Aspen Aerogels - Earnings Call - Q2 2025

Executive Summary

• Q2 revenue of $78.0M and 32% gross margin came in at the high end of company expectations; Thermal Barrier grew 13% QoQ to $55.2M while Energy Industrial fell 24% QoQ to $22.8M. The quarter delivered Adjusted EBITDA of $9.7M, nearly 2x QoQ on similar revenue, reflecting fixed-cost reductions and operational leverage.
• Results beat S&P Global consensus: revenue $78.024M vs $72.526M estimate* and normalized/primary EPS of $(0.04) vs $(0.10) estimate*; management also noted EBITDA exceeded their own prior high-end guidance for Q2 by ~38%.
• H2 2025 outlook guides revenue of $140–$160M and Adjusted EBITDA of $20–$30M (FY 2025 revenue $297–$317M; Adjusted EBITDA $35–$45M), indicating ~2x H2 EBITDA vs H1 on comparable revenue; CAPEX ex-Statesboro guided to $10M in H2 ($25M FY).
• Strategic/catalyst items: cost structure reset (~$65M fixed costs removed across H1), CFO transition to an internal successor in Q3, and planned asset sales in Georgia expected to materially reduce debt and help maintain a positive net cash position—supporting potential multiple expansion if H2 leverage materializes.

What Went Well and What Went Wrong

What Went Well

• Cost reductions drove operating leverage: Adjusted EBITDA rose to $9.7M (+$4.8M QoQ) on near-flat revenue, with gross margin up 3 pts QoQ to 32%. CEO: “The leverage from these initiatives is clearly reflected in our second-half outlook, which projects a significantly higher Adjusted EBITDA on revenue levels consistent with the first half”.
• Thermal Barrier resilience with GM share gains: TB revenue increased 13% QoQ to $55.2M; TB gross margin improved 8 pts QoQ to 31% on higher volume and productivity. CFO: “GM… production volumes… increase meaningfully quarter over quarter” supporting TB QoQ growth.
• Balance sheet/liquidity: Ended Q2 with $167.6M in cash; management expects to maintain net cash through year-end, with asset sales (Statesboro equipment/plant) expected to generate >$50M over coming quarters to reduce debt.

What Went Wrong

• Energy Industrial softness: EI revenue fell 24% QoQ to $22.8M and 38% YoY, driven by distributor/contractor inventory rebalancing, fewer new projects, and especially a subsea lull after two strong years; LNG also dipped vs 2024.
• EV market/regulatory uncertainty: Management cited U.S. regulatory headwinds and broader energy volatility, though they emphasized organizational resilience and flexible sourcing.
• GAAP profitability impacted by charges: Net loss of $9.1M included $5.9M in restructuring/impairment; adjusted net loss improved to $3.2M; non-cash/state-level actions still flow through GAAP in 2025 (notably Q1 impairment).

Transcript

Speaker 3

Good morning. Thank you for attending the Aspen Aerogels, Inc. Q2 2025 financial results call. All lines will be muted during the presentation portion of the call, with an opportunity for questions and answers at the end. I would now like to turn the conference over to your host, Neal Baranosky, Aspen's Senior Director, Head of Investor Relations and Corporate Strategy. Thank you. You may proceed, Mr. Baranosky.

Speaker 2

Thank you, Megan. Good morning, and thank you for joining us for the Aspen Aerogels second quarter 2025 financial results conference call. With us today are Don Young, President and CEO, and Ricardo Rodriguez, Chief Financial Officer and Treasurer. The press release announcing Aspen's financial results and business developments, and the slide deck that will accompany our conversation today, are available on the Investors section of Aspen's website, www.aerogel.com. During this call, we will refer to non-GAAP financial measures, including adjusted EBITDA and adjusted net income. The reconciliations between GAAP and non-GAAP measures are included in the back of the slide presentation and earnings release. 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 page one of the slide deck, as the content of our call will be governed by this language. I'd also like to note that from time to time, in connection with the vesting of restricted stock units and/or stock options issued under our long-term equity incentive program, we expect that our Section 16 officers will file forms for, to report the sale and/or withholding of shares in order to cover the payment of taxes and/or the exercise price of options. I also want to highlight a few near-term IR engagements. On Monday, August 11, Ricardo and I will be hosting one-on-one virtual meetings at the Oppenheimer 28th Annual Technology, Internet, and Communications Conference. On Tuesday, August 12, and Wednesday, August 13, Don and Ricardo will be hosting one-on-one meetings at Canaccord Junior's 45th Annual Growth Conference at the Intercontinental Boston Hotel.

