Aspen Aerogels, Inc. — FY2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. The filing also presents unaudited quarterly results, including the fourth quarter. Aspen designs and manufactures aerogel insulation, primarily for energy infrastructure; product sales accounted for 98% of annual revenue.
Financial results and liquidity
| Metric | FY2019 | FY2018 |
|---|---|---|
| Total revenue | $139.4 million | $104.4 million |
| Product revenue | $136.9 million | $102.1 million |
| Gross profit / margin | $26.3 million / 19% | $12.7 million / 12% |
| Operating loss | $14.2 million | $33.9 million |
| Net loss / loss per share | $14.6 million / $0.60 | $34.4 million / $1.45 |
| Adjusted EBITDA (non-GAAP) | $(0.2) million | $(11.5) million |
| Cash from operating activities | $(1.1) million | $(8.7) million |
| Cash and cash equivalents at year-end | $3.6 million | $3.3 million |
| Total debt at year-end | $3.1 million | $4.2 million |
| Working capital | $15.3 million | $14.2 million |
FY2019 product shipments rose 18% to 40.7 million square feet; average selling price increased 14% to $3.36 per square foot. Fourth-quarter revenue was $46.5 million versus $35.7 million a year earlier; net loss was $1.0 million versus $14.1 million. Fourth-quarter gross profit was $11.3 million versus $5.6 million.
At year-end, the company had $12.4 million available under its $20 million revolving facility, after borrowings and letters of credit, subject to covenants and borrowing-base limits. On February 18, 2020, it raised $14.8 million net from a share offering; on March 3, it extended the facility maturity to April 28, 2021. BASF prepayments totaled $10.0 million, with $9.8 million recorded as a liability; the obligation is secured by assets at the East Providence facility.
Material changes and management outlook
- Revenue increased 34%, driven by North American refinery and petrochemical sales, higher subsea and LNG project demand, and 2019 price increases. Growth was partly offset by lower building-materials and Asian petrochemical shipments.
- Gross margin improved as revenue growth outpaced manufacturing expense, which benefited from fixed-cost leverage. Raw materials remained a pressure: material costs were 48% of product revenue, up from 47% in 2018, amid elevated silica-precursor costs.
- The 2018 comparison included a $7.4 million impairment charge for plans for a second Georgia facility; no such charge was recorded in 2019. Aspen instead pursued capacity expansion at East Providence, reaching 55 million square feet of annual nameplate capacity, with a 60 million-square-foot target by year-end 2020.
- Management expected 2020 revenue growth to moderate, citing lower anticipated subsea project demand and little to no LNG project growth. It expected higher gross profit and margin, and strong year-over-year improvement in net loss and Adjusted EBITDA, supported partly by lower-cost formulations. These are forward-looking expectations, not guarantees.
- Aspen decided to wind down funded contract research during 2020 and redirect resources to existing-business profitability and new products, including battery materials and thermal-runaway protection for electric vehicles. These opportunities remained developmental.
Risks, contingencies and unusual items
- The company had a history of annual losses and negative operating cash flow; FY2019 cash use was $1.1 million. Management’s liquidity plans rely on available credit, operating cash flow and financing access. Credit covenants, prior 2018 covenant waivers and the 2021 facility maturity are relevant.
- Manufacturing depends on one East Providence facility and three production lines. Disruption, quality issues, capacity constraints or unavailable/expensive raw materials could affect deliveries and results.
- Customer and market concentration is significant: the top ten direct customers generated 68% of 2019 revenue; Distribution International and SPCC represented 20% and 13%, respectively. Approximately 58% of revenue was international, and management estimated energy end-users accounted for about 97% of revenue.
- In 2019 Aspen wrote off the remaining $2.6 million receivable from a Brazilian contractor after a prior allowance; further recovery was considered unlikely. The company reported no litigation loss that it considered probable and requiring accrual.
- Patent disputes with aerogel competitors continued across jurisdictions. Aspen disclosed favorable U.S. and German rulings, alongside ongoing appeals and other patent challenges; outcomes and costs remain uncertain. It had incurred about $9.0 million in patent-litigation expenses since 2015.
- The filing identified COVID-19 and trade tensions as potential supply-chain, demand and operating risks. It also disclosed environmental and workplace-safety obligations, including a deed restriction and soil-management plan at the East Providence site.
- KPMG issued unqualified opinions on the financial statements and internal control over financial reporting; management reported effective controls and no identified material weaknesses.
Important facts for investors to verify
- Whether 2020 revenue, gross-margin and cash-flow expectations were achieved, particularly given the expected slowdown in subsea and LNG projects.
- Progress and cost to complete the East Providence expansion, and whether capacity utilization and manufacturing yields support profitable growth.
- Silica-precursor pricing and supply, product-cost reduction results, and any effects on product quality or customer qualification.
- Liquidity, covenant compliance, borrowing availability and refinancing or replacement of the revolving facility before its April 2021 maturity.
- Repayment or crediting of BASF prepayments, BASF purchase volumes, and the implications of the associated secured obligation.
- Customer concentration, receivable collection, and developments in the Brazilian recovery and patent litigation matters.
- Commercial milestones, funding needs and customer commitments for building-materials and electric-vehicle initiatives.