ASPN - NYSE

Good morning. Thank you for attending the Aspen Aerogels, Inc. Q2 2023 Financial Results Call. [Operator Instructions] I would now like to turn the conference over to your host, Neal Baranosky, Aspen's Senior Director of Corporate Strategy and Finance. Thank you. You may proceed, Mr. Baranosky.

Thank you, Henry. Good morning and thank you for joining us for the Aspen Aerogels' fiscal year 2023 second quarter 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 that I would like to address before turning the call over to Don. 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 the most applicable U.S. generally accepted accounting principles, or GAAP measures, is available on the Investors section of Aspen's website, www.aerogel.com. In addition, I'd like to highlight that we have uploaded to our website a slide deck that will accompany our conversation today. You can find the deck at 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. 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 language. 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. The definitions and reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures and a discussion of why we present these non-GAAP financial measures are included in yesterday's press release. And one final note, during the Q&A session, in the interest of time, we ask that you limit your questions to 2 questions at a time. If you have additional questions beyond the initial 2, please get back into the queue and we will get to all questions. I'll now turn the call over to Don. Don?

Thanks, Neil. Good morning, everyone. Thank you for joining us for our Q2 2023 earnings call. My initial comments will highlight the implementation of several critical elements of our strategy, our EV OEM development pipeline and GM's ramp and the financial benefits of key operating efficiencies. I will complete my remarks by drawing a picture of Aspen's business profile, given current assets and opportunities. Ricardo will dig deeper into our financial performance and various elements of our business strategy. We will conclude with a Q&A session. During our last earnings call, we introduced the idea of our supplemental supply arrangement and the related plan to supply our Energy Industrial customers with products sourced from our aerogel manufacturing partner. The product will be produced exclusively for Aspen, to our quality specifications and shipped by us under our labeling and through our distribution to our customers. The implementation of this supplemental supply arrangement supports several critical elements of our strategy. First, it allows us to serve our energy industrial customers with shorter, more dependable lead times and to continue to grow that base load of revenue without supply constraints and in a manner consistent with our goal of achieving overall company gross margins of at least 35%. Second, it allows us to dedicate Plant 1 in Rhode Island to produce PyroThin thermal barrier in order to support the ramp of our EV OEMs. And third, it allows us to maintain a strong balance sheet by right-timing the final phase of the construction of Plant 2 in Georgia. In whole, the implementation of the supplemental supply arrangement allows us to focus on driving significant profitability from our existing resources and opportunities. We believe that we are building a business around our current assets and near-term commercial opportunities that has the potential to produce annually approximately $550 million of revenue, approximately $200 million of gross profit and approximately $140 million of EBITDA. We are striving to hit this level of business performance on a run rate basis over the next four to six quarters. At the same time, we believe that we maintain our full longer-term upside potential as we continue to have talented teams garnering more design wins from EV OEMs to build out a profitable base load of energy industrial revenue and to leverage our aerogel technology platform into additional high-value markets, including our ongoing work in battery materials. Regarding additional design wins from EV OEMs, we continue to build our reputation as an industry leader in the mitigation of the risk associated with thermal runaway. We are working closely with several EV OEMs as they finalize the designs of their battery platforms. As we announced earlier, we received our third design award from an important commercial truck subsidiary of a major European OEM group. We are now delivering production parts to this customer. In addition, we believe we have near-term line of sight on design awards from at least 3 other EV OEMs with volumes expected to commence in 2024 and ramp in 2025. In the meantime, we anticipate an acceleration of the revenue ramp from General Motors later this year as they enter the production phase of the higher-volume Silverado, Blazer, Equinox and BrightDrop electric vehicles. Turning to Slide 4 and our Energy Industrial business; both financial performance and demand are strong. Driven by product mix, operating efficiencies and a more normalized supply chain environment, we achieved a record Energy Industrial gross margin in Q2 of 27%. We believe we are on track of having the Energy Industrial business provide strong support for our overall company gross margin target of at least 35%. We have significantly greater demand than we can produce from Plant 1, especially as we dedicate additional manufacturing lines to producing PyroThin thermal barrier. The supplemental supply arrangement is key to balancing supply and demand for the energy industrial business. We previously said that we plan to test our supplemental supply strategy during 2023 before the full program begins to contribute in Q1 2024. To that end, we are currently focused on the completion of our product qualifications with our aerogel manufacturing partner which when completed, we believe, has the potential to drive incremental Energy Industrial revenue, gross profit and EBITDA during 2023. Turning back to the earlier slide; in many ways, Q2 was about blocking and tackling with a keen focus on strategic advancement and unit economics and profitability. Progress in operating efficiencies resulted in a 17% gross margin with significant improvements in both the PyroThin thermal barriers and Energy Industrial segments. To illustrate the financial impact of the improved operating performance, it is interesting to compare Q2 2023 with Q2 2022, where we had $2.5 million of incremental revenue and $9.6 million of incremental gross profit. Each contributing factor falls under the umbrella of our intense focus on our goal of reaching near-term profitability and achieving gross margins of at least 35%. Consistent with these goals, we are maintaining careful control of OpEx with 3 quarters in a row at the $25 million level. Before I turn the call over to Ricardo, I want to reiterate that our vision for Aspen is built upon the successful execution of the 3 pillars of our strategy, namely, the implementation of the supplemental supply arrangement, the dedication of Plant 1 production to PyroThin thermal barriers and the right timing of Plant 2. Again, we believe that from our existing resources and opportunities, the business has the potential to generate, on an annual basis, approximately $550 million in revenue, approximately $200 million in gross profit and approximately $140 million in EBITDA. We believe that we maintain our full upside opportunity but during a potential period of economic uncertainty and while our EV OEMs ramp, we optimize the use of our existing assets and opportunities to create a cash-generating business and to avoid unnecessary dilution. Ricardo, over to you.

