Aspen Aerogels, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Financial statements are unaudited; comparisons are with Q1 2022 unless otherwise stated. Amounts below are in U.S. dollars.
Business context
Aspen designs and manufactures aerogel insulation for energy-industrial applications and thermal barriers for electric-vehicle battery packs. It is also developing aerogel battery materials. The company reports Energy Industrial and Thermal Barrier segments.
Key financial results
| Metric | Q1 2023 | Q1 2022 | Change / context |
|---|---|---|---|
| Revenue | $45.6 million | $38.4 million | Up 19% |
| Gross profit (loss) | $5.1 million | $(1.8) million | Gross margin 11.2%, versus (4.7)% |
| Operating loss | $(18.9) million | $(18.6) million | Operating expenses rose 43% to $24.0 million |
| Net loss | $(16.8) million | $(19.5) million | Basic and diluted loss per share: $(0.24) versus $(0.59) |
| Adjusted EBITDA | $(13.9) million | $(14.7) million | Non-GAAP measure |
| Cash used in operations | $24.7 million | $22.8 million | Capital expenditures were $49.4 million versus $14.5 million |
Energy Industrial revenue was $33.9 million, up 10%; shipments were essentially flat at 8.2 million square feet, while average selling price increased 10% to $4.14 per square foot. Thermal Barrier revenue rose 53% to $11.7 million. Energy Industrial segment operating profit was $8.9 million, compared with $3.0 million; Thermal Barrier segment operating loss narrowed to $3.8 million from $4.8 million.
Cash and cash equivalents were $207.5 million at March 31, 2023, down from $281.3 million at year-end 2022. Current assets were $296.0 million and current liabilities $68.8 million. Total liabilities were $188.2 million. The related-party convertible note had a $100 million principal amount and a $106.4 million carrying value; it matures in February 2027 and bears interest at SOFR plus 5.50% if paid in cash or SOFR plus 6.50% if paid in kind, subject to a 1% floor and 3% cap.
Material changes and management commentary
- Revenue growth and improved gross profit reflected higher Thermal Barrier sales, better Energy Industrial pricing and mix, and lower Energy Industrial costs. Energy Industrial shipments did not materially increase.
- Operating expenses increased, especially general and administrative costs, up $5.0 million, and sales and marketing costs, up $1.7 million. Management attributed increases principally to personnel, professional services, and support for growth initiatives.
- Interest income of $2.4 million helped reduce the net loss; Q1 2022 had net interest expense. The change in net loss per share also reflects a substantially higher weighted-average share count in 2023, following prior-period equity issuances.
- Management expected strong 2023 revenue growth, driven by energy-industrial recovery, EV demand, and sustainable-insulation market-share gains, and expected net loss and Adjusted EBITDA to decrease during 2023. It also expected 2023 gross profit to improve, while research and development and operating expenses were expected to rise.
- Aspen extended the construction and commissioning timeline for its planned Bulloch County, Georgia plant, intending to align added capacity with EV demand; it expected to substantially reduce planned 2023 and 2024 capital expenditures until construction resumes. Management cited productivity improvements at its Rhode Island facility and planned Chinese contract manufacturing as paths toward approximately $550 million of annual revenue capacity in 2024, before the Georgia plant is completed.
Liquidity, risks and contingencies
- Management said available cash should support current operations, R&D and initial strategic capital needs, but planned to seek additional equity or debt financing, customer prepayments, licensing fees, or government funding for broader expansion plans. The filing also stated an intention to enter a new revolving credit facility.
- The General Motors thermal-barrier contracts have fixed annual prices and specified volumes up to daily limits, but no minimum purchase obligation; GM may terminate them at any time, for any or no reason.
- Planned Chinese contract manufacturing from 2024 presents supply, quality, geopolitical, logistics and intellectual-property protection risks. The company cautioned that manufacturers may not provide sufficient, timely or cost-efficient supply.
- The Georgia plant’s remaining costs and restart timing were undetermined. Inflation, supply-chain disruptions and changes in project scope could increase completion costs. The company had $259.2 million of construction in progress at quarter-end, including $204.2 million associated with the planned Georgia facility.
- Aspen filed a Korean patent-infringement complaint and unfair-trade-practices petition against Beerenberg entities in April 2023, seeking injunctive relief and monetary damages. The company reported no loss contingency requiring accrual or disclosure for its other litigation.
- Cash deposits may exceed insured limits. Aspen said it was establishing relationships with additional large financial institutions following regional-bank failures. It reported no material effect from inflation in the periods presented, but identified interest-rate and potential future foreign-exchange exposure.
Important facts for investors to verify
- Whether EV customer forecasts translate into actual orders, deliveries and Thermal Barrier profitability, given the GM contracts’ lack of minimum volume commitments and termination rights.
- Whether management achieves the stated 2023 growth and loss-reduction outlook and the approximately $550 million 2024 revenue-capacity target, including through Chinese contract manufacturing.
- The revised Georgia plant schedule, remaining capital requirements and funding sources, and the rate at which cash is consumed by operations and capital expenditures.
- The execution, quality, supply continuity and intellectual-property safeguards for prospective Chinese manufacturing partners.
- Future costs and outcomes of the Korean patent case and other patent-enforcement activity.