Aspen Aerogels, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Aspen designs and manufactures aerogel insulation for energy infrastructure and building materials, and is developing thermal barriers and battery materials for electric vehicles. Amounts below are in millions of dollars unless noted.
Financial performance and liquidity
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $31.7 | $24.6 | $59.8 | $53.1 |
| Gross profit / margin | $4.6 / 14% | $2.9 / 12% | $8.5 / 14% | $8.8 / 17% |
| Operating loss | $(6.6) | $(5.6) | $(12.8) | $(8.7) |
| Net loss | $(6.7) | $(5.7) | $(12.9) | $(8.9) |
| Adjusted EBITDA (non-GAAP) | $(3.4) | $(2.1) | $(6.0) | $(1.6) |
- Q2 product shipments increased 35% to 9.9 million square feet; six-month shipments rose 20% to 18.5 million square feet. Average selling price declined 5% in Q2 and 6% year to date, mainly due to product mix.
- For the first six months, operating cash use was $0.5 million, compared with $3.2 million in 2020; capital expenditures were $3.9 million versus $2.0 million.
- Cash and cash equivalents were $102.3 million at June 30, versus $16.5 million at year-end. The increase principally reflected $73.6 million net proceeds from a private placement and $18.6 million net proceeds from ATM stock sales.
- Total debt was $3.7 million, comprising the PPP loan; no revolving-credit borrowings were outstanding. After $1.5 million of letters of credit, $7.9 million was available under the credit facility. Current and long-term BASF prepayment liabilities totaled $9.7 million.
- Shares outstanding increased to 32.9 million from 27.8 million at year-end, primarily reflecting the equity offerings.
Changes versus prior year
- Q2 revenue rose 29%, mainly from higher shipments in U.S. petrochemical and refinery markets and European building materials. Higher project-based subsea and LNG demand partly offset declines in some project markets.
- Q2 gross margin improved to 14% from 12%; however, first-half gross margin fell to 14% from 17%. For the half-year, cost of product revenue rose faster than revenue, reflecting higher materials and manufacturing expenses.
- Operating expenses increased 32% in Q2 and 21% for the first half. Higher compensation, professional services and other growth-related costs contributed; first-half G&A also rose substantially.
- Net loss and adjusted EBITDA loss widened in both comparison periods, despite higher revenue.
Outlook, risks and unusual items
- Management projected 2021 revenue growth, supported by anticipated maintenance demand in petrochemical/refinery markets, European building materials, and a price increase intended to offset raw-material inflation. It expected lower 2021 adjusted EBITDA and a larger net loss than in 2020 as investment and operating expenses increase. No specific full-year numerical guidance was provided.
- Management planned to raise East Providence blanket capacity from approximately 55 million square feet annually to 60 million by year-end 2021, and was planning a larger capacity expansion before the end of 2023. Investments also include automated thermal-barrier fabrication, R&D, and a battery-materials facility.
- Three thermal-barrier supply contracts with a major U.S. automaker have fixed annual prices, but no minimum purchase commitment; the customer may terminate at any time. BASF likewise has no purchase obligation. Uncredited BASF prepayments may become repayable under contract terms, including potential repayment obligations beginning in 2022.
- The $3.7 million PPP loan had not been submitted for forgiveness as of June 30. If no forgiveness application was made by August 19, 2021, repayment installments would be required; forgiveness was not assured.
- The revolving credit facility matures April 28, 2022; management intended to extend or replace it. Aspen reported compliance with its financial covenants at June 30.
- Patent enforcement litigation continues, including proceedings in Italy and Germany. Outcomes and costs are uncertain, and management noted protracted proceedings could generate significant legal expense. No probable litigation loss requiring accrual was reported.
- COVID-19 impacts remained uncertain. Management reported no significant supply-chain or delivery disruption to date. Raw-material costs, manufacturing start-up costs, capacity execution and customer demand remain relevant risks.
Investor facts to verify
- Whether shipment growth and pricing actions translate into improved gross margin and cash generation, given weaker first-half margins and higher costs.
- Timing, funding needs and execution of the planned capacity expansion and EV-related facilities; confirm actual automaker orders, since contracts do not guarantee minimum volumes.
- Availability of liquidity after planned investment, the credit facility’s renewal or replacement, and the timing or amount of any BASF prepayment repayment.
- PPP loan forgiveness status and repayment requirements.
- Share dilution from equity financing and the potential financial and legal outcomes of patent disputes.