ASPN - Earnings call transcript Q2 2018

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Operator

Good afternoon. My name is Jesse, and I’ll be your conference operator today. At this time, I would like to welcome everyone to the Aspen Aerogels Q2 2018 Earnings Call. [Operator Instructions] Thank you. John Fairbanks, you may begin your conference.

John Fairbanks

afternoon. Good joining Aspen for conference for us you Aerogels the call. Thank Officer. Fairbanks, Aspen’s John Chief I’m Financial A that Young, housekeeping the CEO. few items call before to over turning address to Don Aspen’s and I President would like Aspen’s release is as reconciliation measures available Investors well compared on Press developments, the most non-GAAP of use a Aspen’s the and of financial business website, announcing applicable as of to management’s www.aerogel.com. financial results GAAP section measures summary and a sheet a operating summary June Included summary statement key and XX, in the release of operations, a press statistics is of for half XXXX. balance financial and the quarter ended

will the investors any statement forward-looking outlook, addition, approximately is contain webcast any statements, expectations, website will regarding for historical targets, that estimates, subject statement beliefs, and an not uncertainties. today to archived Such one plans year. In a that prospects, fact. include of of risks are and other note business this section including version Please projections, Aspen’s discussion statements our

Aspen also Aspen website. affect with found press Aspen’s reports are results A that can issued on Aspen’s and these release Form with factors in more list in in SEC, results of from forward-looking could release filings of the materially particularly Aerogels’ XX-K. the section press issued those may in company’s be found be statements. most actual the today in files SEC the Company’s can recent the in Investors company’s annual actual report detail today and discussed the expressed differ

XXXX. the company’s views statements of represent August as Forward-looking made X, today today

circumstances. statements these to any disclaims reflect future update Aerogels Aspen or events to forward-looking obligation

to measures also with measures measures now call a we prepared non-GAAP and comparable financial financial in non-GAAP Aspen press and are measures financial not considered of I’ll as including today’s GAAP with over of of EBITDA. in financial Accounting in GAAP. The GAAP. the reconciliations are measures, this Don adjusted accordance we substitute Accepted is most the measures, not intended available During these of for be Aerogels. financial the financial in or accordance Generally or CEO to to non-GAAP non-GAAP will Young, President isolation Principles to definitions These why prepared call, refer U.S. These these turn release. discussion directly present results

Don Young

afternoon. earnings Thank start call. XXXX for by John. business you, comments the for QX Good about Thank our I us will you our providing and joining performance.

our and review will John QX guidance XXXX year. our for Next half update the first financials and

session. topics plan We remarks. in will two prepared Q&A I conclude to a cover the my with call

subsea $X many nearly In years. million countered orders project have and locked expectations. comprised in orders describe leverage I the and market we of usual of across $X out entirely which three $XX.X to QX, will the XXXX the we XXXX XXXX for of work example, to million indicators. the related the for also our was we And million, typically each quarter how remainder the comment same QX, an First, QX, and below our review the in $X million Revenue of execution period outlook playing of against million, our environment update our QX to second, and strategy and on handful that including $X revenue current of performance XXXX adjacent see markets. commercial was aerogel virtually new is work. technology core platform for our LNG provide small I'll had With project and on respect below

difference a and full had project maintenance portion made we QX, by of not $X.X XXXX the in was Growth to in anomaly million result in of the XXXX made While work. an XXXX but the XXXX project work and related our investments. of day-out owners day-in that was We the amount. capital approximately lack in up QX delay similar and decisions believe back of work asset

point and XXXX downturn and we the work remainder normal ours. levels the believe QX XXXX, an will represents also as work experience low believe XXXX. energy return of of of cycle prices We to We project that this project in products of XXXX over and for such XXXX expansion late

and for In We're in and the of are matter States a We scheduled hand project of projects received our we disappointed in subsea and fact had of are delivery activity half the subsea in we've already our XXXX million alone, over not numbers levels half that discouraged. in good. first day-out XXXX. first during numbers half solid and QX for Asia the but United wins backlog day-in $XX and second

quarters that We and the coming $X in that array capture typical we million years. delivered will each believe million, $X we million quarter the $X have in previous orders of also

win sales Asia the South million addition, of To additional coming years. in XX%. In projects positions completion project we our invested dedicated team and XXXX projects in have approximately successful have that petrochemical marketing global organization to by and in three $XX key the large-scale point, us our expanded a the LNG and project's

