Q4 2023 Aspen Aerogels Inc Earnings Call
Participants
Neal Baranosky; Senior Director of Corporate Strategy and Finance; Aspen Aerogels Inc
Donald Young; President, Chief Executive Officer, Director; Aspen Aerogels Inc
Ricardo Rodriguez; CFO; Aspen Aerogels Inc
George Gianarikas; Analyst; Canaccord Genuity Group Inc.
Colin Rusch; Analyst; Oppenheimer & Co. Inc.
Chris Stavos; Analyst; B. Riley Financial, Inc.
Eric Stine; Analyst; Craig-Hallum Capital Group
Alex Potter; Analyst; Piper Sandler
Tom Curran; Analyst; Seaport Global Holdings LLC
Presentation
Operator
Good morning, and thank you for attending the Aspen Aerogels, Inc. fourth quarter and fiscal year 2023 financial results call. All lines have been placed on mute during the presentation portion of the call with question and answer at the end. I would now like to turn the conference call over to our host, Neal Baranosky, Aspen Senior Director of Corporate Strategy and Finance. Thank you. You may proceed, Mr. Baranosky.
Neal Baranosky
Thank you. Good morning and thank you for joining us for the Aspen Aerogels Fourth Quarter and Fiscal Year 2023 financial results conference call. With us today are Don Young, President and CEO; and Ricardo Rodriguez, Chief Financial Officer. There are a few housekeeping items I would like to address before turning the call over to down the press release announcing Aspen's financial results and business developments as well as a reconciliation of management's use of non-GAAP financial measures compared to most applicable US generally accepted accounting principles or GAAP measures, it's available on the Investors section of Aspen's website, www.arrow.com.
In addition, I'd like to highlight that we've uploaded to our website, a slide deck that will accompany our conversation today. You can find the deck in the Investors section of our website.
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. And these risks and uncertainties include the factors identified in our filings with the SEC. Please review the disclaimer statements on pages 1 and 2 of the slide deck as the content of our call will be governed by this link. During this call, we will refer to non-GAAP financial measures, including adjusted EBITDA. These financial measures are not prepared in accordance with GAAP. These non-GAAP financial measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with GAAP definitions and reconciliations of these non-GAAP financial financial measures to the most directly comparable GAAP financial measures and discussion of why we present. These non-GAAP financial measures are included in yesterday's press release.
I'd also like to note that from time-to-time in connection with the vesting or pending expiration of restricted stock units and or stock options issued under our long-term equity incentive program. But we expect our Section 16 officers will file Form fours to report the withholding by the company or sale of shares related to tax withholdings will the covering of exercise prices in connection with vesting or pending expiration of restricted stock units and or stock options.
Lastly, I want to call out a few near term IR engagements. This Thursday, February 15, Ricardo will participate in a fireside chat in New York at the Wolfe global auto Auto Tech & Mobility Conference. Don, Ricardo and I will also host one-on-one discussions at this event on March 18. Dan will be hosting one-on-one investor discussions in Dana Point California at the 36th Annual ROTH Conference. I'll now turn the call over to Dan.
Donald Young
Thank you, Neal, and good morning, everyone. Thank you for joining us for our Q4 2023 earnings call. My comments will recap recent announcements highlight our Q4 and 2023 full year performance and provide an early look at 2024, including the status and impact of several critical elements of our strategy. Ricardo will dig deeper into our financial performance and outlook and our business strategy. We will conclude with a Q&A session before we do a quick flyover of our recent announcements I like to thank the Aspen team for producing excellent results in Q4, revenue of over $84 million, gross margin of 35% and adjusted EBITDA of over $9 million. These numbers Signify record performance and we believe are signs of good things to come. Every person in the Company contributed to this success.
Since our last earnings call, we have provided several updates. In December, we announced the PyroThin thermal barrier Design Award from the automotive sales company, or ACC, a battery cell joint venture with Stellantis, SAP total and Mercedes Benz to supply the Stellantis STLA. medium vehicle platform designed to host multiple brands across the world and is aimed at the passenger SUV and crossover vehicle markets with an expected start of production in 2025. Stellantis is one of the world's leading automakers with brands, including Jeep, Ram, Fiat, Chrysler, Dodge, Peugeot and several others. According to Stellantis, the medium vehicle platform has the potential for up to 2 million vehicles per year built in several plants across the globe starting in Europe. At the same time, we announced that the U.S. Department of Energy loan programs, office invited Aspen into the formal due diligence and term sheet negotiation stage of the process. This loan application is in connection with the construction of Aspen's planned second era, Joe manufacturing facility in Georgia. While the DOE's invitation to the formal due diligence stage is not an assurance that the DOE will issue alone, we remain deeply engaged with the LPO and its advisors and continue to believe that we are a strong candidate to partner with the DOELPO. In this program, we anticipate providing the next update on this subject during our Q1 2024 earnings call later in December, we announced the 75 million registered direct common stock offering with Wood River Capital Management and certain other institutional investors. The financing enabled us to finish 2023 with approximately 140 million of cash on the balance sheet. And we believe it adequately supports the company for additional significant growth in our AV thermal barrier and the energy industrial business segments.
On January 11th, we provided preliminary revenue levels for the full year 2023 and announced the expectation of positive adjusted EBITDA for the fourth quarter. We also announced the successful launch of our supplemental supply to serve our important energy industrial segment this part of our business has been hamstrung by capacity constraints for over a year, and we are now in the position to restock the channel and we believe to support long-term highly profitable growth. Energy industrial activity remained strong across all regions and segments of the business with so much focus on the PyroThin thermal barrier business. It is important not to forget that we are an important supplier to our global energy industrial customers and partners with an installed base that we expect will surpass $1.5 billion in 2024 the energy industrial business is a key part of our multi lever strategy to reach our growth and profitability goals, especially during the early phases of EPEV. penetration. We have an excellent team serving this global market, and we anticipate that it will meet our growth and profitability expectations.