Both conferences will also feature fireside chats. The live webcasts of these presentations can be found on the Investors section of Aspen's website. I'll now turn the call over to Don. Don.

Speaker 5

Thanks, Neal. Good morning, everyone. Thank you for joining us for our Q2 2025 earnings call. My comments will cover our CFO transition, the expected impact of simplifying and streamlining our organization, our operating performance, and our view of the current environment and second-half outlook. Ricardo will amplify these points with his comments. We look forward to your questions. As we announced in our Q2 earnings press release, Ricardo plans to step down from his position as Chief Financial Officer at the end of the third quarter. Ricardo joined the company in November 2021 as the Chief Strategy Officer and assumed the role of CFO in April 2022. He has been an invaluable partner to me these past years. He has elevated our game in many ways, which has directly resulted in our strong balance sheet and overall financial position.

I'm deeply grateful for Ricardo's many contributions to Aspen Aerogels and have no doubt that he has great things ahead in his career. We are pleased to announce that Grant Failey will become Aspen Aerogels' Chief Financial Officer at the end of the third quarter. Grant currently serves as our Chief of Staff to the CEO and our VP of Corporate Strategy and Finance. He has been with Aspen Aerogels since 2021 and has played a pivotal role in shaping our financial strategy, including our mid-cap financing and our recent cost optimization efforts. Grant will be returning from parental leave later in August and will continue to work closely with Ricardo and the senior executive team to ensure a seamless transition. Our core objective is to build a strong, profitable, capital-efficient business.

The focus during the first half of the year was to streamline and simplify the organization, to optimize our cost structure, drive profitability, and build resilience. We have made significant progress. As shown in slide two by the red, blue, and green lines, we have shifted our fixed cost structure to drive profitability at lower revenue levels. We have removed approximately $65 million in cost, including lowering operating expenses back to 2022 levels on a run-rate basis. We have also structured the company to require minimum capital expenditures. The aerogel manufacturing facility in Rhode Island and our EMF supplemental supply are positioned to provide the capacity to meet significant revenue growth in the future and to support a flexible sourcing strategy aimed at mitigating risk associated with the potential for fluctuating tariff scenarios. It is clear that U.S.-based OEMs value domestic supply, and we are well positioned to serve them.

In an environment where the growth rate in the EV market is facing regulatory headwinds, especially in the U.S., and the energy sector overall is in flux with a turbulent global economy, we have structured our teams and operating resources to build a resilient, growth-oriented, and profitable business. In Q2, we delivered revenue, gross profit, and adjusted EBITDA at the high end of expectations. The performance was led by our PyroThin thermal barrier business, which has been holding steady here in Q3. Our energy industrial segment is currently experiencing a slowdown in project activity, which traditionally contributes around 40% of the segment's total revenue. This has been particularly evident in our Subsea market. Dating back more than 10 years, Subsea revenue cycled between $5 million and $15 million per year. In 2023 and 2024, it averaged approximately $30 million per year.

While the whole of the energy industrial business is behind expectation, weak Subsea is the main reason we are having trouble keeping pace with last year. If there's a bright spot in an otherwise unsettled energy environment, we are seeing key customers such as Technip FMC winning Subsea projects in 2025 that we believe will translate into attractive project revenue for us in 2026. Similarly, after strong LNG revenues in 2024, we are seeing a dip in LNG revenues in 2025. Like the Subsea segment, we are seeing opportunities for attractive LNG project work in 2026. Overall, we believe our energy industrial segment is well positioned for a policy approach in the United States that promotes an intensified focus on energy and power generation. We anticipate that we will grow revenue and produce high gross profit margins in 2026 and beyond.

Looking ahead to the second half of 2025, our revenue outlook is roughly on par with that of the first half. The major distinction is that we anticipate generating approximately two times the adjusted EBITDA. This leverage reflects the progress we made during the first half of the year to streamline our organization and optimize our fixed cost structure. We are operating with discipline to build a business with strength and resilience and enhance profitability. Ricardo, over to you.