XXXX, We expect and these XXXX. investments to XXXX pay-off in

that adjusted the our build revenue reminder year-to-date project to and in our diverse base revenue, they ourselves in we three can growth position Our for strength base expanding indicators, initiative. exhibit work and entering driving new gives EPXX significant XXXX and to markets continue revenue both us growth. experience to and a ability capacity to confidence respect are substantial EBITDA as performance With growing through

revised indicator million will long-term be $XXX our revenue is reach day-out stream. was second for maintenance and consistent base defined revenue million is to be revenue sign Base XXXX the opportunities we goal. the of with XXXX which and market half our targeted XX%. We as our Then of indicator increased XX% petrochemical for revenue but million in performance of half the recurring the during first base I ambitious million second orders in subsea as a first or almost scope between end revenue these revenue version is not have a $XX million. $X non-based subsea we upper positive is This late base second becoming guidance more work The half that we and overall subsea to the to million respect half good commercial million first revenue that in South have make which of $XXX we an goal won with Asia of quarter It revenue our will said, small $XXX the project base of annual work and XXXX. toward the and $XX.X $XX.X for for growth large day-in a million out will of believe run was do that of target comprised purposes million. $XXX again over delivered of expect dynamic. available after activity revenue To need between project translate the $XX.X with of a to

indicator each performance as second for EBITDA end quarter. to measured and the The growth relates XXXX of in at revenue year-to-date adjusted

is to adjusted to EBITDA. significant and return goal growth double-digit revenue to Our deliver improvement in

X%. would spike revenue materials. however with EBITDA amount, For by greater was the first patent the significantly principally a of have facing costs improved to million half Adjusted certain enforcement $X.X associated down silica Adjusted EBITDA $X.X we are million actions. by lower in related increased cost XXXX, a or of

impact contained steps have mitigate material believe that the be cost XXXX XXXX. high will of impact and the issue and in will the to taken We not

as given expect the and be momentum second our finish we with first will annual Although growth half, challenging half will in XXXX. a year overall solid in will the XXXX that do strong significantly first set revenue we be that light the will half stage be we for that believe strong that the

initiative. performance XXXX third to the The metric relates EPXX

EPXX is approximately we year. technology $XX of to increase Providence million of our adjusted million XXXX, existing $XXX primarily the project manufacturing buying by revenue between annual end drop to current expansion approximately our will driven productivity EBITDA capacity revenue increase last we $XXX generate our to described potential improve expect way for At we XX% EPXX to XX% We the the translates manufacturing and the to We're making increase and capital $XX EBITDA the in to By our beyond Aspen by line. expanding year from progress. that per significant is the levels goal to XXXX. at earnings million to end target. As capacity capacity million, well the facility to generate million. million Aspen in process by East believe to EPXX manufacturing will on in that during to goal EPXX current $XXX The adjusted of of assets have million $XXX The manufacturing XX% our the range call, capacity efficiency. our of $XXX

partner $X is million prepayment EPXX XXXX from budget $X our we Our million from the for capital which allocated BASF.

less we progress, than initially goals we shape. believe of achieve with the Given good This will EPXX meaningfully the capital XXXX in important is our initiative anticipated. initiative

second an on today execution the of topic strategy. our The update is

to are elements There adjacent strategy. two is key the strategy technology markets. aerogel leverage across Our new platform our and our core to

to to The annually EPXX EBITDA. revenue, core in and $XX a and of adjacent of from $XXX including million business create between grow to East the first the fill of million capacity order Providence facility our element is initiative expanded and generating the $XX markets manufacturing a million capable adjusted

dedicated building of core of believe business value. which of the our opportunities two energy of anomaly platform begin in team adjacent in to business the will our bottom by our creating late BASF business envision the market shareholder first and to the with commercial the prioritize infrastructure in valuation the to meaningfully value product the downturn world-class of relative business cycle markets optimal summary, and element and reset markets best promising We've new work leverage jumpstarted strong generates our signals a In was lead to structures the energy accelerate such to strategy for the additional cash an second businesses. penetrate our company. opportunity we as The maximize project The believe the of breakout strategy unlock select as to the goal in materials major energy to infrastructure. first technology organized returns. and significant a partners We a with lack potential is outside identify creation. substantial elements new and fund We've we process ours. half that of We work to long-term XXXX can to reinvest the potential to aerogel realizing is and

higher confident that to we we significantly markedly us have the in have increase business new and sales team, our marketing give investments, confidence a creation EPXX our are and We the of and groundwork the company. the that value capacity the second expansion half will revenue year laid and the of

results. financial our turn Now, call John? John for the a of I'll to over review

