Aspen Aerogels - Earnings Call - Q3 2025

Executive Summary

• Q3 revenue was $73.0M and GAAP EPS was -$0.08; Thermal Barrier revenue fell 12% QoQ while Energy Industrial rose 7% QoQ, and gross margin compressed to 28.5% from 32.4% in Q2.
• Versus estimates, Q3 revenue was roughly in line ($73.0M vs $73.4M*) while EPS missed (-$0.06 adjusted actual vs -$0.00* consensus); Q2 had beaten on both revenue and EPS*.
• Guidance was cut materially: FY25 revenue to $270–$280M (from $297–$317M) and FY25 adjusted EBITDA to $7–$15M (from $35–$45M); Q4 revenue guided to $40–$50M with negative adjusted EBITDA of -$14M to -$6M.
• Strategic positives: new PyroThin award with a major EU OEM (SOP 2027), expected EI project upcycle in 2026 (subsea and LNG), and near-term BESS adjacency opportunities.

What Went Well and What Went Wrong

• What Went Well

  • EU OEM PyroThin award strengthens European foothold; management expects European programs and ACC to support growth in 2026–2027 (“We expect to rebuild growth…supported by the ramp-up of our European programs, including our newest award”); ACC ramp noted for 2026.
  • Energy Industrial stabilized and improved QoQ: revenue $24.3M (+7% QoQ) with segment margin ~36%, above company target, indicating healthy unit economics.
  • Working capital execution: Q3 operating cash flow of $15.0M; ended Q3 with $152.4M in cash and equivalents, providing liquidity to absorb near-term EV headwinds.

• What Went Wrong

  • Thermal Barrier weakness and manufacturing inefficiencies: TB revenue down 12% QoQ to $48.7M; company-level gross margin declined to 28.5% due to lower EV volumes and one-time scrap as they prepare for ACC ramp.
  • Guidance reset: FY25 revenue cut by ~$27–$37M and adjusted EBITDA by ~$28–$30M; Q4 outlook implies negative adjusted EBITDA amid GM demand erosion and regulatory rollback impacts.
  • Adjusted EBITDA fell to $6.3M in Q3 (from $9.7M in Q2) as fixed cost absorption worsened with lower EV volumes; TB segment margin fell from 31% in Q2 to 24% in Q3.

Transcript

Operator (participant)

Good morning. Thank you for attending the Aspen Aerogels Incorporated Q3 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 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.

Neal Baranosky (Senior Director and Head of Investor Relations and Corporate Strategy)

Thank you, Mackay. Good morning, and thank you for joining us for the Aspen Aerogels third quarter 2025 financial results conference call. With us today are Don Young, President and CEO, and Grant Thoele. 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. Aerogels.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 officer will file Forms 4 to report the sale and/or withholding of shares in order to cover the payment of taxes and/or the exercise price of options. Our CEO, Don Young, has established a prearranged Rule 10B51 plan to sell a limited number of shares for tax purposes in connection with a one-time personal real estate transaction. I'll now turn the call over to Don. Don.

Don Young (President and CEO)

Thanks, Neal. Good morning, everyone. Thank you for joining us for our Q3 2025 earnings call. My comments will cover the introduction of two new members of the leadership team, the unsettled commercial environment for electric vehicles, an update on our energy industrial segment, a discussion of the versatility of our flexible aerogel blanket as we target adjacent markets, the announcement of the design award from a major European automotive OEM, and the beginning of the ramp for ACC. A lot to cover. Grant Fairley, our new CFO, will amplify these points with his comments. We look forward to your questions. At the time of our last earnings call, we announced that Grant would assume the role of CFO effective October 1st. Grant joined Aspen in 2021 and has been a key architect of our corporate finance and strategy functions.

He brings to the CFO position an important blend of operational depth and transactional experience. After three years at KPMG, Grant gained experience in operations and business integration at Learfield Sports and in optimizing financial performance and capital structures during his time at Providence Equity Partners. His experience and disciplined approach will serve Aspen well as we execute the next phase of growth and value creation. I'm also pleased to welcome Glenn Deegan, our new Chief Administrative Officer. This new position for Aspen combines into a single role the Chief Legal Officer and Chief Human Resource Officer responsibilities. Glenn brings more than 25 years of legal, HR, and transactional leadership with deep experience guiding organizations through complex M&A, governance, and integration initiatives.

