Aspen Aerogels, Inc. — Form 10-Q Summary
Business context and reporting period
Quarter ended September 30, 2021; comparisons are with the quarter and nine months ended September 30, 2020. Aspen designs and manufactures aerogel insulation for energy infrastructure and building materials and is developing thermal barriers and battery materials for electric vehicles (EVs). It operates as one reportable segment.
Financial performance and liquidity
- Third-quarter revenue: $30.4 million, up 26%. Product shipments rose 32% to 9.0 million square feet. Growth in refinery and chemical markets, especially in the U.S. and Europe, was partly offset by lower LNG project demand. Average selling price fell 4% to $3.36 per square foot, mainly reflecting product mix.
- Third-quarter profitability: Gross profit was $3.1 million, or 10% of revenue, versus $1.9 million, or 8%, a year earlier. Operating loss widened to $11.5 million from $6.7 million. Net loss was $7.8 million, or $0.24 per share, versus $6.8 million, or $0.25 per share. Results included a $3.7 million PPP-loan forgiveness gain.
- Nine-month revenue and earnings: Revenue was $90.1 million, up 17%; gross profit was $11.6 million, up 8%, with gross margin of 13% versus 14%. Operating loss increased to $24.3 million from $15.4 million. Net loss increased to $20.7 million, or $0.70 per share, from $15.6 million, or $0.60 per share. Adjusted EBITDA, a non-GAAP measure, was negative $13.8 million versus negative $4.8 million.
- Cash flow: For the first nine months, operating cash use was $6.6 million versus $4.8 million; capital expenditures were $6.1 million versus $2.6 million. Financing provided $91.7 million, principally from equity issuance.
- Liquidity and debt: Cash and equivalents were $95.5 million at September 30, versus $16.5 million at year-end 2020. There were no revolving-credit borrowings; $9.5 million remained available after letters of credit. The $20 million facility matures April 28, 2022, and the company intends to extend or replace it. Total liabilities were $45.2 million, including $9.6 million of BASF-related prepayment liability and $13.8 million of operating lease liabilities.
- Capital and dilution: Aspen received $73.5 million net from a June private placement and $19.4 million net from its ATM offering during the nine months. Shares outstanding rose to 33.1 million from 27.8 million at December 31, 2020.
Material changes versus the prior comparable period
- Higher shipment volume drove revenue growth, but product mix reduced average selling prices. Product costs increased 18% for the nine months, faster than revenue, and gross margin declined by about one percentage point.
- Operating expenses rose substantially: nine-month research and development increased 26%, sales and marketing 30%, and general and administrative 50%. Aspen attributed increases to hiring, EV-market initiatives, recruiting and professional services, among other items.
- The company recorded a $3.7 million gain after the SBA forgave its PPP loan. Its reported net loss therefore understates the loss absent that nonrecurring gain.
- U.S. revenue increased while international revenue was broadly flat for the nine months. Subsea project revenue declined to $3.7 million from $8.3 million.
Outlook, commentary, risks and unusual items
- Management projected 2021 revenue growth, citing refinery and chemical demand, European building materials, initial EV thermal-barrier revenue and price increases intended to offset raw-material inflation. It expected lower Adjusted EBITDA and a larger net loss versus 2020 as it increased EV, R&D, staffing and capacity investment; no specific full-year numerical guidance was provided.
- A second aerogel plant in the southeastern U.S. was planned for operation in the second half of 2023, subject to approvals and other arrangements. Aspen also planned an automated thermal-barrier operation in Mexico and a battery-materials facility.
- EV thermal-barrier supply contracts with a major U.S. automaker have fixed annual prices, but specify no minimum purchase volumes and may be terminated by the customer at any time. Investors should not treat the contracts as guaranteed demand.
- In October 2021, Aspen and BASF announced BASF would stop marketing Spaceloft A2 effective November 15, 2021. Aspen was negotiating agreement amendments; the approximately $9.7 million uncredited prepayment balance could be subject to repayment upon BASF’s request under the applicable terms and notice periods.
- Management said cash and available credit should support current operations and initial strategic capital spending, but additional financing, customer prepayments or licensing fees may be needed for planned expansions. The company was covenant-compliant at quarter-end. The credit facility’s 2022 maturity and BASF repayment provisions are notable liquidity considerations.
- Risks include raw-material and labor cost increases, supply-chain constraints, project and customer concentration, EV commercialization and execution, COVID-19 uncertainty, and potentially significant expenses from patent litigation. Aspen reported ongoing patent enforcement proceedings and stated no loss was probable or estimable for accrual at filing.
Most important facts for investors to verify
- Whether shipment growth and improved quarterly gross margin persist despite lower nine-month margins and rising input and labor costs.
- Actual EV customer orders, production ramp, contract economics and required capital spending, given the absence of minimum purchase commitments.
- Terms and timing of any BASF agreement amendments, prepayment repayment demands and direct sales transition for Spaceloft A2.
- Plans to renew or replace the revolving credit facility before April 2022 and the financing required for announced expansion projects.
- Progress, costs and outcomes of patent litigation, and whether the reported $3.7 million PPP forgiveness gain is separated from recurring operating performance.