John Fairbanks

I’d Don. to quarter the months Thanks through second at a summary results for reported running and by financial like XXXX first start level. the six our of

Second versus quarter XXXX. total in million $XX.X revenue to declined XX% million $XX.X

net quarter share share $X or million $X.XX a per versus last was net loss per loss year. $X.XX million of or Second $X.X

ago. our we in items other negative quarter believe year year. to net EBITDA Second XXXX costs taxes, $XXX,XXX quarter of negative the $XXX,XXX $X.X of the of for performance. million versus core operating We during We amortization, was or that a adjusted not expense enforcement patent second define million do loss quarter incurred any second interest, are last adjusted EBITDA and depreciation, stock-based compared $X.X compensation income as indicative

our of share loss of in For per for last and results. patent first first to last or enforcement million $X.X XXXX. million. share $X.XX versus $XX.X was compared additional million the of X%, versus on a $XXX,XXX the half of XXXX Net million now negative XXXX provide XXXX will net costs during detail half declined the half, $X.X loss or components $XX.X half negative the first revenue of of We per million year, half year. was in EBITDA first adjusted million the $X.X $X.XX half I of total incurred first the $XX.X first

First, I’ll discuss revenue.

million of of First $X.X half revenue comprised $XX.X product revenue research million. of services and was revenue total

million. the $XX.X decreased by the first half, or key multi-year XXXX product of first was by partially decrease subsea This LNG in petrochemical petrochemical growth projects versus last first refinery in and a XXXX. X% Asia notably of the in $X.X revenue solid driven in markets core was decline work project most America. in project revenue North the half million During and the several during successful project conclusion The during year's half combination in offset related market our by South with decline

in X% X increased line During with our square the prior and by services mix in of for shipments price decreased improvement half to of to outlook. selling price in first of products turn to price aerogel feet revenue. XXXX, This increase our XX% in I’ll average reflected year-over-year the million per XX. our $X.XX foot blankets XXXX now average of sold. enacted the impact selling early increases research square

services revenue due revenue contract $X.X half principally agencies. XXXX, of to decreased million is of research X% $X.X during Our for research the by This year. performed government research last the a of and during to timing Research was first related half contracts from value decline million first the versus relative XXXX. services

the May, For XXXX. market decline subsea in call in project. adjacent continue and would with This that revenue to broad anticipated of markets At most of South across we Asia the down all the in expected million slightly in of approximately of revenue full completion our or quarter associated both our guidance. in earnings research services XXXX our and XXXX the project from the the included product time expectation first petrochemical offset year is we $X.XX based growth core

in projects this we will adjacent markets make refinery key to completion to markets difficult core Although petrochemical due objective experienced LNG in of the the decline of growth year, achieve. first during our the our the and half

$XXX the range As million is our $XXX result $X prior decrease between have principally product reduction the and XXXX guidance This volumes. of guidance. of revenue of reduced a a result, in the from shipment decrease projected million we million,

or XXXX the per to $X.XX. aerogel plus price the $X.XX continue our flat remain full-year blankets of We for that minus foot expect selling average square with at

cost decline was revenue, profit. XX% and half the million gross $X.X or solid million, warranty a other XXXX and in of raw materials, of first the XX% of Gross over increases, Offset half decrease decrease gross a by productivity. This profit was a last of profit $X.X silica X% modest versus our aerogel in our costs price discuss in year. raw increase yields in during blanket. by half of I'll material and cost revenue the impacts materials as XXXX Next, first expense, of product in part the in increases constitute driven manufacturing

to improvement and in the fourth in an particularly increases levels gross XXXX, of half utilization. in the capacity half profit forward Looking and output the revenue, anticipate first margin second quarter gross to we and projected