The January announcement also hinted at a vastly improved profitability profile for the Company overall, with Q4 revenue of over 84 million, gross margin of 35% and adjusted EBITDA of over $9 million. We began to demonstrate the leverage of efficient operations, higher volumes and fuller fixed cost absorption. While we have more work to do, we believe this strong tech trend will continue in 2024.
As I noted earlier, Q4 revenue was over $84 million and it substantially exceeded the record revenue of approximately $60 million that we posted just the quarter before. Q4 revenue included 53 million of EV PyroThin thermal barriers. The PyroThin thermal barrier business has grown on an annual basis from less than $7 million in 2021 to over $55 million in 2022 and now to over $110 million in 2023 over the past year. Our deep engagement with the various EVOEM.s has helped us accurately calibrate the trajectory of the EV trend. While we recognize the challenges that EVOEM.s face with launching and scaling new EV nameplates, we are confident that we will see continued substantial PyroThin thermal barrier growth in 2024. We are finalizing the terms of our six automotive OEM design award and anticipate adding new OEMs to our roster. Throughout the year.
In addition to the ramping of the PyroThin thermal barrier business and the initiation of our supplemental supply to support the growth and profitability of the energy industrial business a highlight for 2023 was the continued progression of our gross margins through the year, 11% in Q1, 17% in Q2, 23% in Q. 3% and 35% in Q4. Strong gross margin expansion and a careful approach to OpEx translated into a similar quarterly progression for adjusted EBITDA, culminating in adjusted EBITDA margin of positive 11% in Q4. We continue to believe that we can drive adjusted EBITDA margins to approximately 25%.
In addition to our progress towards our top line and profitability goals, we continue to advance the three key elements of our strategy. First, the transition of plant one in East Providence, Rhode Island to support the growth of the PyroThin thermal barrier business. Second the commencement of our supplemental supply dedicated to the growth of the energy industrial business. And third, the balancing of overall growth, profitability and capitalization on the transition of plant one to PyroThin thermal barrier production. Our initial Asic estimates for revenue capacity were approximately $400 million. Based on current productivity and yields, we believe annual revenue capacity for PyroThin thermal barriers to now be approximately 500 million. When combined with our supplemental supply, which supports our energy industrial business, we believe we have over $650 million of revenue capacity from our existing assets and supply arrangements and can generate 25% adjusted EBITDA margins or over $160 million of adjusted EBITDA. We believe we are well positioned to attain this level of performance. Ricardo, over to you.
Ricardo Rodriguez
Thank you, Don, and good morning, everyone. I'll start by covering our fourth quarter and full year results before walking you through the thought process behind our outlook for 2024.
I'll also spend some time discussing our assessments of forecasts for global EV production and how some of the recent production increases are and capture by most headlines or the current sentiment early last year, we highlighted ahead of the industry that things weren't as great as they seemed and quickly focused on right timing all CapEx in gearing, Aspen for near term profitability. Today, we can confidently say that things are not as bad as the headline suggests before handing the call back to Don, I'll also explain why our team will remain heads down, executing with conviction what we believe is a clearly defined long-term plan to build value in our awarded business and quote pipeline. We see a path that maximize our capacity regardless of any potential near term shifts in demand or delays in sourcing decisions to cover our performance.
I'll start on Slide 4. Beginning with revenue. We delivered 84.2 million of revenue in Q4, which translates into 41% growth year over year and 39% growth quarter over quarter. This was an all-time Company record and reflects an annual run rate of $336.8 million. That demonstrates the Company's ability to quickly flex up to meet an increase in demand at our sites in Rhode Island in Mexico, along with a bit of capacity from our supplemental supply for energy industrial product, which drove 3.1 million of our revenues in December. For all of 2023, our revenue was $238.7 million, which reflects a 32% year-over-year increase as expected, when we first communicated our outlook for the year over 60% of our sales materialized in the second half of the year, and this was due to the nature of the growth ramp that we are on.
For the full year.
Energy industrial revenue was $128.6 million, an increase of 3% year over year. Revenue continued to be supply in Q4, even though we tested the system during the quarter with supplemental supply manufacturing delivering 3.1 million of product in December, our quarterly sales of 31.3 million reflect a 9% year-over-year decrease and a 12% quarter over quarter increase. As we've previously mentioned, our energy business is sold-out to fulfill this excess demand we now have our supplemental supply in place that will continue ramping up as we allocate more of our aerogel production capacity in Rhode Island, two easy thermal barriers, EBITDA on barrier revenue of $52.9 million was up 110% year over year and 61% quarter over quarter, reflecting the accelerating ramp in GM's production of Ultium platform based electric vehicles during the second half of the year and stable volumes on the two auto-related nameplates that we supply along with increasing prototype orders from additional customers our full year EBITDA of various revenue was 110.1 million, representing a 90% increase when compared to 2022. This growth reflects the benefit of starting a business that supplies the EV market from zero and realizing over 77% of our sales in this segment during the second half of the year. That not surprises Next, I'll provide a summary of our main expenses. Material expenses of $28.7 million for the quarter made up 34 percentage points of sales, a two percentage point improvement quarter over quarter. This continues to reflect the work that our supply chain and procurement groups have put into reducing the cost of some of our main raw materials in a more stable environment along with optimizing our inbound logistics costs. We remain vigilant with the goal of ensuring that we can keep these below 40 percentage points of sales, and we prefer to continue conservatively planning with this as our target here, the Q4 performance enabled our total year to date material costs to be of 86.7 million or 36 percentage points of sales. This was 400 basis points favorable to our running target of 40 percentage points of sales conversion costs, which we describe as all production costs required to convert raw materials into finished products were $25.9 million or 31 percentage points of sales in Q4. These include all elements of direct labor, manufacturing overhead factory supplies, rent, insurance, utilities, process, logistics, quality and inspection. These results compare favorably to conversion costs in Q3 of this year, which were 41 percentage points of sales. This is the result of much better fixed cost absorption on our aerogel production costs, driven by the higher sales run rate level of this quarter. As previously mentioned, our long-term target for these costs at a roughly double revenue run rate is 20 to 25 percentage points of sales. So we are not done managing these. The recent work from our team, increasing the uptime of our equipment in Mexico and driving an optimized production mix in Rhode Island, along with improving our production yields at every step of the process is paying off and we still got more opportunity for improvement for the full year. Our conversion costs of $95.1 million to reflect 40 percentage points of sales, a six percentage point improvement over year year over year. In Q4, company-level gross profit margins were 35% and our gross profit of $29.6 million, a 15.3 million improvement over our gross profit of 14.3 million during the same quarter last year.