Thank you, Don and good morning, everyone. I'll start by covering the results of the second quarter and first half of this year and then move on to our 2023 outlook and briefly discuss the key near-term demand drivers across our business segments. Before handing the call back to Don, I'll also spend some time framing out how we're gearing the company for continued improvements to near-term financial performance as we continue to grow without requiring a second aerogel plant in Georgia which we've historically referred to as Plant 2. To cover our results from Q2 of 2023, I'll start on Slide 5. Beginning with revenues, we delivered $48.2 million of revenue in Q2 which translates into 6% growth year-over-year. These revenues were supply constrained during the quarter as our aerogel plant was down for planned upgrades and maintenance on 2 of its 3 production lines, with the lines down for 7 and 8 days during the quarter. In an operation that is running 24 hour a day, 7 days a week; this is a loss of productivity of at least 8% on those lines during the quarter. This downtime in production was necessary to ensure that we're ready to fulfill an expected ramp in PyroThin demand during the second half of 2023, particularly in Q4. Year-to-date, we have delivered $93.7 million of revenue which reflects a 12% year-over-year increase. Energy Industrial revenues in the first half of the year were $69.4 million, a 6% year-over-year increase. Given our capacity constraints, in Q2, we continue to focus on optimizing our Energy Industrial production mix, to lighten the load on our operations by making those products that require the least standard hours of processing and delivered $35.5 million in sales, reflecting a 5% quarterly increase and a 2% year-over-year increase. Adding to Don's earlier remarks on our energy business, we have approximately $138 million of backlog in orders to fulfill over the next 2 to 4 quarters. To fulfill this excess demand, we are focused on continuing to optimize our mix for steady supply during the second half of the year and bringing in contract manufacturing supply as soon as possible. EV thermal barrier revenues of $12.6 million were up 17% year-over-year and 8% quarter-over-quarter, reflecting an expected delay in the demand increase from General Motors that we communicated during our Q1 results and steady volumes from the Toyota nameplate that we supply, the b