He joins Aspen from Ultra Industrial Motion Corporation, a $2 billion global leader in motion control and automation products, where he served as Chief Legal and Human Resources Officer. Glenn played a pivotal role in major strategic transactions, including Altra's $4.95 billion acquisition by Regal Rexnord Corporation in 2023. His experience. In successfully integrating companies and aligning people, culture, and governance through transformational change will be invaluable. We welcome Grant and Glenn to their new positions. Our core objective is to build a strong, profitable, capital-efficient business. The focus during the first three quarters of 2025 was to streamline and simplify the organization to optimize our cost structure, build resilience, and drive profitability, and, of course, to prepare for the rapidly changing North American EV environment.

North American EV sales in Q3 were at record levels, powered by the pull forward of demand in response to pending changes to rebate incentives and regulatory standards. GM grew U.S. market share during the quarter to 16.5%, second only to Tesla. During October, however, GM shifted gears and significantly ramped down its EV production rates. We expect GM and other EV OEMs to align production rates according to consumer demand based on the new market conditions. GM has suggested that it will determine the natural demand for EVs early in 2026. We believe EV growth for GM and other OEMs will start again from that reset number. Despite these. Market headwinds, we do see brighter spots for our pyrothin thermal barrier segment. In October, we won a battery design award from a major European OEM, an account with great promise and the potential to ramp in 2027.

We anticipate naming the company at the time of our next business update. In addition, we are seeing signs that another European customer, ACC, is preparing to ramp its battery cell production in 2026. As a reminder, ACC was created to serve the European EV market with high-volume, high-quality lithium-ion battery cells and is strategic to Aspen because it is owned in part by Stellantis and Mercedes-Benz, both companies important to Aspen as we seek to ramp our business in Europe in 2026 and 2027. And one other brighter spot: onshoring and nearshoring in response to shifting trade policy and geopolitics are creating advantages to companies such as Aspen, who can provide high-performance, domestically produced solutions. Proximity enhances our ability to support new opportunities with our existing BEV and EI customers and is opening the door to adjacent market opportunities.

An example of the latter is battery energy storage systems, or BESS, where two powerful shifts, one technical and one policy-driven, are converging to open a new opportunity for Aspen. To improve economics and pack more energy into the same footprint, BESS developers are moving to higher-density LFP designs, essentially applying EV-style engineering to grid-scale storage. And by doing so, creating the same thermal propagation challenge that we have already helped the EV industry to solve. Our pyrothin thermal barrier technology, with its extremely low thermal conductivity, excellent fire resistance, and minimal thickness, is exactly what developers need as they compress thousands of cells into a single rack or module. On the policy-driven side, domestic content rules are making local sourcing both a supply chain preference and a financial incentive.

We are working with two large advanced energy storage battery and system technology companies on near-term opportunities to supply pyrothin thermal barriers for the battery modules to support the rising demand from data centers, grid infrastructure, and other high-reliability applications. We are also pursuing a range of high-impact electrification projects, from carbon capture to pressure. Geothermal, where asset owners are seeking low-carbon solutions for site-specific power generation. Again, we are well-positioned to serve their thermal management needs with high-performance, domestically produced solutions. Our energy industrial segment cannot make up for the volatile EV revenue in the near term, but we do see the segment stabilize and beginning to grow again. Our energy industrial revenue this year has largely consisted of baseload maintenance work. Project-oriented revenue has been lacking in 2025 after record performance in 2023 and 2024. We see activity levels.

Strengthening across the board and anticipate a healthy growth year for energy industrial in 2026. We see subsea opportunities in the backlogs of key customers that we expect will generate subsea project revenue for us in 2026. We are quoting subsea project work with potential revenue exceeding $80 million over the next three years, including $15 million-$20 million. In 2026. And on the LNG side, we will supply cryogel to the Venture Global CP2 LNG project in Cameron Parish, Louisiana, during the first half of 2026. Again, we anticipate a strong growth year in 2026 for the energy industrial segment and a return to a trajectory towards a robust $200 million. Energy industrial business in the years to come. As part of our long-term growth strategy, we are executing a disciplined initiative to diversify into markets adjacent to our core battery and energy industrial businesses.