Our energy industrial segment delivered 9.9 million of gross profit or 9% year-over-year increase in EV thermal barriers, we delivered $19.7 million of gross profit in Q4. If we compare this quarter with Q. three, our EV thermal barrier gross profit improved by $11.7 million on incremental revenue of 20.1 million. Our fourth quarter of 2023 gross profit and EV thermal barriers was 13.2 million higher than the gross profit of $6.5 million that we incurred in Q4 of last year in this segment, reflecting the benefits of starting to operate on a revenue run rate that aligns with the size of our operation. The resulting gross profit margins during the quarter were 32% and 37% for energy, industrial and EV thermal barrier segments respectively. For the full year.
Our gross profit of 56.9 million reflects a 51.9 million improvement versus our gross profit of $4.9 million last year, 2020 three's revenue level and our teams work at maximizing our asset base to enable a tipping point in our economics with 89% of the incremental revenues falling through the gross profit line, seen 51.9 million of incremental gross profit, while adding only $58.3 million of sales is in my view, the ultimate near term validation of our business model and the gearing of our operations.
Operating expenses, which are sized for our near term projected annual revenue capacity of now over $650 million were at 28.2 million in Q4. These were down by about $200,000 quarter over quarter and reflect the first quarterly decrease in OpEx that we've had since Q2 of 2020. Our work optimizing OpEx is not done because although our annual OpEx was $106.1 million, our quarterly run rate of $20.2 million was still about $700,000 away from the quarterly run rate required to have 110 million of annual OpEx putting these elements together, our adjusted EBITDA was $9.1 million in Q4 compared to negative 4.5 million during the same period last year, resulting in a $13.6 million year-over-year reduction in our EBITDA loss last time, our team delivered a positive EBITDA quarter of $500,000 was in Q1 of 2020, so delivering over 9 million here in Q4 is a big milestone for us. 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 Q4. These other items included 3.2 million of stock-based compensation, 1 million of interest income and 2.9 million of interest expenses. Our net loss in Q4 decreased to $0.5 million or $0.01 per share versus a net loss of $9.6 million or $0.2 per share in the same quarter of 2022. We were so close to breakeven for the quarter. Our full year net loss of $45.8 million is 36.9 million lower than our loss of 82.7 million during last year or down by 45%.
Next, I'll turn to cash flow and our balance sheet. Cash used in operations of $2.8 million reflected our adjusted EBITDA of 9.1 million and cash used for working capital of $12.9 million, offset by interest income of 1 million. The key items that resulted in the usage of working capital were an increase in accounts receivable and inventory offset by an increase in accounts payable and accrued expenses. Our CapEx during the quarter was of $27.8 million. The splitter operating cash needs for the quarter at $30.6 million. As we work our way through Q1, we're focused on aggressively reducing our working capital needs and freeing up over 20 million of cash by reducing our raw material inventories in what is now more stable procurement environment and staying on top of accounts receivable, our CapEx in 2023 was $175.5 million which is closely in line with our latest guidance of $175 million, $115.2 million were spent towards plan two and the rest funded maintenance and various process improvements in our aerogel plant in Rhode Island, along with equipping our facilities in Mexico with the necessary automated thermal barrier assembly equipment for this year's expected ramp we have incurred $279.7 million in cumulative capital expenses through the end of the fourth quarter towards plan to in Georgia to position the project for a potential restart of construction in the second half of 2024 and only spent $3.3 million of the other CapEx as the team managed to deliver a Q4 EV thermal barrier volumes with existing assets. On December 20th of last year, we completed a $75 million registered direct offering of common stock to hold River Capital and the handful of other institutional investors at a price of $12.37 per share could reverse interest in making an investment in Aspen before the holidays enabled us to efficiently pull this together and provided a straightforward path for us to continue executing without entertaining large near term financing options outside of our application with the DOE. for plan to I'll go into this later as we review our 2024 CapEx outlook with the support of this transaction, we ended the quarter with $139.7 million of cash and shareholders' equity of 488.1 million.
Now I'll turn over to Slide 5. On January 11th of this year, as we preannounced our revenue for last year. We also communicated that we expect our revenue to surpass 350 million in 2024, resulting in a 47% year-over-year increase. We thought this communication was pertinent as stakeholders assess some of the press around EVs, along with the earnings releases and the EV production outlooks of various automotive OEMs. Today, I'd like to spend a minute here outlining our thinking behind this 300, 50 million baseline revenue expectation, starting with our EV thermal barrier segments. It's no surprise that the lion's share of our 39% quarter over quarter. Revenue ramp was driven by a meaningful increase in demand of EV thermal barrier parts for General Motors, Ultium platform vehicles and the GM's production of these vehicles will drive the majority of 2024 demand in this segment for us.