Speaker 1

Thank you, Don, and good morning, everyone. I'm happy to report another quarter on behalf of our team, starting on slide three. We delivered $78 million of revenue in Q2, which translates into a 34% year-over-year decline and a nearly flat trend quarter over quarter. The annual run rate of approximately $312 million came in on the higher end of our expectations for the quarter. You may recall that we were expecting between $70 million and $80 million of revenues for Q2. Our energy industrial segment's revenues saw a significant decrease in quarterly revenues to $22.8 million, or 38% year over year. This reflects the dynamics that Don mentioned in his remarks regarding inventory rebalancing of distributors and contractors, along with the near-term absence of new projects from end users. Don also mentioned the absence of Subsea demand in the quarter.

Live input from the field from our team, along with oil prices that are over 20% lower year over year, along with refining capacity being fully utilized in the summer months, lead us to believe that turnarounds and new projects are being re-timed for the fall of this year and next year. EV thermal barrier demand of $55.2 million represents a 32% decrease year over year, as demand aligned with a lower vehicle production schedule at our key customers. General Motors continues gaining U.S. market share, and it is encouraging to see their production volumes not just stabilize, but increase meaningfully quarter over quarter. This led our revenues in this segment to increase by 14% quarter over quarter. In Q2, company-level gross profit margins were at 32%, and our gross profit of $25.3 million represented a 51% decline over the same quarter last year.

Our energy industrial business was still able to maintain gross margins of 36%, thanks to our flexible supply strategy on lower revenues. Our EV thermal barrier business had gross margins of 31%, which was still below our target of 35%, but a full eight percentage points higher quarter over quarter, thanks to higher part production volumes and various productivity improvements in Rhode Island and Mexico. Our net loss of $5.2 million was driven by an adjusted operating expenses run rate of $24.6 million, and our adjusted EBITDA was $9.7 million in Q2, highlighting one of Don's earlier points. As we worked to lower our fixed cost structure, it was encouraging to see adjusted EBITDA nearly double quarter over quarter by $4.8 million on revenues that were $700,000 lower. If you recall, the high end of our EBITDA guidance for the quarter was $7 million, so we exceeded that by 38%.

As a reminder, we define adjusted EBITDA as net income or loss before interest, taxes, depreciation, amortization, stock-based compensation expenses, and other items that we do not believe are indicative of our core operating performance. In Q2, these adjustments were meaningful and included $1 million in impairments linked to some oven-related equipment at our plant in Rhode Island, $3 million of restructuring costs linked to our recent operating expenses and manufacturing overhead reductions, $1.9 million related to the mobilizing plant two, $3.2 million of stock-based compensation, $5.8 million of depreciation and amortization, along with $3.9 million of net interest expenses. Our net loss in Q2 was $9.1 million or $0.11 per diluted share, assuming 82.2 million shares. Next, I'll turn to cash flow and our balance sheet. Our operations consumed $16.8 million of cash in Q2 by requiring $3.9 million in operating cash flow and investing $12.9 million of CapEx.

Operating cash flow benefited from a $4.6 million reduction in inventories as we continued to free up cash from the operations by focusing on every element of working capital. In Q2, to continue reducing our interest expenses, we paid down $6.5 million of our term loan with MidCap, bringing our total debt on this loan and the revolver to $135.3 million at the end of the quarter. Within our $12.9 million of CapEx, only $3.6 million went towards remaining obligations at plant two, which was meaningfully lower than last year's last quarter's plant two expenses of $7.7 million. The rest is linked to equipment in Mexico and Rhode Island for EV thermal barrier launches in the second half of this year and 2026. As we finish closing out remaining obligations in Georgia for plant two, we expect to recoup meaningful value from these assets over the next several quarters.

The equipment is expected to bring in approximately $25 million over the next three quarters, and the plant is available to purchase through our broker, and we expect that to be sold for over $25 million. The proceeds from the sale of these assets will bolster our balance sheet as they'll be used to prepay the term loan and reduce the company's interest expenses further. We ended the quarter with $168 million of cash and equivalents and shareholders' equity of $308.8 million. We believe that a strong positive net cash position in combination with meaningful enhancements in profitability, thanks to a lower fixed cost structure and tight controls around net working capital, positioned the company to keep executing without needing any additional capital.

As we work our way towards the end of the year, higher EBITDA levels in combination with lower restructuring charges, freeing up additional working capital, no more expenses linked to Plant 2, and our contained CapEx plans would enable the company's cash position to remain around the current levels, even after paying down another $13 million of debt. The asset sales that I mentioned earlier linked to Plant 2 would further improve the net cash position by at least $50 million and give the company added strategic flexibility in the future to refine the capital structure. Next, let's turn to slide four to review our outlook for the second half of the year. With what we know today, we expect to deliver a range of $140 to $160 million of revenue in the second half of the year.