In addition to the battery energy storage systems and electrification opportunities described above, our team is focused on other potential adjacencies based on commercial potential, speed to market, product differentiation, and the ability to leverage our existing manufacturing platform. We believe. The. Diversify and broaden Aspen's addressable market and contribute revenue levels beginning in 2026. The initiative reinforces our commitment to innovation-driven growth and enduring shareholder value. Grant, over to you.

Grant Thoele (CFO and Treasurer)

Thanks, Don. And good morning to everyone joining us today. I plan to cover Q3 financial highlights, our Q4 and fiscal year 2025 outlook, along with the financial framework and long-term strategic positioning. Looking at slide three, Q3 revenue landed at $73 million, a decline of $5 million or 6% quarter-over-quarter, driven by thermal barrier revenues softening 12% from Q2 to $48.7 million. This was partially offset by a 7% increase in energy industrial revenues to $24.3 million, representing a stabilization of our EI segment from the recent low in Q2. Gross profit of $20.8 million decreased by 18% quarter-over-quarter, predominantly driven by less volume to absorb fixed costs at our manufacturing facilities. Gross margin of 28.5% declined from 32.4% last quarter. We adjusted our production schedules in Q3. However, we won't see the benefit of more efficient manufacturing operation until Q4.

Ultimately, lower EV volumes drove the majority of the decline in combination with increased scrap rates in preparation for ACC's volume ramp over the next few quarters. We saw this dynamic with our successful ramp of GM at the beginning of serial production. Thermal barrier segment gross margin was burdened by fixed costs and one-time scrap charges, resulting in 24% gross margin for the quarter, down from 31% in Q2. Segment gross margin for energy industrial landed at 36%, in line with Q2 and above our company target of 35%. We lowered our OPEX rate, excluding one-time items from impairments and restructuring charges, from $24.6 million in Q2 to $22.6 million in Q3. We will continue to look for opportunities to streamline and simplify our operations to further reduce this run rate in the coming quarters. Adjusted EBITDA declined by $3.5 million quarter-over-quarter to $6.3 million in Q3.

In terms of Q3 cash flow, we had a favorable working capital of $12 million due to supply chain and inventory optimization efforts, lowered CapEx spend below $10 million, opportunistically paid down $14.8 million on our revolver to lower interest expense, and paid down quarterly amortization on our term loan for $6.5 million. We ended Q3 with $152.4 million in cash and equivalents. Next, let's turn to slide four to review our Q4 outlook. Over the past few months, the administration has removed CARB waivers and penalties for cafe standards, and we expect similar actions regarding EPA rules. These regulatory shifts have occurred faster than originally anticipated. As a result, supply-side incentives are no longer driving portions of EV production, leaving consumer adoption and demand as the primary forces influencing how many vehicles reach dealer lots.

GM and other OEMs are clearly taking decisive actions to align production with current consumer demand. Workforce reductions, capacity adjustments, and temporary plant closures underscore that the near-term environment remains uncertain and difficult to forecast. GM has indicated that it expects to determine the natural level of EV demand early in 2026 and is recalibrating production accordingly. While this represents a meaningful step down from prior growth expectations, we believe EV volumes will begin to grow again from this lower base. For the fourth quarter, we currently expect total revenue between $40 million-$50 million. We anticipate the mix between our segments to be grounded in approximately $25 million for the energy industrial business, with more variability in the thermal barrier segment. It's worth noting over the past few weeks we've seen GM demand erode, leading to a higher degree of uncertainty.

Additionally, the mix between segments is important to overall profitability, given different unit economics of each business. With $40 million-$50 million of revenues for Q4, we'd expect between -$14 million and to -$6 million of adjusted EBITDA, respectively. Given our new Q4 outlook and the resulting impacts on liquidity, we are engaging with our lenders at mid-cap for near-term covenant relief. It's worth noting we have over $150 million of cash as of September 30th, representing a strong net cash position. When taking our year-to-date actuals and Q4 guide, revenue could range from $270 million-$280 million, with adjusted EBITDA of $7 million-$15 million for the year. In October, Q4 volumes declined below our previous guidance assumptions in August. It's clear that OEM reactions to a deregulated environment have accelerated beyond prior expectations.