With this in mind, let's look at the chart on the left side of the slide, our main EV thermal barrier customer expected to produce 150,000 EVs in 2023. For IHS, we estimate we estimate that they produced almost 120,000. So around 88, 80% of GM's target on January 30th of this year, GM broadly communicated that it expects to make 200 to 300,000 EVs in 2024 and that it has discontinued production of non Ultium based EVs. That's a big range for us to plan our operations on particularly our fixed costs and therefore, although we're excited nearly ready for the prospects and potential of higher volumes, we are assuming 80% of GM's 200,000 unit estimate as we develop our 2024 EV thermal barrier revenue outlook, so approximately 160,000 units. For reference, the latest IHS forecast expects 279,000 Ultium based EVs to be produced in 2024. So we're currently discounting IHS's estimate by 42% until we see volumes materialize as we work our way through the year.
On the upper right side of Slide 5. One can see that GM's estimated production of Ultium vehicles has increased to around 20,000 units in Q4 and that in this 279,000 unit IHS estimate. The ramp is expected to increase significantly in Q2 and Q3 of this year, potentially leading to a demand profile that will look similar to what we experienced last year with approximately 70% of the volume materializing in the second half of the year. Gm is launching several important high-volume nameplates this year that drive this production increase and we see that interest in them remains high on Google Trends. So the onus is on all of us on the value chain to produce and this year.
Turning over to slide 6 and continuing the topic of our 2024 revenue outlook. If we take our 160,000 units for Ultium base TVs apply our estimated content per vehicle levels from 2023 and assume our traditional revenues from other customers and prototype sales, we landed at $200 million revenue baseline estimate for 2020 for thermal barriers units produced in 2020 for beyond 160,000 for General Motors, the potential launch of another Accurin nameplate powered by Ultium Cells, additional OEM prototype orders and the mix of larger battery pack vehicles that drives higher content per vehicle will drive upside, which we are ready to capture. But I would prefer to estimate more precisely as it materializes for our energy industrial business. The 2024 revenue outlook is easier to size at $150 million, which is our expected capacity in this segment today, upside to the $150 million can be driven by a more favorable product mix that requires less standard hours of our capacity, ramping up additional supplemental supply and utilizing some capacity in Rhode Island that isn't taken up by thermal barrier areas of production in the first half of the year.
Combining our two segments revenue outlooks for 2020 for result in the total revenue baseline estimate of 350 million, which again would be a 47% year over year increase from our revenues in 2023. With this revenue baseline, we believe that we can deliver positive operating income in 2024, which assuming our depreciation and amortization being of around 30 million would translate into over 30 million of EBITDA, even though we deliver 9.1 million of EBITDA in Q4 to 30 million, 2024 EBITDA outlook takes into account some potential headwinds to our near term profitability, such as the cost of new launches, higher bar prototype sales, engineering changes that could lead to inventory obsolescence and expedited freight costs driven by the start-stop nature of some of the nameplates in our thermal barrier demand. We could also opportunistically decide to add OpEx to continue advancing our R&D in key areas and accelerate the development of our technical sales capabilities. And fund new program launches.
On the flip side, if additional demand is there, we expect a disproportionate amount of it to flow to our bottom line. And our team will continue applying a lot of the lessons learned in 2023 to keep reducing our fixed costs, increasing our production, yields, our uptime and driving the right energy, industrial pricing and mix the favorable trends around raw material costs could also continue to help make up for some of the recent increases the world is seeing on inbound freight costs along some of the main seafreight routes in Europe and the Middle East.
Continuing on Slide 7, with the rest of our 2024 outlook, $30 million of positive EBITDA would translate into a net loss of 23 million or $0.3 per share, assuming a share count of 76.5 million shares. Our CapEx, without including plan to this expected to be 50 million for the year. This is for equipment to fund additional productivity gains at our aerogel plant in Rhode Island, along with equipping our operations in Mexico with the tooling to ramp up our part production capacity in 2025. We are not planning to spend more than $30 million advancing the construction of Plant two in Georgia during the first half of the year to ensure that the site is advanced enough to preserve all of our investments made to date and to enable the potential reacceleration of construction in the second half of the year. If construction on plan to continues being right time, we expect expenses of $15 million in expenses to be incurred in the second half of the year. However, we continue to see an important need for the capacity that plan to brings by 2027 at the latest and continue working our way through the due diligence and term sheet negotiation phase with the US Department of Energy's Loan Programs Office as part of our application to fund the construction through our loan pursuant to the DOE's advanced technology vehicles manufacturing or ATVM program.
On the left side of the slide, one can see that we spent the last 12 months improving the profit potential of our business quarter-over-quarter, while also reducing our CapEx by over 50% from the same quarter last year. This, along with our current cash position, enables us to manage the company with the right level of liquidity fund all of our CapEx outside of plan to continue driving profitable growth without having to raise outside funds.
The main balance sheet focus areas for us over the next four months are two, freeing up working capital by bringing down our raw material and inventories in what is now a more stable sourcing environment and bringing our discussions with the DOE. to a hopefully positive outcome. In January, we received 5 million in funding through a sale leaseback of some of our recently purchased hard assets in Rhode Island and the Boston area and we will continue to opportunistically rely on this form of financing to cover some of our CapEx in the near term, preserve liquidity and lower our overall cost of capital.
Next, I'd like to step back a bit and spend some time driving a fact-based discussion around the EV market. And I'll be referring to slide 8 as I do this, as I mentioned, earlier a year ago, we were quick to assess that in a rising interest rate environment, our potential customers would be forced to reassess some of their EV investment commitments from 2020 and 2021. At the same time, we foresaw that as soon as light vehicle light vehicle production ramped up to pre-COVID levels, consumers wouldn't necessarily be able to pay Covaro pricing for new vehicles and that either retail inventories would increase or that pricing for new mass market vehicles would need to decrease seeing that things weren't as great as they seemed we decided the right time our investments and accelerate our path to profitability. Now we are encouraged to see that things aren't as bad as they seem. We have all read the articles of the frozen EVs in Chicago, the consumers for about the charge or the articles of recent price decreases for mass market EVs. But comparing reality and the new forecast for global EV production reveal some interesting facts. If we compare IHS' forecast in October of 2021 for global EV production in 2022, with actual production, the actuals outpaced expectations by 27% or 1.7 million vehicles in 2023. Actual global EV production was 900,000 units higher than the expectations from October of 2021, demonstrating not only the global EV production increased by 28%, but this market continued to grow at a high rate. This particularly important for a company like ours that started supplying the EV market in 2021 with no prior exposure to the global new vehicle market at all in North America, EV production still grew by 53% from 2022 to 2023, and actual 2023 production was only 200,000 units. Short of the forecast from the DTV. sentiment days of October of 2021, 200,000 units in our view is the capacity and supply problem, not a demand. One, we believe that a single OEM could have more than covered this gap in North America last year.
