Aspen Aerogels, Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Unaudited results; financial amounts below are in millions unless otherwise noted.
Business context
Aspen designs and manufactures aerogel insulation for energy-industrial markets and thermal barriers for electric-vehicle battery packs. It reports Energy Industrial and Thermal Barrier segments. The company is expanding thermal-barrier operations and developing battery materials while revising the timing of its planned Georgia manufacturing plant.
Key financial results
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $60.8 | $36.7 | $154.5 | $120.8 |
| Gross profit (loss) | $13.8 | $(6.4) | $27.3 | $(9.4) |
| Gross margin | 22.7% | (17.3)% | 17.7% | (7.7)% |
| Operating loss | $(14.6) | $(28.3) | $(50.6) | $(69.6) |
| Net loss | $(13.1) | $(29.6) | $(45.3) | $(73.1) |
| Adjusted EBITDA (non-GAAP) | $(7.3) | $(23.2) | $(32.1) | $(56.2) |
| Net loss per share | $(0.19) | $(0.75) | $(0.65) | $(2.03) |
Revenue mix and drivers: Q3 Energy Industrial revenue rose 13% to $27.9 million; Thermal Barrier revenue rose 175% to $32.8 million. For nine months, the segments increased 8% to $97.3 million and 88% to $57.2 million, respectively. Thermal Barrier sales to a major U.S. automotive OEM were $29.5 million in Q3 and $49.0 million for nine months. Energy Industrial shipments fell 12% in Q3 and 7% for nine months, while average selling prices rose 28% and 16%, respectively.
Cash flow and liquidity: Nine-month operating cash use was $39.8 million, versus $70.3 million in 2022; capital expenditures were $147.7 million, versus $119.3 million. Cash, cash equivalents and restricted cash fell $187.6 million to $95.0 million, including $94.6 million unrestricted cash. Current assets were $200.4 million and current liabilities $61.3 million.
Debt and balance sheet: The related-party convertible note had a $100.0 million original principal and a $112.1 million carrying amount at September 30, including payment-in-kind interest, accrued interest and accounting discounts/costs. It matures in February 2027 and bears interest at capped SOFR plus 5.50% cash or 6.50% in-kind. Total liabilities were $195.3 million; stockholders’ equity was $409.8 million. Net property and equipment was $385.0 million, including $299.9 million of construction in progress. Shares outstanding increased to 70.2 million from 40.8 million a year earlier.
Material changes and unusual items
- Revenue growth and lower total cost of revenue moved gross profit from a loss to a profit. Nine-month Energy Industrial gross margin rose to 25%; Thermal Barrier margin was 5%, compared with a substantial loss in the prior-year period.
- Operating expenses increased 29% in Q3 and 29% for nine months. Nine-month general and administrative expense rose 56% to $41.4 million, primarily reflecting staffing, compensation and professional services.
- Q3 and nine-month results included $2.2 million of Employee Retention Credit income after the company submitted claims in September 2023.
- Cash use reflects substantial investment: nine-month capital expenditures exceeded operating cash use. Construction in progress for the Georgia plant was $299.9 million, including $255.2 million of related engineering and construction costs.
Outlook, financing and risks
- Management expected strong 2023 revenue growth and lower net loss and Adjusted EBITDA, citing EV demand, energy-industrial recovery and sustainable-insulation market gains. These expectations depend on customer forecasts, successful capacity scaling and supply availability.
- The company is extending the Georgia plant’s construction and commissioning timetable to align capacity with expected EV demand and expects substantially lower planned capital expenditures for 2023 and 2024 until construction ramps up. It targets approximately $550 million of 2024 revenue capacity through Rhode Island productivity improvements and Chinese contract manufacturing, before the Georgia plant is operational; this is not assured.
- Management said existing cash should support current operations, R&D and initial strategic capital needs, but plans to seek additional equity or debt financing, equipment leasing, sale-leasebacks, customer prepayments, or government funding for broader expansion.
- The amended GM delayed-draw loan provides up to $100 million, with the draw period extended and maturity moved to September 2025. Funding requires at least $500 million of aggregate equity and/or debt proceeds contributed and disbursed for the plant, and 70% of total plant construction and operating costs fully funded before borrowing. Financial covenants begin with the quarter ending December 31, 2024. GM contracts carry no minimum purchase commitment and may be terminated by GM at any time.
- Key execution risks include Chinese contract manufacturers’ ability to deliver sufficient, high-quality product on time and cost-effectively, and protection of Aspen’s intellectual property in China. Plant timing, construction costs, inflation, supply-chain disruptions and customer demand also create uncertainty.
- Two customers represented 50% of nine-month revenue; one customer represented 61% of accounts receivable at September 30. The filing also reports ongoing patent disputes and an ex-distributor lawsuit seeking damages in excess of $16 million; Aspen is seeking arbitration and intends to defend the matter.
Important facts for investors to verify
- Whether thermal-barrier growth and margins remain sustainable, especially given customer concentration and the absence of minimum purchases under GM contracts.
- Cash burn, capital spending plans and timing or terms of additional financing; confirm whether the GM loan’s funding conditions can be met.
- Progress and revised schedule for the Georgia plant, the $550 million capacity target, and actual readiness and performance of Chinese contract manufacturing.
- Whether Energy Industrial shipment volumes recover and whether pricing and product mix continue to support improved gross margins.
- Developments in the APN litigation and patent proceedings, and the outcome and collectability of the Employee Retention Credit claims.