Added to the actuals of the first half of the year, this translates into $297 to $317 million of revenue for the year. This would translate into $20 to $30 million of adjusted EBITDA in the second half of the year, potentially double what we delivered in the first half. Echoing some of Don Young's earlier remarks, this highlights the benefits of the lower fixed cost structure that our team has been working on implementing. Adding the $15 million of adjusted EBITDA that we delivered in the first half would position the company to deliver $35 to $45 million of adjusted EBITDA for the year. Net income for the second half of the year is expected to range from a loss of $7 million or negative $0.08 per share to positive net income of $3 million or $0.04 per share.

CapEx to fund our operations in Rhode Island and Mexico will continue being managed to less than $25 million for the year without including the remaining costs to the mobilized Plant 2. This guidance for the second half of the year implies a potentially higher level of revenues than what we were expecting earlier this year, and it is driven by stable EV production volumes at General Motors. We believe that even after the $7,500 tax credit to consumers ends on September 30 in the U.S., the market share gains of vehicles like the Chevy Equinox and various Cadillac EVs cannot be ignored.

If there is a near-term surge in sales as we get closer to the end of September, Q4 and early 2026 could very well be times to rebuild inventory levels, and that would drive stable demand for our EV thermal barrier parts during the entire second half of the year. With this being my last earnings call at Aspen Aerogels, I would like to sincerely thank Don, our Board of Directors, and the rest of the Aspen team. I'm also grateful to the broader investment community for making my nearly four-year tour of duty at Aspen Aerogels such an active, fulfilling, productive, and rewarding time.

I leave the team convinced that Aspen Aerogels is well capitalized and positioned to deliver on its strategy, and take with me many fond memories of ideas and discussions with you that shaped our thinking around the company and how to make the most of our resources. Grant joined the team at Aspen Aerogels shortly before I did. He has been more than a right-hand man to me as we led the finance function together with Santosh, Neal, and Jack. He, along with some great recruits like Zach Reed and Matt Overham and others, have built an FP&A team that punches well above its weight.

In all, we have a productive team that includes some of the best finance talent that I have worked with, and I am sure that Grant will transition into the role seamlessly as he returns from parental leave to pick up the baton at the end of the quarter. I am very excited for all of you to get to meet him over the next several weeks. Now, I'm happy to hand the call back to Don for his closing remarks.

Speaker 5

Thank you, Ricardo. Before we move to Q&A, I would like to reiterate that we believe that electrification through this decade will be a major driver for both our thermal barrier and energy industrial businesses. With a strong foundation in place, we are confident in our ability to adapt, innovate, and deliver both critical solutions to our customers and durable value to our shareholders. Our decisive actions this year reflect our commitment to building a resilient, growth-oriented, and profitable business. Megan, let's turn to Q&A, please.

Speaker 3

Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, please press star one. As a reminder, if you're using a speakerphone, please remember to pick up your handset before asking your question. We will pause here briefly to allow questions to register. Our first question will go to a line of Eric Stine with Craig Hallum. Eric, your line is open.

Hi Don, hi Ricardo.

Speaker 5

Hi Eric.

Hey Eric.

Good morning. Maybe, gosh, a lot of things here. Maybe to start with energy industrial, I know that in Q1, you did call out distributor destocking, but it did seem like at least the thought then was that, you know, that was relatively a short-term dynamic. This quarter, it seems pretty clear that that's ongoing. Any updated thoughts? It doesn't sound like you believe that this segment grows this year, and that'd be pretty tough given the start. You know, but just maybe, where do you think distributors stand on this?

Thanks, Eric. We've made a dent in those inventories in our distributors, but we have still a ways to go. Our project revenue is just lower than we anticipated. I think we could have done a better job coming into the year, seeing that pipeline, frankly. We are, as I said in my comments, we see good activity in some of our partner companies and customers. I mentioned Technip FMC, for example, who are winning projects here in 2025 that we do think will translate into revenue for us in 2026. Eric, I would also just add, we have seen this sort of cycle before, of course, where we have a surge in project revenue and then a dip. We could have done a better job anticipating this, I think.

Having said that, we're confident that we'll work our way out of it, work through those distributor inventories, and win our fair share of projects and get this thing growing again at gross margins that have been consistent with our recent performance.

Yeah. I would think this go-around was made worse by the fact that it is supply constrained, right? I mean, distributors not used or, you know, very long lead times that all of a sudden, you know, no longer the case.

