Aspen Aerogels, Inc. (ASPN) on Q1 2021 Results - Earnings Call Transcript
Operator: Good day and thank you for standing by. Welcome to the Aspen Aerogels Q1 2021 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, John Fairbanks. Thank you. Please, go ahead.
John Fairbanks: Good afternoon. Thank you for joining us for the Aspen Aerogels conference call. I'm John Fairbanks, Aspen's Chief Financial Officer. There are a few housekeeping items that I would like to address before turning the call over to Don Young, Aspen's President and CEO.
Don Young: Thank you, John. Good afternoon. Thank you for joining us for our Q1 2021 earnings call. Today, I will describe the opportunities we have for substantial value creation over the next five years and will provide a progress report on our strategic initiatives. John will recap our Q1 performance and finish with our updated outlook for 2021. We will conclude today's call with a Q&A session.
John Fairbanks: Thanks Don. I'll start by running through our reported financial results for the first quarter of 2021 at a summary level. Total revenue declined 1% to $28.1 million from $28.4 million in the first quarter of 2020. Net loss increased to $6.3 million or $0.22 per share this year versus a net loss of $3.2 million or $0.13 per share in the first quarter last year. And adjusted EBITDA was a negative $2.6 million compared to positive $500,000 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. I'll now provide additional detail on the components of our results. First, I'll discuss revenue. Total revenue decreased by 1% to $28.1 million. This decrease in first quarter revenue was driven by a decrease in demand in the refinery and petrochemical market, particularly in Asia and a decrease in project work in the subsea market, offset in large part by strong demand in the global LNG market led by shipments to the Arctic LNG and PTT LNG projects. Total shipments for the quarter increased 6% to 8.6 million square feet of aerogel blankets, while our average selling price decreased by 6% to $3.25 per square foot. The decrease in average selling price reflected a decrease in the mix of higher-priced subsea products and an increase in the mix of lower-priced 5-millimeter and LNG products this year versus the first quarter of 2020. Next, I'll discuss gross profit. Gross profit was $4 million or 14% during 2021 versus $6 million or 21% during 2020. This decrease in gross profit was driven by the 6% decrease in average sales price, an increase in material costs offset in part by a 6% increase in volume and a reduction in manufacturing expense. I want to highlight that our first quarter gross profit was reduced by $1.2 million and our gross margin by 400 basis points as a result of a $1.8 million reduction in our finished goods inventory during the quarter. We expect that those finished goods inventories and regain that contribution later in the year. Next, I'll discuss operating expense. First quarter operating expense increased by $1.1 million or 12% versus last year to $10.1 million. The increase in operating expense was primarily the result of additional recruiting expense and compensation costs associated with new hires including those supporting our e-mobility business development initiatives, offset in part by reduced travel expenses associated with ongoing COVID-19 related restrictions. Next, I'll discuss our balance sheet and cash flow for the quarter. Cash used in operations of $1.9 million, reflected our adjusted EBITDA of negative $2.6 million, offset in part by a $700,000 decrease in working capital investment during the quarter. The decrease in working capital was principally the result of a decrease in inventories of $2.3 million during the quarter. Capital expenditures during the quarter were $1.5 million. We're focused on improving the efficiency and reliability of our East Providence manufacturing facility and to a lesser extent establishing our thermal barrier fabrication operations. Cash provided by financing activities of $4.1 million is comprised of $6.2 million generated by our sale of equity for our existing ATM facility offset in part by a net of $2.1 million of cash used for employee equity transactions. As a result, we ended the quarter with $17.2 million of cash, net current assets of $27 million, no borrowings under our revolving credit facility and shareholders' equity of $66.6 million. We also had access to an additional $13.1 million available under our revolving credit facility at quarter end. I'll now turn to our full year 2021 outlook. Although COVID-19 continues to depress activity in our energy infrastructure markets, particularly in Asia, we're seeing early signs of improved demand in North and South America. As a result, we are now projecting revenue growth for the last three quarters of 2021 in the mid-single digits to mid-teens. And we're increasing our 2021 revenue outlook by $3 million to between $103 million and $111 million for the year. We've also decided to increase our strategic investments during the remainder of 2021 in support of our