Aspen Aerogels, Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Amounts are in U.S. dollars; financial statement amounts are in millions unless otherwise stated.
Business context
Aspen designs and manufactures aerogel insulation for energy infrastructure and sustainable building markets, and thermal barriers for electric-vehicle batteries. It is also developing aerogel battery materials. The filing reports two segments: Energy Industrial and Thermal Barrier.
Financial performance and liquidity
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $36.7 | $30.4 | $120.8 | $90.1 |
| Gross profit (loss) | $(6.4) | $3.1 | $(9.4) | $11.6 |
| Gross margin | (17%) | 10% | (8%) | 13% |
| Operating expenses | $22.0 | $14.6 | $60.2 | $35.9 |
| Operating loss | $(28.3) | $(11.5) | $(69.6) | $(24.3) |
| Net loss | $(29.6) | $(7.8) | $(73.1) | $(20.7) |
| Adjusted EBITDA (non-GAAP) | $(23.2) | $(7.8) | $(56.2) | $(13.8) |
- Q3 revenue rose 21%, led by thermal barriers; Energy Industrial revenue fell 16%. Thermal Barrier revenue was $12.0 million versus $0.9 million a year earlier, but segment operating loss widened to $8.4 million.
- For the first nine months, revenue increased 34%. Thermal Barrier revenue grew to $30.3 million from $1.2 million, while Energy Industrial revenue rose 2% to $90.4 million. Energy Industrial shipments declined 12% to 24.1 million square feet; higher average selling prices partly offset lower volume.
- Thermal Barrier segment operating loss was $20.4 million for the nine months, versus $3.3 million. Management attributed increased costs to production ramp-up, materials, staffing and manufacturing operations.
- Cash and cash equivalents were $102.4 million at September 30, up from $76.6 million at year-end 2021. Current assets were $156.3 million and current liabilities $81.0 million.
- Nine-month operating cash use was $70.3 million; capital expenditures used $119.3 million. Financing provided $215.5 million, including $99.8 million net proceeds from convertible debt, $49.9 million from a private stock placement and $72.7 million from ATM share sales.
- Property, plant and equipment, net, increased to $210.1 million from $55.8 million; construction in progress was $158.7 million, including $129.4 million for the planned Georgia facility.
- The company had a $100 million principal convertible note issued to a Koch affiliate, with a September 30 carrying value of $105.2 million including interest. It bears SOFR plus 5.50% if paid in cash or SOFR plus 6.50% if paid in kind, and matures in 2027. The holder could convert into approximately 3.0 million shares at the initial conversion rate.
- No revolving-credit borrowings were outstanding; $13.3 million was available after letters of credit. The $20 million facility matured December 1, 2022 after an October amendment. The company was covenant-compliant at September 30 and intended to extend or replace it.
Changes, outlook and risks
- Losses increased substantially year over year as revenue growth did not cover higher production and operating costs. Q3 2021 also included a $3.7 million gain from forgiveness of a Paycheck Protection Program loan; no such gain was recorded in 2022.
- Management expected 2022 revenue growth from energy-market recovery and EV demand, while anticipating a higher net loss and lower Adjusted EBITDA due to added staffing, thermal-barrier operations and facility investments. No specific revenue or earnings guidance range is provided.
- The Georgia plant was planned in two phases, previously estimated at $575 million and $125 million. Aspen said inflation and supply-chain challenges prompted a review of project scope, schedule and plans; costs could exceed prior estimates. Phase one was expected to be operational in the first half of 2024.
- Aspen expected existing cash and anticipated credit availability to support current operations and initial strategic investments, but said it planned to seek additional equity or debt financing, customer prepayments or licensing fees for broader expansion needs.
- GM-related thermal-barrier contracts have fixed annual prices but no minimum purchase obligation, and the OEM may terminate at any time, for any or no reason. Contracted demand therefore does not assure future revenue.
- Management cited supply-chain and cost pressures, including a carbon-dioxide shortage, and uncertainty around COVID-19 impacts. The filing also describes exposure to interest rates, inflation and potential future foreign-exchange risk.
- The $5.0 million remaining BASF prepayment liability was repaid on November 1, 2022, after quarter-end. The company reported no litigation loss it considered probable and requiring accrual.
- ERP implementation assessments identified a material weakness in user-access and change-management controls. Management said it implemented corrective access and monitoring controls and considered the weakness remediated as of September 30, 2022; it reported no known resulting misstatement.
Important facts for investors to verify
- Whether the revolving credit facility was extended or replaced before its December 1, 2022 maturity, and whether covenant compliance and borrowing availability were maintained.
- Updated Georgia project costs, scope, schedule, financing requirements and progress toward the first-half 2024 operational target.
- Actual thermal-barrier production costs and margins as operations scale, and whether OEM demand converts to purchases despite the absence of minimum-volume commitments and termination rights.
- Future cash burn and financing needs, including potential dilution from further equity issuance and conversion of the Koch note.
- Whether the ERP control remediation remains effective and whether the company’s internal-control disclosures change in subsequent filings.