When bridging to our prior outlook, by far and above, the driving factor in lower expected full-year results is driven by EV market headwinds combined with a less favorable product mix, which results in higher material costs on average for 2025. We do not believe that the fourth quarter adjusted EBITDA levels are representative of our go-forward cost structure. Several one-time items in this quarter have temporarily impacted profitability, and actions have already been taken to improve our break-even threshold. Material costs as a percentage of revenue in the second half of 2025 were slightly higher than our go-forward run rate due to shifting production between East Providence and our external manufacturing facility. Projects tied to cost reductions at our manufacturing sites, primarily production optimization and yield improvements, will begin to materialize in 2026 and 2027.

We also expect our operating expense run rate to level out between $20 million-$22 million, with additional savings opportunities tied to the implementation of our company-wide ERP system and synergies from integrating our Mexico facility. As a result, we believe we can achieve adjusted EBITDA break-even approximately at $200 million of annual revenue. With line of sight to further improvements as we move throughout 2026. We expect to end the year with $25 million of CapEx, excluding plant two, or approximately $5 million of spend in Q4. In regards to plant two, we continue to pursue buyers for the property and equipment. We expect equipment sales to begin trickling in within Q4 and over the next few quarters, while the building sale has a longer tail over the course of 2026.

Turning to slide five, as we look ahead to 2026, I'd like to outline how our financials could perform at various volume levels within our core business. It won't come as a surprise that there remains a wide range of potential outcomes on the EV thermal barrier segment, while we have stronger confidence that the energy industrial segment will return to growth next year. We continue to pull every operational and financial lever available to ensure the business remains stable and efficient. The EV landscape continues to evolve, and while we use IHS forecasts and customer-provided volumes as key inputs, we apply our own insights, scenario analysis, and appropriate discounts to those forecasts to model and plan for various production scenarios.

When we think about GM, their recent public statements suggest that the volumes we're seeing in Q4 likely represent a floor for production levels based on their current EV portfolio. GM has been clear that the EV demand will be soft through early 2026 as the market resets to a more natural level of consumer demand following the end of incentives. Importantly, GM is better positioned than many OEMs. They've gained U.S. market share, maintained pricing discipline with fewer incentives. And remain highly committed to EVs as a strategic priority. From this lower base, we expect GM's production to rebuild. As demand normalizes and the company continues to expand its EV portfolio. The IHS current forecast for 2026 has GM delivering approximately 175,000 Ultium vehicles.

Assuming $10 million-$15 million of other OEM revenues, we could potentially generate approximately $135 million of revenue at full IHS volumes for the thermal barrier segment. However, given the degree of uncertainty that we see in the market today, it would be prudent to take a significant discount to IHS volumes. As a reminder, with our expected cost structure in 2026 and after crossing the break-even adjusted EBITDA threshold at $200 million revenue, we expect to drop approximately $0.50-$0.60 to the bottom line on every dollar of additional revenue. With operating cash flow tied to revenue and growth levels, we project a total of $45 million in cash outflows from investing in financing activities, or approximately $10 million of CapEx and $35 million of debt payments in 2026.

From where we sit today, we believe we can maintain over $100 million of cash on our balance sheet at the end of 2026 when assuming break-even adjusted EBITDA. Looking even further out at our core markets, 2027 introduces European EV customers ramping up, along with continued healthy growth for the energy industrial business. We believe we can return to growth in 2027, supported by awarded European EV customer forecasts that have the potential to generate over $150 million of revenue in 2027 at full volumes, along with GM growing off its 2026 EV reset, continued growth in energy industrial, and untapped adjacency revenue. Lastly, I'll build on Don's comments around our strategy going forward. As we look to Aspen today, our focus is on unlocking the full potential of our Aerogels technology, the foundation of our differentiation.

It's a platform that has high barriers to entry, a deep IP moat, and strong sustainability tailwinds. Over the past few years, we've aggressively pursued capturing the EV opportunity, and in doing so, have greatly improved our technology, manufacturing capabilities, and footprint. In addition to strengthening our core markets and optimizing our capital structure, we are laser-focused on expanding Aspen's strategic optionality to accelerate growth, unlocking new verticals, and long-term value creation. Our Aerogel products currently serve two core markets with a highly specialized value proposition. But we see a much larger opportunity ahead that helps drive our strategy, including expanding our Aerogel technology platform into adjacent markets and enhancing Aerogel performance with complementary specialty materials.