e-mobility business development initiatives. This investment will include $10 million of incremental expense to enhance the technical, commercial and operational teams and resources in support of our thermal barrier and battery materials opportunities. Of the total, we expect to incur $6 million of incremental expense and cost of sales. For additional manufacturing, fabrication, supply chain, quality and engineering personnel and the operating costs associated with our new fabrication facilities. We expect to incur the remaining $4 million of incremental expense in operating expense for scientists, researchers, salespeople and administrative support personnel to expand and protect our patent portfolio including our e-mobility products and technology and for operating costs associated with our expanded research and corporate facilities. Our 2021 strategic investments will also include an incremental $18 million of capital expenditures to construct our advanced thermal barrier center, to expand our battery materials production, fabrication and testing facilities and to complete the initial engineering designs for our second silica aerogel manufacturing plant. Including the strategic capital investment, we project our capital expenditures a range between $20 million and $25 million for the full year. We believe these strategic investments will position Aspen to take advantage of the significant growth opportunities available to us today in the electric vehicle market to leverage our aerogel technology platform, to develop new high-growth businesses and resume the strong operating performance that characterize 2019 on the impact of COVID-19 subsides. Including the impact of these strategic investments, our revised 2021 full year outlook is as follows: We expect total revenue of between $103 million and $111 million; net loss of between $28.3 million and $31.9 million; adjusted EBITDA between negative $15.2 million and negative $18.8 million. EPS of between a loss of $1.01 and a loss of $1.14 per share. This EPS outlook assumes a weighted average of 28 million shares outstanding for the year. In addition, this 2021 outlook assumes depreciation of $8.9 million, stock-based compensation expense of $4 million and interest expense of $200,000. Full year outlook also projects the gross margin in the mid-teens, an average selling price of between $3.35 and $3.40 per square foot. Turning to cash, we're confident in our cash on hand, available credit and proceeds from potential equity sales under our existing ATM facility that will be sufficient to fund operating requirements and strategic capital expenditures for the remainder of the year. Longer term, we're working on a number of potential financing alternatives to fund the construction of our second silica aerogel manufacturing facility, other capital expenditures required to support our e-mobility business opportunities and post 2021 operating requirements. We'll announce the additional details of the second plant, other capital projects as our planning efforts progress during the year. I'll now turn the call over to Mike for Q&A.
Operator: Your first question comes from Eric Stine from Craig-Hallum
Eric Stine: Hi, Don and John.
John Fairbanks: Hi, Eric.
Don Young: Hi, Eric.
Eric Stine: Based on the details, don't really know where to start here, but maybe just on the thermal barrier side, so talking about 20 -- that you've got deep engagement within the five that are more advanced. Just curious how that has kind of accelerated since you announced your first partner what -- obviously there's urgency from those five, but kind of what are you seeing in terms of urgency in this area from the group? And I guess I would assume you still have confidence in securing at least one to two more this year?
John Fairbanks: Well, I think we are feeling that urgency and we believe as we've said in the past that an hour is the time to win these contracts. These are multiyear designing wins and I think just from an external point of view or a macro point of view the momentum around e-mobility electrification the proliferation of the EVs is going at least as swiftly as people expected and maybe even more so. So -- we believe that we will win additional contracts during 2021 Eric. Just the progress that we've made from stage one as I described it to two and now we're down into the third stage. We believe that we'll continue to move companies through that. There is I think the issue of thermal runaway is also becoming increasingly prevalent as you've seen recalls occur for many companies and other, sort of, let me say regulatory maybe warnings around some of these things in all three regions in Asia, Europe and here in the United States.
Eric Stine: Got it. One thing I know that as of later over the last couple of months you got increased confidence in your ability to eventually building flow through your current customer is. I'm curious if that is still -- if that is still an area that you're confident in. And is there an event that triggers that, or how should we think about potential timing there?
