Aspen Aerogels, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good morning and thank you for attending 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 an opportunity to questions and answers at the end. I would now like to turn the conference call over to your host, Neal Baranosky, Aspen’s Senior Director of Corporate Strategy and Finance. Thank you. You may proceed, Mr. Baranosky.
Neal Baranosky: Thank you, Candice. 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 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. I’d also like to note that from time-to-time, in connection with divesting or pending expiration of restricted stock units and/or stock options issued under our long-term equity incentive program that we expect our Section 16 officers will file Form 4s to report the withholding by the company or sale of shares related to tax withholdings or 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 and Mobility Conference. Don, Ricardo and I will also host one-on-one discussions at this event. On March 18, Don will be hosting one-on-one investor discussions in Dana Point, California at the 36 Annual ROTH Conference. I’ll now turn the call over to Don. Don?
Don Young: Thank you, Neil. Good morning, everyone. Thank you for joining us for our Q4 2023 earnings call. My comments will recap recent announcements, highlight our fourth quarter 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 want 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 the success. Since our last earnings call, we have provided several updates. In December, we announced PyroThin Thermal Barrier Design award from the Automotives Sales Company or ACC, a battery sales joint venture with Stellantis, Saft 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 aerogel manufacturing facility in Georgia. While the DOE’s invitation to the formal due diligence stage is not an assurance that the DOE will issue a loan, we remain deeply engaged with the LPO and its advisors and continue to believe that we are a strong candidate to partner with the DOE LPO in this program. We anticipate providing the next update on this subject during our Q1, 2024 earnings call. Later in December, we announced a $75 million registered direct common stock offering with Hood River Capital Management and certain to 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 EV thermal barrier and Energy Industrial business segments. On January 11, 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 remains 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 EV 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 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. 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 EV OEMs has helped us to accurately calibrate the trajectory of the EV trend, while we recognize the challenges that EV OEMs 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 Sixth 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 Q3 and 35% in Q4. The 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 1 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 1 to PyroThin thermal barrier production, our initial 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 will 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 assessment of forecasts for global EV production and how some of the recent production increases aren’t captured by most headlines or the current sentiment. Early last year, we highlighted ahead of the industry, the things weren’t as great as they seemed and quickly focused on right timing all CapEx and 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 maximizes 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 increasing demand at our sites in Rhode Island and Mexico along with a bit of capacity from our supplemental supply for energy industrial products, 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 constrained 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 to EV thermal barriers.
EV thermal 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 Toyota related nameplates that we supply, along with increasing prototype orders from additional customers. Our full year EV thermal barrier revenue was $110.1 million, representing a 98% 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 did not surprise us. 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 2 percentage point improvement quarter-over-quarter.
This continued 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 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 this cost 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 cost of $95.1 million, reflect 40 percentage points of sales, a 6 percentage point improvement year-over-year. In Q4, company level gross profit margins were 35% and our gross profit of $29.6 million is 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 a 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 Q3, 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 in EV thermal barriers was $13.2 million higher than the gross profit of $6.5 million that we incurred during Q4 of last year in this segment, reflecting the benefits of starting to operate at 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 our 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 $4.9 million last year. 2023’s revenue level and our team’s work at maximizing our asset base enable a tipping point in our economics, with 89% of the incremental revenues falling to the gross profit line. Seeing $51.9 million of incremental gross profit, while adding only $58.3 million of sales, it’s in my view the ultimate near-term validation of our business model and the gearing of our operations. Operating expenses, which are sized for a near-term projected annual revenue capacity of now over $650 million, were $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 $28.2 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. The last time our team delivered a positive EBITDA quarter of $500,000 was in Q1 of 2020. 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 $0.20 per share in the same quarter of 2022. We were so close to breaking even 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. These put our 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 and 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 Plant 2 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 Plant 2 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 our Q4 EV thermal barrier volumes with existing assets. On December 20 of last year, we completed a $75 million registered direct offering of common stock to Hood River Capital and the handful of other institutional investors are at a price of $12.37 per share. Hood River 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 Plant 2.
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 11 of this year, as we pre announced 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 assessed some of the press around EV along with 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 $350 million baseline revenue expectation, starting with our EV Thermal Barrier segment.
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 Motor’s 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. As per IHS, we estimate that they produced almost 120,000 so around 80% of GM’s target. On January 30 this year, GM broadly communicated that it expects to make 200,000 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 and eagerly 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. We are 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 them 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 based EVs, apply our estimated content per vehicle levels from 2023 and assume our traditional revenues from other customers and prototype sales, we land at a $200 million revenue baseline estimate for 2024 thermal barriers. Units produced in 2024 beyond 160,000 by General Motors, the potential launch of another Acura nameplate powered by Ultium sales. Additional OEM prototype orders and a mix of larger battery pack vehicles that drives higher content per vehicle will drive upside, which we are ready to capture, but 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 than [10] hours of our capacity, ramping up additional supplemental supply and utilizing some capacity in Rhode Island that isn’t taken up by thermal barrier aerogel production in the first half of the year. Combining our 2 segments revenue outlooks for 2024, results in a 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 delivered $9.1 million of EBITDA in Q4, the $30 million 2024 EBITDA outlook takes into account some potential headwinds to our near-term profitability such as the cost of new launches, higher part 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 through our bottom line and our team will continue applying a lot of lessons learned in 2023 to keep reducing our fixed costs, increasing our production yields, our up-time 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 sea freight 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 $0.30 per share, assuming a share count of 76.5 million shares. Our CapEx without including Plant 2 is 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 production capacity in 2025. We are now planning to spend more than $30 million advancing the construction of Plant 2 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 Plant 2 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 Plant 2 brings by 2027 at the latest and continue working our way through the due diligence and term sheet negotiation phase with the U.S. Department of Energy’s Loan Programs Office as part of our application to fund the construction through a loan pursuant to the DOE’s Advanced Technology Vehicle Manufacturing or ATVM program. On the left side of this 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.
These along with our current cash position enables us to manage the company with the right level of liquidity, formed all of our CapEx outside of Plant 2 and 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 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 production ramped up to pre-COVID levels, consumers wouldn’t necessarily be able to pay COVID era 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 to 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 that consumers forgot to charge or the articles of recent price decreases for mass market EVs. But comparing reality and the new forecast for global EV production reveals some interesting facts. If we compare IHS’s forecast in October of 2021 for global EV production in 2022 with actual production, the actual 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 that global EV production increased by 28%, but that this market continued to grow at a high rate. This is 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 peak EV sentiment days of October of 2021. 200,000 units in our view is a 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 launch new nameplates in North America, IHS is expecting all the units lost of 2023 and 600,000 units lost 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 revenue since 2020 within the vehicle production market that is expected to compound at 38% per year over the next 5 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 5 years. We believe that the CO2 emissions regulations that led 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 2 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 and quoted 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 barrier 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 awards that go well beyond these years. 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 Plant 2 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 5 years, we estimate that there are over $4.4 billion of excess demand between our customers’ estimates of their demand and our latest capacity plan assessment. 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 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 Don, 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, over to you, Don.
Don Young: Thank you, Ricardo. We have covered a significant amount of ground today in reviewing Q4 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 maintaining our full longer term upside potential as we continue to win design awards from EV OEMs, grow our base load 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. Candice, let’s turn to Q&A.