacturing base. Can you guys just talk to us around, you know, just what the financial model is and the gearing that you guys have for growth from here, right? Like we've gone through kind of the, I would say, the first leg of real substantial growth for the company and a much longer journey. We're kind of going through a little bit of a digestion period right now.
Talk to us about, you know, how the platform is set up and really built for resilience through this period of time as you get into more of a higher growth mode again, getting into 2026.
Yeah, I think the gearing is relatively unchanged to what we were laying out here throughout 2022 and 2023 when people were asking us what company we were working to build, Colin. If you recall, we had a slide that laid it out for people that, in essence, said, look, we don't know what the revenues are going to be, but we're going to gear the company to deliver 35% plus gross margins and then to work to deliver 25% plus EBITDA margins at, you know, give or take a 70% plus utilization of our capacity, right? That's, in essence, the yardstick that we use to quote or pursue any opportunity, both on the energy industrial side or the EV thermal barrier side. If you look at our economics last year, that 70% plus capacity level was a little bit lower than where we ended up the year at.
We were basically saying, let's try to, and by the way, all that gearing translates into at least 10% OI or EBIT at $400 million of revenues, right? Last year we did $453 million of revenues. We overshot the sort of gearing point at 80% utilization. You saw our EBITDA was, you know, $90 million on $453 million of revenue. This year, to Don's earlier points, we knew that the top line was not necessarily on our side and that the winds were going to be more against us than behind us. We worked proactively to gear the company down so that our EBIT break-even point was at around $280 million of revenues, but still working to preserve those 35% gross margins for both segments at above a 70% utilization of the assets.
Right now, in Q1 and Q2 of this year, we've been, you know, a little bit below that. If you look at the EI side, even though the revenues are lower, it's proven to be more resilient because of the supply that we have from the external manufacturing facility. I think that on the EV thermal barrier side, that point of give or take $200 million of revenues per year is where we start getting closer to that 35% plus gross margin as we absorb all of the fixed costs in line with that gearing that we established here a couple of years ago.
Ricardo, the way we've talked about it, the way I think about it, sometimes you build a company because you're playing offense. We played offense the last couple of years, right? We grew 90% last year. We grew 40% or 50% a couple of years before that. Sometimes you build your company because you have to play some defense. Right now, we're playing defense. What we've done is, to earn that same $60 million or $90 million of EBITDA, it's a number closer to $360 million of revenue, not the $453 million that we had last year. In fact, if we can reignite that growth and get back up into the kind of range where we were last year, we wouldn't be making $90 million of EBITDA with this cost structure, but a number like $150 million, $155 million. Sometimes you're playing offense, sometimes you're playing defense.
I think combined with the reduced capital expenditures of our model and our strong balance sheet position, we think we're really set up well to play both offense and defense as the times call for.
Let's talk about offense because it's more fun. You know, you guys have done the hard work here, right, of cutting costs and kind of optimizing the platform. You've done a lot of work around improving yields on the factory. If we get through the transition in the U.S., there's still an awful lot of growth with your incremental customers, right? You have some impressive logos. Can you talk to us about the customer base that you have on the EV side and what you're seeing from those folks from a RAT perspective and anticipation of incremental volumes as you move into 2026?
Yeah, I mean, I think, you know, when we look at the other awards that we have, the one that is going to contribute here in addition to what we're doing with General Motors and Toyota today is ACC with the Stellantis volumes, first in Q4, and then that ramps up in 2026. We believe that if that can bring in over $15 million of revenues next year, that would be excellent. The other one that is pretty set and where we do have high confidence that they'll execute is Mercedes-Benz in 2027. That is of comparable size to what we're expecting from Stellantis with more volumes that could be added given some new launches that they've announced. Audi, Scania, and Porsche, those ones, they were originally relying on sales from Northvolt, and we all know how that's going.
They're working to move to sales from Samsung that we're pretty familiar with from working on those with another OEM that hasn't awarded us the business yet, but that's volume that could arrive in 2027. I think those, the combination of four or five other awards coming in late 2026, 2027, as soon as they make the determination on by when they'll switch sales to Samsung, and then also what the timeline for these launches is, right? I mean, if you look at the Porsche Cayman Boxster platform, there are vehicles out there, test vehicles rolling with our parts in them, but Porsche is obviously rethinking their timing for the launch of those EVs in the U.S., and we're in wait-and-see mode to see when they'll ultimately determine the start of production date to be.
Don, what are you most excited about here? You've been with this platform for a long time. You've been able to take it from fairly small revenue levels to much more revenue levels and free cash flow. What are the things on the near to medium term horizon that you're most excited about that investors should be looking for here?
I think, and I've said it already a little bit, which is to be able to diversify our revenue growth and reignite growth itself and travel up that green line. It's a powerful cash-generating machine at that point. We feel we've, again, we've done, we've got two markets in place. We think that while those markets don't go up every single year, we do think over a longer period of time that we've got the ability to grow the business consistently and to add to these markets and just travel up that line. What I like about that is also the fact that we do not need to build substantial capacity to do that. We've got those pieces in place. Those are always complicated because they take a long time. There's permitting. There are all sorts of factors that come into play there.
We have a lot of runway right now to travel up that green line, generate a significant amount of profit and cash for the company, and to continue to grow substantially.
What are we talking or what aren't we talking about that we should be talking about for the platform? It seems like you've optimized the cost structure. We're going through some market digestion here. You've got a lot of opportunities for growth. What else are we missing?
I mean, I think that it's sort of highlighted, but I think people are not as excited, at least as I am, is really, if you look at those lines and the green line on slide two of the most recent deck, the leverage is pretty good if the company is able to get growth, right? We learned a lot over the past couple of years around what is precisely needed to deliver that level of growth and, frankly, what is not needed. Being able to grow again without the burden of what was not needed to grow will create a much better company than what we were, than even what we were able to deliver last year. I think as a company, you know, travels up the green line, the leverage looks very different to, you know, our best efforts to grow here in 2023 and 2024.
You know, Colin, if I could just add maybe one thing, and this is a little bit more of just internal ops sort of thing, but in the actions that we took earlier, Q1, Q2, we really delayered the organization and simplified and streamlined the organization. I think our effectiveness as a team and as in planning for and executing next aspects of growth are right there before us. Not a lot of complication. We know what we need to do. That simpler organization is just really refreshing. I think we got a little complex. Yes, we were growing 40%, 50%, 90%, and projecting forward to continuing that kind of ramp in the near term. I think you build, there's a tendency, and this was on my watch and my responsibility to build in some layers and to, you know, just keep up with it all.
What I think we've done is gone back to a simpler organization, delayered, more effective, and I'm really excited about that as well.
Awesome, guys. I think we need to leave it there. I want to thank you for taking the time. We're excited to see the next stage of growth for the company. Ricardo, wish you best on your next endeavors. Remind everyone that we've got a CFO transition here that looks very, very smooth with an internal controller coming in to run the organization. Happy to get folks connected with the company as they need or to help with folks as they do their diligence. Thanks everybody for joining us today. We'll look forward to talking to you guys soon.
Thanks, Colin.
Thanks so much, Colin. I'll dial in as an attendee next time.