Aspen Aerogels, Inc. — Q3 2020 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2020; unaudited. Comparisons are to the corresponding 2019 periods. Aspen designs and manufactures aerogel insulation, primarily for energy infrastructure and building materials, and is developing products for electric vehicles.
Financial performance
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $24.2m | $35.4m | $77.3m | $92.9m |
| Gross profit (margin) | $1.9m (8%) | $7.7m (22%) | $10.7m (14%) | $15.0m (16%) |
| Operating loss | $6.7m | $2.2m | $15.4m | $13.3m |
| Net loss | $6.8m | $2.3m | $15.6m | $13.6m |
| Net loss per share | $0.25 | $0.09 | $0.60 | $0.57 |
| Adjusted EBITDA (non-GAAP) | $(3.2)m | $1.4m | $(4.8)m | $(2.8)m |
Q3 product shipments fell 34% to 6.8m square feet; nine-month shipments fell 19% to 22.3m square feet. Average selling prices rose 4% in both comparisons, but lower volume outweighed the price benefit. Product revenue declined 32% in Q3 and 15% year to date. Research-services revenue fell 32% and 77%, respectively, as the company winds down contract research.
For the nine months, operating cash outflow was $4.8m versus $5.8m in 2019; investing cash outflow was $2.6m versus $1.6m. Cash increased by $7.7m to $11.3m, supported principally by financing. Capital expenditures were $2.6m.
Financial position and liquidity
- At September 30, 2020, cash was $11.3m; total assets were $94.3m and stockholders’ equity was $60.9m.
- Debt was $3.7m, comprising the PPP loan; no revolving-credit borrowings were outstanding. The facility had $8.1m available after $1.4m of letters of credit, subject to borrowing-base limits and covenants. It matures April 28, 2021; the company intends to extend or replace it.
- The $3.7m PPP loan bears 1% interest, matures in 2022, and had not been submitted for forgiveness by September 30. Forgiveness is uncertain; repayment may be required.
- The balance sheet includes a $9.6m BASF prepayment liability. BASF has no obligation to make additional prepayments, and under specified terms may require repayment of uncredited amounts.
- In February, Aspen raised $14.8m net through a public stock offering. On November 5, it entered an at-the-market sales agreement allowing up to $33.9m of additional common-stock sales; no sales were required.
Material changes, outlook and risks
- Management attributed weaker demand mainly to COVID-19 and oil-market volatility, including contractor-access restrictions at energy infrastructure sites. The manufacturing facility remained operational, with no significant supply-chain or delivery disruption reported.
- Management expected 2020 revenue to decline year over year, with a higher net loss, lower Adjusted EBITDA and increased operating cash use despite cost reductions. It said reductions in costs were unlikely to offset the revenue decline.
- Management expected existing cash and available credit to support current operating requirements and R&D, but anticipated seeking additional financing to fund strategic opportunities, particularly EV-related development and potential capacity expansion.
- Annual manufacturing capacity was estimated at 55m square feet. The EP20 target of 60m square feet, initially planned for end-2020, was delayed; the company expected to achieve it by end-2021. Next-generation chemistry and process implementation was also delayed during 2020.
- A September 2020 supply contract with a major U.S. automaker covers battery thermal barriers through 2026, but has no minimum purchase commitment and may be terminated by the automaker at any time. Potential investment, quality, warranty, competition and commercialization risks remain.
- The EPA had not determined whether the East Providence facility violated RCRA provisions. Possible penalties or required compliance expenditures were considered possible but not estimable. Patent litigation may also generate significant legal costs. The company reported no litigation loss probable and requiring accrual.
- Other exposures include uncertain PPP-loan eligibility or forgiveness, potential repayment and related audit or enforcement risk; COVID-19 demand and operating risks; and the need to renew or replace the revolving facility before maturity.
Key facts for investors to verify
- Whether customer demand, shipments and gross margins stabilize, given the sharp Q3 volume decline and fixed manufacturing costs.
- Whether the automaker contract generates meaningful orders, and what capital, operating and quality-system investments are required.
- Availability and terms of future financing, use of the ATM program, and the outcome of the revolving-credit renewal or replacement.
- PPP-loan forgiveness or repayment outcome, and any related SBA review or challenge.
- EPA’s eventual determination and any resulting penalties, compliance costs or capital requirements.
- Progress toward the 60m-square-foot capacity goal and timing and economics of EV product commercialization.