We also to the gross year for expect full from margins to reach mid-teens. the the low

expenses. operating discuss we’ll Next

This of expenses to costs year-over-year decrease and decreased reduction offset This and the revenue million million our $XXX,XXX was end high million a by from half our $XX.X new by end to million personnel sales in or the year infrastructure the reducing all of the between enforcement in energy part first increase expenses to personnel our range million business and operating expense markets. was other of at We're the operating $XX.X in increase and our down of increases breakout result for to a XXXX, programs range expense expenses by and growth revenue of drive in patent sales guidance $X.X opportunities For at and in million. develop of XXXX expenses. $XXX,XXX in range. $X.X low X% operating other $XX.X full in growth guidance operating guidance driven operating $XX a

the of principally $X.X first the and during levels of our million our an due discuss I'll working $XXX,XXX to capital half expenditures during XXXX and half balance initiative the XXXX. from adjusted operations and was used an investment of in down totaled increase the flow. $X.X million sheet EPXX negative period. in in Cash of $X.X first Capital cash million inventory investments first EBITDA $X.X half during included in million reflected Next, our during

$X cash, our of at shareholder's an received million. credit BASF $XX XXXX XXXX, assets of ended of million. current half net half prepayment We $XX.X on million from first million the and first we the $X.X with of $X.X the of of equity also aggregate During facility, million revolving

half an we the of our the million addition, to facility access XXXX. In end under $X.X at had first credit additional available revolving of

$XXX share. year our of updating and revenue loss million expected Net is Total loss range to per a million. of range between loss guidance million. is a loss EPS prior between stock-based share range assumes amortization revised and range million loss guidance guidance to to between of for full million of This revised $XX.X EBITDA million weighted expected and million, XXXX to loss is interest outstanding the assumes guidance per of $XXX,XXX. for from to guidance expected financial of average today. also We’re $XXX $XXX $X outlook $X.XX $X loss of and a million million prior outlook to $XX.X shares million. EPS of from to depreciation XXXX $X.XX million revised a loss $X a a is of $X.XX from $X.XX, of This million $X million $XX.X XX.X $X.X of million million expense year. from to of a between prior prior a and compensation of Adjusted revised $XX.X $XXX expected $XX.X

expenses million this costs actions $X.XX margin the the the noted financial square expect in average as plus we associated minus our teens an with earlier, or outlook price year. selling And patent per full for addition, $X.XX includes $X and year. and to gross for low the In of of enforcement foot mid full

XXXX balance and with between the level cash of full the outlook, the aggregate on revolving of credit facility. on expect context in year cash million our out range to $X.X within of million exit set adjusted $X.X to an in $XX.X we Turning EBITDA million our XXXX hand,

our dedicated $X initiative turn that for for of to call project I’ll Q&A. now to capital continue also total year. the We the for funds including million EPXX expenditures Jessie to back

Operator

Craig-Hallum. with Stine Eric from comes question first Your Instructions] [Operator

open. line is Your

Eric Stine

about just into a Maybe dig bit it. we and could guide just little the talk

I there the to they QX bit quarter some seems question. point question, it you're I back of level, other lack first the What's culprit that in your any Is just second I of mean in the mean already end - are your that way confidence these the some a will end markets to guide refinery the through then will seeing markets? optimistic project more actually sound And shortfall. petrochem, the as like to a So other there. of your basically work little and with be guess flowing come in you project

Don Young

in the had more With a questions. subsea work look question. Eric this respect first It no the year. were small XXXX that substantially did of LNG they And was to - Good us but had I orders we an impact on half we work that than corporate, guess we remarkable lot of orders. had

And orders. so we've company, all just $X $X really orders had different of complemented were handful quarters than reason of is recurring And think that always were love small that we We us, it public since have revenue small had we've a the the to million a difference that that million for the real we the of kind expectation. below QX but and we in was orders.

that seeing the Asia is in market U.S. to of and in on XXXX and We and definitely as half second leave of before day-out of is the of good in a the subsea work the orders one the we do and hand enhances first is the major meaningfully and solid. well, the And again beginning activity quite frankly day-in year XXXX. are have half activity the

I better I first largely the happened And right is around your think the first the what's the function that you're guide in going to the markedly half So, is feel of the be here half. half. down think of than again, year we second guide, that math

