ASPN Q1 2024 Results

[FoolishJeff]

ASPN reported blow-out earnings on 5/1

-Revenue of $94.5M (+107.3% Y/Y) beats by $19.13M.
-13.6% EBITDA margins vs 2.6% EBITDA expected by analysts
-Also raised their EBITDA guidance from $30M to $55M which implies 14.4% EBITDA margins using their revenue guidance.
-Raised FY Guidance from $350M to $380M
-Operating income of $2.4 million, a $1.1 million improvement or 76% QoQ and $21.3 million improvement YoY

“We continue to execute the transition of our Energy Industrial products to our external manufacturing facility and dedicate our manufacturing plant in East Providence to the production of aerogel for EV thermal barriers. We believe the Q1 results further demonstrate that we have the capability with existing assets and supply arrangements to deliver $650 million of annual revenue with at least 35% gross margins and 25% Adjusted EBITDA margins,” commented Don Young, Aspen’s President and CEO. “We remain deeply engaged with a growing list of automotive OEMs and battery cell manufacturers and have strong conviction that we are providing a unique solution to a very challenging problem. We remain focused on scaling the five OEM awards that we have in hand alongside maximizing our Energy Industrial business.”

-Their new thermal barrier product is growing at 459% YoY and now makes up 69% of total revenue

-Looks like ASPN could have continued success with thermal barrier to support the hybrid/EV transition

Ricardo C. Rodriguez, Chief Financial Officer and Treasurer noted, "We added $10 million of revenue quarter over quarter, a 12% increase. More importantly, we increased Adjusted EBITDA by 42% quarter over quarter, to $12.9 million, and operating income increased by 76%, further validating the scalability of our operations. We are increasingly optimistic about our outlook for the year as our main automotive OEM customers capture their fair share of the EV market, and our Energy Industrial customers benefit from incremental supply through our external manufacturing facility." Mr. Rodriguez added, “These elements, combined with our team’s continued execution, enable us to raise our 2024 baseline Adjusted EBITDA outlook by 83%, to $55 million on $380 million of revenue, and to anticipate positive net income for the year.”

-Stock was up 57% yesterday and 5% today.

Full Press Release:

Aspen Aerogels, Inc. Reports First Quarter 2024 Financial Results and Recent Business Highlights | Seeking Alpha

[wpr101]

Thank you @FoolishJeff for raising this company on the board! I’ve been following them for a few quarters and trying to understand their business more.

@FoolishJeff

Their new thermal barrier product is growing at 459% YoY and now makes up 69% of total revenue

The revenue growth of their PyroThin product are incredible. I’m trying to understand what the competitive advantage is and why the market has adopted the product so quickly.

My understanding is this is a product which coats a EV battery to protect against “thermal runaway” or the battery catching on fire. Sounds like Toyota and GM are adopting this product rapidly. I’m curious though why not Telsa, or if they have their own gel or don’t have any pyrogel.

The company also has Pyrogel which is more for refineries, chemical plants, and power generation stations which protects against fire hazards. It handles temperatures from -40F to 1200F.

Then there is Cryogel which is for protecting against cooling and handles temperatures from -460F to 257F, and is used in LNG (Liquified Natural Gas) and other petrochemicals.

It sounds like PyroThin is by far the fastest growing over Pyrogel and Cryogel.

I’ve only been able to find two competitors who are public but basically have incremental or negative growth and P/E ratios in the 10-15 range,

Cabot Corporation (CBT) - 5B market cap, P/E 13, flat growth
Saint-Gobain (SGO.PA) - Paris based, 40B market cap, P/E 15, -10% growth

Then some other competitors,

IBIH (China)
Guangdong Alison Hi-Tech (China)
Nanotech (China)
Armacell
Johns Manville
JIOS Aerogel - Singaporean series B startup, very small

I am trying to figure out why PyroThin is growing but these industry standard gels are not. From what I gather PyroThin design allows “breathing” of daily expansion and contraction of lithium-ion batteries. It protects at the cell level, is ultra-thin, lightweight thermal insulation.

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It sounds like the company is ramping production at their Rhode Island facility to convert to PyroThin primarily.

I was also wondering if you know about their Department of Energy deal and what this entails? They say they are “deeply engaged” with the DOE on becoming a candidate partner in some program. I cannot tell the value or scope of this deal.

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Ultimately while I like the growth in financials here, I’m still struggling to understand the competitive advantage and bit concerned all the growth relies on a single product of PyroThin. While it seems to be taking the market by storm, I’d like more assurances on the durability of this competitive advantage for the product. I’m fascinated though how they’ve been able to convince Toyota and GM to adopt it so fast.

Is their product just that vastly superior to the competition that word of mouth has spread like wildfire, and every EV maker is looking to coat their batteries in PyroThin?

[drew1618t]

@wpr101

I was also wondering if you know about their Department of Energy deal and what this entails? They say they are “deeply engaged” with the DOE on becoming a candidate partner in some program. I cannot tell the value or scope of this deal.

Aspen has applied for a loan pursuant to DOE’s Advanced Technology Vehicle Manufacturing Program (ATVM Program)(1). The interest rate associated with an ATVM Program loan is equal to the U.S. Treasury-equivalent yield curve with zero credit spread. (2). The loan application is one of the key drivers for restarting the construction of Plant II(3). Aspen Aerogels will use the low cost loan to expand their business. They expect to give an update about the final decision from the DOE by their Q2 conference call. It has passed the EPA hurdle for this program.