In order to execute this strategy, we'll explore strategic partnerships, pursue organic and inorganic opportunities by canvassing the landscape of specialty materials companies, and take an all-of-the-above approach to broaden our portfolio offering with high-value products at accretive margins. We believe our Aerogel technology platform provides a springboard into new addressable markets within specialty materials that share our focus on lightweight thermal management and sustainability. By broadening our capabilities with a specialty materials platform anchored on Aerogel. We open the door to solving mission-critical problems for our customers. Think energy storage materials, advanced composites, and thermal interface and fire protection systems—all solutions that expand our relevance across diversified markets. As I step into the CFO role and look ahead, my focus is on ensuring that our strategy is matched by discipline execution and thoughtful capital allocation.

I'm challenging the organization to think boldly, act strategically, and relentlessly pursue new opportunities that expand our impact and deliver long-term value for Aspen and its shareholders. Don, over to you.

Don Young (President and CEO)

Thank you, Grant. Before we move to Q&A, I would like to reinforce a couple of key points. These are clearly trying times for EV OEMs and companies such as Aspen. We have been forced to change our expectations after three years of significant revenue growth and margin expansion. We continue to believe that electric vehicles have a significant role to play and that EV demand will reset at a lower market share and then resume a growth trajectory. Our energy industrial business is well-positioned for a policy approach in the United States that promotes an intensified focus on energy and power generation. We anticipate that the segment will have a strong revenue growth trajectory in 2026 and beyond.

The work on adjacent markets leverages our valuable technology and product as we diversify and expand our end markets. Overall, we have designed Aspen with a lean operating cost structure in order to generate substantial profits from incremental growth. Operator, let's turn to Q&A, please.

Operator (participant)

At this time, we will now begin today's Q&A session. If you would like to ask a question, please press star followed by one on your telephone keypad. To remove your question, please press Star Two. We'll pause here briefly while your questions are registered. Our first question is from the lineup, Eric Stine with Craig-Hallum. You may begin.

Eric Stine (Senior Research Analyst)

Hi, Don. Hi, Grant.

Don Young (President and CEO)

Hey. How are you, Eric?

Grant Thoele (CFO and Treasurer)

Morning.

Eric Stine (Senior Research Analyst)

Hey. Good morning. So first, I guess I just want to touch on the EBITDA break-even, the $200 million, the level that you are looking to get to. If I do the math there.

It looks like you would be targeting kind of. Mid-20s. Gross margin, given where your OpEx, you think your OpEx goes to. And if you're expecting. EV. Weakness likely, even though it'll maybe improve, but weakness in the first half. I would think that. The margins suffer a fair amount. And so I'm just trying to figure out. What are the puts and takes to get to that level where you can be break-even at $50 million? I mean, are there additional steps to be had, or maybe thoughts there would be great?

Grant Thoele (CFO and Treasurer)

Yeah, sure. I'll take that one, Eric. I think overall. We've taken decisive action over the course of 2025 and have significantly reduced our overall fixed cost run rate. I think that some of those changes are also. Materializing over the next few quarters. There's. Certain, in terms of production capacity, production.

Yield improvements that are planned projects that have. A targeted kind of return that will happen within the first half of next year. And overall, the mix is very important to that break-even level. That is kind of a disclaimer on it. The more thermal barrier, the better in terms of achieving that break-even EBITDA threshold sooner. But overall. We see your overall thought on the first half of the year, EV being soft, is kind of directionally in line with where we're thinking it is.

Eric Stine (Senior Research Analyst)

So I mean, it sounds like this is not—I mean, you're not trying to communicate that this is a run rate you think you're at or a level you're at entering the year. It sounds like this is more of a.

Second-half level that you get to because some of the things that you had planned and that hopefully were going to have some impact here in late 2025 are more now at 2026 events?

Grant Thoele (CFO and Treasurer)

Yeah. And I think that they will materialize in the beginning of 2026. There's just some of the more of the production. Kind of yield improvements and. Projects that are tied to the plant that will be kind of that mid-2026 timeframe.

Don Young (President and CEO)

And Eric, we—okay. We can't get there without action. Sorry, Eric. I was just going to add, you know that we've taken actions through the year, including in the third quarter. And I think that those will be more clearly reflected as we get into. Q1 of next year as they filter their way through the. Income statement.