John Fairbanks: Yes, we said that we expected to do it during the second quarter of this year. And we think that is still the case. It is interesting and not just with this one but with others who are in stage three. There is an element of strategy for them. And in the way they might be addressing thermal runaway. And so I don't think all the companies are going to -- I think many companies are going to view this as a proprietary aspect of their battery platform and perhaps not want to do a big announcement. Having said that, we expect that we will be able to make announcements along the way because it's in their interest I think look we're investing in a second plant as I said a significant investment. We have to have the confidence. Our people have to understand what is the basis for that confidence and to have major players in the EV space align with the figure around thermal runaway. It's just an important endorsement and I think sort of breathe that kind of major capital decision.
Eric Stine: Right and fair to say that I mean that's a capital decision you wouldn't make if you didn't have a high-high level of confidence in additional business on both paths thermal runaway and the carbon aerogel path?
John Fairbanks: Yes, that is true. I think having that -- one of the nice parts about our ability to -- the way in which we build these manufacturing plans is in that modular form even the one that we built earlier in East Providence. We built the original line. We expanded the original line first and then we built another module in line two and then yet another one in line three. So we're well-versed in being able to sort of let out the line a little bit here if you will and the way we go about this. One of the interesting aspects of our work today and thinking about plant two is sizing that first module correctly. And it's going to be based on contracts in hand. There's no question about that. But that's a great way to build these things where demand is really the driver as opposed to, let's say, build and they will come. This is going to be really demand driven.
Eric Stine: Absolutely. Very good to hear. Maybe last one for me just on the carbon aerogel path. I mean clearly last call you talked about that had accelerated. You've moved up the timeframe a little bit and it seems like it continues to do so. When you mentioned the five companies does that five include SK and Evonik, or are those five in addition to those two?
John Fairbanks: It includes one of them.
Eric Stine: Okay.
John Fairbanks: In the way, and I don't mean be elusive about that. SK it's very much on the customer side. And Evonik as you know as a supplier of materials to their partner to us in that sense. And so the five that we mentioned one of which is SK or, let's say, sort of market facing.
Eric Stine: Okay. Got it. Thank you very much.
John Fairbanks: Thanks, Eric.
Don Young: Thanks, Eric.
Operator: Your next question comes from Chris Souther from B. Riley.
Chris Souther: Hi, guys. Thanks for taking my question here. Maybe to start on the $18 million incremental spend for the advanced thermal battery center is completion of this investment acting as any kind of barrier to additional win do you think or is this really just about demonstrating manufacturing expertise for these larger customers and kind of speeding up your production kind of timeframes here? I just want to get a sense of how your guys are -- when you're kind of building this out to potentially demonstrate with customers kind of the rationale and what the capabilities you're going to have coming out of that.
Don Young: John, do you want to take that?
John Fairbanks: Sure, sir. It really does both. So the advanced thermal barrier center will be a customer center where we'll do rapid prototyping in response to customer demand. And we're doing that today and we're doing it on a bit of a shoe string so the ATPC will help us there. But it also is -- it will actually house our automated fabrication operations as well. And we'll be producing millions of thermal barriers for the contract per year for the contract that we've already won. And we anticipate that we -- with additional wins that that number will only increase. So we need to automate that thermal barrier fabrication operation in order to ultimately be successful delivering these components to our customers. So it will help us gain more customers and then it will help us produce product to those customers contracts ultimately.
Chris Souther: Okay, you know that makes lot of sense. And then just on the progress on the second facility planning here, obviously it can be kind of customer dependent. So based on when you get these awards potentially come in throughout this year and next year, but if we're talking about 2022 to 2024 ramps with a bunch of these customers potentially how do we -- and the modular approach when do you guys do kind of pencil down and kind of speak to the street, as far as what the plans are going to be? It seems like it could kind of continue to evolve the size that you're going after. I'm just kind of curious is this something that by year-end that we'll get kind of more details and then could expand in 2022 if there's additional customer wins? How should we kind of think about it?