Thank you, Ricardo. We have covered a significant amount of ground today in reviewing Q2 and our strategy. Before we move to Q&A, I would like to emphasize 3 points. First and perhaps our most important point, we are focused on driving significant profitability from our existing resources and opportunities. We believe the near-term business profile as we have constructed and consistent with current assets and commercial opportunities, has the potential to produce, on an annual basis, approximately $550 million of revenue, approximately $200 million of gross profit and approximately $140 million of EBITDA. We are striving to hit this level of business performance on a run rate basis within the next 4 to 6 quarters. At the same time, we believe that we maintain our full longer-term upside potential as we continue to have talented teams garnering more design wins from EV OEMs, building out a profitable base load of Energy Industrial revenue and leveraging our aerogel technology platform into additional high-value markets, including our ongoing work in battery materials. Second, we believe the implementation of the supply -- of the supplemental supply arrangement supports several critical elements of our strategy. It allows us to continue to grow the base load of energy industrial revenue without supply constraints and in a manner consistent with our goal of achieving overall gross margins of at least 35%. The supply arrangement allows us to dedicate Plant 1 in Rhode Island to produce PyroThin thermal barriers in order to support the ramp of our EV OEMs. And finally, it allows us to maintain a strong balance sheet by the right timing of the final phase of the construction of Plant 2 in Georgia. And the third point of emphasis, in addition to having the large European commercial truck customer joined GM and Toyota on the list of design awards, we believe that we have near-term line of sight on design awards from at least 3 other EV OEMs with volumes expected to commence in 2024 and ramp in 2025. Even with this anticipated near-term success, our team believes that we are just getting started as the need for battery performance and safety in EVs becomes yet more paramount. With that, operator, let's turn to the Q&A.

[Operator Instructions] Your first question comes from the line of Eric Stine from Craig-Hallum.

So first, can we just start with the guidance. You've laid out keeping the OpEx largely flat and reasons why the margins -- potentially some improvement from here. And I know it's dependent on the GM ramp, how steep that might be in the fourth quarter but your EBITDA guide seems to expect, I guess, very little, if any, improvement from what we've seen, especially in the second quarter. So maybe just skew that. And I know in the past, you've thought that fourth quarter of this year was a potential EBITDA positive quarter, whether -- curious whether that still holds.

Yes. So I mean, I think being EBITDA positive in the fourth quarter is still very much a possibility if the GM ramp materializes. However, at the same time, I mean, just given the range of outcomes and the fact that we almost have to protect for a scenario in which the ramp comes in Q1 of 2024 and we have to produce a lot of PyroThin in Q3 and Q4 of this year without having the ability to record it as revenue in -- during this year. And so we felt that, that combined with -- I mean, in the end, you can only optimize the energy industrial product mix so much without totally not fulfilling orders for particular products. And so we may be in a position here at the end of the year where we have to fulfill some of the energy products that we've sort of postponed manufacturing of during the first half of the year. And I think that combined with a GM ramp that's materializing more aggressively in Q1 of next year, it's really what guides that conservativeness on -- and the lower end of the guidance. I mean, I do feel pretty good about the savings and there's more juice left to squeeze, particularly as the revenue run rate increases, we just want to be careful here, Eric and protect the range from some of these lower probability but still potential scenarios.

Eric, I would just add -- to echo what Ricardo said. We realized that our revenue outlook is pretty wide, right? We're halfway through the year. And there are really 2 things that will cause us to move higher in that range. One, of course, is the GM ramp. And the second -- and I mentioned it in my comments and as did Ricardo, the ability to test the supplemental supply agreement here a bit in the latter part of this year. If we can get one or both of those things to happen, of course, we move higher up in that revenue outlook range. And I think you'll see us continue to improve our EBITDA outlook. But for now, until we see those things fall into place, while we did improve the EBITDA outlook a bit, I think we're very comfortable with where it is right now.

And then maybe just on the second question. I know you had some thought that you might -- whether it was before on this call, be able to announce an OEM and I know you mentioned that at least 3 for the remainder of the year. I mean, is there any thoughts on timing, gating factors there? And maybe longer term, do you kind of have a thought of how many OEMs you potentially have if we looked out to, say, 2025?

Well, we have talked about 3 to-date award -- design awards. We're -- as I said in the last earnings call and reiterate again, we feel confident that we will have a half a dozen design awards by the end of this year and that will begin to contribute a bit in 2024 but really ramp in 2025. Those are the near-term opportunities. We continue to work with virtually all the companies around the world who are -- have pouch and prismatic designs in their battery platforms. And we believe that we will continue to make inroads with all of those companies, whether they turn into design awards or not, time will tell. But I can say and I think we all are seeing the dangers of thermal runaway and the need to address it to be ever more important. And we are confident that all the EV OEMs are going to address this in some manner. And again, we think we're industry leaders in the mitigation of that risk.