It's a great point. Let's face it. We were capacity constrained, inconsistent capacity for, what, five or six quarters. Just turning the corner on that, we might have been able to anticipate that a little bit differently. Again, I think our EI revenue in the second half will be somewhat on par with what it was in the first half as we work through these issues.

Got it. Okay. That is helpful. Maybe then just turn into PyroThin. I know General Motors put out their July sales, and they were quite strong. I would think that that's got a positive read-through to just working through any excess inventory that they may have. As you think about the tax credit expiring, where do you see things as you stand today? I mean, do you believe that third quarter sales there means pretty steady volumes for you over the back half of the year? Or maybe how do you think that the third quarter, fourth quarter might be weighted in that segment?

Speaker 1

Yeah, I mean, I think, just going back to my remarks there on this one, Eric, I do see a more optimistic view in Q4 than one would think just based on the tax credit going away. If you look at how much market share General Motors has gained, mostly at Tesla's expense within the EV market, we have a couple of slides in the appendix of the deck that show just how much of a gain General Motors has made. I don't think they're going to let go of that market share, right? I mean, it's been pretty clear that General Motors' longer-term north star is to have a high EV mix, and they'll be driving that, with or without the $7,500 credit.

If you look at how much market share they've gained on the coastal markets here in the U.S., I just don't think that that's something that they're ready to walk away from, given that the demand is clearly there.

Speaker 5

Yeah. Okay. Maybe just sneak in one last one just to clarify. Ricardo, did you unclear whether or how much is left to spend for plant two, you know, if it's largely wrapped up or if there's more to go to get it in a position to monetize it?

Speaker 1

Yeah. This one, it's pretty much wrapped up. I mean, we have less than $10 million to spend. As I mentioned, we believe that we can recoup over $50 million here over the next several quarters. I think we've rounded the bend. We actually paid out the last large invoice towards plant two here in July. It was booked in June, and we're well past it and looking to move on from that.

Speaker 5

Okay, thank you.

Speaker 1

Anytime.

Speaker 3

Thank you, Eric. Our next question goes to the line of Colin William Rusch with Oppenheimer. Colin, your line is open.

Thanks so much. Thanks so much, guys. Can you talk about design and activity with new OEMs and how that's trending here over the last quarter or two, and when we might start to see some real meaningful incremental revenue from EV OEMs, either later this year or next year?

Speaker 1

Yeah, Colin. As you read in the press every day, there's quite a bit of flux around the product plans at these automakers as they're all reacting to some pretty drastic policy changes over the past several weeks. We do see, when you look at the pipeline, a couple of anchor OEMs that are going to drive incremental revenues within the thermal barrier segment over the next six quarters. The main ones are Stellantis. That's not changing. The policy in Europe is not changing. The volumes there are expected to ramp up here in the fourth quarter of this year and next year. We have Daimler in 2027. The other OEMs are going through either a process of assessing their timeline or switching cells, mostly away from Northvolt over to a different cell supplier.

We're still very well in the mix, but that's obviously pushing the timing of those launches to the second half of 2026 and some of them potentially even later. When it comes to new quoting activity, the team is as busy as ever. The trend that we had here in Q1 of record-level prototyping and quoting activity here in this building that Don and I are in right now is still holding up. You obviously need to be realistic and look at what the longer-term product pipeline of these OEMs is. They're all just reacting to the recent policy changes in the U.S., and at the same time, coming up with a way to compete in China, which has an over 50% EV mix, and then Europe where we're seeing a resurgence of EVs as well.

As we supply some of these European OEMs, we do see that we're very well positioned in Europe to continue adding wins definitely next year. You're going to see the result of a lot of this prototyping and development work and technical sales work that the team is doing today.

Speaker 5

Colin, I would just add, I was with the Senior Leadership of ACC in Europe at the end of Q2, and they are making strides with their productivity and quality of making sales for the European market, which is encouraging for us.

Thanks so much, guys. From an R&D perspective, you know, obviously, you guys have made some pretty meaningful innovations in and around the product development for the various battery applications. I'm just curious about how much there can shift in terms of what you're offering or how much you can change or improve the offering out to OEMs as we see kind of optimizing, you know, or optimized vehicle designs as well as some evolution on the battery geometries and chemistries. I guess how should we think about a product cycle for you guys and when we might start seeing some meaningful shifts in that?