Eric Stine

say assume subsea is that that just have the to right too pushed it? Is you that just you simplistic - to and is might did mean of was it this some work simplistic? quarter mean in kind is hit necessarily I second is because you right know LNG, the not something think that's I it - that it too or were about to that that not? the expecting, of or way Is I

Don Young

have worthy in that's activity we of million get, around turn and quarter and to just half the of of particular And and but in And are have why quarter. kind again, second that confident of that's we quarter didn't you than year here second the just different and really not not is QX. announcement the No, that LNG I see is them. kind them look going now subsea, half they're the that tend they're important the in out, it. a dollar and project We QX in lot think we work other the work and bucks first it's largely year, to reason

Eric Stine

XXXX, I like the subsea. then sounds you think know million - past I'm you look Okay, and kind won to curious, you XXXX? $X.X so targeting what project, how of quarter give you that maybe and as compares and first turning the in and just more, does that this that XXXX, I recoveries to won were it had orders, you recovery subsea confidence to out maybe specific you to in

John Fairbanks

right. first win really order an - the and $X.X did we your We for see so, that Yes, million is in you math this find half we of year XXXX. earlier

Again, solid with to XXXX, And some win but Almost we that's So, as half orders of at looking the upside activity lot we're subsea we a $X a look XXXX. projects. think for these million it, - if you it's just XXXX, pipeline that out look for of is of pipeline levels what also into real we for. terrific. second we the here

second a XXXX really for sign for but half the that's only good of XXXX. So, not

Eric Stine

on And uptake months, you just update clearly just of that know turning BASF, maybe couple an me, - with I one last the increasingly and confident that but - just you're system SLENTEX, earlier relationship. to from of it's wall a mentioned then

any specifics gotten that, or if payments you've things just curious the now and more to Just and continue progress? there

John Fairbanks

million to million So, have both which are received been $X.X have $X been great. prepayments payments about

of projects. them into And the that an going I in with as Spaceloft product the We of amount had SLENTEX called kind of enormous think market. also market activity have AX, priming

across question to on and growing, focus in out Some work a the nice Europe, to XXXX say, of to for no addition are and case will prospectively market reasonable and there's response also XXXX. that and materials is And we, size. I noncombustible in the have us and that building array U.K. installed in so again, XXXX Aspen studies would into during BASF, the many the development we that made joint the study our the to part, with team's really as well, with are work area out have market pleased in the next-generation initially work performance that the financial payments, the that and Excellent noncombustible, we're in are progress early well. price the thermal with case in SLENTEX as proving time. and ultimately XXXX to ourselves product out

Operator

question Canaccord. comes Moore from next You Chip with

Your line is open.

Chip Moore

So a I what maybe or Is bit perhaps do on guess, terms half, a guidance the pickup the back can a back sort you of you you to a return little of activity? more - in to there? little of need normal touch this need project

John Fairbanks

solid lot think target things said $X we're feel that we again, revenue, kinds the that the about that us that a is in XX% a on. in to up at quarter. one And really nearly second the That's hand we be of orders ambitious of We've and That's South look base petrochemical these half. we orders pick XXXX Asia non-subsea number as $XX We the performance tend for of that smaller to range. to up, go type $XX $X really there. his smaller Chip, million. would are in target. XX% that of the number project we've Yes, of that to a half used an million, tends - about million of from - And We project. want work. of growth be work. talk set And we've for made that few XX% the million to there At indicators, in second to got and be to million that $XXX subsea - this speak, I we focused so in each kind that $XX of have we get million work, our definition

as can so indicated be working the in if kind our sure And for revenue notes, to that up that into And our approach into us of half I we really sure. upper my we're we gets range. hard of that guidance get guidance,

things you're So, I I'm the and as looking for, are well. think sure those for we're looking

Chip Moore

color, sense. good That's frame good to It way makes it.

the play can confident couple you're mitigate sounds you out are cost, that On that maybe XXXX. and higher quarters, there? then to be that about silica talk you're doing how next issue pretty what into doing And an what that? you of What's like shouldn't does -

Don Young

really in of QX. is Yes, silanes business. call we've the on there's had the been I the closure so, This something it and some jumped dynamic a out it for then that anticipating. saw that aggravated one for and business the several silanes now in have dynamics would facility, through We really place building of our the in quarters a situation. material this program parts eliminate materials. in this coming we so had particular to need We

