Good afternoon. My name is Mariama [ph] and I will be your conference operator today. At this time, I would like to welcome everyone to the Aspen Aerogels’ Q4 2016 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I would now like to turn the call over to Gregg Landes, Vice President of Finance. You may begin your conference.

Good afternoon. Thank you for joining us for the Aspen Aerogels’ conference call. I'm Gregg Landes, Aspen’s Vice President of Finance. There are a couple of housekeeping items that I would like to address before turning the call over to Don Young, Aspen CEO; and John Fairbanks Aspen’s CFO. 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 as compared to the most applicable GAAP measures is available on the investor section of Aspen’s website, www.aerogel.com. Included in the press release is a summary statement of operations, a summary balance sheet, a summary of key financial and operating statistics for the quarter and year ended December 31st, 2016. In addition, investor section of Aspen’s website will contain an archived version of this webcast for approximately one year. Please also note that our discussion today will include forward-looking statements, including any statements regarding outlook, expectations, beliefs, projections, estimates, targets, prospects, business plans and any other statement that is not historical fact and such statements are subject to risks and uncertainties. Aspen Aerogels’ actual results may differ materially from those expressed in the forward-looking statements. A list of factors that could affect the company's actual results can be found in Aspen’s press release issued today and are discussed in more detail in the reports Aspen files with the SEC, particularly in the company's most recent Annual Report on Form 10-K. The company's press release issued today and filings with the SEC can also be found on the Investor section of Aspen’s website. The forward-looking statements made today represent the company's views as of today February 23rd, 2017. Aspen Aerogels disclaims any obligation to update these forward-looking statements to reflect future events or circumstances. During this call, we will refer to non-GAAP financial measures including adjusted EBITDA. These financial measures are not prepared in accordance with U.S., Generally Accepted Accounting Principles or 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 of and reconciliations of these non-GAAP financial measures to most directly comparable GAAP financial measures and a discussion of why we present these non-GAAP financial measures is also available in today's press release. I will now turn the call over to Don Young, President and CEO of Aspen Aerogels.

Thank you, Gregg. Good afternoon. Thank you for joining us for Q4 and fiscal year 2016 earnings call. I will provide comments about the business and our performance and John Fairbanks; our CFO will present financial details for the fourth quarter, the year 2016, and our guidance for 2017. We will conclude the call with a Q&A session. I plan to cover three topics in my prepared remarks. First, I'll provide a recap 2016. Second, I'll discuss the current commercial environment, our outlook, our market outlook for 2017, and our goals for the year. And third, I'll review our strategy of leveraging our Aerogel technology. There is no question that the year 2016 was challenging for us. After achieving a compound annual growth rate of 30% for the seven years from 2008 through 2015, we faced significant market headwinds in 2016. While solid upstream business led to record 2015 revenue, we expected that it would not be a strong contributor in 2016. We were right. Subsea, the primary component of our upstream revenue declined from a record $24 million in 2015 to $4 million in 2016. With oil prices declining by more than 50% during the second half of 2014, the upstream flywheel finally came to a stop for us by the beginning of 2016, reflective of the late cycle nature of insulation to our end users. The $20 million year-over-year Subsea revenue gap proved difficult to fill in our overall product revenue declined in 2016 by $5 million or 4%. While we expected the weakness in the upstream market, we did not fully anticipate the extent of the softness in the downstream market, particularly activity levels in refineries and petrochemical plants. While not nearly as dramatic as the declines in the upstream, the downstream market showed weakness, particularly during…

Good afternoon. Thanks Don. I'd like to start by running through our reported financial results for the fourth quarter and fiscal 2016 at a summary level. Fourth quarter total revenue declined 26%, $27.6 million versus a record $37.4 million in 2015. Fourth quarter net loss was $5.7 million, or $0.25 per share versus net income of $1.6 million or $0.07 per share last year. Fourth quarter adjusted EBITDA was negative $2.1 million compared to positive $5.4 million a year ago. We define adjusted EBITDA as net income or loss before interest, taxes, depreciation, amortization, stock-based compensation expense and other items that we do not believe are indicative of our core operating performance. Patent enforcement costs had a significant impact on both our net loss, adjusted EBITDA during the fourth quarter this year. We incurred $1.9 million of patent enforcement costs during the quarter versus $100,000 in the fourth quarter of last year. For the full year, total revenue declined 4% to $117.7 million. Net loss was $12 million for $0.52 per share in 2016 versus a net loss of $6.4 million or $0.28 per share last year. And adjusted EBITDA for the year was $3.9 million, down from $9.1 million in 2015. Patent enforcement costs, again, had a disproportionate impact on both our net loss and adjusted EBITDA during 2016. We incurred $3.6 million of patent enforcement cost during the year versus $200,000 in 2015. I'll now provide additional detail in the components of our results. First, I'll discuss revenue. Fourth quarter total revenue was comprised of product revenue of $27.2 million and research services revenue of $435,000. For the year, products revenue was $115.5 million and research services revenue was $2.2 million During the fourth quarter, product revenue decreased by $9.4 million, or 26% versus last year's record level…