Don Young: Chris, I think we are going to build plant 2. And for us we are studying how big to build that first -- that first line if you will or that first phase of this project. And it's important. I said it in my notes a little that it's important not only because we need the capacity, but also because these large OEMs are expecting us to have not only ample capacity, but they would also like for us to have a diversity of manufacturing sites. And I think this is a significant commitment on our part to this new business that we've entered into. So, in terms of timing, I think that we will make announcements before the end of the year as to how this will play out in terms of site location and most probably size as well because we really need to get after it here. We need this capacity as we get late into 2023 and certainly by the time we start 2024. And it's about a 24-month process. And so, we have a dedicated team today working on this. As John described putting some of the initial design together all the lessons we've learned from building line 1 line 2 Line three in our East Providence facility. So a tremendous amount of work is being done on this today. So I think you can expect announcements sooner rather than later certainly before the end of this year.
Chris Souther: Got it. And then kind of 24 months from start of production for kind of incremental lines what would be the timeframe you think you'd need if you're going to expand it beyond the initial scope?
Don Young: Well if you mean how -- does it take us less time to build the second phase definitely that is a yes. But still it probably truncates it from 24 months to 15 or 18 months something like that. And when we have a structure and we have the infrastructure. So it's a number -- it truncates it a bit. But we need to get this first phase on the mark from a size point of view as best we can.
Chris Souther: Understood and it makes a lot of sense. And then just last one here. On the $10 million in incremental expense this year on the EV side, you mentioned $6 million and $4 million split between COGS and OpEx. Can you talk about what the impact was in the first quarter? Maybe I missed that? And then what the cadence would be for the rest of the year for the rest of that spend maybe would be helpful?
John Fairbanks: Yes so that incremental spend is all Q2 through the end of the year. And so it's going to come from this point forward. So it didn't include any expenses that we incurred in the first quarter.
Chris Souther: What were kind of the impact to COGS from the increased DV side?
John Fairbanks: It was in the range of maybe one point of margin at this juncture. It was not that significant. But it will scale up quickly, as we move from prototype production which is what we're doing today to full-scale commercial production. And so -- but that was in our initial projections. We're just really just accelerating some of these expenses that we had originally planned maybe for 2022 into 2021. In response to this, just this increase in interest in our thermal barriers and our confidence that the thermal barrier business is going to grow rapidly in 2022 through 2025 time period.
Chris Souther: I will hop in the queue. Thanks guys.
John Fairbanks: Thanks.
Operator: Our next question comes from Jed Dorsheimer from Canaccord.
Jed Dorsheimer: Hi, thanks for taking my questions. I have several, if you don't mind. I guess first maybe just energy infrastructure. I mean first off congrats on better top line and sort of the bold move of the capacity expansion at these levels. So if we just dig into the energy infrastructure, clearly pricing is starting to increase on the traditional hydrocarbon based fuels. Is there anything else other than sort of rig counts and refineries or utilization that's kind of driving a level of confidence on this side of the business in terms of that ramp? And then I've got follow-ups on the other two areas.
Don Young: I think, our indicators are sort of threefold. One is, we're seeing restocking. And you might remember in Q2 of last year, I talked about the destocking that we saw going on through our very well-established distribution channel here in the United States and around the world. Those distributors are pretty close to the ground so to speak and they have a good sense for what is happening facility by facility. So, we view that as a positive sign. Second, we have been clear that, we believe that because of the low-density work sites that had been required during this COVID period, which continues in many parts of the world, most parts of the world probably, there was no question that there was deferred maintenance and we're beginning to see some of that deferred work be initiated and attempted to here. And so, we view that as a positive sign. And then third, we are seeing the project pipeline begin to -- begin to come alive again. The worst thing that a contractor or asset owner could do is start a project and have its team on site, off-site, on site, off-site, it's a terrible way, expensive way to run a project. So more projects than not just were either not started or put on hold. And we're beginning to see some of those come back to life here. And we are positioned neatly in the specifications for several of these projects. So that gives us confidence. And of course, we announced earlier the new LNG project so-called Arctic LNG that win. So, those are three things Jed that I think we're seeing in the numbers, we're seeing in the activity levels. And it's -- again it's not true across -- around the world entirely, but it's certainly true in pockets. And we think as the pandemic gets a little further behind us, it will become the case in most all regions.