XXXX. it unexpected creep that we're here we're design that exposure that. that's part out, not good strategy component ability our you confident to product with XXXX, And that, to respect and let it's that in an - to it volatility important out and to if we or why of continue well in our do into shape so our can mitigation And reducing in

Chip Moore

And I mentioned guess you in lastly costs coming I What's allowing you it think do on the sounded, going that? below expansion to on that's plan. there

John Fairbanks

the - that frame that is of goal to XX% to of by $XX thought would capital increase end capacity million that, XXXX. and I it's $XX between had require We million. think by we the just indicated

for that the approximately at million. less of goal $X achieving halfway or point more are We

we hanging dividends about terrific us. has the picked throughput I the paid done have would for get to for start there. with those we've work, see No it So items, with group to R&D excellent or of an fruits would done really operations work, job that and lower engineering question, you done yield could a just is, good job way process expect how a we've far think lot we probably as optimization, technology work

other we half that of that near carefully. but be really number. we million managing anywhere I'm confident on not a million to of get we’re capital requirement are $XX the kind sure So those costs $XX won't million focused X we'll

Operator

Your Hannan and next Company. from Sean Needham comes with question

Your open. line is

Sean Hannan

Yes, thanks evening folks. good

the a beat for you're it orders the be of and and have of be seeing to Overall and XQ but would that have repeatable orders that that you’d your entering project how that feel expected see not within and on Sorry seems it guessed a I’m second always time I at might XXX assess you that the dead on XQ trying other assumed much saw the of and million. would or seems perhaps still XQ to I'm equation how them line XQ from understanding side XQ in little guessed quarter. similarly really that Don And get the you obsessed. of I'm same subsides sure where like what year. you that gone hitting larger the the And what the you horse just here work you this hell comfortable sight it little more or here were then you've in means, the folks really I quarter. to have bit don't a the isn’t may bearish

the But interpreting was it tone might I it always here. over be that some think aspiration. an I of was clear

how get a better assumptions on much the just what's to the have handle So again around here handle here? assess to really happened of and trying trying we I'm firmness a

Don Young

alone had roughly… my if again I commentary, said XXXX as in at we look in just you earlier in So my QX

Sean Hannan

sorry interrupt and expectations to because going to really here what's to not at been looking for really already back we've what established you for XXXX. Right, I'm XXXX, comparing I'm

has conversation So trying understand that since I'm recent past if to XXXX just our better sense? and what from then makes we're I'm changed calls most

Don Young

- we last confident second Sean received we say work. in work it And the be typically day-in and the million, would nearly orders QX handful the of quarters. delivered and really a we’re recognize every about day-out have small What those the in really And here in $X that kind seeing why we of the are orders. subsea Yes, activity that a or Plus, we're $X in and number the we get than the here look is we two million think we're just million have that of of expected typically able QX $X type larger to I the QX that’s didn't should I quarter, that to orders $X year. reason million. little were receive

stage $XXX me if fair I And particular. this think - point an the enough. for think number having kind in much, a of I about weak better our second that I on lead suggests the for XXXX. much So get again but us that's ambitious million hesitating second strong quarter to set a ramp see a am a target that into that's and said half you ability us the at will that that given

Sean Hannan

that kind do is at How little at little and it cost gone you material need to being And is then through terms impacts raw you of pricing be effectively point? the bit get it can in can recovery those through in of pressures least here cost any is a address do there due up out. or switching gears try just - bit pronounced that customers to further more make this to a just that you way conversation recovery nominally increase

Don Young

our have year. Yes, price in how term. it’s you Sean difficult deal with modify each to raised we as to would it since immediate talked about probable claw as it’s we most or We’ve XXXX prices back and know our the

going to very meet XXXX expectations of in come sure we're to to that mindful good around our position be a margins. be We’re

Operator

the to back the that we all today. have With questions call time for that’s Don. pass And that I'll

Don Young

your We early to forward third good in much. you, November. our very look Have quarter and you a in to Aerogels results evening. Thanks Thank appreciate reporting interest XXXX Jessie. we Aspen

Operator

conference concludes today's call. This

disconnect. now may You

Aspen Aerogels (ASPN) 2 Aug 182018 Q2 Earnings call transcript