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

Hi Don, hi John. Maybe we can just start in LNG, you laid kind of how things have transpired and the penetration you've made over time. But based on kind of lessons learned in some of your more mature segments, I mean any thoughts on when you would expect to see involvement in some of these larger projects -- the $20 million plus type of opportunities?

Not in 2017 Eric, I can tell you that.

Okay.

But I can -- we have a team of people focused on this segment and as projects emerge in all regions, including in Asia where a lot of the activity is taking place, we think we're in a very good place to compete for those projects. So, again, as I said in my notes, 2017 is user baseball metaphor is going to be made up of singles and doubles, and I think there's some -- I think that's interesting, that's a nice base of business and avoiding, if you will, that revenue gap driven by one or two projects as we experienced from the Subsea 2015 to 2016 and from the South Asia project 2016 to 2017 Again I think it will be made up of smaller pieces of the business and will get that growth from penetration across much broader group of customers and much broader number of segments. So again LNG point, we think we've done that, we've done the legwork we prove our value and we are going to compete hard for projects as they come up around the world.

And just think about LNG I mean is this enrolls with EPC firms is it with the project owners or is it the combination of both?

It is really a combination of both. The work you know we talked a little bit about the work that we did in Thailand the PTT project this year that was very much with the contractor and with the asset owner as well very much with joint effort. We performed well in that project and that the area that is rich with opportunity and so that was an important one for us to perform well.

Yeah, okay. Thank you. May be last one, just turning to petrochem and this is I guess a little more of a longer-term question, but I was thinking about other geography Saudi Aramco of course been making a lot of noise in the last couple months, is that they are looking to remake themselves into and petrochemical power? And just curious your historical involvement with Saudi Aramco whether it's apparent company or the joint venture since I know those are kind of two different animals?

Yeah. So it has been not significant historically some of the joint work that they did with Shell we were involved with here in the United States in particular and again there is a little bit of history to this Eric. If you go back to the point in time, when we were sold out in 2014, 2015 even the beginning of 2016, we were a little hesitant to open another region, i.e. the Middle East and because we were having enough trouble just a delivering on the regions we had begun to penetrate and so it was really about a year ago that we dedicated assets to the Middle East not only Saudi Aramco but across the region and we are developing distributors and contractors and working with end-users again across that region and you are right it is which way opportunity both directly there but also some the joint venture work on outside of the region.

Okay. Thanks for the details.

Thanks, Eric.

Your next question comes from John Quealy from Canaccord. Your line is open.

Hey, good afternoon folks. Can you hear me, alright?

Sure, I can.

Hey, guys. First on that $90 million to $100 million give or take base business, can you just talk about the visibility there what you did to build that up I am imaginable bottoms up but just give us a sense of confidence in that sort of recurring business that we are expected to see in ‘17?

As I indicated in my script that number has increased from the low 70s into the low 80s most recently and as I said we’re going to build it up into 90 and $100 million range. A little bit of it goes to sort of the progression story that I told about LNG in a way and how that relates I think to some of our other segments. We are penetrating these accounts, we’re getting more and more activity at each facility. We’re building a relationship in new facilities, so again I think it's just a natural progression of us penetrating this -- penetrating these accounts and being effective globally. John mentioned an increase in investment in our sales and marketing organization and we have more feet on the street. We are working on our distributors harder. We're pushing those accounts hard and again we think that we have a very good chance of growing that downstream business, the other components of that of course were continued progress in our district energy market. We are introducing the power product in the second half of the year which will make a small, but hopefully building contribution. And then of course we also put in place on a smaller price increases but nevertheless price increases in the range of 2 or 3% here in 2017 which as you know the math will work for us in that way as well.

Okay. Great. And then the second question on the patent/litigation costs just bigger picture can you just walk us through your strategy there, is it is an aggressive enforcement in defense moving forward? Would you be opening open to settle with certain parties , how should we think about your philosophy around spending in the aggressive mission and where we are in the cycle around those costs obviously pretty heavily weighted here in the first half?

