Aspen Aerogels, Inc. — FY 2018 Form 10-K
Reporting period: Fiscal year ended December 31, 2018. This annual filing also reports fourth-quarter results. Aspen designs and manufactures aerogel insulation, primarily for energy infrastructure, with additional building-materials and other applications.
Financial performance
| Metric | FY 2018 | FY 2017 |
|---|---|---|
| Total revenue | $104.4 million | $111.6 million |
| Product revenue | $102.1 million | $109.6 million |
| Gross profit / margin | $12.7 million / 12% | $18.7 million / 17% |
| Operating loss | $33.9 million | $19.1 million |
| Net loss / loss per share | $34.4 million / $1.45 | $19.3 million / $0.83 |
| Adjusted EBITDA (non-GAAP) | $(11.5) million | $(3.3) million |
| Operating cash flow | $(8.7) million | $(4.6) million |
| Capital expenditures | $3.6 million | $6.1 million |
Product shipments fell 8% to 34.4 million square feet; average selling price rose 1% to $2.96 per square foot. Management attributed the revenue decline mainly to completion of a large Reliance Industries project and lower subsea project revenue. Higher raw-material costs and fixed manufacturing costs pressured margins. Fourth-quarter revenue was $35.7 million versus $36.4 million a year earlier; net loss was $14.1 million versus $1.7 million.
Liquidity, debt, and capacity
- At year-end, cash and cash equivalents were $3.3 million, working capital was $14.2 million, and total assets were $99.0 million.
- Revolving-credit borrowings were $4.2 million. After $1.6 million of letters of credit, reported availability under the $20 million SVB facility was $10.3 million. Aspen disclosed repeated 2018 covenant waivers; it said it was compliant at year-end under the waivers.
- BASF provided a $5.0 million prepayment in 2018, recorded as a liability and secured by a first-priority interest in Rhode Island real estate, machinery, and equipment. BASF provided another $5.0 million in January 2019. The credit facility was amended in March 2019, extending maturity to April 28, 2020 and changing borrowing-base and covenant terms.
- East Providence nameplate capacity reached 55 million square feet. The EP20 program targets 60 million by the end of 2020; remaining planned spending was estimated at up to $12 million.
Changes, outlook, and key risks
- Material unusual items: Aspen recorded a $7.4 million impairment for Statesboro, Georgia facility design and pre-construction costs after deciding not to use the plans for a second plant. It also recorded a $2.9 million bad-debt provision, including $2.8 million related to one Brazilian contractor.
- Management’s 2019 outlook: Revenue growth in excess of 20%, lower net loss, and a return to positive Adjusted EBITDA. The forecast depends on growth in refinery and petrochemical markets, subsea and LNG projects, new-market penetration, a 2019 price increase, and cost improvements. These are projections, not guarantees.
- Costs and product exposure: Silica precursor prices rose materially in 2018; material costs increased to 47% of product revenue from 45%. Testing found samples outside published specifications for a product attribute. Management considered a liability probable but could not estimate it; no 2018 warranty expense was recorded for this matter.
- Customer and operating concentration: Distribution International represented 20% of 2018 revenue and 18% of year-end receivables. About 94% of revenue was estimated to come from energy-industry end users. All manufacturing is at one East Providence facility.
- Contingencies: Patent enforcement against aerogel competitors continues; the ITC exclusion order remains in effect, with appeals and foreign patent challenges ongoing. Aspen had incurred about $8.1 million in related litigation expense through year-end. Recovery of approximately $2.9 million sought from Qualiman in Brazil remained subject to further appeal and the contractor’s liquidity.
- Other risks: Aspen has incurred annual losses since inception, faces ongoing cash needs and financing uncertainty, and has a history of covenant waivers. Other disclosed risks include energy-sector cyclicality, raw-material supply and pricing, competition, customer concentration, product quality and warranty exposure, and international operations.
Important facts for investors to verify
- Whether 2019 revenue, margin, and positive Adjusted EBITDA targets were achieved, and the assumptions behind those forecasts.
- Current cash, working-capital needs, borrowing availability, covenant compliance, and plans to extend or replace the SVB facility before maturity.
- How the BASF advances are being credited or repaid, and whether BASF makes purchases under agreements that do not require minimum volumes.
- The scope and potential cost of the product-specification issue, any resulting warranty claims, and subsequent collections on the Brazilian receivable.
- Progress and remaining cost of EP20, alongside utilization of expanded capacity and demand sufficient to support the investment.