We've done work with our existing OEMs and with prospective OEMs as they work through their chemistry expansions, if you will. General Motors is a good example of that. Our R&D group and our design group are engaged with Asia-based companies, European-based companies, and the U.S. OEMs as well, trying to stay current and ahead and really being thought leaders with these companies. Colin, I would just tangential to that, it is interesting. The emphasis on having U.S.-based supply of these materials has been a positive for us. I think the OEMs, and I said this in my prepared remarks, view this favorably and as an important element of our ability to supply domestic product here in the U.S. as well.

Speaker 1

Yeah. Maybe just to add, Colin, the requirements are no longer moving targets at all, and that makes R&D and all the development and the technical sales work way more efficient. I think the company is going to benefit from that greatly here, given that we know what the requirements are pretty clearly and how we can meet them relative to any potential option that the OEMs could be looking at.

Incredibly helpful, guys. Thanks so much.

Thanks, Colin.

Speaker 3

Thank you, Colin. Our next question will go to the line of Ryan James Pfingst with B. Riley. Ryan, your line is open.

Hey, guys. Thanks for taking my questions. I'll ask one follow-up on energy industrial. You've talked about the potential 2027 revenue buildup of $175 million or even higher with potential expansion areas. Just curious, given your comments earlier, Don, if you still feel confident in the path to get there, and maybe if you could give us a sneak preview of how you're thinking about growth in 2026, given the activity you talked about with Subsea and LNG, projects starting to show again.

Yeah. Look, our goal right now, Ryan, is to be sure that we're well positioned to participate in the project side of our business. I said it in my comments. Historically, it's been about 40% of our revenue. It represents almost all of our variability from year to year. Our project teams are focused to be sure that we get back on track and participate in any and all Subsea projects and LNG projects. We believe that we will do that. With respect to 2026, we firmly believe that we will begin a new growth pattern at high gross profit margins. As you know, we've increased those profit margins significantly, a combination of productivity, efficiency, and yields on our end and our EMF transition that we made, and also some price increases along the way.

We believe we're in a strong position to reignite growth in that segment in 2026, both revenue and profitability.

Appreciate that, Don. Ricardo, you touched on it, but curious what conversations have been like with your non-GM customers that you've already signed up and have been awarded, and maybe when we could expect to see some of those shipments start to show up in a meaningful way for Aspen.

Speaker 1

As I mentioned earlier, I think you're going to see in Q4 some for ACC, and definitely next year, that'll ramp up. Daimler will become a meaningful one in 2027. There are several with other OEMs that we haven't yet announced that could contribute in 2027 as well.

Got it. Appreciate it, guys. I'll turn it back.

Thank you, Ron. Anytime.

Speaker 3

Thank you, Ryan. Our next question will go to a line of J. David Anderson with Barclays. David, your line is open.

Thanks. Good morning. In your remarks, you were talking about lowering your fixed costs by $65 million this quarter. I was just kind of curious, going forward in the thermal barrier revenue and thermal barrier business, how quickly you can adjust costs going forward. I'm just looking at the IHS forecasts, which are essentially calling for General Motors' EV production to stay relatively flat. I'm just wondering what happens if that is materially lower. How quickly can you adjust those costs? Are you at a point now where you can kind of move things around and within a quarter, you can kind of get back to those same kind of 35% operating margins?

Just one thing, David. Taking the $65 million, that was an endeavor that took place both in Q1 and in Q2. To your point, look, there's no question that for us to be able to achieve 35% gross margins on the thermal barrier business, we do need some volume to absorb those fixed costs. We think we're in a good position today from a cost structure point of view to be able, with what we see in front of us, to maintain those targets of 35%. We were pretty close to that here in Q2, reporting here in Q2. We think that those are very realistic targets. Yes, we have room around the edges to continue to fine-tune our cost structure, depending on what we see going forward. At this moment, we feel like we've done a lot of hard work.

We've made a lot of tough decisions, and we're in a good position right now.

You're looking at these IHS forecasts that they're putting out there. You feel confident those are pretty close to kind of what you're hearing from General Motors? I'm just a little surprised they're not more severe in terms of the declines they're expecting over the next four quarters.

Speaker 1

Yeah. The customers are always higher than IHS. We've had to make our own calls here. I think when we look at IHS today, we do see that as a realistic scenario. The team has really knocked on with various cost improvement projects at the plant in Rhode Island to increase our efficiency. I think these are things that have been in the works for well over three years that would enable us to increase roll lengths even further and therefore give us more productivity. Remember, a year ago, we were on a path to $650 million plus of revenues and trying to increase the capacity of the plant in Rhode Island as much as possible to be able to push out the plant two decision further and further, right?