Our next question comes from Alex Potter from Piper Sandler.

So, maybe first question on profitability. And I guess the things that give you confidence with the new contract manufacturer, you mentioned, on the one hand, with regard to revenue, you could be toward the higher end of your range if that contract manufacturer sort of pulls their weight and comes online sooner than expected or on time which would -- which is easy to sort of conceptualize. But what I'm trying to get a better understanding of is the impact that, that would have on margin. So what does it -- how do you feel confident that as you shift that mix toward the contract manufacturer, somebody won't drop the ball somewhere or there won't be price dislocation or cost dislocation. So anything you can comment on in that regard would be great.

So the way we think about it a couple of different ways. If you compare it to the current situation of producing in the East Providence plant, we take raw materials from the U.S., from Europe and several from Asia, including China and we bring them -- we put them on the water for 8 or 10 weeks and we bring them into this country and we pay a 30% tariff and we bring them up to Rhode Island and we produce our energy industrial product there and then we turn around and we export about 2/3 of that, much of it back out to Asia. So you can see there's a lot of cost and a lot of time and a lot of working capital associated with all of that. And so I guess the clarity that we have is for one thing we've got a lot to work with, as I just described. And I think the clarity is we know our pricing for our energy industrial products, well established. And we also know our contract arrangements from the supplemental supply. So there's not an enormous amount of mystery left to that. Yes, we have to execute. They have to execute. We're working very closely with them. But the math is pretty clear to us and it says that it very much supports our overall targets of 27 -- excuse me, 35 -- at least 35% gross margin. And you saw Alex, this quarter on the energy industrial side, we were at 27% level, even without some of these enhancements. So I think a lot of our operating efficiencies are improving. We're seeing sort of the supply chain and raw materials, let me just say sort of normalize a little bit after, of course, a very hectic 3-year period or so. So that's sort of the math. That's sort of both the atmosphere and the math, I guess, behind the supplemental supply.

Yes. And if I may add, I mean, I think the margins are aligned with our expectations given all of the room that there isn't the value chain to have contract manufacturer support our energy business. But most importantly for us and really why the pressure is on us is that we don't really take margins to the bank. We take the incremental gross profit. And here with the backlog of roughly $138 million on the energy side, there's money there that we are just not taking by -- not being able to fulfill the demand.

Maybe one other question just goes to what you were alluding to just there and the last question with Eric, Don. This is the risk of potentially having to build some inventory given, I guess, the uncertain ramp and I can appreciate how uncertain these ramps are this is sort of par for the course when somebody is turning on a big factory like this. But I've noticed that the inventory has been ramping up a bit sequentially here over the last couple of quarters. What is that? Is that reflecting a preparation for the GM ramp, I guess, just qualitatively, what's in inventory and will that continue?

Yes. I mean at this point, for us, inventory really means flexibility, right? And so when we look at the demand that we get from a customer like GM or I mean, on the automotive side, you're in a sense, have a right to build and invoice the customer for the next 4 weeks of demand. And the demand is changing on you roughly every 2 weeks. And you have a rough view of what the next 40 weeks are going to look like. But again, that can be changed every 2 weeks. And so having some inventory on hand to at least give us a month to react here, particularly on the aerogel side, we think it's important as we manage this ramp, particularly with GM. And so the roughly $6 million of inventory that we added included quite a bit of finished goods PyroThin inventory that is basically ready to get processed in Mexico. And I think -- yes, so far -- I mean, actually, Slide 8 is really telling if you -- this is -- what we're going through now is almost a repeat of the movie that we saw in Q3 and Q4 of last year. If you see the ramp that we had in Q4 when we fulfilled the $101 million of EV thermal barrier revenues on an annual run rate basis, right? That really came at the expense of energy revenues in Q3 because we had to make quite a bit of the PyroThin required for Q4 in Q3. And so that same dynamic is really playing out here until we get the additional supply source for the energy business. And so that's where the inventory build is going. It's really going towards enabling some flexibility on the EV thermal barrier side. And trust me, I mean, on the energy industrial side, really, the team is doing everything they can to empty the warehouse at the end of each quarter.

Our next question comes from Jeffrey Osborne from TD Cowen.