Eric Stine (Senior Research Analyst)

Okay. Got it. But it's nothing you're not necessarily signaling additional steps.

I suppose you could take those. If needed, but it's really kind of what's already in motion. That gets you to that level.

Don Young (President and CEO)

Correct. Correct. Correct.

Eric Stine (Senior Research Analyst)

Maybe just. Energy industrial. I mean, clearly more optimistic on that. It's been, I think, a pretty weak. First three quarters here. But when you're talking about a resumption of growth and back on the trajectory to $200 million, just curious based on what you see, the LNG project for CP2, some of the other things. I mean. Any thoughts on magnitude of what that growth could be in 2026. Again, to get back to those higher levels?

Don Young (President and CEO)

Well, we've been producing here in the mid-20s basically off of our baseload maintenance work and. Very, very little. Project work through the period. We do believe. That we have an opportunity in the subsea business to be in that $15 million. Range in 2026.

Again, a big uptick from this year, but really, if you look out over the course of five-plus years, that's a fairly normal level for us. Of course, we had big record years, $25, $35 million. In 2023 and 2024. So that's definitely part of it. We also just were seeing the. LNG. Project that I referred to and other activities give us a nice little boost there. So I think you will see. A contribution from projects. I also think we have the ability to. Grow that baseload maintenance work. There have not been a lot of turnarounds. In refineries this year to date. They're operating at pretty large spreads, and I think they've been reluctant to. Do some of the normal maintenance. But that is inevitable, and we think we'll see that as we enter into 2026.

So a combination of our baseload maintenance growth and add some project activity on top of that. And we feel like, as we call it, a healthy growth year for 2026.

Eric Stine (Senior Research Analyst)

Okay. Maybe just last one for me. I mean, so many questions to ask about. The EV space, but maybe just clarity on you mentioned as much as you can provide. On the battery manufacturing coming out of Europe. Stellantis, Mercedes, what kind of contribution could that potentially make in 2026?

Grant Thoele (CFO and Treasurer)

Overall, we're thinking that the European OEMs would be between that kind of $10 million-$15 million range in 2026. We're obviously taking a discount to the volumes that they have provided. And so that could fluctuate. We're bullish on the European EV market. Kind of compared to the North American market as of right now.

Eric Stine (Senior Research Analyst)

Okay. Thanks.

Don Young (President and CEO)

Thank you, Eric.

Operator (participant)

Thank you.

And as a reminder, please allow yourself to limit yourself to two questions per analyst. The next question is from the line of Colin Rusch with Oppenheimer. You may begin.

Colin Rusch (Managing Director and Senior Research Analyst)

Thanks so much, guys. Do you have a sense of where channel inventories are at this point. With the pull-through in the September quarter and kind of initial sales in October with GM? Does it still feel like you need to do some channel correction here, or do you feel like the channel is fully cleaned out?

Grant Thoele (CFO and Treasurer)

We've made progress, Colin, for sure, and. Moving product through. Distribution. Again, it's not perfectly transparent for us, but we know that. It has improved markedly from earlier this year.

Colin Rusch (Managing Director and Senior Research Analyst)

Okay. That's helpful. And then on the stationary storage side, obviously, there's a very, very large. Pool of demand that's happening there.

And the duty cycles that those systems are going to engage in are intensifying and diversifying. I want to just get a sense of what you guys are seeing from. A demand perspective and a design perspective on that because that looks like an opportunity that may emerge sooner than later, to be honest.

Don Young (President and CEO)

Colin, it's been an interesting push for us as we think about. What we refer to as these adjacent kinds of markets, just a little off to the side of our core market, which we consider this to be exactly that. And what has. Been beneficial to us is not only the. Domestic supply incentive aspect of it, but at a technical level, we have seen. The. Battery cells move to a higher density LFP format. Again, as I said in my prepared comments. Really using sort of EV engineering at grid-level. Scale. And.

That feeds very neatly into. Our thermal barrier work. And we have made substantial progress in. Working with two large. Companies to date. And we believe that we will have this part of our business. Contribute to our 2026. Revenue in a notable way.

Colin Rusch (Managing Director and Senior Research Analyst)

Thanks so much, Chris.