Jed Dorsheimer: Got it. And then just as a reminder on the value prop if you will. I know on the oil side, I believe it thermal benefits on the heat as well as the rust under pipe are kind of the major drivers. On the LNG, is that working the same, but cryogenically in terms of the cooler temps, or is that still a thermal heat value prop there?
Don Young: So thermal management is still an important part of our value proposition in that space. Fire Protection is also an important element. And one that is a little -- it's really pronounced I would say on the LNG side, is the ability to install our materials more rapidly, with a less skilled workforce in modular yards as opposed to necessarily on site. So the durability of our material to be transported on pipe or on vessel from a yard to let's just say the remote site. Our materials are very durable in that way. So our value proposition on the LNG side is broad and strong. And I think, the fact that we piece together a 50% revenue CAGR since 2015, since we really, really let me say invested in that space tells the story pretty well.
Jed Dorsheimer: Got it. And then just maybe a pivot to the EV and the battery materials side, so on the thermal runaway opportunity, what are you replacing in terms of the core shell? Because there are thermal mitigation and propagation solutions in terms of or mitigation reduction solutions now, so I'm just curious, what are you prepared at this point to sort of talk about the improvements that you're seeing on versus what OEM or a battery manufacturer might be replacing and using your material instead?
Don Young: Yes, look, I think a few things. I mean, a lot of battery platforms that we are working through that one, two, three stage process that I described are new. And they are looking for optimal materials to address this issue. So in some sense, we're really not knocking an incumbent out of the box. We are part of the original design of these battery platforms. And that's a strong place for us to be in. And it's why it's so important for us to invest in the advanced thermal barrier center to really be that industry resource for helping them, address this challenge that all of the battery platforms have. And so, it's unlike the energy infrastructure business in the sense that we largely needed to knock out incumbents that had been in place for a long time. And that was a slow arduous process and we've done the hard work and we're making significant inroads in that space. It's a little different here with these new battery platforms Jed, where they don't have long histories with existing materials. And if I could just say, the attributes of our material, we refer to them. It's a really unique combination of that thermal management that the non-combustibility, the mechanical durability with that very thin profile, taking up very little space within these packs so that they can get more cells in place so -- which is to say, more drive range. And so, we really have, I think, an important product here and we're doing our best to work these companies through our development funnel here, as they themselves -- let me say, sort of, settle on their battery platforms.
Jed Dorsheimer: And then, last question, I guess, just on the battery materials on the anode side of things, obviously, moving to silicon on the anodes has a tremendous amount of benefits. But the issue has always been the coefficient to thermal expansion associated with the thermal increase. So I'm just curious, where are you in terms of the data with the testing with the five -- with the customer base that you're in? Is there any metrics that you might be able to share at this point in terms of that solution?
Don Young: Providing the data is a goal for us -- publicly is a goal for us here in 2021 and we think that it's a relatively bold move. Not many are doing that, not many companies that are doing this are putting their data out. We're eager to do it. And you're right, that is the challenge, it's the expansion of the silicon to what 3x, significant, and how do you protect that expansion through-cycle life. And a lot of the work that we're doing with our evaluation partners is around exactly that cycle life. How durable are these materials? And we think our carbon aerogels are a perfect scaffolding for that, given their mechanical durability, our ability to manipulate the pore size, create uniformity of the pore size, doing a variety of things that protect that silicon as well as possible. And so, that's really our focus and an enormous amount of our scientific team is dedicated to that issue, but the idea of presenting our data publicly here during 2021.
Jed Dorsheimer: Great. Thank you.
Don Young: Thank you, Jed.
Operator: Your next question comes from Doug Becker from Northland Capital.
Doug Becker: Hi, Don.
Don Young: Hi, Doug.