Looking forward, as some key OEMs launched new nameplates in North America, IHS is expecting all the units lost of 2023 and 600,000 units lost relative to the 2021 forecast in 2024 to be made up by 2027 with 1.2 million additional units expected in 2028 over the forecast from 2021. We don't believe that this forecast is unreasonable and again, feel that the wind is on our sales in North America as we continue building our EV thermal barrier segment from no revenues in 2020 within the vehicle production market that is expected to compound at 38% per year over the next five years.
In Europe, the story is similar as EV production in that market is expected to grow at an average rate of 32% over the next five years. We believe that the CO2 emissions regulations that lead to a 2.6 million production unit EV market in Europe in 2023 are not going away and as they get stricter, it is not unreasonable to expect 8.9 million EVs to be produced in Europe in 2028.
I'll let you spend some more time comparing the EV production forecast from 2021 with the latest expectations. But it is clear to us that production over the last two years shows that this is still a nascent market with more than enough energy and investment behind it to power the growth of a company like ours that is starting without any exposure to it. We are in the first inning of a very long game here to show you more specifically how we forecast this growth and optimally plan our capacity.
Let's turn over to Slide 9. If we take the estimated value of our currently awarded in coated business, which assumes our customers' internal volume projections times the price that we've quoted for each part, this demand is significantly higher than our planned thermal bearing capacity from 2025 onwards. For example, for 2024, we are discounting our customers communicated demand by 56% to land at our 200 million thermal barrier baseline revenue outlook as we stand ready to fulfill 500 million for 2025 and 2026. Although we continue working to secure additional demand through OEM award cycle. Well beyond this year's, we need to discount the estimated demand on hand by 37% and 75%, respectively, to be able to fulfill it with our aerogel capacity in Rhode Island. If we bring plan to online with its estimated incremental 1.2 billion of thermal barrier revenue capacity in 2027, we will need to continue discounting our estimated 2027 and 2028 demand by 41% and 46% to be able to fulfill it with both aerogel plants in summary, over the next five years, we estimate that there are over $4.4 billion of excess demand between our customers' estimates of their demand on our latest capacity plan and assessments. We believe that this leaves room for plenty of program delays, lower volume ramps, long sourcing processes and multi-stakeholder decisions that are customary in the automotive industry without affecting our ability to go to grow profitably and drive our business model. This is precisely why our team is so motivated and why we continue to execute with conviction and our eyes wide open despite most of what we read in the media around electric vehicles.
Speaking of execution.
Before handing the call back to Dan, I'd like to spend a few minutes on slide 10, which we've now been updating for the past two quarters with our results alongside the main annual targets of our business model with our current capacity, which we believe can now deliver $650 million of revenue and 25% EBITDA margins on an annual run-rate basis. It's obvious that we've continued to make progress towards our targets by bringing our cost of goods sold to the target of 65 percentage points of sales without relying on outsized revenue growth while continuing to decrease our OpEx as a percentage of sales in Q4. Accelerating this level of scalability was not an easy feat. And I would like to thank everyone in our team for bringing us to this point. I truly can't be more excited about our prospects, happier or prouder of playing a small part in this team as we continue sharpening our acts in 2024.
Thanks again, everyone. And with that already Don.
Donald Young
Thank you, Ricardo. We have covered a significant amount of ground today and reviewing Q for full year 2023, our near term outlook and our longer-term strategy before we move to Q&A, I would like to emphasize the focus on driving significant profitability from our existing resources and commercial opportunities, while at the same time, we are maintaining our full longer-term upside potential as we continue to win design awards from EVOEM.s, grow our baseload energy industrial revenue and leverage our aerogel technology platform into additional high-value markets. We believe 2024 will be another significant step towards building this dynamic and highly profitable technology company candidates.
Let's turn to Q&A.
Question and Answer Session
Operator
Thank you, Dan. (Operator Instructions) George Gianarikas, Canaccord.
George Gianarikas
Hi, good morning. Thank you for taking my questions and appreciate it all the detail around your expectations for this year and for next year. I'm wondering if you could just give us a little bit of comfort around previous sales into some of your larger OEM customers. You just do the quick math around how much material you've shipped into customers like GM versus how much they sell through has been. There seems to be a little bit of a discrepancy there and they have some that large customer has indicated that they've had some issues with module production. Can we just chalk up some of that, that shipment relative to sell through to issues with module module production or we can? Or is there a worry that that might come back to bite Aspen in the future?
Ricardo Rodriguez
Thank you. Thanks, George. Yes, I mean, I think I'm yes, of course, if you run the math. It's no secret that it is very likely that some of our parts did not end up in a completed module or a completed vehicle and quite a few of them. So I mean for us, when we look at the signals around this customer's demand pool, we still feel pretty good about the fact that they don't have a ton of inventory of our parts that hasn't made its way into vehicles. And so we think that you may have some variability of around a month in the value chain waiting for a part to ultimately lend into a vehicle, assuming 100% yields within their processes. And we think that that variability so small that is pretty well captured within the discounting that we're doing up. They're at the low end of the production guideline for Ultium for this year and then obviously on a much higher level of discounting that we take to the IHS forecast. So I mean, so far, we still see a pay for for parts. We know that there isn't a ton of inventory in the value chain as these vehicles get built. And as we showed here on some of the slides and they're expected to continue making more vehicles, we actually are on an important part of the solution of improving the yields around module assembly and ultimate vehicle integration. And so we we know that that's also Ana on an improving pattern here.