The IHS [ph] figures are very helpful. I had a question on the 3 potential awards. Is there a way of characterizing those relative to the GM ramp in terms of size and scope would be helpful?

Yes. I mean, I think in Toyota, it's no secret that right now, we're only supplying one nameplate. So that's the smallest one. And then the award that we have here with European -- on the commercial truck program, is the second -- the smallest and the GM one makes up the lion's share of the near-term volume. However, the program in Europe with the commercial vehicle manufacturer, we actually already started delivering production parts to them and that will ramp up significantly in 2024 and it will make up a good portion of the run rate that we're currently seeing with GM.

Jeff, I was referring to the 3 potential awards that you were announcing before year-end. Is there a way of dimensioning --

Yes, I mean, there's some pretty big ones, right? I mean --

Yes, the way I would say, Jeff, I think, again, just, I would say that that we're very focused. We have a strong team in Europe. And we believe that even with significant growth from General Motors and additional North American wins, there's a reasonable chance that Europe could be our largest market in 3 to 5 years. And so a lot of the success we're anticipating here in the near term, I think, supports that or get that process started in a pretty significant way. So General Motors is obviously right in front of us and are very large numbers. But we're really working hard to create diversity of OEMs and geographies and we think we're doing a pretty good job of that. So I think we'll be able to answer that question a little better as we end this year and enter 2024.

Yes, one key thing to keep in mind when thinking about the sizing of these European programs is that they're all for prismatic cells. And so the content per vehicle opportunity is lower. But at the same time, the process to manufacture those parts is a lot more streamlined and we think we can ramp that up faster than some of the current designs that we're supplying.

And maybe just one follow-up. You mentioned a few of those, maybe all 3 would start in '24 but really ramped in '25. So keeping in mind the fourth quarter construction cadence to finish Georgia and I think maybe you can update us but I think it was $450 million to do that. Would you need to sort of pull that trigger in the spring of '24 to start that process? Or how do we think about when Georgia, if you were to win all 3, when Georgia would have to commence the restart of construction?

We don't think we need to do it that early next year. It really depends more on General Motors, frankly, than these other customers. That's the other benefit of supplying prismatic cell programs that the material tends to be thinner. And so we could actually -- our capacity on the $400 million would be significantly higher. We're supporting mostly prismatic cell programs that are thinner. So I think we have actually more time to make the decision and what would actually force a decision to pull ahead the plant would be GM's acceleration of demand.

Our next question comes from George Gianarikas from Canaccord Genuity.

So just to focus on the 3 OEMs again. Can you just talk about the process that you've gone through? And what has the bake-off look like? Who are you competing against? What are the requirements that they need. I'm just kind of curious if you can give us any more detail as to what that process look like?

Yes. I mean -- so George, the process is very similar amongst all of them. And I wish we had [indiscernible] our Head of Sales here with us to help us answer this one. But I mean, in essence, the questions that we used to get around being compared with other materials like ceramic papers and mica sheets, we don't get that anymore. We're being able to leverage a lot of the data that the team has developed over the past year with customers demonstrating that we really are the only solution for solving the main 3 requirements that they're looking for. They're looking for thermal isolation in essence, the thinnest and the lightest envelope possible. They're looking for fire protection and most importantly, in the one that all of our "aspirational competitors" miss is this requirement around the mechanical properties of the material. We're in essence [ph] of spring inside of the battery in between every single cell. And so it's less about demonstrating the performance now and it's actually about just coming up with the design that will fit -- designs that, in many ways are already in flight and in progress. This idea of solving for thermal runaway is new at some of these OEMs. And so we have to bring them up to speed on -- actually on these requirements in many ways. And then it's really I think the tallest pole in the tent is their design time line for making PyroThin fit within their designs. And then a lot of the programs that we have quoted also have to go through their own approvals inside of the OEMs to get capital that enables the supply teams to source us. And that's a drawn-out process depending on the OEM, right? Very few OEMs have the same approach that GM took of going all in on a new battery platform that will underpin vehicles that haven't even been announced or thought of inside of General Motors. Instead, it's more of a nameplate-by-nameplate, application by application exercise that the team is going through. But again, I think we -- it's not really a bake-off now, it's really more of an engineering and development exercise to develop the battery pack that delivers the vehicle requirements safely with our product in it. And that takes a while, right? I mean, for us in Europe right now, it's -- we're starting August. So that works against us with all of Europe taking August off. But we feel pretty confident around the volume of prototype orders that we're getting from these customers, the engagement that they're having. And the discussions are becoming more strategic in nature, particularly with OEM groups that have multiple brands but don't quite have this sort of single platform approach that General Motors has.

