Aspen Aerogels, Inc. — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. Unaudited consolidated results. Aspen designs and manufactures aerogel insulation, primarily for energy infrastructure and building-material markets; it is winding down contract research during 2020.
Financial performance and liquidity
Amounts below are in millions of dollars except per-share data, percentages and shipment volumes.
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Total revenue | $24.6 | $29.5 | $53.1 | $57.4 |
| Gross profit / margin | $2.9 / 12% | $3.5 / 12% | $8.8 / 17% | $7.2 / 13% |
| Operating loss | $(5.6) | $(5.2) | $(8.7) | $(11.2) |
| Net loss | $(5.7) | $(5.3) | $(8.9) | $(11.3) |
| Net loss per share | $(0.21) | $(0.22) | $(0.34) | $(0.47) |
| Adjusted EBITDA, non-GAAP | $(2.1) | $(1.7) | $(1.6) | $(4.2) |
- Q2 product revenue was $24.5 million; research-services revenue was $0.1 million. Product shipments fell 13% to 7.3 million square feet, and average selling price declined 2% to $3.35 per square foot.
- For the first half, product shipments decreased 9% to 15.5 million square feet, while average selling price rose 5% to $3.41 per square foot. Product revenue declined 5%; research-services revenue fell 87% to $0.2 million.
- For the six months, operating cash use was $3.2 million, versus $1.9 million in 2019; capital expenditures were $2.0 million. Financing provided $14.9 million, principally reflecting $14.8 million net proceeds from a February stock offering and $3.7 million of PPP loan proceeds, partly offset by revolver repayments and employee tax withholding.
- At June 30, cash and equivalents were $13.4 million, current assets $43.4 million and current liabilities $13.3 million. Property, plant and equipment, net, was $50.1 million; stockholders’ equity was $66.5 million.
- Long-term debt was $3.7 million principal under the PPP loan; the revolving credit facility had no borrowings. Availability under the revolver was $8.9 million after $1.3 million of letters of credit. The facility permits up to $20 million, subject to borrowing-base and covenant conditions, and matures April 28, 2021.
Material changes versus comparable periods
- Q2 revenue declined 17%, driven by lower U.S. petrochemical/refinery maintenance demand and subsea project demand; higher Asian LNG project demand partly offset the decline. Q2 gross profit fell 19%, while gross margin remained about 12%.
- First-half revenue declined 8%, but gross profit rose 22% and margin improved to 17%. Lower product volume and reduced research revenue were partly offset by price increases, favorable product mix, lower-cost formulations, improved yields and lower manufacturing expenses.
- Management attributed the sharp research-services decline to its decision to wind down funded contract research and redirect resources toward existing-business profitability and new products.
Outlook, risks and unusual items
- Management said COVID-19 and global oil-market volatility had negatively affected demand and expected full-year revenue to decline year over year. It also anticipated a year-over-year increase in net loss, lower Adjusted EBITDA and increased cash use from operations. The extent and duration of the effects were uncertain.
- The company reduced wages and discretionary spending, temporarily suspended board fees, deferred certain employer Social Security tax payments, and said it could curtail East Providence operations if needed. Management stated existing cash and expected revolver availability should support current operations, planned expansion and strategic initiatives, while noting additional financing could be needed.
- The company projected it might not meet the revolver’s minimum Adjusted EBITDA covenant for the quarter ending December 31, 2020; it intended to discuss a modification with Silicon Valley Bank and to extend or replace the facility before maturity. It was compliant with covenants at June 30.
- East Providence annual capacity had reached 55 million square feet. The target to reach 60 million square feet, previously expected by end-2020, was delayed to end-2021; implementation of next-generation chemistry and process technologies was also delayed.
- The $3.7 million PPP loan bears 1% interest and matures in 2022, with potential forgiveness subject to eligibility, use-of-funds, staffing and SBA review. No forgiveness application had been filed by June 30. The filing highlights risks of audit, repayment, penalties and reputational harm.
- BASF had provided $10.0 million in prepayments; approximately $0.1 million had been credited by June 30. The related obligation was about $9.9 million. BASF is not obligated to purchase products, and repayment or crediting provisions may apply if amounts remain uncredited under specified dates and terms.
- Legal matters include patent enforcement proceedings and appeals. The company reported July 31, 2020 German court decisions finding Nano infringed two patents, subject to appeal. In a Brazilian collection action involving approximately $2.9 million of past-due invoices, $0.3 million had been recovered and further recovery was considered unlikely following the customer’s judicial reorganization.
- Management reported effective disclosure controls and no material change in internal control over financial reporting. No loss was considered probable requiring accrual for the disclosed litigation matters.
Important facts for investors to verify
- Whether management obtained a covenant amendment or replacement revolver, and the facility’s availability and maturity terms.
- Actual demand, revenue, margin and cash-flow trends as COVID-19 and energy-market conditions evolve, including customer and project concentration.
- PPP loan eligibility, audit outcome and forgiveness or repayment status.
- Progress, spending and timing for the capacity expansion and next-generation process plans.
- BASF prepayment crediting and repayment exposure, including any future purchase commitments or additional prepayments.
- Developments, potential costs and recoveries in the patent cases and Brazilian collection matter.