Aspen Aerogels, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; compared with Q1 2019. The company designs and manufactures aerogel insulation, primarily for energy infrastructure and building materials, and reports as one operating segment.
Financial results
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Total revenue | $28.4 million | $27.9 million | +2% |
| Gross profit / margin | $6.0 million / 21% | $3.7 million / 13% | +61%; margin +8 percentage points |
| Operating expenses | $9.1 million | $9.7 million | Down $0.6 million |
| Operating loss | $(3.1) million | $(6.0) million | Improved $2.9 million |
| Net loss / diluted loss per share | $(3.2) million / $(0.13) | $(6.0) million / $(0.25) | Loss narrowed |
| Adjusted EBITDA | $0.5 million | $(2.6) million | Improved $3.0 million |
| Net cash used in operations | $(1.4) million | $(3.0) million | Cash use decreased $1.6 million |
| Capital expenditures | $0.9 million | $0.6 million | Up $0.3 million |
Product revenue was $28.3 million, up 6%; research-services revenue fell 90% to $0.1 million as the company winds down contract research. Product shipments declined 6% to 8.2 million square feet, while average selling price rose 13% to $3.47 per square foot. Product cost of revenue fell to 79% of product revenue from 88%, supporting improved gross margin.
Balance sheet and liquidity
- At March 31, 2020, cash and cash equivalents were $11.8 million, versus $3.6 million at year-end 2019. Total assets were $102.5 million and stockholders’ equity was $70.4 million.
- No borrowings were outstanding on the revolving credit facility; $8.8 million was available after $1.2 million of letters of credit. The facility has a $20 million maximum, is subject to borrowing-base and covenant requirements, and matures April 28, 2021. The company was covenant-compliant and intends to extend or replace it.
- The balance sheet included a $9.7 million BASF prepayment liability. BASF’s $10 million of historical prepayments are subject to product-invoice credits and potential repayment provisions. The company also had $5.2 million of operating lease liabilities.
- Financing activities provided $10.4 million, including $14.8 million net proceeds from a February public offering of 1.955 million shares at $8.25 per share; cash also funded repayment of revolving borrowings and employee equity-award tax withholdings.
Changes, outlook and risks
- Revenue growth reflected U.S. petrochemical/refinery demand, LNG projects, prior price increases and favorable product mix, partly offset by lower subsea and Canadian demand. Subsea-project revenue declined to $2.2 million from $4.7 million.
- Management said COVID-19 and global oil-market volatility had negatively affected demand, although the facility remained operational and no significant supply-chain or delivery disruption had been encountered as of the filing. It expected year-over-year revenue to decline in 2020, with higher net loss, lower Adjusted EBITDA and increased operating cash use likely. No specific full-year numerical guidance was provided.
- Expense responses included wage reductions, temporary suspension of board fees, discretionary-cost reductions and deferral of certain employer Social Security taxes. The company said it might curtail East Providence operations if needed. Cost reductions might not offset weaker revenue.
- Capacity was estimated at 55 million square feet annually at quarter-end; management said it remained on track to reach 60 million by year-end 2020 through its EP20 expansion. It expected existing cash and available credit to support current needs, the expansion and strategic initiatives, but said future financing could be needed.
- After quarter-end, a wholly owned subsidiary received a $3.686 million unsecured Paycheck Protection Program loan on May 1, 2020, at 1% interest, with a two-year term and six-month payment deferral. Some or all may be forgiven subject to program requirements; forgiveness is not assured. The company disclosed potential audit, repayment, penalty and reputational risks related to eligibility and certifications.
- Litigation includes ongoing patent disputes and appeals. In a Brazilian collection action against customer Qualiman, the company had recovered $0.3 million of approximately $2.9 million in past-due invoices and said further recovery was unlikely following Qualiman’s judicial reorganization. The company reported no litigation loss considered probable and requiring accrual.
- The company decided to stop seeking new funded research contracts and wind down existing contract research during 2020, redirecting resources toward core-business profitability and new products. It reported no material change in internal controls and said disclosure controls were effective.
Important facts for investors to verify
- Whether COVID-19, oil-market conditions and customer demand produce the forecast revenue decline, and whether cost actions protect margins, EBITDA and cash.
- Progress and spending on the East Providence expansion, including the stated 60-million-square-foot capacity target.
- Liquidity and borrowing availability under the revolving facility, covenant compliance and the plan to extend or replace it before April 2021.
- PPP loan eligibility, use of proceeds, audit outcome and the amount, if any, ultimately forgiven.
- Collections and outcomes in the Qualiman matter and patent proceedings, including potential legal expense and recovery.
Adjusted EBITDA is a non-GAAP measure; the company cautions it should not be viewed in isolation or as a substitute for GAAP results or cash flows.