Doug Becker: Don, you made the point, you're not knocking out incumbents, specifically, but curious if there's been any notable changes around the competitive landscape with competing solutions for thermal barriers or the carbon aerogels.
Don Young: Well, we're assuming -- and I think it's fair to assume that, these automotive OEMs that we have in five of the 10 largest automotive OEMs in the world, are looking at all materials. And the one that we were awarded the contract for, we know that they started with a number of materials in the first stage of that three part RFQ. And so, we're progressing pretty efficiently through that funnel right now, as many of these companies is, as possible. Again, dozens in stage one, 15 or 20 in stage two, now five significant companies in stage three. We don't know all of the materials that we're being compared against, but we know some of them. And this is an extremely hard problem, that you just don't sort of come up with a -- just don't come up with a solution easily. And what was important for us and the reason that we've been so strong in this to date is that product PyroThin is a direct descendant of the passive fire protection products that we use in energy infrastructure, where passive fire protection is so critical. Yes, we've optimized it significantly for the lithium-ion batteries. But we were very experienced with the issue coming into it. And again, it's put us in a in a very strong position. You also mentioned on the acid battery materials and the silicon-rich anode material that we've talked about. Yes, there are a number of companies that are focused on this. I mean its well, well understood, agreed upon I think, that adding silicon to sort of the current style of lithium-ion batteries is that -- are the next logical steps along the technology road map. And the great benefit of it, of course, too is that it fits within the process technology, the manufacturing technology of these big factories, some of which are operational today and some of which have been announced and will be operational in the coming year or two. So that's a requirement of these kinds of materials and I think in most everyone's opinion. And -- so it's an area where we think that the work that we've done in developing and then manufacturing on scale these nano materials for the better part of 20 years gives an advantage at that level, especially when you're talking about cost and performance, cost and performance. Those two things go together. It's one thing to have pure performance at a very high cost. It's not going to get it done. It's cost performance. Again, we feel that, we're in a good position. And we've added since the last time, we've talked about this, three additional companies to who are – who are requesting and samples who have looked through our data and materials and what have you. And so the list is expanding. And we've got a lot of work to do. We're investing in the business we'll bring scientists and engineers in. Our confidence has grown. And I think that the next logical things are for us to share data and compare that data with other solutions, but also to announce additional partnerships in addition to our Korean partner and our German partner.
Doug Becker: That all sounds very consistent with what you've said in the past, with yes competitors are out there, but no major changes in that plan as what it is. And then maybe a quick update on the opportunity for stationary energy storage and distributed generation. It seems to get a lot of airtime today. Has that opportunity just kind of taken a back seat given the other opportunities we have right in front of you?
Don Young: Not really actually. I mean, certainly our team is focused on. Obviously, the EV space is so much so prevalent right now, out there in the world. The stationary energy so think of this for those who are listening of energy storage systems associated typically with residential or small business. So behind-the-meter odd times solar to battery type systems. Again, using the same lithium-ion technology battery cells, typically perched up next to one's home and so some of the formal runway issues are prevalent there as well. And so we have continued to make progress with two entities one in Germany, one here in the United States, I should say one in Europe and one here in the United States. And we've made – we continue to make good progress with them. But really – I think it's a really interesting and important area for us.
Doug Becker: And I think last quarter, you mentioned you were involved in some RFQs that, I assume those are still continuing to move forward. But, is there any way to frame the opportunities specifically from this aspect of the business?
Don Young: I think the fact that we have five major OEMs in the third stage of our development. Think of that as pretty advanced. And whether, it's exactly an RFQ or not or advanced prototyping and providing production parts, it's pretty advanced at this point. And so, it's I would say, at that point, they have limited their choices down to very, very few possible solutions at that point in time. So again, we haven't won until we win, but we feel strongly that we're in an excellent position to be able to announce some additional contracts this calendar year.
Doug Becker: And just to clarify, I was actually specifically talking about the stationary energy storage or –
Don Young: Oh, excuse me. I would that, that we'll have one of those announced here in 2021.