So couple of thoughts, this company has spent upward $100 million in research and development. Developing developments Aerogel technology platform and it is valuable and it deserves to be protected and that's what we’re doing. I would say that we are being aggressive here in the United States and in Europe and we will continue to be aggressive. On the dollars spent in 2016, John mentioned them 3.5 to $4 million range and then heavy spending on now where, we are sort of in high season right now with the with the U.S. effort and as we expect as John said meaningful Q1 expenditures in that area we think that we will prevail in these action and that will send a strong message across market. So that’s our philosophy we do not anticipate that this will be on analysts at these kind of levels, but again we try to go out on pre-emptively and aggressively artificers them this early on.

And then the last question on the new product side and some of the new initiatives you had, how should we think about ‘17 in milestones around for example BASF in Europe or the new utility product launching in ‘17. I mean should we see you these in order flow this year in ‘17 or is this more of the seating the market getting the channel ready and then ‘18 is when we expect some of the orders? Thanks guys.

Thank you. So on the utility side of the power product, we’re really excited, we’re right on schedule we’re installing equipment in our East Providence facility and we’ve got team working accounts there. We would love when we launch that product in the second half of the years as we've been saying for a while launch it with that with a lead customer if you will or kind of have a partner customer and really come out of the gates hard. I'm not suggesting that it could be large-volume in 20 in the second half of 2017, but we think we will lay the groundwork for an interesting contribution and 20 – 2018. We are confident that we’ve got a winner there. Second on BASF, we’re working very closely with BASF on a range of opportunities that improve our company and build out that relationship. Again there will be some contribution, steady contribution from the building materials segment BASF and some of our other partners in that area in 2017, but we really are thinking that 2018 and 2019 will be breakout years for those products. Other questions, Mariama?

Your next question comes from Sean Hannan with Needham & Company. Your line is open.

Thanks. Can you hear me.

Hi, Sean. How are you?

Hi. Okay, so it sounds like at this point now there is rough expectation you should see some continued pickup into the back end of the year, if I recall correctly in terms of your visibility on lead times, that something that certainly improved at least the lead times of improve your visibility has perhaps shrunk over the course of last 12 to 18 months. So I'm just trying to see if I can get a better understanding of what gives you that viewpoint that you can grow in the backend of the year, is that growth versus the first half completely incremental from some of these adjacencies such as power and so on and so forth or how can we otherwise think about that? Thanks.

So, first on the -- from a core market point of view, again, we expanded our sales and marketing organization. We have -- I think we're doing a good job penetrating these accounts and getting more feet on the street -- both our own and our distributors and I would just say that in those core markets, we're -- we feel there's some buildup occurring and so we've got a good chance. Because these are smaller orders, right, these are containers and not project work, it's maintenance activities. You're right we don't have visibility in the sense of purchase orders, but activity levels, we're feeling that we're going to build momentum throughout 2017. Each quarter -- our goal is for each quarter to be better than the quarter before and we feel we're well-positioned to do that. That's on the core side. Of course the adjacent markets are going to incremental contributors to that. District energy and power, building materials, these are areas where we think that we can put some growth on the boards here of throughout the year. And again with power contributing in the second half of the year, again, not enormous numbers, but incrementally positive. That's why we're confident that the second half is -- will be stronger than this first half.

Okay. And then in terms of downstream energy, my understanding is that after a fairly prolonged period of push outs of turnarounds due to -- and otherwise favorable conditions right for facilities keep operating that there is an expectation and there's growing chatter that turnarounds are really starting -- are going to start to become much more active this year and at least in the U.S. that there is a pretty good expectation of a healthy uptick. So, I would suspect from a maintenance standpoint those are you where you have some of your opportunities. Just trying to figure out if that's part of some of your thinking in 2017? Is that a factor at all -- any color around that would also be helpful? Thanks.

So, essentially -- our planning purposes what we have said is that 2017 is going to look a lot like 2016, just in terms of -- I mean to say further decreases in the U.S. market as I cited, but sort of flattish market. And we certainly are listening for and pushing hard on the maintenance fees and being a little richer this spring and this fall than it was in 2016. And we've been doing the rain dance around that for a while as a lot of companies like ours have been doing and it's got to happen and we think there's a good chance -- we're hearing the same things that you're hearing around spring and the fall this year.

Okay. So, it sounds like you're hopeful, but you're attempting to be conservative and pragmatic as it translates to the numbers. Is that fair?

