Aspen Aerogels, Inc. — Q1 2022 Form 10-Q
Business context and reporting period. Unaudited results for the three months ended March 31, 2022, compared with Q1 2021. Aspen develops and manufactures aerogel insulation for energy infrastructure and sustainable buildings, and thermal barriers for electric-vehicle (EV) battery packs. It reports Energy Industrial and Thermal Barrier segments and is winding down funded contract research activities.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $38.4 million | $28.1 million |
| Gross profit (loss) | $(1.8) million; approximately (4.7)% margin | $4.0 million; approximately 14.1% margin |
| Operating loss | $(18.6) million; approximately (48.5)% margin | $(6.2) million; approximately (22.0)% margin |
| Net loss / diluted loss per share | $(19.5) million / $(0.59) | $(6.3) million / $(0.22) |
| Adjusted EBITDA (non-GAAP) | $(14.7) million | $(2.6) million |
| Cash used in operating activities | $(22.8) million | $(1.9) million |
| Cash used in investing activities | $(14.5) million | $(1.5) million |
- Revenue rose 37%. Energy Industrial revenue was $30.8 million, up 10%; Thermal Barrier revenue was $7.6 million, versus $0.1 million. Q1 2022 thermal-barrier cost of revenue was $12.4 million, resulting in a segment operating loss of $4.8 million.
- Energy Industrial shipments fell 5% to 8.2 million square feet, while average selling price increased 16% to $3.77 per square foot. Its segment operating profit declined to $3.0 million from $4.9 million.
- Cash and cash equivalents were $205.2 million at March 31, versus $76.6 million at year-end. Financing activities provided $165.9 million, including approximately $99.8 million net convertible-note proceeds, $49.9 million from a private stock placement, and $23.3 million net ATM proceeds.
- The company had $100.0 million principal amount of related-party convertible notes, due 2027, bearing SOFR plus 5.50% cash interest or SOFR plus 6.50% PIK interest, subject to a 1% SOFR floor and 3% cap. It had no revolver borrowings; $15.8 million was available after letters of credit. The facility’s amended maturity was June 27, 2022. Aspen reported covenant compliance at March 31 and intended to extend or replace the facility.
- Current assets were $248.1 million and current liabilities $46.2 million. The $5.0 million BASF prepayment liability was current. Total liabilities were $159.4 million and stockholders’ equity $181.6 million.
Material changes versus Q1 2021
- Revenue growth was led by thermal barriers; Energy Industrial revenue also increased, despite lower shipment volume. A higher product mix and selling price supported Energy Industrial revenue.
- Cost of revenue increased 67% to $40.2 million, exceeding revenue growth. Management cited higher material costs and manufacturing expense, including staffing and other costs to support anticipated future volumes. Overall gross profit swung to a loss.
- Operating expenses increased 66% to $16.8 million, with increases in research and development, sales and marketing, and general and administrative costs. Net loss more than tripled.
- Operating cash use increased substantially, while capital expenditures rose to $14.5 million. Cash increased mainly due to financing, including the convertible-note issuance and equity sales.
Outlook, commentary, and risks
- Management expected 2022 revenue growth from recovery in energy infrastructure, EV demand, and sustainable-building market-share gains. It also expected higher net loss and lower Adjusted EBITDA in 2022 as staffing, operating costs, and manufacturing start-up spending increase. No specific full-year revenue or earnings guidance amount is provided.
- Aspen planned approximately $700 million of investment in two phases for a second aerogel manufacturing plant in Bulloch County, Georgia; it expected phase one to be operational late in the second half of 2023. Management also planned an automated thermal-barrier fabrication operation in Monterrey, Mexico. Funding for the broader build-out may require additional equity or debt, customer prepayments, or licensing fees.
- In May 2022, a silane supplier notified Aspen it needed to curtail supply because of transportation difficulties. Aspen was seeking alternative supply and transport; it cautioned that insufficient or delayed supply could materially harm its business and financial condition.
- GM thermal-barrier contracts run through various dates from 2026 to 2034, but include no minimum purchase quantities and may be terminated by the customer at any time, for any or no reason. Fixed annual prices and production scaling add execution and margin risks.
- The Georgia project’s stated investment and job-creation commitments are at least $325 million and 250 full-time jobs. Failure to meet specified thresholds could require repayment of certain incentives.
- Patent enforcement matters remain ongoing, including proceedings in Italy and an appeal in Germany. The company said litigation outcomes and costs are difficult to predict and could involve significant legal expense. It reported no material changes to the risk factors in its prior annual report.
- The company repaid $4.7 million of BASF prepayments in February 2022; the remaining $5.0 million was payable on or after January 1, 2023, upon BASF request. Management also cited continuing uncertainty around COVID-19 and supply-chain constraints.
Investor verification priorities
- Track whether thermal-barrier sales scale and unit economics improve, given the segment’s $4.8 million Q1 operating loss and contracts without minimum volumes.
- Verify silane availability, mitigation progress, and any effect on production, customer deliveries, costs, or guidance.
- Monitor cash burn, capital spending, financing needs, and the extension or replacement of the revolver before its June 27, 2022 maturity.
- Assess whether the Georgia and Mexico capacity plans remain on schedule and within budget, and whether the company secures the additional capital required.
- Review subsequent results for margin recovery, operating-expense growth, customer concentration, BASF repayment obligations, and litigation developments.