Doug Becker: Perfect. Thank you.
Don Young: Thank you, Doug.
Operator: Your next question comes from Amit Dayal from H.C. Wainwright.
Don Young: Hi, Amit.
John Fairbanks: Good afternoon. How are you?
Don Young: Amit, are you there?
Amit Dayal: Sorry I was on mute.
John Fairbanks: Hey, Amit. How are you?
Amit Dayal: Thank you. With respect to this EV opportunity right there's been some recent headlines about supply chain challenges in the auto space. Is that impacting any of your timeline or is that not much of a concern at this point?
Don Young: Well, it is not directly impacting us in the sense that, if you're referring to semiconductor shortages et cetera. So not directly, but perhaps in some indirect sense, yeas, it necessarily slows things down. I can say, just sort of more broadly, if you will. As all of us are – whether you're the biggest OEM or a supplier like Aspen, there's no question that the supply chain is being challenged right now. And it's just a matter of sort of importing in the process after – I don't need to say the pandemics over, but as we get our on this other side of it at least. And these big supply chains aren't really meant to start and stop and start and stop. They're not fully shaped that way. And so it came to a significant slowdown, if not stop for lots of these parts. And it's going to take a little, while to kind of reset. And so it wouldn't surprise me, if there – if there are some disruptions along the way I think we've already read about some of them. But, in terms of our work, we're not anticipating any issues from our side.
Amit Dayal: Understood. Thank you for that. And then, you had indicated, you're expecting single-digit millions to sales into that opportunity for 2021 and 2022. Is there any change to that outlook, or are you still sort of in that realm?
Don Young: We think that's a good -- we think that's a good expectation for you to have. But, I did say in my notes that we are as confident as that we're more confident about our 2023 target of $225 million, again, based on the fact that we've got these significant automotive OEMs in the third stage of our development funnel. And we're seeing activities in our energy infrastructure business that are better promising, that's starting to feel a little bit normal again. And again, we've got a ways to go, but it's moving in the right direction. And we haven't said that for four quarters, as you know, it was really just sideways at a low level. And we're just seeing it. And you saw it a little bit maybe in our revenue in Q1. I think it was better than expectation. And again, one quarter doesn't make an end to the pandemic, but we feel we're in a good direction there. So that target of 2023 again, we feel confident in that we're building up 2021, 2022. These investments that we're making our ability to move towards automated higher volume parts production on the thermal barrier side. These are all critical elements to be successful here.
John Fairbanks: One other comment, single-digit millions in 2021 and 2022 was from the US-based automotive OEM alone. So, if we have additional contract wins, it could give us upside on those numbers, in particular in 2022. But, as long as the US automotive company is successful, we should achieve those numbers and additional contract wins would give us upside.
Amit Dayal: All right. Thank you for that clarity and that’s helpful. Just one last one for me, the decrease in average selling prices, maybe because of the product mix in 1Q, is this sort of a temporary situation and you guys are managing through this going forward?
John Fairbanks: Yes, it really is a function. We sold a lot of 5-millimeter product and we sell our 5-millimeter product for about half the average selling prices of 10-millimeter products. So that mix drove it down. So, it's temporary. It is project related. And we'd expect that to continue into the second quarter, but to sort of resume our higher levels of average selling prices in the second half of the year. And just to clarify, our bill of material costs per square foot for the thinner product for the 5-millimeter product is lower as well. So we really maintain our margin. We have lower revenues, and then we also have lower material costs, which give us the same contribution. So there's been no economic degradation on it, and we'll rebound in the second half of the year.
Amit Dayal: Understood. Thank you for that. Hey, that’s all I have. Appreciate all the color. Thank you.
Operator: Your next question comes from Jeffrey Campbell from Alliance Global Partners.
Jeffrey Campbell: Good afternoon. And thanks for squeezing me in. The first thing I wanted to ask about Don, I just wondered if there was much segregation between those battery folks that are deep into high PyroThin adoption or sampling and testing, and those that are showing the strong and increasing interest in the common anode product. It seems like these are both the necessary products in the same battery assuming that they performed to expectations.