We're -- instead of taking with the -- operating under the premise that it's going to be -- tomorrow's going to be a lot like yesterday and we have to drive our numbers based on this current energy end market. We're not going to get bailed out by any big project or any -- we're not counting on anything other than what's there today. And so our team needs to be effective penetrating these accounts and developing these adjacent markets and driving growth and that's what we're doing and we're getting better at it with every day that passes. Again that's why we think that building momentum one quarter after the other throughout 2017 and positioning ourselves for a gross spurt starting in 2018, that's what we're focused on here as a team.

Great. Okay. Thanks very much.

Thank you, Sean.

Your next question comes from Ben Kallo with Baird. Your line is open.

Hi guys. This is David [Indiscernible] on for Ben Kallo. Thank you for taking the question. I just want to follow-up on that last point where you're not expecting tomorrow be any better than today. How long can that strategy carry out? And do you need -- looking into 2018, 2019, 2020, the energy markets to rebound and what if they don't?

We are operating in a large market here. Just in the energy infrastructure alone, it’s a market that is measured upwards of $3 billion. And so obviously we have globally 3%, 4%, 5% of that market, maybe a little higher in some regions, little lower in other regions. We have an enormous amount of opportunity -- with the opportunity we have before us today even in the market that we're experiencing today to continue to grow this company. And yes, we would grow more rapidly, there's no doubt in a more friendly environment, but we think we can grow the company even in the environment we're in and that's at the core market. We also know that we can develop these adjacent markets with success. District energy, the LNG market, the power industry, and those are sort of new opportunities for us to grow. And then we talk about new markets and building materials with BASF is an example of that. I think, again, not so much for 2017 or 2018 because new markets will contribute a little longer term. And so again our ability to grow, penetrate our current accounts, get more market share as we have been doing year in and year out in good markets and that bad, will enable us to be successful here.

Got it. Thank you for the color.

Thanks [Indiscernible].

Your next question comes from Sean Meakim with JPMorgan. Your line is open.

Hey Sean.

So, Don I wanted to talk about Plant 2 a little bit. Last quarter we talked a hurdle with something 25% increase in shipments over maybe a seven or eight quarter lead-time that's kind of hurdle our get towards projects sanctioned. So, just given another quarter under your belt, updated guidance for the more visibility, just curious your updated thoughts around the Plant 2 framework?

Yes. So, there really a few factors that we're looking for to pull the trigger sort of speak Sean on that. And just to restate, I think I might've said last our last quarterly call is that from the time we pull the trigger, if you will, to the time we have that operational will be approximately seven quarters. And so the factors that we're looking for, we would love to see these activity levels and you might have heard us talk about this base business kind of concept just sort of singles and doubles, we really love that -- growth from that segment and we love our projects, but growing that base creates a little bit whipsaw in our numbers. So, that activity in the downstream numbers will be important to us. We'd love to see and we're working the project pipeline all the time. We're not anticipating any knockout type projects in 2017, but we see lots of opportunity in 2018, 2019, and 2020 area. And so as we -- as those become a little closer in and we gain a little more visibility and we work our way into those specifications and become lead participants in those projects, we'll have some visibility on that and that will give us more confidence as well to pull that trigger. And the third area I think is this notion of diversity that we have. Continuing to have things like district energy, LNG, power, building materials, and potentially some other segments absorb more and more of our capacity on the increment that too will give us confident. So, I think those three things or activity downstream, some projects on the horizon that were in that driver seat on and more diversity. I think some combination of those three things will make it relatively easy to pull that trigger. I think the hard thing would be if we had another $60 million project sitting out there like the South Asia project that we're just completing without growth in the base business and the diversification that we're talking about. I think that's a much harder decision to make. And so we're really focused on those three elements that I described.

Okay, that's fair. And then just about talking about -- you gave us a little more on BASF, just curious if there's any update on additional partnerships in the pipeline?

Well, we're -- nothing that we're able to announce now. We're working on projects or new markets let me say and a lot of that work starts on the technology side, on the research and development side. This idea of enhancing products using our Aerogel technology will work component in a system. These are some of that without lying to shorthand too much, these are some of the ideas that we have and some of the discussions that we're having and we're in the midst of proving out some of that technology to demonstrate that we've got something that is special and unique and protected.

Okay, great. Thanks.

Thanks Sean.

There are no further questions at this time. I will now turn the call back over to Don Young.

Thank you, Mariama. I appreciate your help. Again, thank you for joining us today. We appreciate your interest in Aspen Aerogels. We look forward to reporting our first quarter 2017 results to you in early May. Have good evening. Thank you.

Thank you.

This concludes today's conference call. You may now disconnect.