Aspen Aerogels, Inc. — FY2017 Form 10-K
Reporting period: Fiscal year ended December 31, 2017; filed March 1, 2018. Aspen designs and manufactures aerogel insulation, primarily for energy infrastructure, with smaller building-materials and government-funded research businesses.
Financial performance
| Metric | 2017 | 2016 |
|---|---|---|
| Total revenue | $111.6 million | $117.7 million |
| Product revenue | $109.6 million | $115.5 million |
| Gross profit / margin | $18.7 million / 17% | $23.3 million / 20% |
| Operating loss | $19.1 million | $11.2 million |
| Net loss / diluted loss per share | $19.3 million / $0.83 | $12.0 million / $0.52 |
| Adjusted EBITDA (non-GAAP) | $(3.3) million | $3.9 million |
| Operating cash flow | $(4.6) million | $(0.6) million |
| Capital expenditures | $6.1 million | $13.2 million |
| Cash and cash equivalents at year-end | $10.7 million | $18.1 million |
| Debt at year-end | $3.8 million | $0.04 million |
| Working capital | $26.1 million | $32.1 million |
FY2017 product shipments fell 15% to 37.5 million square feet, while average selling price increased 12% to $2.92 per square foot. Management attributed the price increase mainly to product mix and lower sales of lower-priced Reliance project products. Product costs rose to 84% of product revenue from 81%; materials represented 45% of product revenue versus 41%.
In Q4 2017, revenue was $36.4 million, gross profit $7.8 million, operating loss $1.6 million and net loss $1.7 million. Q4 2016 revenue was $27.6 million, gross profit $3.7 million and net loss $5.7 million.
Changes versus prior period
- Full-year revenue declined 5%; product revenue fell 5%, primarily following completion of a multiyear Reliance petrochemical project and weaker Asian sales. U.S. energy infrastructure and subsea sales partly offset the decline.
- Gross profit declined 20%, and gross margin contracted three percentage points. Lower volume and manufacturing underutilization weighed on results.
- Operating expenses increased 9% to $37.8 million, including higher R&D, sales and marketing, and general and administrative spending. Net loss widened by $7.3 million.
- U.S. revenue rose to $51.4 million from $35.7 million, while international revenue declined to $60.2 million from $82.0 million. International revenue was 54% of total, compared with 70% in 2016.
- Cash declined by $7.4 million during 2017. Accounts receivable rose to $26.8 million, while inventory fell to $8.9 million.
Outlook, risks and notable items
- Management cautioned that 2018 revenue could decline because of the Reliance project completion and expected lower subsea project volume; the two represented 19% of 2017 product revenue. It also anticipated that losses could increase and Adjusted EBITDA decrease.
- Aspen plans approximately $6 million of incremental 2018 manufacturing and operating investment, including about 49 additional employees, intended to support existing markets and develop new business. Management expects higher 2018 output and favorable mix to help reduce product costs and slightly improve gross margin, but planned spending may offset gains.
- East Providence capacity was 50 million square feet annually; planned projects aim to add 10 million by end-2020 at an estimated $15–$20 million cost. The planned Statesboro, Georgia facility, estimated at $120–$130 million for its first line and about 40 million square feet of capacity, has been delayed pending demand assessment. The company had capitalized $7.2 million of pre-construction costs.
- The Silicon Valley Bank revolving facility allowed up to $20 million, subject to covenants and borrowing-base limits. At year-end, $3.8 million was drawn and $2.3 million of letters of credit were outstanding, leaving $13.9 million available. Its maturity was extended to April 28, 2018; the company said it intended to extend or replace it.
- Management expected a $5 million BASF prepayment in two 2018 installments. It is secured by a first-priority interest in Rhode Island real estate, machinery and equipment, and may require repayment of any uncredited balance after December 31, 2021. BASF has no purchase obligation.
- Aspen reported continuing net losses, negative operating cash flow and anticipated negative total cash flow for the foreseeable future. It said cash, expected BASF proceeds and anticipated credit should fund planned investments, but stated it had no mitigating plans to reduce cash expenditures under its current operating plan.
- Customer concentration remains significant: the ten largest customers generated 69% of 2017 revenue; Distribution International and TechnipFMC accounted for 15% and 12%. Three customers represented 44% of year-end receivables. A $0.5 million receivable from one customer was written off.
- Patent enforcement was a material unusual item: Aspen incurred approximately $7.3 million in litigation expense through year-end 2017. In February 2018, the ITC issued an exclusion order against specified infringing products made by Alison and Nano, subject to presidential review and possible appeal; related proceedings continued.
- The company remained loss-making and had an accumulated deficit of $437.1 million. The 2017 Tax Cuts and Jobs Act reduced the federal corporate rate, but Aspen maintained a full valuation allowance against deferred tax assets and recorded no income-tax provision.
Important facts for investors to verify
- Whether the credit facility was extended or replaced before its April 28, 2018 maturity, and the resulting liquidity, covenant and collateral terms.
- Whether the $5 million BASF prepayment was received, how much was credited against product sales, and whether repayment obligations or security terms changed.
- Actual 2018 revenue, margins and cash flow after the Reliance project ended and subsea demand changed; compare results with management’s stated outlook.
- Progress, spending and demand assumptions for East Providence expansion and the delayed Statesboro project, including Georgia incentive deadlines and any potential repayment exposure.
- Customer receivable collections and concentration, warranty costs, and the financial and legal outcomes of ongoing patent disputes.