Aspen Aerogels, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Aspen develops and manufactures aerogel insulation for energy-industrial markets and thermal barriers for electric-vehicle battery packs; it is also developing aerogel battery materials.
Financial performance
Amounts in USD millions, except per-share data and percentages.
| Metric | Q2 2023 | Q2 2022 | First half 2023 | First half 2022 |
|---|---|---|---|---|
| Revenue | 48.2 | 45.6 | 93.7 | 84.0 |
| Gross profit (loss) | 8.4 | (1.2) | 13.5 | (3.0) |
| Gross margin | 17.5% | (2.7%) | 14.4% | (3.6%) |
| Operating expenses | 25.5 | 21.4 | 49.4 | 38.3 |
| Operating loss | (17.0) | (22.6) | (36.0) | (41.3) |
| Net loss | (15.4) | (24.1) | (32.2) | (43.5) |
| Net loss per share, diluted | (0.22) | (0.68) | (0.47) | (1.27) |
| Adjusted EBITDA (non-GAAP) | (10.8) | (18.3) | (24.8) | (33.0) |
- Q2 revenue grew 6%; first-half revenue grew 12%. First-half Energy Industrial revenue was $69.4 million, up 6%, and Thermal Barrier revenue was $24.3 million, up 32%.
- Energy Industrial shipment volume fell 10% in Q2 and 5% in the first half year over year; higher average selling prices—up 14% in Q2 and 12% in the first half—more than offset lower shipment volume. Thermal Barrier revenue increased, but the segment remained loss-making: Q2 segment loss was $1.1 million, versus $7.2 million a year earlier; first-half loss was $4.9 million, versus $12.0 million.
- First-half operating-expense growth was concentrated in general and administrative costs, up $9.0 million to $25.5 million, and sales and marketing, up $2.2 million to $15.8 million. Q2 general and administrative expense rose 43% to $13.4 million.
Cash, liquidity and debt
- At June 30, 2023, cash and cash equivalents were $134.3 million, down from $281.3 million at year-end 2022. Current assets were $228.0 million and current liabilities $65.6 million.
- First-half operating cash use was $32.3 million, compared with $32.9 million in 2022. Capital expenditures were $115.4 million, versus $52.4 million; financing activities used $0.2 million, versus $170.8 million provided in the prior-year period. Ending cash, cash equivalents and restricted cash totaled $134.6 million.
- The related-party convertible note is senior unsecured debt due February 2027. Its $100 million principal had grown to approximately $113.0 million through payment-in-kind interest; the balance-sheet carrying amount was $109.2 million. Interest is based on SOFR plus 5.50% if paid in cash or 6.50% if paid in kind, subject to the stated SOFR floor and cap. The note is convertible at an initial effective price of about $29.94 per share.
Outlook, material changes and risks
- Management expects strong 2023 revenue growth and lower net loss and Adjusted EBITDA, citing energy-market recovery, EV demand and sustainable-insulation market-share gains. It gave no specific annual revenue, earnings or cash-flow guidance in the provided filing text.
- A key change is the extension of the construction and commissioning timeline for the planned Georgia manufacturing plant, to align capacity with expected EV demand. Aspen expects to substantially reduce planned 2023 and 2024 capital expenditures until construction ramps up. It targets approximately $550 million of revenue capacity in 2024, before the Georgia plant is operational, relying on Rhode Island productivity improvements and Chinese contract manufacturing for energy-industrial products. Both the timing and capacity plan are uncertain.
- The company said existing cash should support current operations, R&D and initial strategic investment, but expects to seek additional capital through equity or debt financing, equipment leasing, sale-leasebacks, customer prepayments or government programs. It also intends to enter a new revolving credit facility.
- GM contracts for thermal barriers have fixed annual prices and terms extending from 2026 to 2034, but do not require minimum purchases and may be terminated by GM at any time, for any or no reason. Thermal Barrier production, capacity expansion and customer demand therefore remain important execution risks.
- Newly highlighted risks include dependence on Chinese contract manufacturers beginning in 2024, including delivery, quality, cost, geopolitical, supply-chain and intellectual-property risks. Inflation, raw-material costs and construction or supply-chain disruptions could also affect margins and project costs.
- Legal matters include Aspen’s Korean patent-infringement complaint and trade investigation involving Beerenberg-related entities. A former Polish distributor seeks monetary damages in excess of $16 million; Aspen moved to compel arbitration and says it will defend the case. The company reported no probable litigation loss requiring accrual.
Important facts for investors to verify
- Progress on the Georgia facility delay, revised capital-spending plans and eventual commissioning schedule.
- Whether Chinese contract manufacturing can meet 2024 volume, quality, cost and delivery needs while protecting Aspen’s intellectual property.
- EV customer production forecasts and actual Thermal Barrier orders, especially given GM’s lack of minimum-purchase commitments and termination rights.
- Cash consumption, future financing requirements and terms of any new credit facility or other capital sources.
- Whether higher selling prices, product mix and manufacturing productivity can sustain improved gross margins as operating expenses and capacity-related costs rise.
- Developments in the distributor litigation and Korean patent proceedings, as well as potential effects on legal costs or operations.