Don Young: Yes. It's a good question, and I would say that when I think about it there is overlap. But I would say -- I mean on the one hand, I would say, it's sort of coincidental. But on the other hand, I would say, you know what it's not very surprising. There are different groups within these firms who are working on these things. But, there are only so many players, let's face it, at the end of the day so, and we believe there will only be so many successful players at the end of the day. Some of the incumbent companies will be successful some of the newcomers will be successful. And so, it's not too surprising. But, I wouldn't say that they're necessarily related to one another. A lot of times, I would even wager. Well, I know that one group within one of these big companies barely even knows that the other group is working with us on the other one. So again, I call it a little bit coincidental, but not surprising.
Jeffrey Campbell: Okay. Well, thank you for that. Regarding the OEMs and the battery manufacturers that are in the second or third of the PyroThin phases that you outlined, can you provide some color just on geography like US, EU, Asia to get a sort of sense of that?
Don Young: They represent all three regions -- sorry, all three major regions. So, this isn't going to be terribly helpful, but there are participants from Asia, participants from Europe and participants from the US in Phases 2 and 3.
John Fairbanks: And within Asia, it's China and other countries within Asia as well. So, a really great geographic diversity.
Jeffrey Campbell: Yes. And John that you mentioned in China is interesting and significant, because we've talked in the past about how there's some entity there that infringes on your patents, but it sounds like maybe this -- if you've got -- if you're doing work in China, it means there's more to it than just being able to make some aerogel unless all the other research have been done and the other people that you're working with. Is that the right way to think about it?
Don Young: Yes, I think there are…
John Fairbanks: I think it's that end that these companies aspire to be international companies and are -- and we've done -- we've been very aggressive and successful in, let me say, defending our intellectual property around the world. And so I would just say, that they're -- I would just say that they are -- sorry. I would just say that they are focused on if they want to be an international company, they do not have to be violating intellectual property. And we've seen that in their behavior as well.
Jeffrey Campbell: That's a great point. They want to be able to sell outside of the moat. My last question and you sort of alluded to this, but earlier, but I'll just add a little bit of color to it. You mentioned that some large OEMs are cognizant about diversity of supply locations. I was just wondering as you're planning your future roof line expansion maybe not just Phase 2, but maybe even in a further phase as it comes to that. Are there any potential large foreign customers that are indicating that Pyrogel or a PyroThin facility source closer to their manufacturing capability? Is there any importance to that?
Don Young: Jeffrey, our materials ship very effectively and cost effectively. We've exported historically approximately two-thirds of our product to all corners of the globe. And so I think having a diversity of supply, I think, having ample supply are the two most important things. Having a nearby supply, I think has been voiced more nice to have and not at all a requirement. I think as we come to a full capacity of a plant 2, we will have to think very hard about where we locate plant 3 and it's very likely driven by where we are particularly successful in the thermal barrier side of the plate. So I could make a -- if I would project forward for five years. I could make a good argument for Europe, and I can make a good argument for Asia. So we'll see how it plays out.
John Fairbanks: In the interim as well we could cite fabrication operations in Europe and in Asia, but make the are the base aerogel, based PyroThin product here in the US just to make sure we have that proximity and quick turnaround on prototype designs and delivery of fabricated parts, as well.
Don Young : And that's a really good point John. Just I think you'll see more of that. That is much lighter afoot to do that sort of thing and to build a full-fledged aerogel manufacturing plant. So I think that's a very logical maybe interim.
Jeffrey Campbell: Yes. Yes. I appreciate that color. That makes further sense. Thank you.
Don Young : Great. Thank you, Jeffrey. Appreciate it.
Operator: The Q&A session is now ended. I will turn the call back over to Don Young for closing remarks.
Don Young: Thank you Mike. Appreciate it. Thanks for your help. Thank you everyone. We appreciate your interest in Aspen Aerogels, and we look forward to reporting our Q2 results in late July. Be well and have a good evening. Thanks very much. Take care.
Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
