Aspen Aerogels, Inc. 2026 Q2 Earnings Call

Thank you, Holly. Good morning, and thank you for joining us for the Aspen Aerogels second quarter 2026 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.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 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. I'll now turn the call over to Don.

Thanks, Neal. Good morning, everyone. Thank you for joining us for our Q2 2026 earnings call. My comments will cover our Q3 outlook, our commercial activities, including the growth projections for energy industrial, the evolving demand environment in our electric vehicle business, and the progress we are making to develop battery energy storage systems as a potential third growth segment for Aspen. I will cover the strides we have taken in staging the restart of our aerogel manufacturing plant in East Providence and the efforts made to mitigate any supply disruption to our customers. We are pleased to announce both another European OEM design award, this one from Jaguar Land Rover, and a strong outlook for Q3 performance. Grant will amplify these points with his comments. Turning to the third quarter, our outlook calls for revenue of $65 million-$80 million and adjusted EBITDA of $7 million-$15 million.

The underpinning strength is broad-based. Robust energy industrial project deliveries, increased North American demand for PyroThin thermal barriers as GM raises production to align with EV sales and targeted inventory levels, and elevated production ramps by several European EV OEMs in anticipation of growth in 2027. Let me provide some additional perspective on each of these drivers. Our energy industrial segment continues to target approximately 20% growth in 2026, despite the East Providence disruption and relatively subdued refining and petrochemical activity. Strong project demand is driving our second half performance and is an important contributor to our robust third quarter outlook. In energy industrial, we bring proven technology, deep experience, and an excellent record of customer service to the segment's demanding applications. Market conditions remain favorable, and our customers have amassed significant project backlogs.

Our team continues to build a robust pipeline of opportunities extending throughout the decade, which represents a strong foundation for continued growth. In LNG, we are actively engaged with customers, EPC contractors, and construction teams. We have opportunities to expand our scope on several projects, increasing the size of our 2026 opportunity and extending our visibility into 2027. LNG has become one of our clearest and most dynamic growth lanes, particularly in the United States, the Middle East, and Africa, where large-scale infrastructure investments are advancing into executable commercial opportunities. We expect our LNG-related activity to more than double in 2026 compared to 2025, and to provide continued momentum throughout the decade. As I noted earlier, refinery and petrochemical activity has lagged our expectations. We believe customers are prioritizing uptime and high utilization rates, compressing certain maintenance windows.

Over time, reliability requirements should bring this work back into scope, and we remain well positioned to support customers as turnaround activity normalizes. Taken together, these market dynamics support our expectation of approximately 20% growth in energy industrial in 2026, with additional strong growth anticipated next year. More broadly, the growing need for energy security, supply diversification, and reliable power to support electrification is driving a multiyear investment cycle in global energy infrastructure. We believe these underlying market drivers will create significant growth opportunities for Aspen through the balance of the decade. We remain focused on scaling energy industrial into a $200 million high margin business without the need for incremental capital investment. Turning to our PyroThin thermal barrier business, where we saw 81% quarter-over-quarter growth in Q2.

U.S. EV demand has recently stabilized at approximately 6% of new vehicle sales, roughly half the level reached in 2025, when incentives and regulatory support were more favorable. Within this market, GM Ultium captured approximately 13% of U.S. EV sales during the first half of 2026, implying annual sales of more than 120,000 vehicles. GM produced EVs at a rate below its sales volume during the first half, resulting in a significant reduction in finished vehicle inventories. GM now appears positioned to increase production to align with current sales rates while modestly rebuilding inventory, consistent with its stated demand-driven approach. The resulting increase in demand for PyroThin is already evident in the third quarter and represents another important driver for our strong Q3 outlook. On the European front, we see increasing momentum with strong structural drivers for battery electric vehicles, resulting in new vehicle registrations approaching 25%.

Most recently, we added Jaguar Land Rover as our seventh European OEM customer. Our PyroThin thermal barriers have been chosen for select JLR vehicle architectures, which will support multiple models across its portfolio of iconic brands. This award further validates the value of our technology and represents another meaningful building block for our European business. On our past two earnings calls, we projected 2026 revenue from European OEMs between $10 million-$15 million. We are now increasing that outlook to $20 million-$30 million based on first half revenue of approximately $11 million and the growing breadth of our awarded business, now spanning seven OEMs and nine vehicle platforms. This expanding European opportunity is a third important contributor to our strong Q3 outlook.

More broadly, we are encouraged by the momentum across our European portfolio and continue to believe the region will become an increasingly important contributor to our revenue in 2027 and beyond. Looking beyond our current segments, we are investing to establish battery energy storage systems, or BESS, as a promising adjacent growth opportunity. These systems present complex thermal challenges that closely resemble those we have solved on demanding EV platforms, positioning Aspen's proven technology, application expertise, and domestic manufacturing capabilities to serve this growing market. We are actively engaged in technical qualification programs and commercial discussions with leading utility scale and critical power developers. While full commercialization will require time, we continue to expect initial BESS revenue in the near term and believe this opportunity can become a meaningful contributor to our growth and profitability.

At our East Providence Aerogel manufacturing plant, we initiated a staged restart on May 14th, just over a month after the explosion in the high temperature oven caused damage confined to a specific area of the facility. We continue to make progress toward restoring full production capacity, which we expect to complete during the first half of 2027. To date, we have avoided significant supply disruption to our customers through a combination of existing inventory, production from our external manufacturing facility, and more recently, from the staged restart of the East Providence plant. We have more work to do, but we believe the actions we have taken are expanding our short and long-term supply flexibility, strengthening both our operational resilience and our ability to serve customers most reliably.

During this period, we are incurring certain extraordinary operating and capital expenses as we maintain supply to our customers and restore full production capacity. We maintain property damage and business interruption insurance, are fully engaged in the claims process, and expect a significant portion of these losses to be recoverable. Grant will provide additional detail in his remarks. Most importantly, we are extremely grateful that no employees were seriously injured in the incident. I also want to recognize the Aspen team for its tireless efforts to achieve a safe and disciplined restart in the plant and for its unwavering commitment to our customers and to the success of Aspen.

Grant, over to you. Thanks, Don, and good morning, everyone.

I'll cover our Q2 2026 results and Q3 outlook, along with key drivers for the remainder of the year. Second quarter revenue was $49.8 million, including $20.4 million from Energy Industrial and $29.5 million from Thermal Barrier, which included $4.9 million of previously deferred revenue recognized in connection with the GM settlement received in Q1 of this year. Total revenues increased 32% quarter-over-quarter. Energy Industrial revenues declined 6% quarter-over-quarter, below expectations as customer demand remained constrained by logistics and inventory challenges tied to the conflict in Iran, along with some demand push from Q2 to Q3. We expect a significant rebound in Q3 as subsea project revenue lands for the year. Thermal Barrier revenues exceeded our expectations due to two factors. First, GM vehicle production ramped up to levels reflective of underlying sales rates after a soft Q1.