Now, as the team has had a chance to take a breather here on lower volumes, all of these projects for continuous improvement have been accelerated. That'll give the company the necessary cost structure to improve our gross margin profile next year on comparable volumes, which, to your question, David, even if the volumes were to go down further, I think the company will be even more resilient quarter over quarter here as these projects stay cold.

Okay. Thank you, Ricardo. Don, you were talking in the energy industrial side, you're talking about Subsea and Technip FMC. I was a little surprised by the comments that that's so slow considering what we've been seeing on FTI's backlog. They're going to be after this, it'll be $30 billion over three years. They think there's additional going forward, $10 billion annually. Is this just a timing question? There is an enormous amount of subsea trees that are about to be installed over the next three or four years. I guess I'm just kind of curious, your product, maybe I'm just helping you understand kind of when your product is kind of ordered, I guess. How close to delivery or how close to when the subsea trees are installed are they ordering at Aspen Aerogels? To me, it's just like, which quarter is it of when it starts?

Could you just provide a little bit of help on kind of how that works out? Thanks.

Yeah. No, that's great. Look, we just came off of two years where we had approximately, on average, about $30 million per year, which are strong years for us. We just feel we're in a little bit of a lull because we see the same thing that you do, and our activity levels are high. Typically, for us, when we win, we come late in projects. That applies both to Subsea and to LNG terminals, frankly. When we do receive an order, we typically deliver it within a quarter or maybe a quarter or two, so you can kind of piece that together. We see those same backlogs and activity levels that you're seeing, Dave, in your work. Not every project, I should say, requires pipe-in-pipe installation, though, and while that backlog is robust, it is a subsegment of that that are pipe-in-pipe, typically the most challenging projects.

Plenty of them are going to require pipe-in-pipe, but not every single one.

Don, you said it was $30 million. I think I might have misunderstood you. Did you say that the revenue was down about $30 million because of Subsea? I wasn't sure what that $30 million was in reference to.

Let me say it again. In 2023 and 2024, we averaged approximately $30 million of Subsea revenue. Our historic numbers, if you go back 10 years through the cycles, we have typically been in the range of $5 to $15 million. Much of our decrease for energy industrial overall has been because of the Subsea lull. We believe we're seeing the same thing that you are, that we have the opportunity to get back on a growth track as we win our fair share of these projects. It's why I answered Ryan's question, that we believe in 2026, you will see both growth and solid profitability.

That makes a lot of sense. Ricardo, it was a pleasure working with you. Best of luck on your future endeavors.

Thanks so much, Dave. I'll see you.

Speaker 3

Thank you, David. Our next question goes to a line of Itay Michaeli with TD Cowen. Itay, your line is open.

Great. Thanks. Good morning, everybody. Just two follow-ups from me. First, could we just revisit the 2027 potential revenue buildup for thermal? If you can call out if anything has significantly moved around versus, I think, the $700 million-plus we talked about last quarter from a launch or other volume perspectives from what you know currently?

Speaker 1

We see that unchanged still, Itay. I mean, the team does have a path to getting there, both on the energy industrial side and the thermal barrier side. The two launches that I mentioned, ACC and Daimler, along with General Motors continuing to gain share here, can help us get the 2027 number that we mentioned during the last call for thermal barriers. To Don's point, even if you take what we're expecting on the energy industrial side for this year, add back the project work, and then look at some of the other applications and markets that the team is working to start to commercialize by then, we're still confident that the company can get there.

That's very helpful. Thank you. As a follow-up, I think, Ricardo, you mentioned your team has still a healthy quoting activity. I'm curious what you're seeing within that in terms of timing of future launches, the level of content, maybe a bit of a regional mix of the quoting pipeline. Just kind of curious, any interesting insights to glean from that?

Yeah. The content is definitely tilting towards the prismatic cells and the requirements that come from that. If you recall, that's a simpler, thinner part, mostly for the European OEMs and also here in North America with the likes of General Motors, Ford, Rivian, and others, right? We do see them taking their time more making these decisions because the OEMs are going from having a gun pointed to their hand to develop EVs and start having them make up a meaningful portion of their fleet to now potentially the total polar opposite, right? I think OEMs right now are just really getting a read on what the consumer demand level for EVs is going to be.