George, I would just add and I really do agree with Ricardo, the image of fitting into their platform ideas. One other thing that's really helping, I think, significant is we're a lot better, too. We have really come to understand the challenges around the mitigation of thermal runaway but also of the sort of the mechanical test as well. And so we bring a lot of expertise into these discussions and that expertise is increasing with every day that passes. So I do agree with Ricardo that the gating item tends to be, at this point, more about their own battery design than a competitive bake-off.

And just as a follow-up, just to make sure I understood the range of outcomes to hit your guidance at the low end of the high end for GM. So you have this on Slide 7, 20% and 47% in Q4 $1,000 [ph] for GM. And I'm curious if hitting those numbers, did you say that would bring you to the high end of the range or the mid --

I think well -- so I mean, it depends on which numbers, right? So if we look at GM's current demand rate which is basically a 40-week expectation, we come in like well within the range but that can always change. If we were to supply the IHS rate, I think we would totally come in above the range. At the same time, it's hard to tell how many parts GM still has in inventory. We don't have that communication back from them. And so as I mentioned in my remarks, right, I mean, for us to come in on a $200 million of revenue this year, we would only need the run rate to increase by about 30% in the next 2 quarters over what we delivered to them in Q2. And that's -- I mean, I think that's a realistic expectation, right.

Our next question comes from Chris Souther from B. Riley.

Maybe just a little bit on the puts and takes on the gross margins for PyroThin once the contract manufacturer comes online, does that change the breakeven point for PyroThin gross margins? I'm just curious if there's like a step down in those margins when that's all you're producing out of Rhode Island.

No. I mean, that breakeven point is really more driven by the assembly. And I mean don't get me wrong, I think there's still efficiencies on making only PyroThin in Rhode Island. But I'd argue that all of those efficiencies are ending up more likely on the energy industrial side, given that a lot of the processes for the energy industrial side would be taken out of Rhode Island and not necessarily benefit PyroThin.

And then, just a last one to put a point on the EBITDA guidance. It seems to reflect kind of the low end of revenue range where GM kind of slips on the ramp. Where does that shake out if GM's ramp stays on their targeted schedule and you hit that positive EBITDA in the fourth quarter. Just what is kind of the upside there since it seems like you're kind of guiding people to the downside case?

Yes. I mean I think there's definitely a probability of coming in on the high end of the range of profitability. If we have a good Q4 and if GM's demand ramp really starts in Q4, quite a bit of it would come at the expense of Q3. So I mean, I think the higher end of the guidance range reflects that, right? It reflects a good Q4 but not a great Q3 and that's how we see things potentially playing out here.

Our next question comes from Thomas Curran from Seaport.

Just going to add some cleanup here on the 3 automotive OEMs that you're in the most advanced stage of business development with and optimistic about potentially converting into significant EV -- into significant EV TB customers. Just could you confirm that -- are all 3 of those European OEMs? And then are each of the 3 distinct automotive groups? Or are any of them separate brands but subsidiaries of the same automotive group?

It looks like you have a bingo board there.

Yes, some are part of the group and some are separate or independent.

Okay. And all European?

Yes.

Yes.

And then, just for my second here that's left actually my first call question on the energy industrial side in a while. But for that division's LNG market, could you update us on what LNG sales should account for as a percentage of EI revenue this year? Are you also producing Cryogel product for LNG customers out of Mexico now as well? And are you currently pursuing any visible large LNG projects by which I mean opportunities that could result in awards, comparable in size to the PTT Nong Fab receiving terminal contract that you won and delivered over 2019, 2020?