George Gianarikas
Great. And just as a follow-up, there seems to be a lot of momentum with silicon anodes. And I was wondering if you can give us an update on your silicon Battery Materials segment and any traction you have there. Thank you.
Donald Young
Thank you, George. We continue to make progress in our aerogel technology center on on our silicon anode activities. And we are very focused on having a cost-advantaged product. And as we and I would expect that we will sample customers over the course of 2024 with those with those materials, we have some key internal milestones too, and to reach before we do that. And the team is very talented and very focused on doing that. As you know, George, it's a it's a it's a challenging problem and to solve and that's why I'm doing so could be so valuable to us and to the industry overall. So we've got a great team working on it. And I guess I would just say sort of standby. We're going to continue to I'll make progress over 2024 and very likely talk more about it in subsequent earnings calls.
George Gianarikas
Thank you.
Operator
Colin Rusch, Oppenheimer.
Colin Rusch
Thanks so much, guys. Can you talk a little bit about the cadence and the rate of customer sampling and how that's evolved over the last 12 to 15 months for the? Yes.
Ricardo Rodriguez
I mean, we've scaled our processes there. So if you talk to our sales team. I mean, where you came via our building here in mobile, where we build the prototype parts, we're getting prototype parts to new customers for new applications within two to three days of when they ask for them. And we're still seeing a lot of the product roadmap set. These OEMs had shaped up in 2020 and 2021 still hold some of these programs are getting into the sourcing phases. And yes, and I think this is sort of reflected by the the broader market itself, right? I mean a lot of these decisions that come and the CapEx that was put to work towards launching nameplates in 2021. I mean, those trains have sort of left the station and are in the sourcing stage today. And so they'll continue to move on, I think at the same pace that we saw it last year. It's really the the new product decisions for that will come into sourcing here in 2025 and 2026, where there may be some retiming. But on the climb in the pace, we see it comparable to what it was last year. And what's actually accelerated now is our ability to respond quickly. We've got a larger sales team and and our turnaround time is much faster.
Colin Rusch
Again, that's super helpful. And then I guess from a pricing strategy perspective, obviously, you guys have been able to demonstrate a fair amount of value in terms of the safety side of things. But the and the ability to monetize some of the other elements of cost reduction that you're facilitating for your OEMs at the pack level. Can you talk a little bit about your ability to pass price and how that might impact margins or any assumptions that are ends from the commentary you made on that margin profile for the Company?
Ricardo Rodriguez
Yes. I mean, the so the margin profile and what we've been laying out here for the past several quarters is really more of a framework, right? And we think that a key tenet in enabling that framework is being sold out, right? So if you are if you don't have more capacity than you need, you're able to.
I have we have the right pricing discussion and in many ways Stand Your Ground relative to the value that you're creating for the customer and our team.
Going back to your earlier question on the sales cycle, our sales team is incredible at saying, yes, to solving the customer's problem. But we're very good at saying no to bring the price below a level that I think it compensates us for the capital that we're deploying and all of the resources that we have in the Company to solve these customer problems. So being sold out is a key tenet of the strategy and then, of course, the team continues to generate additional demand and we'll continue increasing our demand over the next several years. But again, without giving up pricing, we really think that the pricing lever is the main one at driving our business model here.
Donald Young
I think Colin, also just to turn the wheel a little bit over to the energy industrial side. Also, I would anticipate that as we continue to convert over to the supplemental supply that that will support the kind of gross margins that we and you expect here over the course of 2024 and that in the years to come.
Colin Rusch
Super helpful, guys. Thanks so much.
Operator
Chris Stavos, B. Riley.
Chris Stavos
Okay. Hey, guys. Thanks for taking the questions and congrats on all the progress and the gross margins out there. But maybe I can follow up there. Could you talk a bit about if you're already hitting your target model gross margins in the fourth quarter? Like what are the puts and takes between, you know, on the past to 650 million run rate. Are there any reasons we should expect continued improvement on the materials and conversion side? And if our price downs are kind of scheduled within that kind of a yes, as to that run rate, Mike, what should we be thinking about those puts and takes?
Ricardo Rodriguez
Yes. No, thanks, Chris. Look, I mean, if you look at the performance in Q4. As Dan, I have been joking here. We almost feel like we ran a six minute mile on the treadmill and our new sort of heard different and so so we just wanted to take it step by step here and can really look at field the various elements of the cost structure that where even though we're already there we still have to keep optimizing it to make it a recurring thing.
And so on the materials side, we again like we're still budgeting for the 40% as a percentage of sales and whether 36% as a percentage of sales was favorable. You always want to have a little bit of buffer there for in our case for inbound freight costs, for example.
Right.
Then on on conversion costs, I mean, we're not there yet, Ray, we're still about at the run rate of Q4. I'd say we're still about 10 percentage points away from where we need to be. And there's also a buffer in there actually for expedited freight, which as we launch new programs, I mean, we're potentially starting programs with two OEMs here this year. And if you go back to our cost structure in 2021, we're almost adding P & L's that had that seem to be a pretty bad profit profile as you get ramped up here this year to come in alongside the business that we have. And so for us, the well, it would be great to assume that and think that we can continue running a six minute mile here on the treadmill, and we'd like to slow it down a little bit as we launch some of these programs deal with the nature of expediting things and the cost of being reactive here when you're still in the launch phase, even on some of the nameplates where we've been supplying parts here for a couple of quarters now and on. And those are really the main ones, right? Then there's also this element of them, labor costs. And there's a point in which you you break into a point where your labor costs actually start being pretty well absorbed, but then building up that next level of capacity could actually have you go finding different types of labor that has a different cost structure. And so we want to protect for that here as we as we planned for the year. But those are really the main elements. It's really the on the cost of being able to react quickly to change that. We want to factor into the profitability outlook without going into the year, assuming that we can run a six minute mile consistently.