@wpr101

Ultimately while I like the growth in financials here, I’m still struggling to understand the competitive advantage and bit concerned all the growth relies on a single product of PyroThin

Tesla uses Phlogopite mica as its insulating material that depending on the angle has heat propagation of .44 - 3.7 W/m-K. Where PyroThin has it at 24-61 mW/m-K depending on temperature (4,5). So its approximately 100 times better at heat insulation. Its density is .16g/cc vs Phlogopite density is 2.81 g/cc. So its one tenth the weight as Phlogopite mica. Phlogopite mica is a mineral that can be mined in the ground, so its costs would be very cheap in respect to an aerogel. If you want to know more about aerogels watch this video.

1)https://www.energy.gov/sites/default/files/2024-06/ea-draft-fonsi-ea-2253-pyrothin-aerogel-ev-battery-safety-2024-04.pdf

2)Federal Register :: Statutory Updates to the Advanced Technology Vehicles Manufacturing Program

3)Q1 2024 conference call.

4)Thermal conductivity of mica at low temperatures | Journal of Materials Science.

5)https://www.teknowool.com/wp-content/uploads/2022/03/PyroThin-ATB-Product-Information-Sheet-V1.0.pdf

[wpr101]

I was wondering how concerning it is that shares outstanding is up 231% in the last five years. It looks like the company has done many aggressive capital raises which were dilutive. There was also a capital raise that was attempted to be done on June 15, 2023 and then cancelled because of “unfavorable market conditions”.

Here’s how a graph of shares outstanding looks over the past five years,

Then going all the way back to their S-1 they started out 2014 with 2.7M shares outstanding. If I am understanding this correctly it means that shares outstanding have gone from 2.7M to 76.5M in about ten years.

I’m wondering if these dilutions are really the cost of doing business or how much was done to ensure the company would survive?

They look like they are turning the corner on profitability. I am wondering how much influence some of their investors from the capital raises like Koch Investments and an “affiliate from GM” really have over the company.

I also don’t see management mentioning share outstanding and what their strategy is now on the last earnings call. That is somewhat concerning to me. It doesn’t sound like any buyback is planned and there could be additional capital raises if needed.

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On the other hand this nano-technology they have seems incredibly promising and it’s taking multiple industries by storm. From what I’m able to gather the PyroGel is about 10 to 150x better at heat insulation (depending on conditions) comparing with the product that Tesla uses for their EV batteries.

I guess we have to put a lot of faith in management here to continue drive towards profitability and get the dilution under control at some point.

[FoolishJeff]

@wpr101 Have you read Jonah’s 2 part deep dive from last summer? It goes into some detail about the capital raises and the capital intensity of Aspen’s thermal barrier production.

[wpr101]

I had checked out Jonah’s first part of the writeup which mentioned the capital raises and it doesn’t look like the second part mentioned them again. No doubt there was a lot of good information in the write ups about Aspen, however I think the scale of the share dilution was overlooked.

Aspen started with 2.7M in shares at IPO in 2014 and now has 76M+ shares outstanding, that’s over a 28x increase in the number of shares. The last five years shares outstanding is up over 3x, and their production facilities are still not reaching enough capacity from what I understand from the last earnings report. This likely means even further share dilution to raise more as they are just getting to break even net income, as I don’t believe they can finance expansions themselves still.

I did a keyword search on Aspen’s last four earnings calls, for “shares”, “shares outstanding”, and “outstanding”. There is zero discussion in the last year for management talking about their strategy with regards to the explosion in share count. That’s a fairly big red flag to me that it’s not an open topic for them to at least discuss what their plan is going forward on share count.

Having said all that, this is an extremely promising product they have where nobody seems to have anything close to a comparable product. It was enough for me to start a small position, but after learning about the shares outstanding issue I decided to close the position.

Just to give an example how non-standard this amount of dilution is for Aspen, there is another company I’m researching Powell Industries (POWL). They are also in a capital intensive type business of building electrical substations, although not as capital intensive as the battery industry. Five years ago they had 11.6M shares outstanding and now they have 12M. This company went public a very long time ago, but I checked their Q-10 from 2003, and they had 10M shares back then.

[zoeyves]

Regarding the competitive advantage of PyroThin I found this article here:

https://chargedevs.com/newswire/thermal-runaway-in-ev-battery-packs-designing-a-mitigation-strategy/

Basically, you need both thermal and mechanical protection. Mica sheets only provide the thermal protection.

Regards
-Zy

[JustMee01]

@wpr101

I am trying to figure out why PyroThin is growing but these industry standard gels are not. From what I gather PyroThin design allows “breathing” of daily expansion and contraction of lithium-ion batteries. It protects at the cell level, is ultra-thin, lightweight thermal insulation.

Is it just the result of big numbers? Cabot is a fairly large specialty chem company and Saint-Gobain is an even bigger general construction materials manufacturer (I believe). It could simply be that demand is raising all boats, but this particular boat is too small to move the financial needle for the larger companies. Aspen, so heavily leveraged to this one particular growth driver, can benefit from this hot market even without any proprietary advantage over the competition. Maybe there isn’t any real moat at all, but right now there doesn’t have to be one.

Perhaps Aspen is small enough and concentrated enough that it’s making it to their bottom line, while it’s too small a market to the move the needle for larger competitors.