Don Young (President and CEO)

Thank you, Colin.

Operator (participant)

The next question is from the line of Ryan Pfingst with B. Riley, you may begin.

Ryan Pfingst (Senior Research Analyst)

Hey. Good morning, guys. Thanks for taking my questions. I'm bouncing around calls, so apologies if this was already covered. But is the new European OEM award, is that a platform award? And could you give. Some sense of the potential volumes that we could see there in 2027 or maybe 2028 when it's more fully ramped?

Grant Thoele (CFO and Treasurer)

Yeah. I'll take that one, Ryan. I think that it's not necessarily a platform. I believe it's kind of a model approach.

And it will be in 2027. And. The magnitude is reflected in kind of that $150 million European. OEM revenue that I cited kind of in my script here. That is at full volumes, and it's inclusive of this award. And so the discount to that. Even taking. $50 million-$75 million of that would be. Really, really beneficial to our P&L, considering we already have the fixed costs and the manufacturing in place to achieve that revenue level.

Ryan Pfingst (Senior Research Analyst)

Appreciate that. And then shifting gears, battery storage sounds like an exciting adjacent market opportunity. Curious what some of the other applications are that you're looking at. Is there anything in the data center world. That could be interesting for your technology, just given the insulation aspect?

Don Young (President and CEO)

Well, Ryan, these. Battery modules are supporting data centers that are coming out of the—these are site-specific. Energy storage systems. And so we are.

Participating at it from that angle at this point. You asked about—I believe you were asking a bit about other potential adjacencies. And look, we've got a team working on it. You're working on it. We're very familiar with. The building and construction market that we had pursued earlier. And. That's one of the businesses that we want to have just the right partner for. And we believe that we can. Have that contribute to our revenue and, again, diversify our. Markets. We built that into a multi-million dollar business back in the late teens. And we are planning to resume that as well, just as another example.

Ryan Pfingst (Senior Research Analyst)

Thanks, Don. Appreciate it, guys.

Don Young (President and CEO)

Thank you.

Operator (participant)

Thank you. The next question is from the line of David Anderson with Barclays. Your line is now open.

David Anderson (Senior Equity Analyst)

Thank you. Good morning.

Hey, I was trying to get a little bit better handle on kind of where you see kind of overall GM—we include Bolt in there—kind of where the numbers look like they could bottom out. First quarter, just in terms of the. Overall volumes of vehicles. I'm looking at the IHS numbers, which just seem. Just completely wrong. I mean, it doesn't make any sense to me of what they're showing. In fact, they actually raised their numbers on 2026 this past quarter. So I'm trying to understand—I almost have to kind of push that aside. Where do you think we kind of bottom? I know they're kind of going to 40,000 cars and kind of 4Q, but realistically, where do you think we bottom in first quarter? And how much could you see that grow throughout the year?

Don Young (President and CEO)

Look. It's definitely an uncertain moment in time. I mean.

I'm a little reluctant to try to give an exact. Number. We do discount the IHS numbers in our own. Planning. We take other inputs as well, including from. Our customers themselves. And. We try to triangulate really around those. Kinds of numbers. So, Dave, I'm just reluctant to. Project at this point what we think. GM is going to do. In Q1.

Grant Thoele (CFO and Treasurer)

And I think just to add to that, David, is it— Sorry, go ahead.

David Anderson (Senior Equity Analyst)

No, no, no. I was just going to say, if you still think that first quarter would be the bottom, is that the right way directionally to think about it, at least?

Don Young (President and CEO)

Well, we think somewhere here in Q4, Q1. Will—and GM has said this—that they expect to. Let me say, know where they are from a demand point of view in this new environment in early 2026. And. So that.

Leads me to believe that. Q4, Q1 is clearly the. Bottom, especially after the demand pull forward that people experienced in. August and September leading into the October 1 date.

David Anderson (Senior Equity Analyst)

Yeah. That makes a lot of sense. I'm just curious, as you start building on the European side, the design of the batteries and in terms of your thermal barrier, how that fits in there, in terms of, say, revenue per unit, how does that look in Europe versus the US? Is it the same? Is it a little less, a little more? How should we think about that. As you build out that side of the business?

Grant Thoele (CFO and Treasurer)

Yeah. Most of the European OEMs are prismatic. And kind of the CPV on that has historically been between kind of that 250-350 mark. So obviously different than Parish.