Let me peel that back a little bit. I might start with the latter part. And remind me if I missed the beginning part. We are pursuing several of the LNG projects that are on the drawing board. I mean, well along, frankly, on the drawing board where we have worked our way into the specifications of these projects. Not all of them, of course, are the size of the PTT project which was about $45 million. But they are significant orders. PTT, of course, is also expanding their facility with another receiving line as well and we're working hard to participate in that and we performed extremely well on the earlier projects. So we think we're in a strong position there. We are first focused on the supplemental supply agreement around our Pyrogel product which is the lion's share of our revenue in the energy industrial area in the range of 3/4. And we will move to qualifying our Cryogel products next with the supplemental supplier. And so -- and that breakdown is roughly 3/4 on the hot side and the remaining amount on the cryogenic cold side of the slate. So yes, we're good at this business, Tom, as I think you know and it was one of the reasons why it was so important for us to do the supplemental supply, we would have been severely capacity constrained in that business and there's no question that we would have had demand destruction had we not thought through and anticipated the EV business growing as it is and consuming Plant 1 for now. So anyway, it's a really important part of our strategy. And we think we'll provide excellent service. A lot of that business is in Asia and to serve it from Asia, again, makes a ton of sense for us, both from a customer service point of view and from an economics point of view.

I think there was also a question there on Cryogel in Mexico. And so Tom, maybe just to clarify, so Cryogel -- for Cryogel, we're still selling just aerogel installation roles that come out of Rhode Island. It's our subsea products that are being with the -- those roles basically go through an additional process of being put inside of bags or they get encapsulated that cutting and encapsulation is what is happening in Mexico for subsea projects, not for Cryogel.

No, no, I was just going to say, I know you're kind of a reformed oil and gas guy. And so I would just say it's really interesting to us. We're seeing a tremendous amount of activity in our subsea business as well which is, I don't know, we've been a little surprised by but we're -- we've won a series of projects that extend well into 2024. So again, supporting that business, I think, very well.

Just to wrap this up then, could you just provide us with rough estimates for LNG and subsea, respectively, as percentages of EI revenue?

I like the 75-25 to the Pyrogel side.

[Operator Instructions] Our next question comes from Amit Dayal from H.C. Wainwright.

Yes, most of my questions have been addressed already. I won't take too much of anyone's time. Just on the competitive side, are you seeing any other competitive solutions coming up to the thermal barrier product offering?

No. I mean, we see websites and kind of press releases being put out but we don't see them gaining traction within the commercial processes that the team is engaged in.

It is a hard problem to solve and it's a multidimensional problem to solve. Occasionally, we'll see something that addresses part of the problem but to have a -- to address all dimensions of the problem is very difficult. And that's -- I think that's the importance of our product and the work that our team has done in optimizing around that multidimensional challenge.

Our next question comes from Colin Rusch from Oppenheimer.

Our checks suggests that some of the mechanical properties that you guys offer are critically important to the win rate here. Can you talk about what you're seeing at this point around the leverage from those mechanical properties, particularly as we get into structural battery packs becoming more prevalent outside of just Tesla?

I mean, I think the mechanical element just continues becoming more important, right? I mean -- and a lot of these structural battery packs, now they're going to have crash requirements put in as well. And so we think that will yield to just more complex parts overall, right? And it's really interesting how everybody has to optimize for not just these mechanical elements and the structure or integrity of the pack itself. But now also, there's this element of ease of assembly and particularly cost right. And a lot of these ancillary things to the cells were not considered, I'd say, in the prior generation of EVs. And now as we're seeing, it's become a meaningful element of the design of the pack itself and its cost. But I mean, as packs get more structurally focused, I think we have plenty of room in there even for LFP cells and a lot of these structural packs are actually LFP cell packs.

I think Colin also on sort of the economics of it on the mechanical side are interesting as well in the sense that as we optimize our material to do not only the thermal but the mechanical, we have an opportunity to displace some existing materials and in some cases, quite costly, expensive materials and it helps our value proposition as we try to have the best possible solution. And I think certain OEMs started with the mechanical stability, if you will, of the inserts and have come to -- the thermal part of it are coming to the thermal part of it later. And so again, having a concept around displacing some of the existing materials that our cell to cell has been a really important part of our strategy and it's been a nice economic opportunity for us as well.

I will now turn the call over to CEO, Don Young for closing remarks.

Thank you, Henry. We appreciate everyone's interest in Aspen Aerogels and we look forward to reporting our third quarter 2023 results to you later in the year. Be well and have a good day. Thanks so much.