Donald Young
I would also just just say that we the team, the teams really across Aspen did a lot of the small things really well over the course of the quarter and really over the course of the year, you heard me referenced the gross margin progression starting with 11% in Q. one and making our way all the way to 35%. So we did a lot of things well, and in Q4, I agree with Ricardo's cautionary comments. I do think the 35% we're certainly a confidence builder for us that we're going to be able to do this over over any period of a period of time and perhaps with some variability and also I mean, don't get us wrong, right?
Ricardo Rodriguez
I mean, if the revenue shows up, we actually have a little fun chart that actually looks like a like a set of stairs and the first $50 million, a good amount of that flows to the bottom line, the $50 million on top of that, I mean at least 20% of that flows down to the EBITDA line. So so we are pretty excited about the prospects of additional revenues and on and that would obviously have us then update our profitability estimates of that revenue starts to materialize.
Chris Stavos
Understood. That's really helpful. And then maybe just on the 10 additional OEMs and additional programs you talked about as far as general over the next couple of years. I'm curious how many have 2025 launches and whether any vehicles or platforms you've previously been highlighting that you were testing or quoting have moved forward without pirated and to what extent are the opportunities can post it sounds like it's going toward the kind of 2026, 2027, 2020 kind of a potential programs that are on soup seem to be shifting rather than kind of the more near term, but if you could just provide color on that overall pipeline.
Donald Young
Yes, sure. Well, I referenced in my comments the the sixth one that we've talked about for some time technically work. But where were we we reached all the milestones and this is a matter of negotiating some final final terms, if you will, in that announcement in terms of additional ones, we are heavily engaged with additional OEMs as they work through the timing of the development of their own platforms. And we are we believe that we will be part of those platforms.
And in terms of timing, I think it's fair to say that on the started production for additional OEM.s, it's probably more likely to be at SOP 2026 and 2025 up. Quite honestly, I think we have on our hands. So from a revenue demand point of view in 2024 and 2025. So that probably suits us quite well. We are not aware of our hub, I'd say losing a process to other other materials or other solutions. And we think we have a we have an excellent solution that addresses both the of the thermal management and the mechanical challenges associated with these with these costs, there will be areas. So we feel like we're in, we're in good shape.
Operator
Eric Stine, Craig-Hallum.
Eric Stine
I don't know, Ricardo, so there may be. I'm doing well. Thanks, um. So maybe if we could just talk about '24 a little bit. Obviously, you've laid out a pretty it sounds like conservative baseline and some scenarios that are upside for the second half. I know previously you had talked about a kind of a goal or a 550 million revenue run rate with the expectation that you could hit that as early as third quarter of 24 D? And I'm just curious if you have updated thoughts on that. Is that still that type of time line, which is possible?
Ricardo Rodriguez
I think it's still possible, but it's not really up to us, frankly, I mean, I think we're ready to capture it, but it really depends more on our main customer here and there it's still it's still a possibility.
Donald Young
We have we have the capacity in place to be able to do that. Erika, as we I think one important thing that we took we voice today out was this was this additional capacity from our East Providence facility for thermal barriers from from originally 400 to $500 million. And again, based really empirically on our productivity and yields that were that we're experiencing on today. And then of course, on top of that, it is our supplemental supply that we target at $150 million. So that ability to get out to a run rate of of the five 50 as you sign up even with additional capacity from there. So we feel like we've sort of done our part and now we're and now we're on. We're doing everything we can to make our OEM. successful.
Yes.
Eric Stine
No, that makes sense. And maybe for my second one, this is just a follow-up on a previous question, you talked about the pricing strength you have especially well in energy industrial because it's capacity constrained. I mean, is there a scenario that you are able to increase that I mean that maybe this is a question a couple of quarters from now, but when you're at one 50, I think in the past you've talked about you see demand in excess of 200 million a year. So just maybe thoughts on that, how do you think about that longer term?
Donald Young
Our team has a strong track record of increasing prices and associated with the value that we're bringing to those to those end users and and on. And so I think you will see us continue to test the market on with us with strong pricing. I'm I'm very pleased with with the arrangement that we that we have with our supplemental supply as a supporting our our cost structure, a pretty known cost structure if you will. And so I as I said in my comments, I think you will see from our energy industrial business meet our expectations. And I think it's got a lot of potential to continue to grow as well from that, that sort of nominal $150 million baseline that we've that we've created both from a demand point of view and from a capacity point of view.
Eric Stine
Okay, that's great. Thank you.
Operator
Alex Potter, Piper Sandler.
Alex Potter
Okay, excellent. Thanks. Hi, guys. Add one question on, I guess incremental OEM., to what extent are they I guess making orders contingent upon as an opening additional capacity in Georgia or elsewhere. I know that historically some of these automotive suppliers get a little jittery when they have so much reliance on a single plant. It's a meteor strikes, the Rhode Island facility, what happens to their supply chain. So to what extent is that factoring into conversations that you're having either with existing customers or additional ones?
Ricardo Rodriguez
I mean, we don't see the same level of sensitivity to the single supply source as one would think. I mean, they're very concentrated on on cells and actually some of the raw materials throughout the rest of the battery value chain. But for us, I mean, we if and if an OEM is asking us about 2027, we present that as being supplied out of Georgia and that gives our customers a lot of comfort if you combine it with Rhode Island. And so right now in our selling efforts, I think customers are just assuming that the Georgia plant will be there in 2027 and this giving them the necessary comfort to commit.