David Anderson (Senior Equity Analyst)

Okay.

And then, Don, I want to go back to the battery storage. A few years ago, you guys were talking about getting into battery architecture side of using some of your technology and what you've used to build aerogels, looking at some of the—I believe it was on the cathode side that you were looking to kind of add into. The discussion you're having today, is any of that part of it, or are you just talking about the thermal barrier part? And I was wondering if you could also dig into that a little bit more. On the battery storage. I've never heard of thermal runaway being an issue. In fact, I never heard about thermal runaway until I started talking to you.

But I haven't heard that being an issue in the larger battery storage size because I always thought it was part of the cycle, cycling up and down. And maybe that's what's happening here. If you could kind of dig into that a little bit about kind of where you fit in there. I was surprised to hear about that. That's sort of a new side to the story.

Don Young (President and CEO)

Yeah. These are. Akin to our PyroThin thermal barriers, Dave. And. What is. Changing, I think, from a technology point of view, is that they are moving to. Higher density cells. And. That is creating a concern around. Thermal propagation or thermal runaway, which. We address in slowing the propagation and controlling that. There's also. Some policy aspect to this as well, which. These projects have incentive to have domestic supply. And again, we. Contribute to. That as well.

So it's really. A combination of our technology and. Those policy changes or incentives, I guess I would say, that are benefiting us in this. Space. So we're good at making these materials. We're. Really expert in helping them design. Around our. Materials. And. They are trying to get as much density and as many cells into a limited amount of space as they can. And again, that suits us very well.

Grant Thoele (CFO and Treasurer)

I think the only thing I'd add to that is that we already have the infrastructure in place to. Deliver that for that entire opportunity, right? It's like for like with our current thermal barriers. And so we already have the production, the capabilities, and really, it's kind of tooling to get that. So I think that's a key point, that there's not a ton of capital investment required to kind of get to this opportunity.

David Anderson (Senior Equity Analyst)

Thank you very much.

Don Young (President and CEO)

Thanks, Dave.

Operator (participant)

The next question is from the line of Leanne Hayden with Canaccord Genuity. You may begin.

Leanne Hayden (VP)

Morning, everyone. Thanks so much for taking my questions. Just to start, I'm curious, given lower—hi, everyone. Just given lower EV demand levels, how do you think about leveraging capacity out of your Rhode Island facility versus outsourcing to your external manufacturing partner?

Grant Thoele (CFO and Treasurer)

That's a good question. I think that really, this comes down to a regional basis, right? We want to. Do what's best for. Allocating profits. Accordingly between the production facilities. As of right now, we have. Capacity we can use in both our East Providence plant and our external manufacturing partner. And it just comes down to whether it's domestic or international. We have the capabilities at both facilities to kind of deliver on the demand.

Leanne Hayden (VP)

Gotcha. Okay.

And I noticed you're targeting decreasing CapEx into the fourth quarter and into next year. Curious how long you think you can maintain these lower levels.

Grant Thoele (CFO and Treasurer)

I think that the one kind of caveat to that is. There are certain. Programs that. We are quoting right now that could require a little bit more capital investment. Akin to kind of getting our. Kind of our. Automated equipment down in Mexico. But it's not—we're not building a new plant right now. And so when we think about CapEx, it is maintaining our assets and making sure that they are as efficient and run. As efficient as possible. And so we're going to be very selective. Obviously, cash is king. And so we're going to have any capital investment that's going to be tied to a return that is.

Reviewed by myself and my team with a business case and make sure that we're allocating capital accordingly.

Leanne Hayden (VP)

Got it. That's super helpful. Thanks, guys.

Grant Thoele (CFO and Treasurer)

Thank you.

Don Young (President and CEO)

Thank you.

Operator (participant)

Thank you. At this time, I'll have to pass the call back over to Mr. Baronosky for any further remarks.

Don Young (President and CEO)

Actually, I will take it. Thank you, Operator. This is Don. We appreciate your interest in Aspen Aerogels. Look forward to reporting our fourth quarter results to you on February 12th. Be well. Have a good day. Thank you.

Operator (participant)

Thank you all. This now concludes today's conference call. We appreciate your participation, and you may now disconnect your line.