As that becomes clearer in the first half of next year, we expect to hear on some final decisions around vehicles that have been in development for the past year or so where the OEMs have had a quote from us or a proposal for quite some time. They just need those projects approved once they have a good idea of where consumer demand is likely to be for EVs.

Terrific. That's very helpful. Thank you.

Thank you.

Speaker 3

Thank you. Our next question will go to Leanne Hayden with Canaccord Genuity. Leanne, your line is open.

Morning, everyone. Thanks so much for taking my questions. Just wanted to start by following up on some previous commentary. Mercedes-Benz recently announced plans to launch 15 new EVs, I believe, in the next two years. Do you expect any impact from this, especially considering the Mercedes-Benz-ACC partnership? Thank you.

Speaker 1

Yeah. No, thanks, Leanne. That's actually a good point. I mean, there is potential for incremental volume within the ACC award, and you know, Mercedes-Benz is a meaningful stakeholder in ACC. All of those units could drive incremental volumes for the cells that we are on and the packs that we are on. Those vehicles are planned right now initially for Europe, and they'll, based on what we've read, they'll be Mercedes-Benz's kind of second attempt at cracking the EV market in the U.S.

Appreciate it. Okay. That's very helpful. Just one more quick one from me. Have you seen any incremental traction in alternative battery form factors with prismatic or cylindrical or anything like that?

No, I mean, it's really just been prismatic and pouches primarily, mostly prismatics. We're seeing a lot of the hype around the innards of the cells dying down, which confirms the hypothesis that we've had for quite a while that the current form factors and the current chemistries are what the OEMs have to work with for the next 15+ years.

Got it. Got it. That's very helpful. Thank you very much. Appreciate it.

Anytime.

Thank you, Leanne.

Speaker 3

Thank you, Leanne. Our last question will go to a line of Thomas Patrick Curran with Seaport Research Partners. Tom, your line is open.

Thank you. Ricardo, congratulations on an impressive, transformative tenure. I'd echo Don in seeing great things ahead for you.

Thank you. Thank you, Tom.

I wanted to follow up on EI. Don, could you speak for both Subsea and LNG? What the mix was expected to be between new projects, turnaround, and maintenance for each of the businesses? To the extent any one of those three areas has negatively surprised, what has the nature of it been? Has it been just a delay? Have you actually seen any cancellations or other issues? Just curious for a bit more color there, both on the mix and then where any aspects of how the demand has materialized might have disappointed relative to what you anticipated.

Yeah. On the Subsea, that is pure project work. No maintenance associated with that. No maintenance opportunities associated with that. I think that has been the biggest surprise for us because, as Dave Anderson cited, and I know you know, Tom, the project work Subsea, the backlogs for the next one, two, three, four years are really quite robust. We believe that we're in a little bit of a lull moment after two very strong years and that we'll get our fair share, especially of the pipe in pipe projects. LNG is a combination of maintenance work and project work. The big headlines, though, of course, are when we can win a project. We know from history that project work can be anywhere from $5 million per project to, you know, our biggest project was $40 million, an unusually large project. Those are big ranges.

We do a lot of maintenance work in facilities all around the world. That maintenance work typically gives us an opportunity to demonstrate our value proposition before those facilities go on to have an expansion. It allows us to get ourselves in the specifications and in a good position with the engineering companies and the asset owners. Those are really the two areas. I think we all know that LNG forecasts are positive. North America is a strong location for exports. Again, we're in good positions both with export facilities and in receiving terminals. Those are the two areas where we think we've got an opportunity to reignite growth and maintain significant profitability in that segment.

Don, could you just remind us on the lead time that you tend to have with orders for each of the Cryogel for LNG and the space wheel for Subsea? How far in advance do you tend to get the booking ahead of when you would expect to ship?

Yes. For Subsea, we tend to win a project and deliver it within a quarter or two. That has been standard for us for a long time. LNG has a little bit more of a lead time. As we work our way in, we do come, as you know, late in these projects from a build point of view. Sometimes projects can be well underway by the time we secure our position within that facility. These projects are not maybe one to two quarters, but maybe two, three, and four quarters in advance.

Got it. I appreciate the common answers.

Thank you, Tom.

Thank you, Tom. There are no additional questions waiting at this time. I would like to pass the conference back over to you, Mr. Young, for closing remarks.

Thank you. Thank you, Megan. We appreciate everyone's interest in Aspen Aerogels. We look forward to reporting our third quarter results to you in early November. Thank you so much. Be well.

That concludes today's conference call. Thank you for your participation and enjoy the rest of your day.