Donald Young
I think, Alex, that's sort of the the area where they are likely or are I should say, are pushing us a little bit on the fabrication side and especially our European customers. I think they would like us to shorten. That's part of the supply chain if you will and on. And so as we as we win more and more European business, I think you may very well see us create a fabrication capability like the one we have in Mexico to serve that, that part of our that part of our market
Ricardo Rodriguez
Or just build up more inventory in Europe, right?
Donald Young
Exactly.
Ricardo Rodriguez
For instance, the idea are setting up a storage and inspection facility at a neutral point. Netherlands, Belgium in Europe is something that customers have been totally okay with and we'll probably take that step before looking at manufacturing in Europe.
Alex Potter
Okay. That's helpful. And then maybe you mentioned you're talking about 2027 and beyond sourcing out of Georgia. And obviously, you're not going to be able to provide any incremental commentary on the deal you have on process. But one thing I am sort of interested in something that's come up in conversations with clients is the election again, maybe hard to predict, but to what extent, let's say that the loan isn't finalized and the capital is not deployed prior to November and then who knows how things happened in November, but assuming you have a less maybe DOE friendly administration coming in in November, to what extent does that put your against the DOE loan at risk?
Donald Young
We're working very hard to do it in a timeframe on that. It brings us and there are no assurances here, but brings us to our conditional approval and and final terms. And at that point that money is is allocated from from the from the DOE. and wouldn't be reversed from a November election that might be up and less favorable towards these kinds of programs. So so we're working hard and fast as possible on this. And and I think again, as I said in my in my comments, the DLPS and on programs, offices is on. We're very engaged with them and their advisers. And and again, it's a no assurances of them have a final result. But but we're in really good position.
Ricardo Rodriguez
We believe yes, that is worth highlighting. I mean, once you get into this diligence and the term negotiation phase with the DOE, we've actually been very surprised at the speed at which the DOE moves. I mean, it's moving faster than a lot of the private investors that we were encountering last year, right? The everybody is very actively engaged. We actually have to step up our response to the DOE. in many cases. And so we feel confident about the timing and where we are today.
Donald Young
And I feel we're a good candidate that we have proven technology. We have customers who we lead and we have contracts. We're positive EBITDA as of fourth quarter would be. Our projections are strong. We have two two different businesses supporting the overall growth of our Company growth and profitability of our company. We're good. We're a good candidate, I think, for this program.
Alex Potter
Perfect. Very helpful. Thanks, guys.
Operator
Tom Curran, Seaport Research Partners.
Tom Curran
Morning, guys. At East Providence, you've just solved or will unleash another two morning. Good morning.
So any provenance you just saw for and will unleash another 20% of annual capacity?
That's a considerable increase and this is not the first time Aspen as unlock significantly higher throughput and ore yields there. Just theoretically, assuming plant one remains dedicated to PyroThin, just how much more productive capacity could you potentially wring out of that facility.
Ricardo Rodriguez
I think we're at the point where it really depends more on the mix and who were producing parts for then than finding more capacity through improving the yields increasing line speeds, introducing longer roll lengths, et cetera, which the team is still continuing to work on. But I think some yes, above that $500 million and your revenue capacity level. I think if we're producing some of the thinner material for a broader set of customers, there's potential for additional capacity. But there we sort of need the mix to work in our favor. But then again, I mean, I think our team has been really incredible at it coming up with a couple of breakthroughs here, particularly in improving our yields and down, and we're still it's working on that. So so it's a bit of a balance, but I do feel much, much less conservative around the latest capacity assessment than when we were calculating the $400 million a year ago.
Donald Young
We made some capital investments over the course of 2023 as we as we convert the three lines in East Providence one at a time from from optimized around energy industrial to optimize around a day. And we still have a little bit more of that to do. But again, the team has done an excellent job on this. And as Ricardo says, we feel confident in what we talked about today. And also, as Ricardo said, I think what you'll see from here is more incremental than that, a big 2020% jump that you that we've talked about earlier today.
Tom Curran
Got it. And I mistakenly said 20%. I think it's actually 25%, right? So even even more impressive. And then a.
Yes, right, you have you don't Hilton. We don't want to undercut what your team has achieved. Again, very impressive and then based on GM's current Ultium production guidance and sales targets for 2024. So not your internal discounted baseline, but InterActual actual bounded plans and then the resultant expected nameplate mix, Ricardo, what is the weighted average range for CPV. that you did to realize for all team sales this year?
Ricardo Rodriguez
About $900.
Right.
Like 900 to 1,000 vehicles, right?
Tom Curran
And that would be like the weighted average midpoint of there range. We weren't Hormel and I do not expect a really very take to the IHS mix (multiple speakers)
Ricardo Rodriguez
I mean, it could vary more to the upside. Frankly, it does seem like some of the larger battery pack models will probably be built first. And but we kind of need to wait and see that.
Tom Curran
Understood. Thanks for taking my questions and all the helpful color. Thanks so much.
Operator
(inaudible)
I guess just one question on the CapEx plans, if any of that dependent on the DOE loan coming through? Or is that sort of baked into your guidance, cash flows or cash flow assumptions, et cetera already?
Ricardo Rodriguez
Now what we've communicated is where we would spend without the DOE's potential funding. If the DOE funding materializes, then we would be basically plotting the the the reacceleration of the construction, and that has a different spend profile for the second half of the year.
Okay, which were interest-only right now, but it would look a lot like the trajectory that we were on before we decided to write-down the plant.
Got it.
Operator
Thank everybody and I am key as there were no additional questions waiting at this time. I'd like to hand the conference call back over to Tonya for closing remarks.
Donald Young
Thank you, Candice, for your help today. We appreciate your interest in Aspen Aerogels and look forward to reporting to you our first quarter 2024 results in early May.
Well, have a good day. Thank you.
Operator
Ladies and gentlemen, thank you for joining us on today's conference call and have a great rest of your day. You may now disconnect.
